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Will Climate Commitment Constrain China’s Economic Growth

Jan 19, 2015
  • Qi Ye

    Professor, Tsinghua University

On 12 November 2014, President Xi Jinping held formal talks with visiting U.S. President Barack Obama and later they signed a surprising and inspiring China-U.S. joint statement on climate response and clean energy cooperation. By around 2030, according to this statement, China’s carbon dioxide emissions are expected to peak, and the proportion of clean energy in its primary energy consumption will increase by 20%. Though this is not yet a formal commitment, it should be regarded as a major step toward that goal and an ambitious plan. People may ask if this goal can be reached and if the commitment will constrain China’s economic growth.

Such concern is justifiable, as this is a fairly aggressive objective which moves up the peak time by 5 to 10 years. And whether climate response affects economic growth is not a new topic. President George W. Bush pulled the U.S. out of the Kyoto Protocol right after he took office as president, precisely because he was concerned about the economic implications of climate response.

There is indeed a close link between carbon emissions, energy consumption and economic growth. In this industrial age, carbon emissions are the sum of carbon dioxide emissions mainly caused by the use of fossil fuel. Generally speaking, the carbon emissions of an economy are proportionate to the level of its economic development, hence the higher per capita carbon emissions of developed countries than developing ones. Take China for example. In 1980 when its reform and opening-up program was launched, its per capita carbon emissions were 1.47 tons, which more than quadrupled 32 years later, standing at 5.52 tons in 2012. In the same period, China’s GDP almost registered a 20-fold growth, increasing by about 10% annually. This speaks to the close connection between China’s fast economic growth and the surge of its carbon emissions. If China’s carbon emissions are to peak in 2030, its economic growth will have to slow down.

The relationship between economic growth and carbon emissions often relies on two factors. One is energy intensity, or energy consumption per unit of GDP growth; the other is carbon density, or carbon dioxide emissions per unit of energy consumption. The carbon emissions of a country are therefore determined by its GDP, energy intensity and carbon density. Changes of any of these factors will affect carbon emissions. For instance, the sharp drop of China’s energy intensity in recent years has put a brake on the increase of its carbon emissions, and the U.S. shale gas revolution, which uses natural gas to replace coal for electricity generation, has significantly reduced the U.S. carbon density and greenhouse gas emissions. In a sense, the changing rate of carbon emissions can be roughly counted as the sum of the changing rates of GDP aggregate, energy intensity and carbon density.

If China’s carbon emissions are to peak in 2030 as indicated in the Sino-American joint statement, its GDP growth rate must somewhat match the combined reduction rate of its energy intensity and carbon density. In other words, carbon emission increases generated by its economic growth has to be offset by the benefit of higher energy efficiency and use of low-carbon energy. Faster growth of energy efficiency and low-carbon energy use will open up a greater prospect for China’s GDP growth. In this sense, the carbon emission peak in 2030 will pose as a constraint on the speed and quality of China’s economic development.

To what extent will this new climate commitment affect China’s growth?

History in other countries shows that the combined reduction rate of a country’s energy intensity and carbon density is usually less than 5 percent. Since the Chinese government is firmly committed to meeting its carbon emission target for 2030, it should be already expected that China’s growth rate will not exceed 5 percent in 15 years.

In 2012, the World Bank and the Development Research Center of the State Council of China released China 2030, a report on China’s economic outlook, following a two-year-long joint study and research of the Chinese economy. The report predicted that China’s economic growth will drop from the current 7% to around 5% in 2030. This rate coincides with what is required if China’s carbon emissions are to peak in 2030. Some economists estimate that the Chinese economy will maintain its 7% to 8% high growth in the coming two decades. This might be pertinent economically, but if we factor in China’s climate commitment, such a fast growth rate would almost be impossible.

Now we have a clear answer to the question we raised earlier. Will China’s carbon emissions peak in 2030? The answer is yes, but with conditions. An important prerequisite is that its economic growth must not exceed 5%. In short, for China as a whole, climate commitment may constrain China’s economic growth rate, but not necessarily growth itself.. And the impact of energy conservation and reduction of carbon emissions in various regions and provinces in China will probably be determined by their varied conditions, especially their levels of economic development.

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