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China Goes ‘Green’ – Collecting the Pot at the Climate Policy Poker Table

By Donald Hertzmark -- September 2, 2009

In two previous posts, “Green” China and CO2 Cap-and-Trade Meets the (China) Dragon, I described China’s rising greenhouse gas (GHG) emissions as a “one-country negation” to the Waxman-Markey climate bill (HR 2454). “The expected growth of coal-fired generation in China over the next 20 years will result in a net increase in CO2 emissions from their power sector of more than ten times that of reduced U.S. emissions due to coal constraints,” I concluded.

This is good, not bad, insofar as dung and wood are terrible things to burn. Moreover, China has now committed to using better combustion technology in its power sector, including more coal gasification and high pressure (supercritical) coal-fired thermal power plants. To top things off, China has apparently committed itself to substantial growth in its renewable energy output by 2020.

This is generally to the good, and represents four key influences on Chinese energy and environment policies:

  1. The market – if you have to pay world prices for fuel you can no longer afford to waste it using poor technology;
  2. It is good diplomacy to be seen as “progressive” on the subject of climate change (and it takes trade sanctions off the table);
  3. There is probably a good market in all the Kyoto/Copenhagen adopter countries for lower cost (i.e., Chinese) solar, wind and CO2 capture technologies (why should “green tech” be any different from toys, clothes and electronics?); and
  4. The people of China – better coal combustion technology will improve air quality in China’s urban areas (that’s real pollution, the kind that politicians are rewarded for reducing).

In the end China’s output of greenhouse gases (GHG), mostly CO2, will continue to rise at a rate that is well above any decreases in the US or the EU. In fact, we looked at the actual output of CO2 from this aggressive plan and found that, even with complete adoption of high efficiency technology for all coal fired power plants completed after 2015, China’s increase in CO2 from power generation would be more than fifteen times the expected reduction in US CO2 output.

Even without the wholesale transfer of US manufacturing industry to China, (called “leakage“) under a stringent U.S. carbon-dioxide régime, the putative positive climate impacts of such unilateral U.S. actions as Waxman-Markey fall into the realm of mere symbolic measures.

When Did Copenhagen Become the Poker Capital of the World?

A lot of the talk surrounding the upcoming Copenhagen conference (actually the UN Climate Change Conference) in December 2009 has turned toward the U.S. and China positions that will be put forward. The EU is already committed to specified CO2 reduction targets, Brazil and India have told everyone that this is not their issue, and most other developing countries hope to get a piece of the carbon “offset” investment (and maybe a security interest in one of Al Gore’s houses) without any commitment to reducing energy use.

So, Copenhagen comes down to a two-person poker game, at least that is how it is portrayed in the press (see here, here, here and here). The other parties have pretty much put their positions on the table and will negotiate over relatively minor points. But the main show at Copenhagen will center around what China and the US will put forward, what they will accept and what they will demand of others as conditions for an agreement.

The poker game analogy comes, I suppose, from the idea that one of the two main parties will throw in his hand after discovering that the other side has not only a strong hand in the show cards (publicly announced measures), but also a couple of aces face down (concessions on key public relations points or the ability to threaten to ruin the party).

What Are the Show Cards?

A PR moment from China: The Chinese government recently announced its intent to raise the energy efficiency of its economy (GJ/$GDP) by 20%, invest something like $586 billion in renewable energy technologies, improve the power grid and other infrastructure by 2020, and phase out its older, less efficient coal-fired power plants with newer models, including supercritical (higher pressure boiler) technologies. The Chinese program for coal technology looks especially strong, especially in light of the inability of the US to mount any credible permitting process for coal-fired plants, high technology or not.

Importantly and correctly, replacement of older, dirtier coal-fired power plants in China is considered progress. As the New York Times notes, “The most efficient [new] plants achieve an efficiency as high as 44 percent, meaning they can cut global warming emissions by more than a third compared with the weakest plants.” But after noting that China’s new plants are more efficient than those in the U.S. (not true, by the way), the Times article concedes: “The average efficiency of American coal-fired plants is still higher than the average efficiency of Chinese power plants.”

Most of the Chinese renewable plan consists of investments in things that a rapidly developing country should be doing anyways – investing in a stronger electricity grid, improved efficiency in industry, more LNG import facilities – plus about $100 billion or so over the next ten years in solar and wind.

Skillfully adapting part of the vocabulary of the U.S. Health Policy Debate, China promises to “bend the curve” of its GHG emissions trajectory. They promise that out there, sometime after 2030, when they’re rich, they will get really serious about GHG limitations, seriously. The show cards are just a teaser for the major commitment of resources to GHG reduction.

Maybe the Obama People Really Do Hate Las Vegas: The Obama negotiators probably cannot hone their poker sills in Las Vegas, or even Atlantic City, given the attitude of the administration toward such showy destinations these days (they play bridge on the Vineyard). In contrast to the Chinese public commitment and the talk of “bending the curve” the US has nothing specific on the table, mostly because our government cannot just order up some showy investments and announce a policy change. We have markets to perform most of the resource allocation measures that are talked about in climate policy circles and we cannot just order firms to make specific investments, at least not yet. Our markets are not even convinced about the “whether” of global warming, much less the “when” of the policy and investment measures. In addition, our current policy paralysis on power sector investments, especially in coal and nukes, will leave the default option for the US, more electricity from natural gas, a GHG-friendly one, resulting in a net reduction of GHG from the power sector. Such “paralysis” has allowed the US to achieve growth in CO2 emissions since 1997 at a slower rate than most EU members.

The U.S. will not get any kudos from the international community for falling back on its abundant supplies of natural gas as the primary source for new power generation. Markets get no respect from the climate crowd (except for Bjorn Lomborg, and a few others).

And the Hold Cards?

U.S.: After the Bush years, when even Jihadi terrorism was attributed to our Kyoto policies, the U.S. probably does not have a “walk-away” card face down, and the face up cards do not amount to more than a pair. What else could be on the table: A promise to further annoy U.S. industry with more stringent EPA regulation of energy use? Offshore windfarms? A threat that we will enact punitive “carbon” tariffs to punish India and China? Withhold carbon capture and storage technology from the rest of the world?

None of this looks terribly promising, and could lead to real problems in our bilateral relations with India and China, to say nothing of the implicit threat of a trade war or dollar dumping in retaliation.

China: Because China has put something solid on the table (call it a flush), they have some credibility for their hold cards. What could they be: Walk away and do it on our own schedule (that is actually the country’s policy)? Obtain technology from the West on nuclear power, plus investment and subsidies for nuclear plant construction? Preferential access to natural gas? Dumping dollars (already being done to some extent)?

The international community is invested in a successful outcome – meaning China signs on to something. China will sign on to something.

Cut Out the Poker Analogies – If Carbon is a Problem, Tax It!

As many of the posts on this site have shown, climate change legislation in the U.S. offers little gain for a lot of cost. The U.S. has been more successful than the EU, even in the absence of climate change legislation, in reducing the growth of CO2 emissions. We have done this because the U.S. still has (sort of) functioning energy markets, especially for primary fuels, something mostly lacking almost everywhere else in the world.

This is a feature of the U.S. system not a bug, and submitting to climate blackmail in Copenhagen will require further government controls over this segment of the U.S. economy, reducing investment, dynamism and stretching out response times as ever-more permits will be required.

In the view of the anthropogenic global warming (AGW) enthusiasts, a promise from an authoritarian government to allocate resources in a certain manner is far preferable to the messy workings of a market even if that market can be far more effective (and conducive to liberty) given appropriate incentives.

The Chinese show cards promise little real reduction in CO2 emissions. By 2020 renewables will account for 5% or less of electricity generation in China, less than the US. If the Julian Simon thesis of increasing sustainability of hydrocarbon energy use continues to prove valid, then China’s adoption of improved coal combustion technologies will make them more likely to move further in the direction of coal use, for power generation, not less. After all, their fuel costs will fall if less coal is burned per kWh.

If global warming were a real problem caused by hydrocarbon use, and the cost of correction was less than the demonstable climate gains from government policy, then the carbon part should be taxed. Otherwise, we will face a global version of the Waxman-Markey rent-seeking legislation, a major ratcheting up of regulation, corruption, and resource misallocation at a time when we can scarcely afford it.

The market is the real U.S. hold card. Do we have the guts to play it?

One Comment for “China Goes ‘Green’ – Collecting the Pot at the Climate Policy Poker Table”

  1. Steve C.  

    Short answer: NO

    We are not even playing the same game as the Chinese. Our actions are driven by symbolism over substance. A desire to be seen, in contrast to the icky Bush years, as a partner for a green future.

    It makes one pine for the Clinton years. At least you could assume that regardless of what Clinton said, his calculations was always based on a rational analysis of economics and political popularity. Happily employed voters gave him license to pursue center left political goals.

    The current President promised all gain and no pain. A sort of continental Lake Woebegone. All the men are tall, all the women are good looking and all the above average children look forward to a future of socially useful green jobs done in an environmentally sensitive manner in between stints tutoring at the local homeless shelter.


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