climate change policy law and in china

Electronic copy available at: http://ssrn.com/abstract=2498242

DRAFT DO NOT CITE OR QUOTE WITHOUT PERMISSION

.

CLIMATE CHANGE POLICY AND LAW IN

CHINA

.

Alex L. Wangi

1. Introduction 2. Background 3. Policy and Law on the Books 4. Challenges in Practice 5. Conclusion

1. INTRODUCTION ............................................................................................................................................................

THE extraordinary growth of greenhouse gas emissions in China represents the single greatest

challenge to global climate change efforts in coming decades. China is the worlds leading emitter of greenhouse gases, having surpassed the United States in 2006 (Olivier, et al., 2012).

Chinas greenhouse gas emissions accounted for nearly a third (29 percent) of the global total in 2011, slightly more than emissions of the United States and the European Union combined (27

percent).ii This state of affairs is the result of more than three decades of energy-intensive, coal-

fired economic growth, wherein Chinas GDP grew by an average of 10 percent a year.iii And, while emissions in the developed world are steady or declining, Chinas greenhouse

gas emissions are expected to account for half of the global growth in energy-related carbon

dioxide emissions between now and 2030 (IEA, 2012). Without significant contribution from

China, efforts to find a solution to global climate change are unlikely to succeed.

Perhaps recognizing the urgency of the matter, Chinese leaders have begun to implement

a range of policies and laws aimed at improving the energy and carbon intensityiv

(though not

absolute emissions) of its economy.v These moves were initially motivated by non-climate

objectives such as economic development, energy security, social stability, and international

reputation, but, since 2007 Chinese leaders have framed their actions explicitly as part of a

comprehensive national climate change program.

Chinas climate change program is designed to address the primary sources of greenhouse gas emissions: fuel combustion and, to a lesser extent, industrial processes and land

Electronic copy available at: http://ssrn.com/abstract=2498242


use changes.vi

The program attempts to address these sources primarily through (1) reduced

reliance on energy-intensive heavy industry; (2) greater energy efficiency and conservation; (3)

increased use of non-fossil energy and less carbon-intensive fossil fuels; and (4) expansion of

carbon sinks (e.g., through afforestation).

Chinas regulatory approach relies heavily on top-down, command-and-control regulation, built around bureaucratic targets and controls for local officials and state-owned

enterprise leaders. This top-down control is nonetheless coupled with extensive leeway for local

experimentation and flexibility in implementation. More recently, leaders have pressed for

greater utilization of market measures and, to a more modest extent, transparency and public

supervision.

This chapter offers an overview of Chinas developing climate change response by examining the framework on the books and significant implementation challenges in practice.

First, it offers background on Chinas contribution to global climate change and its positions in international climate negotiations. Second, it describes Chinas formal framework of climate change-related laws and policies. This body of authorities has expanded significantly since the

beginning of Chinas 11th five-year plan in 2006.vii This part also describes the preliminary results as reported by official and third party sources.

viii Finally, this chapter concludes by

discussing several dynamics that will influence the efficacy of Chinas climate change efforts in practice. These include the evolution of various co-benefits (i.e., economic growth, pollution

reduction, social stability, and enhancement of international reputation) and their impact on

Chinas cost-benefit calculation for climate change action; the extent to which implementation problems can be resolved; and whether Chinas still developing interior regions continue to be the locus of carbon outsourcing (from wealthier coastal regions of China) or instead shift toward

a low-carbon growth path.

2. BACKGROUND ............................................................................................................................................................

2.1 Chinas Climate Change Contribution

China is the worlds largest emitter of greenhouse gases and the largest consumer of energy (Olivier, et al., 2012; Swartz, 2010). This marks a dramatic change over thirty years, as

rapid economic growth has resulted in a six-fold increase in energy consumption.ix

Chinas energy mix is fossil fuel-intensive, with coal supplying nearly 70 percent of total energy.

x This

increase in carbon intensive energy use has led to a several-fold increase in greenhouse gas

emissions.xi

Put another way, in 2011, China accounted for 10 percent of global gross domestic

product (GDP),xii

but used 21 percent of the worlds energyxiii and emitted 29 percent of the global carbon dioxide emissions.

Chinas energy use and greenhouse gas emissions would be even greater if not for significant energy intensity improvements. In large part as a result of the introduction of market

reforms and the upgrade of Chinas industrial facilities, [b]y 2000, Chinese economic activity required two-thirds less energy per unit of output than in 1978 (Bergsten, 2008). Whereas Chinas real GDP grew by more than six times between 1980 and 2000, energy use only slightly more than doubled in the same period (DOA, 2013).

But, from 2002-2005, China encountered an investment-led energy surprise when energy consumption increased more quickly than GDP growth, largely due to expanded


investment in energy-intensive industries, such as cement and steel (Bergsten, 2008). This shift

reversed the two-decade long trend of year-over-year energy efficiency improvements. While the

trend toward greater energy efficiency resumed in the 11th

five-year plan as the result of a

number of efforts discussed below, continued rapid economic growth has caused absolute energy

use and greenhouse gas emissions to rise sharply nonetheless.

2.2 Chinas Evolving Role in International Climate Change Negotiations

As its greenhouse gas emissions have increased, Chinese leaders have publicly

acknowledged that China must play a central role in any solution to the challenge of climate

change. But there is deep disagreement between China and other countries about the appropriate

relative allocation of responsibilities among nations (Clark, 2011; Pan, 2008; Harris, 2003).

Chinas official position in international climate negotiations has remained relatively unchanged over the last two decades, with a continued focus on state sovereignty, Third World-First World inequity, and the responsibility of the advanced industrialized states (Economy, 1997; Bailey, 2013). In particular, China has declared its need for economic development, the

greater historical responsibility of developed countries with respect to cumulative emissions,xiv

its lower per capita emissions, and the balance of emissions embodied in trade to argue against

emission limits for developing countries and in favour of north-south monetary and technology

transfers (Rogers et al, 2011; Pan, et al., 2008; Brahic, 2008). Indeed, as Chinese negotiators

often emphasize, this notion that developed nations should bear a greater burden for responding

to climate change was formally embedded in the 1992 UN Framework Convention on Climate

Change (UNFCCC) and ratified by 195 countries - as the principle of common but differentiated responsibilities.xv

Nonetheless, given Chinas rapidly increasing contribution to greenhouse gas emissions and its surging economic growth, the United States and other countries have argued that China

(and other large emerging economies) should take on greater responsibilities commensurate with

the magnitude of their greenhouse gas emissions, growing wealth, and capacity to address the

problem. Indeed, as of 2011, Chinas per capita emissions had increased to a level on par with the European Union and within the range of major industrialized countries.

xvi

Chinas engagement in the international climate change negotiations can be divided, roughly speaking, into three phases: (i) a learning phase from 1989 to 1995; (ii) a shift toward more active participation between 1995 and 2007; and (iii) more comprehensive engagement on

climate change domestically and internationally around the time of the UN Climate Conference

in Bali in 2007 (Xu and Zhang, 2013).

According to Zou Ji, a Chinese climate official and researcher, from 1989 to 1995,

China learned about climate change[,] started to participate in international discussions[, and] mainly went along with the global process (Xu and Zhang, 2013). Nonetheless, China still actively intervened on certain key issues, such as differentiated responsibilities for developing

countries, in the early international negotiations that led to the UNFCCC at the Rio Earth

Summit in 1992 (Zang, 2009).

The relatively low domestic priority of climate change in China at the time was reflected

in the internal allocation of responsibilities for the climate change negotiations. Chinas early participation in climate change negotiations was formally led by less powerful agencies with a

scientific or environmental (rather than economic) focus (Zang, 2009; Lewis, 2007-08). For


example, the State Meteorological Administration was tasked with coordinating Chinas involvement with the Intergovernmental Panel on Climate Change (IPCC), and the State Science

& Technology Commission led the domestic National Climate Change Coordination Group,

created in 1990.xvii

In practice, though, the development-oriented agencies, such as the State

Planning Commission, Chinas lead economic planning agency, and the Ministry of Energy, still dictated the key Chinese negotiation positions in the meetings leading to the UNFCCC and the

Kyoto Protocol (Hatch, 2003).

The second phase of climate engagement from 1995 to 2007 was marked by growing

engagement and a gradual elevation of climate change as a policy priority. China actively

participated in the negotiations that led to the 1997 Kyoto Protocol, and was designated a non-

Annex I country without binding emissions reduction targets under that agreement. The creation

of the high-level National Climate Change Countermeasures Coordination Group in 1998, led by

the powerful State Development and Planning Commission (SDPC),xviii

reflected the increasing

policy priority of climate change. An alternative view is that this institutional elevation of

climate change was not primarily an attempt to strengthen state capacity to address climate

change, but rather an effort merely to signal to external and domestic observers alike Chinas increased concern with climate change. Another view is that the elevation of climate change

reflected concern about the potential constraints climate change policy might place on economic

growth. Thus, the elevation could be seen as a defensive move to ensure that climate change

policy would not unduly hinder economic growth. The institutionalization of the SDPCs leading role in climate change in 1998 formalized what had always been an implicit development focus

in Chinas climate change positions. The third phase of climate engagement - beginning around 2006-07 - was marked by a

more comprehensive approach to climate engagement. This included the release of the first

national climate change program and the establishment of the National Leading Group on

Climate Change in 2007,xix

led by the Premier of Chinas State Council. This Premier-led National Leading Group signalled a further elevation of the policy priority of climate change

within the Chinese bureaucracy.xx

3. POLICY AND LAW ON THE BOOKS ............................................................................................................................................................

Since the beginning of its 11th

five-year plan (2006-2011), China has developed an

extensive policy and law framework on the books for addressing climate change. Official reports

and third party analysis suggest that these efforts have helped China to avoid of billions of tons

of greenhouse gas emissions. At the same time, extraordinary continued growth in Chinas emissions put international goals for climate change mitigation at serious risk. This section will

describe the basic contours of Chinas framework, and preliminary results based on official and third party reports.

In 2007, six months before the 13th

Conference of Parties to the UNFCCC in Bali,

Chinese authorities announced for the first time a comprehensive National Climate Change

Program.xxi

The report did not establish new policy, but rather presented a range of existing

policies created earlier to address other energy and environmental issues. Nonetheless, this

marked the first time that China had formally framed these policies collectively as a climate

change program.


Chinas National Climate Change Program focused on four central goals related to emissions mitigation: (i) adjusting the industrial structure, (ii) improving energy efficiency and

reducing energy consumption, (iii) optimizing Chinas energy structure through the use of renewables and less carbon-intensive fossil fuels, and (iv) expanding carbon sinks.

xxii The 2007

climate program (but not later editions) also listed Chinas family planning efforts as a major climate initiative, noting that the approximately 300 million averted births from the one-child

policy were equivalent to 1.3 billion tons of avoided CO2 emissions reductions in 2005. While

the main objectives in Chinas national climate change program have not changed since the 2007 program, the number of implementation initiatives has increased significantly.

xxiii

With respect to the choice of regulatory tools, policymakers have largely relied on

administrative measures (xingzheng shouduan). These include a range of command-and-control approaches organized around bureaucratic targets for carbon and energy intensity

improvements and pollution emissions reduction. More recently, Chinese authorities have

emphasized the need for market measures, and begun to implement subsidies, tax reform, and

pilot experiments with carbon trading.

3.1 Targets

At the heart of Chinas climate change program is a set of quantitative targets, including carbon intensity, energy intensity, non-fossil energy, and afforestation targets. Like quarterly

earnings targets in a publicly traded corporation, these bureaucratic targets, created as part of the

five-year state planning process, become the focal point of leadership efforts and are supported

by a suite of laws, policies, and fiscal incentives. In theory, promotions, bonuses and other

rewards or punishments for local government officials are closely tied to target performance.xxiv

Economic growth, social stability, and one-child policy targets have been the most important

targets.

In 2006, however, Chinas central authorities elevated certain environmental and energy efficiency targets at least on paper - to the highest level of state priority.xxv Specifically, the plan established a target to reduce the energy intensity of the economy by 20 percent, and targets

to reduce absolute emissions of two key pollutants, sulphur dioxide for air and chemical oxygen

demand for water, by 10 percent.xxvi

Previous five-year plans contained energy efficiency and

environmental targets, but they had always been lower priority non-binding targets. Also, in past

years, environmental targets were typically the responsibility of the specialized agencies. In

contrast, now the leading cadres the most senior officials at each level of government would be personally responsible for environmental target achievement.

Extending this approach, in 2009, China expanded its national targets to encompass

climate-specific targets. A month before the Copenhagen climate change negotiations, President

Hu Jintao announced at the United Nations in New York that China would implement targets to

reduce carbon intensity by 40-45 percent from 2005 levels by 2020, increase the percentage of

non-fossil energy in Chinas energy mix to 15 percent by 2020, and increase the afforestation rate to 21.66 percent (State Forestry Administration, 2011). These targets were subsequently

incorporated into Chinas 12th five-year plan (2011-15). The key 12th five-year plan targets included a 17 percent reduction in carbon intensity, a 16 percent reduction in energy intensity,

and a non-fossil energy target of 11.4 percent of total energy use by 2015.xxvii


Climate Change-Related Five-Year Plan Targets

Target 11th

FYP

(target)

11th

FYP

(reported)

12th

FYP

(target)

Energy Intensity -20% -19.1% -16%

Carbon Intensity - - -17%

Non-Fossil Energy 10% 9.6% 11.4%

Afforestation Rate 20% 20.36% 21.66%

Pollution Reduction

Sulfur dioxide -10% -14.29% -8%

COD -10% -12.45% -8%

Nitrogen oxides - - -10%

Ammonia nitrate - - -10%

These efforts resulted in a reported energy intensity reduction of 19.1 percent during the

11th

five-year plan, nearly meeting the target. Only interim performance figures have been

released for the 12th

five-year plan targets.xxviii

In 2013, officials announced air quality targets

and associated targets for absolute reductions in coal use in parts of the country (State Council,

2013b; MEP, et al., 2013; Guangdong EPB, et al., 2013; Stanway & Edwards, 2013; Stanway,

2013).

3.2 Policies and Laws

Central and local authorities have established an extensive framework of policies, laws,

regulations, and financial incentives for each of these targets.

A. Adjusting the Industrial Structure

A central component of Chinas climate program is the restructuring of the economy to reduce reliance on inefficient heavy industry and exports. The main approaches to achieving this

are campaigns to shutdown small-scale, inefficient industrial facilities, and the promotion of low-

carbon industries, such as services, green industries, and high-tech.

Shutdowns

During the 11th

five-year plan, for example, Chinas State Council announced a policy colloquially known as Implement the Big, Crush the Small (shangda, yaxiao) - aimed at shutting down 50 gigawatts of inefficient power plants, and other backwards facilities (luohou channeng) (State Council, 2007). 72.1 gigawatts were reportedly closed, surpassing the original

target (Wen, 2011). Environmental regulators supported this effort by limiting the further

construction of heavily polluting, energy intensive industrial facilities. The policy was intended


to accelerate energy efficiency improvements and pollution reduction through rapid shutdown of

backwards facilities and construction of larger, more efficient facilities.

In the 12th

five-year plan, the campaign to shutdown backward production capacity has continued. In 2011 alone, China shut down small thermal power generating units with a total generating capacity of 8 million kw and millions of tons of obsolete production capacity in iron smelting, steel, cement, coking, plate glass, paper, electrolytic aluminium, copper smelting,

lead smelting, and coal production (NDRC 2012a; USCBC, 2013).

Strategic Emerging Industries

Another way in which Chinese authorities are attempting to promote economic

transformation is through high-level support of seven low-carbon industries. Three of these so-

called strategic emerging industries are energy and environmental industries (State Council, 2009, 2010):

Energy efficient and environmental technologies;

New energy (e.g., nuclear, solar, wind, biomass); and

New-energy vehicles (e.g., low emissions, fuel-cell, plug-in hybrid, and pure electric vehicles).

Strategic emerging industries development is led by the powerful National Development

and Reform Commission and its local affiliates. The other four industries next generation information technologies, biotechnology, high-end equipment manufacturing, and new materials

- are high value-added industries that use relatively less energy and generate less pollution (State

Council, 2010, 2012b; NDRC, 2011a, 2013b; MIIT, 2012a, 2012b; MOF and NDRC, 2012).

Strategic emerging industries are supported by quantitative targets and supporting

policies and regulations. These industries are expected to account for 8 percent of GDP by 2015

and 15 percent by 2020 (up from 2 to 4 percent in 2010) (State Council, 2010). Supporting

policies include state funding and other incentives, as well as the elimination of existing market-

entry thresholds (e.g., governing registered capital, total investment, and land supply) that had

created barriers to private company investment (State Council, 2010; Naughton, 2011). Central

leaders are expecting substantial financial support from the provincial governments and private

entities, and have promised no more than 25 percent of the necessary funding (State Council,

2010; USCBC, 2013; MOF and NDRC, 2012). The 12th

five-year plan requires provincial

governments to develop local special funding pools for the strategic emerging industries.

Provinces have already created funds, such as the Jiangsu Special Fund for Software and

Integrated Circuit Industries, the Hubei Special Fund for Major Science and Technology Projects

and the Shanghai Special Fund for the Development of Major Projects of Indigenous Innovation

and High & New Technology Industries (USCBC, 2013).

In practice, policies promoting adjustment of industrial structure have not been effective.

One study found that structural adjustments had a relatively small and fluctuating influence on energy consumption during the 11

th five-year plan in comparison to energy efficiency (Ke,

2012). Efforts to promote structural adjustment continue in Chinas 12th five-year plan.


B. Improving Energy Efficiency

Energy efficiency is another central component of Chinas climate change policy. Central regulators developed new energy efficiency policies in the early 2000s, not to combat

climate change, but to address energy shortages and a dramatic rise in inefficient energy use

(Levine, 2009). The sharp increase in energy intensity in China between 2002 and 2005, in

particular, spurred the inclusion of energy efficiency as a top priority of the 11th

five-year plan.

Two of the most important policy initiatives for energy efficiency were the Top 1,000 Enterprises (qianjia qiye jieneng xingdong) and Ten Key Energy Efficiency Projects (shida zhongdian jieneng gongcheng) programs. The Top 1,000 Enterprises program set efficiency

improvement targets for the most energy intensive facilities in nine top energy-consuming

industrial sub-sectors in China. These nine sub-sectors are (in decreasing order of energy

consumption): iron and steel, petroleum and petrochemicals, chemicals, electric power

generation, nonferrous metals, coal mining, construction materials, textiles, and pulp and paper

(Price, et al, 2010). These thousand or so facilities accounted for a third of national energy usage

(Price, et al., 2010).

The Top 1,000 Enterprises program established targets for provincial officials and state-

owned enterprises. In principle, failure to meet these targets would result in loss of annual

rewards, honorary titles, and, in the worst cases, promotions. In addition to these bureaucratic

sticks, the program established a range of financial carrots, including grants, rewards and rebates for demonstrated energy efficiency improvements, and differentiated energy pricing (i.e.,

higher energy prices for less efficient industries) (Price, et al., 2010). Financial incentives with

negative impacts on energy efficiency, such as tax rebates on energy-intensive products, were

eliminated.

The 10 Key Energy-Efficiency Projects program provided central and local government

financial incentives for a range of upgrades and retrofits, including renovation of coal-fired

industrial boilers, development of district heat and power cogeneration, projects to utilize waste

heat, installation of efficient lighting, and building energy efficiency design and retrofits. The

other five categories were: oil conservation and substitution, motor system energy efficiency,

energy systems optimization, government procurement of energy efficient products, and

monitoring and evaluation systems (NDRC, 2011b; ChinaFAQs, 2009).

According to official Chinese sources, these programs met their targets and collectively

saved an estimated 743 million tons of carbon dioxide equivalent during the 11th

five-year plan

(ChinaFAQs, 2009). In addition, overall energy intensity declined by 20.7 percent from 2006 to

2011, saving 710 million tons of standard coal equivalent.This includes overall efficiency

improvements brought about by the shutdown of smaller, less efficiency power plants and

industrial facilities (State Council 2012a, The country has eliminated small thermal power units with a total generating capacity of 80 million kw, saving more than 60 million tons of raw coal

annually (State Council, 2012a). Independent researchers have noted that these claims are difficult to verify because of limited government information disclosure (Ke, et al., 2012).

Central regulators have expanded these approaches in the 12th

five-year plan. The

successor to the Top 1,000 Enterprises program is the Top 10,000 Enterprises program, which, as

the name suggests, extends the original program to the next tier of energy-consuming facilities.

Regulators have continued the Top 10 Key Energy Efficiency Projects program as well.


C. Optimizing Energy Structure

The third pillar of Chinas National Climate Change Program is the optimization of the national energy structure. This includes three major strategies to reduce the carbon intensity of

Chinas energy use: (i) expansion of non-fossil energy use; (ii) increased use of less carbon-intensive fossil fuels, like natural gas; and (iii) improved efficiency in Chinas traditional fossil fuel-based power infrastructure. Overall, Chinas energy policy is to expand all types of energy resources, while also increasing the relative contribution of natural gas, hydropower, nuclear,

wind, solar, biomass, geothermal, and other forms of energy (State Council, 2012a).

Non-Fossil Fuel Energy

China has established an extensive policy framework for promoting non-fossil energy, which includes traditional renewable energy, such as hydropower, wind, and solar, as well as

nuclear power. In 2012, China was the world leader in total installed renewable energy capacity

(accounting for one-fourth of installed capacity among G-20 nations), and the number one

destination for clean energy investment (Pew Charitable Trusts, 2012).xxix

It ranked first in the

world in hydropower and wind capacity (State Council, 2012a). Renewable energy capacity has

grown at a rate of 23 percent a year on average from 2007 to 2012. This rate of growth places

China fourth behind South Korea, Turkey, and Italy. China has plans to expand its nuclear

power capacity significantly from 12.86 GW to more than 40 GW, which would put China

behind only the U.S., France, and Japan (State Council, 2012a; IAEA, 2013).

China has achieved this rapid growth in non-fossil energy through the establishment of

state planning targets, supported by a range of implementation measures set forth in policies and

laws. Approximately 8 percent of Chinas primary energy consumed is obtained from non-fossil sources. Official targets aim to increase this to 11.4 percent in 2015, and 15 percent in 2020

(NDRC, 2007b; NDRC, 2008; NDRC, 2012c).

2015 Target 2020 Targetxxx

Non-Fossil Energy

Consumption

8.3% (2010) 11.4% 15%

Installed Capacity

Hydropower 230 GW 290 GW

430 GW

Wind 47 GW 100 GW

200 GW

Nuclear 12.86 GW* 40 GW

58 GW

**

Solar PV 6.5 GW

35 GW***

50 GW

State Council, 2012a;

Pew Charitable Trusts, 2012;

China Security News, 2010.

* IAEA, 2013;

** Xinhua, 2013;

*** State Council, 2013a.

Policy measures include a mandatory connection and purchase policy, a national feed-in

tariff system, government investment and concession programs, and other measures (Schuman

and Lin, 2012: 90).


Mandatory Connection and Purchase Policy: The Renewable Energy Law sets forth, among other things, a requirement for grid companies and oil companies to purchase,

respectively, renewable power and liquid bio-fuels (Schuman et al, 2012). Grid

companies are required to obtain, by 2010, 1 percent of total power generation from

non-hydropower renewable power; by 2020, 3 percent (NDRC, 2007b). Grid

companies are required to sign agreements with renewable energy generators to

purchase all electricity produced by these generators (Renewable Energy Law, 2009:

Art. 14).

Feed-in Tariff: The law requires establishment of a feed-in tariff that provides renewable electricity generators a fixed subsidy over and above the wholesale

electricity price for coal-fired power (Renewable Energy Law, 2009: Art. 19, 20;

Schuman et al, 2012).

Cost-Sharing and Other Financial Support: Rules provide for an electricity price surcharge to fund the feed-in tariff and other actions required by law (Renewable

Energy Law, 2009: Art. 21). Local governments are also required to set up renewable

energy funds and offer other forms of fiscal and tax support (Renewable Energy Law,

2009: Art. 24).

Less Carbon Intensive Fossil Fuels & More Efficient Coal Use

Chinas energy policy is also aimed at reducing the carbon intensity of Chinas fossil fuel use through the development of natural gas and more efficient use of coal. Annual output of

shale gas, for example, is expected to increase to 6.5 billion cubic meters by 2015 (State Council,

2012a). National policy also promotes the installation of large-scale coal-fired power plants

based on the most efficient coal-fired power plant technologies (known as supercritical or ultra-

supercritical). As of 2012, China had 40 ultra-supercritical power generating units with capacity

of 1 GW or larger, and large thermal power units with capacity greater than 300 MW accounted

for 74.4 percent of total thermal generating capacity in China (State Council, 2012a). This rapid

construction (at a pace of one a month) of advanced technology coal plants and the continued

policy of shutting down backward and small-scale coal-fired power capacity has caused the overall efficiency of Chinas coal plants to surpass that of the coal-fired power plant fleet in the U.S. (Seligsohn, et al., 2009; Bradsher, 2009).

According to official Chinese sources, non-fossil energy use avoided the equivalent of

600 million tons of carbon dioxide emissions as of 2011 (State Council, 2012a). The policy to

optimize Chinas energy structure is aimed at lowering the carbon intensity of Chinas energy utilization. However, given that the overall percentage of Chinas energy mix from non-fossil energy will remain relatively low for the foreseeable future, it is likely that transition fossil fuels

such as natural gas and more efficient coal technologies will play an important role in Chinas overall climate strategy in the near-term.

D. Increasing Carbon Sinks

Carbon sinks are the fourth major component of Chinas National Climate Change Program. These include afforestation, grassland protection and restoration, and agricultural sink


programs. In the 12th

five-year plan, this includes, among other things, a target to increase the

forest coverage rate to 21.66 percent and to increase forest stock by 600 million cubic meters.

Chinas afforestation level is low compared to other major economies. By comparison, forest cover in the U.S. is 33.3 percent; the E.U., 42 percent; Brazil, 61.2 percent; and Indonesia, 51.7

percent (World Bank, 2013). EU Forests and other wooded land now cover 155 million ha and 21 million ha, respectively, together more than 42 % of EU land area (European Commission, 2013).

Like other components of Chinas climate change program, these initiatives were initially instituted to address more immediate concerns, such as flood prevention, desertification, as well

as loss of cropland and wetlands. For example, China instituted a broad-based ban on logging in

natural forests in 1998 in the wake of major floods on the Yangtze and other major rivers (Illegal

Logging Portal, 2004; FAO, 2001). The increasing prevalence of major sandstorms and

desertification drove afforestation efforts in northern China. However, the afforestation programs

are actually increasing environmental degradation in arid and semiarid regions. The planting of trees unsuitable to these low precipitation regions has resulted in overall tree survival rates of

only 15 percent, reduced vegetation cover, decreased groundwater supplies, and increased wind

erosion of soil (Cao, 2008).

While Chinas National Climate Change Program documents set forth a range of figures regarding the amount of land area involved in these carbon sink initiatives, the program does not

provide estimates of carbon mitigation impact (NDRC, 2013a).

3.3 Carbon Trading Pilot Projects and Other Market

Measures

Chinas 12th five-year plan has emphasized in particular the need to utilize market measures, such as carbon trading and taxes, to improve environmental policy implementation.

Chinas initial experience with carbon trading was through the Clean Development Mechanism (CDM) of the UNFCCC. Pursuant to the UNFCCC and its Kyoto Protocol, Annex I developed

countries can meet their emissions reduction obligations in part by purchasing offset credits

generated in developing countries. China has in past years accounted for nearly half of all CDM-

related certified emissions reductions globally, by developing emissions reduction projects such

as HFC-23 destruction projects, energy efficiency projects, wind and solar installations, and

landfill methane capture systems. As of July 2011, China CDM projects accounted for 45.67

percent of registered projects around the world.

China has subsequently established of a number of climate exchanges between 2008 and 2010, including the Tianjin Climate Exchange, the China Beijing Environment Exchange,

the Shanghai Environment and Energy Exchange, and the Shenzhen Environment Exchange.

These exchanges have handled CDM transactions and Voluntary Emission Reductions. The latter

provide a means by which enterprises can gain experience trading emissions on a voluntary

basis. In July 2012, the NDRC promulgated Interim Measures on Voluntary Greenhouse Gas

Emissions Trading. However, there have been very few voluntary trades to date. The exchanges

have thus far played mainly a public relations role and a capacity building function for the

development of registries, standards, and methodologies (Han, et al., 2012: 18-20).

In 2011, Chinas National Development and Reform Commission, looking to develop experience with the use of market-based programs, announced plans for carbon trading pilots in

seven provinces and cities: Beijing, Tianjin, Shanghai, Chongqing, Hubei, Guangdong, and


Shenzhen (NDRC, 2011c). The goal is to establish the regional trading pilots by 2014 and a

national trading scheme near the end of the 13th

five-year plan, though timelines have shifted

numerous times (Haas, 2013). The seven regional pilots alone would likely cover 800 million to

1 billion tons of carbon emissions. This would make Chinas the second largest GHG cap-and-trade program in the world after the European Unions Emissions Trading System (EU ETS).xxxi

In June 2013, Shenzhen became the first city to launch its carbon emissions trading pilot.

The Shenzhen pilot included 635 industrial and construction companies in 26 sectors, which

composed 31.7 million tons of GHGs or 38 percent of Shenzhens total emissions in 2010 (Hook, 2013). Initial trading has been light and the performance of this experiment remains to be

seen (Haas, 2013). All seven trading pilots commenced operation in 2013 and 2014.

A carbon tax proposal is reportedly under consideration; however, no firm announcement

has been made as to whether or when such a proposal would actually be deployed (Caijing,

2013).

3.4 Low-Carbon Pilot Projects

In 2010, the NDRC established low-carbon pilots in five provinces and eight cities.xxxii

These pilot jurisdictions account for 36 percent of Chinas national gross domestic product (GDP), 31 percent of its energy consumption, 27 percent of its energy-related carbon emissions,

and 27 percent of the nations population (Karlenzig & Zhu, 2010: 5). Another 29 pilots were approved in November 2012.

xxxiii The NDRC has described these projects in very broad terms,

stating that they will address greenhouse gas accounting, low-carbon development planning, industrial and economic policy, government official training, communications and international

cooperation. (Karlenzig and Zhu, 2011: 5; NDRC, 2010; Baeumler, et al.: 39-45). These low-carbon pilot projects, as a policy matter, are an effort to generate local experience to support the

achievement of national targets. As of February 2011, 230 cities at or above the prefecture level

were proposed to be eco-cities. In addition, nearly half of these cities (133 or 46.3 percent) have established climate-related low-carbon city targets. These pilot designations have led to the development of low-carbon planning documents with specific targets for carbon intensity, energy intensity, new energy development and forestry cover. For example, Baoding City in Hebei Province established a target to reduce carbon intensity by 35 percent by 2020 (compared

to 2010) and increase new energy to 25 percent of industrial output value.

However, despite this volume of activity, an evaluation of low-carbon eco-city

development in China concluded: it remains unclear what defines a low-carbon eco-city (Zhou, et al., 2012). Jiang Kejun, a senior Chinese researcher, has said that [t]hese so-called low-carbon cities are actually high-carbon and suggested that the pilots have been disastrous (Liu, 2010).

3.5 A Climate Change Law?

Alongside the proliferation of discrete energy and climate related plans, policies and

projects, Chinas National Development and Reform Commission is leading an effort to draft national climate change legislation. The content of the law remains to be determined, but NDRC

Vice-Chairman Xie Zhenhua has noted that it will incorporate the experience gained from

ongoing emissions trading pilot projects (Bloomberg, 2013). Thus far, however, Chinas climate change program has not relied on legislative authorization. A substantial program has emerged


through the state planning process and related targets and policy documents. It is unclear what

function legislation would serve that is not already served by state planning documents and their

related targets, policies and regulations. Legislation could serve to memorialize chosen

allocations of authority and regulatory mechanisms in a more permanent way, and the legislative

process could at a minimum provide another forum for competing interests to negotiate Chinas climate policy.

4. CHALLENGES IN PRACTICE

Laws and policies on the books are one thing, but implementation is, of course, another.

As the Chinese saying goes, the heavens are high, and the emperor is far away. This part focuses on three dynamics in the domestic context that will affect the implementation of Chinas climate change framework in practice. First, the value that various levels of the Chinese state

place on a range of climate change co-benefits (such as developing a low-carbon economy,

improving environmental quality and public health, maintaining social stability, and building

Chinas international reputation) will in large part determine the level of political will available for China to sustain and deepen its climate change program. Second, principal-agent problems of

policy implementation, caused by political, institutional, public choice, and capacity issues, are

rampant in China. The degree to which these problems can be resolved will be critical to the

success of Chinas climate program. Finally, the impact of Chinas regional economic disparities has not been sufficiently appreciated. The path China chooses for the development of its poorer

interior regions i.e., whether it continues to replicate past models of pollute first, remediate later or, instead, pushes forward with a low-carbon pathway supported by Chinas more developed regions will have enormous implications for Chinas overall carbon pathway in the future.

4.1 Evolving Climate Change Co-Benefits

Domestic and international pressures largely unrelated to climate change have been the

primary motivators of Chinas engagement with climate change to date.xxxiv Nonetheless, these pressures have compelled China to take actions on energy and environment that, if official data

are to be believed, are playing a role in reducing the growth rate of Chinas climate change emissions. The co-benefits in each of these areas help to explain Chinas unilateral moves to develop an extensive national climate change program in the first instance, despite the lack of

binding obligations at the international level for China (Weiner, 2008; Wang, 2013).

Key among motivating factors are: energy security and the reversal of energy efficiency

trends; leadership concerns about the continued viability of an economic model based on

investment in heavy industry; and increased leadership awareness of the economic costs and the

potential for social unrest associated with environmental degradation. On the international stage,

climate change actions may be part of a broader campaign to increase Chinas soft power. Leadership attitudes towards these factors are not static though, and the Chinese political

will to engage in and deepen climate change actions will be affected to a large degree by future

developments in each of these areas.


A. Economic Transformation

In public statements, Chinese officials have expressed concern about the durability of

Chinas three-decades long economic miracle. This has been the stated justification for policies to transform Chinas model of economic growth from an export- and industry-based economy to a consumption-based, services-oriented model (Balme, 2012). The result of such a

shift in economic structure would be a less energy-intensive model of growth. The effort at

economic transformation is an ongoing one, and experts hold sharply divergent views on the

ability of Chinas economy to shift in this way. This chapter will not attempt to predict whetherthese efforts will succeed. The point is that the success of this shift and the speed at

which it occurs will have a significant impact on Chinas climate change program. An economic slowdown could lead to a loosening of Chinese commitments to energy

efficiency, renewables, and lower carbon intensity and a clinging to old familiar ways of doing

business i.e., heavy industry and investment-led growth. Concerns about unrest due to insufficient jobs and worsening economic well-being create pressure in this direction. But a

downturn could just as plausibly lead to further efforts to stimulate the development of low-

carbon industries and technologies, which generate GDP, mitigate energy security problems, and

create jobs.

Another area of uncertainty is the extent to which vested economic and political interests

will resist the proposed economic transformation. In some regards, carbon-intensive economic

interests are aligned with the interests of the climate program. The national power companies, for

example, have been heavy investors in Chinas renewables sector. Similarly, state oil concerns are investing in shale gas. But powerful, largely state-owned, economic interests in the carbon-

intensive industries such as steel, cement, and chemicals - may also see the shift in economic structure as a destabilizing reorganization of economic power, or even an existential threat.

B. Environmental Quality

Another significant co-benefit of climate mitigation is the reduction of traditional air

pollution. Thus, unlike in developed nations where the costs of responding to climate change are

being assessed at a time when traditional pollution problems have already been mitigated to a

large degree, in China, the cost-benefit balance is altered by the opportunity for a given

investment to provide both climate mitigation and pollution and health co-benefits.

Since the 1990s, various studies have attempted to quantify the costs of air pollution health and otherwise in China and found them to be substantial (Ho and Nielsen, 2007; World Bank, 1997). For example, a 2007 study by the World Bank and Chinas Ministry of Environmental Protection found that the combined health and non-health cost of outdoor air and water pollution for Chinas economy comes to around $100 billion a year (or about 5.8% of the countrys GDP [at the time]) (World Bank, 2007). Outdoor air pollution was the cause of approximately 1.2 million premature deaths in China in 2010 (Wong, 2013a). Current climate

change policies, which include plans to shut down outdated power plants, improve energy

efficiency through substitution of heavy industry, and increased reliance on renewable energy

have the potential to mitigate these environmental and health costs as well. Indeed, Chinas 2013 national Air Pollution Action Plan, issued in the wake of emergency levels of air pollution in

many regions of the country, contains measures that in significant part overlap with key elements


of the National Climate Change Program, such as low-carbon economic transformation,

promotion of non-fossil energy, and energy efficiency (MEP, et al., 2013).

The more immediate costs of air pollution, including the very visible nature of the

emergency-levels of air pollution in China today, offer an immediate impetus for air quality

measures that have significant climate change mitigation benefits as well. Air pollution concerns

have led to additional measures with significant air pollution and climate change benefits. The

most important examples of this are planned absolute caps on coal use in several provinces

(Beijing, Tianjin, Hebei, Shandong, and Guangdong), established as part of the 2013 Air

Pollution Action Plan. Nonetheless, some measures designed to improve air quality actually

increase climate change emissions. For example, Chinas more than 40 planned projects to produce natural gas from coal will provide eastern urban areas with much needed cleaner-

burning natural gas (Yang, 2013). This would have air pollution benefits in eastern urban areas

that use the gas; however, the process of converting coal to gas is itself extremely carbon

intensive, producing greenhouse gas emissions seven times greater than conventional natural gas.

Thus, the urgency of air pollution prevention in China could prove a boon to Chinas climate change program, creating near-term political will for aggressive implementation. But, if

carbon impacts are not properly considered, air pollution action could also lead to significant

increases in climate change emissions.

C. Social Stability

Heavy air pollution from power plants and other industrial facilities has triggered social

unrest and strong public dissatisfaction in China. Protests in Guangdong province against a

proposed coal-fired power plant, major protests in Xiamen, Dalian, Kunming, Ningbo and other

cities against proposed paraxylene (PX) chemical plants, and dozens of protests over heavy metal

pollution from smelters and battery plants are but a few examples of tens of thousands of

environment-related protests in China each year. The effort of Chinese authorities to shift away

from coal and to limit the growth of heavy industry has the potential advantage of relieving some

of these pressures as well.

Social stability is an overriding political priority in China. Despite continued efforts at

political, media, Internet and other controls, technological advances and greater access to

information have enabled citizens to better recognize risks and to organize accordingly. Officials

have the opportunity to improve social stability through the enactment of a range of climate

mitigation actions that also reduce more immediate harms from pollution (Bradsher, 2012).

D. International Reputation

Looking outward, high-level concerns about international reputation have the potential to push

China either toward more or less action on climate change. In fact, a 2003 strategic assessment

by the leading State Council think tank made explicit concerns about energy security and

international pressure to reduce GHG emissions that motivated Chinas move toward the development of climate change policy (Chen, et al, 2003). Chinas growing energy needs and economic expansion have created tensions with other nations that could be ameliorated through

climate change action. Chinese leaders have talked about seeking to increase Chinas soft power and reducing domestic and international climate change risks would be a means of building Chinese national strength through contribution to a global public good (Nye, 2004).


Nonetheless, Chinese leaders may find that that taking a stance of resistance to international

pressures on climate change action can garner support from nationalist constituencies

domestically, and protect Chinese politicians from accusations of being too compliant in the face

of foreign demands.

None of these four factors economic transformation, environmental quality, social stability, and international reputation - inevitably push China toward more or less climate change

action. Yet it is critically important to understand how each of these factors may influence

Chinese climate change policies. Each is dynamic and subject to rapid, potentially dramatic

change, with resulting impacts on the shape and effectiveness of Chinese climate change policy.

The more climate change action supports other priorities important to Chinas self-interest, the more likely it is that authorities will grant the necessary policy focus and resources to bring about

effective climate change mitigation.

4.2 Persistent Barriers to Implementation

Even if climate change is an important state priority in China, there is no guarantee that

authorities will be able to overcome a range of pathologies of implementation. In the

environmental context, there is a rich literature regarding the factors that have limited

implementation.xxxv

These include bureaucratic fragmentation, corruption, interference from

economic and political interest groups, political metrics prioritizing economic growth and social

stability, and local protectionism enabled by significant local discretion in implementation.

These include informal political factions, government ministries and other institutions, local

governments, and business interests (state-owned, private, and foreign). For example, Chinas state-owned oil companies long resisted making fuel quality standards more stringent to avoid

additional costs in the refining process (Wong, 2013b). Chinas environmental regulatory system has been hampered by capacity problems, insufficient transparency, lack of diversity in

enforcement channels, and weak citizen involvement. All of these factors have created an

overwhelming culture of non-compliance that compounds implementation problems. Finally,

data quality problems render it difficult to identify and ascertain the extent of implementation

challenges.

Implementation problems in the climate change context are exacerbated by the

complexity of climate change regulation. Common regulatory tools for climate change require a

high degree of regulatory sophistication. For example, a carbon trading system, generally

speaking, requires five components: (i) the establishment of a cap; (ii) allocation of the cap

among emitters; (iii) GHG accounting and verification rules; (iv) registries, exchanges, or other

trading mechanisms; and (v) a framework for punishing and deterring non-compliance (Han, et

al., 2012). Each component is a complex endeavour that requires expertise and a strong

regulatory backstop to prevent cheating or misfeasance.

Chinese authorities have begun to implement a range of initiatives designed to counter

these implementation problems, including investment in monitoring and environmental

infrastructure and governance reforms to strengthen top-down control.

China has invested substantial resources in improved environmental monitoring and

environmental infrastructure. In principal-agent terms, investment in environmental monitoring

is a way for central regulators to reduce information asymmetry. This includes expansion of both

ambient monitoring networks and a mandated installation of facility-level continuous emissions


monitoring in key state-controlled polluting facilities (Wang, 2011; Zhang and Schreifels, 2011).

Central government mandates and funding support have created incentives for substantial

investment in energy efficiency and pollution control as well. The installation of environmental

infrastructure is no guarantee of its proper use, but is a necessary first step in implementation.

Central authorities have also implemented a range of initiatives for improving top-down

control of local agents. Party authorities have been given greater authority to punish bureaucrats

and state-owned enterprise leaders for failing to meet energy, carbon, and pollution targets; in

practice, it is not clear that this authority is being utilized (van Aken, 2012/13; Landry, 2008).

To counter capacity problems, central agencies issued detailed implementation rules and offered

trainings to assist local government actors in implementation.xxxvi

To counter information

problems and cheating on target implementation, central regulators developed multiple data

sources and more readily observable proxies for target implementation (Wang, 2013).

Authorities have apparently limited propaganda restrictions on reporting of environmental

problems and increased environmental information disclosure, possibly to encourage so-called

public supervision (shehui jiandu) or fire alarm supervision over environmental policy implementation. Studies have shown that in practice enforcement is becoming more stringent

and legalistic in certain (typically wealthier) parts of China (van Rooij and Lo, 2010).

In addition to these efforts, greater Chinese government, business, and citizen

engagement with international actors has influenced enforcement in a number of ways, including

through government-to-government knowledge transfer, informal supply chain regulation, and

greater transparency of environmental information. For example, government researchers are

active in researching international experience (such as the EU emissions trading system, and

trading of sulphur dioxide emissions rights in the U.S.) to develop best practices for the Chinese

context. Various levels of the Chinese government have executed agreements with foreign

governments on policy design collaborations, such as the U.S.-China Strategic & Economic

Dialogue and the NDRC-State of California Memorandum of Understanding on Climate Change

(U.S. Dept. of State, 2013; Dearen, 2013).

The extraordinary amount of manufacturing within China for global supply chains

delivering finished goods to the U.S., E.U. and other developed regions has created an

opportunity for informal regulation of Chinese polluters by multi-national corporations and civil

society groups. These efforts are typically motivated either by corporate interest in cost reduction

(such as through energy efficiency improvements)xxxvii

or public pressure that threatens multi-

national corporations with reputational damage (Plambeck, et al., 2012). This is an example of

what Julia Black has called decentered regulation, which emphasizes the role of non-governmental organizations, businesses, technology, and other non-state factors in regulation

(Black, 2002).

These various efforts hold out the possibility that environmental enforcement and

implementation in China could improve substantially in coming years. But improvement is not

assured. Changing priorities, corruption, collusion, interest groups opposed to environmental

protection, and other factors could just as easily overwhelm initiatives to improve

implementation.


4.3 The Two Chinas Problem

A third major challenge for climate mitigation arises out of Chinas sharp regional economic disparities, and the possibility that this will lead to carbon outsourcing to the poorer parts of the country in coming decades (Wang 2014).

In the climate change debate, Chinas rising economic clout have drawn two common reactions. On one hand, it has led to calls for China to take on more substantial international

obligations for mitigation and adaptation. For example, in international treaty negotiations, the

United States has often argued that China should be treated as a major polluter or an emerging economy. Such categorization would place China in a different position than the prototypical developing, non-Annex I country not a developed country, but also not quite a developing nation either. On the other hand, others have argued that China remains, on average,

a poor country. Professor Zou Ji, deputy director of Chinas National Centre for Climate Strategy and International Cooperation, put it this way (Xu and Zhang, 2013):

The international community has some misconceptions, such as believing China

is now a developed nation. This could mean China ends up taking on more global

responsibility than its capabilities allow. Weve held the Olympics and sent astronauts into space, but you cant look at the richest parts of Beijing and Shanghai and assume the whole country is like that. The welfare of hundreds of

millions of rural residents isnt yet assured Overall, China is still a developing nation.

Scholars have begun to acknowledge, however, that China is not a monolith and by virtue

of its size and relatively sharp geographic disparities in wealth can (and should) be

conceptualized as a jurisdiction containing a quasi-developed country and a quasi-developing one (Farber, 2013).xxxviii

The Chinese government itself has in fact formally divided China into at least three Chinas - eastern, central and western. The eastern provinces are the most economically developed, the western provinces the least, and the central provinces somewhere in between.

This three-region designation first appeared in the 7th

five-year plan (1986-90). Chinas 7th five-year plan (1986-1990) set forth a framework by which the poorer interior regions would support

the economic development of eastern regions through the provision of raw materials and energy:

[r]egional economic development in China must correctly resolve the

relationships among the three economic regions - eastern coastal, central, and

western. During the 7th five-year plan through the 1990s, we must accelerate the development of the eastern coastal region. At the same time, we must focus

heavily on energy and raw materials development in the central region, and

vigorously make incremental steps to prepare for the development of the western

region. We should connect up the development of the eastern coastal region and

the exploitation of the central and western regions, creating a situation of mutual

support and promotion.

Towards the end of the 20th

century, China began to devote more resources to Western development, or the acceleration of economic development in Chinas interior provinces (China


Development Gateway, 2010).

In the climate context, this internal development pattern has resulted in an outsourcing of

carbon dioxide from the wealthier eastern provinces to the interior provinces. Feng, et al., have

shown that the production, consumption, and export of high-value goods and services in rich regions depend upon the emissions-intensive products from poorer regions in China, consistent

with what has become clear about embodied carbon in international trade (Feng, et al., 2013; Qi, et al., 2013; Peters and Hertwich, 2008). This dynamic is due to the expansion of traditional

energy-intensive industries (such as energy and raw materials) in the interior, as well as

migration of energy-intensive industry from the coastal provinces.

The question for the future then is whether China will engage in a pattern of domestic

development that essentially duplicates what has happened at the global level, whereby wealthier

countries (provinces) outsource polluting industries to developing countries (provinces). This underappreciated dynamic could lead to Chinas carbon emissions growing for a longer time than predicted by current emissions models (Abebe and Masur, 2010; Wiener, 2010).

Such an outcome is not inevitable, however. For one, a pollute first, clean up later approach in the interior provinces is constrained by the same domestic dynamics that are

generating political will for climate mitigation in China nationwide an imperative for economic transformation, emergency levels of pollution, environment-related protests, and leadership

desire to improve international relations and Chinese soft power (Wang, 2014; Wiener, 2008;

Wiener, 2010).xxxix

Moreover, Chinas sharp regional economic disparities also provide some potential advantages or benefits in support of achievement of these economic, environmental, and socio-

political co-benefits. The primary advantage is lower marginal costs of abatement (in labor,

materials, etc.). Thus, Chinese authorities can utilize the interior provinces as a low-cost

laboratory for development of renewable energy, energy efficiency, environmental infrastructure,

and services industries. Another advantage is that the interior provinces are still relatively

undeveloped and good planning can build greater efficiency and lower pollution into new build

industrial facilities, buildings, and transport infrastructure rather than having to rely on more

expensive retrofit.

Regional economic disparities also provide a source of funding for greener development

in Chinas interior. Wealthier coastal provinces can both subsidize green development in the interior and take on greater environmental obligations commensurate with their rapidly growing

economic power. Such an approach (which is not currently Chinese policy) would be analogous

to the common but differentiated responsibilities approach to climate mitigation at the international level.

xl However, such an approach has the potential to work more effectively at the

domestic level for a number of reasons (Wang, 2014).

First, wealth transfers to Chinas interior are arguably appropriate as a matter of reciprocity. Chinese policy over the last 35 years has explicitly required interior provinces to

support economic development in the coastal provinces. This debt to the interior provinces has

been a part of leadership rhetoric since Deng Xiaoping.

Second, greener development in Chinas interior provinces contributes to achievement of a number of other state priorities, including poverty alleviation, mitigation of internal migration

of rural workers to coastal cities and associated costs, and national unification. Thus, direct

support for development in the interior provinces accrues to the benefit of the state in various

ways, rather than just to an amorphous global commons.


Third, coastal provinces benefit directly from support for the interior provinces in the

form of reduced conventional air pollution. There is already precedent in China for this sort of

payment for ecosystem services. Existing experiments in eco-compensation (shengtai buchang) schemes involve transfer payments from more developed regions to subsidize pollution

reduction (mostly in the water pollution context) in developing parts of the country. A recent

example in the air pollution context concerns the substantial amount of pollution that interior

(and much less developed) Hebei Province contributes to developed Beijing. Commentators have

raised the idea of wealthier Beijing paying Hebei Province not to pollute (Jiang, 2013). A central

compensation scheme announced in late 2013 offers payments to poorer provinces around

Beijing as an incentive for air pollution reduction (that could also double as climate change

mitigation).

Thus, the rough foundations for a different (more efficient, lower carbon) development

model are in place in China, but at the same time the path of least resistance would likely be a

continuation of the so-called two highs, one resource (lianggao yizi) referring to high energy consuming, high pollution, and resource-intensive production model of economic growth that has driven Chinese economy for nearly four decades. How the battle between these two

approaches plays out will have major implications for climate mitigation in China in the coming

decades.

5. CONCLUSION ............................................................................................................................................................

China is without a doubt an indispensable component of any effective solution to climate

change. Chinese authorities have established a more extensive climate change program on the

books than is commonly recognized outside of China. However, questions remain as to whether

Chinas climate change policies will be properly implemented in practice, and whether they are sufficiently ambitious to address global climate change even if fully implemented. What is clear

is that tremendous efforts must still be made if China is to reduce its contribution to global

climate change.

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