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Racing to a Competitive Economy: China Pursues High GDP, Low-Carbon Growth

Xueman Wang's picture
Also available in: 中文

 Yang Aijun/World Bank

December 2009 does not seem so long ago. The UN climate conference in Copenhagen had just come to a disappointing end, and I headed home feeling depressed.  I returned to China for holiday and was surprised to see the widespread awareness of climate change and the collective sense of urgency for action. The concept of "low carbon" was discussed in all major and local newspapers. To my amazement, I even found an advertisement for a "low carbon" wedding. I finished my holiday and went back to Washington with optimism and hope: Despite the failings of Copenhagen, China, the biggest emitter in the world and the largest developing country, was going through a real transformational change. China clearly saw action on climate change as serving its own interest and as an opportunity to pursue a green growth model that decouples economic development from carbon emissions and resource dependence.

In the past five years, the world has witnessed the emergence of China as a leader for tackling climate change.  A few weeks ago, colleagues at the World Bank Group heard an evidenced-based presentation by Vice Chairman Xie Zhenhua from the National Development Reform Commission (NDRC) of China, who showed what China had done in the past, is doing now, and plans to do in the future. He shared his candid assessment of the challenges, mistakes, and lessons learned from China's experience.

China’s progress is impressive. Between 2005 and 2013, average economic growth has been above 8 percent while the country’s emissions intensity has decreased by 28.5 percent compared with 2005 levels. This equates to emissions reductions of 23 million tons of CO2. These reductions were achieved through massive closures of inefficient coal fire plants, aggressive energy efficiency programs, expanding the renewable energy program, and large investments in clean technology.

While these numbers are impressive, sustaining them will be harder. Over the last 10 years, China has targeted its "low-hanging fruit" for mitigation options. The challenge today is how China will sustain annual GDP growth of more than 7 percent while continuing to reduce its economy’s emissions intensity.

Putting A Price on Carbon: Nations Opt For Market-Based Solutions

Xueman Wang's picture

 Curt Carnemark/World Bank

Climate change is a threat to global development and to poverty alleviation. And yet, reducing greenhouse gas emissions is proving difficult because all players in an economy contribute to the problem. To make a difference, we must reduce our emissions in a coordinated manner.

This is no easy task. So where do we go from here?

One approach involves pricing the “externalities” that are contributing to climate change. Pricing externalities into the costs of production is nothing new. A classic textbook example is the paper mill that sits upstream from a fishing village.

Discharge from the mill pollutes the river, diminishing the fishermen’s catch. The mill freely uses the water of the river in its production of paper, but does not pay for the damage of the negative externality that it causes. To remedy the situation, regulations can be put in place to stop waste from going into the river – or the mill can pay a fine equivalent to the loss of the fishermen’s revenue.

The latter is an example of an externality priced into the cost of production. The same can be done to combat climate change.

In this case, carbon emissions are the externality that must be priced. Doing so provides a cost-effective and efficient means to drive down greenhouse gas emissions as the cost of such pollution goes up.

A Possible Rebirth of the Carbon Market?

Chandra Shekhar Sinha's picture

 Priya.Balraju1/Flickr
Photo courtesy: Priya.Balraju1/Flickr

Many people have voiced pessimism over an international agreement to address climate change since the 2009 climate conference in Copenhagen fell short of expectations. The lack of a comprehensive, global effort to curb emissions; the failure by the United States to pass meaningful federal legislation, the continued recession in Europe; and, most recently, the election results in Australia have undermined efforts to put a price on carbon and dampened hope for market-based solutions to climate change.

The somber mood was evident at the Carbon Forum Asia, held in Bangkok between September 24 – 27.  But participants at the event also found a glimmer of hope.

Domestic Carbon Markets Draw Attention at the Carbon Expo

Neeraj Prasad's picture

Mary Barton-Dock, director of the Climate Policy and Finance unit of the World Bank, welcomes the participants to the 10th Carbon Expo in Barcelona
Some 2000 visitors from more than 100 countries are leaving Barcelona today at the end of Carbon Expo. The meeting, now in its 10th year, got off to a great start on Wednesday with the director of the World Bank´s Climate Policy and Finance unit, Mary Barton-Dock, welcoming the participants, followed by stimulating opening remarks from Christiana Figueres, executive secretary of the UN Framework Convention on Climate Change (UNFCCC).

Figueres urged the audience to continue building carbon markets and not wait for policy perfections. She also encouraged participants to continue making the case for carbon markets to policy makers, who have committed to a global agreement on emissions by 2015. She emphasized the importance for the private sector to more loudly voice their willingness and ability to move to a low-carbon growth trajectory and compared the carbon market to a tree planted just a few years ago, not possibly imagining that today it would have sprouted 6,800 projects registered with the UNFCCC in 88 countries, representing 215 billion dollars of investment.

However, Figueres also acknowledged the importance of domestic initiatives that were putting a price on carbon, at a time when a global agreement continued to challenge policy makers.

China Gets Ready for a New Carbon Era

Wang Shu's picture

 Rush hour traffic on a road in Beijing, China. - Photo: Shutterstock

Also available in Chinese

The 5th Assembly of the World Bank’s Partnership for Market Readiness (PMR) is coming to an end after rich and rewarding meetings in Washington DC this week. I had the opportunity to present China’s final Market Readiness Proposal (MRP) (pdf), or in more simple language, China’s proposal to build a national emission trading system (ETS). Together with China, the PMR also received proposals from Chile, Costa Rica and Mexico on their initiatives. (Also read: Can Carbon Taxes Be Effective?)

From the Chinese perspective, our MRP serves as a summary of the Government’s initial thoughts on how a domestic ETS would be established to cover the whole country. For this to happen, a lot of work needs to be done, and this proposal provides a framework and roadmap to guide us on our journey. We are expecting domestic and international institutions, experts and stakeholders from different levels to be involved in this design process. Above all, we hope to draw on the experience of existing carbon markets around the world as well as from the seven pilot ETSs - comprising five cities and two provinces - set to start this year in China. Facilitating continuous technical dialogues, PMR serves as a knowledge exchange platform for our team from China and all the participant countries. This is a unique and valuable experience. 

Shaping the Next Generation of Carbon Markets

Rachel Kyte's picture

 Smoke coming out of two smokestacks at a factory in Estonia. - Photo: World Bank/Flickr

Right now, the carbon markets of the future are under construction in all corners of the world.

China is determined to pursue low-carbon development and is embracing the market as the most efficient way to do so. Wang Shu, the deputy director of China's National Development and Reform Commission, told us this week that he sees the "magic of the market" as the most efficient way to drive China's green growth.

Five Chinese cities and two provinces are piloting emissions trading systems with the goal of building a national carbon market. Chile is exploring an emissions trading system and focusing on energy efficiency and renewable energy. Mexico is developing market-based mechanisms in energy efficiency that could cut its emissions by as much as 30 percent by 2020. Costa Rica is aiming for a carbon-neutral economy by 2021.

Each of the countries pioneering market-based mechanisms to reduce their domestic carbon emissions are leaders. Bring them together in one room, and you begin to see progress and the enormous potential for a powerful networking domestic system that could begin to produce a predictable carbon price -- a sina que non for the speed and scale of climate action we need.

That's happening this week at the World Bank.

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From cow dung to biogas to carbon credits for Nepal

Kirtan Chandra Sahoo's picture

Early this year, I visited several households in the small village of Bela located in the Kavre district of Nepal, about 50 kilometers from the capital Kathmandu. Mr. Niranjan Sapkota’s house was located on a steep mountain surrounded by forests. I had to walk along narrow mountain paths, grabbing on to bushes and sometimes hands of accompanying local staff. I was going to verify if the biogas plant Mr. Sapkota had constructed in the February of 2005 was still in operation.  I turned the brass valve in the kitchen and with a hissing sound, gas flowed and the family pointed to the meal that they had just cooked using biogas from cattle dung that they had in plenty.

There are 225,000 such families in Nepal who now have easy-to-operate biogas plants in their backyards. Bela is considered a model biogas village with almost every house equipped with a biogas plant.

Last month, the Nepal’s Biogas Program reached an important milestone: the United Nations Framework Convention on Climate Change (UNFCCC), for the first time approved and issued carbon credits to two Nepalese biogas projects. To date, this is the largest worldwide issuance of carbon credits, or Certified Emission Reductions (CERs), in a Least Developed Country (LDC). Two more similar projects from Nepal are now at an advanced stage of being registered with the UNFCCC. Together, these projects are expected to generate about 170,000 carbon credits per year, which is equivalent to avoiding emissions from approximately 60,000 cars every year.

For most women living in this mountainous region of Nepal, looking for firewood every morning was a daily ritual. This program reduces the time spent collecting firewood and, since they are no longer exposed to the indoor smoke from burning of firewood in traditional stoves, it also dramatically improves the health of these women and their children. Other important benefits of the program are lessening the pressure on deforestation and reducing greenhouse gas emissions.

Trading methane for housing

Kai-Uwe Barani Schmidt's picture

Three global leaders coming together to deal with climate change was the headline grabbing moment for the recent C40 summit in Sao Paulo (read A tale of three men and 40 cities). Away from the cameras and sound bites was a field trip to Heliopolis, one of Sao Paulo’s biggest slums to drive home the messages that were being discussed in the conference.

As our bus convoy reached the construction site of Heliopolis, we saw round buildings resembling refinery towers. These were brand new apartment buildings for hundreds of Sao Paulo residents who currently live in the Heliopolis slum without proper access to basic services.

And while the round design of the buildings was eye-catching, the real catch is the way this project is being financed: A good portion of the finance comes from carbon finance credits that the city gets through a waste recycling project called Bandeirantes Landfill Gas to Energy Project (BLFGE) in which the methane of biomass waste (which accounts for 60% of Brazilian waste) is converted into energy. This way of generating energy qualifies for carbon credits.

The state of the carbon markets is Messy - not Messi

Andrew Steer's picture

Last week Barcelona brilliantly beat Manchester United to become the soccer Champions of Europe.  This week Barcelona hosted delegates at Carbon Expo, the annual jamboree for carbon marketers organized by the World Bank and others.  But sadly, the style, strength, efficiency and confidence shown by Messi, Villa, and Pedro are not much in evidence in global carbon markets today. More like my old fourth division club, Bexley United, which I believe has now ceased to exist.

  • There’s certainly a lot to be gloomy about in the world of carbon trading over the past year:
  • The overall size of the market worldwide shrank for the first time ever in 2010
  • The primary CDM market (Clean Development Mechanism) – the principal window of carbon markets to the developing world – fell another 46% to $1.5 billion, down from $7.4 billion in 2005, and the lowest since trading began in 2005.
  • Legislative disappointments in the USA, Australia and Japan, and the market have now become even more concentrated, with well over 90% of trades originating in Europe.
  • Serious irregularities and fraud in the European Trading System (ETS), and suspicions of monkey business in some CDM HFC (Hydrofluorocarbon) transactions.  

Above all, confidence in the post 2012 market, when the first Kyoto Protocol Commitment period comes to an end, is on the floor, and thus demand for post-2012 deliveries is close to zero.

These points are all documented in the Bank’s new State of Carbon Markets Report, 2011 launched this week. And yet 3,000 people turned up at the Carbon Expo this week, and seemed to doing deals and having a good time. Is there anything positive out there? Yes, actually.

First, the overall size of the market was still $142 billion, no small change, although overwhelmingly concentrated within the European Trading System.

Carbon Expo versus Bonn

Holly Krambeck's picture

I have recently returned from CarbonExpo in Cologne, along with most of the unprecedented 70-person Bank delegation we sent this year.  For the uninitiated, CarbonExpo is an annual, oh, call it a high-energy trade fair, where carbon finance project developers, financial institutions, auditors, policy makers, and international organizations meet to strike deals and innovate ways to reduce greenhouse gas emissions and financ