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The Fourth Circle: Making Economic Development Environmentally Sustainable

Environmental sustainability in China, as in most countries around the world, has steadily edged its way up the ladder of political priorities as people become increasingly aware of the impact of environmental degradation on their daily lives. The tragedy of China’s rapid economic development over the last thirty-five years is that the CCP subordinated environmental concerns to economic growth. This led to serious and health-threatening levels of air and water pollution as well as desertification, significant loss of biodiversity, and water scarcity. As a result, China has been paying the price. Despite the risks of protesting in China, there have been frequent and angry demonstrations against endemic pollution and the lack of government oversight in towns and villages across the country. Air and water pollution levels across China have been so high in places as to have given rise to a new range of respiratory diseases and other medical conditions, including localities with rates of cancer so high they have been dubbed “cancer villages.” There has also been growing public anger over food-quality scandals by producers sacrificing safety and quality to save costs—as in the case of the 2008 contaminated milk scandal that sickened and killed a number of children, prompting mass outrage.

These politically charged environmental challenges make the leadership’s economic development task much more complex than before. It has forced the party to make environmental sustainability a critical new component of its efforts to consolidate its political legitimacy in the eyes of the Chinese people. In other words, a clean environment is a new part of the unofficial social contract between party and people—in addition to the economy, employment, and rising living standards.

Prior to 2013, China’s development model marginalized environmental constraints in favor of economic growth rates, which were made an absolute priority, with local political leaders rewarded or punished accordingly. But in that year, shortly after assuming the presidency, Xi convened a key politburo meeting on combatting pollution, where he declared that moving forward, China would “not sacrifice the environment for temporary economic growth.” Environmental sustainability—or what Beijing intriguingly describes as the need to build an “ecological civilization”—was then formally injected into China’s new economic model as part of the thirteenth five-year plan in 2015. While there is limited evidence of progress so far on improving overall water, soil, and air quality, performance reviews for state and party officials have changed under Xi Jinping. Meeting performance benchmarks on protecting the environment are officially rated as of equal importance to driving economic growth. In the past, the blunt instrument of economic stimulus could simply be applied to catalyze economic growth without any real political or career cost arising from the environmental consequences. That is no longer the case, although the environment is still likely to come second to economic priorities such as unemployment, which is still seen by the party as the most dangerous cause of social unrest.

Nonetheless, the existential questions of clean water, useable land, uncontaminated fish stocks, clean air to breathe, and uncontaminated food have been genuinely added to continued job growth, increased living standards, an aging population, and other daunting issues as among the day-to-day challenges that keep the CCP leadership up at night.

Of course, these are not just domestic concerns; the impact of China’s greenhouse gas (GHG) emissions on climate change is a decisive factor for the future of the planet. China is the world’s largest greenhouse gas emitter, and its actions, both at home and abroad, are of unparalleled global significance. China has increased its carbon dioxide emissions by an average of 1.5 percent a year since 2011, and in 2019, its total national emissions outstripped those of the developed world combined for the first time.

In 2020, China contributed 28 percent of the world’s annual GHGs, a share projected to peak much higher in the late 2020s as other developing countries’ emissions—most notably India’s—continue to rise and the developed world accelerates its decarbonization. By contrast, the United States will halve its 2005 emissions by the end of the decade—even if America’s per-capita carbon emissions are still more than twice those of China. By 2050, China will also reach parity with the United States in terms of its historical emissions of greenhouse gases—bringing into sharp focus Beijing’s much-vaunted mantra of developed versus developing country responsibilities.

However, the party’s focus on staying in power has meant that its primary commitment to environmental and climate action has often, in reality, failed to extend beyond its borders. China’s first round of commitments under the 2015 Paris Agreement were to have its carbon emissions peak around 2030, to have 20 percent renewable energy by that date, to reduce its carbon intensity as a portion of GDP by 60–65 percent compared to 2005 levels, and to increase its forest stock volume. In the lead-up to COP26 in Glasgow in November 2021, these were revised marginally to align with China’s latest projections. However, according to Climate Action Tracker, China’s commitments are still not ambitious enough to limit global warming to below 2°C, let alone to 1.5°C, unless other countries make much deeper reductions than China.

This is unsurprising to anyone who has followed the international climate policy debate. While the Obama administration lobbied hard to induce China into a more forward-leaning commitment on GHG reductions, China only agreed in Paris in 2015 to what was its likely trajectory at that time. This was, nevertheless, a big turnaround from the 2009 Copenhagen era for which many of us—myself included—still bear the scar tissue. There, I had to personally lean on Premier Wen Jiabao to even join me and other world leaders in discussions. In an attempt to save face, he insisted it was a “breach of protocol” that there was not a formal invitation for such a meeting, thus leaving it to his negotiators to hold a firm line. China’s biggest concern then was the idea of the developing world having to commit to make cuts in their emissions while believing they had the same right to industrialize their economies on the back of coal as had the West. This argument has some moral salience. But it does not hold up to any real mathematical or scientific scrutiny if we are to avoid a full-blown climate crisis. Nor did it stack up with the technological advances we were already seeing back then, especially in solar power. The idea also of a globally agreed temperature limit—an idea that the Maldives’ Mohamed Nasheed and I first proposed—was also deemed objectionable, until we both organized for one developing country after another to weigh in with their support for it. At one stage, I convinced Vice Minister He Yafei—an outstanding professional diplomat—to sign on to what ultimately became known as the Copenhagen Accord during an all-night session, only for this to later be walked back. Premier Wen Jiabao then had him demoted for agreeing to sign.

Against this history, it is unsurprising that under the first commitment period of the Paris Agreement, China only agreed to national targets for 2030 that could easily be met. This helped avoid any risk of international embarrassment while also providing Beijing room to increase its national commitments later on, if it chose to do so. This inbuilt Chinese hesitancy was accelerated when Donald Trump was elected and declared that the United States would withdraw from the Paris Agreement altogether. Suddenly, China was no longer under sustained US pressure, as it was prior to 2017, to continue to expand on its Paris commitments. However, the world owes China a debt of gratitude for not similarly walking away altogether. The Paris Agreement would have collapsed if Xi had followed in Trump’s footsteps. It is not coincidental that China’s annual carbon emissions increased from 2017 throughout the Trump years, having leveled off over the previous four years. This appeared to reflect a Chinese conclusion that US recalcitrance on climate meant that China was no longer under as much international scrutiny and that it could get away with doing little more than showing up at international climate conferences to look good compared with the United States’ absence from the field altogether. Beijing’s decision to take its foot off the pedal on its GHG reductions also reflected the domestic economic pressures in China arising from the US-China trade war in 2018–2019, the missteps in China’s domestic economic policy settings since 2015, and the COVID-induced economic downturn in 2020. All of these hit home, with climate action falling by the wayside as a result. This backward step was reflected, for example, in a progressive whittling down of the scope of China’s domestic emissions trading scheme (which was reduced to the power sector alone) and the fresh commissioning of a massive new fleet of coal-fired power stations, despite having already successfully peaked its emissions from coal.

However, Beijing’s calculus appears to have changed again in 2020. A surprise announcement during his speech to the UN General Assembly in September demonstrated climate action had crossed the geopolitical Rubicon for China. Xi pledged the country would reach carbon neutrality before 2060, for the first time establishing a timeline to decarbonize the world’s soon to be largest economy. This goal was then included in China’s fourteenth five-year plan, with specific carbon intensity targets and renewable energy goals integrated into the final plan, a national carbon trading market established, and specific industry-compliance plans drawn up—even if it is not yet matched by a credible plan to make the necessary reductions in the immediate term.

What prompted this significant change in political course? Likely China’s leadership perceived several overlapping opportunities. First, Beijing concluded that it could potentially accomplish two victories at once: respond positively to the growing environmental consciousness of its people and seize an opportunity to demonstrate global leadership in the eyes of an increasingly anxious world. These were the final months of the Trump administration, when Washington was notably absent from the world stage, allowing China to position itself as a responsible global partner that took its international obligations on climate seriously. This pleased the Europeans in particular, reflecting Beijing’s overall strategy toward Brussels to drive a long-term wedge in the transatlantic relationship on trade, investment, technology, capital, and now climate.

Additionally, China’s new carbon commitments dovetailed with Xi’s economic, industrial, and technological goals. It provided an opportunity to channel extensive state investment into transforming China’s energy and transport infrastructure while also making China a world leader in high-demand emerging technologies—such as renewable energy, electric vehicles, high-efficiency smart cities, advanced energy storage, and carbon capture. In other words, beyond meeting its domestic political needs, and now its international policy obligations, China’s renewable energy revolution has become a core part of its state-driven industrial policy, parallel to the other elements of its wider “fourth industrial revolution.”

Finally, Xi calculated that there could be benefits vis-à-vis the US-China relationship. He knew the Biden administration was likely to call on China to do more on climate and aimed to preempt that pressure by turning the tables on Washington and putting Beijing in a stronger negotiating position. Xi also saw climate as a potential mechanism to restabilize US-China relations after four years of strategic competition and partial decoupling under Trump. However, it remains an open question to what extent Washington’s interest in climate collaboration with Beijing is able to leverage a broader improvement in the bilateral relationship. At this stage, the odds appear to be against it.

Achieving China’s new carbon-neutrality pledge will not be easy or cheap. Independent analyses have placed the total amount of investment necessary at between $5 and $15 trillion over the next three decades. Also required will be substantial structural changes in the Chinese economy. In particular, China remains heavily reliant on coal power but will need to phase this out entirely by 2040 to achieve Xi’s carbon-neutrality pledge (and begin immediately restricting its reliance on coal rather than simply waiting until later in this decade). That is a tall order, given China consumed more coal in 2019 than the rest of the world combined. Some 20 percent of the entire world’s carbon emissions stemmed from Chinese coal-fired power stations alone. Indeed, electricity generated from coal still accounts for more than half of China’s total energy consumption (albeit down from 62 percent in 2016 to 57.7 percent in 2019). By contrast, around a quarter comes from renewables (mostly hydropower, but also wind and solar) and only around 5 percent from nuclear. As noted above, following the lifting of a previous construction ban in 2018, China planned to build a new fleet of coal-fired power plants, with new approvals going into overdrive at the start of 2020, when COVID-19 threatened its economy most acutely. The result is that there are more coal-fired plants under construction in China today than the entire installed capacity in the United States. This decision sent a shiver down the spine of climate scientists, negotiators, and NGOs around the world, especially as it came just months after Xi’s carbon-neutrality pledge, which many had hoped represented a turning point. It didn’t—at least, not yet.

The Chinese government’s fondness for coal power is not just a problem in China. It has become an international problem, given large Chinese investments in coal-fired capacity in countries across the developing world as part of the Belt and Road Initiative. Of all coal plants under construction outside of China, roughly one-quarter—or over one hundred gigawatts of generating capacity—have either secured funding from Chinese financial institutions and firms or benefitted from the use of Chinese equipment or labor. This is effectively double Germany’s total installed coal-fired power capacity. Much of this construction of BRI coal projects is done by Chinese SOEs, who then recycle Chinese soft finance back into the Chinese economy. Furthermore, the use of Chinese labor has also helped offset the pre-2020 downturn in the construction of coal-fired power plants domestically. Other international finance for coal projects has primarily come from Japan and Korea, and after both countries bowed to domestic and international pressure to stop this practice, China also did so in September 2021. However, whether Xi’s official decision to halt China’s overseas financing of coal-fired power stations will similarly impact private and state-owned capital flows out of China or affect those plants already under construction or about to be—and whether China will seek to simply replace its support for coal with other high-emission alternatives such as gas—remains to be seen. So too does whether the large amount of Chinese labor involved in the construction of coal-fired power stations around the world will continue. These will also be key tests as to whether China can fundamentally reengineer the BRI into a “green BRI,” which it has been eager to do but has always been worried about doing so simply at the behest of outside pressure. What was clear to Xi by 2021, though, was that it was time for change: not only were BRI countries themselves eschewing Beijing’s thirst for supporting coal-fired projects, but the Biden administration was ramping up the alternative (and clean) energy finance available to many of these countries where China had a foothold. And if Xi had not acted, BRI countries would have accounted for more than half of global emissions by the middle of the century, bringing the futility of anything China did at home into stark relief.

Ultimately, however, both China and the world will need to confront the underlying scientific reality that the planet doesn’t lie, whatever individual governments may say or do. GHGs will either be stabilized and rapidly reduced to the levels necessary to give the planet a reasonable shot at keeping temperature increases this century within 1.5 degrees Celsius, or they won’t. And China, the US, and Europe (and later India) will, between them, be responsible for most of the core decisions that determine our planet’s future.

The harsh political reality for China is that it is, therefore, increasingly judged on the same playing field as the United States on climate change. This is compounded by the fact that so many nations in the developing world (China’s fellow members of what is called the G-77 political bloc) are among the most vulnerable to the impacts of climate change. This means that the emerging world expects China to lead by action, not just by political rhetoric. In addition to halting support for the overseas financing of coal-fired plants, another key test in the next few years will be whether China can peak its carbon emissions as soon as 2025, as opposed to 2030. If it cannot, then not only will China have failed to deliver meaningfully on its broader commitment to the Paris Agreement’s temperature goals, but also the government will have demonstrated it is not prepared to take the necessary action to reach Xi’s stated vision of carbon neutrality by 2060, thereby undermining his credibility in the process.

Climate policy is, therefore, set to become an even sharper priority within Xi Jinping’s overall strategy. This is likely to be driven by three overriding party interests: (1) the impact of sustained environmental degradation on the party’s and his personal political legitimacy, especially over the next decade and a half, when he wants to remain in power and when climate impacts on the Chinese people will become progressively worse; (2) the political and economic impact on China of intensifying and more frequent droughts, floods, storms, and other extreme weather events if climate change impacts continue unabated; and (3) the potential for failure—that China’s emissions do not come down, along with those of a “brown” BRI, and that this derails Xi’s efforts to use climate change as a means of legitimizing China as a model global citizen or even global leader, just as the international community ponders what sort of leadership China would provide for the world in the future.