China’s Green Goals Overtaken by Worries Over Virus-Hit Economy
(Bloomberg) -- With global climate stress growing ever more apparent, the world’s biggest polluter is setting aside its lofty environmental ambitions as it confronts an unprecedented slowdown in growth.
China, which spews more carbon into the atmosphere than the U.S. and European Union combined, is being forced to give greater priority an economy that had wilted during the trade war with Washington and is now being flattened by the coronavirus epidemic.
Increasing economic headwinds are prompting Beijing to roll back restrictions on industrial pollution, slow its transition away from coal and slash subsidies for cleaner energy and transportation. A carbon market slated for this year may not live up to its billing, and there are signs that the government is unwilling to set a higher bar this year for its climate goals.
It doesn’t mean China is giving up its long-term green ambitions, and one silver lining to a flagging economy is fewer emissions in any case. The nation is expected to remain as the largest investor in renewable energy. But the deceleration will undermine Beijing’s opportunity to exert influence internationally after the U.S. exited the Paris climate accord, underscoring the priority it places on the economic engine that has lifted hundreds of millions out of poverty and solidified the legitimacy of the ruling Communist Party.
“In China, there’s a belief that problems can only be solved in the process of economic development,” said Ma Jun, director of the Institute of Public and Environmental Affairs in Beijing. “Just like a moving bicycle, it runs more smoothly when it is moving at a high speed. But when it slows down, setbacks tend to occur.”
China’s National Development and Reform Commission did not respond to faxed questions. A fax to the Ministry of Ecology and Environment’s listed number would not go through, and no one answered calls to the ministry’s listed phone number.
China’s economy has been slowing since early 2018, when U.S. President Donald Trump began a tariff war between the world’s two biggest economies. Efforts to contain the spread of the coronavirus from its epicenter in Hubei have put a hard brake on growth. Economists believe gross domestic product could contract in the first three months of the year from the prior quarter, leaving full-year growth well below the politically important threshold of 6%.
With millions of firms teetering, Beijing is enacting a series of stimulus measures to get the citizenry back to work, and avoid the widespread unemployment that could lead to unrest and jeopardize President Xi Jinping’s goal of doubling per-capita GDP over the decade that ends in December.
The industry-friendly measures threaten to unravel, at least temporarily, some of Xi’s modest green gains. The super-charged growth of the 2000s came with an unhealthy dose of environmental degradation and left China as the world’s biggest polluter. When Xi came to power in 2013, he made building an “ecological civilization” a priority and began a series of radical measures to improve air quality and cut emissions.
China’s carbon emissions from burning fossil fuels more than doubled in the 2000s, the biggest jump of any country, according to BP Plc. Xi’s first three years in charge actually saw emissions fall, before they started creeping higher again. The short-term need for stimulus, including a big fiscal jolt to infrastructure spending, means pollution controls are likely to take a back seat to shoring up the economy in the second half of the year.
“I don’t think China will go back down the old road of development with huge pollution, but it’s likely the government might adjust its priorities at a time like this” said Qian Guoqiang, a strategy director at SinoCarbon Innovation & Investment Co. in Beijing.
China’s initial response to the outbreak, including quarantining millions of families, shutting down transportation and idling factories, has already reduced carbon dioxide emissions by at least 100 million tons, more Greece spews out in an entire year. Depending on how quickly activity ramps back up and how the government decides to stimulate the economy, emissions growth in the second half of the year could outweigh the short-term reduction.
Among the first casualties of Beijing’s refocus on growth were measures to reduce pollution from heavy industry, put in place to bring blue skies to smoggy cities, particularly the capital. In the winter of 2018, the environment ministry relaxed those rules, adopting a more flexible program for output curbs and giving special treatment to sectors including steel. This past winter, the government again eased its clean air targets.
The step-back from more stringent targets “indicates the enhanced policy priority of growth support relative to air pollution control, in the short term at least,” analysts with Everbright Sun Hung Kai Co. said in a report after the initial relaxation.
In another effort to clear the nation’s skies, the government in 2017 began an aggressive campaign to make homes and factories switch from burning coal to cleaner natural gas. While successful in helping rein in smog, the program also resulted in heating fuel shortages in the middle of winter, and the following year it was eased to allow for a larger role for coal.
The program may face even further cutbacks after the coronavirus outbreak, as the government could halt spending that gives rural customers an incentive to use gas, according to Daiwa Capital Markets analyst Dennis Ip. “We believe China’s economy would be further dampened and hence the three-year rural gas subsidy may not be extended in the coming winter,” he said in a note in early February.
The China Electricity Council is also backing efforts to rely more on the cheaper fuel, recommending that the nation increase its total coal-fired power capacity to a maximum of 1,300 gigawatts from its current cap of 1,100.
The sum of China’s efforts to wean itself off the dirtiest fossil fuel: coal is shrinking as a proportion of the energy mix, but overall consumption continues to rise.
China has also cut the financial support that made it the world’s biggest market for renewable energy and electric vehicles, a decision that’s slowing the adoption of cleaner modes of power generation and transport. EV sales have fallen for seven straight months after the government slashed subsidies by two-thirds last year.
About 70% of China’s operating wind and solar plants were built in the last five years, driven by high subsidies. Those are now being phased out. Solar support is shrinking and wind power payments are expected to cease at the end of next year. The government’s stated reason is to ensure that green energy is sustainable, and competitive with fossils fuels.
But economic pressures are also a catalyst, said BOCOM International Holdings Co. analyst Louis Sun, as China doesn’t want to raise the subsidy surcharge it slaps on electricity bills at the same time as it’s promoting cheaper electricity to help its embattled companies.
Economic headwinds and the coronavirus response could make the plan to establish a national carbon market this year “politically difficult,” according to Fitch Solutions.
It would be the world’s largest, covering more than 3 billion tons of CO2 a year, using market forces to incentivize investment in emissions reductions and offsets. But that would be to the detriment of coal, the most carbon-intensive fuel, on which China relies for most of its electricity and to keep vast numbers of people employed.
Logistics could also slow development, according to SinoCarbon’s Qian. The national market will combine seven regional pilots, including one in Hubei, which has effectively been quarantined for many weeks. And the Hubei pilot is supposed to handle participant registration for the entire nation.
At the last count, China was on track to reach or exceed its 2030 emissions targets under the 2015 Paris agreement. But it’s yet to give an update on progress; nor has it established the more aggressive goals required before this year’s climate conference in Glasgow in November. Coronavirus and a severely weakened economy “make the call for enhancing China’s climate targets tougher than before,” said Li Shuo, a policy adviser for Greenpeace China.
Beijing is in the process of compiling its 14th five-year plan, which will cover development from 2021 to 2025. The 13th plan set ambitious targets to revamp the country’s energy mix, and it’s likely to hit most of them.
But for the next five years, analysts are less optimistic that the government will aim as high again. Premier Li Keqiang in November cited shoring up the economy as one of the government’s major goals, and that was before the current health crisis. Beijing is instead likely to adopt a more flexible approach and avoid hard targets that could put it in a bind, said Michal Meidan, China director for the Oxford Institute for Energy Studies.
“That doesn’t mean that China doesn’t care about the environment anymore,” she said. “It just needs to prioritize growth in the near term.”
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