A thermal power plant discharging heavy smog into the air in Changchun, northeast China’s Jilin province.Click to Open Overlay Gallery
FOR YEARS, CHINA and the US have kept each other locked in a regulatory stalemate over climate change. As political rivals, neither one of the world’s biggest carbon emitters was going to budge unless it was sure any action it took to curb carbon dioxide emissions wouldn’t let the other run away with the world’s economy. Then, within 60 days of each other, Presidents Obama and Xi Jinping each released detailed plans to curb coal power plants. Has the world gone completely sane?
President Xi Jinping announced his country’s commitment to cutting emissions from the White House on September 24, the same day Pope Francis lectured Congress on how climate change is affecting the world’s poor. None of this is accidental. These two superpowers likely hope their combined barking will herd the rest of the world into a global emissions agreement at the upcoming United Nations climate talks, to be held in Paris starting at the end of November.
It’s been a long time coming. Past attempts at global emissions agreements have failed because neither the US or China (or any other emitters) wants to be left holding a bag full of economy-wilting regulations. But the effects of climate change are beginning to overshadow the benefits of ignoring it, so last year the pair bilaterally announced that they would curb emissions.
Obama followed through in August with the Clean Power Plan, an EPA regulation that limits how much carbon each state can emit, but lets those states figure out their own ways to reach emissions targets. In an ironic turn that nobody missed, China went with a market-based cap and trade system. This lets dirtier power plants buy credits earned by those that emit less carbon. “In cap and trade, the government provides a means by which companies can find lowest cost ways to reduce their emissions,” says Jake Schmidt, international program director for the National Resources Defense Council.
Many environmentalists favor cap and trade, because they say it saves the economy, business, and consumers from a lot of the financial hardships that come with transitioning to lower emissions. “If you let the market make the decision, that means emissions will occur at the lowest cost,” says Mark Tercek, CEO of the Nature Conservancy and a former investment banker. Market-based solutions also push innovation forward, says Tercek, and could result in things like carbon-scrubbing smokestacks, cheaper wind turbines, or hydrogen fuel cells for all. (That last one’s a long shot, FYI.)
But not everybody’s sold. “As usual with these things, I tend to think China’s cap and trade announcement as overhyped,” says Ted Nordhaus, chairman of the Breakthrough Institute, an Oakland-based environmental think tank. He says the notion of creating market-based incentives for clean energy is based on a false premise: that renewable energy is anywhere near being competitive with traditional sources.
Sure, solar has come a long way in terms of cost and efficiency, but it’s still a long way from scaling up to replace fossil fuels. This substantial disparity means lower profits for energy companies, which turn into higher prices for consumers. “I think it creates a kind of fantastical view of how energy markets really function,” Nordhaus says. “You have the idea that you are going to apply market-based principles to things that don’t function like markets, and a cap that functionally doesn’t cap anything.”
He has a point. Cap and trade has performed pretty terribly in Europe. This is partly because the program miscalculated Europe’s baseline and projected emissions, and gave out way too many carbon credits. At the same time, Europe was heavily subsidizing renewables (under cap and trade, the market is supposed to spur innovation, not government spending), basically neutering the system. “The net impact on emissions was nil,” says Nordhaus.
For evidence this could be the case in China, Nordhaus points out that the country’s government is already pouring money into its nuclear energy, shale gas, and renewable energy programs. These subsidies could create low-priced energy alternatives that the cap and trade market can’t compete with. The coal power industry would have few incentives to innovate, because their competitors are already operating at such a (government-subsidized) advantage.
The hope and anxiety surrounding China’s decision is a reflection of the feelings swirling around the upcoming UN Paris talks. Predecessor meetings in Kyoto, Rio, Copenhagen are considered failures mainly because the biggest emitters—the US, China, plus India—typically respond with non-commitments that can be summed up as the bureaucratic equivalent of a ¯\_(ツ)_/¯. This time, cynics warn that the US and China announcements will shroud Paris in a green haze, clouding over ineffective emissions agreements.
On the other hand, pollution, drought, famine, and infrastructure-slurping sea level rise all pose significant economic—not to mention political—burdens. A brighter view of Paris is that climate change is already so awful that the self-interested international panoply are finally valuing expensive regulations over cheap energy.