Catching Up, Falling Behind: China’s Green Growth Strategy and the U.S.

Michael T RockSamuel and Etta Wexler Professor of

Economic HistoryBryn Mawr College

Global Climate Change Negotiations

• Stuck on a stark trade-off between climate mitigation and growth foregone

• Inability to come to agreement on system of burden sharing, measured in growth foregone,make it impossible to conclude climate treay

Wrong Model: Not Consistent with CO2 Mitigation Experience in

Northeast Asia

Japan, Korea, and China all view energy efficiency and energy security in stridently nationalistic terms

CO2 intensity falling rapidly in all three

Total CO2 emissions stabilizing in Japan and Korea

CO2 Intensity: China and the U.S.

0.4

0.8

1.2

1.6

2.0

2.4

1960 1965 1970 1975 1980 1985 1990 1995 2000 2005

CO2GDP_CHINACO2GDP_US

Figure 1CO2 Intensity of GDP in China and the U.S.

(Kilograms of CO2 per Constant $ PPP of GDP)

Kilo

gra

ms

of C

O2

Pe

r R

ea

l $ G

DP

(in

PP

P)

Year

.66 kg CO2 /$PPP GDP

.47 kg CO2/PPP$ GDP

Total CO2 Emissions Japan

-200,000

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1960 1965 1970 1975 1980 1985 1990 1995 2000 2005

CO2_JAPANPredicted CO2_JAPAN

Figure 2CO2 Emissions in Japan

(Kilotons)

CO

2 E

mis

sion

s (K

iloto

ns)

Year

China, Korea and Japan Groping Toward a Green Growth

Industrial Development Strategy

Need Different Conceptual Framework for Climate Mitigation: One that

Focuses on Industrial and Technology Policy

China’s Emerging Green Growth Strategy: Rooted in Model of

Technological Catch Up with WestPolicy elements include:1. Openness to trade and investment and

domestic market liberalization2. Promotion of small number of large leading

firms in critical sectors 3. Promote import, adoption, and adaptation of

OECD technologies—some imitative, some innovative

Technological Catch up and CO2 Savings in Cement

Eve of reform (1977) 2/3 cement output (50 MMT) by small scale cement plants

1995 cement output 400 MMT—85% by small Plants

Small plants: low quality cement, economically inefficient, produce 1 MT CO2 per MT of cement

Technological Catch Up Policies in Cement

Open sector to trade and investment, liberalize domestic market

Close small plants

Shift production to large scale rotary plants

Invest in energy efficiency

Chinese Vertical Shaft Kiln

Rotary Kiln

Cement Production and CO2 from Cement in 2008: Saved 520 MMT CO2 by 2008, 720

MMT CO2 by 2030

0

400

800

1,200

1,600

2,000

50 55 60 65 70 75 80 85 90 95 00 05 10 15 20 25 30

Cement productionCO2 emissions

Figure 3China

Cement Production and CO2 Emissions from Cement(Million Metric Tons)

Year

Ce

me

nt P

rod

uct

ion

an

d C

O2

Em

issi

on

s

Iron and Steel

Baosteel, national steel champion:

Built two state of the art Corex process plants for making iron—cooperative project with Siemans AG—project reduces CO2 by 30%

Expensive joint R&D venture Baosteel, Siemans and POSCO, pioneering breakthrough technologies for making steel

Baosteel

Corex C-3000 Ironmaking Plant, Baosteel, China

Electric Vehicles

Transport sector dominated by vehicles consume 35% oil imports, could rise to 55% by 2030

If 30% vehicles on road in 2030 are electric, save 700 million barrels of oil (301 MMT of CO2)

MOST allocating 60% research budget to commercialization of electric vehicles

Electric Vehicles

300, 000 electric vehicles on the road

State Electricity Grid building 75 re-charging stations in 27 cities

Several companies produce electric vehicles, Some in joint ventures with OECD firms, one expects to export them to California in 2010

Electric Power: Renewables Supply 15% Electricity by 2020

Wind energy supported by reduction VAT, concessions model, and power company buy provisions

Solar—China pioneers solar water heaters on roofs—save 84 MMT CO2 in 2010

Applied Materials, major American solar panel R&D and producing firm from Silicon Valley moves to China to be near market

China's Potent Wind PotentialWind power plants in Xinjiang, China.

Credit: Chris Lim; Monday, September 14, 2009

China: Solar Water Heaters

An Applied Materials research lab in Xi’an, China. The Santa Clara, Calif., company is the largest supplier of the equipment used to make

semiconductors, solar panels and flat-panel displays (Source NYT March 17, 2010)

Green Industry Model

• Looks similar to industrial and technology policies followed by Japan, Korea and Taiwan

• Polices are selective (industry and sector specific)

• Tied to technological catch up and energy independence

Green Industry Model• Guided by industry/sector specific technology

support institutions

• Political elite policy champions

• Quantitative improvement goals from national to local level, monitored and tracked

• Use local experimentation; drop those that fail; scale up those that succeed

Criticisms of China’s Green Growth Strategy

• Many serious technological, engineering and economic problems to overcome given China’s weak R&D base

• Hard to pick winners

• Is this sufficient to mitigate climate change

• Administrative decentralization and overlapping bureaucratic jurisdictions result in excessive bargaining re policies

• Strategy of nurturing large lead firms not totally successful

How Might the U.S. Respond?

Use explicit industrial and technology policesto promote energy independence by 2035

Man on the moon project

Defense Department

How Might U.S. Respond?Stabilize the Price of Oil

0

10

20

30

40

50

60

70

60 65 70 75 80 85 90 95 00 05

Real Price of Crude Oil($ per barrel inthe US)

Re

al $

Per

Bar

rel

Year

Put a Low Price (Tax) on Carbonand Raise It Incrementally Over

Time