Reaping the Economic Benefits of Decarbonization for China

• Author: Fei Teng,Frank Jotzo
• Date: 01 September 2014
• Published date: 01 September 2014
• DOI: http://doi.org/10.1111/j.1749-124X.2014.12083.x

37

China & World Economy / 37–54, Vol. 22, No. 5, 2014

©2014 Institute of World Economics and Politics, Chinese Academy of Social Sciences

Reaping the Economic Benefits of

Decarbonization for China

Fei Teng, Frank Jotzo*

Abstract

China needs to reduce its carbon emissions if global climate change mitigation is to succeed.

Conventional economic analysis views cutting emissions as a cost, creating a collective

action problem. However, decarbonization can improve productivity and provide co-benefits

that accord with multiple national policy objectives. We track China’s progress in reducing

the emissions intensity of the economy, and construct a macro scenario with China’s carbon

emissions peaking in the 2020s. Investment in greater energy productivity and economic

restructuring away from heavy industries can bring productivity gains, and decarbonization

of energy supply has important co-benefits for air pollution and energy security. Combined

with lower climate change risks and the likelihood that China’s actions will influence other

countries, this suggests that cutting carbon emissions is not only in China’s self-interest but

also in the global interest. To properly identify the true costs and benefits of climate change

action requires new thinking in economic analysis.

Key words: China, climate change mitigation, co-benefits

JEL codes: O44, Q48, Q54

I. Introduction

Climate change has traditionally been framed as a global common problem arising from

climate change mitigation being a global externality, compounded by the long-term nature

*Fei Teng, Associate Professor, Institute of Energy, Environment and Economy, Research Center for

Contemporary Management, Tsinghua University, Beijing, China. Email: tengfei@tsinghua.edu.cn; Frank

Jotzo (corresponding author), Associate Professor and Public Policy Fellow, Crawford School of Public

Policy, Australian National University, Canberra, Australia. Email:frank.jotzo@anu.edu.au. Some of this

work benefited from a grant from the Australian Government through the “Australia-China Research

Program on Climate Change Mitigation Policy.” For helpful comments we thank Alun Gu, Feng Shenghao,

two anonymous referees and the editor of this special issue.

38 Fei Teng, Frank Jotzo / 37–54, Vol. 22, No. 5, 2014

©2014 Institute of World Economics and Politics, Chinese Academy of Social Sciences

of the problem. Consequently, climate change mitigation suffers from the classical collective

action problem, so nations will not sufficiently coordinate to address the problem to the

extent that would be globally optimal. This problem is acute as global greenhouse gas

emissions will need to fall to approximately half their current level by the middle of this

century to limit future climate change to a manageable level. This will need to be achieved

while maintaining strong economic growth, which is a prerequisite for developing countries

to prosper.

Mitigation action is traditionally viewed as economically costly, and any costs incurred

are viewed as a burden that needs to be shared among nations. Such burden sharing is

fraught with difficulty. First, there are significant differences in historical emissions among

countries, with the majority of accumulated greenhouse gas emissions in the atmosphere

from developed countries but almost all of the current incremental growth of greenhouse

gas emissions from developing and industrializing countries. Second, distributing the

mitigation burden among countries in a way that accords with principles of equity and

broadly accepted notions of fairness while minimizing the overall mitigation cost would

require large financial transfers between countries (Pan et al., 2013). Third, the mitigation

burden is compounded by the future damages and costs of adapting to climate change,

which in many cases may disproportionately affect developing countries with low incomes

and limited institutional capacity.

The world’s nations are now working towards a new climate change agreement, to be

finalized at the December 2015 UN climate conference in Paris. It is predicated on the notion

of “nationally determined contributions” to a global effort to reduce greenhouse gas

emissions, rather than as a negotiation over how a predetermined overall goal should be

shared. This is more suited to a situation where there is not sufficient trust and collaboration

to solve the conundrum of burden sharing.

If this approach is to deliver a strong mitigation outcome, nations will need to find their

own benefits from taking strong action to decarbonize their economies. For this purpose,

countries need to set aside the conventional view of mitigation as imposing only costs on

national economies. Instead, nations need to make more broad-based and inclusive

assessments of the changes that a low-carbon trajectory brings for their future prosperity

(see Zhang, 2014).

Opportunities may be revealed for self-interested action to cut emissions, and for

countries to cooperate on the basis of self-interest. International cooperation on climate

change could shift from the traditional burden sharing paradigm to a benefit and opportunity-