Wednesday, December 14, 2011

All the Hot Air in China

All the Hot Air in China

Cutting carbon emissions requires restructuring the economy. Which is why Beijing won't do it.


China made ripples earlier this month when its lead climate negotiator suggested that Beijing would be willing to strike a deal on carbon emissions. It hardly matters that this willingness won't kick in until at least 2020, which is one reason the U.N. conference on climate change held in Durban, South Africa, flopped last week. Those who care about such things (we aren't among them) are nonetheless parsing the outcome for signs of whether Beijing really is serious now.

Hint: The current regime is not serious about emissions and is not likely to get serious, ever. The reasons are worth contemplating because this is at heart a business and political-economy story, not a carbon story.

The optimistic strand of conventional wisdom holds that Beijing will one day be willing to sign on to limits on carbon emissions. The theory is that China simply needs some more time as a heavy polluter to grow itself to a level of prosperity where it can afford greener technologies. Cutting emissions is expensive.

Then again, Beijing is willing to invest billions of dollars in green technologies already. A Wall Street Journal article last week noted that China increasingly is a more receptive market for American clean tech than America is.

Perhaps some factor beyond cost is at play. Japan offers a clue as to what that factor might be. A couple of prime ministers ago, Yukio Hatoyama pledged to cut his country's emissions by some 25% from their 1990 levels by 2020. It was a particularly foolish idea for an economy that, thanks to decades of high oil prices and strict regulation, already boasts manufacturers that are among the most efficient in the world in carbon emissions per unit of production.

After one has made every last power plant, jet engine, assembly line and car as efficient as they can possibly be given today's technology, one either hopes for an energy-boosting technological miracle or else starts restructuring the economy. The question is whether the regulatory structure of an economy as a whole allows, let alone encourages, business to make efficient decisions about energy usage and by extension emissions.

In Japan, long accustomed to an array of government supports for exporting manufacturers at the expense of other industries, the answer was uncomfortable, which is why Tokyo lost its appetite for pressing the carbon issue. Japan was not among the deal enthusiasts at Durban.

Imagine the questions Beijing would face if China really were to get serious about carbon. Would it make sense to continue extending cheap credit to state-owned heavy manufacturers at the expense of greener private-sector start-ups? Might allowing freer communication over the Internet hasten the arrival of less-polluting service companies, an area in which China noticeably lags? Would it be feasible for China to shelter domestic green "champions" with various protectionist measures, or would the country be better off importing top-of-the-line green tech immediately?

China probably is closer to crunch time on such issues than is commonly assumed. While the country's existing power generation, manufacturing, transport and the like are all generally less carbon-efficient than those found elsewhere, China is adding new capacity at breakneck speed and the new stuff is at the technological frontier already. Reform, not technological investment, will soon be the only way forward.

Take aviation. The challenge facing American Airlines, say, is how to retrofit or retire an aging, fuel-inefficient fleet. But Chinese carriers are in the process of acquiring large numbers of new planes from scratch as they add capacity. Those planes already will boast the least-carbon-emitting engines available anywhere.

As a result, much of any carbon efficiency gains in Chinese aviation would have to come from regulatory reform. Beijing would be forced to consider whether it makes sense to allow the politically powerful military to control some 80% of China's airspace, leaving only narrow, idiosyncratically shaped corridors for commercial use and thereby requiring planes to follow circuitous, excess-fuel-burning routes to their destinations.

Would leaders in Beijing, atop a delicately balanced authoritarian system, have the stomach to take on the military in the name of helping the aviation industry meet a global carbon emissions target? Not any more than those leaders would have the stomach to take on politically powerful large industries, let alone to tolerate the economic disruption that would accompany a shift to a potentially greener, market-determined balance between services and manufacturing.

Those who are justifiably skeptical about man-made climate change might still allow that carbon usage is one indicator of overall economic efficiency. Beijing seems to recognize this, too, which is the real reason not to hold your breath for a climate deal.

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