Does anyone—including China’s central government—have the power to rein in the country’s soaring emissions?
On the north bank of the Yangtze River near Nanjing, countless smokestacks emerge from the vast industrial sprawl and fade into thick smog. Inside the compound of Nanjing Iron & Steel, a six-story-high, geodesic dome houses the plant’s nerve center. Standing before a 30-foot-wide control board, the company’s energy director, Sun Wen Ji, oversees a dozen technicians who continually tweak the operation of the plant’s vast system of ovens, boilers, pressurizers, and pumps in an effort to maximize efficiency and minimize total energy use. The control center was purchased in 2002 from Siemens, the German multinational, at a cost of $5 million, half of which was paid by the government of Jiangsu province. “This is the most modern steel energy system in China,” claims Sun, and indeed, officials in Beijing, Nanjing, and elsewhere point to Nanjing Iron & Steel, a mid-sized steel producer, as a model of energy efficiency.
Official rhetoric aside, the company is both cause for hope and a source of despair—one of China’s best examples of energy reform in action, but also an illustration of why the country’s soaring greenhouse gas emissions show no signs of slowing. Shortly after boasting about his company’s cutting-edge technology, Sun admits that, despite orders from the Beijing central government to further reduce emissions, the plant’s top management had balked at investing the $14 million needed to achieve an additional 10 percent reduction in energy consumption. Meanwhile, he notes, the company is investing hundreds of millions of dollars annually to increase steel production. In 2007 alone, Nanjing Iron & Steel’s output rose by 21.5 percent, to 6 million tons. “They say it’s not economical to invest more in energy efficiency,” Sun says, smiling apologetically. “I hope that this will change.”
All around China, the situation is the same—energy use is skyrocketing, particularly by heavy industry, which accounts for more than 30 percent of China’s total emissions. According to studies released last year by the U.S. Energy Information Administration and Lawrence Berkeley National Laboratory, China has not only overtaken the United States to become the world’s largest source of greenhouse gases, but its emissions have been growing at a rate that far surpasses the efforts of all wealthy nations to decrease theirs. The central government in Beijing has tried to slow the trend, with limited success in the past year. Even if the government were to achieve its own conservation targets, the country’s red-hot industrial boom would push greenhouse gas emissions upward by about 2.3 billion metric tons over the next five years. By comparison, the Kyoto Protocol requires wealthy nations to reduce their emissions by a collective 1.1 billion tons during that period. (That includes the United States, which withdrew from the treaty under President Bush and is therefore not bound by the commitment.)
Nearly all projections regarding the so-called tipping point—the threshold at which climate change becomes unstoppable—have relied upon extremely optimistic projections regarding the trajectory of Chinese emissions. For example, the Intergovernmental Panel on Climate Change, the U.N. body that shared the Nobel Peace Prize with Al Gore, assumes that Chinese emissions will grow by only 3 percent annually, an unexplained reduction from the 5.7 percent average growth from 1986 to 2006, and an even sharper drop from the 10.1 average increase from 2001 to 2006.
Obviously, if the world is to cut its emissions in half by 2050, as many scientists say is necessary to avoid catastrophic warming, the problem of China’s runaway emissions must be solved. Attitudes differ on how to confront the issue. Some governments say more pressure needs to be put on Beijing to take substantial action, while others insist China simply needs foreign development assistance and subsidized access to energy-saving technologies that are being developed in the West. For its part, the Chinese government, in its role as the leader of the world’s developing nations, wants multi-billion-dollar grants and the relaxation of foreign patent protections, while insisting that the blame for global warming is the West’s alone. For both the Chinese leadership and the Bush administration, the standoff has been convenient, a circular passing of blame that leads to nowhere. Yet there is no guarantee that when the finger—pointing ends, progress on reducing emissions will begin. In the end, the scariest aspect of China’s economic boom may be that no one—not even the Communist leadership in Beijing—is in control and no one has enough power to make it go green.
The mountain is high and the emperor is far away. It’s one of the oldest clichés in Chinese politics, one that harks back to China’s dynastic, pre-communist past, when local warlords ruled far-flung provinces. But despite Western perceptions of communist China as an iron-fisted autocracy where Beijing calls all the shots, the old cliché holds true. “The central government has been making some very sincere and real attempts to rein in energy use, but the levers it has to control the economy are a lot weaker than most Americans may think,” explains Yang Fuqiang, who is head of the Beijing office and a vice president at the Energy Foundation, a San Francisco nonprofit that is a leading international funder of Chinese emissions-reduction programs. “There are so many very powerful interests around the country, and with economic growth being so fast, they are very difficult to control.”
In the past year, top Chinese officials, led by President Hu Jintao and Premier Wen Jiabao, have tried to reassert their authority, issuing a series of increasingly strident demands that industry reduce its energy use. Their key benchmark has been a 4 percent annual reduction in energy intensity—the amount of energy consumed per unit of production. The target is only a minor improvement over the two-decade average annual reduction of 3.5 percent, but the government has been unable to achieve even this modest goal. Despite threats to punish local officials who fail to obey the new policy, China reported a reduction in energy intensity of just 1.3 percent in 2006 and 3.3 percent in 2007.
“It’s important to note that the Chinese are taking big policy steps to get them off the energy trajectory that they’ve been on,” says Mark Levine, director of the China Energy Group at Lawrence Berkeley National Laboratory, which has been at the forefront of U.S. energy cooperation with China since the late 1980s. “But even if the Chinese do all these things they’re doing, that’s not enough. I don’t think anybody has grounds for being happy with the situation. A lot more is needed.”
In an attempt to shore up its failing energy mandates, the government announced last year that the State Environmental Protection Administration, China Banking Regulatory Commission, and People’s Bank of China would ban any bank loans to non-compliant firms. But to its great embarrassment, the leadership was forced to admit that its demands had often been ignored. “Some provinces and financial institutions still have not implemented the green credit policy at all, and some others have made only superficial efforts,” Pan Yue, the deputy environmental protection chief, told a Beijing press conference in February. Significantly, he pointed out that in some areas many of the industries that consume the most energy and produce the most pollution are also the most lucrative industries, so local governments may refuse the order to cut off loans.
And internationally, too, Chinese corporations act more like free agents than like Beijing’s loyal servants. Take the case of PetroChina, the state-controlled oil giant at the center of China’s controversial involvement in Sudan and the genocide in Darfur. According to Trevor Houser, an energy analyst with China Strategic Advisory, a New York consulting firm, international oil data and customs receipts show that PetroChina sells most of its Sudanese output on the world spot market, not domestically. From the standpoint of a private corporation, this makes sense—Beijing sets an artificially low price for PetroChina’s domestic sales. But it also raises suspicions that the central government is not in charge. “What is perceived in the West as a very strong central government able to control the country, in reality is fairly weak,” says Houser. “The overriding metric for the oil companies is financial performance, and since parts of those firms are publicly traded, increasingly these firms are held to the same standards as ExxonMobil or BP—and they act in the same way. In terms of overseas investment, the driver there is commercial incentive.”
In January 2008, I journeyed more than 1,000 miles by train and bus from Shanghai to Beijing, through uninterrupted smog. Mile after mile, villages emerged and disappeared in the gloom. They all had one thing in common: smokestacks. This is part of the legacy of Mao’s Great Leap Forward in the late 1950s, when peasants were ordered to build village smelters and melt every metal item within reach, from kitchen utensils to farm tools, in order to boost the nation’s industrial might. As a result, heavy industry now exists in every nook and corner of the country. For decades, these far-flung factories were under centralized communist control, but in the late 1990s, the Beijing government decentralized the state-owned sector and handed the reins of industry to a hodge-podge of quasi-governmental owners: provincial, municipal, county, and village authorities. They’re still “state-owned,” but they now answer to local bureaucracies, not the central government.
One morning, I toured Luancheng, an industrial suburb of Shijiazhuang, the capital of Hebei province. My host was Zhang Zhongmin, the leader of Green Friends, a local environmental group. As we drove through factory landscapes virtually identical to Nanjing’s, Zhang informed me that the local government had shut down all power plants smaller than 300 megawatts. Shortly after he made the assertion, however, we came upon a brand-new power plant—a small one. Zhang later found out that the plant had been authorized by the local government, “because it was needed for the industrial park.”
Days later, in a Shijiazhuang teahouse, I interviewed the deputy director of the Hebei Province Environmental Protection Bureau, Yang Zhiming. He was a friendly, compactly built man, with bushy eyebrows that twitched as he spoke. I asked him whether his province—home to 68 million people and much of China’s coke, chemical, and aluminum industries—had complied with the central government’s energy intensity reduction edict. “This is very difficult,” he answered, brows jumping. “As you know, there are many different elements that are not yet in full coordination.” I then asked whether he knew who owned the power plant we had discovered, and who owned the chemical factories in the industrial park. He answered with a thin smile. “This also is difficult, but we are making our best efforts to find this out.”
Later, I asked Zhang, the environmentalist, whether he understood who owned what and who was in control. He was silent for a long moment. “Ah. That is difficult,” he said finally, his normally expressive face going blank. Having perhaps weighed the consequences of saying more, he changed the subject.
Exchanges like these might seem like the evasions of people who feel their necks are on the line, but even experienced financial analysts in Beijing say it’s nearly impossible to understand the chains of command in Chinese business. “The relationships of ownership and control are often very unclear, and this is a real problem for the central government in managing energy consumption,” says Arthur Kroeber, co-director of Dragonomics, a Beijing consulting firm. The central government can still make state-owned firms like Sinopec or China Aluminum meet national goals, he explains, but “it isn’t able to alter the behavior of something like Guizhou Aluminum Smelter #2 because there are so many of them. Some provinces, especially in the interior, mainly care about economic development, and the central government has no incentive or cost structures to change that.”
The standard Western response to the growing environmental threat from China has been to throw money at it—a state of affairs that suits China’s leadership but serves little functional purpose. Consider: China is currently the single biggest recipient of foreign aid through the Clean Development Mechanism (CDM), an arrangement within the Kyoto Protocol that allows developed countries to gain carbon credits by investing in emissions-saving projects in developing countries. (In the past two years $15 billion in CDM credits have been registered to China.) Now consider that China currently has the world’s greatest cash reserves—$1.6 trillion and growing by about $30 billion per month. Furthermore, because state-owned banks shovel vast amounts of loan capital to the same quasi-autonomous firms they financed for decades under orthodox communism, the country’s industrial corporations are likewise drowning in capital. Money, it seems safe to say, is not China’s problem.
“We are not so poor as you think. We are getting richer every day, and we have more technology than you think,” says Li Qiang, chief of the energy department of Jiangsu province. “But we need policy knowledge, we need expertise. That’s how you can help us.” Li and other officials want help designing a system of environmental regulations modeled on California’s. And to some extent, they’ve been getting it.
For the past 20 years, with little funding and virtually no publicity, California scientists and specialists from Mark Levine’s group at Lawrence Berkeley Lab, as well as the state’s Energy Commission, Air Resources Board, and Public Utilities Commission, have traveled to China to advise national, provincial, and municipal governments. Funded largely by the nonprofit Energy Foundation, they have successfully set up pro-conservation electricity rate structures, clean-energy-technology tax incentives, tighter vehicle-emissions regulations, stronger building-insulation standards, an Energy Star home-appliance labeling system, and other such programs designed to curb China’s greenhouse gas emissions by improving efficiency and encouraging conservation.
“Berkeley Lab and the Energy Foundation have made a big difference here,” said Yu Yanshan, deputy director general of the State Electricity Regulatory Commission. In late 2006, Yu spent a month in California studying the state’s success with its renewable portfolio standard (which mandates that utilities derive 20 percent of their power from renewable sources by 2010) and its public goods charge (a fee added to ratepayers’ bills that funds energy-efficiency programs).
“China’s biggest lack is training,” says Levine. “We should be giving more help to develop human resources, help energy efficiency, not only for China but other developing countries. This is something that could be a grand challenge [for Western nations], with very substantial resources placed into it, a huge training program … for policy tools, business planning, investments, and renewable energy.”
But the idea of helping China regulate itself is anathema in Washington, especially at a time when bloody protests in Tibet have brought renewed attention to the Beijing government’s human rights record. For years, in fact, U.S. policymakers have seen China’s environmental crisis as a potential spur to Chinese democracy activists. The conventional thinking is that Beijing should be weakened, not strengthened. Little surprise, then, that there is resistance from many Chinese officials, who see U.S. environmental overtures as Trojan horses. “We like your assistance, but we are very aware that your government is trying to use all kinds of ruses to undermine our government,” Zhu Xiaoguang, a Hebei province environmental official, told me. “We must be suspicious of everything, because we know that nothing you do on the environment is free of some dark intent. Isn’t that right?” Zhu asked, eyeing me triumphantly.
In both Washington and Brussels, meanwhile, talk has turned to direct confrontation. Legislators are considering possible “green” trade sanctions on Chinese products if Beijing doesn’t agree to a new international treaty that includes mandatory emissions limits—a move the Bush administration warns would cause a “trade war.” Officials in Beijing have promised to challenge any such sanctions through the World Trade Organization.
Against the threat of diplomatic standoff, the logic of California-style regulatory assistance becomes increasingly compelling. A stalemate over global warming could spell doom for the planet, after all. But by helping Beijing’s environmental authorities re-establish their dissipated regulatory power, there is hope, at least, that the central government can bring China’s industrial warlords back into the fold and begin to limit their country’s emissions.