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Climate key for US, China ties

In a relationship that's strained, sometimes it's a sign of progress if the two parties are talking at all.

That’s where Washington and Beijing stand after US climate envoy John Kerry’s three-day visit to China this week. The two sides are “just reconnecting,” Mr Kerry said on Wednesday, after wider geopolitical tensions in recent years complicated efforts for the two biggest emitters to find common ground on global warming.

In a sign of how prickly the relationship still is, President Xi Jinping took the opportunity of a speech during the visit to reiterate his longstanding view that the country’s energy transition “will never be influenced by others.”

The fact is, however, that there are significant grounds for cooperation that will serve both countries’ broader economic and political objectives at the same time as reducing emissions.

For the US, that starts with recognising that China must be a collaborator, not a competitor. Mr Xi’s own rhetoric on climate and energy wouldn’t look out of place at an ESG conference: framing sustainability as the key to economic growth, pledging a peak in emissions that may yet arrive years early, and promising crackdowns on pollution and industries that use power and carbon inefficiently.

Indeed, it’s possible that China’s emissions trajectory would have been meaningfully better had it not been for the geopolitical tensions.

The growth rate of carbon pollution stagnated between 2014 and 2017, before the push toward more self-reliant economic policies, in response to former President Donald Trump’s trade wars. That sparked a resumption of emissions-intensive, debt-fuelled real estate and heavy industrial development.

By leaving the Trump administration’s broad-brush tariff regime in place, President Joe Biden has ensured the two countries remain at loggerheads on one of the most important diplomatic issues for Beijing.

That’s particularly ironic because the passage of the Inflation Reduction Act has left US industrial policy closer than ever to China. The $500 billion in spending and tax credits attached to the law mean that Washington is making local manufacturing competitive by using public money to push down costs, obviating the need for punitive tariffs to bar imports.

The Biden administration has already shown flexibility on that issue in vetoing a bill in May that was designed to banish solar panels made in China and finished in Southeast Asia.

The upcoming review of Mr Trump’s tariff regime, due this fall, could go further by exempting more products where China’s green technology leadership is already close to unassailable, from lithium-ion batteries to solar modules.

There’s more mileage for the US in regaining its technological edge in the other industries that will be needed as decarbonisation advances toward 2050, such as green hydrogen, green steel, carbon capture, advanced geothermal, and advanced nuclear power.

A policy that reduces protection for mature green technologies while giving incentives for those that are still getting established will draw tension from the bilateral relationship, as well as focusing funds where they’re most needed.

Coal and methane, two issues highlighted by Mr Kerry this week, also show potential for constructive collaboration. They’re closely interlinked, since most of China’s methane emissions are caused by gas escaping from coal mines that the government has vowed, without much success, to rein in.

The key here is for Beijing to set up a national spot power market, like those that prevail in most developed countries, replacing a rigid setup that currently encourages the overuse of coal as backup power. Such a market could reduce carbon emissions by 28% and cut costs by 15%, according to an International Energy Agency study this year.

No country is better-placed to deliver lessons in how to run a liberalised, continental, energy-hungry, decarbonising electricity grid than the US, whose power sector emissions have declined 36% since 2007 and are now the lowest since the 1970s.

A China that lives up to Mr Xi’s rhetoric about “common prosperity” and “ecological civilisation” via a shift away from energy-intensive heavy industry and toward sophisticated manufacturing and services would be the best shortcut to a cleaner global economy.

If the nation can reduce its per-capita emissions to the levels of the European Union (at present, they’re about a third higher, and more than four times as large in absolute terms), then it will have solved a huge piece of the decarbonisation puzzle, as well as providing cleaner air and clearer skies to its aspirational citizens.

By viewing all bilateral issues through a national security lens, policymakers in Beijing and Washington have given insufficient weight to the huge threat that a warming planet poses to their collective security. With the temperature breaching 50°C in California and Xinjiang this week, there’s an opportunity now for both sides to grasp the bigger picture. There’s nothing like a looming common threat to point up how much two rivals can gain from working together. ©2023 Bloomberg

David Fickling is a Bloomberg Opinion columnist covering energy and commodities.

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