Thursday, August 27, 2015

China and Climate: Macro-Problems, Macro-Solutions

Dramatic convulsions in the Chinese equity markets, rippling through the world's exchanges, combined with currency instabilities, talk of a broader collapse of a Chinese 'bubble economy,' seisms in international commodity markets, and more ... It seems clear that the global economy is going through a turbulent transition as China's mega-economy heads for a 'correction,' a 'slow-down,' or maybe a complete bust. But how will any of these scenarios affect the move to transform global energy use and reduce carbon emissions?

It seems clear that the Great Recession of 2008-09 was the single most effective means yet to control carbon consumption, but alas, it's a painful, temporary, and ultimately counter-productive way to do it. China's annual GDP growth rate has halved to a 'mere' 6-7 %, but that's still a lot of increased energy use. And the effects of a Chinese downturn are multiple, even perverse, and not so easy to predict. For example:

  • Chinese global leadership in production of solar panels could be affected, as narrow profit margins will be compromised by market uncertainties;
  • China's slowed pace is already part of the steep drop in oil prices, which tends to delay oil exploration--good--but increase demand--very bad, with serious counter-incentives in electric auto development, for example;
  • General instability as China adjusts to new conditions can only exact a cost in the climate diplomacy initiative begun last fall with Obama's visit to Beijing, as such niceties can be too expensive to maintain in times of crisis;
  • Conversely, greenhouse gas emissions apparently flatlined in 2014, before the Chinese turbulence really took hold, after steep increases the previous year, with no apparent macro-economic drivers at all.
My own amateur's intuition is that the Chinese impacts are so large that we should expect major consequences from what looks to me like more than a natural 'correction'--but I wouldn't be foolhardy enough to predict what those will be. My larger impression is that these global macro-economic events are still holding the rest of us hostage, preempting more direct and rational interventions in the climate problem. In short, we need a new way to measure 'bottom line,' with carbon externalities factored in. That's a mandate bigger than the Paris conference's, but maybe the reviving of the EU carbon exchange, the expansion of China's carbon markets nationwide, not to mention California's big steps in the same direction, will both gain momentum and extend it in the charged atmosphere of the Paris negotiations.

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