ADAM TOOZE ON CHINA, THE WORLD AND THE CLIMATE CRISIS

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17 october 2020


Welcome to the Final Battle for the Climate


The great powers have taken big steps to fight global warming. Now attention turns to the rest of the world.

By Adam Tooze, FP, October 17, 2020

China’s unilateral commitment to carbon neutrality by 2060 took the West by surprise. If President Xi Jinping’s words can be taken at face value, the country which emits more carbon dioxide than the United States, Europe, and Japan put together is embarking on a radical program of decarbonization. Climate change politics at a global level thus shift into a new gear.

There were no doubt tactical motives behind the timing of Xi’s announcement. But to imagine that China’s strategy is a propagandistic diversion or a concession to Western diplomacy—a liberal quid pro quo for Xi’s dictatorship—is both to overestimate Western leverage and to underestimate the climate problem. It is precisely because the Communist Party regime is bent on shaping the next century that its leader takes climate change seriously. In the calculus of the regime, Yangtze river floods are, like Hong Kong rights protestors, a threat to its grip on power. The future for Beijing’s authoritarian China Dream looks far more uncertain in a world of runaway global warming.

Xi’s move may scramble Western preconceptions, but it has been obvious since the beginning of this century that China would have the decisive voice in the future of the global climate. A quarter century before it is expected to overtake the United States in terms of GDP, China surpassed it in terms of carbon emissions. China dominates all the heavily polluting industries worldwide—coal, steel, aluminum, cement. Once this could have been attributed to offshored Western production. Today, China consumes most of its heavy industrial output at home. With his decarbonization commitment, which eclipses any plausible future move that the EU or the United States might make, Xi has simply made clear where the real decision lies.

Indeed, locating China’s strategy first and foremost in relation to East-West relations is itself a backward-looking and increasingly anachronistic perspective. With every passing year the significance of the EU and the United States in the equation of climate change dwindles. In 2018, the United States and Europe together accounted for 8.9 gigatons of carbon emissions, no more than a quarter of the global total. China alone outweighed that with total emissions, on a production basis, of 10.1 gigatons. If you add all three up—China, the United States, and the EU—you have just over half of the global total. The rest, 17.9 gigatons, twice the output of the United States and EU, is accounted for by India and the rest of the world. Moreover, whereas the emissions of the Big Three are stagnant—falling numbers in the United States and EU offset any increase in China—the trend in the rest of the world is strongly upwards. As more and more countries enter the energy-intensive middle-income phase of growth, as they urbanize, build power stations, and their better off citizens buy cars and air conditioners, overall CO2 emissions surge.

It is the environmental concomitant of the rise of the global middle class.

As a result, we are already well past the point at which global stabilization can be achieved by a deal between the G3. What both Western and Chinese climate policy need is a stabilization pact that involves not only India, but other big emerging market economies like Brazil and Indonesia, future population giants like Pakistan and Nigeria and the big coal, oil, and gas producers, like Australia, Canada, Russia, and the Gulf states. Those debates have been going on for years at global climate talks. But the announcement by China changes the game for all the players.

The U.S. narratives of climate politics tend to center on the global agreement at Paris in 2015, the first occasion on which virtually every country on earth agreed to take steps to address global warming. But Paris was deceptive. It set a temperature target of 2 degrees, and an aspiration to achieve no more than 1.5, whilst leaving it up to each nation to commit to whatever it could manage. It defused the explosive question of the just allocation of the remaining carbon budget by ignoring it. The result was a package of commitments, which modelling showed to be completely inadequate to achieving the temperature goals.

Global emissions have continued to rise. The overall energy mix has hardly shifted. Economic growth wipes out any energy efficiency gains. Trump’s withdrawal from Paris made an already disastrous situation worse, opening the door to backsliding by the Brazilians, Australians, Russians, and Saudis. It was this profoundly alarming situation that triggered the grassroots political mobilization for climate action that has been such a remarkable feature of the last few years. As the year started, the question was whether America’s exit from Paris would be offset by new commitments from the EU and China.

Xi’s announcement has gone further than anyone anticipated. In 2015, the refusal by China to commit to a definitive emissions path defined the Paris fudge. If the biggest piece of the future refused to be pinned down, there was no way to even define the equation to be solved. Now, Beijing has staked its claim. It has abandoned once and for all the line that separated emerging from advanced economies in previous climate talks. This will make it harder for Europe to renege and it will put significant pressure on India as well as the United States. But it also marks the terminus for the strategy of superpower bargaining that laid the groundwork for Paris. Now we have to finally come to terms with multipolarity.

When climate politics as we know it began, the world was a different place.

In the 1980s, European and American scientists talked about climate as global problem, but it was a globe imagined and analyzed from the West. China and India’s economies accounted for a few percentage points of global GDP. The West and the Soviet Union dominated the emissions balance sheet.

Then, in the 1990s, what had once been a preserve of elite Western scientists exploded into the raucous politics of modern global climate negotiations. The annual gathering of the 197 Parties that have joined the U.N. Framework Convention on Climate Change—the so-called Conferences of the Parties (COPs)—are U.N. general assembly-style meetings and they are as cumbersome and complex as that would suggest. As exemplified by the Kyoto protocol of 1997, the fundamental conflict was between the big emerging markets led by China and India, which insisted that the climate problem was for the industrialized economies to fix, and the United States, which refused to sign up to any deal that did not include China. This was at the root of U.S. opposition to the Kyoto protocol. Of course, there was also the know-nothing anti-science stance adopted by some in the GOP. There were fossil fuel interests led by Exxon that sponsored denial. But, in the end, the objection to the Kyoto Protocol, shared virtually unanimously by both sides of Congress, was geoeconomic. Whatever the history of emissions, China was a future climate superpower and the United States would not ratify an agreement that did not bind it as well.

It was the interpretation of the climate problem in terms of climate justice on the part of China and India, and geoeconomics on the part of the United States, that in the end necessitated a superpower bargain. At first it was the Europeans who brought India and China to the table by making a unilateral commitment to a second round of Kyoto cuts. Then, the Obama administration brokered bilateral bargains with China and India. It was those superpower deals that set the stage for the climactic general assembly in Paris in December 2015.

China has now doubled down on the Paris framework. For the first time since climate talks began in the early 1990s, the largest emitter has committed to decarbonization. But important as that is, it will not, by itself, be enough. What Beijing and anyone else who cares about climate stabilization needs now is not just a parallel commitment by the United States but binding commitments to deep decarbonization from the rest of the world. And for that, we will need a suitable tent.

When it comes to driving decarbonization, the relevant group of countries is large and heterogeneous. It includes both big energy users and big energy producers. Decarbonization may be an overall net benefit. But the distributional trade-offs are painful. And some states may feel themselves to be net losers. No other emerging market has China’s resources to offset the sectoral cost of energy transition. No other state, rich or poor, can match the authoritarian capacity of the Chinese regime to repress dissent among the domestic losers of transition. The middle-income energy producers are desperate to maintain their oil and gas exports. Many middle- and low-income economies will be susceptible to offers of cheap energy with no strings attached. Around the world, energy subsidies running into the hundreds of billions of dollars per annum continue to be an important part of the social bargain, especially for the aspiring middle-class. Worldwide, hundreds of millions of people still lack access to electricity. If it is hard for rich countries to imagine a transition, it is all the more difficult for those still in the early stages of industrialization.

There are several hundred large and profitable corporations whose entire business model will be upended by rapid and deep decarbonization. Western oil majors like Exxon are high on that list. But of the ten companies that most dramatically increased their CO2 emissions over the last five years, four were Indian, two were Chinese, the others were Australian, Russian, and Korean. Swiss-based LafargeHolcim, cement supplier to the world, came in at number two. Energy is a business for state capitalists. Twelve of the top 20 corporate CO2 emitters are state-owned. The national oil corporations of Iran, Iraq, Mexico, Algeria, and Venezuela are not just businesses. They are pillars of their national economies and state finances.

One worry must be that recalcitrant coalitions will develop, whose projects for energy autonomy and economic development thwart the overall decarbonization push. Even within the EU, Poland, with its heavy reliance coal, has refused to join the otherwise unanimous commitment to net zero by 2050. In July this year, it used its bargaining power to puncture the carbon credentials of the European corona recovery pact. Repeated on a global scale, that is a worrying prospect. The increasingly frantic struggle for influence over the gas fields of the eastern Mediterranean is a case in point. Turkey has a rapidly growing demand for energy. It wants new sources of gas to relieve its alarming dependence on gas imports from Russia.

If comprehensive global assemblies are unmanageable and superpower deals are too narrow, what is needed is a more manageable grouping within which to broker decarbonization.

The G20 is one obvious framework. Its history runs in parallel with that of climate politics and reflects the same struggle to find an appropriate framework within which to coordinate and legitimize governance in a multipolar 21st-century world.

The G20’s origins are in the controversy caused by the Latin American debt crisis and the Asian financial crisis of the 1990s. Harking back to its foundation at the Bretton Woods meeting of 1944, the International Monetary Fund (IMF), which led the crisis-fighting efforts, was dominated by its American and European shareholders. In the post-Cold War, postcolonial world, its heavy-handed methods were seen as an increasingly unacceptable intrusion on sovereignty. The G20 was rigged together in 1999 as a way of providing the management of the world economy with a broader political base. The story goes that then-U.S. Treasury Secretary Larry Summers tasked his deputy, Timothy Geithner, together with his German counterpart, Caio Koch-Weser, with compiling a list of candidate states. Going down a table of population and GDP, they ticked France and South Africa in, Nigeria and Spain out. The result was a grouping dominated by the G-8 and the so-called BRICS (Brazil, Russia, India, China, and South Africa), with the addition of newcomers to the top table such as Saudi Arabia, Indonesia, Argentina, Mexico, and Turkey.

It was originally a meeting of finance ministers. When the banking crisis erupted in the North Atlantic in 2008, it was upgraded to a forum for heads of government. Of course, such selective groupings have their own legitimacy issues. The G20 was denounced as a return to the 19th-century “concert of the powers.” But that was precisely the point. The notion of sovereignty, which treats states with populations counted in the thousands as the equals of China or India, may satisfy international lawyers but it flies in the face of real differences in capacities and power. The reason that the G20 may not be suitable for the next phase of climate policy is not that it excludes small countries but that it does not include the right big ones. In making climate policy, Russia, Saudi Arabia, Brazil, Indonesia, South Korea, and Turkey are all crucial. But how can large states such as Bangladesh, Pakistan, Ethiopia, Egypt, Nigeria, and Iran be excluded? A suitable forum for hard bargaining to address the impending climate catastrophe needs to be a G40 rather than a G20.

But, imagining a forum is one thing, the next question is: What forces might actually compel agreement? If China and the EU are leading the decarbonization push, what influence might they have in accelerating the process?

If history tells us anything, it is that far-off great powers can have only a limited sway. Informal empire is not as easy as it looks. Real influence depends on alignment with the interests of powerful local actors and comes at the price of heavy investment and at considerable risk. That is exactly what China embarked on with the sprawling One Belt One Road initiative. As of last year, 126 countries were involved in the BRI. At that time, those countries accounted for two thirds of the world’s population, 23 percent of the world’s GDP and about 28 percent of global carbon emissions. They are also home to 75 percent of the world’s known fossil fuel reserves. If they continue down the road of carbon-intensive growth modelled by China whilst the rest of the world proceeds to decarbonize, the result by 2050 would be that China’s One Belt One Road clients would end up responsible for 66 percent of global emissions. The belching smoke from their power stations would by itself be sufficient to pitch the world into a scenario of 3 degrees of warming.

Beijing has in the past made promises to “green” the One Belt One Road. But in his historic address to the U.N. General Assembly, Xi made no mention of China’s foreign projects. It will be a crucial test whether Beijing’s commitment to carbon neutrality applies to One Belt One Road. This may face opposition from China’s heavy industrial lobby, but Beijing has a huge lever in the form of its development banks. China Development Bank alone is expected to lend $40-45 billion annually to BRI projects.

A green One Belt One Road would be an even more dramatic proposition that the original coal-based version.

To align all 126 members of the scheme with a 2-degree scenario while enabling them to achieve economic and industrial development would require, according to one set of estimates, investment of $11.8 trillion by 2030. That is gigantic, but after the COVID shock perhaps no longer entirely unimaginable. The cumulative global fiscal response to this year’s pandemic is estimated to have run to $7 trillion.

But while China is in the habit of projecting external financing on the scale of trillions of dollars, for the West that number will likely induce sticker shock. When Germany, a few years ago, floated the idea of a Marshall Plan for Africa, it immediately concluded that the $600 billion per annum required to meet U.N. sustainable development goals could not come from public funds. Rather than “boots on the ground” interventions in local infrastructure, Berlin fervently hoped that African states’ own resources and private capital would do the trick.

If that really is the best the West can do, the question is how to incentivize the investment that is needed. Regulations, like bans on the import of internal combustion engine cars, are essential. Equally important would be a uniform global carbon price to set a floor for global trade. That starts with regional carbon pricing schemes but must move beyond those to carbon border taxes. This is crucial not just as a national measure, but also to contain the strategies of multinationals that will otherwise outsource carbon-intensive production to emerging markets.

The EU brought the threat of carbon taxes into play with China this summer. It may have helped to sway Xi to make his announcement. Based on its market size, the EU is a regulatory superpower. The United States could be too. But increasingly, the most dynamic axis of global trade is not with the West, but between large and rapidly growing emerging markets. China is developing a carbon pricing mechanism. As a giant market for imports from lower-cost emerging markets, China may well want to implement carbon border taxes. If adopted by the EU, United States and China, carbon taxes would exercise a huge pressure on energy choices around the world. Exporting countries that used solar and wind power, rather than coal, oil and gas would be at a huge advantage; money would surely follow.

And a narrow focus on prices and short-term profit margins may underestimate the forces that are at work. There are signs that, like the communist regime in Beijing, “big money” in the West is beginning to take a strategic view. In the week before Xi’s speech to the UN, Climate Action 100 Plus, a lobby group whose members represent global investors with a collective $47 trillion in assets, announced that it would be judging 161 of the largest companies, collectively responsible for up to 80 percent of global industrial greenhouse gases, by their progress towards net-zero carbon emissions.

Like Xi’s speech there was no doubt an element of greenwashing in this statement. But it can also be read as a recognition by giant asset managers like BlackRock and Pimco that the stability of capital accumulation depends in the long run on maintaining a stable environmental envelope. For Western capital as for Xi’s regimes, those risks are political as well as physical. In the event of future climate crises, firms that might be seen as recklessly endangering climate stability may be at risk of suddenly losing their license to operate. The experience of the airlines in 2020 has shown how suddenly the societal response to a future environmental crisis might jeopardize an entire industry.

It is tempting, therefore, to hope that with the climate commitments of China and the EU, the world has achieved critical mass. Technological change, regulatory leadership, price incentives, and investor pressure will drive decarbonization. But to count on these forces alone is naïve.

The fossil fuel systems that define our lives are anchored not just in technology and profit. Decarbonization, like the construction of the fossil fuel economy in the first place, will involve questions of international power and geopolitics. There are those who hold to the dream of the 1970s that renewable energy may ultimately usher in a new era of “soft,” decentralized energy, and politics to match. But even if that unlikely vision remains a goal, getting there requires an act of power—the dismantling of the bastions of fossil energy. They will not simply give way. Indeed, as has recently been pointed out by Jason Bordoff, the geopolitics of decarbonization will be complex and nonlinear. And this is where the United States comes in.

China and the EU are setting the decarbonization agenda. But neither of them has America’s geopolitical reach. A progressive policy push from the U.S. side would make it easier to make the case for decarbonization in India, Latin America, Canada, and Japan. A shift in stance in the United States would also reverse Trump’s climate-skeptic bandwagon that conservative governments in Australia and Brazil have happily joined. This is one area where leading from behind may not be an oxymoron.

The United States does have a unique role with regard to fossil fuel producers. The United States was the architect and anchor of the 20th-century fossil fuel order. When American progressives fondly invoke the Green New Deal and the achievements of the “arsenal of democracy” in World War II, we should not forget that those were triumphs of an oil and coal-fueled industrialism. It was in the mid-century heyday of state activism and creative American statecraft that the oil empire in the Middle East—the nexus of oil corporations, the American national security apparatus, and local regimes—was first forged. America’s Cold War alliances both in Western Europe and East Asia were built on that Mid-East energy platform.

The 1973 crisis put that system in question. In the 1970s, the U.S. government made itself into the lead sponsor of the early science of climate change and renewable energy. But, in the end, as Victor McFarland has shown us with his innovative new study Oil Powers, the United States opted for the alliance with Saudi Arabia and the Carter Doctrine, which made explicit America’s commitment to defending the West’s supply of oil. This set the course for decades of ever deeper and more militarized engagement in the Middle East.

Weary of the ruinously expensive wars in Iraq and Afghanistan, the large-scale commercial application of fracking appeared to offer the United States a trump card both in grand strategy and climate policy. But the new boast of energy independence under Obama, all too easily morphed into a claim to energy dominance under Trump. Rather than exiting the fossil fuel power game, the United States was sucked into a new iteration. As an alternative to Russian gas, the United States positioned itself as a purveyor of LNG—rebranded by the Trump administration as “molecules of freedom.” As the recent price war in oil has demonstrated, the result of the overexpansion of the fracking sector wasn’t dominance for the United States, but new vulnerabilities in the U.S. economy itself.

If now is the moment at which the United States is truly to pivot away from fossil fuels this must involve not just a new energy order at home.

The United States needs to work with China and the EU to help anchor a global framework that keeps a large part of the world’s known fossil fuel reserves in the ground.

Of course, the geopolitics of the exit from fossil fuels are not an American problem alone. For the last half century, Europe built its relationship with the Soviet Union and then with Russia on an energy import policy. (The Nordstream 2 pipeline is the offspring of that history.) Japan and now China are the major customers of the Gulf states. The leading OPEC states have considerable reserves and they vigorously assert their autonomy. In the Gulf, production costs are so low that states like Saudi Arabia and Qatar can confidently expect to be amongst the last suppliers of fossil fuels to the world. Fragile high-cost producers, the likes of Nigeria or Venezuela for instance, will feel the pinch first. But eventually, the ba


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