The big loser from Obama’s CO2 agreement with Beijing is the United States.
President Obama called the energy agreement with China historic. The announcement is intended to “inject momentum” into the climate negotiations ahead of the December 2015 climate summit in Paris. Reuters described it as “largely symbolic.” True, China’s side of the deal is non-binding, including its aim to start reducing its greenhouse-gas emissions by around 2030. Symbolic it may be, but symbols matter. And the numbers on the Chinese side are truly staggering.
According to the White House briefing, China’s target to derive 20 percent of its energy from zero-carbon-emission sources would require China to build more wind, solar, and nuclear capacity than all its existing coal-fired power stations. At around 800 to 1,000 gigawatts, this would be almost as much as the total generating capacity of the United States. If it were split equally between wind, solar, and nuclear and constructed in the United States, the extra cost of this zero-carbon-generating capacity would be around $2 trillion. Even if costs in China are half those in the U.S., a trillion-dollar price tag in a $9.2 trillion economy is still a huge amount of money.
At the same time, President Obama announced a doubling of America’s pace of carbon reduction. The White House boasted of the “strong actions” it has already taken. In fact, the Obama administration’s strongest action has been to oversee a weak economy. In 2011, electricity consumption was below what it had been in 2007; the reduction in CO2 emissions came mainly from the fact that natural gas displaced coal in a flatlining economy.
The contrast with China could not be starker. In the four years from 2007, when electricity consumption fell in the U.S., it rose by 47 percent in China, where consumption has been accelerating rather than slowing over the last 20 years, and dramatically so. In the ten years from 1991, China’s electricity consumption grew at an annual clip of 8.2 percent. In the next ten years, it grew 50 percent faster, at 12.3 percent a year. By comparison, in the U.S. during the boom years of the 1990s, electricity consumption grew at an average of 2.1 percent a year, falling to 0.9 percent a year in the first decade of this century.
China’s growth spurt has been powered by coal. Last year it consumed half of the world’s coal output. The growth in Chinese demand over the last ten years is nearly the equivalent of adding the coal burn of the 34 member nations that make up the Organization for Economic Co-operation and Development. Rapidly decelerating China’s rate of energy consumption and trying to decarbonize electricity generation, as the Communist party of China implies in the agreement with President Obama, is a huge challenge. Although China and the United States are the world’s largest emitters of carbon dioxide, China’s electricity consumption per head is only one-fourth of America’s. There’s a lot more energy-growth catch-up to come.
There are two big winners and one big loser from Wednesday’s announcement in Beijing. The lowest-cost way of reducing carbon emissions is switching to natural gas. Back in May, China signed a $400 billion gas-supply deal with Vladimir Putin. Just as President Obama was arriving in Beijing for the APEC summit, the Russian and Chinese leaders signed another gas deal. Large though these deals are, if used to generate electricity, 68 billion cubic meters of Russian gas would reduce China’s coal consumption only by about 3 percent. If China is serious about decarbonization, Beijing will probably have to ask Putin for more of his gas. (Russia has been active in promoting decarbonization. Earlier in the week, Russia also signed a deal to supply Iran with up to six nuclear-power stations.)
The other winner is India. Its coal consumption doubled over the last ten years, but it remains far behind China. Although it is the world’s third-largest consumer of coal after China and America, India’s electricity consumption per head is only one-fifth of China’s. Its energy-growth trajectory is running around 20 years behind China’s (as long ago as 1994, China used more electricity than India used in 2011). Diversifying China’s primary energy sources away from coal will help India obtain more coal at better prices. Higher electricity costs in China will also encourage manufacturers to locate their factories in other developing nations such as India.
The big loser from Wednesday’s agreement with Beijing is the United States.