Climate Change Economics: Perspectives from China 9811902208, 9789811902208

Table of contents :
Preface
Contents
Part I Theoretical Framework of Climate Change Economics
1 Complexity of Climate Change as a Subject in Economics
1 Theocratic Challenges Facing Climate Change Economics
2 Policy Options for Climate Change Response
3 Paradigm Transition of Climate Change Economics
References
2 A Critique of Conventional Economic Approaches to Climate Change
1 Understanding the Nature of Climate Change in Economics
2 Externality Approach: Cost Internalization
3 Public Goods: Cost–Benefit Analysis
4 Resource Sharing: Development Right and Interest Assessment
5 Policy Choices
References
3 Climate as a Factor of Productivity
1 The Natural Elements in the Productivity Analysis of Political Economics
2 The Climate Factor in Ecosystem Productivity
3 Analysis on the Capacity Determined by Climate Factors
4 Contents of Climate Productivity
5 Levels of Climate Productivity
6 Climate Value in the Economic System—Conclusions and Discussions
References
4 A Welfare Economics Analysis on the Vulnerability to Climate Change
1 Economic Assessment on Climate Change Impacts
2 Building the Analytical Framework Based on Social Welfare Function
2.1 Economic Welfare and Its Risk Assessment
2.2 China’s Social Welfare Function in the Context of Climate Change
3 Comprehensive Assessment of Climate Vulnerability
3.1 Indicator Selection and Data Collection
3.2 Assessment Results and Analysis
4 Adaptation Zoning Based on the Vulnerability to Climate Change
5 Risk Assessment and Its Policy Implications
5.1 Calculation of Economic Losses and Welfare Risks
5.2 Reducing the Welfare Risks Through Adaptation Planning
References
5 Emissions Embedded in Trade
1 Embedded Energy and a Literature Review
2 Methodology for Calculating the Energy Embedded in Export and Import Products
2.1 Methodology
2.2 Data Sources and Processing in the Case Study
3 Calculation Results of the Embedded Energy in China’s Product Imports and Exports
3.1 An Analysis on the Embedded Energy of China’s Export in 2002
3.2 Analysis of the Embedded Energy in China’s Goods Import in 2002
3.3 Analysis of the Net Embedded Energy in China’s Trade in 2002
3.4 A Time-Series Analysis of the Embedded Energy in China’s Import and Export
4 Error Sources and Policy Implications
4.1 Error Source Analysis
4.2 Analysis of the Policy Implications
5 Development States, Comparative Advantages, and Carbon Leakage
5.1 Concept and Theories of “Carbon Leakage”
5.2 “Carbon Leakage” and International Competitiveness
6 Trade Measures and Climate Policies—Carbon Tariffs
6.1 The Necessity and Justification for BTAs
6.2 Legitimacy of Border Tax Adjustments Under the WTO Framework
7 Trade of Climate-Friendly Goods and Services: Opportunities and Challenges
7.1 Definition and Categories of Climate-Friendly Goods
7.2 Liberalizing the Trade of Climate Friendly Goods
7.3 Influences of Developed Countries’ Low-Carbon Measures on Developing Countries’ Export
References
6 Prospects of Carbon Emissions as Bads for Trading
1 International Formulation and Practices of Carbon Markets
2 Difficulties Facing Carbon Emission Trading Systems
3 China’s Efforts for Establishing a National Carbon Emission Trade Scheme
4 Main Challenges in Carbon Market Establishment
5 Recommendations on Carbon Market Development
References
Part II A Budget Approach to Climate Justice and Security
7 Carbon Emissions Demands of Human Development
1 Concept of Human Development
2 Development Philosophy of Neoclassic Economics
3 Post-welfarist Development Philosophy
4 Human Development Gaps and Resource Requirements
5 Carbon Emission Needs of Developing Countries
References
8 Achievements of Human Development Goals with Low Emissions
1 Reconsidering the Climate Change Mitigation Targets
1.1 The Mitigation Targets Under the Kyoto Protocol: From the Berlin Mandate to Marrakech
1.2 Are the Mitigation Targets in National Priorities?
1.3 Dual Nature of Carbon Emissions
2 Emissions Under Human Development Targets
2.1 Ultimate Consumption Behind Carbon Emissions
2.2 Low-Emission Development
3 Committing to Low-Carbon Emissions for Human Development
3.1 Voluntary Commitments
3.2 Conditional Commitments
3.3 Mandatory Commitments
4 Reporting and Implementation
4.1 Quantification of the Emission Targets
4.2 Verification of Emission Reductions
4.3 Incentives and Disincentives for Implementation
5 Evaluation of Environmental Effectiveness
5.1 Environmental Integrity
5.2 Uncertainties
5.3 Comparing the Commitments Under the Kyoto Protocol, the Paris Agreement, and the Human Development Proposal
References
9 Measuring Carbon Emissions for Basic Necessities
1 Basic Needs Approach
1.1 Definition
1.2 Characteristics of Climate Change and the Economic Activities of Human Society
1.3 Applying the Basic Needs Approach in Climate Change Regime Designing
2 Basic Needs Quantification
2.1 Flow and Stock of Basic Needs
2.2 Basic Needs at Subsistence Level Versus Basic Needs for a Decent Life
2.3 Results of Basic Needs Qualification
3 Energy and Emission Implications of Basic Needs Satisfaction—A Case Study on China
3.1 Quantification Method
3.2 Calculation Method and Assumptions
3.3 Quantification Results
4 Application of the Basic Needs Approach
References
10 Quantification of Historical Emission Responsibilities
1 Historical Emissions: Their Scientific Basis, Measurement Methodology, and Uncertainties
1.1 Scientific Basis of Historical Emissions
1.2 Historical Emissions: Their Measurement Methodologies and Uncertainties
2 Technology Progress Spill-Over Effect and Discount of Historical Emissions Responsibilities
2.1 The Economic Implications of Historical Emission Responsibilities Under the Carbon Budget Proposal
2.2 Discounting of Historical Emission Responsibilities
2.3 How Should the Historical Emission Responsibilities Be Discounted?
2.4 Influences on China and Strategy Recommendations for China
References
11 A Carbon Budget Approach to Net Zero Emissions
1 Basic Concept and Equity Implications of the Carbon Budget Proposal
2 Total Carbon Budget and Their Initial Allocation
3 The Adjustment and Transfer of Carbon Budget
3.1 Initial Carbon Budget Adjustments Based on Natural Conditions
3.2 Carbon Budget Transfer and Payment Based on Actual Needs
4 Does the Carbon Budget Proposal Favor Specific Countries?
5 Relevant International Mechanism Designing
5.1 Market Mechanism
5.2 Financing Mechanism
5.3 Compliance Mechanism
5.4 Application Prospects
6 Main Strengths and Features of the Carbon Budget Proposal
References
Part III Climate Capacities and Adaptation
12 Climate Capacity as a Natural Asset
1 Relevant Concepts and Connotations of Climate Capacity
2 Climate Capacity Case Studies
3 Policy Implications of Climate Capacity
References
13 An Analytical Framework for Climate Adaptation
1 Theoretical Analysis Framework for Climate Change Adaptation
2 Economic Analysis of Climate Change Adaptation
3 Policy Options for Climate Change Adaptation
3.1 Agricultural Adaptation Capacity Building
3.2 Water Resources Management and Ecological Protection
3.3 Health Risk Management and Urban and Rural Health Insurance System
3.4 Coastal Infrastructure and Habitat Construction
References
14 Adaptation Planning
1 The Concept and Content of Adaptation Planning
1.1 Adaptation Planning Implications
1.2 The Objectives and Primary Actors of Adaptation Planning
1.3 The Connotation and Implementation Steps of Adaptation Planning
1.4 The International Practice of Adaptation Planning
2 Primary Methods of Adaptation Planning
2.1 Stakeholder Analysis
2.2 Cost–Benefit Analysis (CBA) and Cost-Effectiveness Analysis (CEA)
2.3 SWOT Analysis of Strategic Planning for Adaptation
3 Adaptation Planning Case Study
3.1 Screening for Adaptation Policy Options
3.2 Determine the Basic Principles of Policy Preference
3.3 Adaptation Policy Assessment: Identification of Policy Preference Sets
References
15 Climate Migration
1 Retrospective of the Concept of Climate Migration
2 Connotation of Climate Migration and Its Characteristics
2.1 The Motivation of Climate Migration
2.2 The Purpose of Climate Migration
2.3 The Policy Rationale for Climate Migration
2.4 Climate Migration Governance Entities and Evaluation Methods
3 Ecological or Climate Migration: The Case of Ningxia
3.1 Different Drivers of Migration
3.2 Different Sources of Funding
3.3 Different Policy Implications and Their Impacts
4 Policy Implications of Climate Migration
4.1 Clearly Define the Concept of Climate Migration
4.2 Integration of Climate Migration into National Strategies to Address Climate Change
4.3 Providing Financial Security for Climate Migrants
4.4 Integrated Planning in Key Areas of Climate Migration
4.5 Construction of International Climate Regime and Relevant Mechanisms
References
Part IV Paradigm Shift for Achieving Paris Targets
16 Meeting SDGs Through Paradigm Shift in the Evolving World Pattern
1 The Emerging Pattern of World Geopolitics and Its Implications for Sustainable Development
2 A Change in the Global Landscape for Development
3 A New Vision for a Sustainable Future
4 A Shift Towards a New Paradigm of Ecological Civilization
5 Accelerating the Transformative Process
References
17 Gaining Momentum Pushing the Paris Agreement Process
1 The Paris Agreement: Launching a New Process
2 How Fast Can We Go: Constraints Still Exist
3 Enhanced Actions: Urgent Need for Transformational Breakthroughs
References
18 A Comprehensive Transformation Required for Achieving the Paris Targets
1 The Challenge of Low Carbon Transformation
2 Comparison of Available Pathways
3 The Need for Transformational Thinking
4 Collaboration Transformation
5 Accelerating the Transformation Process
References
19 China as a Transformative Power in the Shaping of a New Global Climate Regime
1 The Evolution of the International Climate Governance Landscape and the New Challenges
1.1 The World Carbon Emissions Pattern Has Changed Significantly
1.2 The Principle of “Common but Differentiated Responsibilities (CBDR)” Has Been Destabilized
1.3 The Parties in the International Climate Negotiation Have Been Divided and Reorganized
1.4 The “Duality” Puts China Under Double Pressure
2 China’s Strategic Positioning in the New International Climate Change Landscape
2.1 After Paris: The New Landscape for Climate Policy
2.2 Harmonious Development Between Humans and Nature for a Transition Economy
2.3 Weighing the Pros and Cons of the CBDR Principle
2.4 Strategic Positioning of Climate Cooperation with Major Economies
3 Leveraging on Climate Change to Expand International Cooperation
References
20 Basic Approaches to Low-Carbon Economy
1 The Concept of a Low-Carbon Economy and Its Connotation
2 Core Elements of a Low Carbon Economy
2.1 Resource Endowment
2.2 Technological Advancement
2.3 Consumption Pattern
2.4 Economic Development Stage
3 Eliminating Misconceptions About Low-Carbon Economy
4 Indicators for Evaluating Low Carbon Economy
References
21 Choices and Actions to Climate Mitigation in China
1 The Experience of Developed Countries
2 China’s Experience Within the Global Pattern of Carbon Emissions
3 China’s International and Domestic Commitments to Address Climate Change
4 The Challenges of Addressing Climate Change
5 Possible Options for China’s Climate Change Targets
References
22 Early Peaking for a Fast-Moving Towards Net-Zero Emissions
1 Responsible Climate Ambition
2 High-Quality Development Opportunities: From Carbon Peak Towards Carbon Neutral
3 Net-Zero Carbon Transformation in the Era of Ecological Civilization
References

Citation preview

Jiahua Pan

Climate Change Economics Perspectives from China

Climate Change Economics

Jiahua Pan

Climate Change Economics Perspectives from China

Jiahua Pan Beijing University of Technology Beijing, China Translated by Xianli Zhu and Weili Weng

Published with financial support of the Innovation Program of the Chinese Academy of Social Sciences. ISBN 978-981-19-0220-8 ISBN 978-981-19-0221-5 (eBook) https://doi.org/10.1007/978-981-19-0221-5 Jointly published with China Social Sciences Press The print edition is not for sale in China (Mainland). Customers from China (Mainland) please order the print book from: China Social Sciences Press. © China Social Sciences Press 2022 This work is subject to copyright. All rights are reserved by the Publishers, whether the whole or part of the material is concerned, specifically the rights of reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. The publishers, the authors, and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publishers nor the authors or the editors give a warranty, express or implied, with respect to the material contained herein or for any errors or omissions that may have been made. The publishers remain neutral with regard to jurisdictional claims in published maps and institutional affiliations. This Springer imprint is published by the registered company Springer Nature Singapore Pte Ltd. The registered company address is: 152 Beach Road, #21-01/04 Gateway East, Singapore 189721, Singapore

Preface

The Kyoto Protocol, with its adoption in 1997, gave rise to hot debates on the international or political economy challenges that combined geopolitics, energy security, climate protection, justice, and economic efficiency. The debates attracted my interest in climate change research. Back then, I saw an advertisement in The Economist for a Senior Economist Position at the Support Unit of the IPCC Working Group III in the Netherlands. The position’s responsibilities included participating in the technical support and preparation coordination of the IPCC Third Assessment Report (TAR). I passed the job interview by Dr. Bert Metz, the co-chair of IPCC Working Group III (WGIII), during his trip to Beijing. Consequently, in 1998 I started working at the IPCC WGIII TAR, and my time there lasted till the release of the WGIII TAR in 2001. Together with experts from the WGI and WGII, I also gave technical support to prepare such special reports on civil aviation, land use and agriculture, technical methodology, and emission scenario. In addition, we also provided technical support to the government review of the TAR. In 2001, I returned to China and began a position at the Chinese Academy of Social Sciences (CASS). In my two decades of work at CASS, my research mainly focuses on climate change economics, participating in relevant national and international academic exchanges, and providing advice and recommendations to the Chinese government and international institutions. Although I worked as an economist at the WGIII Technical Support Unit, I realized the high uncertainties of climate change in science, the high sensitivity in international politics, the justice implications, the close linkage to economic development, and the cost issues in policy-making. Moreover, climate change also has strong connections with laws, culture, and regulations and far exceeds the economics research domain. Hence, my knowledge and research of climate change economics have transited from focusing on protecting the rights and interests of developing countries to the opportunities of zero-carbon development and human well-being improvement. In the process, I have proposed the just and equitable emission right allocation based on human development needs, the fair and just obtainment of development rights, the global prevention of future climate risks, and the zero-carbon prosperity based on harmonious co-existence between human societies and nature. I v

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received primary education in poor rural China during Mao’s era. After reform and opening up, I was able to receive university and post-graduate education in China. After three years of research in China, I went to the UK, a developed Western country, for education and research at Cambridge University. I understand the enormous width and depth of the urban–rural divide in China, the global south, and the global north. During my work on the IPCC Mitigation Assessment Report, I participated in the academic debates of north–south geopolitics and economic policies. Intuitively, I understood and analyzed issues from the perspective of protecting developing countries’ interests. As my understanding of the climate change problem deepens and the world geopolitical and economic situation change, I have gradually realized it is developing countries’ interests to respond to climate change. With technology progresses and risk deterioration, the transition toward a zero-carbon economy is not only countries’ responsibilities and obligations but also new engines and frontiers for development. Developing countries can skip the phase of high-carbon development and directly achieve carbon neutrality. Zero-carbon energy services hold enormous opportunities for sustainable development. This book summarizes my research on climate change economics and policies during the past two and a half decades. Broadly, it also reflects the changes in my understanding and knowledge. The book includes four parts and 22 chapters. Part I is a criterial review of climate change economics in theory. After a systematic assessment of the shortcomings of mainstream economic approaches, I elaborate on the complexity of climate change economics from the nature of carbon emissions in economics and restructure climate change economics. Part II discusses the just and efficient allocation of carbon emission rights, an economic resource, from climate security and justice perspectives. This part reflects the evolution or significant changes in my understanding, from carbon justice as equal allocation of carbon emission rights in the beginning, to the just obtainment of development rights and opportunities in the next phase, and then to the equitable and just access to human well-being. Carbon emissions are not a necessity for the world economy and social development. What we need are energy services. Zero-carbon energy can secure the lasting prosperity of humanity. Part III focuses on climate change adaptation. My main theoretical innovations in this part include climate capacity analysis, which is seen as a rigid threshold at the macro-level, yet specifically, it is a fundamental resource for socio-economic development. Therefore, countries need to understand the risks and improve their resilience and adaptation to climate change in their policy choices. Part IV of the book is a revolutionary reflection on the studies of climate change economics. Utilitarian economics theories and approaches can’t provide any practical solutions for climate change. The nature of climate change and the response challenges indicate that we need a new research paradigm, the paradigm of harmonious co-existence between humanity and nature, to replace the utilitarian paradigm that pursues wealth maximization. According to the new paradigm, the global community needs to base its climate governance framework on the new paradigm; countries need to orient their climate policies and regulate their socio-economic behaviors.

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I am a climate policy scholar familiar with China’s unique circumstances and the Western economy and policy systems. I have the following responsibilities: (1) to help the world understand the inherent logic behind China’s climate policy-making; (2) to provide scientific and theoretical basis and policy recommendations for rational and effective climate policy-making in China; (3) to promote global cooperation for climate protection and the harmonious co-existence of the human race and nature. Therefore, most of my climate policy studies and theoretical analyses are based on China’s development progress. Most of the case studies are also in China. My research has generated some positive social impacts. Since 1998, I have been a lead author of the IPCC WGIII’s Third, Fourth, Fifth, and Sixth Assessment Reports. I am a regular participant of the High-level Political Forums (HLPFs) under the UN Sustainable Development Agenda and the international consultations and discussions under the UNFCCC and organized by UNDP. Since 2006, I have been a member of the Chinese government’s last four successive Climate Change Expert Committees. Moreover, I have been a member of the Foreign Policy Consultation Council of China since 2010 and a member of the National Ecological and Environmental Consultation Committee since 2016. Many of my academic viewpoints and research findings have influenced international climate negotiations, national climate policy-making, and social opinion sharpening. The examples include such concepts and approaches as the carbon emission needs for human development, the historical responsibilities of carbon emissions, the international transferred emissions due to Embedded energy in foreign trade, climate capacity, adaptation planning, climate migrants, a paradigm shift. Hence, most of the chapters are based on my journal articles, reports, or book chapters published in the last two decades. I have not updated some data due to the lack of necessity and the intention to keep the original paper’s original social context. Generally, most of the analyses and understanding in the book bear East Asia’s thinking and philosophy. They are either from the perspectives of China or all developing countries or the height of the common human future and the harmonious co-existence of humanity and nature. These are the reasons why this book gets its title: Climate Change Economics: Perspectives from China. I owe the successful publication to the research team of climate change economics at CASS, including Ying Chen, Guiyang Zhuang, Hongbo Chen, Yan Zheng, Mou Wang, etc. The book also includes contributions from the Ph.D. students I have supervised at the Graduate School of CASS, including Xianli Zhu, Laihui Xie, Xingshu Zhao, Maolin Liao, etc. Furthermore, Xianli Zhu, Weili Weng, Xinran Yang, Xiaolei Yang, and Tianhong Sun have contributed to the revision and updates of the Chinese manuscript. Special thanks go to Xianli Zhu and Weili Weng for improving the Chinese manuscript and quality translation of the Chinese version into English. I also appreciate the China Social Press editors and Springer editors, and the proof reader for their tremendous efforts. Finally, I would like to thank the Ecological

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Civilization Institutes at CASS and the Ecological Civilization School of the Beijing University of Technology for their support and help. Beijing, China

Jiahua Pan

Contents

Part I

Theoretical Framework of Climate Change Economics

1

Complexity of Climate Change as a Subject in Economics . . . . . . . . . 1 Theocratic Challenges Facing Climate Change Economics . . . . . . . . 2 Policy Options for Climate Change Response . . . . . . . . . . . . . . . . . . . 3 Paradigm Transition of Climate Change Economics . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3 4 8 10 14

2

A Critique of Conventional Economic Approaches to Climate Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Understanding the Nature of Climate Change in Economics . . . . . . . 2 Externality Approach: Cost Internalization . . . . . . . . . . . . . . . . . . . . . . 3 Public Goods: Cost–Benefit Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Resource Sharing: Development Right and Interest Assessment . . . . 5 Policy Choices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

17 17 19 22 24 29 31

3

4

Climate as a Factor of Productivity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 The Natural Elements in the Productivity Analysis of Political Economics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 The Climate Factor in Ecosystem Productivity . . . . . . . . . . . . . . . . . . 3 Analysis on the Capacity Determined by Climate Factors . . . . . . . . . 4 Contents of Climate Productivity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Levels of Climate Productivity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Climate Value in the Economic System—Conclusions and Discussions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A Welfare Economics Analysis on the Vulnerability to Climate Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Economic Assessment on Climate Change Impacts . . . . . . . . . . . . . . 2 Building the Analytical Framework Based on Social Welfare Function . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

33 34 36 38 40 43 46 47 49 50 53 ix

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Contents

2.1 Economic Welfare and Its Risk Assessment . . . . . . . . . . . . . . . . 2.2 China’s Social Welfare Function in the Context of Climate Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Comprehensive Assessment of Climate Vulnerability . . . . . . . . . . . . . 3.1 Indicator Selection and Data Collection . . . . . . . . . . . . . . . . . . . 3.2 Assessment Results and Analysis . . . . . . . . . . . . . . . . . . . . . . . . . 4 Adaptation Zoning Based on the Vulnerability to Climate Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Risk Assessment and Its Policy Implications . . . . . . . . . . . . . . . . . . . . 5.1 Calculation of Economic Losses and Welfare Risks . . . . . . . . . 5.2 Reducing the Welfare Risks Through Adaptation Planning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

53 54 57 57 59 62 64 64 68 70

Emissions Embedded in Trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73 1 Embedded Energy and a Literature Review . . . . . . . . . . . . . . . . . . . . . 73 2 Methodology for Calculating the Energy Embedded in Export and Import Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75 2.1 Methodology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75 2.2 Data Sources and Processing in the Case Study . . . . . . . . . . . . . 81 3 Calculation Results of the Embedded Energy in China’s Product Imports and Exports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82 3.1 An Analysis on the Embedded Energy of China’s Export in 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83 3.2 Analysis of the Embedded Energy in China’s Goods Import in 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87 3.3 Analysis of the Net Embedded Energy in China’s Trade in 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88 3.4 A Time-Series Analysis of the Embedded Energy in China’s Import and Export . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89 4 Error Sources and Policy Implications . . . . . . . . . . . . . . . . . . . . . . . . . 92 4.1 Error Source Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92 4.2 Analysis of the Policy Implications . . . . . . . . . . . . . . . . . . . . . . . 93 5 Development States, Comparative Advantages, and Carbon Leakage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95 5.1 Concept and Theories of “Carbon Leakage” . . . . . . . . . . . . . . . . 96 5.2 “Carbon Leakage” and International Competitiveness . . . . . . . 97 6 Trade Measures and Climate Policies—Carbon Tariffs . . . . . . . . . . . . 98 6.1 The Necessity and Justification for BTAs . . . . . . . . . . . . . . . . . . 99 6.2 Legitimacy of Border Tax Adjustments Under the WTO Framework . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99 7 Trade of Climate-Friendly Goods and Services: Opportunities and Challenges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100 7.1 Definition and Categories of Climate-Friendly Goods . . . . . . . . 100 7.2 Liberalizing the Trade of Climate Friendly Goods . . . . . . . . . . . 101

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7.3 Influences of Developed Countries’ Low-Carbon Measures on Developing Countries’ Export . . . . . . . . . . . . . . . . 102 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103 6

Prospects of Carbon Emissions as Bads for Trading . . . . . . . . . . . . . . 1 International Formulation and Practices of Carbon Markets . . . . . . . 2 Difficulties Facing Carbon Emission Trading Systems . . . . . . . . . . . . 3 China’s Efforts for Establishing a National Carbon Emission Trade Scheme . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Main Challenges in Carbon Market Establishment . . . . . . . . . . . . . . . 5 Recommendations on Carbon Market Development . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Part II

105 105 107 108 109 112 114

A Budget Approach to Climate Justice and Security

7

Carbon Emissions Demands of Human Development . . . . . . . . . . . . . 1 Concept of Human Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Development Philosophy of Neoclassic Economics . . . . . . . . . . . . . . 3 Post-welfarist Development Philosophy . . . . . . . . . . . . . . . . . . . . . . . . 4 Human Development Gaps and Resource Requirements . . . . . . . . . . 5 Carbon Emission Needs of Developing Countries . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

8

Achievements of Human Development Goals with Low Emissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Reconsidering the Climate Change Mitigation Targets . . . . . . . . . . . . 1.1 The Mitigation Targets Under the Kyoto Protocol: From the Berlin Mandate to Marrakech . . . . . . . . . . . . . . . . . . . . . . . . . 1.2 Are the Mitigation Targets in National Priorities? . . . . . . . . . . . 1.3 Dual Nature of Carbon Emissions . . . . . . . . . . . . . . . . . . . . . . . . 2 Emissions Under Human Development Targets . . . . . . . . . . . . . . . . . . 2.1 Ultimate Consumption Behind Carbon Emissions . . . . . . . . . . . 2.2 Low-Emission Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Committing to Low-Carbon Emissions for Human Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.1 Voluntary Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.2 Conditional Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.3 Mandatory Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Reporting and Implementation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.1 Quantification of the Emission Targets . . . . . . . . . . . . . . . . . . . . 4.2 Verification of Emission Reductions . . . . . . . . . . . . . . . . . . . . . . 4.3 Incentives and Disincentives for Implementation . . . . . . . . . . . . 5 Evaluation of Environmental Effectiveness . . . . . . . . . . . . . . . . . . . . . 5.1 Environmental Integrity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.2 Uncertainties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

117 118 120 121 123 128 133 135 135 136 136 137 137 137 138 140 140 141 141 142 142 143 144 145 146 147

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Contents

5.3 Comparing the Commitments Under the Kyoto Protocol, the Paris Agreement, and the Human Development Proposal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150 9

Measuring Carbon Emissions for Basic Necessities . . . . . . . . . . . . . . . 1 Basic Needs Approach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1 Definition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.2 Characteristics of Climate Change and the Economic Activities of Human Society . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.3 Applying the Basic Needs Approach in Climate Change Regime Designing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Basic Needs Quantification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.1 Flow and Stock of Basic Needs . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2 Basic Needs at Subsistence Level Versus Basic Needs for a Decent Life . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.3 Results of Basic Needs Qualification . . . . . . . . . . . . . . . . . . . . . . 3 Energy and Emission Implications of Basic Needs Satisfaction—A Case Study on China . . . . . . . . . . . . . . . . . . . . . . . . . . 3.1 Quantification Method . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.2 Calculation Method and Assumptions . . . . . . . . . . . . . . . . . . . . . 3.3 Quantification Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Application of the Basic Needs Approach . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

151 151 151

10 Quantification of Historical Emission Responsibilities . . . . . . . . . . . . 1 Historical Emissions: Their Scientific Basis, Measurement Methodology, and Uncertainties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1 Scientific Basis of Historical Emissions . . . . . . . . . . . . . . . . . . . 1.2 Historical Emissions: Their Measurement Methodologies and Uncertainties . . . . . . . . . . . . . . . . . . . . . . . . . 2 Technology Progress Spill-Over Effect and Discount of Historical Emissions Responsibilities . . . . . . . . . . . . . . . . . . . . . . . . 2.1 The Economic Implications of Historical Emission Responsibilities Under the Carbon Budget Proposal . . . . . . . . . 2.2 Discounting of Historical Emission Responsibilities . . . . . . . . . 2.3 How Should the Historical Emission Responsibilities Be Discounted? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.4 Influences on China and Strategy Recommendations for China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

165

152 152 153 154 154 155 155 157 158 159 162 163

166 166 167 170 170 171 174 176 177

11 A Carbon Budget Approach to Net Zero Emissions . . . . . . . . . . . . . . . 179 1 Basic Concept and Equity Implications of the Carbon Budget Proposal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 180 2 Total Carbon Budget and Their Initial Allocation . . . . . . . . . . . . . . . . 182

Contents

3 The Adjustment and Transfer of Carbon Budget . . . . . . . . . . . . . . . . . 3.1 Initial Carbon Budget Adjustments Based on Natural Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.2 Carbon Budget Transfer and Payment Based on Actual Needs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Does the Carbon Budget Proposal Favor Specific Countries? . . . . . . 5 Relevant International Mechanism Designing . . . . . . . . . . . . . . . . . . . 5.1 Market Mechanism . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.2 Financing Mechanism . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.3 Compliance Mechanism . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.4 Application Prospects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Main Strengths and Features of the Carbon Budget Proposal . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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186 187 189 193 196 197 197 199 200 201 203

Part III Climate Capacities and Adaptation 12 Climate Capacity as a Natural Asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Relevant Concepts and Connotations of Climate Capacity . . . . . . . . . 2 Climate Capacity Case Studies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Policy Implications of Climate Capacity . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

207 207 215 217 219

13 An Analytical Framework for Climate Adaptation . . . . . . . . . . . . . . . 1 Theoretical Analysis Framework for Climate Change Adaptation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Economic Analysis of Climate Change Adaptation . . . . . . . . . . . . . . . 3 Policy Options for Climate Change Adaptation . . . . . . . . . . . . . . . . . . 3.1 Agricultural Adaptation Capacity Building . . . . . . . . . . . . . . . . . 3.2 Water Resources Management and Ecological Protection . . . . 3.3 Health Risk Management and Urban and Rural Health Insurance System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.4 Coastal Infrastructure and Habitat Construction . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

221

14 Adaptation Planning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 The Concept and Content of Adaptation Planning . . . . . . . . . . . . . . . . 1.1 Adaptation Planning Implications . . . . . . . . . . . . . . . . . . . . . . . . 1.2 The Objectives and Primary Actors of Adaptation Planning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.3 The Connotation and Implementation Steps of Adaptation Planning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.4 The International Practice of Adaptation Planning . . . . . . . . . . 2 Primary Methods of Adaptation Planning . . . . . . . . . . . . . . . . . . . . . . . 2.1 Stakeholder Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2 Cost–Benefit Analysis (CBA) and Cost-Effectiveness Analysis (CEA) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

221 224 226 227 227 228 228 229 231 232 232 233 233 236 238 238 239

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2.3 SWOT Analysis of Strategic Planning for Adaptation . . . . . . . . 3 Adaptation Planning Case Study . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.1 Screening for Adaptation Policy Options . . . . . . . . . . . . . . . . . . 3.2 Determine the Basic Principles of Policy Preference . . . . . . . . . 3.3 Adaptation Policy Assessment: Identification of Policy Preference Sets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Climate Migration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Retrospective of the Concept of Climate Migration . . . . . . . . . . . . . . 2 Connotation of Climate Migration and Its Characteristics . . . . . . . . . 2.1 The Motivation of Climate Migration . . . . . . . . . . . . . . . . . . . . . 2.2 The Purpose of Climate Migration . . . . . . . . . . . . . . . . . . . . . . . . 2.3 The Policy Rationale for Climate Migration . . . . . . . . . . . . . . . . 2.4 Climate Migration Governance Entities and Evaluation Methods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Ecological or Climate Migration: The Case of Ningxia . . . . . . . . . . . 3.1 Different Drivers of Migration . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.2 Different Sources of Funding . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.3 Different Policy Implications and Their Impacts . . . . . . . . . . . . 4 Policy Implications of Climate Migration . . . . . . . . . . . . . . . . . . . . . . . 4.1 Clearly Define the Concept of Climate Migration . . . . . . . . . . . 4.2 Integration of Climate Migration into National Strategies to Address Climate Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.3 Providing Financial Security for Climate Migrants . . . . . . . . . . 4.4 Integrated Planning in Key Areas of Climate Migration . . . . . . 4.5 Construction of International Climate Regime and Relevant Mechanisms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

240 240 240 242 242 244 247 247 249 250 251 251 252 252 254 255 255 256 256 256 257 257 258 259

Part IV Paradigm Shift for Achieving Paris Targets 16 Meeting SDGs Through Paradigm Shift in the Evolving World Pattern . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 The Emerging Pattern of World Geopolitics and Its Implications for Sustainable Development . . . . . . . . . . . . . . . . . . . . . . 2 A Change in the Global Landscape for Development . . . . . . . . . . . . . 3 A New Vision for a Sustainable Future . . . . . . . . . . . . . . . . . . . . . . . . . 4 A Shift Towards a New Paradigm of Ecological Civilization . . . . . . . 5 Accelerating the Transformative Process . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

263 263 266 271 273 275 276

17 Gaining Momentum Pushing the Paris Agreement Process . . . . . . . . 279 1 The Paris Agreement: Launching a New Process . . . . . . . . . . . . . . . . . 279 2 How Fast Can We Go: Constraints Still Exist . . . . . . . . . . . . . . . . . . . . 282

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3 Enhanced Actions: Urgent Need for Transformational Breakthroughs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 286 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 290 18 A Comprehensive Transformation Required for Achieving the Paris Targets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 The Challenge of Low Carbon Transformation . . . . . . . . . . . . . . . . . . 2 Comparison of Available Pathways . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 The Need for Transformational Thinking . . . . . . . . . . . . . . . . . . . . . . . 4 Collaboration Transformation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Accelerating the Transformation Process . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 China as a Transformative Power in the Shaping of a New Global Climate Regime . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 The Evolution of the International Climate Governance Landscape and the New Challenges . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1 The World Carbon Emissions Pattern Has Changed Significantly . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.2 The Principle of “Common but Differentiated Responsibilities (CBDR)” Has Been Destabilized . . . . . . . . . . . 1.3 The Parties in the International Climate Negotiation Have Been Divided and Reorganized . . . . . . . . . . . . . . . . . . . . . . 1.4 The “Duality” Puts China Under Double Pressure . . . . . . . . . . . 2 China’s Strategic Positioning in the New International Climate Change Landscape . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.1 After Paris: The New Landscape for Climate Policy . . . . . . . . . 2.2 Harmonious Development Between Humans and Nature for a Transition Economy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.3 Weighing the Pros and Cons of the CBDR Principle . . . . . . . . . 2.4 Strategic Positioning of Climate Cooperation with Major Economies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Leveraging on Climate Change to Expand International Cooperation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Basic Approaches to Low-Carbon Economy . . . . . . . . . . . . . . . . . . . . . 1 The Concept of a Low-Carbon Economy and Its Connotation . . . . . . 2 Core Elements of a Low Carbon Economy . . . . . . . . . . . . . . . . . . . . . . 2.1 Resource Endowment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2 Technological Advancement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.3 Consumption Pattern . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.4 Economic Development Stage . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Eliminating Misconceptions About Low-Carbon Economy . . . . . . . . 4 Indicators for Evaluating Low Carbon Economy . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

291 291 293 295 297 300 301 303 303 304 305 306 308 309 309 310 311 313 315 317 319 319 324 324 326 327 331 332 337 343

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21 Choices and Actions to Climate Mitigation in China . . . . . . . . . . . . . . 1 The Experience of Developed Countries . . . . . . . . . . . . . . . . . . . . . . . . 2 China’s Experience Within the Global Pattern of Carbon Emissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 China’s International and Domestic Commitments to Address Climate Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 The Challenges of Addressing Climate Change . . . . . . . . . . . . . . . . . . 5 Possible Options for China’s Climate Change Targets . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Early Peaking for a Fast-Moving Towards Net-Zero Emissions . . . . 1 Responsible Climate Ambition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 High-Quality Development Opportunities: From Carbon Peak Towards Carbon Neutral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Net-Zero Carbon Transformation in the Era of Ecological Civilization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

345 345 347 351 353 356 358 361 361 364 369 374

Part I

Theoretical Framework of Climate Change Economics

Chapter 1

Complexity of Climate Change as a Subject in Economics

Climate change is a scientific issue involving uncertainty and high risks. It links to interest distribution and requests rational responses. Therefore, the economic analysis provides the necessary theoretical and methodological foundations for understanding and reactions to climate change. Economics contains many theories and many schools of thinking. Climate change is an issue easy to prescribe solutions yet difficult to diagnose precisely. Lack of understanding makes it difficult to identify the solutions and make effective response strategies. The scientific knowledge of climate change economics consists of multiple dimensions and disciplines and is fundamental and frontier. The essential nature is the constraints of climate productivity. Solar radiation, atmosphere water cycles, and landforms form various climate conditions, which people often consider factors in socio-economic activities. Yet, climate conditions affect local natural productivity and shape the conditions for human survival and development. Large-scale anthropogenic carbon emissions cause climate change, especially global warming, causing systematic disruptions and imbalances to the temporal and spatial distribution of natural productivity levels resulting from hundreds of thousands of human activities and billions of years of natural processes. The consequences can be catastrophic. Hence, when establishing the theoretical framework of climate change economics, we need to comprehensively examine the various economic causes and effects of climate change, explore the core factors of climate productivity, and assess climate risks’ welfare impacts. Moreover, we should consider the trade routes of carbon emissions Embedded in commodities and the market prospects of carbon, a negative externality. Climate change is a scientific issue with high uncertainty and enormous risks. It has multiple impacts on different social groups’ interests and requires rational

This Chapter’s contents are based on the keynote speech delivered by the author on August 18, 2017, at the Seminar of Climate Change Economics, a Priority Discipline of the Philosophy and Social Science Innovation Project ‘Peak-ascending Programme’ of the Chinese Academy of Social Sciences. © China Social Sciences Press 2022 J. Pan, Climate Change Economics, https://doi.org/10.1007/978-981-19-0221-5_1

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1 Complexity of Climate Change as a Subject in Economics

responses. Therefore, economic analysis is the theoretical and methodological foundation for understanding climate change and policy and decision-making practices. However, there is a considerable body of economics theories involving multiple schools of thinking. Climate change is an issue that is easy to prescribe general solutions but difficult to assess the specific risks and impacts. Without accurate risk and impact assessments, it is challenging to design response solutions and ensure their effectiveness. What are the main features of climate change?

1 Theocratic Challenges Facing Climate Change Economics In terms of economic features, climate change is an issue of externality (Pigou, 1920; Stern, 2007), also known as the tragedy of commons or public goods (Hardin, 2008; Paavola, 2011). From the perspective of equity, climate change involves the right to development and economic development. Due to the multiple aspects of the issue and different focuses and perceptions, various academic disciplines, even different people from the same academic institution or even the same scholar, can have different views when deciding the academic field of climate change. Some consider climate change a branch of environmental economics, while others believe climate change is a research topic of public economics. Climate change also involves the intra-generation and inter-generation redistribution of resources and entails equity and efficiency. Hence it can also be grouped into development economics, normative economics, institutional economics, and welfare economics. As such a term is used, climate change economics has multi-disciplinary, complex, and integrated features. Based on climate change causes, it is easy to conclude that climate change is a typical externality issue. The usual symptom of climate change is rising ground surface temperature. Scientific observations and analysis indicate that rises in ground surface temperature are associated with higher carbon dioxide concentrations in the atmosphere, caused by carbon dioxide emissions. Therefore, the logic of analysis is as follows: the global surface temperature increase is due to greenhouse gas (GHG) emissions, but the GHG emitters do not need to bear the costs of their emissions. Instead, such costs are shared by other people, the entire society, and future generations. Hence, it is a typical issue of externality. Based on such a diagnosis, the prescript of economics is also straightforward, i.e., internalizing external costs. By levying a carbon tax, the benefits of carbon dioxide emissions and the external costs of climate change can offset each other. With zero net benefits, there will be no incentive to emit carbon dioxide. Even if there are some residual emissions, the carbon emissions can generate some benefits after offsetting all the external costs from society’s perspective. Therefore, they bring about net benefits. However, such a prescript looks simple and is based on inaccurate assumptions. Even if the premises are correct, it is difficult to operationalize. How should we calculate the external costs of climate change?

1 Theocratic Challenges Facing Climate Change Economics

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Climate change seems to be a typical issue of the ‘tragedy of commons.’ The emission space of CO2 in the atmosphere is without borders; anyone can emit and use the emission space for free. Yet, the climate change costs because of the emissions are shared by everyone on earth. If climate change is accepted as an issue of the tragedy of commons in nature, the solution is also simple. Through the norms of property economics, the ownership of atmosphere emission space can be defined. By establishing a carbon market, the global society can enable countries to trade their ownership of emission space and efficient carbon emission space allocation. However, the property right approach has its limitations and cannot accommodate the interconnection and complexity of climate change. In the absence of a world government, who should levy the tax and define the property right? To a certain extent, the utilization of atmosphere space is non-competitive and nonexclusive. Such public goods properties of emission space make it difficult to define and split the ownership. Moreover, as climate change also involves development issues and the right to and benefits of development, it is an issue beyond the application scope of the property right approach. Due to climate change’s features as public goods, such as non-exclusiveness and non-competition, market competition can not automatically balance its supply and demand. In such cases, government interventions are necessary. The government can regulate the volume and quality of public goods supply with fiscal and taxation policies and public administration. There are some disciplinary issues theatrically: climate change is a development issue and needs to be solved through economic development. Governments supply public goods. A key point is the accounting and cost–benefit analysis of climate investment and spending and the temporal and spatial mismatch between climate investment and returns. The supply of public goods is financed with public fiscal resources. Countries of different levels have different fiscal payment capability. Sovereign nations can’t reach a consensus in their priorities in public financing and risk perspectives. Countries of varying development levels inevitably vary in their spending on climate change response, yet limiting global warming is common in all countries. The current generation’s investment in climate protection may benefit the next one or more generations. Climate change protection is an investment in public goods, the costs are definite and current, yet the benefits are uncertain and will only occur in the future. Therefore, even developed countries, despite their high affordability, also lack the motivation to protect the global climate system, public goods. It is widely accepted that climate change is a development issue. All countries pursue development, and carbon emission rights are a component of the development right. Such a perception is because worldwide, carbon emission levels, to a large extent, have a linear connection with living standards and development levels both in the history of individual countries and currently among different nations. The rights to carbon emission are co-related to the rights to development. Development right is part of the inalienable human right; every human being’s equitable rights to enjoying it shall be respected and protected. If this is the case, the solution is also relatively simple—equal per capita distribution of the emission rights. If countries’ historical emissions are considered, each country’s per capita historically accumulated emissions shall be the same to guarantee the fair

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and equitable right to carbon emission space. However, what is the carbon emission rights? There still exists some ambiguity in definition and theory because carbon emissions are not a necessity. There are some energy services of zero carbon emissions, which can also support a high living standard. Hence, carbon emissions are not essential, and development is the key to address climate change. Moreover, in practice, how shall the world define the responsibilities for emissions? How shall we secure the equitable and fair inter-generation distribution of emission rights? If climate change is considered a development issue, then it is a research topic for development economics. Development causes climate change, yet it can also substantially enhance countries’ mitigation and adaptation capacity. Yet, such a hypothesis also faces multiple challenges in both theory and policy-making. Carbon-intensive energy resources can provide low-cost energy services in development, and their high carbon emissions conflict with the need for emission reductions. Besides, the per capita emissions of rich people and advanced countries are high. Yet, existing studies indicate that it is also more difficult to reduce emissions in advanced countries with high emissions (Nordhaus, 1994, 2018). Both the degree and speed of emission reductions in developed countries have been far less than expected. Developed countries have high per capita emissions, yet few developed countries can be role models for developing countries in emission reduction. In practice, there are some highly complicated questions. Who should do what? How much should each country do? How should each country do it? These are questions of institutional norms and fall in the research scope of institutional economics and normative economics. What shall countries do? They need to define climate change’s responsibilities, regulate carbon emissions, and establish rules and standards. It is necessary to control our production and consumption patterns. What are the requirements of this prescript? It requires countries to reach an international agreement through negotiations, including consensus on legal articles and defining each country’s legal obligations. Based on such recognition of the needs to address climate change from institutional norms, the global society started the multilateral climate change negotiations in 1990, reached the UNFCCC in 1992, agreed on the Kyoto Protocol in 1997, and finally reached the Paris Agreement in 2015. Yet, such an approach to climate change also faces a major challenge. Theoretically, climate change is an issue of uncertainty, and countries must compromise to reach an agreement. However, the risks of climate change are natural phenomena and make no compromises with humankind. What shall countries do when they comply with the international climate regime but still face climate change risks? Moreover, how shall the global community deal with countries that refuse to undertake international obligations and are free riders? For example, in 2000, the United States Bush administration withdrew from the Kyoto Protocol, and then in 2017, the Trump administration pulled out of the Paris Agreement. Climate change economics also needs to systematically analyze how we should respond to climate change from climate change risks. Global warming can generate enormous negative impacts on natural ecosystems and human socio-economic systems. The economic losses due to climate change are non-linear, and there exist fat tail risks. Also known as heavy tails, fat tails describe the greater-than-expected probabilities of extreme events and

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values. With the increasing emissions, the risks of system collapse become higher and need regulation. Even the occurrence of such extreme events is of a tiny probability, but the damage will be complete if they occur. Just like car insurance, the likelihood of an accident is low. When an accident does take place, it becomes a fact with complete certainty. Therefore, Sir Nicholas Stern (2007) adopted the riskadjusted cost and benefit analysis to be precautious against climate change’s possible disastrous impacts in his climate change economic analysis. The assessment of climate change risks is an important research topic in climate change economics. In theory, such assessments face high uncertainty and difficulties in discount rate selection as low discount rates cause injustice to future generations and make it difficult to allocate costs. Based on the risk assessment, societies can make optimal choices and establish specific targets for socio-economic development or allocation targets for the utilization of greenhouse gas (GHG) emission space. The Kaldor–Hicks compensation criterion in welfare economics states that a choice is socially optimal as long as it brings a net gain to society, enabling potential losers to be compensated from the net gains. In the 1970s, John Rawls, an American Philosopher, introduced the theory of justice (Rawls, 1971) and proposed to use the Veil of Ignorance to test ideas for fairness. Social choice makers are behind the Veil of Ignorance and lack clues to whether they will be rich or poor, or of high skills or low skills in the future. Social choices shall follow the ‘maximin principle, i.e., seeking the most disadvantaged social groups’ welfare maximization to guarantee justice. However, there exist some difficulties in the operationalization of the maximin approach. Due to information incompleteness, how can we accurately know the level of risks and climate change speed? When will various climate change impacts occur? Due to incomplete market competition, information asymmetry, and market failure, the Matthew effect of accumulated advantage is a given fact in wealth distribution. As can be seen, people have different perceptions of climate change’s nature and apply multiple approaches to the economic analyses of climate change. Existing studies mainly focus on carbon budget management, the carbon market, the principles of carbon justice, and the research on climate risks and their management. Sir Nicholas Stern’s review of climate change’s economic assessment received extensive attention from the international community and lots of questioning from the economics and theory circles after its publication in 2006. In response to these questionings, Stern (2008) published a long paper in the journal American Economic Review to explain the appropriate way to examine climate change economics. One of the most debated points in the Stern Review is using a low discount rate of 0.1%, making future risks a heavy loss today. As a result, he concluded that, the world needs to spend 1–5% of global GDP to control climate change risks and achieve climate security. The results of such an assessment highly depend on their information basis and assumptions. Numerous studies have on climate change are from the perspectives of external cost internalization and environmental economics. Many scholars use CGE models to calculate carbon emissions’ market values and quantify the carbon emission reductions of various policy scenarios and technology pathways by introducing a carbon price or tax. Some American scholars are typical advocators of external cost internalization in climate change economics research. Multiple scholars

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from Harvard University and Stanford University explicitly define GHG emissions as an externality issue, emphasize the priority of efficiency, and shun the problems of justice and development rights. In contrast, researchers from developing countries focus more on equity and development rights and benefits. Different scholars’ theoretical opinions and assessments on climate change economics are closely related to their countries’ international political positions in international negotiations and often involve politics and national interests under the surface.

2 Policy Options for Climate Change Response The carbon market is a popular research topic, and there is an extensive body of literature on it. Many Chinese studies have also discussed the market-based approaches for regulating and controlling carbon emissions in policies and practical operations. In theory, the origin of carbon market studies can be traced to social costs. The command-and-control approaches for emission reduction tend to be expensive, often induce power rent-seeking, and cause corruption. In practice, the United States started the SO2 emission cap, and trading in the late 1980s effectively controlled the national total SO2 emissions, and the overall mitigation costs were low. Due to this successful experience, the US representatives strongly recommended the emission trading system during the Kyoto Protocol negotiations, and other countries accepted the recommendations. As a result, the Kyoto Protocol, which was reached in 1997, included the market-based mechanisms for emission reduction, known as the three mechanisms under the Kyoto Protocol: Emission Trading, Joint Implementation, and the Clean Development Mechanism. Although the justifications for the carbon market seem to be strong, in practice, so far, a global uniform carbon market has not come into being. In 2005, when the Kyoto Protocol entered into force, the European Union (EU) launched its emission trading scheme (ETS). Although the EU ETS only covers big emitters in selected sectors, it has been in continuous operation since then. Apart from the EU, the United States, New Zeeland, and several other developed countries have also set up voluntary carbon emission trading schemes and exchanges. Yet, these markets are ineffective due to their voluntary nature. The Chinese government has committed to the international community based on pilots in several provinces and cities. China would establish a national carbon market in 2017 (IEA, 2020; Zhang et al., 2019). Carbon market establishment involves statistics, monitoring, and verification and faces technical barriers in data access and validation. Policymakers need to decide the coverage of an emission trading scheme, whether it focuses on emissions from suppliers or end-users, and which industries and enterprises the ETS should cover. These are all issues related to the size of the market and its rules and regulations. China committed in its Nationally Determined Contributions’ (NDCs) to lower its GDP’s carbon emission intensity, yet an emission trading scheme is about capping the total GHG emissions. There exist some difficulties in harmonizing these two different approaches.

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Furthermore, Chinese provinces are of different economic development levels and have various energy mixes. There also exist interest conflicts and gaming among central and local governments, provincial-level and city-level governments, enterprises, and the government, and how to allocate and provide the emission quotas. From a legal perspective, the Paris Agreement contains no provision on a global carbon emission trading scheme; it allows different Parties to carry out voluntary emission trading based on their actual circumstances. If some countries accept and participate in establishing a global carbon market, it remains unclear how to link up the different national carbon markets. The carbon market is a policy instrument. Yet, in economic theory, it is a cross-cutting topic that involves such economic branches as property-right economics, environmental economics, and public economics, which can all provide theoretical and methodology support to carbon market study. Climate change is a long-term challenge worldwide, and the research on institutional economics has been deepening and developing in accompanying the progress in the global understanding of climate change. In 1990, the international scientific community was still in the early stages of climate change study; the Intergovernmental Panel on Climate Change (IPCC) (1992) had not reached conclusions after two years of an initial assessment of climate change’s scientific knowledge. In the same year, the United Nations established the International Negotiating Committee for a Framework Convention on Climate Change (INC). In 1992, countries reached the United Nations Framework Convention on Climate Change (UNFCCC). The UNFCCC entered into force in 1994; the first Conference of Parties under the UNFCCC of the same year authorized the starting of negotiations on an international treaty for global GHG emission reduction. The negotiations led to the Kyoto Protocol, which was reached in 1997 and requested developed countries to reduce their total emission. The Kyoto Protocol adopted a top-down approach and stipulated the mitigation targets and funding obligations for industrialized countries. The Kyoto Protocol mechanisms lacked effective enforcement; the international climate negotiations faced some setbacks and failed to reach a new global climate agreement in 2009 in Copenhagen. Finally, the Paris Agreement was reached in 2015 and represented a new international climate regime based on the bottom-up approach and represents an international climate regime of weak binding effect and consensus among countries. These international treaties are significant institutional contributions to the global governance of climate change. Institutional economics requires a combination of development, regulation, and institutional factors. What are the actual implementation effects? This question also attracts wide attention. To achieve the Paris Agreement’s climate targets, the international community needs to limit the global emissions within the available emission space budget. Since 2003, the research team on climate change economics at the Chinese Academy of Social Sciences (CASS) has carried out many studies on climate change economics from such aspects as rights and interests, efficiency, and sustainability. In 2008, we formally introduced the global carbon budget proposal (Pan & Chen, 2010) that combines justice, efficiency, and sustainability considerations. The United Kingdom (UK) has passed legislation on

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carbon budget management to target 20% emission reduction by 2020 and 80% emission reduction by 2050. Each budget period is five years, and the country’s carbon budget management has proved to be effective in emission reduction. Most Chinese studies on climate change economics focus on climate change mitigation and cover carbon market topics, renewable energy, energy efficiency, and macroeconomic assessment. In contrast, fewer Chinese studies on climate change economics are about climate change adaptation. Some natural scientists have studied climate change impacts and adaptation in the agriculture and forestry sectors. But only limited Chinese studies are on climate change risks and the adaptation to them. Internationally, there are many publications on adaptation capacity, food security, ecological security, climate migrants, and climate refugees, and many of them explore the equity implications of different policies. Some European institutions are specializing in climate change impacts and adaptation economics. One example is the Potsdam Institute for Climate Impact Research (PIK) in Germany. Most of the studies on GHG emission reduction are from the angle of carbon equity; many of them are political economics and highlight the political factors. Worldwide, the studies on carbon equity and justice are mainly from the research teams of developing countries, such as the Expert Working Group of the BASIC (Brazil, South Africa, India, and China), the Cape Town University of South Africa, the Energy Research Institute (TERI) from India, as well as some Chinese research institutions. The carbon budget and mitigation burden-sharing proposals based on equity considerations mainly include the grandfathering principle, per capita emissions, historical accumulations, capacity, and needs.

3 Paradigm Transition of Climate Change Economics How shall we orient climate change economics? Climate change economics is a discipline at the crossroads of natural science, social science, and humanities due to climate change’s inherent characteristics. Planetary Economics, published by Grubb (2014), established the framework of climate change economics. In the book, Grubb elaborates on the natural boundary of the earth, ecological security, social development, and efficient resource allocation and confirms the inter-disciplinary and comprehensive nature of planetary economics. How shall we position climate change in economics? The exact name of climate change economics shall be the political economics of climate change as politics plays an important or decisive role in climate change’s economic assessment. Western economics has developed in the Industrial Revolution and bears the powerful features of industrial civilization. Therefore, it can provide effective solutions for climate change. In this sense, economics or all its branches are economic knowledge under the development paradigm of industrial civilization, with strong utilitarian orientation and criteria. They prioritize national interests and the current generation’s interests. The existing economic research on climate change is associated with industrial civilization’s development paradigm, and its moral foundation is utilitarianism. Therefore, climate change requires a paradigm

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change in economics. Public economics and welfare economics are rooted in industrial civilization values and paradigms; they cannot provide fundamental climate change challenges. According to the economic paradigm of industrial civilization, it is impossible to find a pathway for the world’s development and future. The paradigms of industrial civilization aim at national interest optimization and profit maximization. Industrial civilization’s fundamental values consider the conflict of interests fundamental and irreconcilable. Hence, they do not allow for win–win and harmonious development. The historically advantageous position of developed countries will continue enhancing while developing countries’ development needs will constantly increase. Under such circumstances, developed countries and rich people need to protect their vested interests. Developing countries request to improve their development potential. For instance, in the waves of economic globalization, China and some other developing countries follow the industrialization example of developed countries and create comparative advantages in low and medium-end manufacturing due to their cheap labor forces and relaxed environmental regulations. In the process, they grow faster than developed western countries. In the US, the elite classes’ income growth far exceeds those of the blue-collar workers. As a result, the global inequity gaps are widening. In absolute terms, both the income increases and actual income levels in China and other developing countries remain much lower than those in developed countries. Even amid such widening income gaps and inequity, developed countries, especially the United States, call for counter-globalization under its “American First” slogan (Milanovic., 2016). In the competition for the CO2 emission space, developed countries’ needs stay high; developing countries have enormous potential for further emission growth (Pan & Chen, 2016). Whose emission increase needs shall the world prioritize in the course of allocating future carbon emission space? The requirements for bigger emission spaces are due to two main drivers. One is the improvement in living standards; the other is population growth. In developed countries, the living standard needs are almost saturated or even oversaturated, and the population size is peaking or has peaked. Moreover, technological progress can bring about constant decreases in their requirements for emission space. In contrast, low-income developing countries face the challenges of poor living standards and quality and an increasing population. One example is the Republic of Congo in Africa. Data from the United Nations Statistics Division indicated that in 1950, the Republic of Congo was home to 0.48% of the world population; by 2020, its share had reached 1.10%. Thus, the country’s share in the world population has more than doubled. Estimates based on moderate fertility rate project that by 2100, its share will continue increasing and reach as high as 3.5%. In terms of population size, in 1950, the country had only 12 million people. By 2100, the country’s population size is expected to reach 3900 million (moderate fertility rate), implying over 30 times of population increase during 150 years (see Fig. 1). Thus, even if the country’s per capita carbon emission remains the same, its total carbon emissions will grow by more than 30 times due to population growth (UN DESA, 2019). Most of the emerging economies, which are in the rapid development phase, follow the old development paths of developed countries. Since its opening up and

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Fig. 1 Democratic Republic of Congo—population changes since 1950 and prospects

reform, China has been following the conventional industrialization path of developed countries. China’s per capita CO2 emissions were less than 1/4 of the world average in 1970, yet in 2018, it had reached 6.8 tons, 56% higher than the world average. Over the same period, China’s share in global annual CO2 emissions has jumped from 7 to 28% (IEA, 2020) (see Fig. 2). If India follows the same development pattern as China, what will be India’s needs for CO2 emission space? India had 1.37 billion people in 2019, and the projection is that by 2050, India’s population will exceed 1.65 billion people (United Nations, DESA, Population Division, 2019). If carbon equity means equal per capita carbon emission space, shall the equity be among the current generation of people? Or shall it also consider the equal rights of future generations? Under the current development paradigm and based on existing emission intensity, India’s living standard improvement entails at least a quadruple increase of its CO2 emissions. Simultaneously, its population growth will boost the country’s annual CO2 emissions by another 1/3. If the world continues the development paradigm of industrial civilization, it is impossible to mitigate climate change effectively. In the absence of paradigm change and without a change in values and lifestyles, it is challenging to reduce the per capita carbon emissions in developed countries. In contrast, the carbon emissions of developing countries have huge growth potential. Developing countries have low historical emissions and are the victims of climate change. Yet carbon emissions are also an issue of development and externality; the

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Fig. 2 Per capita CO2 emissions from fossil fuels, China, India, and the world average—1900–2018

climate change risks are global and affect every human being. Therefore, an effective climate change response requires new, thorough, and fundamental changes in the development paradigm. The creation of new development paradigms involves the expertise and knowledge of multiple disciplines and their integration. Transition economics needs to study the transit to a new socio-economic development paradigm that pursues harmony between human society and nature, seeks win–win among different countries and cultures, and respects the law of nature. Under the new development paradigm, the social value basis, development targets, rules and regulations, and consumption choices must be low-carbon, oriented towards zerocarbon, and climate-friendly. It is necessary to study the theories of sustaining and improving climate productivity under the context of climate change and the corresponding regimes, mechanisms, and governance systems. In the debate about the role of climate change economics, such positioning is undoubtedly necessary. With such positioning, what shall be the contents of the discipline establishment of climate change economics? In theory, there are three significant aspects: first, the positive economic theories on climate change; second, the normative economics study on global governance; and third, the doctrinal research on the choice theories of climate change risks. In addition, as climate change is a practical and applied economics issue, it is necessary to carry out methodology research and policy analysis on climate change economics. In the normative study of climate change economics, the climate is a type of productivity in theory. Protecting the environment is protecting productivity, and

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improving the environment is developing productivity. In this sense, the climate is productivity. How can the productivity of climate be sustained, improved, and enhanced? This question is fundamental in climate change economics. Climate change is an issue beyond welfare maximization and cost minimization because the different climate elements are cross-cutting and co-related. The global transition to a new climate economy of climate change resilience requires corresponding systematic changes in production, distribution, and consumption patterns. The central research questions include the Paris Agreement, the burden-sharing for mitigation, climate finance, climate programs, and projects in climate governance and policies. The research on climate risks shall be a theoretical proposition of rational longterm choices, not a theoretical prediction of short-term interests under industrial civilization’s paradigm. Due to the impacts of global warming, the research topics include vulnerability analysis and assessment, adaptation capacity, potential, and limit constraints, and all these topics involve system risks. The methodology studies shall cover global stocktaking, carbon budget management, scenario analysis, lowcarbon assessment, and planning. All of them require methodology innovations. Carbon finance also includes some theoretical questions to be answered, but it mainly involves research on policies and methodologies at the operational level. Many existing studies on policies focus on the carbon market; other topics covered include fiscal policies, taxation, finance, and renewable energy policies. There is a lot to do in the discipline establishment of climate change economics. First, we need to establish the discipline system, academic system, textbook system, and discourse system for climate change economics. These contents should combine western thinking, civilization continuity, and eastern wisdom, and the process requires innovation, culture inheritance, preservation and dissemination, and field study and experiments.

References Grubb, M. (2014). Planetary economics—Energy, climate change, and the three domains of sustainable development (3rd edn., 141 p). Routledge. Hardin, G. (2008). Tragedy of the commons. In D. R. Henderson (Ed.), Concise encyclopaedia of economics (2nd edn., 637 p). Liberty Fund Inc.. IEA. (2020). China’s emissions trading scheme—Designing efficient allowance allocation (115 p). IEA Report, IEA, Paris. IPCC. (1992). IPCC first assessment report overview and policymaker summaries and 1992 IPCC Supplement (178 p). Intergovernmental Panel on Climate Change (IPCC).. Milanovic, B. (2016). Global inequality. A new approach for the age of globalization. Nordhaus, W. (1994). Managing the global commons: The economics of climate change (213 p). The MIT Press. Nordhaus, W. (2018). Projections and uncertainties about climate change in an era of minimal climate policies. American Economic Journal: Economic Policy, 10(3), 333–360. Paavola, J. (2011). Climate change: The ultimate ‘tragedy of the commons’? (Chap. 14). In: D. Cole, E. Ostrom (Eds.), Property in land and other resources (pp. 417–433). Lincoln Institute for Land Policy.

References

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Pan, J., & Chen, Y. (2010). Carbon budget proposal: a framework for an equitable and sustainable international climate regime. Social Sciences in China, 31(1), 5–34. Pan, J., & Chen, Z. (2016). A transformative agenda - Sustainable development goals for 2030: Global visions and Chinese experiences (Chinese) (p. 272). Social Science Academy Press (China). Pigou, A. C. (1920). The economics of welfare (xxxvi + 976 p). Macmillan & Co. Rawls, J. (1971). (1971) A theory of justice (p. 570). The Belknap Press of Harvard University Press. Stern N. (2007). The economics of climate change: The stern review (692 p). Cambridge University. Stern, N. (2008, May). The economics of climate change. American Economic Review, 98(2), 1–37. Zhang, H., Duan, M., & Zhang, P. (2019). Analysis of the impact of China’s emissions trading scheme on reducing carbon emissions. Energy Procedia, 158(2019), 3596–3601. UN DESA (United Nations, Department of Economic and Social Affairs, Population Division). (2019). World Population Prospects 2019, Online Edition. Rev. 1.

Chapter 2

A Critique of Conventional Economic Approaches to Climate Change

Climate change is a typical global environmental challenge. As it is an economic issue, we need to examine its properties in economics. According to the existing economic theories, the academic circle has different opinions on climate change’s economic properties. Some scholars consider climate change an issue of externality; some view it as an issue of public goods, while others believe it is an issue of resource sharing. Different viewpoints on climate change properties lead to various theories, climate change response approaches, and policy selection choices. They also lead to different conclusions on the responsibilities and obligations of different countries.

1 Understanding the Nature of Climate Change in Economics Stern (2008) thinks that climate change is different from specific economic fields, such as finance, trade, and industrial economy. It is linked to various economic questions and has a vast scope, including finance, laws and regulations, ethics, welfare economics, public economics, and environmental economics. Because climate change response requires reductions in GHG emissions and adaptation, it is related to development. How much GHG a country or an individual is allowed to emit is primarily an issue of development rights. At the Sino-US Forum on Climate Change Economics held in Berkeley in the US in 2006, the American scholar Akerlof (2006) pointed out that climate change was related to development rights and was beyond economics. He thinks that if a country or an individual emits more GHG into the limited atmosphere, space exceeds its due share. The action is equivalent to taking something not belonging to himself or herself. The atmosphere space for GHG emissions belongs to the entire humankind. Everyone should be entitled to enjoy it; no individual and no country has the right to occupy the emission space This Chapter is partially based on the following article: Pan (2014). © China Social Sciences Press 2022 J. Pan, Climate Change Economics, https://doi.org/10.1007/978-981-19-0221-5_2

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of other people or other countries. The emission space is an issue of fundamental development rights and interests rather than costs and benefits. Using other people’s emission space is an issue of ethics and morals. Akerlof thinks China should neither follow the US’s example nor wait for the US to lead in climate action. Instead, China should take more action in climate change. Global leadership should not belong to the countries simply because they are rich and powerful. Instead, the leadership belongs to the moral and responsible countries that protect all people’s interests and advocate justice. Global warming is a test of authentic global leadership. As can be seen, Akerlof’s analysis of climate change has exceeded the scope of economics. Because of climate change’s unique properties, many issues not covered in regular economic analysis need to be addressed: (1)

(2)

(3)

(4)

It is necessary to discuss climate change economics based on high uncertainties and risks since climate change has deep uncertainty and extensive impacts. It is not just an issue of information incompleteness or asymmetry. Climate change is an ethical issue; there exist considerable differences in per capita annual emissions, total annual emissions, and accumulated missions among different regions and between developing and developed countries. It also involves intergeneration equity: the historical and current emission levels will affect how much climate change impacts the future generations will suffer and how much remaining emission space available to them. Hence, climate change is an ethical issue. Climate change is an issue requiring a practical international governance framework and economic policies. Because climate change is a global challenge, it is an issue beyond a single country’s jurisdiction; and that lacks a world government that can override national sovereignty. International treaties are needed to regulator the behaviors of different countries. Countries’ choices also involve development pathways in their response to climate change, whether they pursue high-carbon or low-carbon development.

Carbon emissions penetrate all aspects and all processes of economic activities. Due to the financial property of carbon emissions, carbon emissions have social costs. How shall we determine the social costs of carbon emissions? GHG emissions are unique in that they can remain in the atmosphere for a long time. Hence, the concentration of GHGs in the atmosphere accumulates over time and causes longterm impacts.1 Global warming is an undeniable fact. The global warming from pre-industrial levels to the decade 2006–2015 is assessed to be 0.87 °C (Allen et al., 2018). Due to inertia, even if the countries started to take effective action and the annual global GHG emissions began to decrease today, by 2100, the concentration of GHGs in the atmosphere could still increase by 50% (Collins et al., 2013). The 1

Each of the greenhouse gases can remain in the atmosphere for different amounts of time, ranging from a few years to thousands of years. All these gases remain in the atmosphere long enough to become well mixed, meaning that the amount that is measured in the atmosphere is roughly the same all over the world, regardless of the source of the emissions. The most import GHG gas, CO2 , remains in the atmosphere for a very long time—changes in atmospheric CO2 concentrations persist for thousands of years.

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2 °C global targets for climate change response were first proposed during the 2007 annual climate negotiation in Bali, Indonesia, and then confirmed in Copenhagen Accords in 2009. The Paris Agreement, which was reached in 2015, sets out a global target to avoid dangerous climate change by limiting global warming to well below 2 °C and pursuing efforts to limit it to 1.5 °C above the pre-industrial levels. There exist strong correlations between temperature rises and CO2 concentrations in the atmosphere, and human activities are the direct causes of GHG concentration increases in the atmosphere. Therefore, global warming control requires controlling or adjusting the intensities or patterns of human socio-economic activities. The combustion of fossil fuels is increasing the global annual GHG emissions. Existing climate models project that by 2100, the global temperature rise will reach 4–5 °C if such a growing trend of GHG emissions continues and there are no effective policies and measures (IPCC, 2013). Some scientific assessments project that due to continuous global warming, the sea level rise can reach 6 m by 2300, amplifying climate change uncertainties and risks. Some Chinese scholars concluded in their analyses that although the impacts of climate change on China are uncertain, the consequences will be negative in many aspects. If the temperature rise is between 1 and 2 °C (2020), the water supply and demand can remain balanced in all regions in China. Meanwhile, the agriculture sector’s water demand will increase, and the losses and damages due to cold temperatures in Northeast China will be less severe. If the temperature rise reaches 2–3 °C (2050), North China will have a 2% water shortage, Northwest China a 3% water shortage, while other regions can continue to have balanced water demand and supply. However, the crop output will decrease by 5–10%, and the impacts will vary a lot among different regions and crops. The outputs of crops with high carbon absorption efficiency can increase by 17% if the CO2 concentrations in the atmosphere reach 550 ppm . Effective adaptation measures can make the outputs of all crops higher than the baseline year. If the temperature rise is as high as 3–5 °C (2080), then the water shortage in North China will be 1%, and the water shortage in Northwest China will be 4%, while other regions have enough water to meet their demand. As for agriculture, when the CO2 concentrations are 560–720 ppm, effective adaptation measures can improve irrigation efficiency, fertilization application, develop more resilient crop breeds, and offset the crop output reduction due to the temperature rise between 3.2 and 3.8 °C.

2 Externality Approach: Cost Internalization As the GHG emitters do not need to consider the global warming effect of their emissions, climate change is an externality issue in economics. The English economist Arthur Cecil Pigou (1920) gave a prescript for addressing negative externalities in 1920 by levying an environmental tax, also known as Pigovian tax, to internalize the external costs and offset the negative environmental costs of economic activities.

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The CO2 emissions are a byproduct of most economic activities, and they cannot be traded on the market and used for consumption. However, they can accumulate in the atmosphere, cause the greenhouse effect, generate negative externalities, and negatively affect human socio-economic activities. The emitters do not bear the total costs of the damages they cause; hence they severely lack the motivation to reduce their CO2 emissions. Suppose the governments impose a Carbon Tax on CO2 emissions into the atmosphere. In that case, the emitters must bear costs for their emissions, and the users of fossil fuel will have to take into account the emission costs in their production activities. They will be motivated to reduce fossil fuel consumption and reduce their CO2 emissions. Stern (2008) regards GHG emissions as an issue of a negative externality in his paper published in the American Economic Review. However, he believes that GHG emissions are a special externality and different from ordinary externalities. The differences are in the following four aspects. First, GHG emissions’ origin and impact are global, while the other externalities we know or consider are usually local and only affect their surrounding environment. Second, the impacts of climate change are long-term, and the emissions have their law of flow and stock in the atmosphere. After the GHGs enter the atmosphere, their atmospheric half-life is 100 years, causing a constantly rising GHG concentration in the atmosphere. Third, climate change is a problem of deep uncertainty. The impacts of many other externalities are specific in terms of scope, degree, and direction. Yet, the impacts of GHG emissions are still highly uncertain. The world does not know the exact future impacts of global warming in a specific region or at the global level due to the long time horizon. Effective responses to climate change impacts require risk management, not just simple internalization of external costs. Fourth, the potential impacts of climate change are extensive, enormous, and can be disastrous. They can last for centuries, and some impacts, such as sea-level rise, will be irreversible. Theoretically, if the carbon tax level is the same as the social costs of carbon emissions, the carbon tax will be market efficient. However, the social cost estimation involves uncertainties, and market volatility can cause the emission reduction effects of carbon tax uncertain. Such a situation necessitates the scientific assessment of the atmosphere’s total environmental capacity for GHG emissions to control the GHG emissions from socio-economic activities worldwide below the limit. The upper limit for emissions is given and can be fixed by the governments through command and control. But how to use the emission space can be left to the market functions to seek efficient resource allocation and benefit maximization from GHG emissions. These ideas are the logic behind the “cap and trade system,” also known as the carbon emission trading schemes. Due to the difficulties in calculating the social costs of environmental pollutions, two American economists (Baumol & Oates, 1975) proposed the policy solution of pollution right trading system. The pollution right shall be treated as a tradable commodity, and the government only controls the total quota of pollution and does not intervene in the micro-market functioning. For the first time, such a system was put into practice in the United States to control SO2 emissions and achieved great success. In the late 1970s , the SO2 emissions in the United States

2 Externality Approach: Cost Internalization

21

exceeded 25 million tons and caused enormous negative environmental impacts. The US government considered imposing a tax on SO2 emissions but found it challenging to decide the tax rate. Hence, it decided to set the limit for total SO2 emissions based on the atmosphere’s environmental capacity instead of controlling individual enterprises’ emissions. Under the SO2 emissions trading system, enterprises with high benefits from their SO2 emissions or low mitigation costs are more competitive on the market. In contrast, those enterprises with low benefits and high emission reduction costs are uncompetitive. Consequently, the total SO2 emissions were effectively under control, while the SO2 emissions efficiency reached the maximum. In 1997, countries agreed to include emission trading’s market mechanisms in the Kyoto Protocol for GHG emission control during the global climate negotiation. The European Union launched its own CO2 emissions trading scheme (EU ETS) in 2003. The EU ETS sets the total annual quotas for CO2 emissions. Enterprises can choose to comply with the system by either reducing their emissions or buying emissions allowances on the carbon market. The emission trading system uses a market mechanism to internalize the external costs of GHG emissions. Carbon emissions are also an issue related to international trade. Generally, suppose one country (Country A) controls its GHG emissions and has an ETS, while its trade partner (Country B) does not control its GHG emissions. In that case, the different policies will change the two countries’ relative advantages in bilateral trade. Furthermore, Country A’s carbon-intensive sectors and production processes may move to Country B, causing the spatial transfer of carbon emissions, also known as carbon leakage. Hence, under the context of economic globalization, effective GHG emission control requires coordinated international actions. For instance, a uniform carbon tax for all countries or a global cap and trade system must avoid carbon leakage and ensure fair trade. In the absence of a worldwide carbon tax or an international cap and trade system, Country A can choose to levy a carbon tariff or a border adjustment tax on the carbon-intensive product imports from Country B to offset these products’ relative advantages due to carbon tax. The World Trade Organization (WTO) allows for trade restriction measures for environmental protection and sustainable development purposes. The WTO, in principle, accepts that global environmental interest protection is of a higher priority than narrow business interest. Therefore, restrictions on the import of carbon-intensive products or technologies can benefit global climate protection. Because many products on the market consume fossil fuel, these products have embedded carbon emissions. Therefore, a uniform carbon tax can internalize the social costs of CO2 emissions. Simultaneously, the tax revenue from the uniform carbon tax can finance the research and development of low-carbon technologies and low-carbon economies. The carbon tax is a corrective tax and can replace capital tax and individual income tax, unfavorable to production scale expansion. A carbon tax can avoid most disputes on emission rights distribution and realize carbon emissions’ market value. By levying a carbon tax, the government can motivate producers and consumers to opt for low-carbon technologies and products.

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However, under the existing international economic and trade situations, neither a uniform global carbon tax nor a carbon tariff can prevent developed countries from transfer the social costs of their carbon emissions. Moreover, developed countries can use carbon taxes and carbon tariffs to constrain the development of developing countries. The reason is that a country’s economic power can influence the amount of carbon tax it collects. Countries with strong economic power can afford to pay more carbon tax and get more carbon emission allowances. In contrast, countries with low technology standards and weak economic power will find their production capacity constrained and their citizens’ consumption capacity lowered. Besides, different countries’ carbon emission sources can be different. For example, some countries’ carbon emissions mainly come from coal combustion, while in other countries, they may originate from natural gas use. Due to the different carbon content and emission factors of different fossil fuels, carbon tax and tariffs also have equity implications.

3 Public Goods: Cost–Benefit Analysis Public goods include pure public goods and quasi-public goods. Based on the beneficial scope, they can be divided into global public goods and local ones. Public goods can also be distinguished between universal public goods and focal public goods according to their universality. Economic public goods consist of national defense, basic health care, and compulsory education and are basic public services for society, and their coverage is universal, continuous, and long-term. The provision of universal public goods can be regulated through command and control or market-based with quantity orientation. They can be financed with tax revenue and provided to the users for free or financed with prices paid by the users. Focal public goods are often for specific social groups, intermittent and temporary. Examples include HIV and smallpox elimination and responses to the financial crisis, nuclear disasters, nuclear explosions, and trade barriers. If climate change response is a public good, what are its characteristics? It is a pure public good as climate change affects every person on earth. Meanwhile, reducing GHG emissions or adapting to climate change affects specific regions or social groups. Hence climate change response has some characteristics of quasi-public good and locality. As climate change is long-term and universal, it is a kind of public goods; at the same time, as the core issue or focus of climate change is carbon emissions, hence to some extent, it is also a focal public good. The supply of public goods faces two challenges. First, in the absence of a world government that can override national sovereignty, to what extent can countries accept ‘moderate federalism,’ i.e., transferring the decision-making power to a particular political level, to internalize the spill-over effect? As a global public good, the supply of climate change response goes beyond national borders, sovereign states, and groups of states and requests global cooperation. Second, the other challenge

3 Public Goods: Cost–Benefit Analysis

23

is how to get out of the Westphalia Dilemma. According to the International Law originated from the Peace of Westphalia in 1968 and developed in the western world, no authority can force an obligation upon a sovereign state without its agreement. In other words, there is no legal mechanism that most unselfish countries can resort to and force free-rider countries to participate in the provision of global public goods. Furthermore, a practical challenge is defining and quantifying a sovereign state’s contribution to providing the global public goods of climate change response. Countries can contribute to climate change response in multiple ways. The American scholar Barrett (2009) thinks that climate change response consists of five different public goods. First, the global emissions of GHGs must be reduced. Therefore, any country’s GHG emission is a public goods as the GHG emissions spread in the atmosphere, and the global GHG concentration is even. Emission reduction requires some joint efforts and measures, such as energy efficiency improvement, fuel switch, shifting to renewable energy, and implementing carbon capture and storage projects to curb the emissions from fossil fuel power plants. Second, another type of contribution is an investment in basic research. New energy sources and relevant technologies are indispensable and such knowledge is a kind of public goods. Third, contribution to climate change response can also take the form of removing CO2 directly from the atmosphere, including planting trees, preventing deforestation, and applying iron to fertilizing the oceans to increase the absorption of CO2 from the atmosphere. The fourth way is to reduce the sun’s radiation on earth to offset the global warming effect from higher GHG concentrations in the atmosphere. The fifth way is climate change adaptation. Building higher banks along the Thames River, raising the riverbanks to prevent flooding disasters in London is an example of local public goods. Obviously, in the provision of public goods, the issue of costs and benefits requires consideration. As climate change mitigation is a global public goods, its cost and benefit analyses differ from common public goods. A key determinant is the decisionmaker’s tolerance of and aversion to uncertainties and risks. Assume an individual is risk-averse, and the potential impacts of global warming are highly uncertain, and the uncertain loss should be equal to or higher than the expected loss. What is the discount rate of future impacts, especially future consumption? Arrow (Arrow, 2007) used the following simple function to calculate the consumption discount rate δ: δ = ρ + gη. Where ρ is the social rate of time preference, g is the future growth rate of per capita consumption, and η is the elasticity of the marginal utility of consumption. The parameter η reflects the possible trends that as consumption grows, the social value of each marginal consumption declines. This is similar to the concept of diminishing utility in personal consumption. There is controversy regarding the η value, yet a value between 2 and 3 seems reasonable. Stern adopted a η value of 1 in his economic analysis of climate change. The social rate of time preference ρ is often more significant than zero in practical decision making, yet in the Stern Review, a value 0 was used, which attracted much criticism. It is essential to control the CO2 concentrations within an acceptable limit; the debates about the value of ρ are insignificant. Assume η, the parameter indicating diminishing social marginal utility in discount rate calculation, is 2, whether the present value of the benefits (GDP

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2 A Critique of Conventional Economic Approaches …

growth rate grows from 1.2% to 1.3%) exceeds the present value of the cost (GDP growth declines 1% over the same period). The calculation results show that mitigation is better than ‘business as usual,” and the benefit’s present value exceeds the costs’ present value. As under whatever situations, the social rate of time preference is always less than 8.5%. Even those who believe that future values shall have a high discount rate have never given a discount rate as high as 8.5% in their estimates of the pure social rate of time preference. Although the Stern Review uses a high discount rate, the report’s cost–benefit analysis indicates that current mitigation actions can pass the cost–benefit assessment test. A lower GHG concentration target requires higher mitigation costs from the perspectives of risk management economics. Stern’s assessment indicates that for a global target of stabilizing the GHG concentrations between 430 ppm CO2 e and 550 ppm CO2 e, under the precondition of sound policies and timely decision-making, the mitigation costs will be around 1% of the world GDP (Stern, 2007). If the target is tightened to stabilize the GHG concentration below 450 ppm CO2 e, the costs can be 3 to 4 times higher.

4 Resource Sharing: Development Right and Interest Assessment There are also international advocators for addressing climate change from development rights and interest and resource sharing. Under the existing energy mix and technology levels, almost all economic activities involve fossil fuel combustion. Therefore, GHG emissions are a basic need. Historical data indicate that there are positive correlations between emission levels and living standards to a certain extent. In other words, higher emission levels are often associated with higher living quality and social development levels. Carbon emission reduction requires funding and technology. The GHG emission space is a public resource, and every person on earth is entitled to access it. It is not simply a negative externality whose equal and fair distribution can be automatically realized by introducing the Pigouvian Taxes or emission cap and trade. There exist several different perceptions or perspectives on GHG emissions. The first perception focuses on total emissions. Countries are the main actors in climate change response, and the total emissions of each country are under scrutiny. Since entering the twenty-first century, China’s GHG emissions have been growing quickly. Data from the International Energy Agency (IEA) suggested that China overtook the US in 2007 and became the biggest CO2 emitter in the world. During the Leap Forward in the late 1950s, China experienced fast economic growth and carbon emission increase. Due to the impacts of natural disasters, China’s economic growth slowed down, and its GHG emissions saw some decline. The financial crisis in 1997 also led to some decreases in China’s GHG emissions. The historical emission curve indicated that the national GHG emissions also grew

4 Resource Sharing: Development Right …

25

in rapid economic growth and development periods. In contrast, in times of crisis, the national GHG emissions tended to decline. The second perception emphasizes per capita emissions. Developed countries have high per capita emission levels, and their socio-economic development levels are high as well. While in developing countries, such as China, India, and Brazil, the per capita emissions are low. The per capita emissions in the US saw a dramatic decrease during the Great Depression, which was because of the economic declines in crisis time. Third, empirical data indicated that after the per capita emissions levels reached a certain level, they would no longer increase. Therefore, the per capita emissions in developed countries, such as the US, remain stable or decrease each year slightly. In comparison, Germany’s per capita emissions have been decreasing after they peaked, and development trends follow the shape of an environmental Kuznets curve. From 2000 to 2018, the world GHG emissions increased from 36.2 GtCO2 e to 51.8 GtCO2 e; 53% of the increase came from China (Olivier & Peters, 2019). The country entered a period of massive industrialization and urbanization, and its fossil fuel consumption experienced rapid growth. In contrast, in mature and advanced economies, such as Germany, both the per capita emissions and the total emissions are primarily decoupled from economic growth, i.e., the country’s GDP is growing while its GHG emissions are decreasing. However, in most developing economies, GHG emission increase accompanies the growth in GDP. The remaining global emission space for achieving the “2 °C” target for global warming control is only about 1000 billion tons of CO2 . The global accumulated CO2 emissions between 1850 and 2005 were 1100 Gt of CO2 . To have a 50% probability of controlling the global warming below 2 °C , the global CO2 emissions during the first half of the twenty-first century should not exceed 1440 Gt, with an annual limit of 28.8 Gt. The accumulated global emissions of CO2 from 2000 to 2049 must be controlled within the limit of 1160 Gt to increase the probability of controlling global warming below 2 °C to 2/3, with an annual average limit of 23.2 billion tons. Assuming the worldwide emission of 2050 is half the level in 1990, and the annual decrease rate is the same, CO2 emissions between 2000 and 2050 will be approximately 1200 billion tons. Developing countries and their developed counterparts have different opinions on the allocation of GHG emission space. The author (Pan, 2003) believes that GHG emission rights are not fully tradable as they are linked to basic needs and belong to basic human rights and interests. The economic development in developing countries, especially in emerging countries, constantly changes the global landscape of carbon emissions. Until the 1980s, developed countries, or OECD countries, constantly contributed more than half of the global annual GHG emissions, while the rest came from developing countries. By 2010, developed countries’ share in the global yearly GHG emissions had declined to less than 40%, and further to 33% by 2016 (See Fig. 1). Data from the Global Carbon Budget project indicated that in 2018, 34.7% of global GHG emissions came from OECD countries, 61.9% from non-OECD countries, while the rest 3.4% came from marine transport (Global Carbon Budget, 2020). In 2019, OECD countries only had 1.36 billion people, accounting for 18% of the world total, while 82% of the global population lived in non-OECD countries.

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2 A Critique of Conventional Economic Approaches … 120.00% 100.00% 80.00%

48.95% 48.35%

60.00%

63.77% 65.40% 66.32% 66.65%

40.00% 20.00%

51.05% 51.65%

36.23% 34.60% 33.68% 33.35%

0.00% 1990

2000

2011

2013

2015

2016

OECD

Fig. 1 Shares in global annual CO2 emissions. Source World Bank, 2020. World Development Indicators Database, latest updated on 16 Dec. 2020. [Accessed on 9 Jan. 2021]

Table 1 OECD countries’ share in global population and GDP Indicators Population

OECD members (bn) World (bn) OECD share in global total (%)

GDP (Current USD)

OECD members (tn) World (tn) OECD share in global total (%)

1970

1990

2000

2010

2019

0.92

1.10

1.20

1.29

1.36

3.68 24.9 2.39 2.96 80.7

5.28

6.11

6.92

7.67

20.9

19.6

18.6

17.7

18.77

27.50

45.05

53.70

22.63

33.62

66.13

87.80

83.0

81.8

68.1

61.2

Source World Bank (2020)

Developed countries still have much higher per capita GHG emissions than developing countries. The average per capita income in developed countries is 7.3 times the level in developing countries (see Table 1). As for global climate equity, international negotiations consider equity among countries, not equity among different individuals. However, as CO2 emissions are related to people’s development rights and interests, GHG emissions rights are the rights of individuals, not countries’ rights. The emission right allocation shall not be based on countries but based on an individual human being. The Global Commons Institute from the United Kingdom introduced the “Proposal of Per Capita Emission Contraction and Convergence.” The project suggested that developed countries’ high per capita emissions should constantly decrease and gradually reach the world average. The global agreement should allow developing countries’ low per capita emissions to increase further. Meanwhile, each country’s per capita emission levels should converge at the global average level. However, this proposal does consider the development rights and interests of different countries, and it is unfair. This proposal implies that developed countries’ per capita emissions levels will always be above or equal to the world average, while developing countries’ per capita emission levels will always be below

4 Resource Sharing: Development Right …

27

or equal to the world average. Developed countries have more advantages in lowcarbon development because of their advantages in funding and technology. In contrast, developing countries lack funding and technology for low-carbon development. Under such a background, the German Advisory Council on Global Change (WBGU) (Rahmstorfer et al. 2009) put forward the Contraction and Double Convergence Proposal for carbon emission right allocation. The double convergence is the convergence of both per capita annual emissions and accumulated per capita emissions. During the transition period, developing countries’ per capita emissions should be allowed to increase before declining to secure these countries’ necessary development space; the per capita emissions of developing countries may temporarily exceed those of developed countries due to objective law. The IPCC Fifth Assessment Report points out that to have a 66% probability of keeping the global average temperature rise above the pre-industrialization level within 2 °C, the global accumulated GHG emissions (including all the emissions since the Industrial Revolution) should not exceed 1 trillion tCe. However, as of 2013, the accumulated emissions had reached 535 billion tCe. As the global GHG emissions continue increasing, the remaining carbon budget keeps decreasing. From 2010 to 2019, the global GHG emissions, including those from Land Use and Land Use Change, had been growing at an average annual rate of 1.4%, and the total emissions reached 16.1 billion tCe in 2019 (Fig. 2). Some European experts’ calculations find that as of 2019, the global remaining carbon budget for limiting the temperature rise

Fig. 2 CO2 emission pathways for reaching the 2 °C target

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to 2 °C with a probability of 66% or higher had declined to 385 billion tCe (Nauels et al., 2019). Both the historical and current per capita GHG emissions of developed countries are high than those of developing countries (see Fig. 3). Besides, developed countries have completed their industrialization and urbanization. On the other hand, many developing countries are still in the middle or early phases of industrialization and urbanization. They need massive physical wealth accumulation to accomplish poverty elimination, industrialization, and urbanization. Therefore, when allocating the remaining global GHG emission budget, the global society needs to consider each country’s accumulated historical and current per capita emissions, differentiate different countries’ emission needs, and protect developing countries’ development rights and interests. Two approaches can protect countries’ development rights and interests, secure carbon justice, and simultaneously achieve global warming control targets. They are the basic needs approach and the carbon budget approach. The basic needs approach is bottom-up. It is based on the definition of human basic needs and standards. Then it adjusts national allocations according to the specific circumstances in different countries, calculating whether all countries’ carbon emissions for meeting basic needs are in line with achieving the global climate target. The human basic needs and standards are adjusted until the global climate target is met. In contrast, the carbon budget approach is top-down. It starts by calculating the total global carbon budget based on the global long-term climate target. Then it

Fig. 3 Annual total CO2 emissions, by world region

4 Resource Sharing: Development Right …

29

fairly allocates the carbon budget based on different countries’ development rights and interests. Each country needs to make adjustments based on its allocated carbon budget. Suppose its carbon budget is insufficient to meet the basic needs of its people. In that case, the government needs to consider policy changes and emission pathway alteration so that the bottom-up allocation can secure the satisfaction of basic needs and the exertion of development rights and interests.

5 Policy Choices Climate change is a complicated topic involving the global environment, international politics, world economy, and international trade. The ultimate solution to climate change requires international cooperation. Sovereign countries, especially developed countries, need to take proper actions to protect their interests and secure the rights and interests of developing countries and uphold global justice. National interests are always the sovereign states’ supreme criteria for policymaking and target setting, which applies to climate change. The impacts of climate change on different countries are uneven and different. Like not all nations on earth can equally enjoy the fruits of economic globalization, not all countries equally accept climate change impacts. Each country first calculates its costs and benefits for taking action and then decides whether it will participate in an international climate agreement or not. In other words, before a country decides whether it will participate in the global actions for climate change mitigation, it often thoroughly assesses its vulnerability to climate change and the costs of mitigation actions. Because countries have different national interests in climate change, it is challenging to coordinate their positions. Therefore, the effects of international climate actions are often disappointing. Developing countries are far from completing industrialization and urbanization. Therefore, their climate actions’ speed and scope should depend on the achievement of their development targets. Although the EU actively pushed for climate change mitigation, yet in the absence of substantial contribution from the United States, the biggest developed country emitter, and developing countries, the overall GHG emission reduction effects were unimpressive. So far, global GHG emissions are continuously growing. First, it is widely accepted that an effective mitigation policy needs to introduce prices for GHG emissions. All scholars, no matter which school of thought they belong to, what perception they have, or what methodology they advocate, agree that carbon emissions have a price. Carbon emission prices can both reduce GHG emissions and provide incentives to minimize mitigation costs. However, the selection of carbon prices involves risks, urgency, and inertia in decision-making and faces the challenges of delivering credible future price signals under the international climate regime. Moreover, there are also market imperfections, failures, lack of protection to consumer rights and interests, and social equity concerns. Second, good policies can encourage technological progress and innovations, reduce information and transaction costs, especially the costs of energy efficiency improvement, and enforce

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2 A Critique of Conventional Economic Approaches …

the international framework for effectively curbing deforestation—the emissions from deforestation are due to market failure. Climate change response requests a stable international governance framework to facilitate cooperation, secure equity, and lower global costs. From the perspective of consumption, on the one hand, population increase leads to more consumption. Yet, the improvement in living quality and lifestyle choices have even bigger influences on carbon emissions. During the 1970s and early 1980s, global carbon emissions changes mainly reflected the impacts of population growth and consumption patterns. From the mid-1980s to the 1990s, consumption change and energy mix adjustment became the top factor influencing global GHG emission reductions. Natural gas replaced coal, and the use of renewable energy increased. As the emissions grow quickly due to living-standard improvement, the contribution of technological progress to emission reduction has been enhancing since the beginning of the twenty-first century. High income leads to significant improvement in living standards, which in turn causes more emissions. Such observations and analyses indicate that three factors need to be considered and focused on policy-making: consumption, technology, and energy mix adjustment. The development of history and trends of various countries indicate that under the current technology levels and consumption patterns, reaching the development levels of industrialized countries inevitably means high per capita energy consumption. So far, no country has made an example of high per capita GDP and low per capita energy consumption and GHG emissions. China’s development level is still relatively low. In 1971, China’s GHG emissions accounted for 5.6% of the world total; by 1990, its share had reached 10.2%. During the same period, the United States’ share in global GHG emissions declined from 31.8% to 23.4%, dropping 7 percentage points. In 1990, the EU contributed around 20% of the global GHG emissions. By 2017, China’s GHG emissions had increased to 25% of the global total, the share of the US’s share declined to 16%, while the EU’s share further shrank to less than 11% (IEA, 2019). Therefore, China’s total emissions and shares in global emissions have been increasing. From 1971 to 2018, in less than four decades, China’s share in the global annual emissions had increased almost four times (see Table 2). As for per capita emissions, in 1971, China’s per capita emissions were 0.93 t, about 1/4 of the global average. By 1990, the worldwide per capita emissions were 3.99 t, while the levels were 1.86 t in China, i.e., China’s levels were less than half of the world average. By 20,017, the world per capita average was 4.37 t, and that in China, 6.67 t, with China’s level 53% higher than the world average. China’s per capita emission had exceeded that of the EU’s 28 member states (6.27 t) (IEA, Table 2 Shares in global CO2 emissions from fuel combustion

China (%) US (%) EU-28

1971

1990

2017

5.6

10.2

28.2

31.8

23.4

14.5

19.6

Source Based on data in IEA (2019)

9.8%

5 Policy Choices

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Table 3 Per capita CO2 emissions from fuel combustion (tCO2 ) Country/region

1971

1990

2017

World

3.71

3.88

4.37

China

0.93

1.86

6.67

EU-28

–

8.42

US

20.65

6.26

19.2

14.61

Table 4 Shows the current GDP value of China, the US, and the world (Unit: trillion US$) 1970

1980

1990

2000

2010

2019

China

0.09

0.19

0.36

US

1.07

2.86

5.96

1.21

6.09

14.34

10.25

14.99

World

2.96

11.23

22.63

33.62

21.43

66.13

87.80

Source World Bank Development Indicators database, https://data.worldbank.org/ [9 Jan. 2021]

2019). In less than half a century, China has transited from a low emission country to a high-carbon one (see Table 3). Because of China’s rapid rise on the global GHG emitter list, both developed and developing countries turn their attention to China. As for development levels, relevant data show that in 1970, the word GDP was 29.6 trillion US dollars (current value), of which the US contributed 36%, while China contributed only 3.1%. By 2019, the US’s share in the world GDP had declined to 24.4%, and in contrast, China’s share had expanded to 16.3% (see Table 4). The global distribution of GHD emissions and the global economic landscape have undergone dramatic changes in the past half-century.

References Akerlof, G. A. (2006). Thoughts on global warming. China Dialogue, Jun. 28, 2006. Allen, M. R., Dube, O. P., Solecki, W., Aragón-Durand, F., Cramer, W., Humphreys, S., Kainuma, M., Kala, J., Mahowald, N., Mulugetta, Y., Perez, R., Wairiu, M., & Zickfeld, K. (2018). Framing and context. In Global Warming of 1.5° C. An IPCC Special Report on the impacts of global warming of 1.5 °C above pre-industrial levels and related global greenhouse gas emission pathways, in the context of strengthening the global response to the threat of climate change, sustainable development, and efforts to eradicate poverty (Chap. 1) [Masson-Delmotte, V., Zhai, P., Pörtner, H.-O., Roberts, D., Skea, J., Shukla, P. R., Pirani, A., Moufouma-Okia, W., Péan, C., Pidcock, R., Connors, S., Matthews, J. B. R., Chen, Y., Zhou, X., Gomis, M. I., Lonnoy, E., Maycock, T., Tignor, M., & Waterfield, T. (Eds.)]. In Press (pp. 41–91). Arrow, K. (2007). Global climate change: A challenge to policy. The Economists’ Voice, 4(3), 1–5. Barrett, S. (2009). Rethinking global climate change governance. Economics: The Open-Access. Open-Assessment E-Journal, Kiel Institute for the World Economy (IfW), Kiel, 3(2009-5), 1–12. Baumol, W. J., & Oates, W. (1975). Theory of environmental policy (xii+272 p). Cambridge University Press.

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Collins, M., Knutti, R., Arblaster, J., Dufresne, J.-L., Fichefet, T., Friedlingstein, P., Gao, X., Gutowski, W. J., Johns, T., Krinner, G., Shongwe, M., Tebaldi, C., Weaver, A. J., & Wehner, M. (2013). Long-term climate change: Projections, commitments, and irreversibility. In Climate Change 2013: The Physical Science Basis. Contribution of Working Group I to the Fifth Assessment Report of the Intergovernmental Panel on Climate Change (Chap. 12) [Stocker, T. F., Qin, D., Plattner, G.-K., Tignor, M., Allen, S. K., Boschung, J., Nauels, A., Xia, Y., Bex, V., & Midgley, P. M. (Eds.)]. Cambridge University Press, Cambridge, United Kingdom and New York, NY, USA (pp. 1029–1136). CO2 emissions from fuel combustion - 2019 Highlights (165 p). International Energy Agency (IEA), Paris. Global Carbon Budget 2020. Data from the http://www.globalcarbonatlas.org/en/CO2-emissions. Accessed on January 9, 2021. IPCC. (2013). Climate change 2013: The physical science basis. Contribution of Working Group I to the Fifth Assessment Report of the Intergovernmental Panel on Climate Change [Stocker, T. F., Qin, D., Plattner, G.-K., Tignor, M., Allen, S. K., Boschung, J., Nauels, A., Xia, Y., Bex, V., & Midgley, P. M. (Eds.)]. Cambridge University Press, Cambridge, United Kingdom, and New York, NY, USA (1535 p). Nauels, A., Rosen, D., Mauritsen, T., Maycock, A., McKenna, C., Rogelj, J., Schleussner, C., Smith, E., Smith, C., & Forster, P. (2019). Zeroes In on the remaining carbon budget as well as projected surface warming rates over the next 20 years. Both topics are crucially important to the implementation of the Paris Agreement. A report prepared under the EU-funded Horizon 2020 project CONSTRAIN, December 2019, p. 27. Olivier, J. G. J., & Peters, J. A. H. W. (2019). Trends in global CO2 and total greenhouse gas emissions: 2019 report (p. 70). PBL Netherlands Environmental Assessment Agency, The Hague. Pan, J. (2003). Emission rights and their transferability: Equity concerns over climate change mitigation. International Environmental Agreements: Politics, Law and Economics, 3(1), 1–16. Pan, J. (2014). The Features and positioning of climate change in economics. JIANGHUAI LUNTAN, 268(06), 5–11. Pigou, A. C. (1920). The economics of welfare (pp. xxxvi + 976). Macmillan & Co. Rahmstorfer, S., Schlacke, S., & Schmid, J., et al. (2009). Solving the climate dilemma: The budget approach (Special Report 2009). Berlin: WBGU. ISBN 978-3-936191-27-1. Stern, N. (2007). The economics of climate change: The stern review (692 p). Cambridge University. Stern, N. (2008). The economics of climate change. American Economic Review, 98(2), 1–37. World Bank. (2020). World Development Indicators Database, latest updated on 16 December 2020. https://databank.worldbank.org/source/world-development-indicators. Accessed on January 10, 2021.

Chapter 3

Climate as a Factor of Productivity

The economic concept of productivity was put forwarded around 3/4 century after Adam Smith’s theory of national wealth; there is a distinct theoretical difference between it and the wealth accumulation thinking in classic economics. The research scope of productivity exceeds that of the “invisible hand” analysis and covers multiple factors, including mind and nature, with rich political economics implications. The subsequent studies of political economics, which is normative, focus on analyzing productivity and production relations. Economic analyses, which are positive, give more emphasis on productivity assessment and measurement. In the ecological analysis, the research subject is the productivity of nature, and the supporting capacity of nature, often excluded in the general economic systems analysis. The research and assessments of environmental sustainability at the end of the twentieth century used the concept and methodology of ecological footprint. They conclude that human activities have exceeded the earth’s supporting capacity by simply comparing natural productivity and human society’s needs. As can be seen, the analysis and debates on productivity factors inevitably involve the productivity of nature. The determinants or driving factor for natural productivity directly depends on climate conditions. The obvious underlying natural factor of ecological or land carrying capacity is climate. Hence, climate capacity determines the ecological carrying capacity or environmental capacity. The environment is a productivity factor, and its levels depend on the local climate conditions. The macroeconomic analysis of productivity factors often focuses on labor and capital, and the natural conditions are often taken as given exogenous conditions. However, under the background or conditions of climate change, natural elements, especially climate conditions, significantly influence the productivity or return rate of labor and capital and should not be overlooked. This means in the productivity assessment, the productivity of climate conditions needs to be considered. The existing studies on the productivity of climate conditions mainly focus on the impacts on The contents in this Chapter is partially based on the following article: Pan and Hu (2018). © China Social Sciences Press 2022 J. Pan, Climate Change Economics, https://doi.org/10.1007/978-981-19-0221-5_3

33

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3 Climate as a Factor of Productivity

crops, animal husbandry, and forest. There are few publications on the economic analysis of climate productivity. How shall we understand climate productivity, its elements, and the relations between climate productivity and the productivity factors in economics and their measurement? We need to differentiate and analyze the natural elements of productivity, examine the driving factors of ecosystem productivity and the definition of ecological carrying capacity, and the relationship between the supply of natural productivity and the human socio-economic systems. Based on the above activities, we can then analyze the driving factors and elements of climate productivity and investigate the climate productivity theories and their application prospects.

1 The Natural Elements in the Productivity Analysis of Political Economics In his book, The Wealth of Nations, published in 1776, Adam Smith highlighted the “invisible hand” and the free trade based on relative advantages and focused on static wealth. During the 1840s, Friedrich List,1 the forefather of the German historical school of economics, for the first time proposed the productivity theory in his classic masterpiece The National Systems of Political Economy. He argued that the productivity of wealth was many times more important than the wealth itself. The productivity could secure the existing wealth and increment and compensate for the disappeared wealth (List, 1997). List’s theory is in line with the principle of the Chinese proverb ’Give a man a fish, and you feed him for a day; teach a man to fish, and you feed him for a lifetime.’ With the skills to fish, a person can get fish and other wealth many times more valuable than a fish. Similarly, some poverty elimination projects give the poor farmers piglets instead of pork so that the poor people can create wealth themselves instead of relying on government support. In List’s productivity theories, productivity is the cause of exchange value, not its results; hence, productivity is much more important than exchange value and labor division (Zhou & Wang, 2012). List believed that productivity was the source of wealth creation, consisting of physical, spiritual, and natural components. In List’s theory, natural productivity refers to the “existing natural resources” in the specific areas of the object of labor. For agriculture, it is the fertility levels of the land resources; for industry, it includes such resources as wind power, waterpower, and minerals, which are necessary for the industry. Natural productivity is not a constant; instead, it evolves with spiritual productivity, science and technology, and industry. List defined the productivity 1

Freidrich List (1789–1846) was a German-American economist and a criticizer and sceptic of classic economics. In 1841, he published The National System of Political Economy and systematically criticized the relative advantage-based trade theories by the British classic economist Adam Smith and proposed the productivity theory that wealth productivity was multiple times more important than wealth itself.

1 The Natural Elements in the Productivity …

35

of a national economy as the overall productivity from the functioning of several components. Political productivity (i.e., the state’s integration and coordination capacity) integrates and coordinates spiritual productivity (i.e., science, technology, culture, education, and art), natural productivity (i.e., the natural resources of specific regions), physical productivity (i.e., tool power or physical capital) and personal productivity (individuals’ work and creation capacity) (Yu, 2002). List’s economic thinking and theories emphasize productivity, not value or wealth exchange. He used dynamic productivity to replace static wealth and introduced dynamic analysis into the cost–benefit analysis models. In methodology, his productivity theories unified personal productivity and social productivity. List stressed the unity, not the conflicts, between individuals and society. The productivity examined in the Marxist political economy is the capacity to make products that satisfy human needs; the capacity embodies people’s capability of adapting to, utilizing, and transforming nature (Wei, 2017). The productivity factors are in line with the “production factors” in our daily talk. In Marxist theories, the production process’s simple elements consist of labor, the object of labor, and the materials of labor. In Karl Marx’s theory, natural forces are also factors for productivity development. Marx believed ’the big industries integrated the enormous natural forces and natural sciences in their production process”. For example, the industries use hydropower and wind power for electricity generation and solar energy. In his “Capital,” Marx’s analysis on productivity did not focus on productivity measurement but the interactions between productivity and production relations, i.e., the former’s dominant influences on the latter and the latter’s reactions to the former. In modern economic analysis, the concept and measurement of productivity are simplified ad becomes more operable (Field, 2008). Simply speaking, productivity described the various measurement of production efficiency and expressed in the ratio between unit input and output, including the efficiency of such productivity factors as labor and capital. The productivity that cannot be attributed to each productivity factor is known as the Multiple-Factor Productivity (MFP) or Total Factor Productivity (TFP) (Hulten, 2009). OECD regularly publishes Productivity Statistics of OECD countries and provides annual productivity data from 1970 onwards (OECD, 2021); a recent World Bank study (Hamilton et al. 2019) assessed the relations between natural resources and productivity growth in developing countries. Abramovitz (1956) thought that TFP is just an “unfathomable parameter” as in mathematical analysis; it is simply a residual. The TFP can include expected elements, such as technology and organization innovation; it can also cover some unexpected elements, such as measurement errors, missing variables, total deviation, and model bias (Hulten, 2000). Therefore, the relationship between TFP and productivity is unclear. The Office for National Statistics (ONS, 2014) of the United Kingdom identified five interactive factors with determinant influences on long-term productivity: investment, innovation, skills, enterprises, and competition. The calculation of TFP focuses on labor and capital contributions and rarely covers the natural factors, which are part of the object of labor. The calculation methodology involves first calculating the output change ratio (for instance, 1.19), minus the product of labor input change rate and labor cost share (for example, 1.150 * 0.475) and the product of capital input

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3 Climate as a Factor of Productivity

change rate and capital cost-share (1.030 * 0.525), i.e., the TFP = 1.19–0.546–0.541 = 0.032. In other words, the TPF calculation result is 3.2%. The above analyses indicate that classic economics, Marxist economics, and modern economics consider nature either a form of wealth or a core component of productivity. Yet, in their quantitative assessments and calculations, they often concentrate on labor, capital, and TFP, while regarding the natural element as an exogenous factor. Moreover, hardly any economic analysis pays attention to the linkage between the natural elements and climate and touches upon the critical and decisive role of climate as a natural element. Nevertheless, the theories and assessment methodologies on productivity are of great theoretical and methodological significance to the understanding and component analysis of climate productivity.

2 The Climate Factor in Ecosystem Productivity Ecosystem productivity assessments examine the contributions of natural factors. They take socio-economic factors as given conditions and investigate the output capacity or level under different natural conditions. The natural factors include determinant climate elements. In ecology, productivity refers to the biomass generation rate of ecosystems, and it is usually expressed in mass per time unit per area (or volume) unit, such as /m2 ·year. The quantity of mass is measured in the dry mass or carbon mass generation. The productivity of autotrophic organisms, such as plants, is known as Primary Productivity. In contrast, heterotrophic organisms’ productivity, such as herbivores, which rely on plants as nutrition sources, is called Secondary Productivity. Primary productivity is the capacity of green plants to utilize the radiation from solar light to conduct photosynthesis, using Solar light + Inorganic matters + H2 O + CO2 → calories + O2 + organic matters. The process fixes the carbon from inorganic matter (CO2 ) and converts it into organic maters (such as glucose and starch). Normally it is expressed in the organic carbon (gram) per day per square meter. Primary productivity can be further divided into Gross Primary Productivity and Net Primary Productivity. CO2 + H2 O + light + N → CH2 O + P + O2

(1)

In the above chemical Eq. (1), CO2 is the main ingredient of the atmosphere and the key gas leading to the greenhouse effect, which is the root cause behind climate change. Water (H2 O) plays a vital role in the global climate cycle and the origin of life. Solar radiation is the determinant factor for different climate zones on earth, and the rotation of seasons is due to changes in solar radiation. N represents the nutrients in nature, including various trace mineral elements, which can come from soil or the atmosphere. The photosynthesis of green vegetations generates organic tissue structures of carbohydrates (CH2 O) that also contain protein (P) and protein trace elements, and the process emits oxygen (O2 ). The Primary Productivity of deserts is

2 The Climate Factor in Ecosystem Productivity

37

Table 1 Productivity levels of ecosystems and the climate characteristics

Arable land(1,4)

Desert (4)

Biomass productivity

Total global area

Total output

Determinant climate factors

gC/m2 /yr

’000 km2

Mt C/yr

650

17,000

11,000.0

Temperature (radiation)—suitable Humidity (precipitation)—suitable

3

50,000

150

Humidity (precipitation)—lack

Bays and Estuaries (3)

1800

Temperature (radiation)—suitable Humidity (precipitation)—suitable

Swamps and wetland (1)

2500

Temperature (radiation)—suitable Humidity (precipitation)—suitable

Temperate forest(1)

1250

19,000

24,000.0

Temperature (radiation)—slightly low

Rain forest(2)

2000

8000

16,000.0

Temperature (radiation)—sufficient Humidity (precipitation)—sufficient

Permafrost (1,4)

140

Temperature (radiation) too low

Note the primary data sources are: (1) Ricklefs and Miller (2000); (2) Ricklefs and Miller (2000); (3) Spalding et al. (2001); (4) Park (2001)

low due to a severe shortage of water. In contrast, permafrost’s productivity is low because of weak solar radiation and low temperature and lack of energy input for plants’ photosynthesis. Only regions of suitable solar radiation (temperature) and precipitation (water) can be of high Primary Productivity (see Table 1). The herbivores are heterotrophic organisms in ecosystems, and their biomass output is secondary production. It involves the transfer of nutrient via organic matters and is measured in the quantity of new tissue created through food assimilation; the secondary production in the strict sense only includes the primary output consumption by herbivores2 ; in ecosystems, there is also third-level production, i.e., the carnivores (such as the cats).3 The foundation of an ecosystem’s productivity is its Primary Productivity. Yet, at a specific time point, the system’s gross productivity

2

Definition of term: “Secondary production”. The Glossary Table. FishBase. http://www.fishbase. org/search.php, Retrieved 2017-10-03. 3 Definition of term: "Tertiary production". The Glossary Table. FishBase. http://www.fishbase.org Retrieved 2017-10-03.

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3 Climate as a Factor of Productivity

includes the aggregated biomass of its Primary, Secondary, Third-level Productivity, and omnivores (which eat both plants and meat, such as human beings). Trophic efficiency is the energy flow efficiency from one trophic level to the next and usually low. The net energy transfer from one trophic level to the next is about 10% (Raymond Laurel Lindeman was the first to study the trophic efficiencies and discovered the 10% Law (Lindeman, 1942). When plants are consumed, only about 10% of the food’s energy is fixed as the herbivores’ biomass and be available for consumption by the next trophic level (carnivores or omnivores). When carnivores or omnivores eat the herbivores, they only store approximately 10% of the energy in their body mass. For instance, the sun radiates 100 J of energy, and plants can only absorb 10% of the energy; subsequently, a deer can only get 1 J of energy from the plants. Ecosystems’ productivity depends on the levels of climate factors and their combination. Yet, the economic studies on productivity focus on the aggregate social output, labor productivity, capital-output, and technology progress, and the role of climate is not reflected in these studies. The climate productivity we refer to is not only a concept of natural science. Under the background of climate change, it is more important to reveal its economic or political-economic connotations.

3 Analysis on the Capacity Determined by Climate Factors The productivity in economic assessment on productivity, climate factors are considered exogenous; the productivity in an ecological sense takes economic factors as given. From a static perspective, the climate factors in productivity in the economic sense and ecosystem productivity are a concept of capacity or carrying capacity. Pan et al. (2014) examined the boundary of socio-economic systems. They concluded that the supporting capability or capacity of various factors ultimately depends on climate capacity and is determined by climate factors. Capacity or carrying capacity stresses the ecosystem and environment’s capability of carrying human activities. Although carrying capacity is a statistic indicator with resource endowment as its constraint, it links closely to technology, social choices, and values. Hence its level is also relative. Capacity research is mainly from two perspectives. One perspective is the biocapacity based on ecosystem productivity, such as the carrying capacity of land and water resources and the environment capacity. The other perspective examines the relationship between the consumption or needs of socio-economic systems and ecosystem productivity, explores the constraint of ecological environment and natural resources on human development, and often uses population carrying capacity or ecological footprint as the measurement. The contents or foundation of climate capacity includes such climate resource elements as temperature, solar radiation, precipitation, and evaporation. It covers climate risks, such as extreme weather events as droughts, floods, typhoons, and sealevel rise. This is because climate risks are among the major factors influencing a specific region’s overall carrying capacity. The objects of climate capacity influence

3 Analysis on the Capacity Determined by Climate …

39

are not limited to land, water resources, ecosystem, and population; they also include specific industries (e.g., agriculture) or special regions’ socio-economic systems. The various carrying capacities analyzed and assessed in various studies, such as ecological carrying capacity, water resource carrying capacity, and environmental carrying capacity, are often inaccurate. What are ecology and water resources? How shall we define land and environment? All of them are symptoms, and they all ultimately depend on climate capacity, which is the combination of solar radiation and precipitation. Therefore, accurately speaking, these carrying capacities are climatederived. These derived capacities or carrying capacities are largely constrained by the levels of climate factors or their combinations. However, under given climate capacity, artificial human technical, economic, and social activities, such as technological progress and scientific management, can improve the carrying capacities of ecosystems, water resources, land, and environment to population and socioeconomic systems. For instance, artificial ecosystems’ carrying capacity can be enhanced with capital, technological, and labor inputs, such as afforestation, grassland improvement, wetland reconstruction, and dams and irrigation channels. Such interventions can improve ecosystem interventions such as biomass output, animal stocking capacity, and biodiversity. An area’s total water resources (including total theoretical volume or actual usable volume under certain technical conditions) consist of the groundwater and underground water accumulation from precipitation. Yet, water-saving farming and higher water cycle rate from industries can also improve water resources’ carrying capacity. The crop carrying capacity of a piece of land can be raised through irrigation, soil improvement, and cultivating new crop breeds and varieties. In theory, it is impossible to expand the atmosphere’s environmental capacity, yet climate factors’ productivity can be sustained or enhanced through climate change mitigation actions. We should stress that once the socio-economic input or intervention stops, the ecosystems’ primary productivity can return to their natural states after a certain period (long or short) of automatic adjustment. That is why the Middle East can use its enormous petroleum wealth to construct the world’s tallest building. Still, they cannot build rainforest or temperate forest ecosystems. If the capacity or carrying capacity is considered the natural constraint from the supply side, the ecological footprint assesses the needs for capacity or carrying capacity from the demand side. The ecological footprint indicates how many hectares of forest, pasture, farmland, and marine land are needed to renew the resources and services people consume, including fruit, fish, wood, and fiber, absorb the waste products produced, such as CO2 emissions from fossil fuel combustion, as well as provide the space for buildings and road. Ecological carrying capacity is the productive land area that can renew the products and services humans need from nature (Rees, 1992). The ecological footprint and biological carrying capacity can be compared at the individual, regional, national, or global level. The ecological footprint and the biological carrying capacity change annually due to population size, per capita energy consumption, production efficiency, and ecosystem variations (Wackernagel & Rees, 1996). The ecological footprint assessment compares mankind’s needs and the earth’s

40

3 Climate as a Factor of Productivity

renewable production at the global level. A global ecological footprint network assessment, based on data from the United Nations, other international organizations, and over 200 countries and regions, indicated that the human race’s rate of natural capital use in 2017 was 1.73 times the renewing speed of natural systems worldwide (Global Footprint Network, 2021). The methodology of ecological footprint analysis is widely used in the sustainable development assessment for the planet Earth (Global Footprint Network, 2017b). It can be applied to measure and manage resource utilization, assess the lifestyle sustainability of individuals, communities, countries, or regions. The study scopes can be commodities, services, organizations, industrial sectors, communities, cities, regions, or countries (Global Footprint Network, 2016). Currently, the world’s per capita average ecological footprint is about 2.7 global hectares. However, in terms of productive land and water resources, the world average biocapacity is only 2.1 global hectares, indicating the human race’s annual consumption has exceeded the earth’s biocapacity by 30%. As a result, the global unsustainable lifestyle depletes the earth’s “natural capital” (Post Carbon Institute, 2016).

4 Contents of Climate Productivity How to understand the connotations of climate productivity? The definition shall be human-oriented and of socio-economic implications. According to List’s analysis of wealth productivity, climate productivity can be defined as the value sustaining and increasing capacity or level of climate assets. Here, climate assets include the climate factor assets, especially the precipitation from water circulation and the heat energy from solar radiation, the climate-derived assets, e.g., the stock and level of ecosystem assets corresponding to the climate factor levels and climate system assets. Climate system assets are the total sum of various assets (including natural assets and fabricated ones) of all or some regions belonging to a specific climate system. Climate productivity also covers or faces the constraints of science and technology means and levels and the degree of people’s protection of or damage to climate systems and factors. In its original state, climate productivity has undergone a very long process of self-improvement and upgrading. During thousands or even millions of years, the natural climate forces have weathered rocks and turn them into the soil; water forces and gravity have led to water and soil accumulation and created plains and water bodies. Finally, various natural forces form the ecosystems with production capacity and levels in line with local climate factor combinations and systems, like the rainforest, deserts, and permafrost ecosystems in Table 2. As there is no capital or technical interventions, the ecosystems’ production level and capacity under the natural state are their original or primary climate productivity. It is worth noting that the original climate productivity constantly increases its ecological stock and level through self-accumulation. Plants grow through photosynthesis, the fallen leaves and litter improve the soil, and the biodiversity keeps the ecosystem balances. Therefore, we can have such assets as primary forest and the Boyang Lake and Taihu Lake. Of

4 Contents of Climate Productivity

41

Table 2 Components and measurement indicators for climate capacity

Climate capacity

Climate factors

Measurement

Specific Indicators

Policy approaches for capacity increase or stabilization

Solar radiation

Temperature

Average temperature, accumulated temperature

GHG emission reduction, solar radiation management

Note 1

Derived capacity

Water

Precipitation

Average annual precipitation

Water storage in reservoirs, long-distance water transfer

Extreme eventsNote 2

Extreme Extreme (high weather events and low) temperature, drought, flood, typhoon

Disaster prevention and control

The carrying capacity of water resources

Runoff, underground water

Per capita available water resources (e.g., ≥ 500 m3 )Note 3

Relying on engineer projects to change the temporal and spatial distribution of water resources

Ecological carrying capacity

Ecological balance

Primary productivity (e.g., animal stocking capacity) Biodiversity index (high, medium, low)

Change needs or improves trophic efficiency with technical measures

Land carrying capacity

Land productivity

Per capita available land resources Per capita land produce

Engineer and technical measures

Note 1 Accumulated temperature is a term often used in agriculture and refers to the minimum temperature (heat) conditions during the entire growth and development period of a crop, and it is the accumulated value of daily average temperature. Agriculture is constrained by a region’s average temperature and a crop’s needs for gross effective accumulated temperatures. Note 2 Extreme events include extreme water and climate events and refer to the occurrence that the value of certain weather or climate variable is higher (or lower) than a threshold close to the upper (or lower) limit of the variable’s value range. Note 3 this can be fixed based on international standards or existing national standards, for instance, in most Chinese cities, the per capita water resource ownership is less than 500 m3 ; the governments need to consider this lower threshold of this carrying capacity during city development and urbanization. Note 4 Based on the share of natural disaster damages in national GDP in different countries, see (IPCC, 2012)

42

3 Climate as a Factor of Productivity

course, the original climate productivity also constantly changes and adjusts itself. Like the ancient Chinese sayings, “the sea turns into mulberry fields, and vice versa” and “Fortune was in the east side of the river thirty years ago, but now it turns to the west.” The original climate productivity also experiences temporal and spatial fluctuations. The original climate productivity is relatively low and can have significant fluctuations. Therefore, it cannot meet the socio-economic development needs of human societies. Under such a background, the labor and capital investments in climate productivity can, to a certain extent, achieve the temporal and spatial redistribution of natural climate factors and form secondary climate productivity. Such interventions can lead to more effective and comprehensive utilization of the natural climate factors and eliminate the temporal and spatial volatility and extremity (disaster) of original climate productivity. On the one hand, they can change the macro distribution of water resources; for instance, people can build dams to constrain water flow, prevent flood disasters, and dig channels for irrigation and drought alleviation. Particularly, building reservoirs to store water can sustain the agricultural productivity of artificial ecosystems. Moreover, it can provide a stable water supply for cities and industries to support cities and industries’ smooth function and benefit the primary productivity of natural ecosystems. For instance, the water transfer project in California in the United States, the system of water-transfer canals and reservoirs in the Chinese city Karamay, the South-North Water Transfer Project in China are all examples of using labor and capital inputs to achieve the temporal and spatial redistribution of the climate factor precipitation. They support the normal function of agriculture, cities, and industries and improve climate systems’ overall productivity. On the other hand, there are micro-level interventions to climate conditions. The examples include the air conditioning and heating supply at industrial and commercial facilities and residential buildings, farm production in glass and plastic greenhouses. Through capital, technology, and labor inputs, these measures change the microclimate environmental factors and meet the needs of production and life. Furthermore, investment in new materials and new equipment can also reduce microclimate environments’ maintenance costs. Thanks to the massive and effective labor, technology, and capital inputs, secondary climate productivity has dramatically improved. However, the energy foundation of secondary climate productivity is a fossil fuel, and GHG emissions from large-scale fossil fuel consumption cause global climate change and an overall rise in global surface temperature. Climate change and global warming shift the earth’s climate system distribution and bring about higher frequency and severity of extreme or disastrous climate events, consequently reducing climate productivity. Imagine if the water circulation changes and precipitation distribution alters. There is no water accumulation and storage, and rivers, lakes, and reservoirs will dry up without precipitation. It will be impossible to redistribute the water resource temporally and spatially. The scientific assessment by the IPCC (IPCC, 2014) indicates that the climate system changes due to global warming can reduce declines in crop output and threaten food security and cause sharp reductions in biodiversity and ecosystem imbalances, and ecosystem collapse in the long term. The secondary

4 Contents of Climate Productivity

43

climate productivity changes nature and supports the continuous expansion of human desire and greed; the human race’s ecological footprint has exceeded the earth’s climate capacity and become unsustainable for climate productivity. Such a situation calls for tertiary climate productivity in harmony with climate system stabilization and climate productivity with a long-term target of zero carbon emissions. The productivity factors of capital, technology, and labor contribute to the continuous increase in carbon productivity and ultimately reach zero carbon emissions. The realization process of tertiary climate productivity is that zero-carbon renewable energy comprehensively replaces carbon-intensive fossil fuels. The three types of climate productivity indicate the different stages and levels of development, and carbon is a key parameter during the various stages. The original climate productivity is natural. The energy source is solar radiation, and plants fix the energy through photosynthesis. The process is zero-carbon and sustainable, but the productivity level was low and gradually became unable to meet socio-economic development needs. The secondary climate productivity is industrial climate productivity, with the characteristics of industrial mass production. It changes the natural distribution and combination of climate factors, enlarges the climate factor assets, and is highly efficient and productive. Apart from solar radiation, the main energy source is fossil fuels, with high energy and carbon density. The huge carbon emissions from fossil combustion cause damages to climate systems, and climate productivity is unsustainable. The tertiary climate productivity is also ecological, and its main feature is zero-carbon productivity due to the highly efficient utilization of climate factor assets. The ecological climate productivity system no longer utilizes carbonintensive fossil fuel and entirely depends on solar radiation. Photosynthesis fixes carbon, and energy supply is based on solar-PV and solar thermal applications. The tertiary climate productivity is also called ecological climate productivity because the productivity also requires corresponding climate and ecology-friendly capital, technology, and production and consumption patterns (see Table 3).

5 Levels of Climate Productivity The productivity assessment can be from economics and ecology perspectives, and productivity capacity analyses often combine static status description and dynamic change rate considerations. According to the definition by List, the national economic productivity in the macro sense is the gross output at a specific time point, i.e., the GDP. It describes productivity under specific social systems and asset mix. While the change between two points of time, for example, the inter-year change rate of an economy’s GDP, is the economic growth rate. The various factors of productivity also have static and dynamic dimensions. For instance, labor productivity is the unit or average output of labor during a unit of time. The change rate of labor productivity levels between different time points is the growth rate of labor productivity. For instance, the total output of an area unit, a hectare, of land during a specific period, such a year, is the measurement of land productivity. If the land productivity level of

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3 Climate as a Factor of Productivity

Table 3 A Comparison of different types of climate productivity and their contents Labor

Capital (technology)

Nature

Carbon (GHG)

Productivity

Factor

Factor

Object of factors, exogenous

Ignored

Ecological productivity

Ignored or exogenous (given)

Ignored or exogenous (given)

Light, heat, land, plants, animals

Ignored

Carrying capacity (capacity)

Threshold constraint

Efficiency factor

Climate factors Carbon (light, heat, and footprint water), derived systems (ecosystem and environment)

Climate productivity

Original (nature)

Ignored

Ignored

Light, heat, water, land, plants, and animals

Zero-carbon

Secondary (industry)

Factor

Factor

Light, heat, water, land, plants, and animals

factors (fossil fuel)

Tertiary (ecological)

Factor

Factor

Light, heat, water, land, plants, and animals

Zero-carbon (renewable energy)

a year is compared with the base year’s level, the result is the dynamic productivity growth rate. The primary or secondary productivity of ecosystems also has static status or levels, such as forest growing stock or grass output or the number of livestock per hectare or a specific area’s biodiversity index. If we compare the static levels with the base time point or reference year levels, then the results are the dynamic change rates of ecosystem productivity. The levels of climate productivity can be analyzed from space, factors, and the system’s overall status. The spatial dimensions can be the earth system, a specific climate zone, climate region, administrative division, or a microclimate. The ecological footprint measures human activities’ demand, but it corresponds to the global climate productivity, the areas of productive land with carbon fixation capacity via photosynthesis. Tropical, semi-tropic, temperate, boreal, frigid, and polar zones divide the earth’s surface into different climate productivity areas based on solar radiation’s strength, one of the key climate factors. While the world can be divided into rainforest, semi-tropic forest, semi-arid plains, arid desert, and Gobi Desert, each with different climate productivity, based on the humidity level from water circulation. The various landforms create sunny slopes and shady ones, natural and artificial lakes, and river systems, forming distinct microclimates. For example, the

5 Levels of Climate Productivity

45

sunny slopes have better solar radiations and warmer temperatures, while the shady slopes often have higher humidity. The artificial microclimates, including greenhouses, heat rooms, and air-conditioned buildings, can be made of constant temperature and humidity. Humankind can change the microclimate but are unable to change the macroclimate. The enormous wealth Middle East countries have accumulated from petroleum exploration can be considered the release of the powerful industrial climate productivity, which forms many artificial assets. Yet humanity cannot break the constraint of climate factors and change climate productivity in a revolutionary way. For instance, it is impossible to create forests in the Gobi deserts artificially. Even if people can plant trees in deserts on a small scale, the original climate productivity will dominate once the artificial water supplement stops. At the productivity factor level, apart from the labor and capital factors in economic productivity, climate productivity factors mainly refer to the various climate conditions of solar radiation, precipitation, and their combinations. Photosynthesis captures solar energy and provides nutrients and calories for heterotrophs, including human beings. Under the industrial climate productivity levels, solar thermal energy can be stored and utilized through such technologies as greenhouses. The commercial utilization of solar thermal and solar PV also emerges. Whatever their climate productivity, all regions can provide essential energy services for human activities using solar thermal and PV technologies. Solar energy technologies have become pillar industries for employment and income generation. Climate productivity sustaining and improvement need to focus on controlling and alleviating extreme climate factors’ negative impacts. During the natural climate productivity phase, the fluctuations in water circulation cause flood and drought disasters, affecting natural productivity and inducing social disasters. Thanks to capital input and technological progress, dams, and buildings are higher and more robust in the industrial climate productivity phase. They can effectively resist the damage of floods, droughts, and typhoons and secure socio-economic systems’ stable functioning. Meanwhile, if the industrial climate production patterns cannot effectively control global warming, then humanity can’t adapt to the extreme events and disasters from climate factor changes. At the climate factor combination or system level, the determinants of climate productivity are complicated. In natural climate productivity, the independent adaptation and evolution of ecosystems can secure asset value preservation and increase and sustain climate productivity. The extreme fluctuations in climate factors, such as droughts and floods, can also damage natural productivity. However, the ecosystems may have a high self-repairing capability, and the natural climate productivity can restore itself. Human societies’ unsustainable exploration of natural climate productivity can take such forms as forest clearance for farmland expansion, reclaiming farmland from lakes, converting grassland into arable land, and excessive groundwater extraction and utilization. Such unsustainable use of natural climate productivity can cause soil erosion, biodiversity loss, ecosystem, ecosystem imbalances, degradation, and even disappearance of natural productivity. If human damage to nature stops when they are still within the reversible range, natural productivity can

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3 Climate as a Factor of Productivity

repair itself. If the damages have reached an irreversible level, then climate productivity can disappear. The debris of the ancient Kingdom of Kroraina is evidence of the complete loss of climate productivity. Climate change causes various impacts on primary productivity, population carrying capacity, and socio-economic development potential through climate factors such as ground temperature and precipitation and such derived systems as water resources and ecosystems. For example, if global warming melts up the glaciers on Qinghai-Tibet Plateau, the oases’ climate productivity in the deserts in Northwest China, which rely on the water supply from glacier ice and snow melting, will also disappear. Changes in the precipitation and temperature patterns and their average values (change rates) are the key factors influencing a specific region’s long-term vegetation coverage. An analysis (Gao et al., 2004) on the 20 years of meteorology data and remote sensing data on northern China, the primary productivity of the region’s ecosystems has dramatically decreased due to temperature rise and precipitation reduction. The analysis also found out that climate change has contributed 90% of the primary productivity decrease, while land-use change impacts are only 10%. Yet the Hu Huanyong Line (Hu, 1990) is both the 400 mm-annual precipitation line and the dividing line of China’s population and economic activity distribution. China has changed a lot in the last century, from the semi-colonial and semi-feudal society in the 1930s to the largely industrialized and urbanized modern society today. Yet, the shares of population and GDP on the two sides of the Hu Huanyong Line have remained steady during the last century despite the enormous increases in industrial productivity and the huge investment in infrastructure facilities. Hence, the climate is the ultimate foundation of productivity, and protecting the climate is protecting productivity.

6 Climate Value in the Economic System—Conclusions and Discussions Most economic research on productivity focuses on labor and capital as the driving factors while takes natural factors as given external conditions. In production function assessment, the natural factors are considered one of the explanatory factors of residual (of Total Factor Productivity, TFP). Although ecological studies’ productivity assessment is based on climate factors, ecological productivity does not examine social productivity improvement and upgrade from the broad socioeconomic development perspective. Ecological carrying capacity, ecological footprint, and climate capacity link up natural productivity and socio-economic demand. Yet, the supply and demand analysis is static, focusing on the ultimate dominance of climate factors and the future trends of dynamic evolution. As climate factors are the core elements of productivity, we need to pay attention to climate productivity, not from natural science, but to reveal its implications in humanities and social sciences, especially economics. As humanity is a species

6 Climate Value in the Economic System—Conclusions …

47

of the natural ecosystem, a productivity level adaptive to the natural system is the foundation for the human race’s socio-economic development. Since the Industrial Revolution, the human race’s capability to utilize and transform nature has seen unprecedented improvement, and its demand for natural products and services has also dramatically improved. As a result, nature becomes a secondary ’object of labor’ among the drivers of productivity. As nature functions as a boundary constraint for human socio-economic development, various capacity and carrying capacity assessments include climate as an important factor. Under climate change, the productivity assessment from a purely economic perspective needs to be integrated with the ecosystem productivity assessment from a natural perspective. The assessments can enable users to examine the connotations and levels of productivity from its roots, which is the foundation of climate productivity. Apart from defining the connotations and levels of climate productivity from concept, it is also necessary to perform an in-depth analysis on the functional relationships among the different factors of climate productivity and the assessment of climate productivity. Under the context of climate change, human societies need to consider the long-term future. They need to include carbon in their socio-economic productivity development and explore climate productivity from different dimensions and the means and approaches for climate productivity improvement. These contents are important research topics for climate change economics and priorities for the fundamental research in economics.

References Abramovitz, M. (1956). Resource and output trends in the United States since 1870. American Economic Review, 46(2), 5–23. Field, A. J., (2008). Productivity. In D. R. Henderson (Ed.), Concise encyclopedia of economics (2nd ed., p. 656). Library of Economics and Liberty. Gao, Z., Liu, J., Cao, M. et al. (2004). The impacts of land use and climate change on regional primary productivity. DILI XUEBAO, 59(4), 581–591. Global Footprint Network. (2016). Application standards. Global Footprint Network. Retrieved April 23, 2016. Global Footprint Network. (2017). Retrieved 2017-04-16. http://data.footprintnetwork.org; Lyndhurst, Brook (June 2003). “London’s Ecological Footprint A review” (PDF). Mayor of London. Greater London Authority (commissioned by GLA Economics), p. 32. Global Footprint Network. (2021). World footprint. https://www.footprintnetwork.org/our-work/ ecological-footprint/. Accessed on April 7, 2017. Hamilton, K., Naikal, E., Lange, G. M. (2019). Natural resources and total factor productivity growth in developing countries testing a new methodology. Policy Research working paper 8704, the World Bank. Hu, H. (1990). Distribution, administrative division, and prospects of the Chinese population. Acta Geographica Sinica, 45(2), 139–145. Hulten, C. R. (2009). Growth accounting. Working Paper 15341, NBER WORKING PAPER SERIES. National Bureau of Economic Research (NBER), September 2009, 80 p. Hulten, C. R., (2000). Total factor productivity: A short biography. National Bureau of Economic Research, January 2000.

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IPCC. (2012). Managing the risks of extreme events and disasters to advance climate change adaptation. In C. B. Field, V. Barros, T. F. Stocker, D. Qin, D. J. Dokken, K. L. Ebi, M. D. Mastrandrea, K. J. Mach, G.-K. Plattner, S. K. Allen, M. Tignor, & P. M. Midgley (Eds.) (p. 582) Cambridge University Press, London. IPCC. (2014). Climate change 2014: Impacts, adaptation, and vulnerability. Part A: Global and sectoral aspects. In Field et al. (Eds.), Contribution of Working Group II to the Fifth Assessment Report of the Intergovernmental Panel on Climate Change (p. 1150). Cambridge University Press. Lindeman, R. L. (1942). The trophic-dynamic aspect of ecology. Ecology, 23, 399–418. https://doi. org/10.2307/1930126 List, F. (1997). The natural system of political economy (p. 266). ZHENGZHI JINGJIXUE DE ZIRAN TIXI. Translated by Chunxue Yang. The Commercial Press (SHANGWU YINSHUGUAN). OECD. (2021). OECD Productivity Statistics 2020, OECD Publishing, Paris, https://doi.org/10. 1787/d2ffea6f-en. ONS (Office for National Statistics). (2014). 5. Productivity theory and drivers. In D. Camus (Ed.), The ONS productivity handbook (p. 207). ONS. Pan, J., & Hu, L. (2018). An analysis on the elements of climate productivity. YUEJIANG XUEKAN, 2018(1), 17–27. Pan, J., Zheng, Y., Wang, J., Xie, X. (2014). Climate capacity: A measurement indicator for climate change adaptation. ZHONGGUO RENKOU - ZIYUAN YU HUANJING (China Population, Resources and Environment), 24(2), 1–8. Park, C. C. (2001). The environment: Principles and applications (2nd ed., 704 p). Routledge. Post Carbon Institute. (2010). The human nature of unsustainability. In R. Heinberg and D. Lerch (Eds.), A chapter from The Post Carbon Reader: Managing the 21st century’s sustainability crises (p. 523). Watershed Media. Rees, W. E. (1992). Ecological footprints and appropriated carrying capacity: What urban economics. Environment and Urbanization, 4(2), 121–130. Ricklefs, R. E., & Miller, G. L. (2000). Ecology (4th ed., p. 192). Macmillan. Smit, A. (1776). An inquiry into the nature and causes of the wealth of nations (generally referred to by its shortened title “The Wealth of Nations”) (p. 510). W. Strahan and T. Cadell. Spalding, M. D., Green, E. P., & Ravilious, C. (2001). World atlas of coral reefs (p. 436). University of California Press and UNEP/WCMC. Wackernagel, M., & Rees, W. E. (1996). Our ecological footprint. New Society Press, 1996, 160. Wei, X. (2017). Marxist productivity theories exceed western economics. People’s Daily, 11 April 2017. Yu, Z. (2002). List’s productivity theories and their contributions. Journal of Hebei University of Economics and Trade, 3(1), 14–19. Zhou, Y., & Wang, F. (2012). A review of China’s strategy of science and education-based national rejuvenation from list’s productivity theories. Co-Operative Economy and Science, 2012(12), 32–33.

Chapter 4

A Welfare Economics Analysis on the Vulnerability to Climate Change

Climate change is the most complicated and long-term global environmental problem with the highest externality. Hence, the research on climate change cannot ignore such ethical questions as equity, values, and welfare right from the beginning, and the development of climate change economics is inevitably the careful considerations of scientific, political, and ethical factors (IPCC 2012, 2014). The fifth assessment of the IPCC pointed out that in the past 130 years, human activities had led to global warming of 0.85 °C, that by the end of the twenty-first century, the temperature rise can exceed 1.5 °C, and that the future trend of intensified global warming is very likely to cause severe, universal, and irreversible impacts on human race and ecosystems (IPCC, 2014). The IPCC Reports define climate change as climate systems’ natural variations and climate change due to human activities. The “climate change” and its mitigation and adaptation activities under the UNFCCC mainly refer to the “climate change due to human activities.” The United Nations Framework Convention on Climate Change’s overall objective is “to stabilize greenhouse gas concentrations in the atmosphere at a level that will prevent dangerous human interference with the climate system.” The Paris Agreement passed at the Conference of Parties (COP) 21 in December 2015 takes a global temperature rise of 2 °C above pre-industrial levels as the dangerous level and sets the target of keeping global warming well below it. In recent years, the economic analyses on climate disaster risk control and climate change adaptation are replacing mitigation economics as the emerging hot topics in climate change economics (Vale, 2016).

This Chapter is partially based on the following article: Zheng et al. (2016). © China Social Sciences Press 2022 J. Pan, Climate Change Economics, https://doi.org/10.1007/978-981-19-0221-5_4

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1 Economic Assessment on Climate Change Impacts The economic impacts of climate change on social welfare and their cost–benefit analysis have always been a core issue in climate change economics. Climate change’s economic costs include both the direct and indirect economic losses from climate disasters and the mitigation and adaptation costs (Handmer et al., 2012). Climate change and the policies responding to it can change resource allocation and have income and welfare effects. The higher the temperature rise, the more the losses from climate change and the costs of climate actions; developing countries and disadvantaged social groups suffer most from climate change’s negative impacts (IPCC, 2012, 2014; Tol et al., 2004). Studies (Nordhaus, 2013) show that climate change and the policies responding to it can change resource allocation and have income and welfare effects. The higher the temperature rises, the more the losses from climate change and the costs of climate actions; those suffering most from climate change’s negative impacts are developing countries and disadvantaged social (Narain et al., 2011). The Stern Review on the Economics of Climate Change recommended that all countries spend 1% of their GDP adaptation actions (Stern, 2007). So far, most of the climate change impact assessments focus on developed countries and at sectoral levels (Handmer et al., 2012; Nordhaus, 2013). There lacks research on the economic impacts of climate change on developing countries and their welfare allocation effects. Behavioral economics finds that compared with income effects, most people have an aversion to risks, inequality, and losses. The compensation by those benefiting from climate change to the victims of losses should cover both the current generation and future generations (Gowdy, 2008). Analyses, applying the welfare economics approach to climate change, recommend a higher regional equity weight to emphasize the welfare of developing countries and regions (Botzen & van den Bergh, 2014) and prioritizing the most vulnerable countries and social groups in international adaptation fund allocation (Zheng & Liang, 2011). Existing studies indicate that human capital (health and education level), physical capital (the infrastructure facilities for daily life), and natural capital are both significant influencing factors on national welfare (Vemuri & Costanza, 2006) and primary areas subject to adverse climate change impacts (Handmer et al., 2012). However, due to the lack of actual market prices, many non-economic welfare elements are difficult to monetize. Moreover, the income gaps among different regions and social groups make it impossible to aggregate their utility (Botzen & van den Bergh, 2014). Therefore, climate change vulnerability assessment has become a supplementary and alternate solution to impact assessment in supporting decision-making (Patt et al., 2011). China is one of the hot spots of climate change impacts. The 2020 United Nations report “Global Assessment Report on Disaster Reduction” indicates that from 2000 to 2019, China experienced 577 hazards, one of the highest in the world (UNDRR, 2019). From 1990 to 2014, China’s annual direct economic losses of climate disasters (hereafter referred to as ’direct economic losses’) was equivalent to 1% of its GDP 1%, far exceeding the levels in developed (for example, the level of the US was 0.55%)

1 Economic Assessment on Climate Change Impacts

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and the world average level (around 0.2%) (Li et al., 2015). “Climate Disasters” include various weather and climate disasters and the secondary hazards they cause. Here “climate disasters” are equivalent to “meteorological disasters or hazards.” The World Bank (2020) points out that China’s natural hazards are a wide variety, wide distribution, high frequency, and severe losses and damages. It also indicates that vast areas in China face natural hazard threats and increasing hazards due to climate change. In the past few decades, more than 100 kinds of natural hazards have occurred in China. Except for volcano eruptions, almost all other forms of natural hazards have occurred in China. Meanwhile, as China has taken some effective disaster reduction measures, although the direct economic losses from natural disasters remain at the level of the 1990s, the share of losses in national GDP has dramatically declined. Moreover, the deaths and injuries from natural disasters have seen a steep drop in absolute numbers and population percentage. Some scholars and international institutions have conducted an economic assessment of the costs of climate change impacts and adaptation in China. Ruiz (2013) introduced such indicators as temperature rise rate, vulnerability, and the volume of natural disaster damages into macroeconomic assessment models and studied the two floods in South China during 1931 and 2020. He found that climate change had significant economic impacts on China. Liu et al. (2012) built a climate-economic model based on the Cobb–Douglas production function. Their study concluded that such climate factors as extremely high temperatures and low temperatures, intense precipitation, and droughts had significant and long-term impacts on the regional differences in agriculture yields in China. Luo et al. (2010)’s study based on an econometrics and panel data model finds that the marginal impacts of climate condition changes to China’s GDP were 12.35% during 1984 to 2006 and that among the different provinces, the northern ones were more sensitive than the southern ones, and the western ones more than the eastern ones. The Asian Development Bank recommends that China and other East Asian countries spend 0.3% of their annual GDP on controlling the damage risks of climate disasters on agriculture, forest, and infrastructure facilities such as water conservancy and hydropower engineering projects and coastal dams (Asia Development Bank, 2013). Climate change adaptation planning (hereafter referred to as “Adaptation Planning”) is systematic and forward-looking adaptation policies and actions to respond to potential future climate change risks. Due to the local characteristics of climate risks and adaptation actions, government-led adaptation actions should specify the responsibility division among government agencies at different levels and focus on such issues as research supporting, information sharing, legislation and regulation, mechanism designing, and public investment (Hallegatte et al., 2011). Due to differences in political regimes and decision-making processes, Adaptation Planning mainly follows two different governance models. One model is top-down, and national adaptation strategies stimulate the implementation at the local level. The other model is bottom-up autonomous actions by local governments and various social actors. Zhang et al. (2015) analyzed the eight sectoral adaptation plans issued by China from 2008 to 2012. They point out that the plans failed to sufficiently consider designing climate change scenarios and uncertainties and ignored future

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risks and non-climate factors closely related to climate change impacts and adaptation capacity. The factors include human resources, capital, social capital, natural resources, physical assets (Preston et al., 2011). Hence, the adaptation actions they recommended lacked a solid scientific basis. Due to China’s national circumstances, climate change adaptation has become a fundamental requirement of its ecological civilization construction and socioeconomic development plans. Former President Hu Jintao specifically called for responding to global climate change and creating scientific and rational blueprints and plans for urbanization, agriculture development, and ecological security (Hu, 2012). The strategic combination (Li, 2015) of the “four major regions” (East, North, West, and Northwest) and “three supporting belts” (the Belt and Road Programme, the Yangtze River Economic Belt, and the Beijing-Tianjin-Hebei Economic Belt) provides a strategic framework for the macro layout of Adaptation Planning. The National Strategy for Adaptation to Climate Change, issued in November 2013, divides the major regions in China into three types of adaptation zones: urbanization zones, agriculture development zones, and ecological security zones and requests to advance Adaptation Planning as soon as possible. In September 2014, the National Development and Reform Commission (NDRC) enacted China’s first medium and long-term plan on climate change, the National Plan for Responding to Climate Change (2014–2020). In June 2015, the Chinese government submitted to the UNFCCC “Enhanced Actions on Climate Change - China’s Nationally Determined Contributions (NDC).” In 2016, the State Forest Administration issued the Forest Sector’s Action Plan for Climate Change Response (2016–2020). These signs of progress indicate China’s commitment to effectively fulfilling its responsibilities as a big country under the UNFCCC. They also show that China is using climate change as an opportunity for boosting its ecological civilization construction, green and low-carbon development, and economic structure optimization. Climate change adaptation is a more urgent and practical challenge than climate change mitigation. While advancing China’s Adaptation Planning, the following significant issues require imperative attention: (1) assessing the impacts of climate change on various social welfare factors and the adaptation capacity of these factors; (2) quantitative assessment on the future potential welfare risks (including total volumes and their regional distribution); (3) how to define the adaptation responsibilities at state, local, and sectoral levels and facilitate equitable and effective adaptation actions. This Chapter provides a scientific and feasible theory and analysis approach. It introduces the main concepts and analytical framework and provides a vulnerability assessment at the provincial level in China. It also proposes the three different typical zones for adaptation planning and estimates the economic losses from disasters based on future climate change and economic development scenarios for China and the equity weighted welfare risks of different regions. Finally, it proposes three governance approaches for adaptation planning.

2 Building the Analytical Framework Based …

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2 Building the Analytical Framework Based on Social Welfare Function 2.1 Economic Welfare and Its Risk Assessment Economic welfare is the monetary measurement of social welfare, and income and economic output (e.g., GDP) are the core indicators commonly used to measure economic welfare. Climate change can both negatively and positively influence economic welfare. Therefore, climate change’s welfare effects and its cost and benefit analysis can provide a scientific basis for adaptation planning. Yet, the process’s difficulties define the scope and adaptation boundary and how to estimate the costs and benefits (IPCC, 2014). Figure 1 indicates the existence of a limit or boundary in climate change adaptation. For instance, due to such constraints as risk threshold or regulatory, culture, and technology, some residual losses inevitably exist (in disaster statistics, they are knowns as ’direct economic loss’). Adaptation planning aims to find Point A, the optimal adaptation level (marginal adaptation cost = marginal adaptation benefit). Yet, the ideal assumption of finding Point A is complicated to realize, and the actual adaptation level is often at suboptimal Point B (IPCC, 2014). Climate change risks are the potential negative impacts that climate change may cause to natural and socio-economic systems. Climate risks mainly take such forms as high temperature, intense rainfall, typhoon, etc. (Qin, 2015), and long-term gradual changes (such as worsening aridity, continuous temperature rise, glacier melting, and sea-level rise). Extreme weather/climate events refer to abnormal events surpassing certain thresholds and far away from average climate states. IPCC (2012, 2014) has

Fig. 1 Adaptation cost and residual losses ( Source IPCC (2014), Fig. 2 in Chap. 17)

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4 A Welfare Economics Analysis on the Vulnerability …

put forward the adaptation decision-making framework based on climate risk assessment. Risk is the occurrence probability of a negative impact or the function of the following three core factors: Hazard, Exposure, and Vulnerability. (1) Hazard is the potential occurrence of a disaster and its impacts, frequency, and intensity of extreme weather/climate events. (2) Exposure is the presence of population, infrastructure, and social wealth in places and settings that could be adversely affected by dangers. (3) Vulnerability is the sensitivity or fragility a system shows when exposed to risk and its dealing, resisting, and repairing capability. The concept of vulnerability first appeared in ecology. Ecology and calamity science stress the important roles of environmental and climate factors in vulnerability assessment. Social scientists believe the main driving factors of vulnerability are human and emphasize the influences of economic, social, cultural, and political factors and processes on vulnerability (Adger, 2006; Patt et al., 2010). The formulas are as follows. Risk(R) = Impact(I) ∗ Probability(P)

(1)

Risk(R) = f {Hazard(H); Exposure(E); Vulnerability(V)}

(2)

Impact(I) = f {Exposure(E); Sensitivity(S)}

(3)

Vulnerability(V) = f {Sensitivity(S); Adaptation capacity(A)}

(4)

2.2 China’s Social Welfare Function in the Context of Climate Change Climate change poses theoretical and practical challenges to classic welfare economics. The main difficulties are setting such key variables as risk uncertainties, risk preference, and time preference. These issues are often beyond normative economics’ research scope (Tol, 2010). During the decision-making for public investment projects and climate policy-making, welfare weight is often introduced in a cost-benefit analysis to achieve the social welfare target of Pareto Optimality, and the theoretical basis is the Kaldor-Hicks Principle (Florio, 2014; Little, 2014). In other words, “if A’s situation sees so much improvement due to certain change, that his/her gains can have some surplus after compensating B for B’s losses due to the change, then the change is a kind of Paleto improvement.” The compensation under this principle is just an ideal hypothesis. It is often difficult to identify the victims of damages and the sizes of compensation to different victims. Therefore, practically feasible welfare distribution schemes only compensate a small number of victims suffering the worst damages. The cost-benefit analysis of climate policies

2 Building the Analytical Framework Based …

55

focuses on establishing a social welfare function, which is the sum of multiple individual utility functions. The Bergson-Samuelson social welfare function is the basic form most widely applied in climate-economic assessment models. There are also other forms, including the Utilitarianism function, the Bernoulli-Nash function, the Rawlsian Maxmin function (Botzen & van den Bergh, 2014). The structure design of welfare functions is of high uncertainty (Weitzman, 2010). Selecting the welfare function is essentially a value judgment and involves political considerations. For instance, whether considering justice or not can significantly affect the economic loss estimation of climate change (Fankhauser et al., 1997; Tol et al., 2004). Based on the IPCC risk analysis framework, this Chapter uses the BergsonSamuelson social welfare function to establish the Chinese social welfare function under climate change (Botzen & van den Bergh, 2014; Fankhauser et al., 1997; Florio, 2014). Due to climate change, the national social welfare level depends on the Utility Level U(C) of each province and autonomous region. Their Population Size N. Climate change can affect personal income and consumption level C. Here the consumption covers both market products and services (such as agricultural products, electricity, insurance, and so on) and non-market services (e.g., climate comfort and ecosystem services). A typical consumer is often used to represent different generations’ utility and welfare levels in climate-economic models. The assumption facilitates analysis by ignoring the income distribution and differences among people of the same generation and different regions. In this Chapter, the population size is assumed to be an exogenous variable and constant. The utility is assumed to be homogenous, and the consumption growth rate is a positive exogenous variable. Assume each province and autonomous region has a standard consumer (Botzen & van den Bergh, 2014), who is subject to the net impact from the region’s average climate change. The total utility of province/autonomous region i at time t Ui (Ct ) is the province/autonomous region’s standard consumer utility (ui ) multiplying its population N i . The consumption utility of each province under specific climate change can be expressed as: Uit = U (Cit ) =

n 

(ui · Ni ).

(5)

i=1

The utility loss of each province/autonomous region due to climate change can be calculated as (Hallegatte & Przyruski, 2010): Ui = U (Cit ) − U (Ci0 ) = U (Dit )

(6)

where D is the net consumption loss due to climate change. Formula (7) is the utility loss function; Aj is province i’s combination of j social welfare elements; Ti is the average temperature rise of province i; T is the national average temperature rise. β is the loss function’s variable coefficient of curvature, indicating that as temperature

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rise increases, the marginal loss grows exponentially. Dietz (2011) points out that this exponential function is widely used as it fits well with the disaster loss curve. U (Dit ) =

  n  m   t  Ti β Di (Aj ) · T i=1 j=1

(7)

In the welfare economics analysis on climate change, a Constant Relative Risk Aversion (CRRA) is often used to estimate the risk preference of an individual or a region (Weitzman, 2010), and its standard expressions are: U (Cit ) =

(Cit )(1−η) n = 1 or U (Cit ) = In(Cit ) n = 1 1−η

(8)

where η is the risk aversion coefficient, often presented as the income elasticity or the consumption elasticity of marginal utility. 1-η is the justice weight and can reflect the tolerance of income gaps and disaster loss rate of different regions or social groups. Higher values of η indicate higher risk aversion, and under the prevention principle, people are willing to reduce parts of their current consumption to prevent future risks (Liu, 2012). The total sum of provincial utility is China’s total social welfare function, which is as follows:  −t T  n   (Cit )(1−η) Wt = (1 + δ) (1−η)

(9)

t=0 i=1

where Ct is the consumption level under certain climate change scenarios. When t = 0, the result is the welfare level in the absence of climate change (or base year); when t ≥ 1, the results are welfare levels with climate change (or a certain projection period). δ is the discount rate indicating people’s preference of time, i.e., the coefficient indicating inter-generation equity. The value of δ indicates the risk-sharing between the current generation and future generations. A higher δ value shows more preference to the present or current generation, and the reverse means attaching greater importance to the future. δ = 0 means when a future generation and the current generation face the same risks, the present values of their economic losses are also equal. China’s total welfare risks because of climate change (or the project value vs. the baseline value) are: W = W t − W 0

(10)

As can be seen, the welfare risks because of climate change take the form of a reduction effect on social wealth. The more favorable a climate change scenario is to a province/autonomous region (or the smaller the disaster damages), the higher the province’s utility level. Then the province’s contribution to the national total social welfare will be higher; otherwise, it will decrease total national welfare.

3 Comprehensive Assessment of Climate Vulnerability

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3 Comprehensive Assessment of Climate Vulnerability Climate vulnerability is the degree to which a system is susceptible to and unable to cope with the adverse effects of climate change, including climate variability and extremes. The vulnerability assessment of different provinces and autonomous regions includes the following three steps. Step 1 is establishing the indicator system for the assessment. Five indicators are selected as the primary social welfare indicators, including physical capital, economic capital, human capital, natural capital, and social capital. Each primary indicator has two secondary aspects, sensitivity and adaptation capability (see Table 1). Step 2 is deciding the weight of each indicator. Factor Analysis is applied to identify the main driving factors and the weight of each secondary indicator. Step 3 is calculating the comprehensive vulnerability index (overall vulnerability degree). Each secondary indicator’s score is calculated and standardized; their weighted sum is the comprehensive vulnerability index of each province. The provinces are ranked based on their vulnerability levels, and a national map is created to indicate each province’s vulnerability levels.

3.1 Indicator Selection and Data Collection 2006–2010 (11th Five-year Plan period) is selected as the base period for climate change vulnerability assessment to align with China’s five-year plans. The data mainly come from China Statistical yearbooks and China Civil Affairs Statistical Yearbooks. Table 1 selects some composite indicators; below are some examples. The index of protection capability against climate change impacts. The priority areas for adaptation specified in China’s National Strategy for Adaptation to Climate Change include infrastructure, agriculture, water resources, coastal areas, relevant marine, forest, other ecosystems, human health, tourism, and other industries. The adaptation inputs here include the public expenditures in such areas as ’environmental protection, health care, water conservation and irrigation for agriculture and forest, land, and meteorology’. The climate protection capacity of each province (CPi ) is defined as the share (five-year average) of its adaptation input (AI i ) in the province’s fiscal spending (F i ). The calculation equation is: CPi = Avg{AIi /Fi } · 100%

(11)

Economic sensitivity index. The financial losses from natural disasters are an important indicator used worldwide to measure the sensitivity to climate disaster risks. Each province’s disaster loss is calculated based on data from the China Civil Affairs Statistical Yearbooks by excluding the earthquake damages from each province’s natural disaster loss statistics. The result is each province’s loss from climate disasters (droughts, storms, typhoons, low temperature/frost/snow disasters,

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Table 1 Indicator system for climate change vulnerability assessment Primary indicator Indicator nature

Secondary indicatora

Indicator natureb

Physical capital

Climate security index (economic losses from climate disasters/land area)

+

Economic capital

Natural capital

Human capital

Climate sensitivity

Adaptation capability The index of protection capability against climate change impacts (adaptation in/fiscal expenditure)

−

Climate sensitivity

+ +

Economic sensitivity index (the ratio of direct losses from climate disasters) The sectoral index of climate sensitivity (Agriculture share in the local GDP)

Adaptation capability Economic index of adaptation capability (per capita GDP)

−

Climate sensitivity

+

Water security index (per capita water consumption/per capita water resource)

Adaptation capability Natural resource endowment index (forest coverage rate)

−

Climate sensitivity

+ + +

Population vulnerability index (share of the vulnerable populationc ) Disaster sensitivity index (share of the people affected by disasters) Livelihood vulnerability index (household dependency ratio

Adaptation capability The education level of local + people (illiterate rate) − Health status of the local − population (local life expectancy) Adaptation capacity index of the public health system (no. of doctors per 1000 people) Social capital

Climate sensitivity

Social equity index (urban/rural per capital income ratiod

+ (continued)

floods/landslides/mudslides (Lossi ). The calculation formula of direct economic loss rate (Lossratei ) (5-year average) is as follows: Lossratei = Avg[Lossi /GDPi ] · 100%

(12)

3 Comprehensive Assessment of Climate Vulnerability

59

Table 1 (continued) Primary indicator Indicator nature

Secondary indicatora

Indicator natureb

Adaptation capability The management capacity of + environmental risks (Number of environmental events/per capita GDP) a

The secondary indicators in this table are based on literature review, expert opinion, and the results of multi-circle and multi-step factor analysis. We finally selected 15 indicators (those in brackets) through screening using such criteria as data availability, effects in factor analysis, theoretical and policy implications b Indicator nature is the plus-minus sign of each indicator. “+” means the indicator’s contribution to the overall vulnerability level is positive, i.e., a higher indicator value indicates a higher contribution to the overall vulnerability. “–” means the contribution is negative, i.e., a higher indicator value suggests a lower overall vulnerability c Share of the vulnerable population refers to the proportion of population below 16 and those above 65 in the total population d Due to government regime and cultural differences, there lacks a widely accepted indicator for the social capital related to adaptation. This Chapter uses such indicators as social security coverage, urban–rural income ratio, the share of the population covered receiving low-income benefits to measure the “social equity index”. The indicator included in the model is the indicator “urban–rural income ratio”

3.2 Assessment Results and Analysis In the climate change vulnerability assessment, the vulnerability indicators are observable (manifest valuables), while the public indicators show the common driving forces behind the vulnerability indicators (Latent Variable). The Factor Analysis aims to identify the latent driving factors behind the vulnerability through analyzing the observed values, and the statistical model is as follows: Xi = αi1 f1 + αi2 f2 + ... + αik fk + ei k < n (i = 1, 2, ..., n)

(13)

where x i (i = 1,2,…,n) are n original indicators, f j (j = 1,2,…,k) are k common factors; ei is the error for indicator i. aij is the load index of Indicator X i on common factor f j and reflects the relevance between the original indicator and the common factor. Assessment steps: (1) pre-processing of the data: standardize all the indicators, so that all indicators value sign is positive, i.e., higher indicator values mean higher vulnerability; (2) using the statistical software SPSS16 to perform factor analysis, calculating the variance contribution rate of each common factor and the variable X −min X max Xj −Xij (i = 1, weights. The standardization formula is xij = maxijXj −minjXj ; xij = max Xj −min Xj 2, …, m; j = 1, 2, …, n). Where Max and Min respectively represent an indicator’s maximum and minimum values, m = 31, n = 15). The KMO value is 0.76 in the factor analysis. The result of the Bartlett sphericity test is significant, indicating the indicator system fits for factor analysis. In Table 2, the five common factors can explain 82.4% of the total variance.

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4 A Welfare Economics Analysis on the Vulnerability …

Table 2 Results of climate change vulnerability assessment on Chinese provinces Indicators

Main common factors (weight)a Climate sensitivity (0.36)

Population vulnerability (0.22)

Social development (0.18)

Share of the population affected by climate disasters

0.924

0.087

−0.026

Share of the economic losses from climate disasters in local GDP

0.722

0.103

Share of climate sensitive sectors in local GDP

0.667

Share of adaptation inputs in local fiscal expenditures

Environmental governance capacity (0.12)

Ecosystem vulnerability (0.12)

0.264

−0.058

0.284

−0.101

−0.129

0.439

−0.041

−0.23

−0.149

0.833

0.203

0.279

−0.256

0.081

Per capita GDP

0.791

0.458

0.195

−0.1

−0.16

Number of doctors/1000 residents

0.623

0.547

0.086

−0.012

−0.204

Household dependency ratio

0.181

0.935

0.132

0.049

Share of vulnerable population

0.472

0.801

0.267

−0.013

−0.029

Illiterate rate

0.156

0.175

0.819

0.082

−0.032

Local life expectancy

0.602

0.276

0.641

−0.277

−0.077

Urban/rural per capita income ratio

0.494

0.448

0.548

−0.072

−0.016

Environmental events/per capita GDP

−0.113

0.04

0.076

0.890

0.106

The economic loss per unit of land area

−0.01

−0.572

0.607

−0.196

−0.128

−0.026

Per capita water −0.191 use/per capita water resources

−0.07

0.006

−0.06

0.929

(continued)

3 Comprehensive Assessment of Climate Vulnerability

61

Table 2 (continued) Indicators

Main common factors (weight)a Climate sensitivity (0.36)

Forest coverage rate

0.002

Population vulnerability (0.22)

Social development (0.18)

−0.32

0.484

Environmental governance capacity (0.12) 0.142

Ecosystem vulnerability (0.12) 0.647

a The KMO value is 0.76 in the factor analysis. The result of the Bartlett sphericity test is significant, indicating the indicator system fits for factor analysis. In Table 2, the five common factors can explain 82.4% of the total variance

Based on their climate change vulnerability index values, we divide the provinces into five vulnerability levels. The three most vulnerable provinces (composite vulnerability index = 5) are Gansu, Ningxia, and Guizhou, and the three least vulnerable provinces (municipalities at province level) are Beijing, Tianjin, and Shanghai. In terms of geographic distribution, composite vulnerability gradually increases from the east to the west. In other words, the more developed regions are of higher adaptation levels and less vulnerable to climate change. The adaptation levels of provinces in West China are generally lower than those in Central and East China. An analysis of the linkage between welfare elements and vulnerability indicates the following points. (1) The climate sensitivity indicators’ contribution to the composite vulnerability exceeded 1/3 and the primary indicators most affected are economic capital, physical capital, and human capital. (2) The provinces’ adaptation capacity is mainly driven by economic capacity, human capital quality, and infrastructure. Therefore, increasing investment in human capital and infrastructure in West China can reduce the region’s vulnerability. (3) Ecological resource endowment and environmental governance capacity contribute 12% of the composite vulnerability indicate, and they vary from province to province. Ge (2012) calculated the capital inventory of economic infrastructure facilities in different regions of China and discovered a strong correlation between a region’s per capital infrastructure capital stock and its per capita GHD. Wang and Zhao (2005) point out that China’s recent decades of high economic growth had been associated with low economic welfare conversion. The spending of GDP on social development remained low for many years, and social development had failed to keep pace with economic development. Some geography of welfare studies has reached similar conclusions. For instance, Xiaopeng Liu et al. (2014) points out that poor people’s distribution is closely related to local geographic conditions. Bao Liu et al. (2006) examined the regional gaps in people’s health conditions in China. They concluded that the per capita health spending in East and Central China is much higher than West China’s level. Meanwhile, West China’s life expectancy and other health indicator values are much lower than those in East and Central China.

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4 A Welfare Economics Analysis on the Vulnerability …

4 Adaptation Zoning Based on the Vulnerability to Climate Change There exist big development gaps among different regions in China. As a result, China has both a development deficit and an adaptation deficit. It faces enormous development-driven adaptation needs and big incremental adaptation needs (Pan et al., 2011). Incremental Adaptation is the incremental input needed due to additional risks under the context of climate change. It covers the adaptation activities required to respond to the additional climate risks when the development needs are generally satisfied. Development Adaptation refers to the adaptation needed to address both development needs and additional climate risks when the development level is low. The systems lack the capacity and inputs to respond to regular risks. Take climate disaster risks as an example. The conventional disaster prevention and control institutions have accumulated various capitals for dealing with regular risks (assume they are risks caused by natural climate variations) through long-term investment and experiences. Under climate change, developed regions only need to make incremental adaptation inputs to address the newly added climate risks. In contrast, less developed regions, due to resource shortage in history, struggle to cover the deficits in regular risk control inputs and cannot pay attention to the new risks. “Adaptation deficit” means that a region has sufficient resources and capacity to address the regular climate risks in their development. Yet, they lack the resources to address the new risks of extreme and long-term climate change. “Development deficit” refers to the situation of a region lacking resources and funding for both regular climate risks and incremental climate change risks. Table 3 describes the basic features of incremental adaptation and development adaptation. Table 3 Incremental adaptation versus development adaptation Adaptation model

Normal climate risks New climate change risks Total risk value

Incremental adaptation

Loss risk: 100 Development risk reduction (DRR):100 Net loss: 0

Loss risk: 30 Adaptation to climate change (ACC): 0 Net loss: 30

Total risks: 130 Total inputs: 100 Total net loss: 30

Deficit: 0

Deficit: 30

Total: 30

Loss risks:100 Development risk reduction (DRR) input:60 Net loss: 40

Loss risk: 30 Adaptation to Climate Change (ACC) input:0 Net loss: 30

Total risks:130 Total input:60 Total loss: 70

Developmental adaptation

Deficit:40

Deficit: 30

Total deficit: 70

Development deficit

Adaptation deficit

Development deficit + Adaptation deficit

Note Assume when the adaptation is sufficient, the residual loss is 0. “Deficit” refers to the gaps between risk prevention and control inputs and needs. DRR: Disaster risk reduction; ACC: Adaptation to Climate Change. Revised based on Pan et al. (2011)

4 Adaptation Zoning Based on the Vulnerability to Climate Change

63

Fig. 2 Dividing China into three types of adaptation areas

To vividly illustrate the adaptation capacity of different provinces, a coordinate image (see Fig. 2) has been created with ’Climate sensitivity and ’Adaptation capacity’ as the two axes and three typical adaptation zones are identified according to the 31 provinces’ location on the coordinate image. In Fig. 2, the provinces’ indicator values are their difference from the average. First, all the indicator values are standardized, i.e., standardized value = (indicator value - average)/standard variation. Then the matrix of component score index values is used to calculate the score of each province. The results are grouped with the ± 0.3 threshold of scores. The provinces are then divided into three types: (1) Ty Type I zone (priority to development-based adaptation): Gansu, Ningxia, Guizhou, Qinghai, Anhui, Yunnan, Tibet, Guangxi, Chongqing. (2) Type II (focusing on incremental adaptation): Beijing, Tianjin, Zhejiang, Shanghai, Fujian, Guangdong, Liaoning, Jilin, Heilongjiang, and Jiangsu. (3) Type III zone (paying attention to both incremental and development adaptation): Jiangxi, Hainan, Hunan, Hubei, Henan, Hebei, Shandong, Shanxi, Inner Mongolia, Shannxi, Sichuan, and Xinjiang. As can be seen, the climate sensitivity and adaptation capacity of Chinese provinces are highly correlated. The evidence is that most provinces are in two typical zones, i.e., high sensitivity-low adaptation capacity and high adaptation capacity low sensitivity. The above results are similar to the Vulnerable Type and the Sustainable Type among the four types of countries identified by Tol et al. (2004) based on the climate risks facing different countries. On the one hand, the strong correlations prove the strong linkage between development levels and adaptation capacity. On the other hand, they indicate that all the Chinese provinces’ vulnerability and adaptation

64

4 A Welfare Economics Analysis on the Vulnerability …

levels are largely influenced by their climate and geographic conditions and show the unique features of China’s landscapes and regional development. In Fig. 2, the Type I provinces are mainly located in West China, with high ecosystem sensitivity, low development levels, and local governments facing the dual challenges of development and adaptation deficits. These provinces urgently need development-based adaptation investments in science and technology, education, health, disaster prevention and elimination, poverty reduction, and ecosystem protection. Most of the Type II provinces are in Central and West China. Few of them have high adaptation capacity and high climate sensitivity, while Xinjiang is low in both aspects. These provinces are close to the average levels and face the pressure of either moving forward or falling behind. They should pay attention to climate change constraints on local resources, environment, and population carrying capacity and combine development-based and incremental adaptation investments during urbanization and industrialization. Type III provinces consist of the advanced and urbanized regions along with China’s southeast coast and Northeast China. These provinces have a strong development foundation, strong adaptation capacity, and future efforts on improving their adaptation capacity should focus on incremental inputs.

5 Risk Assessment and Its Policy Implications As China increases its investment in disaster control and elimination, the country’s direct economic losses from climate disasters have decreased from 3 to 6% of its GDP during the 1980s to around 1% since 2000. Yet, there remain significant differences among different regions (Li et al., 2015). Climate change in the twenty-first century will cause higher risks of such disasters as heat waves, floods, and droughts. As China’s population and economic scale continue increasing, the country needs to pay attention to the amplification effects of climate change disaster risks due to socioeconomic system vulnerability (Qin, 2015).

5.1 Calculation of Economic Losses and Welfare Risks This section selects Climate Change Scenario RCP8.5 of the CMIP Climate Scenario Series developed by the China Meteorology Centre and assesses the hazard probability of two major types of climate disasters, droughts, and floods, based on their frequency and intensity under the background of future climate change. RCP8.5 is a scenario of high emissions and concentrations and corresponds to global warming exceeding 2 °C. The drought and flood risks are calculated using metrological indicators as high temperature, duration of high temperature, precipitation frequency, and extreme precipitation values through provincial level interpolation and normalization. The data were provided by Dr. Siyan Dong and Prof. Ying Xu from China Meteorology Centre. The calculation formula of hazard risks of climate change is:

5 Risk Assessment and Its Policy Implications

65

T T 0 0 (Hdrought + Hflood )/(Hdrought + Hflood ). The formula calculates the growth rates of drought and flood disasters during the prediction period compared to the baseline period (0). The most used economic welfare indicator, “local economic value (local GDP),” is chosen for risk exposure assessment.1 It is assumed that each province during the projection period will maintain its climate change vulnerability level during the baseline period. Then we can assess the economic welfare risks each province may suffer in the future based on its GDP level.  Risk(W ) = E(W ) = U (GDP) (14)

First, the process begins with creating the social welfare function of climate disasters. The Utility Loss Function U(Di t ) of each Chinese province is created based on the IPCC Risk Assessment formula (1), (3), and loss function (7). Di t is province i’s ’direct economic losses from climate disasters’ in year t of the projection period. Its calculation formula is as follows: Dit = Iit · PiT = Eit · SiT · PiT = GDPit · [Lossrateio · (1 + HiT · PiT · Vi0 )]

(15)

where T represents the entire projection period, I i t is the climate change impacts of province i in year t; Pi T is the occurrence probability of the impacts under the climate change scenario during the projection period (here, the hazard probability is assumed to be 100%). E i t and S i T are respectively the province’s risk exposure and its sensitivity to climate disaster in terms of total economic volume (expressed with the local annual GDPi t ). H i T is the average hazard level (the occurrence frequency and intensity of droughts and floods) of the entire projection period in relation to the baseline period.2 “Lossratei ” is province i’s “direct economic loss rate from climate disasters” during the baseline period. The sensitivity index S i t consists of three indicators, each province’s historical loss rate from climate disasters, future hazard level, and current vulnerability level. It is equivalent to introducing a risk amplification co-efficient on the baseline level; in other words, the future climate hazard increase will increase future disaster loss rates. The Second Step is to calculate the total Utility Loss of all provinces, which is the national economic welfare loss for 2016–2030. As the provinces in West China are more vulnerable and lack risk resistance capacity, a regional equity co-efficient 1

The 2016–2030 GDP data of each Chinese province are the results of Associate Professor Yongcheng Feng’s calculations from the National Academy of Economic Strategy (NAES), Chinese Academy of Social Sciences (CASS) based on time-series modelling. The national GDP growth rate (sum of provincial GDP) use the projections from the project of "The Target of Fully Establishing a Well-off Society During the 13th Five-year Period and the 2030 Prospects", led by Professor Xuesong Li from NAES. This Chapter’s estimation builds on an exogenous hyperthesis, i.e., climate disasters don’t affect different provinces’ GDP growth rates. 2 The baseline period of the climate model data is 1986 to 2005. Compared with the baseline period, in the near term (2016–2030), the risks of heat waves, droughts, and flood hazards will all increase. In the medium and long term, the high-level risks will be even higher.

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4 A Welfare Economics Analysis on the Vulnerability …

8 can be introduced to increase the welfare allocation of vulnerable provinces. The average national loss rate of climate disasters, 0.5% (which is equivalent to the loss rate of a province of medium vulnerability), can be set as the target loss rate level. This utility function designing is based on Fankhauser et al. (1997) and Weitzman (2010). It means giving more significance to vulnerable regions with high disaster loss rates is essentially the same as the standardized formula (8). The formulas for calculating the 8 and U(Di t ) of each province are given below U (Dit ) =

T  n 

Dit · θ η θ =



t=0 i=1

Li L

 =

Lossratei 0.5

(16)

Studies show that Chinese households’ pure time preference and risk aversion levels are both high. They estimate that their risk aversion coefficient is between 3 and 6, and their initial discount rate is in the range of 6–8%, both much higher than the levels in developed countries (Liu & He, 2015). However, due to lack of empirical evidence support, this Chapter uses the climate risk aversion coefficient of 1–3 often used in international literature. The pure time-preference value is the market discount rate of 1.5% recommended by Nordhaus (Liu, 2012). The discount rate for time δ is set at 1.5 to reflect the Chinese people’s preference of time and risk aversion level. A risk aversion co-efficient η is included as the weight for 8, and we assume η = 0; 1; 1.5; and 2. The Bergson-Samuelson welfare function and the following two welfare functions are used to calculate each province’s weighted economic welfare risk, based on the welfare functions and weighted aggregation of regional welfare in Fankhauser et al. (1997) and Florio (2014). (1)

The utilitarian welfare function: the same weight is applied to all provinces, and the formula (17) is used for national welfare calculation: WT =

T  n 

[U (Dit ) · θ η ] · (1 + δ)−t

(17)

t=0 i=1

(2)

The maximin welfare function: This approach maximizes the lowest income groups’ welfare. Therefore, it only calculates the utility loss of Type I provinces (including 9 highly vulnerable provinces, i = 1 ~ m). The formula is below: W = Max T

T  t=0

UMin (D) =

T  m 

[U (Dit ) · θ η ] · (1 + δ)−t

(18)

t=0 j=1

The results presented in Table 4 indicate that different equity weighting approaches lead to big differences in the risk assessment conclusions. Higher equity co-efficient for highly vulnerable and less developed regions (the regions to be prioritized for development-based adaptation) means for the same amount of direct economic losses. As a result, these regions’ negative impacts and utility loss are higher; their contributions to the national welfare risks are also bigger.

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67

Table 4 The Results of economic welfare risk assessment on different Chinese regions based on different weighting approaches (2016–2030) Function

Bergson-Samuelson welfare function

Utilitarian welfare function

Maximin function

Equity weights for different regions

η=0

η=1

η = 1.5

η = 1.5

η=2

Type I provinces: Prioritizing development-based adaptation

0.61

1.68

3.88

3.88

9.44

Type II provinces: Prioritizing incremental adaptation

0.31

0.65

1.07

–

–

Type III provinces: Combining development-based and incremental adaptation

0.64

2.22

4.38

–

–

Total

1.34

4.55

9.32

–

–

Unit Trillion RMB/year, based on 2010 constant price

Due to the non-linear characteristics of climate systems the occurrence frequency and economic losses from climate disasters have inter-year variations. During 2004– 2014, China’s annual direct economic losses from climate disasters averaged 304.6 billion RMB. During the period, the losses were the lowest in 2004, only 156.6 billion RMB, while the highest losses occurred in 2010, at 509.8 billion RMB (Li et al., 2015). Due to data constraints, this Chapter’s projections mainly indicate the different levels of losses in different regions. Table 4 presents the annual average projections for different regions and the national total. The assessment results show that from 2016 to 2030, each province’s vulnerability level remains the same, and no additional adaptation investment is made. Due to the economic growth of the provinces and climate change, the hazard will also increase. (1) In the absence of weighting (η = 0), China’s annual average direct economic loss from climate disasters will exceed 1.34 trillion RMB, which is about 4.4 times the average level during 2004–2014. In particular, the annual average loss of Type I regions will be 651 billion RMB, close to the total economic loss of Type III regions (640 billion RMB) and approximately twice the projected loss of advanced regions (310 billion RMB). (2) The weighted assessment results based on the Maximin welfare function (η = 1.5) indicate that the most vulnerable Type I regions’ economic welfare risks will be as high as 3.88 trillion RMB during 2016 to 2030, which is about 6.3 times of the unweighted assessment results of the same regions. Hence, a weight can substantially affect the estimated future welfare losses of the vulnerable provinces in West China. The above assessment results can also help estimate society’s willingness to pay and provide references for adaptation planning and funding mechanism establishment.

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4 A Welfare Economics Analysis on the Vulnerability …

5.2 Reducing the Welfare Risks Through Adaptation Planning The adaptation planning can follow the different governance approaches and justice principles, which can also influence adaptation funding mechanisms. (1)

Adaptation planning led by local governments (capacity-based principle).

The governments at the provincial level conduct the adaptation planning based on their capacity and the urgency of different risks and decide the direction and scale of adaptation investment and spending. This approach’s advantages are that the local governments have more control, can integrate the adaptation targets in their local medium and long-term development plans, and customize the adaptation actions based on local adaptation needs and circumstances. In major disasters, the national government can provide different support in disaster relief and post-disaster reconstruction following the “capacity-based principle.” The Provisional Regulations on Life Allowances for Natural Disaster Relief, jointly issued by the Chinese Ministry of Finance and the Ministry of Affairs in 2011, stipulate that the funding of the life allowances should be shared by the national fiscal department and the local fiscal authorities. The shares between the national and local authorities depend on the local economic development levels, fiscal situations, and natural disaster features (in Central and West China, the national government contributes 70%, while the local fiscal authorities contribute 30%). The pairing support policy in China’s poverty alleviation and disaster relief activities is designed based on the Kaldo-Hicks Compensation Principle. An advanced region with stronger capacity pairs with and assists an underdeveloped region. This approach’s disadvantages are that less developed regions lack capacity and cannot divert their insufficient development funding to prevent future risks. (2)

Sectoral adaptation planning (needs-based principle)

Sectoral authorities make sectoral adaptation plans and manage government funding for climate change adaptation in key sectors (for instance, agriculture, forestry, water conservation and irrigation, building, transport, energy, public health, science and technology, education). They focus on supporting climate change adaptation in regions of high risks. This approach’s advantages include specific roles and responsibility division among different sectoral authorities, quick dissemination of the policies to local levels, and effective implementation and enhancement of investment in crucial and weak adaptation infrastructure. The disadvantage of the sectoral approach is the lack of coordinated planning at the macro and strategic level, and it is difficult for the different sectoral actions to have synergies. Biesbroek et al. (2010) compares the “national adaptation strategies” of seven European countries and point out in their implementation, all countries face such barriers as multiple-level governance and policy integration. Hallegatte et al. (2011) recommend that different government authorities shall not design adaptation policies in isolation, and they should focus on how to exert the synergies among various authorities.

5 Risk Assessment and Its Policy Implications

(3)

69

Adaptation planning by the national government (the principle of giving priority to most vulnerable regions)

In China, the National Development and Reform Commission (NDRC) leads the decision-making and coordination mechanism for climate change. At the provincial level, the sectoral government authorities oversee the mitigation and adaptation action planning and implementation based on their respective roles and responsibilities. Adaptation targets are not integrated into the overall national development plans and lack special financing mechanisms. Moreover, there are substantial development gaps among different regions and enormous development deficits in parts of China. Hence, the Chinese government should follow the example of the Green Climate Fund under the UNFCCC and design a national special adaptation fund to provide targeted support to the highly vulnerable provinces in West and Central China or major infrastructure projects with national strategic importance. Examples of such projects include: • Key water control projects. • River basin management projects. • The South-North Water Diversion Project. Hence, they should be encouraged to independently plan and implement local adaptation actions and fully utilize market mechanisms. Adaptation planning is policy-making based on the ’Precautionary Principle”, and the welfare economics analysis on climate change can provide a scientific foundation for adaptation planning. The study in this section indicates the welfare loss risks that climate change causes to highly vulnerable regions are enormous and longterm. To improve society’s overall welfare level and achieve Pareto Improvements, China needs to pay more attention to high-level coordination in adaptation planning and emphasize policy coordination among different regions and sectors. This Chapter offers three policy recommendations. (1) The adaptation policies should fully consider regional differences and align the development and adaptation targets in adaptation planning. Development-based adaptation actions are typical ’no-regret measures. Adaptation should reduce sensitivity to change changes, improve adaptation capacity, and increase the investment and spending on science and technology, education, health care, and infrastructure. (2) The government should create a national adaptation fund, make national strategic planning from climate justice and climate security perspectives, prioritize the most vulnerable regions in adaptation resource and funding allocation, and improve their long-term sustainable development capacity. (3) The assessment of climate change risks and vulnerability should function as the scientific basis for decision-making. The government should strengthen the research on the climate change impacts on the economic and non-economic welfare of different Chinese regions.

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Liu, X., Su, X., & Wang, Y. (2014). Spatial studies on poverty and their inspirations for poverty geography study in China. Arid Land Geography (GANHANQU DILI), 2014(1), 144–152. Luo, H., Xu, X., Zhang, G., Luo, J., & Wang, J. (2010). Sensitivity analysis on the outputs of Chinese economic sectors to climate condition changes. ZIRAN ZIYUAN XUEBAO, 2010(1), 117. Narain, U., Margulis, S., & Essam, T. (2011). Estimating costs of adaptation to climate change. Climate Policy, 11(3), 1001–1019. Nordhaus, W. D. (2013). The climate Casino: Risk, uncertainty, and economics for a warming world (pp. 135–146). Yale University Press. Pan, J., Zheng, Y., & Markandya, A. (2011). Adaptation approaches to climate change in China: An operational framework. Economia Agrariay Recursos Naturales, 11(1), 99–112. Patt, A. G., Tadross, M., Nussbaumer, P., Asante, K., Metzger, M., Rafael, J., Goujon, A., & Brundrit, G. (2010, January 26). Estimating least-developed countries’ vulnerability to climate-related extreme events over the next 50 years. PNAS, 107(4), 1333–1337. Patt, A. G., Schroter, D., Klein, R. J. T., Vega-Leinert, A. C. (eds.) (2011). Assessing vulnerability to global environmental change: Making research useful for adaptation decision making and policy (288 p). Earthscan. Qin, D. (ed.) (2015). National assessment reports of extreme weather/climate events and hazard risk management and adaptation (120 p). Science Press. Ruiz Estrada, M. A. (2013). The macroeconomics evaluation of climate change model (MECCModel): The case study of China (pp. 1–40). MPRA Paper, No. 49158. Stern, N. (2007). The economics of climate change: The stern review (p. 692). Cambridge University. Tol, R. S. J., Downing, T. E., Kuik, O. J., & Smith, J. B. (2004). Distributional aspects of climate change impacts. Global Environmental Change, 14(2004), 259–272. UN Office for Disaster Risk Reduction (UNDRR). (2019). Global assessment report on disaster reduction 2019, 425 p. Vale, P. M. (2016). The changing climate of climate change economics. Ecological Economics, 121, 12–19. Vemuri, A. W., & Costanza, R. (2006). The role of human, social, built, and natural capital in explaining life satisfaction at the country level: Toward a National Well-Being Index (NWI). Ecological Economics, 58(2006), 119–133. Wang, S., & Zhao, Z. (2005). Research on the issue of low economic welfare with the rapid growth of China economy. Hebei Academic Journal, 2005(4), 65–68. Weitzman, M. L. (2010). What is the ‘damages function’ for global warming-and what difference might it take? Climate Economics, 1(1), 57–69. World Bank. (2020). Learning from experience insights from China’s progress in disaster risk management (44 p). Zhang, X., He, X., & Sun, F. (2015). An evaluation on China’s climate change adaptation policies. China Population, Resources and Environment (ZHONGGUO RENKOU, ZIYUAN YU HUANJING), 9, 8–12. Zheng, Y., Pan, J., Xie, X., Zhou, Y., & Liu, C. (2016). Adaptation planning based on climate change vulnerability: An analysis of welfare economics. Economic Research Journal, 2016(2), 140–153. Zheng, Y., & Liang, F. (2011). Climate equity and the designing and establishment of an international climate governance regime. World Economics and Politics, 2011(6), 69–90.

Chapter 5

Emissions Embedded in Trade

Studies on the contributions of China’s foreign trade increase and structure to the country’s energy consumption and GHG emission growth can offer the world a more comprehensive and objective picture of the driving forces behind China’s energy consumption and GHG emission increases. Moreover, China faces the severe challenges of international pressure and domestic energy security, and environmental production. Saving energy, reducing GHG emissions, and pursuing low-carbon development has become an inevitable choice for China. Therefore, its trade policies should also play an essential role in energy-saving and emission reduction.

1 Embedded Energy and a Literature Review The statistics on energy consumption and GHG emissions are usually based on production, not on consumption. The energy and GHG emissions for manufacturing the products that a country exports are registered under the exporting country’s name and considered to have nothing to do with the importing countries that consume the products. From a consumption-side perspective, the importing country consumes the import products and indirectly consumes the energy used to manufacture the import products and causes the corresponding GHG emissions. It is necessary to assess the embedded energy quantitatively and embedded emissions to analyze the energy consumption and environmental impacts caused by consumption activities from the consumption perspective. Embedded energy or embedded energy is the total energy associated with a product’s material extraction, manufacturing, and transport processes. The embedded energy is higher than the direct energy consumption of the product manufacturing phase. As each energy resource has its GHG emission factor, we can calculate the embedded GHG emissions of a product. It is necessary to note that embedded energy This Chapter is based on the Chinese article: Chen et al. (2008). © China Social Sciences Press 2022 J. Pan, Climate Change Economics, https://doi.org/10.1007/978-981-19-0221-5_5

73

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and embedded GHG emissions only cover energy consumption and GHG emissions in the processes until a product reaches its final consumer. They do not cover the energy consumption and GHG emissions occurring during product use. This is particularly important for fossil fuel products (coal, petroleum, and natural gas). The current international energy statistics and GHG emission inventories already include fossil fuels and the GHG emissions from their combustion in the consuming country’s data. Yet producing these products also consumes energy and emits GHGs. In other words, when China imports a ton of crude oil, as crude oil is an energy product, it should be excluded from the calculation of embedded energy in China’s imports. Yet, the energy consumed in the extracting, processing, and transporting the crude oil shall be part of China’s import’s embedded energy. Apart from embedded energy, the “embedding” concept has broader applications. Because the processing, manufacturing, and transport processes of a product not only consume energy and emit GHGs, but they also consume water and other resources and emit multiple pollutants. Examples include sulfur dioxide (SO2 ) emissions associated with energy use and chemical oxygen demand (COD) associated with water pollution. The literature on the embedded emissions of these pollutants is a good reference for the research on embedded energy. The examples include the study by Muradian et al. (2002) on embedded pollutants in international trade, the research by Ma and Chen (2009) on the pollution footprint of China’s industrial commodity trade, as well as the studies on “virtual water” by Cheng (2003), Niu (2004), Liu et al. (2006), and the Chinese Input–output Association (2007). The analysis in this chapter focused on the data in 2005 when China’s energy consumption and GHG emissions experienced rapid growth. The results highlight that as China is the world factory, much of its energy consumption and GHG emissions were due to imports and exports. There are considerable discrepancies between the country’s energy consumption and GHG emissions in statistics and the actual energy use and GHG emissions for domestic consumption. As the data during the period could more effectively help people understand emission transfer, the data are not updated. After the turn of the century, China joined the World Trade Organization and started rapid economic development and dramatic growth in energy consumption. The embedded energy and GHG emissions in China’s foreign trade have become hot research. For example, Shui and Harriss (2006) studied the Sino-American trade’s embedded energy during 1997—2003. They found that if the US replaced its project import from China with domestic production in the US, the US’s GHG emissions would be 3–6% higher. They also concluded that the embedded GHG emissions in China’s product exports to the US account for 7–14% of China’s annual GHG emissions. The calculations by Kahrland Roland-Holst (2007) from UC Berkeley indicate in 2002, the energy embedded in China’s export products account for 21% of the country’s energy consumption; in 2004, the share further increased to 27%. Rapid export growth is a major driving force to China’s energy consumption growth; the energy embedded in China’s exports is approaching the same quantity as the energy embedded in its domestic consumption. A policy brief of the Tyndall Centre for Climate Change Research from the UK estimated that in 2004, the GHG emissions

1 Embedded Energy and a Literature Review

75

embedded in China’s export was 1.49 GtCO2 , while those embedded in its imports were only 381 MtCO2 . This means China’s net embedded GHG emissions from foreign trade was 1.108 GtCO2 , accounting for 23% of the country’s total GHG emissions in the year. Some Chinese scholars have also conducted some research on this topic. For instance, Xu and Wu (1998) from Tsinghua University estimated the embedded energy of China’s foreign trade. They found the GHG emissions embedded in China’s imports and exports accounted for 18.4% and 16.4% respectively of the national total GHG emissions in 1990, and the gap was small. The study by Zhou et al. (2006) from Tsinghua University indicated that in 2005, China’s energy exports were 880 MtCe and the embedded energy in its exports was 900 MtCe and that the sum of the two accounted for 8% of China’s energy consumption in the year. The energy and GHG emissions embedded in China’s export and import products have attracted much attention from Chinese and international scholars, and a high number of studies have been published. Yet, there are still some confusions in concept definitions and methodologies. More studies focus on China’s export, and the attention on the country’s imports is less. Moreover, most studies focus on a specific year or a few years, and there lacks overall trend analysis. The estimation results are different, and the research on policy implications lacks diversity. Therefore, the studies can go deeper and have space for further improvement in data, methodology, calculations, and policy implication analysis. Foreign institutions studying China often lack access to the latest statistics, and their understanding of China’s national circumstances and policy environment has deviations and biases.

2 Methodology for Calculating the Energy Embedded in Export and Import Products 2.1 Methodology Assume a country’s primary energy consumption is TE, of which the household energy consumption is E H , the total energy consumption of n industries is E I nd , the energy consumption of industry i is E i : T E = E I nd + E H =

n 

E i + E H (i = 1, 2, ..., n)

i=1

In the above national economy input and output table (see Table 1), the total output of industry i is X i , the intermediate input is M Ii , Yi is the final product. The intermediate input M Ii goes to n industries, and the quantity goes to industry j is X i j . The final product Yi and import I Mi together are the total products available for export, household consumption, government consumption, fixed-asset investment, and an

Value-added

Intermediate inputs

…

Depreciation

Salary

n

.. .. .i .

2

Industry 1

n

Xij

Consumption by rural households

… j…

Industry 1

2

Final use

Intermediate consumption

Table 1 Structure of an input–output table

Consumption by urban households

Government consumption

Investments in fixed assets

Changes inventory

Export Import (–)

Xi

Other Total output

76 5 Emissions Embedded in Trade

2 Methodology for Calculating the Energy Embedded in Export …

77

inventory increase. Besides, there is another item O T Hi to balance the equation. If industrial intermediate outputs that are not used are included in Yi , then: X i = M Ii + Yi − I Mi + O T Hi =

n 

X i j + Yi

j=1

=

n 

Ai j ◦ X i +Yi (i = 1, 2, ...n, j = 1, 2, ..., n)

j=1

where Ai j = X i j / X i is the direct consumption coefficient. The matrix expression is:X = AX + Y , it can be deduced to X = (I − A)−1 Y , where (I − A)−1 is known as the Leontief Inverse Matrix, representing the complete consumption co-efficient. Assume E I is the direct energy intensity of the output, then for industry i, E Ii = E i / X i , the matrix emission is: E ind = E I ◦ X = E I ◦ (I − A)−1 ◦ Y = E E I ◦ Y E E I = E I ◦ (I − A)−1

(1)

where E E I is the complete energy intensity of final consumption? It is noteworthy that the complete energy intensity of final consumption is an important intermediate variable for embedded energy and GHG emission calculations. Its definition is far different from EI, the direct energy intensity of output, which is normally measured as the energy intensity of each unit of GDP. (1)

Estimating the embedded energy of export Suppose a Country exports products to K trade partner countries, the export of industry i to trade partner k is E X ik , and the total export of industry i is EXi =  (K)EXik (i = 1, 2,…n, k = 1, 2,…K). The embedded energy of all outputs can be expressed with a matrix: E X E E = E E I ◦ E X = E I ◦ (I − A)−1 ◦ E X Among the country’s n industries, only some of them have commodity exports. Other industries, such as building, water supply, transport, warehousing, catering, wholesale, and retail, only service domestic consumers or their trade belongs to service trade. They are ignored in the analysis of the embedded energy in product trade. How to exclude the influences of intermediate product import is a significant improvement to be considered. As shown in Fig. 1, a country’s imports include two parts. One part, Cm , is for final consumption; the other part, Im , is used as intermediate products for the domestic production processes. From the production perspective, the inputs for domestic production consist of imported

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5 Emissions Embedded in Trade

Fig. 1 Relationship between foreign trade, the production process, and different final consumptions

(1) (2)

intermediate products and domestic inputs Id . The direct consumption coefficient matrix of the input–output table can be seen as using the two types of inputs, the domestic production processes generate total output Yd . One part of the output,Cd , is used for final domestic consumption; the rest, E X , is ued for export. From the consumption perspective, the final yields are used for three purposes: household consumption Yh , government consumption Yg , investment, inventory increase, and other purposes Yk . The sources of all final consumption include two parts: one source is domestic production Cd , and the other source is the imports of final consumption products Cm . In formula (1), the direct consumption coefficient A, instead of Ad is used, the results of the export embedded energy calculation include the contributions of imported intermediate products. Hence the results are overestimated. To calculate the embedded energy of the export produced with domestic inputs, Ad should replace A in the calculations, i.e., E X E E  = E I ◦ (I − Ad )−1 ◦ E X ◦ A = Ad + Am . Of course, one cannot get Ad from national statistics. To calculate Ad , we need to assume that there is a matrix M, which can enable Am = M ◦ A. Then Ad = (I − M) ◦ A = D ◦ A. Where M is the import coefficient; D = I − M is called the localization rate. As for M, due to the uniformity among different industries, i.e., industry i’s intermediate product input in all other industries j, the proportions of imported intermediate inputs are the same. Therefore, M is a diagonal matrix and can be used to measure the import dependency rate of industry i. Element m of the diagonal matrix can be calculated in two ways based on different assumptions: m ii = I Mi /(X i + I Mi − E X i )(i = 1, 2, ..., n); when i = j, m i j = 0 m ii = I Mi /(X i + I Mi )(i = 1, 2, ..., n); when i = j, m i j = 0

2 Methodology for Calculating the Energy Embedded in Export …

79

Obviously, if m1 > m2, then the localization rate D1 < D2. Calculations based on China’s Input–Output Table indicate the results of applying the two different methodologies are similar. For most industries, the differences are less than 1%. Only in very few industries, the result differences are significant. Hence, the industry’s embedded energy, after excluding the influences of imported intermediate projects, is as follows: E X E E  = E E I  ◦ E X = E I ◦ [I − (I − M)A]−1 ◦ E X (2)

(2)

Calculation of the energy embedded in import Assume a country imports products from G trading partners. Its import from trade partner g is I Mig , and the total imports of its industry i is I Mi = G g=1 I Mig (i = 1, 2, ..., n, g = 1, 2, ..., G). As a country’s imports are from multiple trade partners, hence the calculation of the energy embedded in a country’s product imports is much more complicated than that of the energy embedded in its product exports. Most existing literature only studies the energy embedded in a country’s exports and avoids calculating the energy embedded in a country’s imports. A small number of publications cover the issue, and they mainly apply the methodology of “substitution effect,” i.e., using the complete energy intensity of the country’s industries to estimate the embedded energy of its import, the matrix for the calculation is: I M E E = E E I ◦ I M = E I ◦ [I − A]−1 ◦ I M In concept, product imports do, to some extent, avoid energy consumption during a country’s domestic production; hence the “substitution effect” makes some sense. Yet, the methodology’s implicit assumption is that the origin country’s technologies for producing the import products are similar to those of the importing country; hence the import products can substitute the same value of product manufacturing in the relevant domestic industries. However the energy intensities of the same industry in different countries are often different. Countries of different development levels often have different energy intensities in their production processes. Developed countries’ export products are often of high added value, while those from developing countries are usually of low added value. For instance, a developing country pays 1 million US dollars to import a luxury car. The same amount can buy ten domestically made cars, not one car. The country’s energy use for producing ten cars domestically (including the embedded energy for producing steel and other energy-intensive materials) is much more than the energy use for producing one car domestically and far more than the energy use for producing one car in developed countries. Therefore, the methodology of using the product value to calculate the substitution effect can lead to a significant overestimation of the energy embedded in imports.

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Apart from the methodology of “substitution effect”, from the global perspective, using the complete consumption co-efficient that can represent the energy intensity level of the origin country of importing products can make the import embedded energy calculation more objective and accurate, i.e.: IMEE =

G  g=1

I M E Eg =

G  n 

E E Iig ◦ I Mig (i = 1, 2, ..., n, g = 1, 2, ..., G)

g=1 i=1

However, this methodology needs the industrial-specific energy statistics and the input–output table of different import original countries to calculate the complete energy intensity of each industry E E Iig (i = 1, 2, ..., n, g = 1, 2, ..., G) in each import origin country. It is difficult to access such detailed data. Due to data availability, the import-embedded energy is calculated using the following simplified method: IMEE =

G  g=1

(3)

I M E Eg =

G 

E E Ig ◦ I Mg (g = 1, 2, ..., G)

(3)

g=1

where E E Ig is the average complete energy intensity of all industries in country g, which can be calculated using the country’s GDP energy intensity and some modifications to it. Due to data availability constraints, industrial-specific estimation of import embedded energy is only possible for a few countries. Calculating the net embedded energy in trade Compared with calculating the absolute quantities of import embedded energy and export embedded energy, the calculation of the net embedded energy in trade can, to some extent, offset the systematic errors in the absolute quantity calculation. Therefore, the results are more useful for policy analysis. Based on the above description of the calculation methodologies for energy embedded in imports and exports, the net embedded energy can be assessed using the following methods: Method 1 is the “substitution effect” method. The net embedded energy in trade is the embedded energy in export minus the embedded energy in import calculated using the “substitution effect”. The method can be expressed with the following matrix: E E = E X E E − I M E E = E E I ◦ E X − E E I ◦ I M = E I ◦ [I − A]−1 ◦ (E X − I M)

2 Methodology for Calculating the Energy Embedded in Export …

81

where E X − I M is the trade surplus matrix of different industries. As mentioned above, when the “substitution effect” method is applied to developing countries, it can lead to substantial overestimation of the embedded energy of the imports from developed countries, hence leading to significant underestimation of the net embedded energy surplus from trade. Method 2 is from the viewpoint of the exporting country: Eq. (2) is used to calculate the energy embedded in export, and excluding the impacts of imported intermediate products, then Eq. (3) is used to calculate the “net” export embedded energy by integrating the Domestic Production co-efficient. The matrix expression of the calculation method is as follows: E E = E X E E  = E E I  ◦ E X = E I ◦ [I − (I − M)A]−1 ◦ E X Method 3 is from the global perspective. A country’s net energy embedded in trade should be the difference between its energy embedded in export and the energy embedded in its imports. Here the energy embedded in export is calculated using equitation (2) instead of Eq. (3), which is for “net” volume calculation. The energy embedded in import comes from both the imported intermediate products and the import of final consumer products. The differences between import and export can offset the intermediate product import. Its expression with a matrix is as follows: E E = E X E E − I M E E = E I ◦ [I − A]−1 ◦ E X −

G 

E E Ig ◦ I Mg

g=1

(4) (4)

Calculation of embedded GHG emissions

The calory values, carbon content, and GHG conversion rates of the different energy products consumed by each sector should be used to calculate the embedded GHG emissions based on embedded energy data. Yet, due to data availability constraints, it is impossible to calculate the contributions of each industry’s imports and exports to the embedded energy of trade for the time being. The current study is limited to macro-level rough estimations based on the assumption that the carbon intensity of the embedded energy in a country’s export is the same as the country’s average carbon intensity of its primary energy consumption.

2.2 Data Sources and Processing in the Case Study In the research on the export and import embedded energy of China, four main types of data need to be collected: (1) the statistics of energy use by different industries in China; (2) the input–output table data, which indicate the relations among different

82

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industries and economic sectors; (3) data on the commodity trade between China and its main trade partners; and (4) the GDP, primary energy consumption, and carbon intensity of China and its main trade partners. In the case study, we select 2000–2006, the period of rapid trade growth after China’s WTO entry, as the study period. The energy consumption data come from the China Statistical Yearbooks (China National Statistical Bureau (CNSB), 2002–2006); the input–output data come from the China 2002 Input–output Table published in 2006. The commodity trade data were obtained from the United Nations Commodity Trade Statistics Database. The data on different countries’ GDP, primary energy consumption, and carbon intensity were collected from authoritative data sources like the World Bank and the International Energy Agency or the databases and analytical tools from such leading international research institutions as the World Resources Institute. The industry-specific energy statistics cover 43 different industries and an enduse sector, households. The input–output table covers 122 sectors. The commodity trade data follow the Standard International Trade Categorization (SITC), which includes nine major categories; each category is further divided into sub-categories until it reaches specific products. We use the categorization of the 43 industries plus households for energy consumption statistics to align the three types of data. The inputs and outputs date of the 122 sub-industries are aggregated, while the data of other sub-industries remain unchanged. Among the 43 industries, the six industries that focus on servicing the domestic market and service trade shall be excluded; only commodity imports and exports only occur in the other 37 industries. As a result, the trade statistics should be grouped into these 37 industries to ensure that the three types of data can match each other in industry categorization. Tests with actual data indicate that the aggregated data maintains the input–output relations of the original data and that the trade data can cover 99% of the commodity trade value. Hence, there is no major omission, and the aggregation approach is robust.

3 Calculation Results of the Embedded Energy in China’s Product Imports and Exports The case study was based on China’s 2002 Input–output Table; it calculated and analyzed the embedded energy in China’s imports and exports in 2002, its distribution in different sectors, the flow of embedded energy in its trade with major trading partners. Then it estimated the embedded energy in China’s import and export in other years through extrapolation.

3 Calculation Results of the Embedded Energy in China’s …

83

3.1 An Analysis on the Embedded Energy of China’s Export in 2002 The study uses Formula (1) to calculate the complete energy intensity of different sectors. Table 2 shows the complete energy intensity of different industries, with the import index integrated. The table’s data indicate that the average complete energy intensity of the 43 industries is 1.08 tCe/10,000 RMB, and the average energy intensity of the 37 industries with commodity trade is 1.13 tCe/10,000 RMB. The latter is slightly higher than the former. This is because the 37 industries with commodity trade are mainly processing and manufacturing industries. The six industries excluded are mainly from the tertiary sector, which has lower energy intensity than manufacturing industries. On top of the analysis on the 43 industries, if the household energy consumption is also included, the national average, 1.22 tCe/10,000 RMB, is the GDP energy intensity calculated using the expenditure approach in statistics.1 The complete energy consumption intensity approximately led to a reduction of 20% from the above calculation, indicating processing trade played a significant role in China’s international trade. The impacts vary from industry to industry. The impacts are high for electronics and communication equipment manufacturing and the industry of instrument, meters, and cultural and office machinery manufacturing because of the extensive processing of imported materials. The author used the complete energy intensity calculation results in Table 2 and the foreign trade statistics and Formula (2) to calculate the total embedded energy in China’s 2002 commodity exports, distribution in different industries, and the destination of the exports. As shown in Table 3, in 2002, the total embedded energy in China’s exports was approximately 410 MtCe, accounting for 27.6% of China’s primary energy consumption in the year; and the embedded emissions in the export was 220 MtC. After using the domestic production co-efficient (localization rate) to exclude the impacts of imported intermediate products, China’s exports’ embedded energy was still 310 MtCe, accounting for 20.7% of the national primary energy consumption in the year embedded emissions of export stood at 170 MtC. In terms of industry distribution, the top three industries in terms of export revenue were the industry of garment and other fiber product manufacturing, the industry of instruments, meters, culture and office machinery, and the industry of electrical appliances, machinery, and equipment, each accounting 7.4%, 13.5%, and 11.8% of China’s total export revenue in 2002. These three industries were also the ones with the highest embedded energy, respectively contributing 13.4%, 12.3%, 12.5% of the total embedded energy in export in the year. After the influences of intermediate

1

In theory, the result should be the same as the GDP energy intensity in statistics. The actual result is slightly different, mainly due to statistical discrepancies, which make the GDP based on the expenditure approach and the GDP based on the production approach not exactly equal. Another reason is the frequent adjustments by the statistical authorities on the published data on energy consumption and the national economy.

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Table 2 Complete energy intensity of some Chinese sectors in 2002 Complete energy intensity (tCe/10,000 RMB)

Localization rate (%)

The complete energy intensity with the domestic production rate integrated (tCe/10,000 RMB)

Textile

1.54

83.9

1.21

Garment and other textile product manufacturing

1.17

96.7

0.83

Petroleum processing and coking

2.95

93.4

2.52

Chemical materials and 3.07 product manufacturing

75.4

2.57

The ferrous metal smelting and rolling processing

3.45

91.6

3.10

Transport vehicle and equipment manufacturing

1.47

90.0

1.11

Electrical machinery and equipment manufacturing

1.61

75.3

1.17

Electronics and communication equipment manufacturing

1.17

59.0

0.65

Instrument, meters, and 1.39 office machinery manufacturing

11.3

0.89

Electricity, steam, and hot water production and supply

2.25

97.1

2.07

Wholesale, retail, and catering

0.70

100.0

0.56

The national average of 1.08 43 industries

91.3

0.84

Average of the 37 industries with commodity trade

1.13

87.0

0.86

The national average, including household energy consumption

1.22

–

0.98

3 Calculation Results of the Embedded Energy in China’s …

85

Table 3 Industrial mix of China’s commodity exports in 2002 and their embedded energy

Total

Trade volume (bn USD)

Share in total (%)

The energy embedded in the export (MtCe)

Share in total (%)

The energy Share in embedded in total (%) export after introducing the localization rate (MtCe)

326.21

100.00

409.58

100.00

306.60

100.00

Of which: Garment and other textile products manufacturing

56.80

17.41

54.93

13.41

39.21

12.79

Instrument, meters, and office machinery manufacturing

43.94

13.47

50.47

12.32

32.34

10.55

Electrical machinery and apparatus manufacturing

38.51

11.80

51.27

12.52

37.27

12.15

Chemical material and product manufacturing

11.50

3.53

29.21

7.13

24.47

7.98

The ferrous metal smelting and rolling processing industry

3.32

1.02

9.48

2.32

8.54

2.78

product import were excluded using the localization co-efficient, the three industries’ shares in the embedded energy of export declined slightly, to 12.8%, 10.6%, 12.1%, respectively, indicating that compared with other industries, processing trade was more common in these three industries. Besides, some other industries, such as the industry of chemical raw material and product manufacturing and the ferrous metal smelting and rolling processing industry, although their shares in the total export revenue were only 3.5% and 1%, respectively. Yet their export products were typically energy-intensive products, and their share in the total embedded energy in exports were respectively 7.1% and 2.3%, far higher than their shares in the export revenue in 2002. The calculation results after integrating the domestic production coefficient, the shares further rose to 8.0% and 2.8%, indicating their processing trade of energy-intensive products was mainly based on domestic raw materials. Hence, their impacts on domestic energy consumption and the environment were high (see Table 3).

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5 Emissions Embedded in Trade

Table 4 The destinations of China’s goods export in 2002 in terms of trade turnover and embedded energy Trade volume (bn US$)

Share in total (%)

The energy Share in embedded in total (%) export (MtCe)

US

70.00

21.49

84.55

20.64

61.91

20.19

Hong Kong, China

58.47

17.96

72.95

17.81

53.60

17.48

Japan

48.44

14.88

57.85

14.12

43.51

14.19

Republic of Korea

15.50

4.76

20.34

4.97

15.98

5.21

Germany

11.38

3.49

13.96

3.41

10.15

3.31

Sub-total of top ten trade partners

233.36

71.54

286.70

70.00

212.65

69.36

Total

326.21

100.00

409.58

306.60

100.00

100.0

Embedded energy in export after the domestic production rate integrated (MtCe)

Share in total (%)

As shown in Table 4, in terms of export destinations, in 2002, China’s main trade partners for goods export were the US, Hong Kong (China), Japan, the Republic of Korea, and the EU. The top 10 trade partners accounted for over 70% of China’s total trade turnover; their share exceeded 60% for most industries. Of course, China’s exports to Hong Kong were not for local consumption but for reselling to other parts of the world, including the US and Japan. The current calculations only consider the direct destinations of export and do not consider the influences of re-export. The calculation results indicate that the main trade partners’ shares in China’s export turnover are similar to their shares in the embedded energy of China’s export. For instance, in 2002, exports to the US account for 21.5% of China’s export turnover, and the share in China’s embedded energy in export was 20.6%, indicating that the US was the top market for China’s export and the biggest beneficiary of the embedded energy in China’s export. If the re-exporting from Hong Kong and other regions is considered, the US’s shares can be even higher. Japan is China’s second-biggest trade partner. Exports to Japan accounted for 14.88% of China’s export turnover and 14.1% of its export embedded energy. China’s exports to the EU are big in total volume, yet each EU member states’ shares are relatively small. After integrating the domestic production co-efficient, the absolute size of embedded energy in export declined by approximately 20%. Yet, the influences on the shares of various trade partners in the total embedded energy are limited.

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3.2 Analysis of the Embedded Energy in China’s Goods Import in 2002 The calculation of embedded energy in imports is complicated. The author selects 32 main trade partners based on the amounts of China’s imports and uses a simplified methodology to calculate the total volume of the embedded energy in China’s imports and its distribution among different origin countries. As shown in Table 5, the 32 main trade partners accounted for 93.4% of China’s import turnover in 2002. Among them, Japan is China’s biggest import origin, contributing 18.11% of China’s import, followed by Taiwan (China), with a share of 12.89%; and the next two were the US (8.98%) and Germany (5.92%). China’s re-imports are included in the imports from different trade partners in China’s trade statistics and accounted for 5.07% of China’s imports in 2002. Calculations based on Eq. (4) indicated that the embedded energy in China’s imports from its 32 trade partners in 2002 was 157 MtCe, and the embedded emissions of the imports were 66 MtC. Assuming these 32 trade partners’ shares in the embedded energy and embedded emissions in China’s imports were the same as their shares in China’s import turnover. We can estimate that in 2002, the total embedded energy in China’s imports was about 168 MtCe, and the embedded emissions were 70 MtC. Russia only accounted for 2.85% of China’s import turnover, yet its share in the embedded energy in imports was 17.6%. This is because the primary energy intensity of Russia’s GDP was far higher than in other countries. On the other hand, China’s re-import accounted for 10.9% of the embedded energy in total imports, far higher than its share of 5.1% in the import turnover, indicating China’s energy intensity was significantly higher than those of developed countries. On the contrary, the US, Table 5 Embedded energy in China’s goods import in 2002 and the main origins China’s import turnover in 2002 (bn US$)

Shares of different countries (regions) (%)

Embedded energy in imports (MtCe)

Shares of different countries (regions) (%)

Japan

53.47

18.11

8.91

5.31

Taiwan, China

38.06

12.89

16.79

10.00

Republic of Korea

28.54

9.67

15.23

9.08

United States

26.52

8.98

9.31

5.55

Germany

17.47

5.92

4.81

2.86

China’s re-imports

14.98

5.07

18.22

10.85

Hong Kong, China

10.67

3.62

2.05

1.22

8.41

2.85

29.59

17.63

Russia Total of 32 trade partners

275.79

Assume 93.4

156.81

Assume 93.43

Total

295.20

100.00

167.84

100.00

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Japan, and Germany shares in the embedded energy in China’s imports were much lower than their shares in China’s import turnover in 2002. An issue here is that the simplified methodology used in calculating the embedded energy in imports inevitably causes some errors. A case study on Japan was conducted using the IGES (2005) assessment of Japan’s embedded energy in 2000 to calculate the embedded GHG emissions based on embedded energy data. The results indicate that the GDP energy intensity of China was 1.22 tCe/10,000 RMB, while that of Japan was 0.22 tCe/10,0000 RMB. This means China’s energy intensity was 5.5 times that of Japan. Yet, in terms of the industries with trade, the energy intensity of Chinese industries was 1.13 tCe/10,000 RMB, and that of Jaan was 0.6 tCe/10,000 RMB. In other words, China’s energy intensity was around twice the level of Japan. The results are understandable. The overall energy intensity differences between China and Japan are large because of their different economic structure. However, the gaps between the two countries in their manufacturing sector’s technology levels were not so big. The simplified methodology of using a country’s overall energy intensity to representing the average levels of its complete energy intensity of the industries with goods trade, for developing countries like China, the errors are not so big, and the methodology is applicable. However, when the methodology is applied to developed countries like Japan, the errors are big.

3.3 Analysis of the Net Embedded Energy in China’s Trade in 2002 When using the “substitution effect” methodology, the calculation results were that in 2002, the embedded energy in China’s exports was 410 MtCe, while the embedded energy in its imports was 440 MtCe. As the embedded energy in imports was higher than that in exports, hence the conclusion is that “in 2002, China had a net trade surplus of 31.01 billion US$, yet it was a net importer of embedded energy”. Such a conclusion deviates from the actual situation in China. Detailed analysis of China’s trade statistics indicates that in the same industry, the added values of China’s import products are often several times those of its export products. The import products’ embedded energy intensity could not be as high as that of the exports. For example, in 2002, the average price of China’s imports in the textile industry was 2.5 US$ per kg, while the average price of its exports was only 0.5 US$/kg, and the average import price was five times the average export price. Similar phenomena exist in different industries, covering about 72% of China’s goods import. The methodology of import “substitution effect” leads to a dramatic overestimation of the embedded energy in China’s goods import and the conclusion that China is a net importer of embedded energy, which severely deviates from China’s actual situation. The second methodology is from export countries’ perspective, introducing a domestic production rate to convert the embedded energy in exports into a “net value.” Calculations based on Eq. (3) indicate that in 2002, after excluding the embedded

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Table 6 Net quantity of China’s embedded energy in its import and exports in 2002 and their country distribution

Total

Net exports of embedded energy (MtCe)

Embedded energy in exports (MtCe)

Embedded energy in imports (MtCe) 167.84

241.74

409.58

Of which: US

75.24

84.55

9.31

Hong Kong, China

70.90

72.95

2.05

Japan

48.94

57.85

8.91

The Netherlands

10.95

11.55

0.61

9.16

13.96

4.81

−25.69

3.90

29.59

Germany Russia

energy in its imports of intermediate products, the embedded energy in China export producing with domestic materials was 310 MtCe, and the embedded emissions were 170 MtC. The results are relatively high, as the final consumer product imports are not excluded. Methodology 3 involves the offsetting of energy imports and exports and excluding both the intermediate product imports and the final consumer product imports. The calculation results are shown in Table 6. They indicated that in 2002, the net embedded energy in China’s exports was 240 MtCe, accounting for 16% of the year’s national primary energy consumption. The net embedded GHG emission export was 150 MtCe. The results are that: China is a net exporter of embedded energy and embedded emissions; as a country with an enormous trade surplus, China has a substantial ecological deficit from its trade. As for the country distribution of the net embedded energy flows, Russia’s biggest origin was China’s embedded energy import. The net inflow of embedded energy to China was 25.69 MtCe. The US is the biggest destination of China’s net exports of embedded energy, with a net outflow of 75.24 MtCe to the US, accounting for 31% of China’s total net export of embedded energy. The next biggest destination of China’s net export of embedded energy was Hong Kong, which stood at 70.00 MtCe; the exports were resold in many parts of the world. Japan was China’s biggest trade partner, and China’s net exports of embedded energy to Japan were approximately 48.94 MtCe. The US and Japan together contributed more than 50% of the total.

3.4 A Time-Series Analysis of the Embedded Energy in China’s Import and Export Since 2002, China’s commodity import and export had been growing rapidly, with an annual average growth rate exceeding 28%. Figure 2 shows the growth trends of China’s import and export values from 2001 to 2006.

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Fig. 2 Growth trends of China’s import and export (2001–2006)

Not only was China’s total amount of export had been growing quickly, but the mix of its export products had also changed. As shown in Fig. 3, the shares of textile, garments and other fiber product manufacturing in China’s export declined in terms of the export mix. In contrast, the shares of instruments and meters, electronic and communication equipment, electrical appliances, machinery, and devices were all witnessing increases. Meanwhile, the exports of the ferrous metal smelting and rolling processing industry, which was represented by iron and steel, were generally stable with some minor fluctuations. Trade turnover increase and commodity structure change inevitably lead to changes in exports’ embedded energy. As for the origins of imports, Japan, the Republic of Korea, Taiwan (China), Germany, and the US are the main sources of China’s imports. As shown in Fig. 4, the shares of Japan and the US imports have been dramatically decreasing in recent years, while the Republic of Korea’s share has been increasing. It is worth noting

Fig. 3 Changes in the product mix of China’s exports (1998–2006)

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Fig. 4 Changing trends of China’s import sources (2001–2006)

that China’s re-import had increased from 3.6% of its total imports in 2001 to 9.3% in 2006. The phenomenon leads to both inflations of both its import and export. It is necessary to analyze the time series of 2001 to 2006 to illustrate the changing trends of the embedded energy in China’s exports and imports over time. Yet China publishes an input–output table of its economy once every five years. Hence, the author assumes the input–output relations of the different industries remained unchanged after 2002. The calculations made some corrections based on the average energy intensity changes and considered the influences of exchange rate changes on foreign trade. The research results indicate that from 2001 to 2006, China’s export increased from 266.1 billion US$ to 969.1 billion US$, growing 2.88 times (China Customs, 2008). During the period, the energy embedded in China’s exports increased from 353 to 1144 MtCe, up by 2.24 times and slower than the growth rate of export turnover. Under the assumption of no industrial structure change during the period, trade turnover increase is the main driving force for exports’ embedded energy changes. The changes in trade goods mix, overall energy intensity decrease, and the appreciation of the Chinese currency helped improve the status of embedded energy in China’s exports, yet the influences were limited. The results are constant enlargement of experts’ embedded energy in the country’s primary energy consumption, from 25.5% in 2000 to 46.6% in 2006. During the same period, China’s imports grew from 242.61 billion RMB to 791.61 billion RMB, with a growth of 2.24 times; the embedded energy in imports jumped from 141 to 513 MtCe, an increase of 2.64 times. The embedded emissions in the imports rose from 58 to 219 MtC, up 2.76 times. The growth of embedded emissions was faster than trade turnover. The reason is that as China’s import increases, the import origins become more diversified. The shares of imports from such advanced countries as Japan, the US, and Germany have been declining, while the shares of imports from developing countries have increased. The energy intensities and carbon intensities of energy consumption in developing countries are higher than those in developed countries. Similarly, trade

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turnover increase is the main driving force behind the growth of embedded energy in imports; the influences of import origin changes were limited. In conclusion, as shown in Fig. 4, the net embedded energy in China’s foreign trade expanded from 240 MtCe in 2001 to 630 MtCe in 2006. A special phenomenon is that in 2004–2005, China’s trade surplus more than doubled and showed leaping development. However, the net exports of embedded energy kept the overall trends of stable and rapid growth. The reasons behind this phenomenon are some improvements in the export mix and deterioration in the import mix. Combining these two structure changes leads to much slower growth in the net export of embedded energy.

4 Error Sources and Policy Implications There is no dispute regarding the existence of embedded energy in imports and exports. China is the world factory, and, undoubtedly, a big proportion of its commercial energy consumption is embedded in its exports for the end-use in other countries. The academic circle’s debates focus on specific measurement methodologies and the errors in the calculation results. More work should pay attention to the policy implication analysis.

4.1 Error Source Analysis Due to data availability constraints, the existing study and measurement still leave space for further improvement, and the errors and uncertainties main come from the following sources. First, due to insufficient industry-specific data and input–output data of different trade partner countries or regions, we had to use a simplified methodology to calculate the quantity of embedded energy in China’s imports, which can cause some errors. Primarily, developed countries’ economy is dominated by the tertiary sector; the manufacturing sector’s energy intensity is quite different from the energy intensity of the entire economy. Using the developed countries’ national economy energy intensity to calculate the embedded energy in their commodity leads to underestimating the embedded energy in China’s imports and overestimate the embedded energy in China’s exports. In developed countries, the tertiary sector is often independent of the manufacturing sector, and the manufacturing sector’s energy intensity is often higher than that of the tertiary sector. In China, in some circumstances, the phenomena of “companies providing some social services” exist, which were historical remains of the planning economy. As a result, the manufacturing sector’s actual energy intensity can be lower than the calculation results using national statistics. Such systematic errors can partially offset estimation errors instead of enlarging them.

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Second, when calculating embedded energy in China’s imports, we studied the entire economy’s energy intensity instead of specific sectors. Therefore, the calculation results can not reflect the import commodity composition change. Hence, each country’s calculation results are of low reliability, yet the 32 main trade partners’ synthetic calculation results can be relatively reliable. Third, the calculations need enormous data on energy consumption, economy, trade, and emissions; the sources and statistical definitions and scopes of different data may not match. China’s energy and economic statistics have been under constant adjustments; the latest statistical data on the primary energy consumption and GDP had been adjusted higher from the previous data in the previous statistical yearbooks, which can cause some errors in the calculations. Fourth, most of China’s energy-intensive products are used for domestic consumption, leading to the possible overestimation of the embedded energy in its export. Yet, in methodology, the infrastructure facilities and buildings’ embedded energy can be transmitted to China’s export products through input–output relations. Hence the calculation results of embedded energy in exports are reasonable. Finally, the input–output table used in the calculation is based on value instead of physical materials. This also causes some systematic errors. For instance, the calculations are based on the energy intensity of different industries; the results can only reflect the industry level’s energy intensity differences, not the differences inside each industry. The differences inside each industry can sometimes even exceed the differences among different industries. The values cannot reflect the corresponding relations of physical quantities. In summary, this Chapter’s calculation methodologies still leave some space for further improvement, cause some errors to the calculation results, underestimate the embedded energy in imports, and overestimate the embedded energy in exports. These weaknesses cannot negate the fundamental conclusion that China is a significant net exporter of embedded energy and GHG emissions. As the systematic errors can partially offset each other, the net embedded energy estimation can be more accurate than the absolute sizes of embedded energy in exports and imports.

4.2 Analysis of the Policy Implications The studies on the embedded energy in China’s exports and imports also have rich and important policy implications. First, the estimation results can help people understand the causes of China’s rapid growth of energy consumption and GHG emissions. China’s net embedded energy in its export increased from 240 MtCe in 2002 to 630 MtCe; its share in China’s primary energy consumption of the same year grew from 16% to 25.7%. The embedded energy in China’s export is noteworthy in terms of absolute quantity and growth rate. Their calculation results confirmed China’s role as a “world factory” in international trade. They indicated that export is a nonnegligible important driving force behind the rapid growth of China’s energy consumption and GHG emissions.

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Second, there exist some trade-offs between a country’s energy and environmental interests and its trade interests. There exists a dilemma. Developed countries import goods from China to substitute their domestic production; the substitution reduces their energy consumption and GHG emissions and benefits their national energy security and GHG emission reduction. In 2002, the US and Japan were destinations of 50% of the net embedded energy in China’s export. European scholars also pointed out that EU consumption leads to global pollution. The study by Bang et al. (2008) found that in 2001, the EU’s consumption caused about 4.7 billion tons of CO2 emissions, which was 12% higher than the EU’s emissions based on production-based accounting. China’s situations were the opposite. Its production-based emissions were 22% more than its consumption-based emissions. Five percentage points of the difference were due to EU consumption. However, some developed countries, such as the US and the EU, have decided to link up climate change and trade and plan to implement international carbon tax or border tax adjustment to protect their domestic products’ competitiveness. When their trade interests and environmental interests conflict, developed countries do not simply opt for their environmental interest. Instead, they use environmental issues to enhance their trade interests. Similarly, from the perspectives of Chinese domestic policies, some conflicts exist between the environmental objectives and the trade objectives. Expanding trade can create some economic benefits for China. Yet, at the same time, it causes negative impacts on China’s energy security, resource, and environment and further intensifies China’s pressure for mitigation actions. Due to the international markets’ price attraction, China’s exports of energy-intensive products have been developing quickly. Take iron and steel as an example. In 2006, China’s steel export surged 109.1% from the year before. In 2007, China’s net export of crude steel was 54.88 million tons. The issue of huge embedded energy in its export products has attracted much attention from the Chinese government. To protect the national environmental interest, China chooses to sacrifice some trade interests to boost the sustainable development of its economy and trade. From a long-term perspective, China is bound to increase energy imports to meet its domestic demand. Suppose China can also increase its imports of endconsumer products to increase the embedded energy in its import. In that case, it can keep the energy consumption and environmental impacts during these products’ processing and production outside its borders. Such a policy can reduce the country’s trade surplus and benefit its environmental protection. The technology gaps between China and developed countries are a reality. At the national level, substituting domestic production with finished product imports can benefit relevant industries’ technology progress and significantly improve energy efficiency. Given China’s coaldominated energy mix and high GHG emission intensities, GHG emission reduction contributions will be even higher. Finally, from the perspective of public awareness-raising, revealing the embedded energy of products and combining it with public awareness-raising activities can help change people’s lifestyles and build a conservation society. Energy-saving should go far beyond direct energy consumption; it should be extended to cover embedded energy. The production process of any commodity, such as food, paper, garments,

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electrical appliances, and clean water, needs to consume energy. Generally, the longer a product’s processing chain and process, the higher the embedded energy is. Therefore, the government shall call for sustainable consumption patterns and request every person to take actions from their daily activities, avoid impulsive, excessive, luxury, and wasteful consumption, and encourage everyone to contribute to energy conservation and environmental protection.

5 Development States, Comparative Advantages, and Carbon Leakage In an open global economic system, environmental regulatory policies can damage the trade industries’ international competitiveness and reduce such policies’ effectiveness. In countries with strict environmental policies, the enterprises subject to strict environmental standards and requirements can see their costs rise. Hence, the imports of similar products from countries without stringent environmental policies increase, leading to domestic product competitiveness and employment losses and even moving of domestic enterprises abroad. This is the so-called “pollution haven effect,” which can cause “trade leakages” of pollution. In addition, in an open global economy, some countries’ mandatory mitigation actions can generate multiple environmental and economic impacts and cause “carbon leakage” and competitiveness issues. In certain ways, the international climate regime can change the economic structure of mitigating countries and boost world economy restructuring through international trade and investments. There exist mitigation policy asymmetries between the countries taking the lead in implementing mitigation actions and other countries, especially between the north and the south. The asymmetries, to some degree, cause competitiveness issues, and the countries without mitigation obligations can increase. The phenomenon is figuratively called “Carbon Leakage.” Due to their specific development phases, the international community does not expect developing countries to undertake the same mitigation burdens as developed ones. Developing countries often develop and expand energy-intensive industries to utilize their advantages in mineral resources and environmental capacity and support their urbanization and industrialization. Developed countries used to have comparative advantages in energy-intensive industries; due to industry upgrades and the pressure of mitigation policies, they choose to relocate their energy-intensive industries to developing countries. Yet, their demands for carbon-intensive products may not decrease. Developing countries see competitiveness improvement of their energy-intensive industries, increasing their exports in these industries to developed countries. Therefore, the large-scale mitigation actions by developed counties will influence the trade and economy, and GHG emissions of developing countries through international trade and investment. Of course, developing countries in industrialization receive

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some industry transfer from developed countries, including the “carbon lock-in” risks in the energy-intensive industry transfer from developed countries. Carbon leakage has direct implications on the environmental integrity and effectiveness of the international climate regime. The concerns about competitiveness and employment loss due to carbon leakage are combined with globalization issues. They are often used as an important excuse by developed countries to require joint mitigation by developing countries or implement protectionism trade policies. The US government believes that if China, India, and some other big emitting countries are exempted from undertaking mitigation obligations, the exemptions could harm the US’s domestic competitiveness and make the global mitigation efforts ineffective. The discussions on carbon leakage and competitiveness can help people understand the interests of developed countries and those of developing countries and more effectively boost international climate regime development.

5.1 Concept and Theories of “Carbon Leakage” The concept of “Carbon Leakage” vividly describes the phenomenon—some GHG emissions “leak” from mitigating countries to countries without mitigation policies. Specifically, the mechanisms function as follows. (1) Mitigation countries impose a high fuel tax. The reductions in their domestic fuel consumption, in theory, can lead to declines in the global prices of fossil fuels, hence increasing global fossil fuel consumption. (2) In the mitigation countries, the energy use and GHG emissions during the production process face some restrictions, yet there is no restriction on imported energy-intensive products. When the restrictions on domestic production emissions cause higher domestic product costs, consumers opt to buy imported energy-intensive products, especially those imported from non-mitigation countries. Developed countries’ mitigation policies lead to a huge demand for imports. Hence non-mitigation countries will increase their exports of energy-intensive products, and as a result, their emissions increase. (3) The enterprises from mitigation countries can move to non-mitigation countries and enjoy the benefits of non-emission restriction policies. The ratio between the emission increase in non-mitigation countries due to mitigation countries’ mitigation policies and the emission reduction in mitigation countries is the leakage rate. In its Third Assessment Report published in 2001, the IPCC pointed out that the leakage rate is between 5 and 20%. The leakage was due to the possible transfer of some carbon-intensive industries to non-Annex I countries and the influences of price changes on the direction of trade flows. Under the Kyoto Protocol, as developed countries were required to undertake binding mitigation obligations while developing countries were not, such differentiation led to carbon leakage. The Paris Agreement reached in 2015 does not differentiate between developed countries and developing ones. Will carbon leakage occur? Although the Paris Agreement is

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based on bottom-up “Nationally Determined Contributions,” some countries’ mitigation actions are more ambitious and stringent than others. Therefore, there still exist carbon leakages.

5.2 “Carbon Leakage” and International Competitiveness The issue of carbon leakage is related to the international climate regime’s environmental integrity and the influences of the international climate regime on the labor divisions among countries. A country’s mitigation actions can affect the international competitiveness of its products and enterprises; this concern has important political and economic implications in countries’ domestic policy-making. Generally, the influences of climate policies on industrial competitiveness depend on multiple factors, including the three main ones below. (1) The industry’s characteristics. The examples include openness to free trade, the industry’s energy intensity or CO2 emission intensity, its direct or indirect carbon costs, its production costs, its capability of transferring costs, market structure, transport costs, the capacity to reduce emissions or energy consumption, and the feasibility of shifting to clean production technologies or processes. (2) The designing of policies and measures include the levels of carbon emission tax, the strictness of the policies and measures, the possibility of alleviation or exemption, and the emission allowance allocation approaches under emission cap and trade schemes. (3) Other policy considerations, for instance, the energy and climate policies of other countries. The transfer of costs to consumers and trade opening are two critical factors (WTO & UNEP, 2009). In reality, as the factors, including industrial competitiveness, are very complicated, the influence of climate policies on industrial competitiveness is tiny (Peters, 2008). In the US, the EU, and other developed countries, addressing carbon leakage and its potential impacts on competitiveness influences whether their mitigation policies can win support from domestic political and economic interest groups. Yet, competitiveness is essentially an internal issue among developed countries. Therefore, these countries can enact various policies to eliminate incremental mitigation costs, such as providing subsidies or exemptions to relevant industries. The occurrence of carbon leakage was because developed countries’ climate policies focused on production side emissions and ignored consumption side emissions. In fact, in an open global economy, developed countries, which take the lead in mitigation, should reduce production and consumption emissions. The mitigation actions by developed countries may boost the ongoing global relocation of industries. The relocation of energy-intensive industries, indicated from carbon leakage analysis, can have complex influences on China and other developing countries. The flow of international investment brings with it funding and technology and can create job opportunities and industrial mix upgrading, benefiting the host countries’ economic development. However, it can also threaten the host countries’ supply security of energy and raw materials and cause severe environmental pollution. This is because energy-intensive industries have high energy consumption in their

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production processes and are big emitters of GHGs and other pollutants. Through direct investments in developing countries, developed countries can utilize the host countries’ advantages of low production costs and abundant resources and then export the products. In the process, they occupy the hosting countries’ environmental spaces and increase their GHG emissions.

6 Trade Measures and Climate Policies—Carbon Tariffs International trade and environmental protection are both important dimensions of human social development. Yet when conflicts occur between the targets of these two dimensions, how should countries solve them? Using trade policies to solve crossborder pollution face some constraints and only second-best choices. Their application in place of better policies causes distortions to international trade, deteriorates overall environmental quality. Environmental tariffs cannot force other countries to change their actions. Hence their environmental influences are highly uncertain. Even if such policies only aim at protecting domestic industries, their protection is weak, as the costs of environmental standard compliance only account for a small share of the enterprises’ overall costs. In conclusion, the benefits of such trade policies to world trade and pollution control are limited. Many trade measures have been studied in the literature, including subsidies, tariffs, and border tax adjustment. The most important among them under climate change is Border Tax Adjustments (BTAs), the tax adjustments that mitigation countries perform on their import and export products to address the competitiveness loss because of their carbon tax or other climate policies. Simply speaking, BTAs include (1) levying domestic tax on import products; and (2) exempting domestic products to be exported from paying the domestic tax. Among these two types of BTAs, most debates focus on the so-called “Carbon Tariffs” imposed on import products from non-mitigation countries.2 Such practices are very controversial. The following questions raise hot debates. Are such practices legitimate? Do they pose discrimination and unfair competition against countries of high-energy intensity, especially developing countries? What are their effects on social welfare? Can they achieve the expected benefits? Will the practice of unilaterally imposing carbon tariffs cause trade disputes and wars? How to look beyond the “carbon tariff” thinking and find an optimal solution to both environmental issues and competitiveness concerns?

2

"Carbon tariff" is a common expression of BAT, which is rarely used in academic literature. Most experts think that it is impossible to introduce carbon tariffs for climate change mitigation. Carbon tariffs have to meet the provisions on border tax adjustments under the WTO framework and border tax adjustments on imports. Otherwise, they have to invoke clauses XX(b) and (g) under GATT1994.

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6.1 The Necessity and Justification for BTAs “Carbon Tariffs” or “Border Tax Adjustments” are an issue of important international political and economic implications. First, the main argument for levying BTAs is to protect the competitiveness of countries with solid mitigation policies and protect them against the losses due to increased imports from countries not taking mitigation actions. Based on theoretical analysis, some economists believe that to deal with carbon leakage, developed countries shall levy a compensatory tariff on the import products from non-mitigation countries. In theory, there are several options to address carbon leakage. The first option is to cover all countries in a global mitigation regime, and all countries need to undertake mitigation obligations. The second option is to levy a uniform global carbon tax. The third option allows mitigation countries to levy carbon tariffs on the import products from non-mitigation countries or subsidies their export products. However, the current international cooperation reality means only the third option seems feasible. Hoel (2012) indicates that a more cost-effective solution to eliminating carbon leakage is to induce the non-mitigation countries with transfer payment to take mitigation actions voluntarily. Yet, from mitigation countries’ perspectives, imposing carbon tariffs on import products is the welfare maximization and optimal option for carbon leakage elimination. Simultaneously, they can raise the funding to provide transfer payment to developing countries to adopt climate policies and ultimate participation in the global joint efforts for climate change mitigation.

6.2 Legitimacy of Border Tax Adjustments Under the WTO Framework The border tax adjustments mainly focus on sales tax, consumption tax, and value-added tax. Are border tax adjustments legitimate under the WTO rules and regulations? Generally, there are lots of controversies on the legitimacy of climate-change-related BTAs under the WTO. Generally, even if they do not violate the WTO, the BTAs are only applicable when a country has a carbon tax (or other environmental tax) instead of an emission trading scheme. However, the EU mainly relies on an emission trading scheme (ETS) to reduce emissions, not a carbon tax. Under such situations, imposing a BTA will lead to more diversified and complicated legal and policy issues, and the implementation practice will be more complex. The EU plans to impose an import carbon tariff similar to BTA in principle yet almost equivalent to a tariff. Hence, the WTO rules on BTAs are no longer applicable to it.

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7 Trade of Climate-Friendly Goods and Services: Opportunities and Challenges There are many fields where trade and climate change supports each other. Examples of win–win areas include banning or eliminating fossil fuel subsidies and promoting the trade liberalization of climate-friendly goods and services. Climate change response requests the wide deployment and trade of climate-friendly goods, technologies, and services. Two main motives behind many countries’ participation in international mitigation actions are to obtain international completion advantages in relevant fields and to achieve the transition to a low-carbon economy as soon as possible.

7.1 Definition and Categories of Climate-Friendly Goods There are still some debates on defining and categorizing climate-friendly goods, also known as low-carbon goods. Climate-friendly goods are a type of Environmental Goods with high GHG emission reduction benefits. In the ongoing WTO negotiations, countries still have some different positions on the definition of Environmental Goods. Environmental Goods consist of two main categories. One type is conventional environmental goods, whose main functions address or eliminate environmental problems, such as carbon capture and storage technologies. The other type is environmentally preferable products (EPPs), which can be any product that, compared to their alternatives or other similar products, can generate some environmental benefits in any phase of their production, use, or disposal (ICTSD, 2008). There are some hot debates on the definition of Environmental Goods in the WTO negotiations. The main controversies include (1) the tariff number issue: whether Environmental Goods should be gathered under one tariff number or scatter under different tariff numbers. In many countries, they are under different tariff numbers. (2) The issue of multiple uses. Many environmental products can be used for different purposes, and some of their uses have nothing to do with environmental protection. This issue is considered critical. (3) The issue of Protection Process and Methods (PPMs). Environmental products need to be determined based on their entire life cycle. However, differentiation based on PPMs can be considered discrimination and non-tariff trade barriers, which face many developing countries’ opposition and remain a hot topic in WTO negotiations. (4) The spatial and temporal dependency of some Environmental Goods. With technology progress, some existing technologies for efficient resource utilization or pollution control may become outdated and less environmental-friendly than the best available technologies. Moreover, waterconservation equipment is environmental goods in arid areas, yet it is not in regions with abundant water supply.

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Cosby (2007) points out, low-carbon products and technologies can be generally classified into three types. Type I includes renewable energy technologies and traditional clean technologies, such as carbon capture, storage, and clean coal technologies. Type II is clean end-use products and technologies, and examples include biomass energy and efficient electric appliances. Finally, type III consists of the products and technologies that emit fewer GHGs during their production. The essence of the classification is to further distinguish the environmental-friendly products between process-based ones and end-use-based ones. There are few controversies regarding Type I products and technologies, although multiple uses exist. It is hard to determine the technologies and products of Type II and Type III. For instance, they all need a relative benchmark to determine whether a product or technology is clean or not. Such determination is difficult without context. Moreover, as technology advances, the benchmark for comparison needs constant updates. The existing statistical systems of customs can identify Type I products but face difficulties identifying Type II and III products.

7.2 Liberalizing the Trade of Climate Friendly Goods Energetically promoting the worldwide dissemination and deployment of climatefriendly goods is important for climate change response and low-carbon development. A key measure is reducing the tariffs and non-tariff barriers to the international trade of such goods. A 2007 World Bank report, International Trade, and Climate Change, points out that if 18 high-emission developing countries can get rid of the tariff barriers on four key clean energy technologies (wind energy, solar energy, clean coal, and energy-efficient lighting), their trade revenue will increase 7%. If they can also eliminate non-tariff barriers, then the trade volume can grow by 13%. Of course, the liberalization of environmental goods trade also depends on their trade’s sensitivity to tariff levels. Apart from lowering tariffs, other measures can also play an important role in scaling up environmental goods’ trade. For example, a country’s GDP, FDI, industrialization, and environmental regulation, and trade balance can also affect its environmental goods trade level. Specifically, fiscal stimulations, the nature of investment framework, finance accessibility, and intellectual property cost can all affect the availability and accessibility of mitigation technologies. Using a regional trade agreement to promote relevant cooperation is also considered a feasible approach. Some people suggest that liberalizing the trade of climatefriendly goods should be included in climate negotiations instead of limiting them to negotiation subjects under the WTO framework. In addition, developed countries should enhance technical assistance and capacity building to improve developing countries’ application capacity of those goods, especially to increase developing countries’ import of environmental goods.

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7.3 Influences of Developed Countries’ Low-Carbon Measures on Developing Countries’ Export Developed countries’ domestic actions of promoting low-carbon products can cause some negative impacts on developing countries’ export. One such action is carbon labeling, aiming at climate change mitigation, emission reduction, and low-carbon technology promotion. In a product’s label, quantitative indicators are provided on the GHG emissions during the product’s manufacturing process to inform the consumers about the product’s carbon footprint. Carbon labeling encourages consumers and producers to support environmental and climate protection, and its effectiveness largely depends on the social morals and sense of responsibility among the consumers and producers. Implementing carbon labeling requests verification of the GHG emissions in the production processes and can cause additional costs to the producers. As a result, the consumers also must share some extra costs (Wu & Jiang, 2009). As low-carbon emission becomes popular, especially in developed countries, carbon labels can enable consumers to consider different products’ GHG emission levels during their manufacturing processes when purchasing products. Some international standard organizations are also discussing the feasibility of converting carbon labeling into an ISO standard. All producers need to perform carbon footprint accounting and verify their consumer products and indicate the carbon labels’ results if this comes true. Otherwise, they may lose the market competition. Therefore, the threshold for market entry into developed countries will increasingly depend on the products’ “low-carbon” performance. Carbon labeling can pose new barriers to some developing countries’ export. The low-income developing countries that rely on exporting agricultural products to developed countries may face unfavorable trade situations. Take fresh peas as an example. Suppose only the emissions during the farming process are considered. In that case, the Global Warming Potential (or GHG emissions) of peas planted in Kenya and Uganda are only between one-tenth and half of the peas produced in the UK. In low-income countries, fewer chemical fertilizers are used in the farming process, and the mechanical level of farming is much lower. Therefore, the agriculture sector is less carbon-intensive. However, if all the carbon emissions in the supply chain are considered, the peas from Kenya and Uganda have a GWP level that is at least three times the domestic peas from the UK. Most of the emissions (over 3/4) occur during international transportation. Such accounting puts countries far away from developed country markets in an unfavorable position. A country’s vulnerability to carbon labeling depends on its total export volume, export reliance, export product mix, and supply patterns (Edwards-Jones et al., 2009). Kenya and some other low-income African countries primarily rely on agricultural product export based on air transport and are vulnerable in the face of the UK’s carbon labeling. However, carbon labeling is still in its early days, and its influence is small. Its future development trends request more systematic research. Developing countries should invest in renewable energy, support low-energy, and low-carbon enterprises, and develop supply chains to reduce their export supply chains’ emissions. They should also consider the carbon footprint

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of their products’ inputs to reduce the unfavorable impacts of carbon labeling on their trade.

References Bang, J. K., Hoff, E., & Peters, G. (2008). EU consumption, global pollution (47 p). WWF report. https://wwfeu.awsassets.panda.org/downloads/eu_consumption__global_pollut ion___summary.pdf Chen, Y., Pan, J., & Xie, L. (2008). Embedded energy in China’s commodity imports and exports and its policy implications. Economic Research Journal (JINGJI YANJIU), 2008(7), 11–25. Cheng, G. (2003). Virtual water-a strategic instrument to achieve water security. Bulletin of the Chinese Academy of Sciences (ZHONGGUO KEXUEYUAN YUANKAN) , 2003(4), 260–265. China Customs. (2020). China customs statistics. http://english.customs.gov.cn/Statistics/Statis tics?ColumnId=1. Accessed on December 15, 2020. Chinese Input-output Association. Water Consumption of Different Economic Sectors and Water Consumption Coefficient Analysis - No. 5 of the. (2002). China Input-output Table Analysis Report Series. Statistical Research (TONGJI YANJIU), 2007(3), 20–25. Cosbey, A. (2007). Trade and climate change linkages. A Scoping Paper produced for the Trade Ministers’ Dialogue on Climate Change Issues, Held in conjunction with UNFCCC COP 13, Kyoto Protocol MOP 3, Bali, Indonesia, 8–9 December 2007, p. 11. Edwards-Jones, G., Plassmann, K., York, E.H., et al. (2009). Vulnerability of exporting nations to the development of a carbon label in the United Kingdom. Environmental Science & Policy, 12(4), 479–490. Hoel, M. (2012). Carbon taxes and the green paradox (Chap. 11). In: R. W. Hahn & A. Ulph (Eds.), Climate change and common sense: Essays in Honor of Tom Schelling (29 p). Oxford University Press. ICTSD. (2008). Liberalization of trade in environmental goods for climate change mitigation: The sustainable development context. Trade and Climate Change Seminar, June 18–20, 2008, Copenhagen, Denmark, p. 15. Kahrl, F., & Roland-Holst, D. (2007). Growth and structural change in China’s energy economy. Energy, 34(7), 894–903. Liu, B., Feng, Z., & Yao, Z. (2006). The theories, methodology, and main progresses of virtual water research. Resources Science (ZIYUAN KEXUE), 28(1), 120–127. Ma, T., & Chen, J (2009). An analysis on the pollution footprint of China’s industrial commodity trade. China Environmental Science (ZHONGGUO HUANJING KEXUE), 29(1), 106–112. Muradian, R., O’Connor, M., & Martinez-Alier, J. (2002). Embedded pollution in trade: Estimating the ’environmental load displacement’ of industrialized countries. Ecological Economics, 41(1), 51–67. Niu, S. (2004). Theory and method of virtual water analysis. HUAQIAO DAXUE XUEBAO (Journal of Huaqiao University) (Natural Science), 3, 331–333. Peters, G. (2008). Reassessing carbon leakage. A paper for the Eleventh Annual Conference on Global Economic Analysis, “Future of Global Economy”, Helsinki, Finland, June 12–14, 2008, 12 p. Shui, B., & Harriss, R. C. (2006). The role of CO2 embodiment in US-China trade. Energy Policy, 34(18), 4063–4068. WTO and UNEP. (2009). Trade and climate change—A report by the United Nations Environment Programme and the World Trade Organization (p. 194). Wu, J., & Jiang, Q. (2009). Carbon labelling in international trade. International Economic Cooperation (GUOJI JINGJI HEZUO), 2009(7), 82–85.

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Xu, Y., & Wu, Z. (1998). International carbon transfer: International trade and foreign investment. SHIJIE HUANJING (world Environment)., 1998(1), 24–29. Zhou, L., et al. (2006). Energy intensity reduction requires the control of hidden energy export. Science Times (KEXUE SHIBAO), 7 November 2006.

Chapter 6

Prospects of Carbon Emissions as Bads for Trading

China’s policy of building a national carbon emission trading system has attracted wide attention around the world. Is emission trading an effective instrument for boosting low carbon development. Does it have a promising market prospect? How make carbon markets exert positive and effective functions?

1 International Formulation and Practices of Carbon Markets The transactions of carbon emission rights have their theory originated from the Coase Theorem, i.e., when property rights are clear, market mechanisms can automatically achieve optimal resource allocation. This theorem of property right transaction has been used in environmental economics analysis. A comparison between the Coase Theorem and the Pigovian Tax concludes that if the total emissions of pollutants are the same as the equilibrium levels of emissions under the Pigovian Tax, the Pigovian tax rate will be the same equilibrium market price of the emission right trading scheme. In other words, the Pigovian Tax and the Coase Theorem can achieve the same efficiency in pollution control. Based on such consistency, the US launched an SO2 emission right trading scheme in the 1980s to control the total volume of its SO2 emissions; the scheme successfully achieved the optimal allocation of SO2 emission rights under the precondition of capping the total national SO2 emissions (Zhang, 2011). Because of the US’s successful experiences from SO2 total emission control and emission right trading, during the negotiations for the Kyoto Protocol on greenhouse emission reduction, the US stressed using market-based approaches to enable This Chapter is based on the article “The Establishment, Challenges, and Market Expansion of Carbon Emission Trading Systems”, ZHONGGUO RENKOU, ZIYUAN YU HUANJING (China Population, Resources, and Environment), Vol. 26, No. 8, 2016. © China Social Sciences Press 2022 J. Pan, Climate Change Economics, https://doi.org/10.1007/978-981-19-0221-5_6

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developed countries to achieve emission reduction compliance with low costs. Hence, Articles 6 of the Kyoto Protocol included three market mechanisms: emission trading (ET) among developed countries (Annex B countries), the Joint Implementation (JI) between developed countries and Economies in Transition (both are Annex I countries), and the Clean Development Mechanism (CDM) between developed countries and developing ones. Annex B of the Kyoto Protocol only includes developed countries and excluded the Economies in Transition members of Annex I countries. The most important emission trading is the international emission trading scheme of the EU. The European Commission determined the upper limit of each country’s emission allowances, and the participating enterprises can trade their carbon emission right on the market. Since 2008, the price of EU emission allowance’s (EUA) has fluctuated significantly, from as low as 3 Euros to more than 50 Euros (Carbon Pulse, 2021). As East European countries joined the EU, Economies in Transition, with Russia as its typical representative, rarely cooperated with Annex B countries in JI project implementation. As the energy and GHG emission statistics of Annex I countries were relatively accurate. Hence the accounting of carbon emission rights under the Kyoto Protocol was simple. The accounting of emission reductions by developing countries through implementing CDM projects, such as energy efficiency, renewable energy, and forestry ones, is more complicated and involves baseline, emission reduction, registration, verification, and issuance. Despite these difficulties, the long list of CDM methodologies and Designated Operational Entities (DOEs) has enabled developing countries to implement CDM projects and achieve emission reductions. The carbon credits can be bought at low prices by developed countries to fulfil their emission reduction obligations. A DOE is a legally registered company, institution, or international organization. It validates the eligibility of CDM projects and verifies and confirms the reported actual emission reductions and seeks issuances of the certified emission reductions (CERs). Overall, the three market mechanisms under the Kyoto Protocol are not perfect. Emission trading mainly took place inside the EU, not among all Annex B countries. The performance and effects of JI are marginal. Most of the CDM projects are concentrated in emerging developing countries, such as China and India. The number of projects in low-income countries is low; very few projects involve technology transfer. Although the United States, Australia, New Zealand, and some other developed countries have also established voluntary carbon markets, they have not become an effective mitigation policy. The positive effects of the Kyoto Protocol mechanisms are undeniable. They have established a common understanding of carbon emission rights as a valuable commodity. The market signal is transmitted to enterprises in developed countries and developing countries that low carbon can either reduce production costs or create revenue. However, the Paris Agreement reached in 2015 does not embody the three flexible mechanisms under the Kyoto Protocol. Article 6 of the Paris Agreement stipulates that “international emission reduction transfer” should be a “voluntary cooperation mechanism,” must be based on accurate accounting and avoid double-counting and have to pay administration fee and contribute to the Adaptation Fund. It further stipulates

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that the detailed rules, modalities, and procedures are subject to further negotiations after the entry into force of the Paris Agreement. As the carbon sink from afforestation projects is not covered, they are not included in the transfer’s eligible project types. Instead, it states that the emissions reductions from avoided deforestation and forest degradation shall be compensated based on the actual effects. Article 6.8 of the Paris Agreement does not show its “strong preference” of market mechanisms. Instead, it embraces the “non-market approaches,” including mitigation, adaptation, financing, technology transfer, and capacity building. Carbon markets seem to fade out of the Paris Agreement. Why?

2 Difficulties Facing Carbon Emission Trading Systems The “failure” of the EU ETS is because the EU worries about its enterprises’ competitiveness and “turns on the water,” i.e., oversupplies the carbon emission allowances, which leads to low market demand. The Paris Agreement, which covers all most all countries on earth, does the establishment of regional or global emission trading schemes face any challenges? First, the Paris Agreement does not include the mitigation commitments under the Kyoto Protocol. The former is based on “bottom-up” “National Determined Contributions,” and the global target is “peaking the global emissions as soon as possible” and achieve net-zero emissions after 2050. Moreover, the national targets under their NDCs include absolute targets, relative targets, shares of renewable in their primary energy mix, policies, and measures, and the comparability among them is low. It isn’t easy to convert these national targets into a uniform cap and tradable emission quotas. The targets set by some developing countries, including India and China, are certain percentage reductions in their GDP’s CO2 emission intensity. As the future amount of their GDP is uncertain, it is impossible to convert their CO2 emission intensity change into a specific carbon emission quota for trading. More importantly, the NDCs of countries are not legally binding. If the CDM methodologies are used in the calculations, the transaction costs will be high. That’s why the carbon emission trading in the UK does not use carbon emission as the measurement unit but uses electricity equivalent (kWh) as the unit for the market transaction and settlement. Third, the establishment of carbon emission trading schemes. (1) The EU ETS only covers some industries on the production side and does not cover much of the service sector. (2) It does not cover the emissions from consumption, and all emissions are ultimately driven by consumption. (3) It covers the GHG emissions from fossil fuel combustion, but not zero-carbon products as renewable energy and sinks. If the carbon markets under the Paris Agreement only cover the transactions of limited sources, it may exclude such high-quality sources as renewable energy and carbon sinks. The efficiency and effectiveness of such emission trading systems will be limited. Fourth, the issue of carbon justice. The Coase Theorem indicates that the original allocation of carbon emission rights won’t affect their ultimate market allocation.

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From this perspective, the market allocation of carbon emission rights is of high efficiency. However, as developing countries are of low technology and carbon efficiency levels, the caron emission rights will automatically concentrate on the small number of countries with high carbon efficiency, mainly developed countries. This will lead to a carbon emission rights shortage among developing countries, which will have to rely on expensive imports to meet their basic needs. Such a situation can further worsen poverty in developing countries. Fifth, the issue of carbon governance. Carbon emissions are not “goods”, but “bads”, which need to be continuously reduced and ultimately fully stopped. However, such “bads” are associated with the production of “goods.” The rules and standards of carbon emission trading and the speed or timetable of carbon withdrawal or reduction are all related to the framework of international governance. In the absence of a world government, forming a “consensus” is a long and inefficient process. Due to the special characteristics of “carbon emissions” as a trade object, there seem to be some insurmountable barriers to establishing global or regional emission trading markets. The Paris Agreement does not include provisions on the establishment of a carbon emission trading system. It only defines the international transfer of emission reductions as a “voluntary” cooperation mechanism and does not provide detailed guidance on the market establishment. The Paris Agreement’s contents indicate that a global or regional carbon market’s establishment and function still lack the necessary support from international laws.

3 China’s Efforts for Establishing a National Carbon Emission Trade Scheme China’s carbon transaction participation, market signals, and foundation originate from the Clean Development Mechanism (CDM) under the Kyoto Protocol. The Chinese government ratified the Kyoto Protocol in August 2002, and shortly after, it started to participate in the international cooperation on CDM. According to the international CDM Pipeline, as of April 2021, China had successfully registered 3861 CDM projects, accounting for 59% of the world total. It had received almost 4.86 billion issued CERs, representing 69% of the world’s total (UNEP DTU Partnership, 2021). China created a set of institutions and regulations through its participation in CDM, which form a solid basis for establishing its national emission trading system. To some extent, thanks to the experiences from CDM and China’s huge market potential, the Chinese government started the pilot demonstration of establishing a national emission trading system. In 2011, the National Development and Reform Commission (NDRC) decided to carry out seven local carbon emission trading pilots in Beijing, Tianjin, Shanghai, Chongqing, Hubei Province, Guangdong Province, and Shenzhen. This decision is based on the overall national strategy on climate change response. Its objective is to fulfill the requirements to gradually establish domestic

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carbon emission trading markets in the country’s 12th Five-year Plan. It aims to use market mechanisms to achieve the targets of its national actions for GHG mitigation set before the Copenhagen Climate Conference and accelerate China’s economic development pattern change and industrial mix upgrade. Five years later, the 13th Five-year Plan (State Council of China, 2016) specified the task to “establish and improve” the original allocation system for carbon emission rights. The Plan also required the government to boost a national carbon emission transaction market and enforce key enterprises reporting their carbon emissions, the inspection and verification, and quota administration. Establishing a national carbon emission trading system needs to make a series of “infrastructure” arrangements. The government’s general focus is still on capacity building in carbon trade system establishment. China’s first Nationally Determined Contributions (NDCs) pledge that the country will set up statistics and accounting system for the national, local, and corporate GHG emissions and make progress in establishing a national carbon emission trading system. The Framework Plan for Ecological Civilization Reform also indicates a national plan to establish a carbon emission trading market and study the national emission quota setting and the allocation schemes. The country also improves the carbon transaction registry system and a supervision system for carbon emission rights transactions. Moreover, the relevant national authorities have also enacted some administrative regulations for the carbon market administration (NDRC, 2014). The seven local carbon emission trading pilots in Beijing, Shanghai, Tianjin, Chongqing, Guangdong, Shenzhen, and Hubei had all issued their local administrative rules on carbon emission trading. They covered more than 1900 enterprises and institutions subject to emission control, and the allocated emission allowance was around 1.2 billion MtCO2 . By the end of August 2015, the seven pilots had transacted 40.24 MtCO2 of local emission allowances, with a total transaction revenue of 1.2 billion RMB; the accumulated allowance auction was 16.64 MtCO2 , with a total auction revenue of 800 million RMB (NDRC, 2015). The experiences so far indicate that China faces both some favorable conditions and major challenges to establish a national carbon market. China started its efforts to establish a national carbon emission trading scheme in 2007. On 1 January 2021, the first implementation phase of carbon emission trading formally started. The Ministry of Ecology and Environment aims to formally launch the nationwide carbon emission trading scheme in June 2021, after the rules and regulations on the operation of the market had been put in place (ICAP, 2021).

4 Main Challenges in Carbon Market Establishment A favorable condition is the Chinese government’s decision. The government is committed to establishing a “carbon emission rights” market, and the commitment and decisive efforts are unquestionable. The Five-year Plans, the Master Plan for Reform, the commitment to international society all indicated that establishing a

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carbon emission trade system is high on the government’s work agenda. Moreover, the objectives are to “let the market play a dominant role in resource allocation” and “improve the roles of the government.” The government is responsible for setting the cap, allocating the emission allowances, and establishing the market rules, while enterprises decide their market transactions. However, on the other hand, the challenges that countries face in using the carbon market to fulfill their commitments under the Paris Agreement also exist in China’s domestic carbon market establishment. They are even enhanced because of the following reasons. First, there is some gaming between China and the international community, the central government and local governments, different local governments, governments, and enterprises. Due to the constraints of political, economic, environmental, and social factors, there exist some uncertainties in the emission cap setting and allocation. China’s goal is to peak its GHG emissions before 2030. During the emission cap establishment, the government needs to consider that a high and loose cap will lead to a sluggish market and that a tight and rigid cap will press the economy. There exist substantial regional differences in resource endowment, development levels, and governance capacity. In particular, the 13th Five-year period is the run-off stage of China’s efforts to fully building a well-office society, which requires complete elimination of poverty and medium to high-speed economic growth. The gaming results between different forces and interests, the visible hand of government needs to “macro regulate” the total national emissions. Second, the by-product and passive characteristic of carbon, the transaction objects of carbon markets. Based on the carbon transaction pilots, almost all participating enterprises are big energy users in energy-intensive industries, especially energy and raw materials producers. As the transactions are only among big energy users, the “carbon” traded is a production input. As a result, the prices of “carbon” fluctuate according to the market fluctuations of energy-intensive products. When the demands for energy and raw material products are high, the “carbon” prices are often high; when the demands are low, the “carbon” prices are also low. “Carbon” is the by-product of energy, especially fossil fuels. Enterprises face few options when buying energy services, as power grids and natural pipeline networks are of high monopoly. Hence, “carbon” accounting is associated with energy and lacks independence; it is a kind of passive commodity; enterprises’ options are linked to their energy efficiency and conservation, while the “energy using rights” and “carbon emission rights” overlap. Due to the by-product and passive characteristics of carbon as a transaction object, in business decision making, the carbon constraints can be weakened or marginalized, and the signals to consumers are partially distorted. Third, the transaction system of carbon markets is close. Only open and competitive markets are of high efficiency. The EU ETS, the Chinese local emission trading pilots, and the national emission trading system are also relatively close. Each system is independent of other systems and has its own “carbon exchange,” and transactions are among the participating enterprises of each system. The systems only cover big emitters in terms of enterprise coverage, and many small and competitive emitters are

4 Main Challenges in Carbon Market Establishment Agriculture & forestry, 5

Biomass energy, 153

Cement, 9

111 Energy distribu on, 12 Energy efficiency , 262 Fossil fuel switch, 35 Geothermal, 2

Wind, 1517

Non-CO2 gases, 363

Hydro, 1334 Transport, 5 Solar, 160 Mixed renewables, 4

Fig. 1 Chinese CDM Project Mix. Source UNEP DTU Partnership (2021)

excluded. In terms of energy sources, emission trading systems only cover fossil-fuelbased electricity generation. If renewable energy is for primary electricity generation, it is only hidden in the emission factor of the grid and does not directly participate in carbon trading. Among China’s CDM projects, only 7% were about energy efficiency improvement, while 82% of the total are renewable energy ones (see Fig. 1). Moreover, emission trading systems only cover carbon emissions, not carbon sinks. A national economy consists of production and consumption, yet the emission trading systems only cover the emissions from production; energy consumers at most only have limited and indirect participation. Fourth, there are factors other than “carbon.” “Urban disease” occurs in China due to multiple factors, including the large-scale demolition and relocation in urban planning, building fencing walls and blocking external access, overcapacity of industrial investment, and monopoly and concentration of public resources. The other factors include the “road zippers” in urban infrastructure operation and maintenance and the luxury and wasteful competition for building the tallest building, the biggest plaza, and the widest road. The carbon emissions from such irrational and wasteful actions are often multiple times higher than the emissions of scientific planning scenarios. If the buildings and products are of poor quality, carbon trading and market allocation of carbon emission rights may not lead to the high efficiency of resource utilization. The carbon market can provide some constraints on products of high carbon intensity and low quality. The whole society can only share the costs of the carbon locked in urban infrastructure facilities; the prices of their carbon emission impacts are not reflected in the carbon emission trading systems.

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Fifth, different policies and regulations may not be compatible. It is possible to integrate energy using rights with carbon emission rights. However, some regulations and policies can block the transmission of carbon market incentives and become invalid. For instance, wind power is zero-carbon but often is more expensive than power from coal-fired power plants. In their pursuit of high profits, grid companies prefer to buy power from coal-fired power plants and reject wind power. The zero-carbon energy sources cannot compete with the dominant high-carbon energy sources. Electric cars can reduce emissions, yet car owners do not influence charging stations’ distribution and construction. When too many coal-fired power plants are built and in operation than market demand, even ultra-supercritical power plants cannot guarantee the overall high efficiency of electricity generation and carbon emission rights allocation. Some high-carbon projects need to be put into partial operation due to local interests, employment, and enterprise survival considerations. Due to institutional setup and interest balancing, the zero-carbon hydropower from the Three Gorges Project must be transmitted long distances to the Pearl Delta and the Yangtze Delta despite the high transmission and transformation losses. At the same time, Hubei Province, which is home to the Three Gorges Project and has sufficient hydropower, must purchase coal from Inner Mongolia and get it to Hubei via long-distance road transportation for power generation to meet local electricity demand. The West-Mongolia-Central China railway for coal transport starts from the Hole Baoji Station in Inner Mongolia. It ends at Jingzhou in Hubei Province, with an extension to Ji’an in Jiangxi Province. The railway’s total length is 1813.5 km, and its designed transportation capacity is at least 200 Mt per year (Xu, 2018). The project had completed, and the new railway was put into operation in October 2019. The railway is the longest line for coal transportation built in one go and a national strategic transport route for “North to South Coal Diversion.” The above challenges may not wipe out the benefits of carbon market establishment and operation. Yet, their impacts on the carbon market operations and efficiency should not be underestimated and overlooked. Instead, they should be considered during the carbon market’s framework design to develop a healthy and high-efficiency carbon market.

5 Recommendations on Carbon Market Development Carbon is a scarce resource, and its efficient allocation can be achieved through ownership confirmation and market transaction. Unlike the Kyoto Protocol, the Paris Agreement does not establish an international institutional setup and regulation platform. The EU does not plan to further strengthen and upgrade its emission trading scheme. Yet, given China’s ongoing reform to put the market as the main mechanism for resource allocation and the positive contributions of the carbon market in global emission reduction, China is continuing to establish and improve its national emission trading system based on local pilot demonstrations. In the process, apart from further establishing and improving domestic legislation and the rules on carbon

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accounting and other fundamental regulations, China needs to consider the various challenges in the framework design of its national emission trading system to boost ecological civilization construction and speed up China’s low-carbon transition. As carbon is a kind of “bads”, the supply quantity should be constantly tightened and controlled with quotas until the emissions reach zero. However, currently, the “bads” generation is directly associated with the production and consumption of “good.” Therefore, it gives people the misconception that controlling and reducing carbon emissions constrains economic development. Production and consumption are of high carbon under industrial civilizations; low-carbon is the point of growth and quality consumption under ecological civilizations. It is necessary to change people’s perception of “carbon transactions” from constraints to opportunities. When raw material production capacity exceeds market demand, carbon-intensive products lose market shares; high consumption is unhealthy. There are huge market potentials and numerous employment opportunities in the production, sales, use, and maintenance of zero-carbon energy equipment, the production and use of energy efficiency materials, and the production and consumption of organic food. They are the fountains for steady and sustainable economic growth. The government needs to enforce budgetary administration on carbon to efficiently allocate and effectively control national total carbon emissions. China’s new National Economy Accounting System 2016, introduced by the China National Statistics Bureau (CNBC), includes the natural resources that are scarce, useful, and with definite ownership in the national accounting system. The natural resources include land, mineral resources, energy resources, forest, and water resources, etc. Yet, it does not include carbon assets (CNBC, 2017). The UK enacted the Climate Change Act 2008 and started carbon budget management. The Climate Change Act stipulates that the government must set five-yearly carbon budgets, twelve years in advance, from 2008 to 2050. The Paris Agreement stipulates that the world should achieve net-zero emissions in the second half of the twenty-first century. It is not radical to realize this target through 10 five-year plans from now on. Timeframe, regional allocation, and industrial allocation form the overall administration framework for the carbon budget under the annual national economy accounting system. The contents covered in the accounting include original emission allowance allocation, transfer payment, settlement, and international accounts. Such practices can offer clear market expectations for countries, regions, and enterprises to make corresponding plans for low-carbon transition to enable the carbon exchange system’s effective functioning. China should establish a development-oriented carbon transaction market and expand the scale of its carbon market. Renewable energy makes up 85% of the total number of CDM projects, which strongly indicates the necessity of national carbon markets to cover renewable energy. Carbon market development shall be linked to pollution control. Environmental protection is equivalent to productivity protection. Examples include extracting energy from wastewater treatment sludges, waste incineration, restrictions on non-CO2 GHG emissions, gasifying organic waste, and ecology restoration. Environmental improvement is developing productivity. Article 5 of the Paris Agreement stipulates that result-based payment shall be made for the carbon emissions avoided through “reducing deforestation and forest degradation.”

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Such arrangements are, in fact, a type of ecological compensation. The emission trading should cover sinks from afforestation and linking up carbon market and ecological compensation. Consumers’ low-carbon or zero-carbon choices are the inherent drivers of the carbon market. Carbon budget management can be extended to cover individual consumers so that the carbon market has broad coverage. The government should also address institutional and regulatory barriers, break regional blockades and eliminate regulation bottlenecks in carbon market expansion and efficiency improvement. Another important measure is to encourage the construction of carbon–neutral cities. Some European cities, such as Copenhagen, have set the target of becoming carbon neutral by around 2025 in their operations. In the carbon budget management, to be fair and just, the cities that take the lead in becoming carbon neutral should also receive carbon emission quota allocations to participate in carbon trading and get the necessary funding to boost efficient transition toward carbon neutrality.

References Carbon Pulse. (2021). https://carbon-pulse.com/category/eu-ets/. Accessed on May 10, 2021. China National Statistical Bureau (CNBC). (2017). 2016 National Economy Accounting System. Chinese. http://www.stats.gov.cn/tjgz/tzgb/201708/P020170823513032646432.pdf. Accessed in March 2021. International Carbon Action Partnership (ICAP). (2021). China National ETS. Last Update: 5 May 2021. p. 7. National Development and Reform Commission (NDRC). (2014). Provisional regulations on carbon emission allowance trading and administration (p. 11). Beijing. National Development and Reform Commission (NDRC). (2015). 2015 Annual report on China’s climate change policies and actions (p. 55). Beijing, November 2015. State Council of China. (2016). Outlines of China’s 13th Five-year national plan for economic and social development. Accessed at www.gov.cn in May 2016. UNEP DTU Partnership. (2021). CDM Pipeline, April 2021 version. https://www.cdmpipeline.org/. Accessed on May 11, 2021. Xu, H. (2018). China Opened Entire New Railway Route for “North to South Coal Diversion,” Xinhua News Agency. 9 October 2019. http://www.gov.cn/xinwen/2019-10/09/content_5437631. htm. Accessed in March 2021. Zhang, S. (2011). Inspirations from the US scheme of sulfur dioxide emission right trading. China Petroleum Enterprise (ZHONGGUO SHIYOU QIYE), 2011(8), 32–33.

Part II

A Budget Approach to Climate Justice and Security

Chapter 7

Carbon Emissions Demands of Human Development

The Industrial Revolution started in the mid-1800s, led to large-scale combustion of fossil fuel, and transited human society from an agricultural civilization with low productivity to an industrial civilization with high productivity and a dramatic increase in physical wealth accumulation. As a result, people’s living standards have witnessed much improvement, yet global warming due to greenhouse gas emissions endangers the future of humanity. In industrial civilization development, there has been a strong correlation between human development and GHG emission levels. Hence, as zero-carbon renewables are unable to meet human development needs, GHG emission reduction can negatively affect the economic development of developing countries. Under such a context, this book examines how to achieve climate justice and security through the just and efficient allocation of the carbon budget. When conventional fossil fuels are the energy foundations for socio-economic development, human development has certain rigid demand for CO2 emissions. Therefore, it is necessary to analyze the theoretical questions on human development rights and limits from the development definition in human development, the development concept in neoclassic economics, and the development perspectives of post-welfarism. Moreover, it is important to understand the carbon emission needs of developing countries and the impacts on resource constraints on the full realization of human development rights using some international cross-sectional and temporal series data on human development. Socio-economic development needs both flow carbon emissions to meet various daily needs and stock carbon emissions embedded in the road and other urban infrastructure facilities. Hence, carbon emission needs estimation covers basic needs and historical accumulations. The international climate governance should be based on a just, efficient, and sustainable carbon budget proposal. The Paris Agreement requires a global transition toward carbon neutrality. In the transition, we need to allocate the limited carbon budget justly and efficiently. Although some contents in Part II mentioned the Kyoto Protocol and the This Chapter is based on Pan (2002). © China Social Sciences Press 2022 J. Pan, Climate Change Economics, https://doi.org/10.1007/978-981-19-0221-5_7

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Copenhagen Accords, the analytical framework and methods can help people understand the national or local climate policies of developing countries and countries with special carbon emission needs due to their resource endowments. They are of high empirical relevance for the fulfillment of the Paris Agreement target. Human development involves the definition of development, the development philosophy of neoclassic economics, and the development values of post-welfarism. It is necessary to discuss the various theoretical issues related to human development and understand the carbon emission demands and resource constraints on fulfilling their human development rights based on some cross-sectional and time-series data on international human development.

1 Concept of Human Development In English, developing and developed are two words of the same roots to distinguish different statuses. The former means “that develops or is being developed (in various senses of the verb); esp. growing, maturing”. The latter means “that is or has been developed (in various senses of the verb, especially designating a country, region, etc., which is economically and socially advanced, and typically has high living standards, widespread literacy, and investment in the development of industries, new technologies, etc.”.1 In Chinese, “developing” is defined as a concept in philosophy, referring to the “dynamic process of things changing from small to big, from simple to complicated, from low level to high levels, from old to new”2 ; “developed” means things “have got sufficient development.”3 The English definition of “development” includes the growth of organisms, i.e., in the life cycle of organisms, the structure and functions of individuals and/or groups change from simplicity to complexity, and the indication of mature or sufficient development is reaching the level of reproduction. Such a development process is undoubtedly a fundamental dimension of human development. Without the growth, maturity, and reproduction of human individuals, human society’s development is without basis. Moreover, the development process not only occurs among living organisms but also applies in various aspects of social and economic lives, such as mature communities, developed industry and agriculture, and developed legal systems. Other examples include areas that are at low economic development levels or maturity are also known as underdeveloped areas or development areas. Hence, development is an abstract philosophical concept and a practical term on the biological, social, and economic process of growth and maturity.4 1

Oxford English Dictionary (online version). 2021 Oxford University Press. https://www.oed.com/. [accessed 7 May 2021]. 2 Cihai (compact edition). Shanghai Cishu Press, 1980, pp. 490. 3 The Contemporary Chinese Dictionary. Commercial Press, China. 1994. pp. 292. 4 The online version of the Oxford English Dictionary. The entry is from OED Third Edition, September 2016.

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Human development involves the life, social, political, economic, and cultural aspects at individual, community, state, and human race levels, which are generally called “human dimensions” in literature.5 These human dimensions also involve development in a broad sense, covering the fundamental life development in biology and living quality, community culture, economic capacity, and countries’ political and economic rights and interests. If a community or a country is developing or underdeveloped, its living quality and political and economic rights and interests are low. Meanwhile, developed or mature economies mean that the living quality is at high or advanced levels. UN agencies and the World Bank mainly use per capita income to rank countries’ development levels. Yet, some countries with relatively high per capita income, such as OPEC countries and some East European countries, are included in developing countries (World Bank, 2001). Based on the development concept and the analysis of human needs, we can understand the essence of human development from the “right” and “constraint” aspects. Development rights or interests mainly reflect the direction of human development and the realizability of human development potentials. Human development is a one-way process from low to high levels, from simplicity to complexity, from imperfect to perfect. The process is gradual, involves structural changes, and needs to go through different development stages. There can occur some disruptions and setbacks in the process, yet the overall trend of human development is definite. In history, human development has experienced temporary pauses or even reverses due to wars, plagues, floods, and other disasters in many countries or regions, even at the global level. However, the temporary phenomena cannot stop or change the overall trend of human development. Some “traditional agricultural societies” are at subsistence or survival levels. Their current low and backward status does not necessarily indicate they lack the rights and potential for achieving a high development level or developed status. Individuals, communities, or states can all achieve high human development; the right to human development is a fundamental right. As for the “limits” of human development, the “limits” consist of several aspects. The first aspect is the biological “limit,” including both upper limit and lower limit. Nutrition needs, biological maturity, and life expectancy have an absolute upper limit under technological and economic levels, and it is impossible to expand beyond the limit. On the other hand, the survival of biological humans needs certain support in nutrition, health care, housing, and clothing. Therefore, there also exists absolute lower limits in these aspects. For instance, some countries or regions define their poverty lines. Below the line, the sustaining of human survival faces difficulties. Such “limits” in a biological sense are inherent constraints on human development. The second aspect of the “limits” is the upper limit or constraints in the physical sense. Human development needs to physical basis, and the earth on which human survival depends is limited.

5

The global academic research under the International Human Dimensions Programme (IHDP) has been going on since the mid-1980s, which covers the social, economic, cultural, and political dimensions of human development.

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The “rights” and “limits” of human development are not isolated. Neither the “rights and interests” nor the “potentials” for human development are unlimited. For one thing, there exists some “check and balance” among the rights and interests of different individuals, communities, and countries, which enables the protection of basic human development rights and interests. For another thing, once human rights potentials are generally fulfilled, the physical expansion in the biological sense is impossible and meaningless. The “limits” also have definite right and interest implications. They reflect the physical limits of the basic needs of human individuals and mature communities, which is also a fundamental right of human development. The external physical constraints reflect resource scarcity. Yet, scarcity should not be the excuse for ignoring or depriving disadvantaged social members or groups of development rights.

2 Development Philosophy of Neoclassic Economics Following the theories of neoclassic economics, economic development is achieved through the utility maximization of individuals and the aggregated utility of societies. Pareto efficiency in microeconomics is when it is impossible to make one person better off without making other social members worse off. The “Compensation Principle” in neoclassic welfare economics, also known as the Kaldo-Hicks Compensation Test (Hicks, 1939; Kaldo, 1939), holds that an option constitutes a social improvement or progress if the welfare gainers could compensate the welfare losers for their losses and, after that, still have some welfare gains for themselves. As the aggregated social welfare increase, even the compensation does not happen. From the social welfare or development perspective, the option is still desirable. Both the Palato Efficiency and the Compensation Principle exclude welfare distribution or income gaps and ignore the welfare improvement of disadvantaged social groups. In 1971, the American philosopher John Rawls proposed the “Maximin Principle” in social justice and request societies to follow the principle of maximizing the welfare of those at the minimum level of society to boost social development. Rowls’ principle was based on the ‘veil of ignorance’ assumption. If no one is aware of their future position, their rational choice is to protect the interests of the weakest individual or group (Rawls, 1999). In neoclassic welfare economics, development decision-making compares options with the current welfare levels and aims to improve from the current status. Therefore, it acknowledges and accepts the human development level gaps among individuals and societies and allows such gaps to expand further. Such a development criterion’s positive implications are that all individuals or social groups are entitled to development. Moreover, the high utility returns or welfare interests of advantaged social members or groups can generate some “spillover effects” and “demonstration effects” on the disadvantaged individuals or social members (Myrdal, 1956). Yet, from another perspective, due to injustice in the real world and the resource monopoly by advantaged individuals and social groups, the development rights and interests

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of disadvantaged individuals or social groups can be overlooked or even deprived. Dynamically, the development philosophy of neoclassic economics stresses utility maximization and ignores the overall or full achievement of human development potential. It neither reflects whether the basic survival rights and interests of the most disadvantaged individuals and social groups are protected nor indicates their development potentials. Moreover, it fails to reveal the future development prospects and the conditions for the general or full realization of development potential. Even the Rawls Maximin Principle, which pays attention to the disadvantaged individuals or social groups, only takes protecting the interests of disadvantaged individuals and social groups as social choices of ethical preference, not as the rights of these individuals and social groups. The “limits” of human development do not exist in the development philosophy of neoclassic economics. In neoclassic economics, individuals are considered to have undergone some development if their income increases; if the gross domestic product (GDP) of a community or a state grows from the previous accounting period, it is also considered having achieved some development. Therefore, neoclassic economics believes that human development can be unlimited. It also considers resource constraints but allows for resource substitution and the trade-offs among different targets. Under market competition, the resource substitution among capital, labor, and natural resources automatically takes place to achieve individual or social utility maximization. In situations when you can’t have your cake and eat it too, it is possible to make decisions and accept trade-offs by comparing the gains and losses of utility or welfare. For example, people can choose to sacrifice their health or environment to increase personal income and economic growth. However, the constraints of natural resources are often played down and even totally ignored. The development philosophy, which focuses on income increase and economic growth, ignores the “right” and “limit” dimensions of development in its analysis frameworks. The monetary measurement solely based on income or GDP cannot reflect the development levels objectively and misleads social valuations to aim at economic income maximization and high consumption. Therefore, the human development philosophy embodying “right” and “limit” has important theoretical significance and enormous practical implications.

3 Post-welfarist Development Philosophy During the mid-1950s, the “Structural Approach” of development made some amendments to the development philosophy of neoclassic economics based on the actual socio-economic situations in developing countries and stressed socio-economic structure adjustments (Ma, 2002), yet it did not consider the “rights” and “limits” of development. Structural Approaches to economic development. The leading schools of structural approach thinking include the dual economic structure theory by Lewis (1954), the “big push” of structural shift by Rosenstein-Rodan (1966), and

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the “Holistic Theories” that emphasize social, political, and governance factors by Myrdal (1982). The debates on “The Limits to Growth” in the early 1970s introduced the limit constraints to human development discussions. Still, they did not cover the issue of human development rights. One side of the debate was led by the Club of Rome, which stressed the physical limits of growth (Meadows et al., 1972); the leading representative of the other side was Simon, who denied the limit’s constraints on economic development (Simon & Kahn, 1981). During the mid-1980s, Amartya K. Sen proposed to use people’s capability to function, or functionality, as the primary criterion for welfare measurement and believed that the ownership of resources inevitably influences individuals’ functionality. In 1977, the World Commission on Environment and Development further defined “Sustainability” as development that meets the needs of the present generation without compromising the ability of future generations to meet their needs (WCED, 1987). In 1993, Dasgupta (1993) linked basic needs with the ethical rights of human development. Today, gaps exist among individuals, groups, or regions in human development. Still, the objective of development is to narrow the gaps and enable the development potential of individuals or social groups to be fundamentally or sufficiently realized. The “Post-welfarist” development theory emphasizes life quality and development rights and does not base development evaluation solely on monetary income or economic growth indicators. Instead, it uses a combination of multiple indicators to assess human development levels. Dore and Mount (1999) believe the above welfare economics theory by Sen is “a theory of justice,” and its core is the concept of functioning and capabilities. The Post-welfarist development theory believes that each social member or group enjoys equal rights to development, including social, economic, and political rights. Dasgupta divided these rights into two kinds of needs (Dasgupta, 1993): basic needs and pleasure-seeking needs. The former is the biological needs for subsistence and survival, including nutrition, housing, a clean environment, health care, primary education, and basic labor skills. The latter mainly includes political and civil rights, consisting of non-physical services related to politics, society, law, culture, and art. The examples include the rights to vote or being voted, association and the freedom of speech, human safety, and the protection of private property. The Post-welfarist development theory admits the differences in human development, yet it focuses on narrowing the gaps. Therefore, it is ethically more important to improve the living standards of poor people than those of rich people. In other words, if the living standard improvement of poor people below the poverty line is equal to the worsening of rich people’s living standards, based on the post-welfarist development theory, the overall social welfare will improve. Hence, the post-welfarist theory pays attention to the various rights and interests that have been fulfilled and stresses the various potential rights and interests of social members. The basic needs for human development cannot be unlimited. A person’s need for nutrition is limited; excessive nutrition can even harm his/her health. Housing is not necessarily the bigger, the better. It is also easy to clearly define the needs for basic

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health care services. Of course, luxury or wasteful consumption does not belong to basic physical needs. Similarly, people’s non-physical political and civil rights and interests are also subject to their obligation constraints as social members. Due to the existence of such “upper limits” to rights and interests, there are objective evaluation criteria on mature or advanced societies; developing or underdeveloped societies have directions and objectives for their development. Because the various human development rights are independent, there do not necessarily exist substitutions or trade-offs among them. Income can be used to improve health conditions, yet economic growth cannot be at the price of sacrificing health or life. People’s civil rights can be compensated with money, yet it is not allowed to choose between them. Moreover, political rights are not tradable. Human development is a kind of right; marginal analysis does not apply to human rights, which is not tradable on the market. Nevertheless, it can be challenging for each social member to fully reach the upper limits of their human development rights due to resource constraints. Under such situations, the government priority should not be return maximization but meeting the basic needs and protecting the political and economic rights of disadvantaged social groups and individuals. The post-welfarist development theory regards the various dimensions of human development as rights and seeks human development potential fulfillment. Unlike the neoclassic development philosophy, the post-welfarist development theory implies the concept of development “limits.” Such “limits” include lower limits and upper limits. The lower limits are the necessities for human subsistence and survival; the upper limits show the social groups and individuals can mature or “be advanced” or having such development potential. Given the constraints of limited natural resources, each member of the society enjoys equal rights to use the limited natural resources to fulfill his/her development potential.

4 Human Development Gaps and Resource Requirements As monetary income or economic growth cannot fully reflect the contents of human development, then which indicators shall be used to measure human development rights? As far back as 1954, some United Nations experts suggested that apart from per capita income, the world should also use some physical indicators on health, education, employment, housing, and so on to assess welfare and human development levels. Yet, the idea was never put into practice. In 1979, Morris (1979) proposed a set of physical indicators for evaluating human development to quantify human development rights. In 1992, Dasgupta and Weale used five indicators: purchasing power parity (PPP) income, life expectancy, infant mortality rate, adult illiteracy rate, and political and civil rights. The first indices come from statistics; the last one is based on the scoring of the political and civil rights enjoyed by citizens in each country. The scores include seven levels, Level 1 is enjoying sufficient political and civil rights; Level 7 is the lowest one (Taylor & Jodice, 1983). They conducted

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a comprehensive assessment of the development status in 48 developing countries based on these indicators. Due to the political sensitiveness of political and civil rights, in 1990, the United Nations Development Programme (UNDP) excluded the political index and selected three indicators on income, life expectancy, and education level for human development assessment. After the indicators are indexed, and the average of their indexed values is the compositive human development index, which evaluates and compares the living quality of citizens of different countries. Here all the income is measured in purchase power parity. The calculation formula of the index is: index = (actual value − min. value)/(max. value − min. value). Such an approach means the three main indicators for human development have both upper and lower limits. The “threshold values” that UNDP (2001) used in human development index calculation were respectively. Life expectancy at birth: maximum value: 85; minimum value: 25. Adult literacy rate (%) and overall school enrollment rate (%): maximum value: 100; minimum value: 0. Per capita GDP (US$, PPP): maximum value: 40,000; minimum value: 100. All the above limits are from statistical perspectives. As for the education index, there is a lower limit of illiteracy and the upper limit of completing higher education for individuals. Yet, the values of life expectancy and per capita income indicators are the value ranges of the national average, not the upper or lower limits for individuals. In society, some individuals’ life expectancy can exceed 85 years old. Yet for the national average (UNDP, 2001). In 1999, Japan had the highest life expectancy of 80.8 years (84.1 years for females and 77.3 years for males); Sierra Leone was the country with the lowest life expectancy, only 38.3 years (39.6 years for females and 37.0 years for males). The income gaps of individuals were even more dramatic. There are many billionaires and impoverished people in the world. Luxemburg, a small EU country, was the country with the highest per capita income, at 42,769 US$, followed by the US of 31,872 US$. Sierra Leone had the lowest per capita income, only 448 US$. There is hardly any illiterate person in OECD countries, yet 85% of the adults are illiterate in Nepal. Figures 1 and 2 illustrate the relationships of per capita income with the human development index and life expectancy. Per capita income is the main indicator of human development rights. It can grow indefinitely as the national economy develops; moreover, there are huge per capita income gaps among countries. The cross-sectional data are of obvious scatterplot distribution and an exponential curve, i.e., y = ceb/x ; b > 0; when x → ∞, y = c; c is the extrema of development right under the current technological, economic conditions. The turning point of the curve corresponds to a per capita income level of $8000/year. Before the point, as per capita income grows, the HDI rapidly increases. After the turning point, as the per capita income grows, the HDI gradually moves toward the extra C (HDI = 0.95; life expectancy of around 80 years). The HDI and life expectancy of high-income countries are approaching these extreme values, indicating that people’s development potential is approaching fulfillment under the current technological and economic conditions. Their potential for further improvement is very limited. Meanwhile, low-income citizens have a

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Human Development Index and Per Capita Income 1

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Fig. 1 Human development level (human development index (HDI), 0 ≤ HDI ≤ 1] and per capita income (US$(PPP)/year), 2020. Data source UNDP, 2020 Human Development Report

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Fig. 2 Relations between life expectancy (years) and per capita income (USD(PPP)/year), 2020. Data source UNDP, 2020 Human Development Report

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Fig. 3 Per capita food consumption changes, 1964–1996. Data source FAO (Food and Agriculture Organization), FAO Food Balances Sheets. Rome, 1999

long distance to realize their development potential fully, and their development rights deserve respect. If life quality is the current results or current status of human development, physiological and subsistence needs are the input indicators for human development, including nutrient, housing, energy consumption, or carbon emissions. Figure 3 shows the trend of per capita per day food consumption, the basic need for nutrients during the last three decades of the twentieth century. The per capita food consumption of different countries indicates three satisfaction levels of the basic nutrition needs. The first level is the potential fully realized, with a per capita food consumption of 3000–3250 cal/day. Some developed countries’ per capita food consumption has been declining since their 1960 levels and is approaching this level. The 2nd level is in the process of potential realization; the food consumption is transiting from food shortage to ample food, which mainly occurs in some developing countries, including China. The third level is countries struggling at low per capita food consumption. Due to food shortages, many people suffer from hunger and struggle to survive. Countries of this category are mainly the least developed countries and countries with high political instability. The rational governance framework is the basic security of political and civil rights and the fundamental preconditions for certain living standards. In underdeveloped countries, usually, there is a dual economic structure of traditional agriculture and modern industry. At the same time, the development of the service sector, including finance, insurance, healthcare, law, and safety, is very weak. The large number of labors working in the traditional agricultural sector have a very low or even zero marginal productivity, causing economic and institutional inefficiency. Due to lack of funding and technology and low education level, population growth cannot lead to technological progress and innovation; instead, it forms an endogenous institutional barrier with enormous inertia and impedes its development potential. Figure 4 illustrates the economic and institutional factors influencing human development levels. Generally, less than 20% share of the agricultural population in the total population corresponds to a high human development level. In societies with over 40% of the

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Fig. 4 The relations between human development levels, economic structure, and resource needs. Data source UNDP, 2020 Human Development Report; FAO statistics yearbook 2020; IEA Key World Energy Statistics 2020

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total population being an agricultural population, the human development level tends to be low. Per capita CO2 emissions generally have strong correlations with per capita electricity consumption and the national economic structure. Both are of exponential curves y = ceb/x (b < 0). The turning point starts when the share of the agricultural population declines to 20%; when the share of the agricultural population further declines to 10%, the per capita electricity consumption and carbon emissions start fast increases. Therefore, the share of the agricultural population in a society indicates the population structure. More importantly, it determines the economic structure and the economic and institutional framework. Without such structural adjustment, it is difficult for individuals to realize their development rights fully.

5 Carbon Emission Needs of Developing Countries The fulfillment of human development rights requests the support of certain resource consumption. With population growth and socio-economic development, countries’ demand for natural resources is also constantly increasing. Since the Industrial Revolution, humankind’s massive combustion of fossil fuel and large-scale harvest of and damage to forests has led to constant CO2 concentration in the atmosphere. The carbon equilibrium in the atmosphere has been broken, and the intensified greenhouse effect worsens global climate change. As a result, the atmosphere’s capacity for receiving carbon emissions has become a scarce economic resource. The assessment by Hourcade et al. (2001)finds the marginal mitigation costs are above 100 US$/tC in developed countries, and even in developing countries, the mitigation costs are also above zero. According to the IPCC assessment in 2000 on the carbon emission scenarios of the next century (see Fig. 5), the global GHG emissions will continually grow. The increase will be mainly due to the emission of developing countries. Figure 5 shows the development trends of per capita energy consumption and carbon emissions in various parts of the world. The data in the figure is based on the A1B emission scenario of IPCC, which is based on the economic globalization and economic growth-oriented development framework and in line with the current efforts and development strategies by different countries. The IPCC developed four scenarios, A1, A2, B1, and B2, on future world development (Nakicenovic & Swart, 2000). The A1 and A2 scenarios reflect a globalization development pathway. B1 and B2 scenarios are regional development pathways. A1 and B1 emphasize economic growth, which A2 and B2 pay more attention to environmental protection. The four scenarios represent the possible future development pathways. A1 includes three sub-scenarios: A1F1 is the sub-scenario of high fossil fuel consumption; A1T is the scenario of technology-based energy efficiency and new energies; A1B is a comprehensive scenario. As can be seen, the gaps between developed countries and developing ones are narrowing gradually in terms of both per capita energy consumption and per capita carbon emissions. The per capita energy consumption is growing in

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Fig. 5 Trends of per capita energy consumption (a) and per capita carbon emissions (b) in different parts of the world, 1990–2100. Data source Based on the AIB (globalization and economic growth) scenario of the IPCC Special Report on Emission Scenarios (Nakicenovic & Swart, 2000)

many countries, yet the gaps among different countries are shrinking. The per capita carbon emissions of developed countries and developing ones are converging. Such development trends indicate that, first of all, each person’s demand for resources is not indefinite. The rationalization of consumption in developed countries makes their carbon emissions constantly decline. Second, future increases in carbon emissions will mainly come from developing countries. It is necessary to highlight that the IPCC emission scenarios are based on the assumption of no climate change policy and projections according to economic development trends, population growth, and technological progress. The trends shown in Fig. 5 are in line with the human development potential of different countries. Table 1 compares the carbon emission needs of countries with high development levels and those with low development levels from such aspects as subsistence/survival, quality of life, economic and governance system, social cost-sharing, and environmental protection needs. High-income countries’ needs for carbon emission increase are limited, while low-income countries need enormous emission space to realize their human development potential.

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Table 1 A comparison between the carbon emissions needs of countries at low and high development levels Development right

Content

Countries of high development level

Countries of low development level

Carbon emission needs assessment

Subsistence/survival Clothing, food, Satisfied housing (housing area, appliances, air conditioning, heat supply)

With some gaps

With still some needs increase, mainly for improving the subsistence conditions of people in countries of low development levels

Quality of life

Healthcare, education, culture, life expectancy etc

Already at a high level

Still at a low level

The direct emissions are low and can be ignored

The economic system and institutional setup

Appropriate employment structure, social security, and political and civil rights

In place and undergoing further improvement

The inertia of the traditional agricultural governance system impedes the establishment of proper economic systems

Developing countries need to absorb and convert many labors from the traditional and low-efficiency agricultural sector through industrialization, urbanization, and an effective legal system. The process requires high carbon emissions

Social cost-sharing

Post and telecommunication, transport, communications, road, flood, and drought prevention infrastructure facilities, water supply, sewage system, pollution control facilities

The system is complete and mainly requires some maintenance and depreciation input

The system is not established or under construction, and the main input is on construction

Low carbon needs for system maintenance; yet huge carbon emission needs for infrastructure construction

(continued)

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Table 1 (continued) Development right

Content

Countries of high development level

Countries of low development level

Carbon emission needs assessment

Environmental protection

Pollution prevention and control, reducing carbon emission intensity

Pollution is effectively controlled, and the carbon intensity is low

Pollution is still spreading, and the carbon intensity is high

The carbon intensity of high development level countries can be further reduced; the carbon intensity of low development level countries needs to undergo a process of first increase and then decrease

Human development is not indefinite. Similarly, carbon emission needs also face some quantity constraints. The constraints are in two aspects. First, with the realization of human development potential, per capita carbon emission needs tend to stabilize at a low level. Second, to stabilize the GHG emissions in the atmosphere, the total carbon emissions need to be constrained. In terms of the emission needs for human development potential realization, the per capita emissions undergo a process of low income and low emissions, then income growth and emission increase, and finally high income and low emissions. The correlations between per capita income and per capita carbon emissions indicate when human development levels are low, the carbon emission needs are also low. At high human development levels, the expectations for environmental quality are high, and the carbon emission needs decline. 5–8 tons of CO2 emissions per capita per year can generally meet the needs for high human development. Most developing countries’ per capita carbon emissions are below the above level. The relations between carbon emission intensity (how many kg of CO2 emissions for the generation of each US$ of GDP) and per capita income (based on purchase power parity, PPP) is of an apparent environmental Kuznets curve. From a low starting point, as per capita income grows, the economy’s carbon intensity also increases; then, with the per capita income continues growing, the carbon intensity declines. The turning point occurs when the per capita income reaches approximately 8000 US$; after that point, the per capita carbon emissions and the carbon intensity start to decrease. Suppose the international community agrees on the upper limit for GHG concentrations in the atmosphere based on scientific study. In that case, the atmosphere capacity becomes a hard constraint for human development. Bolin and Kheshgi (2001), the former chair of IPCC, analyzed three possible scenarios. If GHG concentrations should stabilize at 450 PPM, the per capita GHG emissions needed to

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decrease from 1.1 tC/year6 in the late 1990s to 0.5 tC/year by 2050. Developing countries will exceed this limit within the next 16–30 years, while developed countries can only reduce their per capita emissions to 2.5 tC/year within 50 years. PPM (parts per million) is a concentration unit. Before the Industrial Revolution, the concentration of CO2 in the atmosphere is 280 PPM; by 2019, it had reached 410.5 (WMO, 2020). If the global target is to stabilize the GHG concentrations to 550 PPM, the per capita GHG emissions of developing countries should never exceed 1.3 tC/year. In contrast, developed countries need to reduce their emissions to this level by the 2nd half of 2100. If the stabilization target is 750 PPM, then the per capita GHG emissions should never exceed 1.35 tC/year. Currently, the per capita GHG emissions of developed countries are 3.2 tC/year. Developing countries would never have the chance to follow the example of developed countries and rely on fossil fuels in their economic development to achieve the global climate target. Based on the above analysis, Bolin concluded that fossil fuel would continue to be the main energy source and that non-Annex I countries have to rely on in their economic development due to the current economic, infrastructure, and technology conditions. Needs and justice considerations provide strong justification for allowing developing countries to use fossil fuels to fulfill their development targets. The human development potential does not necessarily indefinitely increase linearly with time. Instead, under certain technical and economic conditions, it tends to approach a constant. The citizens in high-income countries have sufficiently materialized their development potential. In low-income countries, the citizens are still at a low level of human development and have huge space for further development to realize their development potential fully. The per capita carbon emission needs in low-income countries are very likely to need to exceed the world average per capita levels during a certain period to meet the needs of social cost-sharing, subsistence, and economic system transition. Meanwhile, as their development potential approaches fulfillment, the citizens in high-income countries, their per capita carbon emission needs can be below the world average per capita level. Based on the current time series and cross-sectional data, the estimated per capita income and carbon emission levels in low-income countries for meeting their people’s basic needs are as follows. The share of agricultural employment shall be below 20% of their total employment; per capita daily food consumption close to 3200 cal/day, per capita income over US$8000/year, and per capita carbon emissions are 4–8 tCO2 /year. Restrictions on the carbon emissions of low-income countries under the current technology and economic conditions can impede the low-income groups’ realization of their development rights. Due to the spillover effects of technology, international cooperation can help low-income countries lower the peak values of their per capita carbon emissions and reduce the carbon intensity of their economic development for meeting the basic needs for human development. The international negotiations for global climate change mitigation need to consider the emission needs of each person on earth for realizing their development rights.

6

tC/yr is ton carbon per year. Note: the coefficient for converting tCO2 to tC is 12/48.

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The analytical framework of human development is a negation to the neoclassic economics theory and welfarist economics. Human development not only pays attention to superficial income and utility, more importantly, but it also emphasizes the development potential of individual social members and/or groups. Some fundamental human development indicators, such as living expenditure, life expectancy, and political and civil rights, are fundamental rights for human development and have clear upper limit constraints. It is impossible and unnecessary to increase the values of such indicators indefinitely. Yet, for developing countries, accepting the realization of development potential as human rights is of great practical significance. Due to economic and technological reasons, developing countries cannot exploit and utilize their regional or global common resources. Yet, the realization of their human development potential needs a certain quantity of shared resources. These are part of the development rights of developing countries, which must be protected. Developing countries need to prevent developed countries from using their existing advantages to deprive developing countries’ development rights. Yet, on the other hand, enormous research is to be done to quantify and assess the human development potential and promote human development and the sustainable utilization of natural resources.

References Bolin and Kheshgi (2001). On strategies for reducing greenhouse gas emissions. Proceedings of the National Academy of Sciences 98(9), 4850–4. Dasgupta, P. (1993). An inquiry into well-being and destitution (p. 40). Oxford: Clarendon Press. Dasgupta, P., & Weale, M. (1992). On measuring the quality of life. World Development, 20(1), 119–131. Dore, M. H., & Mount, T. D. (Eds.). (1999). Global environmental economics: Equity and the limits to markets (pp. 193–217). Blackwell Publishers. Hicks, J. (1939). The foundation of welfare economics. Economic Journal, 49(49), 696–712. Hourcade, J.-C., Shukla, P., & Kvendokk, S. (2001). 8: Regional, national and global cost and benefit of climate change mitigation. In B. Metz, O. Davidson, R. Swart, & J. Pan (Eds.), Climate change 2001: Mitigation (pp. 501–559). Cambridge University Press. Kaldo, N. (1939). Welfare propositions of economics and interpersonal comparisons of utility. Economic Journal, 49(195), 549–552. Lewis, W. A. (1954). Economic development with unlimited supplies of labour. The Manchester School, 22, 139–191. Ma, Y. (2002). A review on the structuralist thinking in development economics. SHIJIE JINGJI (world Economy), 2002(4), 24–37. Meadows, D. H., Meadows, D. L., Randers, J., & Behrens III, W. W. (1972). The limits to growth: A report for the club of Rome’s project on the predicament of mankind (205). New York: Universe Books. Morris, M. D. (1979). Measuring the condition of the world’s poor: The physical quality of life index (p. 188). Pergamon. Myrdal, G. (1956). Development and under-development: A note on the mechanism of national and international economic inequality (p. 36). National Bank of Egypt. Myrdal, G. (1982). Political economy and institutional versus conventional economics. In G. R. Feiwel (Ed.), Samuelson and neoclassical economics (pp. 311–316). Boston: Kluwer Nijhoff Publishing.

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Nakicenovic, N., & Swart, R. (Eds.) (2000). Special report on emissions scenarios (p. 570). Cambridge: Cambridge University Press. Pan, J. (2002). Conceptual framework and empirical data for human development analysis—A case study on carbon emission space. ZHONGGUO SHEHUI KEXUE (social Sciences in China), 2002(6), 15–26. Rawls, J. (1999). A theory of justice (p. 538). Oxford University Press. Rosenstein-Rodan, P. N. (1966). Notes on the theory of the big push. In H. S. Ellis (Ed.), Economic development for Latin America (pp. 57–81). St. Martin Press. Simon, J. L., & Kahn, H. (Eds.) (1981). The resourceful earth (p. 594). New York: Basil Blackwell Publishers. Taylor, C. L., & Jodice, D. A. (1983). World handbook of political and social indicators (p. 256). New Heaven: Yale University Press. UNDP (2001). Human development report 2001: Making new technologies work for human development (p. 274). http://www.hdr.undp.org/en/content/human-development-report-2001 WCED (World Commission on Environment and Development) (1987). Our common future (p. 43). Oxford: Oxford University Press. WMO (2020). Carbon dioxide levels continue at record levels, despite COVID-19 lockdown. Press Release, published on 23 November 2020. World Bank. (2001). World development report 2000/2001: Attacking poverty (p. 356). Oxford University Press.

Chapter 8

Achievements of Human Development Goals with Low Emissions

Greenhouse gas emissions come from human economic activities and serve the ultimate target of human race development. Therefore, the reduction of GHG emissions should not compromise human race development. Human race development involves some essential emissions to meet the basic needs of human race development. Meanwhile, some other emissions are unnecessary, luxurious, or wasteful and conflict with the target of human race development. GHG emissions should not limit their purposes to supporting economic growth and generate monetary values; instead, they should serve the target of supporting human race development. Under the above context, the author proposed the human development-based approach of GHG emission budget allocation.

1 Reconsidering the Climate Change Mitigation Targets It must be clear that climate change mitigation aims to stabilize the concentrations of greenhouse gases. The experiences after the Berlin Mandate have been confusing and frustrating. It is necessary to limit GHG emissions to mitigate climate change. Yet, the emission reduction targets depend on many factors, some of which are of even higher priorities.

This Chapter is partially based on the following paper: Pan (2005). © China Social Sciences Press 2022 J. Pan, Climate Change Economics, https://doi.org/10.1007/978-981-19-0221-5_8

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1.1 The Mitigation Targets Under the Kyoto Protocol: From the Berlin Mandate to Marrakech The UNFCCC entered into force in 1994 and started formal implementation. The global community continued efforts to reach a consensus on significant GHG emission reductions. The first Conference of Parties to the UNFCCC in 1995 passed the Berlin Mandate, in which countries expressed their political wills. In March 1997, the European Commission proposed a target of 15% emission reductions by 2010, individually or jointly, based on the 1990 emission level for all industrialized countries. This took place several months before the Kyoto Protocol was reached (European Commission, 1997). Meanwhile, the mitigation targets recommended in various studies for developing countries are between 0 and 50% (Pan, Swart, & von Leeuman, 1999). However, the actual overall mitigation target that the Kyoto Protocol set for Annex I countries was only a 5.2% reduction from the 1990 level, while the Annex B countries’ individual mitigation targets varied from reducing 8% to increasing 10%. After the Kyoto Protocol was reached in 1997, many Annex I countries tried to find loopholes to avoid taking mitigation actions. First, some countries request to change their base year for more emission space. As a result, the overall mitigation target for Annex I countries watered down from a 5.2% reduction to a 3.6% decrease. Second, some countries requested to include carbon sinks in the emission accounting. As a result, the GHG emission reduction targets further shrank. The Kyoto Protocol finally entered into force in 2005 after Russia’s ratification. After the first commitment period of 2008–2012, many developed countries refused to commit further. The bottom-up Nationally Appropriate Mitigation Actions gradually replaced the top-down Kyoto Protocol and then the Paris Agreement, which builds on the Nationally Determined Contributions voluntarily pledged by countries.

1.2 Are the Mitigation Targets in National Priorities? Some developed countries failed to fulfill their commitment under the Kyoto Protocol while developing countries requested developed countries take the lead in emission reduction. The apparent cause behind these actions is countries not considering GHG emission reduction a national priority. For both developed countries and developing ones, the hierarchy of national targets are as follows: The top priorities are political and social stability; the second-level priority is economic growth and development. The third-level priority is environmental pollution control and natural ecosystem protection. Climate change is considered a low priority, maybe a target at the fourth level, and needs to be aligned with higher priorities. Although countries make commitments to GHG emission reduction, the mitigation efforts can be given up when they conflict

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with higher priority targets. For this reason, the author suggests that countries should commit to human development targets instead of carbon emission targets.

1.3 Dual Nature of Carbon Emissions Carbon emissions are much different from conventional pollutants in three aspects, and in each aspect, they have dual properties. First, if carbon emissions are necessary for basic human needs and included as part of human rights, then they should not be traded on the market (Pan, 2003). However, they are a commodity and tradeable. Therefore, they can be considered both tradeable and untradeable. Second, carbon emissions are not simply consumer products like electricity and natural gas. More importantly, public consumer goods are similar to infrastructure facilities as road and wastewater treatment plants. Hence, carbon emissions are both for public consumption and household consumption. Finally, carbon emissions are both public goods and public pollutants. As public goods, carbon emissions can generate utility for individuals and the whole society. As public pollution, they can cause global warming and other negative externalities. In summary, it was not surprising that countries failed to fulfill their mitigation targets under the Kyoto Protocol. Carbon emission rights should not be policy targets. Instead, emission targets should secondary or level two, level three targets that service the achievement of higher-level targets.

2 Emissions Under Human Development Targets Carbon emissions depend on industrialization progress and sectoral and industrial development levels. Like other products or services, carbon emissions are ultimately for human consumption, including individual (household consumer goods) or collective consumption (public goods and services). Carbon emissions are not government targets. Instead, they support the objectives of political stability, economic development, and environmental protection. Carbon emissions can be for three different purposes: (1) to satisfy basic needs; (2) to meet collective needs; (3) and to meet luxury or wasteful needs. Whatever purpose they serve, all emissions are related to human development.

2.1 Ultimate Consumption Behind Carbon Emissions The goods and services for household consumption include two types: satisfaction of basic needs and luxury needs. The goods and services for basic needs satisfaction are the necessary food, housing, basic health care, and education services, clean water,

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and energy services for substance and a decent life. In contrast, luxury consumption consists of the consumption beyond basic needs, including big housing, bigger cars, tourism needs, excessive heating, and cooling of indoor spaces. Infrastructure facilities are the main forms of public goods provision, and the examples include roads, railways, subways, public utilities, airports, water supply and treatment facilities, flood prevention, and drainage systems. The construction of infrastructure facilities requires such energy-intensive materials as iron and steel, cement, and chemics. Similarly, public buildings, including hospitals and schools, also require energy-intensive materials in their construction. We assume the basic carbon needs (Cbasic ) to be limited among the carbon needs for final consumption, while the luxury needs (Clux ) are unlimited. In contrast, infrastructure facilities’ carbon needs are high during their construction phase (Cinfrast ), yet once they  are built, their carbon needs during the operation phase are relatively  low Cinfrast . Hence, the carbon emissions of final consumption are: Ctotal = Cinfrast + Cbasic + Clux Take nutrition needs satisfaction as an example. Human beings need a certain calorie intake every day to sustain life, for instance, 3200 k/person/day (Pan, 2002). Nutrition intake below the level means calorie deficiency and undernutrition, and above the level means overnutrition. Therefore, in basic needs estimation, the food needs are based on the standard of 3200 k/ person/day, i.e., Cbasic = 3200 k/person/day. The luxury and wasteful needs for food can be indefinite. To avoid the total emissions (Ctotal ) exceeding the limit, we need to focus on Cinfrast and Cbasic . These emissions can be traced to the manufacturing sector. Ctotal can be seen as the right to a decent life and should be protected. Clux lacks ethical support and is not part of the basic rights for carbon emissions. Therefore, the emissions Clux should be discouraged. Cinfrast is for the collective consumption of both the current generation and future generations. Highways, railways, airports, and other buildings can meet the consumption needs of multiple generations. Cbasic is necessary for human survival and a decent life. The current generation’s realization of their development potential can benefit future generations.

2.2 Low-Emission Development The above explanation on the emission types lays the foundation for market-based emission allowance allocation. The emission needs for necessities can exceed the GHG emission limit for stabilizing the GHG concentrations in the atmosphere. The world needs to pursue human development with low-emission development pathways to achieve human development and climate change targets. Figure 1 describes the development pathways and their emission levels. The human development target is assumed to be a decent life, which excludes luxury and wasteful consumption. As this target is a priority and must be achieved,

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Fig. 1 Framework of a low-carbon human development proposal

it is not subject to the constraint of carbon emission reduction. Developing countries may use conventional carbon-intensive technologies due to lacking access to capital and technologies (in Fig. 1, BA’ represents the carbon emission level of using existing technologies). Developing countries’ carbon emissions will follow AA’s pathway to satisfy their needs for infrastructure facility construction, industrialization, and urbanization. However, their emission pathway can lower to curve AB’, provided they can access the technologies of high energy efficiency and low-carbon/zero-carbon energy from developed countries. In Fig. 1, BB’ is the emission curve of the best available technology development pathway. Therefore, it is possible to achieve lowcarbon development without lowering the human development target. The technical options for low-carbon development include: (1) (2) (3) (4) (5)

Low-carbon economic structure. Zero-carbon energy and energy mix optimization. Energy efficiency improvement. Carbon sinks. Social policies, such as family planning and poverty alleviation.

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3 Committing to Low-Carbon Emissions for Human Development There are three types of climate action commitment: voluntary, conditional, and obligatory. When their emissions reduction effects are certain, voluntary commitments can be perceived as obligatory ones. Developing countries can make conditional commitments to reduce their luxury and wasteful emissions. A salient feature of the commitment is that its target is human development, not carbon emissions.

3.1 Voluntary Commitments Two factors can facilitate autonomous emission reductions: technology progress and regulatory innovations. All energy users have the inherent motivation of improving energy efficiency and lowering costs. Technology dissemination in countries of low technology levels is faster than in developed countries because of technology spillover effects. For instance, developed countries’ energy demand elasticity (energy demand growth rate for each 1% of GDP growth during a specific period) was one or even higher during their industrialization stages. But in China, the energy demand elasticity is only about 0.5 (the energy consumption growth rate is about half the economic growth rate). This is a natural or autonomous process and because of technological progress and economic structure changes. Such a trend had started before climate change was recognized as an environmental problem, and it will continue and lead to further increases in energy demand. Regulatory factors are also important. With increasing knowledge on climate change, consumers may voluntarily shift to energy conservation and low-carbon lifestyles. For example, a TV set consumes around 8 kWh of electricity in its standby mode, which can be avoided by completely turning it off. There are billions of TV sets in use worldwide. Shutting off TV sets, instead of keeping them in standoff mode when not watching them, can save over 10 billion kWh of electricity each year. Emission standards, policies, and measures can encourage emission reduction. The trend will continue, and a country’s voluntary commitment can keep pace with its energy efficiency improvement rate. Voluntary commitment is made in the absence of external support and is not subject to strict compliance requirements. Energy efficiency improvement can be expressed in monetary or physical terms, such as the energy use for each unit of revenue or output. Therefore, voluntary commitment can be measured with energy intensities or GHG emission intensities, i.e., the energy consumption or GHG emissions for each unit of revenue or physical output. The mitigation commitment of developed countries shall be obligatory because they have advanced technologies in energy efficiency and low-carbon energy; the energy intensity of their GDP is easy to measure due to the higher stability of their economic development.

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3.2 Conditional Commitments Developing countries lack access to mitigation technologies, hence mitigation capacity. External support can help developing countries further lower their emissions to avoid conflicts between their development targets and the global climate target. Conditional emission reduction can contribute to the realization of multiple targets: (1) (2) (3)

Stabilizing the GHG concentrations in the atmosphere. Lowering the mitigation costs of developed countries. Helping developing countries achieve their development targets.

Hence, this is a “win–win–win” solution with multiple benefits: better environment and more effective emission reduction, developed countries can achieve their mitigation commitment at lower costs, developing countries can realize their human development targets earlier. The term “conditional” has three special meanings here: The extra reductions of emissions are conditional on the transfer of technologies or financial assistance by developed country parties to developing country parties. (1) (2)

Emissions reductions will not compromise human development goals nor encourage luxury or wasteful emissions in recipient countries. No credits of emissions reductions will be counted if no progress is made towards fulfilling human development goals to avoid the creation of ‘hot air.

These conditions also imply that the costs of emissions reductions in developing countries are lower than those in investing countries. Otherwise, there would be no incentives for such transfers of resources from one country to another. It is also essential that the reductions of emissions be made consistent with human development goals. Assessment of emissions reductions would be made with respect to development goals. Failure to make progress in human development would result in no crediting of conditional emissions reductions. Even technology transfers or financial assistance only led to ’theoretical reductions.’ These conditions are similar to those employed in the Montreal Protocol to replace ODS (ozone depletion substances). The phase-out of ODS in developing countries was conditional upon technology transfers and financial assistance from developed nations. With such aid, China successfully phased out most of the production and consumption of CFCs and halons.

3.3 Mandatory Commitments For human development and global environmental sustainability, the satisfaction of basic needs is a fundamental human right and should not be compromised, but excessive consumption must be restricted. Therefore, the obligation here has two

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aspects: (1) satisfaction of basic human needs and (2) restriction of excessive and wasteful emissions. There should be no distinction between developed or developing countries in this regard. For all human beings and communities in developed and developing countries, emissions for basic needs must be prioritized, and excessive or wasteful emissions must be discouraged. It would be wrong to say that developed nations should restrict their emissions below the level of basic needs. It would also be incorrect to say that luxury and wasteful emissions should be encouraged if the overall emissions level were low in a particular developing country. It might be the case that the handful of rich people in developing countries live a more ‘luxury’ life than many of the wealthy people in developed nations. A practical problem arises in operationally defining ‘luxury’ or ‘wasteful’ emissions. Despite vastly differing circumstances among nations and cultures, it would not be wise to use double or multiple standards to discriminate against any country or culture. A simple criterion such as the world-average consumption level or 120% might be used as a starting point. Nutritional and other essential requirements can be assessed and obtained from biological needs, such as nutrition, shelter, and clothes can be employed. (1) (2) (3)

It is worth noting that this scheme does not entail eliminating luxury or wasteful emissions. There are several reasons for tolerating luxury emissions: It is against human nature to forbid extravagant consumption. As earning power varies widely among individuals, a handful of consumers or even ordinary consumers may be able or willing to enjoy some degree of luxury.

The pursuit of luxury is an incentive to creativity and innovation and, at the same time, contributes to fiscal revenues for income redistribution.

4 Reporting and Implementation The targets must be specific, and the amounts of emissions calculated as the basis for reporting. Then emission reductions must be verified before acceptance. In addition, specific incentives need to be put in place for the effective implementation of the commitments. These topics are discussed below.

4.1 Quantification of the Emission Targets Emissions targets must be linked to human development goals. One practical way is to assess and translate national development goals into energy demand and emissions requirements. The process may involve the following steps:

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Step 1: Assess development goals. Many countries make comprehensive medium and long-term development plans. Development goal setting is not a practice limited to planned economies. Market economies’ governments and researchers also make medium- and long-term economic projections and forecasts. For example, China makes Five-year Plans at national, sectoral, and local levels. All plans should be country-specific and attainable. The intent is to assess: • Whether the development goals are consistent with human needs; • Whether there are wasteful or luxury development projects such as five-star hotels, golf courses, and factories producing luxury cars; • How the goals are linked to strengthening human development. Step 2: Specify the socio-economic and environmental targets. The socioeconomic and environmental targets can be set based on development goal assessment. These targets can include the rates of economic growth, demographic projections, welfare improvement, environmental protection, and so on. Such specifications may be made at different levels (national, sector, regional and local) for low-carbon target setting. Step 3: Identify low-carbon development pathways based on capital and technology feasibility study. The above goals are high-priority targets and would be the basis for low-carbon pathway designing. The calculation of quantitative targets will cover the following components: (1)

(2)

(3)

Voluntary targets. A specific country or industrial sector will plan energy efficiency improvement actions for a specific commitment period, given the resources and technology at its disposal. At the global level, the rate of autonomous energy efficiency improvement has been over 1% annually. The figure has been two to three times higher in developing countries due to technological spillover effects. This target can be at either the national level or the sectoral/project level. Both developed and developing countries can make such commitments. Conditional targets. The technologies in a developing country are generally less energy-efficient than the advanced technologies used in developed nations. The carbon savings from the technology gap can be made a target conditional on the provision of advanced technologies and financial assistance by developed countries. Obligatory targets. All countries should make obligatory targets to avoid or restrict all wasteful and luxury consumption and the associated emissions. The process may require the rejection of some development projects and their emissions.

4.2 Verification of Emission Reductions Countries’ progress in fulfilling the above commitments should be subject to international scrutiny and be assessed based on their resource endowments, including the

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availability of technology, capital availability, and energy resources. The scrutiny and assessment would serve two purposes. One purpose is to factor out hot air, which are emission reductions having nothing to do with human development. The other purpose is to assess the possibility of achieving the same level of human development at lower emissions, thereby enabling the transaction of the differences in international markets. The verification process could take the following steps: (1)

(2)

(3)

Ex-ante assessment. The process must be transparent, and the information must be made available to the international community. An ex-ante assessment is associated with development planning. The required information includes the choice of development goals, the setting of socio-economic and environmental targets, and the specification of voluntary, conditional, and obligatory commitments. Formal evaluation can be optional; the final effects are subject to ex-post verification. Ex post verification. Whether emissions reductions can be accepted and credits accrued to the host or investing country depends on the outcome verification. At the end of each commitment period, a comprehensive review should be conducted to assess and verify different emission reductions: including voluntary, conditional, and/or obligatory ones. Net reductions. The scope of final acceptance is limited to net decreases. All luxury or wasteful emissions should be excluded.

4.3 Incentives and Disincentives for Implementation Both carrots and sticks are necessary to motivate implementation. In most cases, sticks do not work well in international agreements, as a country can choose to withdraw from a commitment. Therefore, incentives play a crucial role in motivating countries to fulfill their commitments. (1)

Emissions trading. In principle, voluntary reductions are not eligible for trading as they should be considered baseline activities and no regrets policies. For the obligatory part, it is necessary to examine how the emission reductions are realized. If the drop is achieved by restricting luxury emissions, credits should be awarded. However, if the emission reduction is due to an increase in luxury consumptions, such reduction would lead to an actual rise in luxury emissions. The increase in emissions due to luxury consumption should be deducted from the tradable emission reduction credits. If a country fails to fulfill its voluntary commitment, the conditional and obligatory emissions reductions will need to offset the deficit of voluntary commitment delivery; the remaining emission reduction will be eligible for trading as carbon credits on the market. Such an offsetting requirement can prevent the voluntary part of emission reductions from market entry for emission trading.

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(2)

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Conditionality requirement

Reductions should not compromise development goals that are associated with basic needs satisfaction. If a country’s socio-economic development or environment performance is lower than expected or planned, the emissions reductions should be reassessed from the perspective of human development goal achievement. The requirement aims to guarantee the higher priority of development goals and avoid overestimating emission reductions. The conditional part is the additional reduction and should be tradable. This requirement aims to guarantee that development goals are of top priority and to avoid overestimating emissions reductions. (3)

Progressive emission tax

Fiscal measures are essential to discourage excessive emissions. We propose a progressive emission tax, similar to progressive income taxes. The higher the emission levels, the higher the tax rates. The emissions up to the basic needs level can be exempted from paying emission tax or subject to a negative tax rate (i.e., receiving a subsidy). A normal or basic tax rate shall apply to the emissions in the range of basic needs satisfaction. When the emissions exceed the upper limit of basic needs satisfaction, the exceeding part shall be subject to higher tax rates. Such a progressive tax is for the following purposes: Reducing luxury emissions. Mobilizing resources for low-carbon development. Providing strong market signals to motivate the emitters for efficient and effective emission reductions. Given the existing international regime, it may not be easy to have it managed under a global government. Still, it is possible to have it harmonized across nations for implementation and redistribution. (4)

No exemption of luxury emissions

The assessment of development goal realization and the levy of a progressive emission tax should apply to both developed and developing countries. Developing countries’ per capita emissions are often low, but they also have some wasteful or luxury emissions.

5 Evaluation of Environmental Effectiveness When human development goals conflict with emissions targets, the environmental goals give way to higher-level development goals. At least in the short run, emissions targets may not be realizable if such conflicts exist. However, the decisions should be made case by case.

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5.1 Environmental Integrity As under the human development proposal, national commitments are not directly on carbon emission reductions. It is justified to examine the environmental integrity of national actions. However, the target of satisfying basic human needs, like the United Nation’s 2030 Sustainable Development Goals, is consistent with the overall objective of stabilizing GHG concentration. First, an upper emissions limit (Ctotal ) is associated with basic human development if Clux is excluded. Excessive consumption or emissions are not in the interest of the current generation and future generations. Second, as emissions in many developing countries may be much lower than this upper limit, immediate realization of human development potential may cause a rapid and substantial increase in emissions. However, development is a lengthy and gradual process. Some countries may grow faster than others, while a few may decline in terms of the rate of economic growth and the size of the economy. The spillover effect would speed up the development, but the emission increase would be much slower. Many industrialized countries have already reached the upper limit of emissions and started to reduce emissions because of technological progress. Third, wasteful and luxury emissions will be discouraged, although not eliminated. This would have two effects: (1) reduction of such emissions and (2) promotion of low-carbon or decoupled development in developing countries for meeting basic needs, using tax revenues levied on wasteful and luxury emissions. Fourth, there may be several alternate pathways to reaching the goals of human development. As concrete goals are established for human development, emission scenarios may be assessed and compared to select a low- instead of a high-emissions pathway. As a result, actual emissions should be lower than the committed emission levels. For different countries, Cinfrast may lie between 0 and Cinfrast . For many developed countries, infrastructure development has already reached its upper limit. In such cases, there is no need to produce carbon-intensive materials such as steel and cement for building new bridges and roads except for repair and maintenance. For this reason, in many EU countries, the consumption of construction materials has been declining. On the other hand, many developing countries face infrastructure deficiency or are carrying out massive infrastructure construction. These countries should be allowed to expand the infrastructure essential for a decent life for their citizens, and such emission needs should be accommodated in emission budget allocation. Similarly, differentiation can also be made on the emissions for basic needs between developed and developing nations. Most importantly, emissions for basic needs and luxuries should be subject to different treatment. Policies and measures should be in place to discourage wasteful and/or luxury emissions. However, wasteful and luxury emissions should be treated in the same way, no matter whether they originate in a rich or a developing country. The low per capita emission level of a developing country should not justify wasteful and luxury emissions from the same country.

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5.2 Uncertainties Developing countries’ GHG emissions experience many uncertainties around emissions due to the divergence between the desired and actual achievement of human development. Governments may be unable to reach their voluntary targets because of too ambitious development goal setting or due to political and social instability. Conditional targets may result in more significant emissions reductions at the price of compromises in socio-economic and environmental target realization. Higher emission reduction commitments may not lead to the creation of ‘hot air’ as no transfer of emissions rights would be permitted. Hence, we can avoid the uncertainty regarding excessive emission rights due to slow economic growth or economic shrinking.

5.3 Comparing the Commitments Under the Kyoto Protocol, the Paris Agreement, and the Human Development Proposal There are many similarities and differences between quantitative carbon-based targets under the Kyoto Protocol, the Paris Agreement, and the human developmentbased commitment scheme described above. All commitments are based on the same principle of common but differentiated responsibilities and aim to reduce emissions either directly or indirectly. However, some of the differences between the three approaches are fundamental. The basis of commitments under Kyoto is a direct restriction of GHG emissions in terms of quotas allocated to Annex I Parties. The Paris Agreement is based on the national commitments of all countries to reduce their GHG emissions or slow down the growth of GHG emissions. Under the human development approach, however, the basis of commitments is human development goals of higher priority than environmental and GHG emissions targets. Human development goals are then translated into emissions implications, and the lower-emissions approaches are assessed and commitments made to meeting human development goals through these alternate paths. For methodology, the Kyoto Protocol was mainly based on a top-down national commitment-setting approach. The global community agreed on a global target and allocated quotas to countries. Article 2 target of the UNFCCC suggests selecting a concentration level that should then translate into an emissions limit for allocation and commitment. Since national circumstances differ, there are many bottom-up elements incorporated in the Protocol’s implementation to accommodate the concerns of individual parties. For instance, the base year was permitted to be adjusted; targets for GHG reduction were not uniform across the parties; flexibility mechanisms were introduced. The Paris Agreement is bottom-up in the setting of national commitments. It specifies the global target for climate change mitigation; then, each country

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communicates its commitment in the form of “Nationally Determined Contributions (NDCs).” The international community motivates countries’ fulfillment of their NDCs through detailed transparency requirements, capacity building, and financial support. Country-specific circumstances drive the human development approach. As levels of human development vary widely, commitments are assessed and made in accordance with specific conditions, including the growth of the economy, capital and technological availability, level of human development, etc. Thus, reductions of emissions under all types of commitment do not follow any top-down requirement but rather depend on the potential at the project, sectoral, and economy-wide levels. The human development approach is also unique in separating emissions associated with basic needs and luxury/wasteful activities. Neither the Kyoto Protocol nor the Paris Agreement explicitly discourages luxury/wasteful emissions, nor do they acknowledge essential emissions for basic needs satisfaction. The Kyoto Protocol did not require developing countries to undertake legally binding reduction targets. The Paris Agreement allows developing countries to set targets of slowing down their GHG emission increase instead of reducing their total emissions soon. By contrast, the human development approach attempts to protect the rights to emissions for basic human needs. No restriction should be placed on development goals directed to enhance the welfare of the poor at large. Development goals should not give way to emissions control. Luxury/wasteful emissions do not stimulate welfare improvement and should therefore be discouraged if not eliminated. Under Kyoto, incentives come from the sale and/or purchase of emissions credits. The same emission credit price applies to everyone, no matter one is rich or poor. The Paris Agreement recognizes and allows for voluntary international cooperation to implement the NDCs and sustainable development. It did not continue the market-based flexible mechanism under the Kyoto Protocol. It does mention a market mechanism to allow for the international transfer of mitigation outcomes, yet as of April 2021, its rules on market mechanisms are yet to be specified. Within a human development framework, a progressive tax system is implemented. The more one consumes, the more one pays. This not only discourages excessive emissions but also supplies a fair and effective fund-raising mechanism for low-carbon technologies. The Kyoto commitment is legally binding, while the NDCs under the Paris Agreement and the human development-based commitment allow flexibility for both voluntary and conditional reductions. In addition, obligatory commitment is also proposed under the human development approach in a moral commitment to restricting excessive emissions. In terms of environmental integrity, a Kyoto-type commitment could minimize uncertainty if commitments were honored. The reality was that the mitigation effects were lower than expected due to the US’s withdrawal from the Kyoto Protocol. Some other Annex I Parties did not deliver their commitments for 2008–2012. After years of international negotiations disagreed on a new commitment period of the Kyoto Protocol, the global community shifted to the Paris Agreement in 2015. The Paris Agreement is more effective in encouraging wide participation: both developing and developed countries are required to make NDCs and specify their actions and targets for climate change mitigation. Human development goals are not directly linked to

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environmental targets, and therefore, environmental integrity can be problematic. As low-carbon development paths can generate considerable reductions, parties would maximize their efforts to reach their goals to acquire a better image. Their actual effects can be even better as no party would have an incentive to withdraw from their commitments. So far, only developed country parties are required to participate in commitments to GHG reductions and developing country parties are exempted from any quantitative limitations. The human development approach is primarily concerned with developing country participation but developed nations can make their voluntary and conditional commitments legally binding. Therefore, there could be much wider participation under a low-carbon development approach than under a Kyoto-type commitment. As a base year must be selected for proportional or relative reductions under the Kyoto scheme, hot air can be created if there is a recession or economic downturn, as was Russia and Eastern Europe. Under the low-carbon development approach, goals are linked to human development. If no progress is made in human development, emissions credits may not be counted either in theory or practice. All carbon reductions are assessed against planned goals of human development, preventing the creation of hot air. Bottom-up approaches are based on self-assessment and selfinterest, so the intrinsic drive is to implement the development goals. In sum, the human development approach creates win–win solutions rather than the zero-sum games that become the focus of attention under a Kyoto-type target. Finally, we look at flexibility/cost issues. Under Kyoto, three flexibility mechanisms are initiated for the cost-effective implementation of GHG reductions. This can reduce costs of carbon reductions significantly if markets function well. But in many cases, the carbon market is complicated by political processes like the oil market. As a result, the scope for cost-effectiveness reductions can be limited. Under the Paris Agreement, there is no global carbon market, despite national, regional emission trading schemes. Under the human development approach, by contrast, incentives are intrinsic to voluntary and conditional commitments. Autonomous energy-efficiency improvement is a natural process and constitutes a ‘no regrets’ option. Without carbon policies, industries and enterprises, together with consumers, do their best to increase energy efficiency. The moral commitment is somewhat different, as many people tend to have intentionally or unintentionally luxury or wasteful consumption behaviors. In this case, regulatory policies are necessary. Compared with Kyoto-type commitments, the major attractiveness of the human development approach is ‘no regrets participation’ by both Parties and non-Parties to the Kyoto Protocol, as the basis of commitment is made to human development rather than to GHG emissions. In addition to this fundamental advantage, there are also many merits in practice, including full consideration of national circumstances, basic needs satisfaction, international cooperation, and incentive mechanisms for implementation. Luxury and wasteful emissions would not be eliminated, but setting the progressive tax rate can be a political process. The use of the funds raised by such a tax system can be an even more complicated issue. In any case, so long as the principle

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is acceptable, actual figures can be worked out for operational purposes. These are productive areas for further investigation.

References European Commission. (1997). The commission adopts communication on climate change—The EU approach for Kyoto. Press Release, 1 October 1997. Pan, J., Swart, R., & von Leeuman, N. (1999). Economic impact of climate change mitigation, proceedings of IPCC expert meeting on economic impacts of climate change mitigation, 4–6 April 1999, (p. 248). The Hague. RIVM, published for IPCC 1999. Pan, J. (2002). An analytical framework for human development, with empirical data. Social Sciences in China (ZHONGGUO SHEHUI KEXUE), 2002(6), 9–17. Pan, J. (2003). Emissions rights and their transferability: Equity concerns over climate change mitigation. International Environmental Agreements: Politics, Law and Economics, 3(1), 1–16. Pan, J. (2005). Meeting human development goals with low emissions: an alternative to emissions caps for post-Kyoto from a developing country perspective. International Environmental Agreements: Politics, Law, Economics, 5(1), 89–104.

Chapter 9

Measuring Carbon Emissions for Basic Necessities

1 Basic Needs Approach 1.1 Definition Sen (1985) criticizes the neoclassic economic growth model and believes that the fundamental objective of development is to expand people’s scope of choices and achieve people’s comprehensive development. The school of limit to growth, represented by Meadows et al. (1972), attributes the unsustainability of the existing development model to growth. Human development is a right, and the needs must be met, yet the development is subject to the constraint of limited resources and environment supporting capacity. Based on the international convergence of carbon emission needs, Pan (2005b) proposed the low-carbon development concept framework of meeting basic needs. First, basic needs include sufficient food, a clean drinking water supply, access to electricity, and other modern energy, primary education, healthcare, and basic sanitation facilities. The meeting of basic needs is every human being’s right and entitlement. The international regime should protect not the equal right to environmental pollution or resource consumption but the rights for meeting their basic needs, equal access to opportunities, and full participation in society. In the face of natural constraints and environmental constraints, the world should prioritize meeting people’s basic needs during the allocation of the limited resources. Second, the meeting of basic needs should be limited. For one thing, human biological features determine the limited needs for food, clothing, housing, and transport. For another thing, the physical space of the earth is limited. Third, the definition of basic needs exists individual and spatial differences. It is not a constant. Instead, it evolves with the changes in technology, population, resources, and environmental This Chapter is partially based on Pan and Zhu (2006). The authors would like to thank Ying Chen, Guiyang Zhuang, Xingshu Zhao from the Chinese Academy of Social Sciences, Kornelis Blok from Ecofys, Netherlands, and Henrik Hessellingkfrom Fridjoff Nanssen Institute, Norway, for their support and assistance. © China Social Sciences Press 2022 J. Pan, Climate Change Economics, https://doi.org/10.1007/978-981-19-0221-5_9

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constraints. Fourth, human desire can be indefinite. Therefore, luxury and wasteful consumption should be discouraged and curbed.

1.2 Characteristics of Climate Change and the Economic Activities of Human Society Climate change is the most complicated global environmental problem and a significant challenge facing humankind. The global climate system functions as a whole. Unlikely soil, river, and even urban environmental pollution, climate change and its impacts are global. Almost all human consumption and production activities directly or indirectly consume fossil fuels and emit GHGs. Therefore, GHG emissions and climate change are linked to countries’ development rights and closely related to their economic interests. Moreover, as energy issues are interconnected with acid rain, local environmental pollution, and economic security, the main measures for GHG emission reduction, energy efficiency improvement, and renewable energy development have some side benefits. Climate issues are long-term and have inertia. The lifetime and climate change causing various greenhouse gases in the atmosphere vary from a few years to tens of thousands of years. There is a lag of decades and even several hundred years from GHG emission to the impacts of climate change. Therefore, the various grim impacts of climate change have significant inter-generation equity implications. Climate change is an issue of extraordinary complexity. Human scientific knowledge on climate change and its impacts is far from complete. Therefore, the decision marking on climate change response involves high scientific uncertainties.

1.3 Applying the Basic Needs Approach in Climate Change Regime Designing The so-called international climate regime designing is to design a proposal on the different countries should, by which form, at what time, and in what place, undertake which kinds of obligations respond to climate change based on existing scientific knowledge on climate change. The analytical framework of sustainable human development for basic needs in climate change issues can guide the international climate regime designing to recognize, protect, and support the satisfaction of basic needs and restrict excessive, luxury, and wasteful consumption in the international climate regime. The framework is also in line with the principle of “Common but Differentiated” responsibilities. The UNFCCC was signed in 1992 and entered into force in 1994. As of 2015, the UNFCCC had 197 parties, including all United Nations member states. Each year, a Conference of Parties (COP = at ministerial level is organized. Developed countries need to lower their per capita GHG emissions and

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compensate developing countries for the climate change losses they suffer due to developed countries’ GHG emissions. Developed countries should undertake the obligations of providing financial and technical assistance to developing countries to encourage them to participate in GHG emission restriction and reduction. The drivers of GHG emissions include population, consumption, technology, and energy mix. All these factors can be integrated into the framework of sustainable human development based on basic needs. Such a regime design makes its top priority as realizing human development and satisfying basic needs. Applying the basic needs approach in international climate regime designing involves the following steps. Step 1 defines the basic needs (survival level and a decent life); Step 2 estimates the basic needs based on the basic needs definition and population size. Step 3 quantifies the total energy needs using the existing international advanced technologies and the total basic needs. Step 4 calculates the emission needs basing on each country’s energy mix and its total energy needs. Step 5 compares the annual emissions permitted under the given climate change target and the estimated total global emission needs. If the latter is equal or lower than the former, the process ends. If the latter exceeds the former, the basic needs definition should be adjusted until the global estimated emissions for basic needs satisfaction are within the emission ceiling to achieve the agreed global climate targets.

2 Basic Needs Quantification Basic needs are a concept relative to luxury and wasteful needs. Unlike the indefinite luxury and extravagant needs, basic needs are essential conditions for the average life of social members. Due to biological and physical factors, the basic needs are limited. Satisfying the minimum living needs of all social members is a fundamental human right and an important policy target universally accepted by the international community. The Universal Declaration of Human Rights (United Nations, 1948) states that “Everyone has the right to a standard of living adequate for the health and well-being of himself and of his family, including food, clothing, housing, and medical care and necessary social services… Everyone has the right to education”. These universal human rights principles recognize the equal rights of all human beings; regardless of a person’s gender and age, there is no difference in the entitlement to these rights. The Declaration requires all national governments to ensure that everyone has sufficient food; all children can get an education; all people have access to healthcare, safe drinking water, and primary sanitary conditions. All people can fully exert their potential.

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2.1 Flow and Stock of Basic Needs According to the product properties of needs satisfaction, the basic needs can be classified into stock needs and flow needs. The former consists of all infrastructure facilities, buildings, and durable consumer goods; they have the property that once they are produced, they can function during long use life. It is not necessary to update or reproduce them each year. In developed countries, the stock needs are generally met, while in developing countries, there still exists an enormous shortage of stock needs (Pan, 2005b). In contrast, flow needs are the products and services with short storage and use life, including food, clothing, paper, water, electricity, natural gas, etc. They are regular consumption to sustainable the normal functioning of the economy and society. As can be seen, most of the stock goods are capital goods and durables, while the flow goods are mainly consumables. Yet, there is no clear-cut difference between them. All those products and assets for which depreciation needs to be calculated and included in cost accounting are stock needs; otherwise, they are flow needs. In the Chinese national rules and regulations on corporate accounting, the criteria for determining whether an asset is fixed assets or not is as follows. “Fix assets are the tangible assets having all the following properties: (1) an enterprise owns them for product manufacturing, service provision, leasing, or operational management; (2) their use life exceeds one year; (3) their unit value is high” (Ministry of Finance, 2001). An asset is considered a fixed asset only if it can simultaneously meet all three criteria. In the calculation of the basic need for households and society, the above accounting standards can be used as a reference, and the products with short use life or low unit values can be treated as flow. In contrast, the products or assets with low use life and high unit value are treated as flow needs.

2.2 Basic Needs at Subsistence Level Versus Basic Needs for a Decent Life Basic needs are a concept associated with justice and can be both absolute and relative. Based on a country’s development phase and the poverty, urbanization, and industrialization challenges it faces, there are two basic needs levels: subsistence and decent life. The former is associated with eliminating extreme poverty and absolute poverty, including providing universal access to water supply, improving sanitation conditions, universal access to primary education, and providing health care services. The World Bank’s international poverty lines evolve and undergo regular adjustments. Generally, it is a per capita income between 1 US$ per day and 2 US$ per day. Yet, such an income level is far from securing a decent life for every person. Developing countries must complete industrialization and urbanization, build housing, public facilities, and infrastructure facilities, and accumulate social wealth so that their people can live a decent life. At the same time, these countries have

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recognized that to pursue sustainable development. They cannot follow the example of the lifestyle in developed countries. The basic needs for a decent life should be somewhere between the lifestyles in developed countries and those in developing countries. For instance the middle-income countries have passed the period of largescale migration of rural populations to cities, the rapid physical expansion of cities, infrastructure facilities, and the economy, and entered the phase of mature development. The middle-income residents in those countries should be considered as living a decent life. UNDP used the Human Development Index (HDI) to measure different countries’ progress in human development. The HDI consists of three components: life expectancy, literate rate, and per capita income. Based on the levels of their HDIs, UNDP divides countries into three groups: countries of high human development level (HDI ≥ 0.800), medium human development level, and low human development level. As a decent life involves many dimensions, it is hard to define it with a single indicator. In the UNDP HDI and Human Poverty Index designing, two aspects are considered critical elements for a decent life: relative income level in the world, quality of water supply, and the nutrition levels of children.

2.3 Results of Basic Needs Qualification People’s needs are satisfied by consuming thousands of different products and services; the composition of the products and services is often subject to people’s education and social background, and natural conditions. It is necessary to look beyond these personal differences and create an indicator system for the basic needs of various product and service categories at subsistence and decent life levels. The indicator choice should both consider the coverage and be operable. There are some differences in infrastructure facilities and consumption between urban and rural areas. There are different basic needs indicators for urban areas and rural areas. After combining into categories and simplification, Table 1 summarizes the main indicators and the value set for basic needs (for the technical details, see Zhu, 2006).

3 Energy and Emission Implications of Basic Needs Satisfaction—A Case Study on China Understanding the transition from the needs for products and services to the needs for energy is a bottleneck in elaborating the approach of human development for basic needs satisfaction and a main technical barrier. Although some western scholars have analyzed the definition and implications of direct energy and indirect energy, their calculations are mainly based on household expenditures. Moreover, they are

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Table 1 Indicators for basic needs definition Item

Indicator

Subsistence level

Decent life level

Food

Reference

(1997/99 world average level)

(1997/99 level of economies in transition)

Food (calories/person·day)

2800

2900

Garments and footwear

Housing

Urban

Rural

Urban

Rural

Textile (kg/person·year)

10

8

15

12

Share of cotton products (%)

45

45

40

40

Persons per room (persons/room)

2

2

1.3

1.3

Per capita housing area (m2 )

15

17

25

27

16

10

18

16

26

30

24

26

The coverage rate of tap water 92 supply (% of households)

70

98

85

Sanitary toilet ownership (% of households)

70

40

85

60

Access to electricity (% of households)

100

75

100

100

Residential heating and Heating (°C) cooling Cooling (°C) Infrastructure facilities and services

Electricity and water consumption

Household water consumption 120 (liter/person·day)

210

Household electricity consumption (kWh/ person·year)

500

1000

800

Transport

Mobility needs (km/person·year)

2000

800

8000

3000

Motorized degree

Cars (number of cars/thousand 50 people)

10

150

30

55

60

43

40

Transport mode mix (% Bus, long-distance bus, and in total passenger light rails (%) transport) Private cars (%)

4

1

15

10

Train (%)

40

38.8

40

50

Civil aviation (%)

1

0.2

2

0.5

Transport infrastructure Paved raod density (km/10,000 km2 )

Health

2000 (of which 70% is paved road)

5000 (of which 70% is paved road)

Railway density (km/10,000 km2 )

100

300

Airport density (number/10,000 km2 )

1.5

5

Life expectancy

65

70 (continued)

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Table 1 (continued) Item

Indicator

Education

The enrollment rate of primary 100 education

100

100

100

The expected school education 14 years of 5-year old children (years)

13

18

17

Newspaper and paper for printing and writing (kg/person·year)

20

60

50

Per capita floor area of service 5 building (m2 )

2

10

5

Space heating (°C)

16

14

18

16

28

24

26

Service

Subsistence level

30

Decent life level

Space cooling (°C)

26

Public administration and national defense

Share in employment (%)

6~7

Share in GDP (%)

8

7

Education, healthcare, social work, and other services

Share in employment (%)

9 ~ 14

25

Share in GDP (%)

13

20

Urbanization rate

(%)

>40

75

6

statistical analyses based on the actual historical statistics and input–output tables of a country. Therefore, these studies are different in both objectives and scopes from the basic needs qualification.

3.1 Quantification Method The outputs from national economic production activities are ultimately for the following three uses: household consumption, government consumption, and investment. The differences between household consumption and consumption are the subjects; government consumption provides various public administration and national defense services to households and individuals. Therefore, government consumption can be considered as collective consumption that households and individuals purchase through paying taxes. The investment aims to renew and expand fixed assets and durables and accumulate wealth for future consumption. Meanwhile, among the products and services consumed each year, some come from the investment accumulation in previous years. Generally, the shares of economic outputs using consumption and investment only change slightly from one year to the next. In a closed economy (ignoring international trade), the total consumption is the same as the total output of the same year. Therefore, it is assumed that the total consumption is approximately equal to the total outputs of the same year.

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As can be seen, all the production activities are to directly or indirectly satisfy people’s needs for final consumption. Therefore, all the energy use in an economy can be allocated to households’ corresponding product or service consumption. The energy consumption by the production sectors can be considered the direct energy consumption by the consumers. (1)

Direct energy (flow) needs: the main influencing factor is the energy efficiency performance of energy-consuming equipment.

From the perspectives of household consumption, the direct energy needs are flow needs, including the household consumption of electricity, natural gas, and the vehicle fuels of household cars. As the direct energy needs are final energy, it is necessary to convert them into primary energy. For fossil fuels, countries also need to consider fuel consumption in extraction, refinery, processing, and transportation losses. As for the electricity needs, the final electricity consumption needs to be converted back to the primary energy inputs. In other words, the heat loss in electricity generation, the electricity use inside the power plants, and the losses during transmission and distribution need to be taken into account. (2)

Indirect energy (stock) needs—the total indirect energy consumption during a product’s life cycle. The calculation method is allocating the total indirect energy consumption during a product’s life cycle (excluding the direct energy consumption during utilization/operation) to each year in the product’s use life.

For example, the indirect energy consumption (including production, sales, transport, and disposal at the end of use life) during the life cycle of a refrigerator is 3484 MJ. As the refrigerator’s use life is 15 years, therefore the allocated indirect energy consumption for each year of the 15 years of refrigerator usage is 3484 ÷ 15 = 232.3 MJ (Engelenburg et al., 1994).

3.2 Calculation Method and Assumptions There are numerous kinds of products and services, and the production technologies and conditions can vary a lot. Moreover, almost all production, transport, and selling activities consume energy. Therefore, in the calculation, it is necessary to try all means to avoid repetitive calculation and omissions. Under the basic needs approach, the transition from product needs to energy needs covers the entire production and service system and seems to be complicated. Yet basic needs are the needs of individual consumers, which consist of food, clothing, housing, transport aspects, and the like. (1) Food. The energy consumption for food includes indirect energy consumption during the life cycle of food production and the direct energy consumption of cooking at consumers’ homes. (2) Clothing: the energy consumption for satisfying the consumers’ clothing needs include the indirect energy consumption during the life cycle of clothing and the direct energy consumption of clothes washing and ironing. (3) Housing: indirect energy consumption is the annual

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allocation of the indirect energy consumption during the housing’s life cycle, and direct energy consumption is the energy use for space heating, space cooling, and energy use of furniture and appliances. (4) Mobility: the energy consumption for mobility includes the direct vehicle fuel consumption, and the indirect energy needs allocation of vehicles, roads, and other transport infrastructure facilities during the use life. (5) Services. Services consist of public administration, including governments and national defense, catering, hotels, education, and healthcare. As the specific circumstances can vary a lot, during the calculations, some simplification is necessary. Therefore, we have made the following assumptions. The first assumption is the linear relations between population and total energy, i.e., the scale of economy effects is ignored in the calculations. The second assumption is the evenness of technology. The data from EU case studies since the 1990s are used as they can represent the current technologies in Europe or the internationally advanced technology levels during the 1990s. The third assumption is that all products are of the same quality, and the quality differences of products and services are ignored, and the technical differences are also neglected. The fourth assumption is to neglect such factors as culture and social customs. The fifth assumption is that only the total primary energy consumption is considered during the primary energy consumption, while the energy mix differences are ignored. Based on the above assumptions and the consumers’ needs for products and services, the energy needs are estimated through the following steps. Step 1 is calculating the total needs for various products and services. Step 2 is estimating the direct energy consumption of those products and services (using the relevant energy efficiency data of energy-consuming equipment and appliances in West European countries. Step 3 is looking for existing life-cycle energy analysis case studies and determining the ratios between indirect energy consumption and direct energy consumption during a product’s life cycle and the indirect energy consumption levels. Step 4 is determining the use life of various products. Step 5 is calculating the annual average indirect energy consumption allocations for durable consumer goods, infrastructure facilities, and housing, etc., during their life cycle. Step 6 is summing up the direct energy consumption and the indirect energy consumption for the maintenance and renewal of durable consumer goods, housing, infrastructure facilities, and so on, and the results are the annual primary energy needs for satisfying certain population’s basic needs.

3.3 Quantification Results It is necessary to consider its specific circumstances, including its climate conditions, population, and territory size, to estimate a country’s energy needs. Here China is taken as an example to calculate the direct and indirect energy consumption needs for satisfying the Chinese people’s basic needs for a decent life. China has a land area of 9.60 million km2 , and its climate is much diversified. The country covers five climate zones from south to north, including tropic, semi-tropical,

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warm-temperate, temperate, and frigid zones. When estimating the space heating and space cooling needs, the monthly average temperatures during 1971–2000 of each provincial capital city calculate the relevant province’s heating degree days and to cooling degree days. In 2004, the average household size in China was 2.98 people in urban areas and 4.08 people in rural areas; and the urbanization rate is 43% (China National Statistics Bureau, 2006). A country’s urbanization rate needs to reach 75% to enable most of its citizens to enjoy a decent life. Based on the standards indicated in Table 1 and the calculation methods described above, meeting the 1.3 billion Chinese people’s basic needs for living a decent life requires a total energy need (including direct and indirect energy needs) of 2.5 GtOe (see Table 2) per year, approximately equivalent to 3.6 GtCe. In 2005, China’s total energy consumption was 2.22 Gt (China National Statistics Bureau, 2006). The 3.6 GtCe is equivalent to the domestic projection (Zhou et al., 2003) of China’s energy consumption by 2025 and the international projection of China’s total energy consumption by 2020 (EIA, 2006). The amount is about the level of the current energy consumption of the US. It is worth noting that the above calculation results are the total primary energy needed for satisfying the basic needs for a decent life in China based on the current technologies in European countries. The per capita primary energy needs are 1.92 tOe. In 2005, China’s actual per capita primary energy consumption had reached 1.19 tOe (CNSB, 2006). The calculated primary energy needs for a decent life are conservative, as currently China’s energy efficiency and technology level are around 1/3 lower than that in Europe; the building insulation level is around half the level in Europe. If China’s energy efficiency can reach the 1990 levels of Europe, then the country will reach its energy consumption for meeting basic needs around 2020. Given the technology locked-in effects of current investments (Hourcade et al., 2001), China’s GHG emissions from energy consumption depend on factors other than the necessary primary energy for meeting the Chinese population’s basic needs. The ratio between them depends on the country’s energy mix. Different fuels have different calorific values and CO2 emission factors. The International Energy Agency publishes the energy statistics of different countries every year, which can be used to calculate each country’s GHG emission needs for meeting their people’s basic needs. Assuming China’s energy mix maintains its 2003 primary energy mix (IEA, 2005b), we can estimate that China requires 2.5 GtOe of energy a year to meet its population’s basic needs for a decent life, which will lead to a total GHG emission of around 7.4 GtCO2 . In other words, for the 1.3 billion people, the per capita GHG emission is around 5.69 tCO2 (1.55 tC) per year, which is approximately twice China’s actual per capita GHG emission level of 2.89 tCO2 in 2003, and 42.6% higher than the 2003 world average per capita emission of 3.99 tCO2 and around half of the average level of OECD countries in 2003 (IEA, 2005a). Suppose China makes enormous efforts to improve its energy mix and increase shares of low-carbon energy sources. In that case, it is possible to limit China’s carbon emission needs for satisfying its people’s basic needs for a decent life at the world average per capita level. The above estimation was made in 2006. From 2006 to 2021, continual rapid growth and development have brought about dramatic in China. China’s 2018

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Table 2 Direct and indirect energy consumption needs for meeting the 1.3 billion people’s basic needs in China Item

Direct energy needs (Mtoe/year)

Indirect energy needs (Mtoe/year)

Total (Mtoe/year)

Food

27.12

713.76

740.88

Clothing

44.85*

149.71

149.71

Housing

81.26

81.26

Residential heating

469.85

469.85

Household electricity consumption (including residential cooling)

279.45

279.45

Hot water

61.90

Newspaper and paper for writing and printing

61.90 213.33

Furniture and appliances Transport (passenger)

167.65

Of which: fuel

167.65

Transport vehicles

83.82

83.82

179.29

346.94

117.50

Transport infrastructure—road

48.89

Transport infrastructure—railways

12.91

Services

213.33

11,285

39.84

152.69

Public administration and 2930 national defense Hotels and restaurants

2886

Hospitals/healthcare

399

Education and other social services

5070

Service building

15.06

Office furniture, equipment, and devices

24.78

Total *

2496.85

Note these data are included in the electricity use

primary energy consumption was 85% higher than its level in 2005. Its per capita energy consumption was 2.73 tOe, which already exceeded the estimation of 2.5 tOe per capita for basic needs satisfaction (CNBC, 2021). In September 2020, China announced the target to achieve carbon neutrality by 2060 (Meidan, 2020). Then in December, the country announced a target of 65% (CGTN, 2021) reduction of its GDP energy intensity from the 2005 level. It is working on various concrete policies and measures to peak the country’s emissions and to achieve the above ambitious target.

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4 Application of the Basic Needs Approach The basic needs approach is the theoretical foundation and methodology for the lowcarbon human development proposal, supporting the international climate regime designing and negotiation. The theory of Amartya Sen (1985) is a breakthrough of the conventional development philosophy of blindingly pursuing income increase and economic growth. Sen believed that economic growth is only the means, and the ultimate purpose of development is to achieve the comprehensive development of human beings. The human development approach for basic needs satisfaction calls for sustainable consumption and production patterns, which can both solve climate change and contribute to the solution of other environmental, resource, and social problems. Hence, it is a comprehensive and all-around approach. The thinking behind the low-carbon human development approach is as follows. The CO2 emissions of various industrial processes and economic sectors serve the ultimate purpose of meeting the consumers’ certain needs. Based on the consumption objectives, the emissions can be classified into those for meeting basic needs and meeting luxury needs. As climate change due to anthropogenic GHG emissions can cause major negative impacts, to prevent dangerous climate change and its associated impacts, GHG emissions must be put under control. Because the satisfaction of basic needs is linked to basic human rights, a two-aspect approach must be adopted. For one thing, luxury consumption must be discouraged and controlled. For another thing, the potential of technology progress, deployment, and diffusion must be fully tapped in climate change response. The Low-carbon Human Development Proposal (Pan, 2005a) is built on the principles of equity and efficiency. It relies on technological progress and aims at achieving the ultimate target of human development. It requires developed countries to restrict and eliminate luxury consumption and use the best available technologies and developing countries to speed up the diffusion and deployment of advanced technologies to reduce their GHG emissions. By fully exerting the potential of technology in reducing emissions, the Proposal aims to make all countries’ emissions converge to the emission pathway of utilizing the best available technologies to satisfy basic needs. In the global efforts for GHG emission reduction, a country shall first make the political commitment of securing its population’s rights for a decent life. Hence their corresponding needs for energy consumption and carbon emissions shall be satisfied. At the same time, all countries have the moral obligation to commit to restricting excessive/luxury consumption and the corresponding GHG emissions as the earth is limited and human being’s basic needs are limited due to their biological properties. Such prominent features are that the commitment is to human development, not GHG emission control or reduction. The quantification of basic needs and the estimation of the energy and GHG emission needs for satisfying basic needs can provide a basis for the emission reduction obligations of developed countries and developing countries under the Human Development Proposal.

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In designing a global climate regime, the core issue is how to define different countries’ responsibilities and obligations. The Basic Needs Approach is based on the theoretical foundation of sustainable human development. It can independently evolve into a complete international climate regime proposal and combine other international climate design approaches and proposals. For instance, it can be combined with the framework of emission cap and enabling (Ott et al., 2004) or the Contraction and Convergence (Meier, 2004), Graduation and Deepening (Michaelowa et al., 2005) approaches and provides an equitable basis for determining the basic needs satisfaction degrees, the time, method, and degree of countries at different development stages to participate in GHG emission reduction.

References Chinese Ministry of Finance. (2001). Business accounting rules—Fixed assets. http://www.gov.cn/ gongbao/content/2002/content_61664.htm. Accessed on 15 March 2021. Chinese National Statistics Bureau (CNBC). (2006). 2006 China statistics yearbook, www.stats. gov.cn. Assessed on 15 March 2021. CNBC (China National Statistical Bureau), 2021. www.stats.gov.cn. [Accessed on 10 May 2021]. CGTN. (2021). Chinese roadmap by 2060 for a carbon-neutral future. 15 March 2021. https://news.cgtn.com/news/2021-03-15/Chinese-roadmap-by-2060-for-a-carbon-neutralfuture-YDX1ED0W8U/index.html. [Accessed on 11 May 2021]. EIA (Energy Information Administration). (2006). International energy outlook, US DOE/EIA, (p. 206). Washington DC. Hourcade, J.-C., Shukla, P., Cifuentes, L., Davis, D., Fisher, B., Golub, A., Hohmeyer, O., Krupnick, A., Kverndokk, S., Loulou, R., Richels, R., Fortin, E., Seginovic, H., & Yamaji, K. (2001). Global, regional and national costs and ancillary benefits of mitigation. In B. Metz, O. Davidson, T. R. Swar, & J. Pan (Eds.), Climate Change 2001: Mitigation (pp. 501–559). Cambridge University Press. IEA (International Energy Agency). (2005a). CO2 emissions from fuel combustion 2005, (p. 560). IEA (2005b), Energy balances non-OECD 2005, IEA, (p. 458). Meadows, D. H., Meadows, D. L., Randers, J., & Behrens, III, W. W. (1972). The limits to growth: A report for the club of Rome’s project on the predicament of mankind, (p. 211). Earth Island Ltd. Meidan, M. (2020). Unpacking China’s 2060 carbon neutrality pledge, (p. 10). Oxford energy comment. Meier, A. (2004). Contraction and convergence. Engineering Sustainability, 157(4), 189–192. Michaelowa, A., Butzengeiger, S., & Jung, M. (2005). Graduation and deepening: An ambitious post-2012 climate policy scenario. International Environmental Agreements: Law, Economics and Politics, 5(1), 35–47. Ministry of Finance. (2011). Corporate accounting standards—Fixed assets. Issued by the Chinese ministry of finance on 9 November 2001. http://www.gov.cn/gongbao/content/2002/content_6 1664.htm. [Accessed on 10 May 2021]. Ott, H. E., Winkler, H., Brouns, B., Kartha, S., Mace, M., Huq, S., Kameyama, Y., Sari, A. P., Pan, J., Sokona, Y., Bhandari, P. M., Kassenberg, A., La Rovere, E. L., & Rahman, A. (2004). South-North dialogue on equity in the greenhouse: A proposal for an adequate and equitable global climate agreement, (p. 58). Eschborn, GTZ. Pan, J. (2005a). Fulfilling basic development needs with low emissions—China’s challenges and opportunities for building a post-2012 climate regime. In T. Sugiyama (Ed.), Governing Climate: The struggle for a global framework beyond Kyoto (pp. 87–108). International Institute for Sustainable Development (IISD).

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Pan, J. (2005b). Meeting human development goals with low emissions: an alternative to emissions caps for post-Kyoto from a developing country perspective. International Environmental Agreements: Politics, Law, Economics, 5(1), 89–104. Pan, J., & Zhu, X. (2006). An analysis of basic needs for human development and its applications in the design of global climate regime—The case of China for energy and emissions demand. ZHONGGUO RENKOU—ZIYUAN YU HUANJING (China Population, Resources and Environment). 16(6), 23–30. Sen A. K. (1985). Commodities and capabilities, (p. 130). United Nations. (1948). Articles 25 and 26, The universal declaration of human rights, passed and proclaimed by the United Nations general assembly in 1948. In Its general assembly resolution 217 A, (p. 8). United Nations. (1992). Principle one in article 3 of the United Nations framework convention on climate change, (p. 33). UNFCCC. https://unfccc.int/sites/default/files/conveng.pdf. Zhou, D., Jiang, K., & Hu, X. (2003). 2020 China sustainable energy scenarios, (p. 724). China Environmental Science Press. Zhu, X. (2006). An analysis of basic needs for human development and its applications in the design of global climate regime—The case of china for energy and emissions demand, (p. 158). Ph.D. thesis submitted to the graduate school of Chinese academy of social sciences. April 2006.

Chapter 10

Quantification of Historical Emission Responsibilities

Since climate change is recognized as a global environmental problem, historical emissions have been a core issue. As historical emission responsibilities are the cornerstone for the “common but differentiated responsibility” principle under the UNFCC, they have been a hot topic of South-North debate during international climate negotiations. How to address the issue of historical emission responsibilities influences the emission reduction and financing responsibilities of different countries and, to some extent, determines the future direction of the international climate regime setup. The issue of historical emission responsibilities has multiple dimensions. It is both a scientific question but also involves equity and ethical considerations. Moreover, it is also related to economic interests and political negotiations. For years, the negotiations and discussions on historical emission responsibilities under the UNFCCC and outside the UNFCCC have not offered a consistent method and specific results. Instead, they ignored the equity behind the historical emission responsibilities. As a result, historical emission responsibilities have been an issue that is yet to be solved after repeated delays. This Chapter applies a comprehensive and simple method to explore historical emission responsibility and provide a clear understanding of historical emission responsibilities.

This Chapter is partially based on Liu et al., (2014). © China Social Sciences Press 2022 J. Pan, Climate Change Economics, https://doi.org/10.1007/978-981-19-0221-5_10

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1 Historical Emissions: Their Scientific Basis, Measurement Methodology, and Uncertainties 1.1 Scientific Basis of Historical Emissions Climate change has been an indisputable fact, and more and more studies prove that human activities are the causes of global warming and climate change. The Working Group I Contribution to the Fifth IPCC Assessment Reports, Climate Change 2013: the Physical Science Basis (IPCC, 2013) points out that systematic global warming is a fact beyond doubt. It also states that the many systematically observed changes since 1950 are unprecedented during the last few decades and even the last millennium. The global average surface temperature shows a warming of 0.85 °C during 1880–2012. The report’s latest assessment on the facts of climate change and trends concludes that human activities very likely (with 95% or more probability) caused the majority (more than 50%) of the global average surface temperature rise. In particular, the temperature rise contributions of GHG emissions during 1951–2010 are in the range of 0.5 °C–1.3 °C. GHGs are typical stock pollutants and the lifetime of different GHGs in the atmosphere are different. The most important and frequently debated one, CO2 , is a typical gas of a “long-tail” lifetime. Although most CO2 in the atmosphere can be absorbed over a few decades, part of the CO2 will stay in the atmosphere for hundreds of years or even a thousand years. The fourth IPCC Assessments (IPCC, 2007) point out that as CO2 can be exchanged in the atmosphere, oceans, and land through chemical or biological reactions, its lifetime varies. It is very difficult to estimate its life in the atmosphere accurately. Therefore, the lifetime of CO2 depends on its long tail. Conventional estimations often neglected the long-tail effects, hence underestimated the CO2 lifetime (Archer, 2005; Archer et al., 2009). Since the Industrial Revolution, the global increasing use and combustion of fossil fuels have led to dramatic increases in GHG emissions. The CO2 could not be absorbed by carbon sinks and keeps accumulating in the atmosphere and generating greenhouse effects, which in turn causes global warming and climate change. The long-tail nature of CO2 is the physical basis of historical emission responsibilities. It underpins the scientific fact that the current temperature rise is largely due to historical GHG emissions (especially the emissions since the Industrial Revolution). As mentioned in the UNFCCC, “the majority of the historical and current global GHG emissions originate from developed countries.” These facts are the main scientific basis for the assessment of historical emissions.

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1.2 Historical Emissions: Their Measurement Methodologies and Uncertainties Currently, there are two main methodologies for measuring different countries’ historical emission responsibilities. The first methodology uses climate models to assess each country’s contribution to the existing global temperature rise. The most typical example is the famous Brazilian Proposal (UNFCCC, 1997), which uses global average surface temperature rise as the proxy indicator of climate change and assesses each country’s contribution to global temperature rise. Other examples include Höhne et al. (2011) and Wei et al. (2016). Höhne et al. (2011) assessed the contributions of individual countries to global climate change based on their historical emissions. They find that uncertainty in historical contribution estimates differs between countries due to different shares of greenhouse gases. They also note that the selection of the starting year (e.g., 1750 or 1990) for emission accounting is important for many countries, up to a factor of 2.2 and on average of around 1.3. The Center for Global Development estimated that developed countries were responsible for 79% of the global GHG emissions (excluding land-use change and forest) (2015) from 1850 to 2011 (see Table 1). Wei et al. (2016) assessed the cumulative GHG emissions of developed and developing countries from 1850 to 2005 based on the Community Earth System Model (CESM). Their study estimated that developed countries contribute approximately 53–61%, and developing countries approximately 39–47% to increase global air temperature rise and the associated climate change impacts. These studies reached similar conclusions, which are also like the calculation results based on statistics, i.e., developed countries’ historical emissions are the main source of anthropogenic emissions which has caused the existing climate change or temperature rise. The other methodology is using statistics of actual emissions to calculate each country’s historical emissions. The main data sources include the American World Resources Institute’s Carbon Data Explorer (WRI CAIT 2.0), the database of the Carbon Dioxide Information Analysis Centre (CDIAC) at the American Oak Ridge Table 1 Contributions to global GHG emissions during 1850–2011 Developed countries

Contribution (%)

Developing countries

Contributions (%)

EU

40

China

9

US

22

India

2

Japan

3

The Middle East and North Africa

3

Russia

6

Sub-Saharan Africa

1

Other high-income countries

3

Latin America

3

Other developing Asia

3

Sub-total

79

Sub-total

21

Source Busch, (2015)

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National Laboratory, as well as the emission data from the IEA’s World Energy Outlook and other statistical publications. Many Chinese and international studies have used emission statistics from these databases to calculate the historical emissions of different countries. The calculations in the following sections of this Chapter are also based on this methodology. Each methodology has some advantages and disadvantages. The climate pattern methodology’s advantage is that it can assess the contributions of different countries’ emissions to temperature rise under future temperature rise restrictions (such as 2 °C) or GHG concentration restrictions. Its disadvantages are that the partners are complicated, and the calculation processes are not straightforward, and the results are of high uncertainties. The statistics methodology has the advantage of simple calculation methods and more straightforward results. However, it also has some uncertainties, and the results can be affected by different indicator choices. Under this methodology, the uncertainties come from multiple sources, some of them are natural sciences, and the others are of political economics. (1)

The type(s) of GHGs. Does it cover the GHGs other than CO2 ? The Annex A of the Kyoto Protocol lists six major anthropogenic GHG emissions. Except for CO2 , the other GHGs that currently receive lots of attention are methane (CH4 ) and Nitrous Oxide (N2 O).

The existing major statistical databases on GHG emissions contain a long time series of statistics on the CO2 emissions from fossil fuel combustion. The statistics on some developed countries can be traced back to the beginning of the Industrial Revolution. However, the data on non-CO2 GHG emissions are more difficult to access, and the time series are short (usually only data since 1990 are available). Moreover, some disputes exist on the statistical methods of these data and the high uncertainties of their data values. (2)

The emission sources. The major sources of CO2 emissions from human activities included in existing statistics include fossil fuel, industrial process, agriculture, waste, land use and forestry, international civil aviation, and marine transport. Therefore, which sources should be included during the calculation of different countries’ historical emissions? There are various opinions on whether the calculations should include the emissions from Land Use, Land Use Change, and Forest (LULUCF).

Some developed countries are keen to include LULUCF GHG emissions in their national emission statistics because they hope to obtain extra negative emissions through this source to offset their emissions from the industrial and energy sector. The offsetting can make it easier for them to fulfill their carbon neutrality targets under the Paris Agreement. Moreover, some developed countries wanted to select the most favorable base year for themselves to minimize their absolute mitigation obligations. (3)

The starting year and ending year of the historical emission calculation and the base year selection. 2050 or 2100 is often selected as the ending year. There are significant differences in the selection of the starting year and the base year.

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Different choices of starting and ending years and the base year can dramatically change each country’s historical emission responsibilities. Among the representative studies by Chinese and foreign scholars, the starting years and ending years are sometimes different. For example, among the different studies about the carbon budget proposal, the research team from the China State Council Development Study Centre (2009) and the Hu et al. (2009) from the National Climate Center of the China Meteorology Administration chose to calculate the historical emission responsibilities since the Industrial Revolution (1850). While Pan and Chen (2009) and Ding et al. (2009), after comparison, decided to choose 1900 as the starting year from their calculation as the global emissions before 1900 were small and the statistical data was incomplete. The carbon budget proposal by Indian scholars (Kanitkar et al., 2013) believes that 1970 should be taken as the starting year, as in 1972 the UN Conference on Human Environment in Stockholm and the American Association for the Advancement of Science for the first time raised the issue that CO2 emissions could cause global warming. The carbon budget proposal by German scholars (Rahmstorfer, et al. 2009) is even more radical and calls from selecting 1990 and 2010 as the starting years, as it was not until 1990 that the First IPCC Assessment was published. Furthermore, the German Proposal is more inclined to using 2010 as the starting year. The base year has different meanings under a different context. For instance, the Kyoto Protocol selected 1990 as the base year for Annex I countries. Their emission reduction targets for the first Commitment Period were set as a certain percentage emission reduction concerning the emissions in the base year. In the carbon budget proposals, the significance of the base year selection is that the base year is used to estimate each country’s population size and its share in the world population, which in turn determines a country’s share in the global carbon budget. Therefore, in the carbon budget proposals, the base year is a parameter of great importance. If 1990 or 2010 is chosen as the starting year for calculating countries’ accumulated emissions, the historical emission responsibilities of developed countries are almost completely ignored. Besides, there are some other issues under the statistical methodology, such as the unit of emissions (whether it is tons of CO2 or CO2 equivalent), the political unit of statistics (whether based on sovereign countries). And in the calculation of countries’ historical emissions, there are also some national population and territory changes. All these technical details need to be settled through further studies and negotiations. Data from the World Resources Institute (WRI) indicate that during 1900–2010, the historical emissions of Annex I countries accounted for 71.2% of the global total, while their population is only 18.7% of the world total. In other words, their annual per capita accumulated historical emissions are around four times the world average and 11 times that of the non-Annex I countries (see Table 2). Developed countries’ historical accumulated emissions are much higher than those of developing countries and are the main causes of global warming to date.

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Table 2 Total and per capita accumulated historical GHG emissions of Annex I countries and non-Annex I countries (1990–2010) Item

Historical emissions and share (GtCO2 , %)

2010 population and share (bn., %)

Per capita accumulated historical emissions (tCO2 /person)

Annual per capita accumulated historical emissions (tCO2 /person/year)

Global

1235.58 (100)

6.89 (100)

179.21

1.61

Annex I countries

879.64 (71.2)

1.29 (18.7)

683.72

6.16

Non-Annex

355.94 (28.8)

5.61 (81.3)

63.47

0.57

Note (1) Numbers in the brackets are the shares of Annex I countries and non-Annex I countries in the global total; (2) per capita historical accumulated historical emissions = historical emissions/population; (3) annual per capita accumulated historical emissions = per capita accumulated historical emissions/111 years Data source: the emission data come from the World Resources Institute’s CAIT database. The same below

2 Technology Progress Spill-Over Effect and Discount of Historical Emissions Responsibilities Identifying historical responsibilities can be embodied in two aspects: emission reduction burden-sharing and financing obligation burden-sharing. Both aspects can deeply affect a country’s economic interests. It is necessary to carry out some indicative studies on the historical emission responsibilities of developed countries under the carbon budget proposal in both aspects.

2.1 The Economic Implications of Historical Emission Responsibilities Under the Carbon Budget Proposal The specific ideas and methodology of the Carbon Budget Proposal can be found in the publication by Pan and Chen (2009). The study period selected was from 1900 to 2050, and the population is using the statistics for 2010 (the base year). The actual emission data for 1900–2010 were used in the study. All the emissions data are the CO2 emissions from fossil fuel combustion in the year (the same below); only the 2010 data are the total CO2 emissions excluding LUCF” data from the WRI CAIT 2.0 database. The information regarding future emission space is based on the Paris Agreement. For controlling the temperature rise by 2050 within the 2 °C limit or GHG concentration within the limit of 450 ppm, the allowable emissions for 2000–2050 should not exceed 1440 GtCO2 (with a 50% probability of controlling the temperature rise within 2 °C). The study also selects other starting years, 1850, 1970, and 1990 for comparison purposes. The calculation results are presented in Table 3. The later the starting year

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Table 3 Carbon budget calculations based on different starting years I

II

III = I + II

IV = III/global population

V= IV/budgeting period

Accumulated historical emissions from the starting year till 1999 (GtCO2 e)

Remaining emission space during 2000–2050 (GtCO2 e)

Total carbon budget from the starting year till 2050 (GtCO2 e)

Per capita accumulated historical emissions from the starting year to 2050 (tCO2 e)

Per capita annual emissions (tCO2 e)

1850

1101.97

1440

2541.97

368.70

1.83

1900

1063.43

1440

2503.43

363.11

2.40

1970

695.94

1440

2135.94

309.81

3.82

1990

219.88

1440

1659.88

240.76

3.95

Starting year

Note “The Budgeting Period” is from the starting year to 2050. Hence different starting year corresponds to different budgeting period. For instance, if the starting year is 1900, then the budgeting period is 151 years

is, the smaller the historical emissions of developed countries are. The data in Table 3 are based on calculations with 1900 as the starting year. The results can be used to determine different countries’ historical emission responsibilities and their financial implications. To simplify the study, the authors use the original list of Annex I countries in the Kyoto Protocol. The calculation results (see Table 4) show that Annex I countries as a whole have an emission deficit of 412.49 GtCO2 as of 2010. If a carbon price of 20 US$/tCO2 is used, the Annex I countries’ financing obligation is 8.25 trillion US$, and their annual payment obligation from 2011 to 2050 is 206.0 billion US$ per year (see Table 4). Among the Annex I countries, the US has the biggest carbon deficit, and the EU, Russia, Canada, Australia, and Japan are all major countries with a carbon budget deficit. Apart from them, there are also a few oil-exporting countries in the Middle East and Central Asia). In contrast, large populous countries like China and India have the biggest carbon emission budget; as their historical emissions are low, they have a high remaining budget surplus. Developing countries have a big emission budget surplus, and they can sell the carbon emission rights on the future international carbon market and get net fund inflow.

2.2 Discounting of Historical Emission Responsibilities Based on the above analysis, there are four reasons why the historical emissions shall be discounted, including scientific, legal, ethical, technical, economic, and political considerations. The first reason is the physical science basis. As a type of stock

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Table 4 Different countries’ carbon budget balances under the 2 °C emission scenario (2000–2050: 1440 Gt CO2 ), Unit: Gt CO2 Total budget (1900–2050)

Actual emissions (1900–2010)

Global

2503.43

1235.58

1267.84

Annex I

467.15

879.64

−412.49

Non-Annex I

Budget utilization (2011–2050)

2036.27

355.94

1680.33

US

112.33

346.52

−234.20

EU -27

182.40

294.54

−112.14

Canada

12.39

27.23

−14.84

8.01

14.29

−6.28

Australia Japan

46.28

53.04

−6.76

Russia

51.70

99.87

−48.17

China

485.73

128.95

356.78

India

444.67

33.74

410.92

Brazil

70.79

11.08

59.71

South Africa

18.15

14.37

3.78

Note (1) The starting year is 1900; (2) “Budget utilization” refers to the remaining budget surplus or deficit as of 2010, negative data indicating the country or country groups’ remaining budget is a deficit, positive values indicate there is still some budget surplus

pollution, the lifetime of GHGs in the atmosphere has the physical property of “longtail” decay. Second, the inherent legal and ethical requirements. When the people in developed countries emitted the GHGs, they might be unaware of the environmental damages due to their emissions; such “ignorance” can constitute one reason for discounting the historical emissions. Third, the spill-over effects of technological progress. Due to constant technological progress and the spill-over effects of technology and knowledge, the emissions needed for a unit of output in the past can be higher than the present level. Developed countries believe that developing countries have the advantages of newcomers and use this as an excuse for escaping their mitigation responsibilities. Therefore, this can also be used as one of the reasons for discounting historical emissions. Finally, the political and economic considerations are based on reality. Due to the previous three reasons, if developing countries insist on strictly and completely hold developed countries for their historical responsibilities, developed countries will refuse to accept. Therefore, one option is to consider discounting developed countries’ historical responsibilities. This can solve the scientific, legal, ethical, and technical issues related to historical emissions and increase acceptability to developed countries, making the solution both legal and reasonable. Due to the above considerations, the following paragraphs are some preliminary and indicative studies on how to discount the historical emission responsibilities.

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(1)

173

The natural decay of historical emissions

The “decay” here is not the real decay in physics—because the CO2 in the atmosphere is absorbed through various land– atmosphere or sea-atmosphere chemical reactions instead of through molecular decay. For simplification purposes, this Chapter makes some assumptions and uses two methods to calculate the natural decay rate. The first method assumes the average lifetime of CO2 in the atmosphere is 142 years , i.e., 1 ton of CO2 emissions from 142 years ago will completely disappear today. It can be calculated the average annual decay rate of CO2 is 142 = 0.7%. The second method is simply assuming that it takes 100 years (like the half-life concept) for half of the CO2 in the atmosphere to be absorbed. Based on the half-life calculation formula, Nt =N0 e−λt where λ is the decay rate? When N0 =1Nt =1/2t=100, then it can be calculated the annual decay rate is 0.69%. This means the natural annual decay rate of CO2 is 0.69%. The results of the decay rate calculation based on these two methods are similar. Hence, this Chapter selects 0.7% as the natural discount rate for CO2 emissions. The overall discount rate is calculated based on the annual natural discount rate. (2)

The inherent requirements of law and ethics

In law and ethics, a person is not necessarily pardoned because he/she is unaware or ignorant of the results of his/her criminal actions. But if a person causes damage due to ignorance and negligence, then the penalty and punishment are often less during the sentencing. The historical emissions of developed countries may also satisfy such a criterion of “negligence and ignorance,” which is also why they should be discounted. When did the human race start to realize the greenhouse effects and their damages? There is much dispute to the answer to this question. The earliest warnings about global warming can be traced back to the nineteenth century. The Indian Carbon Budget Proposal (Kanitkar et al., 2013) believes that countries should only be held accountable for their emissions from the 1970s; the German Carbon Budget Proposal (Rahmstorfer, et al. 2009) believes that 1990 is the starting year global consensus on climate change. In summary, there is agreement on the starting year of the global carbon budget. Apart from disputes regarding the starting year when countries should be held accountable for their GHG emissions, there are also difficulties in discounting rate selection. As countries were ignorant of the damages when they made the emissions, how should the world properly discount the historical emissions? This is an ethical and normative question, and there has been no literature on this question. In the Carbon Budget Proposal developed by the Chinese Academy of Social Sciences (Pan & Chen, 2009), the starting year for historical emissions responsibility calculation is 1900. This is in line with the research conclusions by Svante Arrhenius, the Swedish scientist who first found the global warming effect. Arrhenius believes that the year 1900 can be the threshold year for holding countries responsible for their emissions, and the emissions before 1900 should be discounted due to legal and ethical considerations. As each country’s emissions are traced back to 1900, it

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is unnecessary to discount those past emissions because of legal and ethical considerations. If the starting year of countries’ emissions calculation is only from 1970 or 1990, it is necessary to discount national historical emissions from 1900 to 1970 or 1990. As a compromise, this Chapter suggests a legal and ethical annual discount rate of 0.05%. (3)

Technology progress and the spill-over effects

As both developed and developing countries actively seek the transition towards a low-carbon economy, it is expected that low-carbon technologies will advance faster in the future than before. Due to innovation and technology research and development, energy efficiency will keep improving. For instance, 50 years ago, a power plant often needed to burn 500 g of coal to generate a kWh of electricity. Yet today an ultra-supercritical power plant only needs to consume less than 300 g of coal. This means the productivity of carbon will keep going up, developing countries have the advantage of latecomers and can deploy more advanced technologies in their new investments. Therefore, they can emit much fewer emissions for the same output than the developed countries did several decades ago. Therefore, from the perspectives of technology progress, it is necessary to discount the historical emissions during emission calculation to consider the technology progress and spill-over effects. In many models on GHG emissions, Autonomous Energy Efficiency Improvements (AEEI) and backstop technology are often used to indicate exogenous technology changes. In the Computable general equilibrium (CGE) models, the exogenous parameter AEEI is often set at 0.75–1% (Wang et al., 2008). This Chapter suggests an AEEI value of 0.75% to reflect the advancements in energy efficiency and emission technologies over time. In summary, the total annual discount rate shall be the sum of the annual average discount rates of natural, legal, and technological considerations, which are 0.7%, 0.05%, and 0.75%, respectively, and their sum is 1.5%. The IEA’s estimates of AEEI during 1973–1990 is 2.0%, and that for 1990–2005 is 0.8%. The proposed annual discount rate of 1.5% is within the range of the IEA estimates.

2.3 How Should the Historical Emission Responsibilities Be Discounted? If the above discount rate is used to discount the historical emission responsibilities of developed countries, then the earlier the emissions, the smaller the funding responsibility developed countries need to take for each ton of emissions as under compounded discounting, the present value declines quickly over time. When discounting the historical funding responsibilities, one methodology is to discount the historical emissions of CO2 directly. The other methodology is to discount the carbon price while keeping the original value of historical emissions the original value. The results of the two methodologies are the same. This Chapter allows for developed countries to allocate their total carbon budget to different years

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without discounting. However, they still need to purchase a carbon budget to offset their historical deficit and meet their future basic emission needs. The total emission budget for Annex I countries during the budgeting period (1900–2050) is 467 GtCO2 (see Table 4). If the total budget is allocated evenly for each year, then the budget they had during 1900–2010, Phase I of the budget period, is 343 GtCO2 , which means their remaining budget for the rest of the budget period (2011– 2050) (Phase II) is 124.5 GtCO2 . Under the assumption that developed countries are allowed to allocate their total emissions over different years in the budget period, they had already depleted their carbon emission budget for Phase II. Developed countries need to buy the corresponding carbon budget from developing countries (i.e., 124 GtCO2 ) to secure their citizens’ minimum carbon emission needs (e.g., 2.4 tCO2 /person per year) during Phase II. As the emission budget is for future emissions, it is unnecessary to discount them. If a carbon price of 20 US$/tCO2 is assumed, then the price of the carbon budget is 2.48 trillion US$. Therefore, when discussing the funding responsibilities of developed countries, the costs of the above carbon budget shall be considered. After discounting the actual historical emissions, Annex I countries’ historical emission responsibilities would be 62% of the original amount. The funding responsibility corresponding to the historical emissions is only 19% of the original amount. Even the sum of the past funding responsibility and the costs of future budget purchase to satisfy their basic emission needs is only 37.6% of the amount before discount. For instance, assuming a carbon price of 20 US$/tCO2 , before discounting the total funding responsibility of Annex I countries is 10.73 trillion US$, which means that they need to pay an average amount of 268 billion USD per year from 2011 to 2050. After discounting (based on a compounded annual interest rate of 1.5%), the total funding responsibility declines to 4.04 trillion US$, and the annual average liability is only 101 billion US$ from 2011 to 2050 (see Table 5). Table 5 Funding responsibilities of Annex I countries under the carbon budget proposal by CASS Annex I countries

1900–2050 total carbon budget (GtCO2)

1900–2010 Historical 2011–2050 Funding actual deficit * future responsibilities emissions (GtCO2) basic (bn. US$) (GtCO2) emission needs (GtCO2)

Annual payment during 2011–2050 (bn US$)

Without discounting

467.15

879.64

268

With discounting

467.15

545.20

Difference: With – discounting/without discounting

62.0%

412.49

123.75

10,725

78.05

123.75

4036

101

18.9%

–

37.6%

37.6%

Note (1)* “Historical deficit” = total carbon budget for the budget period (1900–2050)—actual emissions (1900–2010), i.e., developed countries are allowed to determine inter-year adjustment and use of their budget. (2) Funding responsibility = carbon price * (historical deficit + future basic emission needs)

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The discounting can dramatically reduce the funding responsibilities of Annex I countries for their historical emissions. Under the Copenhagen Accords and the Cancun Agreements, the Green Climate Fund has been established. In those documents, developed countries pledged to provide 30 billion US$ of kickstart funding to developing countries during 2010–2012 and 100 billion US$ of climate change funding a year from 2013 to 2020 to help developing countries respond to climate change. The previous calculations indicate that based on the discounted emission responsibilities (including both the budget deficit of historical emissions and future basic emission needs), developed countries’ funding responsibilities are 101 billion US$ per year, very close to the amount indicated in the above international agreements. The similarity in amount indicates that the Carbon Budget Proposal by CASS is realistic. Scholars from different countries have proposed different international climate change funding mechanisms. These mechanisms are based on either countries’ GDP levels or their total emissions. Most of them depend on one key criterion. Therefore, they are partial and lack of theoretical basis. In contrast to them, the Carbon Budget Proposal provides a solid basis for establishing an international climate financing mechanism and scientific allocation method for the funding sources. The discounting of developed countries’ historical emissions makes the approach more politically feasible. The discounting adjustments to the historical deficit and surplus can reflect the effects of technological progress over time. They reduce the historical emission liability and funding responsibility of Annex I countries; the low-carbon technology advancement can be accelerated and widely applied in economic development. Under the Carbon Budget Approach, the financing mechanism can provide a major, stable, and reliable financing source for future climate actions.

2.4 Influences on China and Strategy Recommendations for China The statistics on different countries’ various GHG emissions from 1990 to 2010 indicate that in those two decades, China’s emissions of CO2 from fossil fuel combustion had been increasing, while its emissions of methane, N2 O, and F-gases had been growing slowly. Whether non-CO2 GHGs are included or not in historical emission responsibility calculation, the target year of China’s carbon neutral commitment in its Nationally Determined Contributions (NDC) should be later than those of developed countries, but earlier than many other developing countries. Another question is whether the GHG emission sources should include Land Use, Land Use Change, and Forestry (LULUCF). Emission data from the WRI database indicates that inclusion or exclusion of the LULUCF emissions only has major impacts on a few countries with high forestry coverage, such as Brazil, Indonesia, and some countries in Africa, South America, and Southeast Asia. The impacts on China are insignificant.

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As Friman and Linner (2008) have pointed out, the core issue regarding historical emission responsibility is how to include historical emission responsibility in the future international climate regime to reflect justice, while the calculation methods are only a secondary issue question. China should advocate equitable access to emission rights and sustainable development. It should use the ethical and justice basis of the Carbon Budget Proposal and basket of solutions of the Carbon Budget Proposal to continuously promote the topic of climate justice and countries’ basic rights for sustainable development. On the other hand, China can consider accepting some reasonable discounting on the historical emissions to reduce the historical emission liabilities and financing responsibilities of developed countries. Such effects can properly reflect the “spill-over effects” of technological progress in historical emission accounting to win developed countries’ support.

References Archer, D. (2005). The fate of fossil fuel of CO2 in geologic time. Journal of Geophysical Research, 110(2005), 1–6. Archer, D., Eby, M., Brovkin, V., et al. (2009). Atmospheric lifetime of fossil fuel carbon dioxide. Annual Review of Earth and Planetary Sciences, 37(1), 117–134. Busch, J. (2015). Climate change and development in three charts. 18 August 2015, Center for global development, based on data from CAIT v2.0. https://www.cgdev.org/blog/climate-change-anddevelopment-three-charts. [Accessed on 10 January 2020]. Ding, Z., Duan X., Ge, Q. et al. (2009). Control of 2050 CO2 concentrations in the atmosphere: A quantification of national emission rights. ZHONGGUO KEXUE Volume D. - DIQIU KEXUE (Sciences in China - Volume D: Earth Sciences), 2009(8), 1009–1027. Friman, M., & Linner, B. (2008). Technology obscuring equity: Historical responsibility in UNFCCC negotiations. Climate Policy, 8(4), 339–354. Höhne, N., Blum, H., Fuglestvedt, J., et al. (2011). Contributions of individual countries’ emissions to climate change and their uncertainty. Climatic Change, 2001(106), 359–391. Hu, G., Luo, Y., & Liu, H. (2009). Contributions of accumulative per capita emissions to global climate change. Advance in Climate Change Research, 5(2009), 30–33. IPCC (2007). Climate change 2007: The physical science basis—Contribution of working group I to the fouth assessment report of the intergovernmental panel on climate change, (p. 1007). Cambridge University Press. IPCC. (2013). In T.F. Stocker, D. Qin, G.-K. Plattner, M. Tignor, S.K. Allen, J. Boschung, A. Nauels, Y. Xia, V. Bex & P.M. Midgley (Eds.), Climate change 2013: The physical science basis. Contribution of working group I to the fifth assessment report of the intergovernmental panel on climate change, (p. 1535). Cambridge University Press. Kanitkar, T., Jayaraman, T., D’Souza, M., & Purkayastha, P. (2013). Carbon budgets for climate change mitigation—A GAMS-based emissions model. Current Science, 104(9), 1200–1206. Liu, C., Pan, J., Chen, Y., He, W., & Dai, L. (2014). A technical analysis of the historical emission responsibilities. ZHONGGUO RENKOU—ZIYUAN YU HUANJING (China Population, Resources and Environment), 24(4), 11–18. Pan, J., & Chen, Y. (2009). Carbon budget proposal: A just and sustainable framework for international climate regime. ZHONGGUO SHEHUI KEXUE (social Sciences in China), 2009(5), 83–98. Rahmstorfer, S., Schlacke, S., Schmid, J., et al. (2009). Solving the climate dilemma: The budget approach (Special Report 2009). Berlin: WBGU. ISBN 978-3-936191-27-1.

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Research Team of the Development Research Centre of the State Council. (2009). Global greenhouse gas emission reduction: Theoretical framework and solutions. JINGJI YANJIU (economic Review Journal), 2009(3), 4–13. UNFCCC (1997). Paper no. 1: Proposed elements of a protocol to the United Nations Framework Convention of Climate Change [EB/OL], (p. 58). Bonn: 1997[FCCC/AGBM/1997/Misc.1/Add.3 GE.97]. Wang, K., Wang, C., & Chen, J. (2008). The simulation of technological change and the application in climate policy models. China Population, Resources and Environment, (ZHONGGUO RENKOUZIYUAN YU HUANJING), 2008(3), 31–37. Wei, T., Dong, W., Yan, Q., et al. (2016). Developed and developing world contributions to climate system change based on carbon dioxide, methane and nitrous oxide emissions. Advanced Atmosphere Science, 33, 632–643. https://doi.org/10.1007/s00376-015-5141-4

Chapter 11

A Carbon Budget Approach to Net Zero Emissions

Under the Kyoto Protocol, developed countries’ mitigation obligations were reached through negotiations and based on their emission levels in 1990.1 Yet, the US, Australia, some other developed countries refused to fulfill their mitigation commitments under the Kyoto Protocol; the emissions of developing countries, especially China and India, had been growing quickly. The international community gave up the Kyoto Protocol approach after years of negotiations. The Paris Agreement, which was reached in 2015 and entered into force in 2016, specified the global climate target of limiting global warming well below 2 °C and striving to the possibility of a 1.5 °C limit. It also specified that by the mid of the twenty-first century, the global emission should reach zero. The Paris Agreement is based on bottom-up “Nationally Determined Contributions” (NDCs). Some developed countries have committed to achieving carbon neutrality by 2050, and such examples have positive influences on the actions of other countries. China has committed to achieving climate neutrality by 2060. Only a small number of developing countries still call to protect developing countries’ rights and interests and global climate justice. The world needs a just, efficient, and implementable global carbon budget framework.

1 The Kyoto Protocol stipulates that under special circumstances, a small number of countries are allowed to select a base year other than 1990. The mitigation targets of the main Parties under the Kyoto Protocol are: EU 8%, Japan 6%, and the US 7%. EU’s overall target was then further divided among its member states through internal negotiation. For instance, the target for the UK was set as 12.5%, and that of Germany, 21.7%. In 2001, the US government announced the country’s withdrawal from the Kyoto Protocol. Hence the Kyoto Protocol became no longer legally binding for the US. For the detailed info on the text of the Kyoto Protocol, see https://unfccc.int/kyoto_pro tocol.

Sections 1–5 of this Chapter are based on the following published paper: Pan and Chen (2009). © China Social Sciences Press 2022 J. Pan, Climate Change Economics, https://doi.org/10.1007/978-981-19-0221-5_11

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1 Basic Concept and Equity Implications of the Carbon Budget Proposal From the perspective of economics, the atmosphere is a public good, and its consumption is non-exclusive and non-competitive. In the absence of effective governance, the “Tragedy of Commons” may occur, leading to irreversible impacts on the global environment. GHG emissions mainly come from human activities, especially the combustion of a huge quantity of fossil fuels. When the global energy system is still mainly based on fossil fuels, GHG emissions are an inevitable “by-product” of human social development. The atmosphere’s limited environmental capacity of receiving GHG emissions becomes a scarce resource in the global effort to achieve the target limiting global warming to below 2 °C. The GHG emission rights are essentially different from the ownership (for example, to land) in economics. This is primarily due to the homogeneity of the atmosphere—once the GHG emissions enter the atmosphere, the GHG concentration will be even across the globe, and the impacts will be global. In contrast, land resources can be of different quality and locations, hence of different returns and rent levels. Moreover, land resources rarely involve sovereign disputes and are not related to the international allocation of development rights. The sovereign rights to GHG emissions are unclear, and it is impossible to trade the rights. Hence, the international community needs to reach an international climate regime through negotiations to facilitate the rational utilization of the limited GHG emission rights and maximize global welfare. Researchers (Baer et al., 2008) from the Stockholm Environment Institute (SEI) developed the framework of Greenhouse Development Rights (GDR), which believes that only rich people have both the obligations and capacity for GHG mitigation and calls for the establishment of a development threshold to protect the development needs of people below the development threshold. The GDP framework allocates the global mitigation needs to keep global temperature rise at or below 2 °C based on two criteria: the total capacity of the population above the development threshold (GDP based on purchase power parity) and total responsibilities (accumulated historical emissions). However, this framework only considers the historical responsibilities of different countries and neglects their future emission needs. Moreover, there are controversies regarding the development threshold assumption, the calculation methods of accumulated historical emissions, and the sources of statistics for the calculation. The Carbon Budget Proposal is based on human development theories (Sen and Anand, 1997). Its starting points are the limits of basic human needs and the limit of the earth‘s supporting capacity. It highlights that the international climate regime should prioritize the satisfaction of people‘s basic needs and curtail luxury and wasteful consumption. At the same time, it meets the dural targets of a just and fair sharing of mitigation obligations and protection of the global climate system. The Carbon Budget Proposal bases on the globally accepted justice concepts and points out the justice principle should cover the following aspects.

1 Basic Concept and Equity Implications …

181

First, the original meaning of justice is justice among different people, which is in line with the methodology of per capita emissions. Although the international climate regime is based on the political unit of sovereign countries and reached through international negotiation, yet in ethics, justice is not about protecting the “international justice” among different countries, but the “inter-person justice” among different people. All personal consumptions of clothing, food, housing, transport, and utilities entail energy consumption; public consumption, which is necessary for the normal functioning of societies, also needs to consume energy. When the world still bases its energy system on fossil fuels, GHG emission rights will be an essential component of the basic human rights for survival and development. Second, the essence of promoting inter-person justice is protecting the current generation’s rights and making sure every person has fair access to the global public resource of GHG emission rights. The root cause of GHG emissions is personal consumption needs. Lots of evidence has proved that population control policies are of great significance to climate change mitigation (Jiang & Hardee, 2009). Hence, the GHG emission right allocation should be based on the population of a selected base year. The current generation determines the future population size. When the GHG emission rights are allocated according to the population size of the current generation, countries won’t get additional emission rights allocation for their population increase. Instead, they must meet the population’s basic needs by “diluting” the per capita emission rights of their current population. Meanwhile, countries’ allocated emission rights will not be reduced if their population declines in the future, which means higher future per capita emission rights and the “population dividends” in GHG emission rights allocation. Such a regime may seem unfair to future generations. However, carbon emissions are due to personal consumption needs, and a good climate regime should not encourage countries to get more emission rights through population increase. Moreover, latecomer advantages exist due to technology spill-over effects; future generations’ carbon emissions for the same consumption will be lower than the current generation because of technological progress. Therefore, it is just and fair to use the current population size as the basis for carbon emission right allocation. Of course, the emission right is a type of human right; when people immigrate or emigrate, their emission rights shall go with them. Third, to improve inter-person justice and equity, the key is not equal flow (annual emissions) but equal stock that covers historical, current, and future emissions. The justice and equity can be assessed using the total accumulated emissions between the starting year (for instance, 1900) and a future end year (e.g., 2050). A country’s GHG emissions rapidly increase as it progresses in industrialization, urbanization, and modernization. The completion of industrialization and urbanization indicates the availability of urban infrastructure facilities, residential buildings, and regional transport and water resource infrastructure facilities. Once these buildings and infrastructure facilities are in place, further increase the stock becomes unnecessary; countries only need to maintain and renew the stock. Developing countries start their industrialization process late; therefore, their historical emissions and social wealth accumulation are both low. In addition, their current generation faces the challenges

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of low development levels and wide gaps in basic needs satisfaction. Hence, their future emission needs in the industrialization process are high. As a country’s historical emissions negatively correlate with their future emission needs, the equality based on the sum of historical, current, and future emissions is more appropriate than accepting the inequality of historical emissions and only focusing on the equal allocation of the remaining emissions space. Finally, promoting inter-person justice and equity need to reflect the specific conditions in different countries, and consider the influences of various natural factors on their future emission needs and adjust the emission budgets for different countries accordingly. The natural factors include the climate and geographic conditions and resource endowment.

2 Total Carbon Budget and Their Initial Allocation How can the world realize both the global sustainable target of climate change mitigation and the development target of satisfying each person’s basic needs? There are generally two approaches to this problem. One is the “bottom-up” approach. This approach needs first to define people’s basic needs and standards and adjust the basic needs based on each country’s specific conditions. Then it assesses the carbon emission needs for satisfying the basic needs in different countries under certain socioeconomic and technical conditions. Then it adds up national results and gets the global total emission quantity estimation. The next step is to check whether the global emissions are below the threshold of realizing the global long-term climate targets. If not, it is necessary to go back and adjust the basic needs definition and standards, and the process goes on until the global climate target can be met. The other approach is “top-down,” which starts from fixing the global long-term climate target and then calculating the available carbon budget for achieving the global long-term climate target. The next step is fairly allocating the global carbon budget among different countries and adjusting the allocation based on each country’s specific conditions. Each country then formulates its policies for satisfying its population’s basic needs and climate change mitigation under the carbon budget constraint. It needs to regularly review whether its emissions are within its carbon budget allocation; if not, it needs to adjust its mitigation policies. The process goes on until they can live within their carbon budget allocation. The focus of the “bottom-up” approach satisfies people’s basic needs; the calculation process is long and complicated, and many technical details are controversial. In contrast, the “top-down” approach prioritizes the realization of the global longterm climate target, and the calculation and budget allocation process are simple and straightforward. The Carbon Budget Proposal combines the “bottom-up” approach and the “top-down” one and allocates the carbon budget based on the established global mitigation targets. Then it adjusts the carbon budget allocation and allows for cross-border transfer based on population movement and the “bottom-up” approach.

2 Total Carbon Budget and Their Initial Allocation

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Fig. 1 Global CO2 emissions from fossil fuel consumption and the future emission scenarios

Finally, it assesses the actual emission trends of different countries and how they can satisfy their residents’ basic needs under the carbon budget constraints. The determination of the total global carbon budget is a process of deepening scientific understanding and reaching a consensus on political will. To simplify the climate regime framework, we set the carbon emission budget to meet the GHG concentration target in the atmosphere of 450 ppm.2 After the IPCC (2018) published its Special Report on limiting the global temperature rise to below 1.5 °C, some developed countries, such as Finland, Norway, and Denmark, have committed to achieving net-zero emissions by 2050. Given the actual development needs of most developing countries, it is impossible to reduce global carbon emissions to zero. The global carbon budget and its allocation can be based on the global target of limiting temperature rise to 2 °C, the recommendation of at least halving the global annual GHG emissions by 2050 in the IPCC Fourth Assessment Reports published in 2007, as well as the per capita emission contraction and convergence target of 2-ton carbon by 2050 proposed by the Stern Review. In July 2008, the G8 Summit pledged the group’s acceptance of the long-term targets of at least halving the global emissions by 2050 and the target of converging the global per capita average emission in 2050 to 2 °C. This Chapter applies scenario-based analysis and takes 2005 as the base year for the assessment and 2050 as the end year for the assessment period. We design two emission pathways that can meet the global mitigation targets, which are also called scenarios. Scenario A assumes that the global emissions will peak in 2015; the peak is around 10% higher than the 2005 emission level. Scenario B assumes that the global emissions will peak in 2025, and the peak emissions will be 20% higher than the 2005 level (see Fig. 1). 2

ppm is parts-per-million, a volume-based concentration unit. In future global emission scenario designing, the global long-term targets can be given in different forms. For instance, the Kyoto Protocol aimed at stabilizing the GHG concentration in the atmosphere at 450 ppm; the EU called for a target of controlling global warming within 2 °C. Although there are some causal relations between emissions, concentration levels, and temperature rise, they are not proportional to each other due to some uncertainties.

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Table 1 Global carbon budget (unit: GtCO2 ) Global carbon budget (from Y to 2050)

Accumulated historical emissions (from Y to 2004)

Starting year (Y)

Scenario A

Scenario B

1850

2311.1

2472.0

1143.5

1900

2272.5

2433.4

1104.9

1960

2019.1

2180.0

851.5

Future carbon budget (from 2005 to 2050) Scenario A

Scenario B

1167.6

1328.5

After the future global emission scenarios and the relevant emission pathways are determined, the global carbon budget accounting calculates the accumulated global emissions during the budget period.3 For simplification, the accumulated emissions are the sum of annual emissions, and the calculation results are in Table 1. Although the Industrialization Revolution started in the UK in the mid-1800s, the emissions in the early years were low, and most of the emissions have degraded. Their impacts on the current global warming are marginal. Moreover, the difference between 1850 and 1900 as the starting year for accumulated carbon emission calculation is only 1.7%. With developments in the global economy, especially as more and more countries industrialized and the industrialization process accelerates, the global annual emissions kept growing. Selecting 1960 instead of 1900 as the starting year for global accumulated emission calculation leads to a 23% decrease in global accumulated historical emissions. The difference is significant. Using 2050 as the end year and 1900 as the starting year, the duration of accumulated emission calculation is 150 years, close to the 142 years of CO2 atmosphere life. Hence, using 1900 as the starting year for historical accumulated emission accounting can reflect the major differences between developed and developing countries. The future available carbon budget under Scenario B is 14% higher than that under Scenario A. To achieve the global target of achieving a 50% emission reduction by 2050 on the 2005 level basis, the later the emission peak appears, the higher the peak emission will be, leading to higher total accumulated emissions by 2050. On the contrary, early peaking leads to lower peak emissions and less accumulated emissions by 2050. Table 1 shows that under Scenario A, the total global carbon budget for the 151 years between 1900 and 2050 is 227 trillion tCO2 . In 2005, the global population was about 6.46 billion.4 The per capita accumulated emissions were around 352.5 tCO2 , and the average per capita carbon budget for 2005–2050 is 2.33 tCO2 per year. 3

Among the existing statistical data on GHG emissions, the data on CO2 emissions from fossil fuel consumption and industrial processes are more detailed and reliable than those from emissions from LULUCF. Hence, this Chapter focuses on the CO2 emissions from fossil fuel combustion and industrial processes. All the global and national historical emission data come from CDIAC 2008.“ Global, Regional and National Fossil Fuel CO2 Emissions,” http://cdiac.ornl.gov/trends/ emis/meth_reg.htm, updated on 27 August 2008. Accessed on 2 July 2009. 4 The global and national population data come from the World Bank database, https://databank. worldbank.org/.

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Data from the International Energy Agency (IEA, 2019) suggested that in 2017, the global average emissions from fossil fuel combustion were 4.37 tCO2 . The average of Annex I countries to the UNFCCC, including former members of the USSR, which had finished the industrialization), was 9.28 tCO2 per capita. In contrast, the per capita average in developing countries (non-Annex I countries) was only 3.11 tCO2 (IEA, 2019). In 1990, the base year of the Kyoto Protocol, the global average emissions were 3.88 tCO2 per capita, the level of developed countries was 11.66 tCO2 e, while it was only 1.50 tCO2 in developing countries. From 1990 to 2017, the per capita CO2 emissions of developed countries declined by 20.4%. In contrast, the per capita emissions of developing countries jumped by 107%. Even the emissions of the US, which withdrew from the Kyoto Protocol, increased from 4803 MtCO2 in 1990 to 5703 MtCO2 in 2005, then declined to 4761 MtCO2 in 2017. From 1990 to 2017, the US’s emissions only declined 0.9%, yet its per capita emissions dropped from 19.20 tCO2 in 1990 to 14.61 tCO2 in 2017, and the decrease was 23.9% (IEA, 2019). Suppose the global target is to stabilize the GHG concentration to 450 ppm in the atmosphere. In that case, the global annual emission budget is only between 2.33 tCO2 (Scenario A, peaking in 2015) and 2.50 tCO2 (Scenario B, peaking in 2025). The global carbon budget is only enough to cover the basic needs of the 6.5 billion people under the existing technology and economic conditions and consumption patterns to protect the global climate system. From the equity perspective, under the constraint of a limited global carbon budget, each member of the global village is entitled to basic needs security. From the viewpoint of social welfare maximization, the marginal welfare improvement from the emission increase of high-income social groups declines or is even negative. In contrast, the welfare change from emission increase by low-income social groups is positive, even progressive (Pan, 2008a, 2008b). The global carbon budget is insufficient to meet the needs of 6.5 billion people on earth under the existing technological and economic conditions and consumption patterns; there is hardly any space for wasteful and luxury use of the carbon budget. In such a background, justice in ethics and social welfare maximization all require the equal distribution of the global carbon budget among all people on earth. Therefore, the initial allocation of the global carbon budget should be based on the equal per capita distribution approach. As the population sizes of different countries vary greatly, a country’s initial carbon budget allocation depends on its share in the global population in the base year. To illustrate the carbon budget allocation and adjustments among different countries, we categorize the countries based on the main country groups in climate negotiations and select some typical countries for in-depth analysis. Among the Annex I countries, we choose the EU, especially France, Germany, Italy, the UK, Canada, Japan, Russia, the US, and Australia.5 Among the non-Annex I countries, we choose such big emerging economies as Brazil, China, India, and a few countries with high industrialization 5

Annex I countries consist of 39 developed countries and Economies in Transition. Economies in Transition are Eastern European countries that were former Soviet Union members.

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Fig. 2 Original carbon budget allocations of different countries

levels, including the Republic of Korea, Mexico, and South Africa.6 Each country’s initial carbon budget allocation is given in Fig. 2. Due to their huge population, China and India get the biggest initial carbon budget allocations; in contrast, countries with an advanced economy but a small population, such as Canada and Australia, receive small initial carbon budget allocations.

3 The Adjustment and Transfer of Carbon Budget In principle, people’s needs for carbon emissions originate in their needs for energy consumption. In the international climate negotiations and global climate regime designing, the national circumstances of different countries must be considered.7 The initial carbon budget allocation is completely based on the per capita average and does not consider the national circumstances of different countries. A country’s national circumstances include its natural conditions and socioeconomic situations. The natural conditions cover such aspects as climate, geography, and energy resource endowment. The core of socioeconomic situations is the balance of carbon budget demand and supply. Specifically, as a biological individual, a human being needs a comfortable external temperature range. External temperatures above or lower the comfort range can have negative impacts on socioeconomic functions and even life. Obviously, when living in extremely high or low temperatures, the carbon emissions from maintaining a comfortable temperature range belong to basic needs satisfaction. 6

Non-Annex I countries are all countries not included in Annex I and sometimes referred to as “developing countries”. 7 Both the UNFCCC and the Kyoto Protocol contain specific articles stressing special national circumstances.

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Similarly, people living in sparsely populated regions have much higher carbon emissions for meeting their basic transport needs than those living in densely populated areas. Moreover, a country’s energy resource can be mainly carbon-intensive coal, cleaner petroleum, and natural gas, zero-carbon nuclear, hydropower, wind, solar energy, or carbon–neutral biomass.8 To get the same amount of energy services, the carbon emissions from different energy resources vary a lot. Therefore, adjusting countries’ initial carbon budget allocation is necessary based on the main emission driving factors and relevant technical parameters. The analysis results indicate that natural conditions’ influences on the carbon budget allocation of different countries are moderate. The big gaps between countries’ actual carbon emission needs and their initial carbon budget allocation need to be bridged through transfer payment to maintain the balance of global and national carbon budgets.

3.1 Initial Carbon Budget Adjustments Based on Natural Conditions (1)

Climate

Climate mainly affects a country’s building energy consumption and carbon emissions. In developed countries and mature economies, the building sector contributes around one-third of the national final energy consumption. About half of the building energy consumption is for space heating and cooling. Hence, 1/6 of the global carbon budget is set aside to accommodate the emission needs due to climate factors. The indicators measuring a country’s natural climate conditions and population distribution are its population-weighted Heating Degree Days and Cooling Degree Days.9 Adjustments based on these indicators lead to higher carbon budget allocation for countries with a cold climate, such as Russia and Canada, and for countries with a hot climate, including India and Indonesia. In contrast, countries with a mild climate, for instance, South Africa, Australia, Mexico, Brazil, see their carbon budget slightly decrease. The adjustments to the national initial carbon budget based on climate factors are in the range of – 10 to + 14%.

8

Carbon neutral means that the CO2 fixed by plants through photosynthesis is again released into the atmosphere through combustion or decay. In a balanced state, the CO2 absorbed in the form of biomass is equal to the CO2 emissions during combustion and decay. 9 The calculation of Heating degree days (HDD) and cooling degree days (CDD): 18 °C is used as the reference temperature, the difference between the average daily temperature is accumulated on a yearly basis, then the result is weighted with population. The HDD and CDD reflect climate conditions and population distribution. Regions with extreme climate conditions, due to their low population density, have limited influences on the regional or national HDD and CDD. Data of HDD and CDD comes from the World Resources Institute. WRI, “Carbon Analysis Indicators Tool (CAIT),” http://cait.wri.org/.

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(2)

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Geography factors

Geography factors primarily affect a country’s transport energy consumption and carbon emissions. In developed countries with mature economies, the transport sector contributes around one-third of the national final energy consumption. A country’s per capita distance of passenger travel and freight transport distance depends on the density of population distribution. Therefore, around one-third of the global carbon budget can be allocated to cover the transport needs, and countries’ allocations can be adjusted based on their geography factors. A key indicator measuring population distribution is the size of national land territories subject o human activities.10 The adjustments based on this indicator lead to big increases in the carbon budget allocations to countries with vast territory and low population density, such as Australia, Canada, and Russia. Meanwhile, countries with high population density, such as the Republic of Korea, Japan, and India, see some decreases in their carbon budget allocation. The range of adjustments is – 14 to + 62%. (3)

Energy resource endowment

A country’s resource endowment, especially its energy resource endowment, influences its energy consumption mix. Developed countries, with their strong economic strength, can be insulated from the constraints of resource endowment. For instance, Japan is a country with a low resource endowment, and its petroleum consumption almost entirely depends on imports. Yet, the energy mixes of developing countries often depend on their domestic energy resource endowment. Countries with sufficient coal reserves or relying on coal for energy supply generate more carbon emissions to meet the same energy service demand. Therefore, allocating more carbon budget to the countries with carbon-intensive energy resource endowment and consumption mixes is necessary. However, such carbon budget adjustments need to be limited. Otherwise, they may discourage countries’ efforts to promote low-carbon energy or renewable energy development. Therefore, we use half of the global carbon budget to adjust countries’ initial carbon budget allocation based on the carbon intensity of their energy mix. The carbon budget allocations to countries that mainly rely on coal for energy supply, such as China, India, and South Africa, see some increases in their carbon budget allocation. Meanwhile, developed countries with low carbon intensity, including France, Canada, and Italy, and developing countries with high biomass in their energy fuel mix, like Brazil and Kenya, see some decreases in their carbon budget allocation. The adjustment range is – 40 to + 25%. In summary, as shown in Fig. 3, adjustments based on the three factors mentioned above can, to some extent, offset each other. Their combined adjustments to countries’ carbon budget allocation are in the range of – 20 to + 78%, smaller than the direct aggregation of the three ranges. Compared to the reality that developed countries’ per capita emissions are almost five times those of developing countries, the 10

The indicator is different from national territory size, as transport is human activities. National territories without human activities do not affect transport energy consumption and emission needs. The data come from the World Resources Institute. WRI, “Carbon Analysis Indicators Tool (CAIT),” http://cait.wri.org/.

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Fig. 3 Overall adjustments to countries’ initial carbon budget allocation based on natural conditions

adjustments lead to much smaller gaps among different countries. In their feedback to this carbon budget proposal, scholars from Harvard University and the Australia National University pointed that the adjustments based on natural factors have low empirical implications. Yet, they can cause many controversies because of three reasons. First, people can adapt to the natural conditions after some time, making them need no or less extra emissions. For example, people can adapt to their local climate, and those living in tropical areas can tolerate hot weather. Second, it will be difficult for countries to agree on the influencing factors for the adjustment and the adjustment levels. Third, in the age of economic globalization, international trade can at least partially eliminate the unfavorable impacts of natural resource endowment.11

3.2 Carbon Budget Transfer and Payment Based on Actual Needs The global GHG emissions must be controlled within the global carbon budget to protect the global climate system and stabilize the GHG concentration in the atmosphere. How can the world ensure that countries’ actual emissions and future emission needs stay within their initial carbon budget allocation or adjusted carbon budget allocation? The global carbon budget balance will be automatically achieved if all countries can balance their carbon budget. If some countries incur carbon budget 11

On 10 November 2008, the author presented the paper at a seminar organized at the Harvard Kennedy School and had in-depth discussions on issues related to the Proposal. On 15 April 2009, Jiahua Pan made a presentation at the Sino-Australian Climate Forum, which also attracted lots of feedback from the participants.

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deficits, they must cover the deficit with a carbon budget surplus from other countries to balance their national carbon budget. This implies the necessity of international carbon budget transfer and payment. The above calculation results indicate that under the target of lowering the 2050 global emissions to 50% of the 2005 level and Scenario A, the carbon budget is 2.33 tCO2 per capita per year. Historical and current emission data suggest that the actual emissions of many countries, especially developed ones, are several times their carbon budget. At the same time, some other countries, mainly developing ones, emit much less CO2 than their shares of carbon budget both historically and currently. Developed countries have a high carbon budget deficit both in the past and currently. Meanwhile, developing countries tend to emit less than their carbon budget both before and currently due to their late and slow industrialization. For instance, in 1971, India’s per capita emission was only 0.32 tCO2 , and even in 2017, it was 1.61 tCO2 , meaning India had a carbon budget surplus of 45% per capita in 2017. In 1971, Bangladesh’s per capita emissions were only 0.04 tCO2 per year, and in 2017, it increased to 0.48 tCO2 per capita. In other words, Bangladesh’s one year of carbon budget can cover five years of its actual emissions. China’s per capita emission was 0.93 tCO2 in 1971, indicating a carbon budget surplus of 60%. By 2000, its per capita emission had reached 2.46 tCO2 , close to its annual carbon budget. By 2017, China’s per capita emission had reached 6.68 tCO2 , with a carbon budget deficit of 185% in the year (IEA, 2019) (see Table 2). The above comparison is between countries’ historical carbon emissions and their annual carbon budget. What about their future emissions? The historical carbon deficits of most developed countries will inevitably lead to the early depletion of their carbon budget. For instance, the US’s accumulated historical emissions are already 2.6 times the country’s total carbon budget till 2050; in the UK, the rate is 2.9 times. Developing countries’ carbon budget use will vary a lot. China’s industrialization has reached a high level. China’s per capita emissions will see further increases amid its continual industrialization and urbanization and the living standard improvement of its 1.3 billion people. The country will soon face a carbon budget deficit. The Republic of Korea and Singapore, two newly industrialized countries in Asia, had an annual per capita emission of 11.66 tCO2 and 8.45 tCO2 , respectively, in 2017 (IEA, Table 2 Per capita CO2 emissions of countries, 1971 versus 2017

United States Japan Luxemburg

1971 (tCO2 )

2017 (tCO2 )

20.65

14.61

7.15

8.94

48.16

14.46

India

0.32

1.61

Bangladesh

0.04

0.48

P. R. China

0.93

6.68

Source IEA (2019)

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2019). The countries whose industrialization is in the initial stage or yet to start are bound to have an enormous carbon budget deficit in the years to come. The international transfer of the carbon budget should be based on payment. First, developed countries must pay for their historical debt of carbon budget deficit; otherwise, it would be challenging to balance the global carbon budget. Second, developed countries have already depleted their carbon budget. Some developed countries, like the US and the UK, have no carbon budget left. Yet the previous analysis based on ethics and economic principles, the global carbon budget must cover people’s basic needs in those countries. Therefore, developed countries must pay for the international transfer of carbon budgets. Some developing countries with high industrialization levels may also need to make transfer payments to cover their future carbon budget deficit. Yet whether they are allowed to tap into their historical carbon budget surplus or buy carbon budget from other countries, a case-by-case analysis is necessary. As the global total carbon budget is given, the feasibility of international or interperiod carbon budget transfer and payment depends on the availability of carbon budget surplus. Many least developed countries have enormous historical and future carbon budget surplus due to their low industrialization levels, limited commercial energy consumption, and uncertainties in future industrialization. Even these countries start the industrialization process at certain in the future. Moreover, their industrialization may be less carbon-intensive than the ongoing or past industrialization processes because of technology spillover effects and newcomer advantages. The developing countries that are already of high industrialization level are most likely to have no carbon budget surplus or even have a carbon budget deficit in the future. Yet, they have some historical carbon budget surplus and may use it. For example, although since 2000, the Republic of Korea’s per capita emissions have been more than 9 tCO2 per year, in 1971, the per capita annual emissions were only 1.58 tCO2 . Countries of similar situations can use the inter-period transfer of the carbon budget to cover their current and future emissions. The developed countries that led the industrialization process may see their carbon budget depleted long ago. However, they have capital and technology advantages and may achieve low-carbon or zero-emission development. Moreover, due to their future “dividends” of population decrease,12 they may not necessarily have a carbon budget deficit in the future. Nevertheless, the above analysis indicates the feasibility of international and interperiod carbon budget transfer because of the overall carbon budget surplus from least developed countries, the high historical carbon budget surplus of developing countries with high industrialization levels, and developed countries’ population decrease “dividends” and zero-carbon technology options. The transfer of the carbon budget is not only necessary but also feasible. As international climate negotiation and the sharing of international obligations are based on nations, this Chapter will focus on the international transfer of carbon budget instead of the inter-period transfer of the same country’s carbon budget. The 12

The carbon budget allocation is based on the population in the base year, 2005. If a country’s population declines, then its future per capita emission quota will increase; otherwise, it will decline.

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international transfer includes two aspects: developed countries’ historical carbon budget deficits and how to cover developed countries’ emissions associated with their citizens’ basic needs. What are the sizes of these two types of carbon budget transfer? Developed countries’ historical carbon deficit is around 310 GtCO2 . Securing the satisfaction of the basic needs of all people in developed countries requires about 145.6 GtCO2 of the carbon budget between 2005 and 2050. That means the total carbon budget transfer needs is around 455.6 GtCO2 , equivalent to about 0.58 tCO2 of per capita emissions from all developing countries from 2005 to 2050, and equivalent to around one-fourth of their total carbon budget. After the two rounds of carbon budget transfer, the carbon budget for developed countries becomes much higher (see Fig. 4). The carbon budget of the US increases from 117.2 to 341.1 GtCO2 and is almost tripled, while the EU’s carbon budget is nearly doubled, from 166.6 to 320.7 GtCO2 . On per capita annual accumulated emission basis, developed countries’ carbon budget is much higher than the global average. It deviates from the carbon budget allocation principle of each access for all people. As shown in Fig. 5, the average global carbon budget is 2.33 tCO2 per year, while the level for the US is 7.7 tCO2 , and that of the EU is 7.2 tCO2 . The carbon budget allocation can be assessed from the allocation for the Annex I and non-Annex I countries. The former consists of 39 developed countries and Economies in Transition, while the latter are developing countries. The initial allocation of carbon budget to the two country groups is 19.5:80.5; after adjustments based on natural factors, the ratio changes to 21.0:79.0. After two rounds of massive carbon budget transfer from developing countries to developed countries to cover the latters’ historical deficit and future carbon budget for basic needs satisfaction, the ratio changes further to 40.5:59.5, implying a dramatic change in the actual utilization of carbon budgets and GHG emission rights. It is worth noting that developed countries’ actual emissions may be even higher than the above ratio, as developed countries’ emissions are much higher than the levels for basic needs satisfaction and will remain some for decades. Moreover, to avoid carbon budget constraints on their

Fig. 4 Accumulated carbon budgets after adjustments based on natural factors and transfer

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Fig. 5 Accumulated per capita carbon budget after adjustments and transfer

existing development levels, developed countries may opt to buy carbon budgets from the international market.

4 Does the Carbon Budget Proposal Favor Specific Countries? The Carbon Budget Proposal has the dual advantages of equity and sustainability, and it seems to be favorable to populous developing countries. Of course, the Proposal aims to protect the fundamental GHG emission and development rights of developing country citizens, a disadvantaged group in global climate change governance. Moreover, as latecomers, developing countries do not need to repeat the low-energy efficiency. The advantages of high starting points, high efficiency, and low emissions can enable developing countries, especially least developed countries, to have a high carbon budget surplus both historically and in the future. Hence, the governance system design based on the Carbon Budget Proposal protects the interests of disadvantaged groups of the international society (Rawls, 1988) in line with developing countries’ interests. Especially the scheme of carbon budget transfer and payment, the finance and technological support that such a scheme may bring to developing countries will undoubtedly benefit developing countries’ low-carbon development. Hence, when the author presented the Carbon Budget Proposal at international events, the first reaction of western scholars was that the Proposal aims to and orients toward protecting China’s interests.13 However, slight analysis can reveal that the 13

For instance, Bert Metz, former co-chair of the IPCC Working Group III, once stated that this was a strategy of developing countries with a huge population, but after he had a full understanding of the situation, he accepted the Proposal in principle.

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above first impression is superficial and biased. The Carbon Budget Proposal has a solid theoretical basis, and its methodology is scientific. The Proposal applies to every person and every country on earth; it is not designed for a specific country. Of course, any proposal has specific implications when it is applied to a certain person or country. The Proposal systematically assesses the historical responsibilities of developed countries and calls for protecting the fundamental rights of developing countries. It aims to secure all people’s inherent and basic needs for carbon emission, including the rich people from developed countries. Moreover, the payment for carbon budget transfer can be linked to the financing and technology returns. In this way, it is a win–win solution for sustainable development and economic returns. Specifically, what are the Proposal’s implications for China? First, we examine the population implications. China has a large population and hence a big national carbon budget. Yet as the carbon budget for every person is the same, China does not have any advantage in per capita carbon budget allocation. China started to implement a family planning policy in the late 1970s, which has avoided the birth of 400 million people. Yet, the effects of such a policy are not considered in carbon budget allocation. Using the 2005 population as the basis for carbon budget allocation is a practical choice. It was not chosen because China’s population peaked in the year. The United Nations’ population projection indicates that China’s population will continue growing and peak at about 1.45 billion around 2025. Population increases after 2025 will not lead to additional carbon budget allocation. In this sense, developing countries’ population is still growing rapidly, and their future population will be higher than the current level. However, their carbon budget allocation will remain the same. Therefore, selecting 2005 as the base year for carbon budget allocation is unfavorable for developing countries, including China. Developed countries’ population is stable or decreases slightly. It is projected that European countries and Japan will see decreases in their population in the decades to come. The Carbon Budget Proposal won’t reduce the carbon budget allocation to these countries because their population decreases. From this perspective, the Proposal is more favorable to developed economies. Of course, the US, Canada, Australia, and Russia have vast territories and abundant resources but are of low population density. Their domestic population growth rates are similar to those of Europe and Japan, yet immigration leads to some population growth in these countries. As the carbon budget proposal allows for the international transfer of the carbon budget because of population migration, the negative impacts of these countries’ net inflow of migrants can be eliminated. Second, China is a latecomer in industrialization. China’s technologies in its ongoing industrialization are more advanced than those used in the industrialization in some countries during the eighteenth and nineteenth centuries. But it should be considered that the industrialized countries, in their early phases of industrialization, obtained massive resources from backward countries through invasion, colonization, and looting. During its semi-colonial and semi-feudal phase, China was forced to cede territories and pay indemnities to western countries, indicating the western countries, in their early stages of industrialization, received huge “contributions” from developing countries. The current industrialization in China and India and the

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future industrialization in other developing countries can benefit from the technology advantages of latecomers. Yet, their accumulation of carbon stock in the process can only rely on domestic accumulation. China’s existing technologies are more carbonintensive than those of the countries whose industrialization has not started yet. The static and one-off carbon budget allocation are favorable to the countries whose industrialization will happen in the future. China’s advantages under the Carbon Budget Proposal are limited, not remarkable. Nevertheless, no country wants to be a “latecomer” in development. Based on the Carbon Budget Proposal, China’s initial carbon budget allocation is 458.8 GtCO2 . After adjustments based on natural factors, it changes to 454.2 GtCO2 . The adjustment’s impacts on China are marginal. As China was a “latecomer” in industrialization, its historical emissions were low. From 1900 to 2005, its historical emissions were only 88.7 GtCO2 , only accounting for 19.5% of its total carbon budget. As China’s industrialization started late than many countries, its historical emissions were low. From 1900 to 2005, its historical emissions were only 88.7 GtCO2 , accounting for 19.5% of its total carbon budget. Its remaining budget for 2006–2050 is 365.5 GtCO2 . In other words, it has 80.5% of its total budget to cover the 45 years, which was less than one-third of the entire budget period from 1900 to 2050. On the surface, China’s remaining carbon budget is sufficient. Yet as China’s development is gradual, even constant energy efficiency improvement and energy mix optimization won’t be enough to make it carbon neutral by 2050. As shown in Fig. 6, China’s carbon emissions will peak around 2030 at a level around 105% higher than the 2005 level, and by 2050, it is expected that China’s emissions will be 90% higher than its 2005 level. As a result, China’s future accumulated emissions will be 80.1 GtCO2 higher than its available carbon budget. The only possible way for China to keep its emissions within its carbon budget is low carbon development and international cooperation and following the development path of Scenario 2, and trying to peak its emissions in 2030 at 55% higher than the 2005 level in 2030 and

Fig. 6 China’s production-based versus consumption-based emission scenarios

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reducing its emissions to 45% above its 2005 level. China won’t have any surplus emission budget for sale. China’s 2006 emissions were already 254% of its 1990 level. To realize the target of peaking its emissions by 2030 under Scenarios 1 and 2 and the corresponding emission growth controlling targets, China faces more severe challenges than other countries. Of course, China is the “World Factory,” and some studies (Chen et al., 2008) estimate that around 30% of China’s current energy consumption and GHG emissions are due to commodity trade. If measured from the consumption side, China’s carbon emissions would be 8% lower (see Fig. 6). The mismatch between the production and consumption of energy-intensive and carbon-intensive commodities has become a regular phenomenon since the early days of the Industrial Revolution. For example, the UK was the global textile product factory during its phase of the Industrial Revolution, and a large share of its textile products was exported for other countries’ consumption. Afterward, continental Europe, North America, and Japan took turns to be the “World Factories.” China is the current “World Factory.” Within two or three decades, India or Africa may replace China and become the “World Factories.” It will be difficult to accurately calculate the trade-related embedded emissions of all past and future “World Factories” and adjust national emissions accordingly. Moreover, the role of the “World Factory” allows a country to perform mass production and enable it to improve its carbon productivity to the international level, including the production for its domestic consumption. Carbon accounting from the consumption side cannot lead to major increases in China’s carbon budgets. It can cause many controversies. Hence, the author does not highlight the emission differences in this Chapter due to foreign trade and the gaps between a country’s production and consumption-based emissions in the Carbon Budget Proposal designing. In summary, the above analysis shows that the Carbon Budget Proposal does not intend to favor any specific country or country group; instead, it tries to be independent and just. As a developing country with a huge population, China can’t gain from the Carbon Budget Proposal and avoid the enormous international pressure for emission reduction it faces. On the contrary, the carbon budget is a hard constraint and indicates that China’s only way out is pursuing low-carbon development.

5 Relevant International Mechanism Designing The Carbon Budget Proposal involves initial carbon budget allocation, adjustment, transfer, financing mechanism, reporting, verification, and compliance mechanisms. Its implementation requires a complete set of international climate governance regimes to encourage and motivate countries to keep their emissions within their carbon budgets and contribute to the long-term targets of protecting the global climate system. The Carbon Budget Proposal has a scientific theoretical, and methodological basis. It is a governance framework for global GHG emission reduction, and its detailed contents need to be elaborated through international political and diplomatic negotiations. This Chapter won’t discuss the detailed climate negotiations that the

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Carbon Budget Proposal may entail. Instead, it will discuss some key mechanisms, including the market, financing, and compliance mechanisms.

5.1 Market Mechanism The Carbon Budget Proposal is essentially a “Cap and Trade” proposal.14 Its emission caps are on three levels. Level one is at the global level and aims to protect the global climate system and set a global GHG emission cap based on scientific evidence and political consensus. Level two is at the national level; the national total carbon budget is subject to adjustments based on population, natural, and socioeconomic factors. Level three is at the individual level; it is for each person and to secure the person’s basic needs satisfaction. Once the carbon budget is allocated, in principle, the carbon budget trade and transfer at international and inter-person levels can happen. As developed countries’ per capita average emissions are more than three times their annual carbon budget, the inter-period transfer of the carbon budget can only be used to meet the basic needs. The gap can be met with market-based carbon emission transactions. Such transactions can enable developed countries to obtain additional carbon budgets at low prices to meet their current consumption needs. They can also allow developing countries to sell their carbon budget surplus and get the necessary funding and technologies for low-carbon development. The actual scale of the future international carbon market will depend on the supply and demand of carbon budgets and countries’ mitigation efforts and effects. Suppose the demand is higher than the supply. The carbon prices will rise, encouraging developing countries to intensify their mitigation actions and motivate developed countries to expand international cooperation for overseas mitigation. Carbon budget transactions can occur inside a country. The government can sell the carbon budget through auctions or allocate them for free to enterprises or consumers, who can then trade the carbon budget on the market. The existing emission trading mainly takes place among businesses. It can also take place among different consumers. As each person’s consumption level and preferences are different, some people need more carbon budget, while others need less. Hence carbon transactions among consumers are possible.

5.2 Financing Mechanism Climate change response includes mitigation and adaptation; both require financing and technologies. Particularly, developing countries need enormous finance and

14

The EU ETS and the existing emission trading proposals of the US both require a cap of total emissions and allow for emission quote transaction on the market.

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advanced technologies for their climate change adaptation and low-carbon development. However, financing has been a long-term challenge. How should the funding be raised? The Carbon Budget Proposal provides a remarkable financing mechanism. The first source is the transfer payment for the carbon budget. The carbon budget needs to be considered as a kind of asset with global supply and demand. As a scarce resource, the carbon budget has a market, and the transactions are associated with monetary payments. Of course, the historical contexts of carbon budget transfer need to be considered. It is true developed countries have some historical carbon budget deficits. However, the global efforts and legal constraints for GHG emission reduction did not start until 1992. Therefore, governments should not be held legally accountable for their emissions before 1992. Yet a large part of the GHG emissions before 1992 are still in the atmosphere and cause global warming, the price of transfer payment for the emissions can be somewhat lower. The emissions from 1992 to date have occurred after GHG emissions were confirmed to be harmful. Hence the transfer payment for the emissions during the period should be higher. For future transfer, the prices for the carbon budget transfer for basic needs satisfaction should be lower than the prices required for the budget satisfying luxury and wasteful consumption. The transfer of the carbon budget to cover historical deficits and future basic needs is estimated to be 455.7 GtCO2 . Based on a carbon price of 10 Euro/tCO2 , the total payment of carbon budget transfer payment will be 4.6 trillion USD, equivalent to around 100 billion US$ per year for the period from 2006 to 2050, much more than the financial assistance that developed countries provide to developing countries. Second, as the carbon budget transfer of 2.33 tCO2 per capita per year is only for basic needs satisfaction and insufficient to support the current living standards in developed countries, developed countries will have a huge demand for carbon budget to cover their actual emissions. In 2017, the total population of Annex I countries was 1.324 billion, with an average per capita emission of 9.28 tCO2 . Assuming each person from these countries needs to buy 5tCO2 of carbon budget at a price of 10 Euro/tCO2 e, the annual purchase price of the carbon budget will be over 60 billion Euros. Third, suppose developed countries do not change their lifestyles. In that case, zero-carbon energy production won’t be able to meet their emission reduction requirements; a punitive financing mechanism needs to be put in place. Such a mechanism will be a progressive tax on carbon emissions. Developed countries’ current emissions are 9.28 tCO2 , and the basic needs budget transfer is 2.3 tCO2 . After each person buys five tCO2 from the market, they will still have an annual carbon budget deficit of 2 tCO2 . A punitive mechanism should be established to levy a progressive tax for the last 2 tCO2 per person per year. A carbon tax should be based on the part of actual emissions exceeding the carbon budget, and the upper limit of the tax rate should be the price of renewable energy. Suppose the tax rate reaches the cost of renewable energy. In that case, a nation will decide to replace fossil fuels with renewable energy to achieve domestic mitigation instead of paying the progressive tax. Take the US as an example. If the international market can only meet half of its carbon budget demand, its future accumulated

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emissions will be 2.6 times its carbon budget. Assuming a carbon budget price of 10 Euros/tCO2 , from 2005 to 2050, the US will need to pay almost 400 billion Euros of emission tax, with an average annual payment of 8.7 billion Euros. The tax revenue will be injected into the existing financing mechanism or pooled in a new global fund to support developing countries’ mitigation and adaptation actions and facilitate technology transfer. The fund use and allocation should be based on countries’ contributions to carbon budget transfer. Countries with high contributions of carbon budget transfer, such as India, should benefit most from the fund. It should be stressed that even though countries pay fines for their carbon budget deficit, it does not mean that they can get an extra carbon budget and be exempted from mitigation obligations. Instead, their emissions budget deficit during the current budget period shall be deducted from their carbon budget allocation of the next commitment period (around 2050, the exact time depending on political negotiations). In the long term, the world should maintain the global carbon budget balance; otherwise, it will be impossible to secure the global target of climate sustainability. The EU emission trading scheme is an example of such a global climate regime.

5.3 Compliance Mechanism Due to the rigid constraint of the carbon budget, each country must be held accountable for keeping its emissions within its carbon budget to realize the justice and sustainability of the carbon budget approach. The penalty and funding mechanisms mentioned above are also a compliance scheme. However, the enforcement of the compliance mechanism still faces many issues to be addressed. First, how should the global community determine the progressive tax rates? Second, how should the text be collected by an international authority or by national governments? Third, should be tax revenue use be pooled and managed globally, or should each country decide the tax revenue uses? Should the tax revenue be used to fund mitigation or adaptation? Should the tax revenue be used to fund activities in developed or developing countries? All these issues need to be settled through international negotiations and agreements. In summary, the carbon budget approach is transparent, predictable, and highly operable in carbon emission right allocation, adjustment, and transfer, and strongly compatible with the Kyoto Protocol mechanisms in international climate regime designing. First, the implementation should be in phases and based on a long-term target setting. The above Proposal is from 2005 to 2050 and is based on international negotiation progress. The duration can be divided into multiple commitment periods. For instance, the second period can be from 2013 to 2020, and 2005 can function as the base year. Market mechanisms need further expansion. All countries should be eligible to participate in the global carbon market. Third, the financing mechanism requests further enhancement. The existing financing mechanism is based on voluntary contributions. Under the carbon budget proposal, the size of the financial

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mechanism will be bigger and mandatory. Fourth, it is feasible to use the existing measurement, reporting, and verification mechanisms. The carbon budget proposal is of high transparency and predictability in its carbon budget allocation, adjustment, and transfer. Therefore, the international climate regime based on it can rely on the existing reporting mechanisms for emission data collection to regularly evaluate whether s country’s emissions are within its carbon budget. The new international climate regime won’t face new difficulties in measurement, reporting, and verification mechanisms. Finally, the existing compliance mechanisms are weak. To implement the Carbon Budget Proposal, the world community needs to introduce a financing mechanism based on mandatory penalties to strengthen the compliance mechanisms.

5.4 Application Prospects The Carbon Budget Proposal is based on the human development concept and of high operability. It combines justice, and global climate target realization and is a package proposal with quantifiable emission right allocation and associated international mechanisms. When determining a proposed carbon budget, the world faces the trade-off between development goals and sustainable environmental goals. The development goals focus on securing the satisfaction of basic human needs, while the sustainability goals must meet the long-term target of global climate security. Among the two, the latter is a rigid constraint and should be prioritized in the trade-off. On the one hand, the carbon budget proposal stresses universal applicability and extends equal emission rights among different people to the entire development process. On the other hand, except for population, the differences among the current economic and social development level and the associated GDP, energy consumption, and GHG emission levels of different countries are only temporary. Therefore, they should not be used as the primary basis for emission right allocation. On the other hand, the Carbon Budget Proposal also takes into account some international differences. It allows for adjustments to the national carbon budget based on each country’s specific natural environment. However, the reasonable adjustment range is much smaller than the actual emission gaps among different countries. The Carbon Budget Proposal is based on the per-capital accumulative emission right to meet the global long-term climate target and reflect national circumstances. Each person should try to keep his/her “carbon footprint” within the limit of their carbon budget. Furthermore, countries should enact relevant policies and measures to secure their citizens’ basic needs satisfaction, discourage luxury and wasteful consumption, and promote sustainable consumption habits and lifestyles. These are the common responsibility of both developed and developing countries. Only when everyone pursues sustainable lifestyles can the limited resources be more effectively utilized to support a better life for the entire human race. Of course, the Carbon Budget Proposal still has some space for further research and improvement in methodologies. For example, in the above calculation process,

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all the accumulated emissions are based on direct accumulation. The impacts of CO2 emissions on CO2 concentrations in the atmosphere decline over time. Therefore, a decay function should be introduced in the accumulated emission calculation. However, the accurate formula of the decay function needs to be based on complicated climate models. Especially it involves the impacts of future emission paths on the CO2 concentrations in the atmosphere. The uncertainties are high in the absence of correction with observed values. From a qualitative perspective, developed countries have high historical emissions and are in a good position for significant emission reductions. In comparison, developing countries have low historical emissions and face high future emission growth pressure. Therefore, the introduction of the decay function in accumulative emission estimation can reduce the historical responsibilities of developed countries and benefit them. The selection of some parameters in the Carbon Budget Proposal can be controversial. Examples of such parameters include the global long-term mitigation target and the starting year for accumulated historical emission calculation. Some of the controversies can be settled through international negotiations, while others can be addressed through sensitivity analysis to assess the influences of these parameters on the calculation results. The Carbon Budget Proposal is based on science. It combines the equity principle of prioritizing basic needs satisfaction and realizing the global sustainable goals. It is a complete proposal for designing an international climate regime that can fulfill the Paris Agreement targets. The quantitative analysis under the Carbon Budget Proposal can help the global community reach a consensus on the following significant facts, e.g., the world faces a severe challenge of having global GHG emissions by 2050. A major reason is developed countries’ emissions far exceeding their due shares of the worldwide emission space in the past, currently, and the situation will inevitably continue in the future. Although developing countries generally emit less than their shares of the carbon budget, they also need to contribute to climate change mitigation through low carbon development to protect the global common good of climate security. The international climate regime’s design for achieving the 2 °C temperature rise target should make appropriate climate regime arrangements based on the above facts and international cooperation. These policy implications provide some valuable directions for future international climate negotiations.

6 Main Strengths and Features of the Carbon Budget Proposal The foundations of climate justice must be equal carbon emission right allocation. Carbon justice is not international political justice but equal rights among different people. The “Principle of Common but Differentiated Responsibilities” reflects justice because it reflects international differences in historical responsibilities, current emissions, capital, technology, and management capacity. The essential

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differentiation lies in carbon emission rights. In a world of equal per capita emission rights, such “differentiation” is unnecessary. The international climate negotiations have been progressing slowly because of the “differences.” Developed countries keep arguing whether the selection of a specific base year increases their mitigation obligations. Justice is not about whether a country’s per capita emissions are higher or lower at a particular point in time than those of other countries because social and economic development is a process. The construction of carbon-intensive infrastructure facilities and houses takes multiple decades. Therefore, justice and equity can only be equal per capita accumulated emissions over a certain period. Every person is entitled to the same carbon emission rights, and it is up to each person when and how much GHGs they emit. They should be allowed to sell their emission right surplus. People who emit more than their emission right quota need to buy emission rights. Developed countries seem to consider climate change technology and financial transfer to developing countries’ requests as development assistance and charity. This belief is wrong as developed countries have huge carbon budget deficits and occupy enormous emission space of the poor people in developing countries. Carbon justice requires rich people to pay poor people for using the latter’s carbon emission rights and space. Hence, it is a transaction of emission rights that developing countries request a certain amount of funding and technology transfer from developed countries for climate change mitigation and adaptation. The realization of carbon emission rights requires everybody undertakes their “common but differentiated” responsibilities. Chinese academic institutions should avoid focusing on the current stagnation in international climate negotiations in their work. Their research should concentrate on scientific, objective, and operable theories and methodologies on carbon justice as a just and sustainable climate agreement is the inevitable choice of the global community. The international climate negotiations also involve countries’ historical responsibilities, but they have never elaborated and quantified historical responsibilities or dug deep into the topic. The carbon budget proposal from Germany quantified the historical responsibilities after 1990, hence reducing developed countries’ historical responsibilities while enhancing developing countries’ future mitigation responsibilities. Nevertheless, even according to the German Proposal, the United States would deplete its carbon budget by 2020, and China will also face a carbon budget deficit by around 2030. Since its opening up and reform in the late 1970s, China has experienced rapid economic development, and its future economic outlook looks promising. With another two or three decades of continuous development, China will realize its target of national rejuvenation. However, after 2020, China will face enormous international pressure to reduce its total GHG emissions, forcing China to accept more ambitious mitigation targets. The “Carbon Budget Proposal” by the author and other Chinese researchers can help China avoid rigid carbon budget constraints until 2040. If China can achieve low-carbon development, the starting year will be postponed when it faces rigid carbon budget constraints.

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References Baer, P., Athanasiou, T., Kartha, S., & Kemp-Benedict, E. (2008). The greenhouse development rights framework: The right to development in a climate constrained world (2nd rev. ed., vol. 1, p. 116). Berlin: Heinrich Böll Foundation. Publication Series on Ecology. Chen, Y., Pan, J., & Xie, L. (2008). Embedded energy in China’s commodity exports and imports and their policy implications. Economic Research Journal (JINGJI YANJIU), 2008(7), 11–25. IEA 2019 CO2 emissions from fuel combustion—2019 highlights International Energy Agency (IEA) 165 IPCC (2007). Climate change 2007: Synthesis report. Contribution of working groups I, II and III to the fourth assessment report of the intergovernmental panel on climate change (p. 104). In Core Writing Team, R. K. Pachauri, A. Reisinger (Eds.) Geneva, Switzerland: IPCC. IPCC (2018). Global warming of 1.5 °C. An IPCC special report on the impacts of global warming of 1.5 °C above pre-industrial levels and related global greenhouse gas emission pathways, in the context of strengthening the global response to the threat of climate change, sustainable development, and efforts to eradicate poverty (p. 630). In V. Masson-Delmotte, P. Zhai, H.-O. Pörtner, D. Roberts, J. Skea, P. R. Shukla, A. Pirani, W. Moufouma-Okia, C. Péan, R. Pidcock, S. Connors, J. B. R. Matthews, Y. Chen, X. Zhou, M. I. Gomis, E. Lonnoy, T. Maycock, M. Tignor & T. Waterfield (Eds.) (in Press). Jiang, L., & Hardee, K. (2009). How do recent population trends matter to climate change. Population Research and Policy Review, 2011(30), 287–312 (2011). Pan, J., & Chen, Y. (2009). Carbon budget proposal: A just and sustainable framework for international climate regime. ZHONGGUO SHEHUI KEXUE (social Sciences in China), 2009(5), 83–98. Pan, J. (2008a). Carbon budget for basic needs satisfaction and its international justice and sustainability implications. SHIJIE JINGJI YU ZHENGZHI (world Economics and Politics), 2008(1), 35–42. Pan, J. (2008b). Welfare dimensions of climate change mitigation. Global Environmental Change, 18(1), 8–11. Rawls, J. (1988). The priority of right and ideas of the good. Philosophy & Public Affairs, 17(4), 251–276. Sen, A., & Anand, S. (1997). Concepts of human development and poverty: A multidimensional perspective. In Poverty and human development: Human development papers 1997 (pp. 1–20). New York: United Nations Development Programme. Stern, N. (20008). Key elements of a global deal on climate change. The London School of Economics and Political Science (LSE), 30 Apr 2008, p. 56. http://www.lse.ac.uk/collections/ granthamInstitute/publications/KeyElementsOfAGlobalDeal_30Apr08.pdf. Accessed on 2 July 2009 UNFCCC (2002). Methodological issues. In Scientific and methodological assessment of contributions to climate change. Report of the expert meeting, Document number FCCC/SBSTA/2002/INF.14, 2002, p. 27.

Part III

Climate Capacities and Adaptation

Climate change response involves both mitigation and adaptation, which need to take place in parallel. Although adaptation is prominent in the legal documents negotiated and reached by the Conference of the Parties (COP) to the UNFCCC, mitigation remains the center of climate change actions. This is especially true after the Paris Agreement, when the 2 °C and 1.5 °C temperature targets were accepted to guide the global climate actions, including the targets and actions indicated in Nationally Determined Contributions (NDC) and global inventories. In a sense, mitigation aims at making adaptation easier and can be seen as a form of adaptation. But what is the essence of adaptation? The impact and risk of and the vulnerability to climate change are due to the variability of the natural climate capacity as a fundamental asset for economic and social development, making it difficult or infeasible for humans and nature to coexist in harmony. The temperature target, adaptation planning, and vulnerability assessment are all based on the natural climate capacity. Therefore, climate capacity is inherently rigid and is the foundation for adaptation. A thorough understanding of the rigidity of climate capacity is a prerequisite to adaptation strategy making, planning, policy-making, action designing, vulnerability assessment, and climate migration. Further research is needed to provide guidance on how to develop a socially and economically justifiable mix of mitigation and adaptation and optimize synergies.

Chapter 12

Climate Capacity as a Natural Asset

As the world’s most populous developing country, China faces the dual challenges of “development deficit” and “adaptation deficit.” (Parry et al., 2009; Smith et al., 2011). Moreover, China’s population growth and socio-economic development are significantly constrained by such natural resources as land, climate, and environment. Because of these essential national circumstances, it is necessary to dig deeper into climate change adaptation and explore the concepts, theories, and methods in the context of China’s realities and unique issues (Teng & Gu, 2007). In order to further clarify the relationship between adaptation and development and promote research on climate change economics, it is necessary to scrutinize the concept of “climate capacity” and analyze its connotation, methodologies, theoretical basis, and policy implications, to provide an analytical framework and methodological support for adaptative policies and decision-making.

1 Relevant Concepts and Connotations of Climate Capacity Relevant Concepts of Climate Capacity. The concept of capacity or carrying capacity is widely used in population-resource-environment economics and sustainable development analysis, emphasizing that human activities should not exceed the carrying capacity of a particular ecosystem. Its essence is to determine a reasonable long-term magnitude of sustainable development for human beings. Carrying capacity is a concept with relative limit signification and ethical characteristics, closely related to resource endowment, technological methods, social choices, and values. There are two main perspectives in the research of carrying capacity: one is biological carrying capacity based on the ecological system, such as land carrying See Chinese Journal of Population Resources and Environment Volume 24, 2014, Issue 2, Climate Capacity: A Measure of Adaptation to Climate Change, with important contributions to this section by Yan Zheng, Jianwu Wang, and Xinlu Xie. © China Social Sciences Press 2022 J. Pan, Climate Change Economics, https://doi.org/10.1007/978-981-19-0221-5_12

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capacity, water resources carrying capacity, ecological carrying capacity, environmental carrying capacity, etc.; the other is based on population and environment relationship, discussing the constraints of ecological environment and natural resources on human development. This perspective is primarily used in population carrying capacity (Tong, 2012). For example, carrying capacity was defined as the maximum population that a habitat or ecosystem with finite resources can accommodate in all hierarchical levels of biological integration in a specific region during a specified period (Kessler, 1994; Monte-Luna et al., 2004). Due to the limitations of disciplinary perspectives and analytical methods, many studies ignore the complex interaction between the ecological environment and population carrying capacity (Rees, 1992). The concept of sustainable development incorporates the socio-economicecological environment into a holistic analysis framework to explore the issues of the global population carrying capacity and development thresholds. “A moderately sized population carrying capacity” not only depends on the environment and other resource restrictions but also depends on the impact of human activities on the resource and environment, and hence rely on the development model and production and consumption methods. In this regard, international academic circles have designed and improved comprehensive environmental assessment models to reflect the relevance and interaction of ecological systems and socio-economic systems. For example, Berck et al. (2012) have considered both population carrying capacity and human impacts in the global environmental and population carrying capacity assessment model. However, research on carrying capacity in China has less considered the impacts of climate change and the interaction between human activities and climate and the environment. The traditional research on population and resources and environmental carrying capacity mainly takes climatic and geographical elements as exogenous variables. It considers the climatic and geographical aspects of a region relatively stable, so the ecological carrying capacity and population al carrying capacity under normal conditions are also relatively constant. In fact, in the context of climate change, the variability of climate factors has increased, and uncertainty has upsurged, making the complexity of the human-ecosystem intensified. In this case, it is necessary to put forward an inclusive concept of climate capacity to distinguish it from traditional research on carrying capacity. Climate capacity is a new concept proposed in the context of global climate change. From a broad perspective, climate capacity is essential to explore the limitation concerns of global and regional sustainable development, which theoretically has implications in both mitigation and adaptation. From the perspective of global GHG emissions reduction, some people think that climate capacity can be referred to as the ability of the Earth to absorb the greenhouse gases stably without compromising primary climate conditions (Gong, 2010). This concept is relatively close to the environmental capacity, similar to the self-purification ability of the Earth’s atmospheric system and ecological environment. Its policy meaning lies in the allocation of GHG emission rights and the international economic and political structure under capacity constraints. However, climate capacity is closer to the ideas of “climate production potential” and “climate resources carrying capacity” in meteorology. Climate production potential refers to the maximum ecosystem productivity

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jointly determined by climate resources such as temperature, sunlight, and precipitation under the optimal technology, management, and other resource input conditions, also known as Net Primary Productivity (NPP) or primary productivity. The carrying capacity of climate resources is based on the determination of climate production potential, and theoretically, the maximum possible population per unit area of land (Bai et al., 2010; Li, 2010). Climate change significantly affects water resources, ecosystems, and socioeconomic development and impinges upon climatic resources like temperature, precipitation, water resources, and ecosystems. It thus has a corresponding impact on agriculture, forestry, fisheries, population carrying capacity, and social and economic development potential. For example, Batchelder and Kashiwai (2007) evaluated the impact of climate change on fishery resources in the Pacific Rim from the perspective of climate-ecosystem coupling. Precipitation, temperature and average change (variability) are the most critical factors affecting long-term vegetation coverage in specific areas. Gao et al. (2004) analyzed 20 years of meteorological and remote sensing data in northern China. They found that the primary productivity declined significantly due to temperature rise and precipitation decreases, with climate change contributing 90% of primary productivity decline, while land-use change only contributing 10%. Gong et al. (2010) calculated the primary productivity and grassland carrying capacity in alpine regions based on long-term climate indicators. They pointed out that the trend of climate change to warm and humid in the arid region of Northwest China would benefit the development of animal husbandry in this region. Zhou et al. (2008) analyzed the dynamics of forestry, farmland, grassland, and wetland productivity and their grain output in the Northeast region. Based on the climate forecast data for the next 100 years, they predicted the population carrying capacity at three consumption levels of sufficient, moderately prosperous, and welloff. Zhang et al. (2012) predicted the population carrying capacity of the Hongsipu District in the Ningxia Hui Autonomous Region (NHAR) in 2020. The concept of climate capacity is the integration and expansion of the above ideas and methods in the context of climate change. First, the connotation or foundation of climate capacity includes climate resource elements such as temperature, sunlight, precipitation, and evaporation and climate risks, such extreme climate events as droughts, rainstorms, typhoons, and sea-level rise. It is because that climate risk is one of the essential factors that affect the overall carrying capacity of specific areas. Second, the carrying capacity of climate capacity is limited to the carrying capacity of the land, water resources, ecosystems, and populations and includes specific industries (such as agriculture) and the social-economic systems in particular areas. The Connotation of Climate Capacity. The Earth is a holistic system composed of five significant spheres: lithosphere, atmosphere, hydrosphere, cryosphere, and biosphere. The interaction of these spheres forms the climate system and determines the natural changes in the climate. Global climate and environment Change results from the joint action of human activities and the climate system and entails a typical human-ecological complex system drawback, which is complex, dynamic, and uncertain. Climate capacity reflects the interactions between human systems and

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ecosystems and analyzes the impacts, vulnerabilities, and risks resulting from global climate and environmental changes. Climate capacity is the natural resource constraint on population, social and economic development for a specific area in the long run. The essential factor of climate capacity is the inherent endowment of climate condition, which is the aggregation of various key climatic factors and their combinations and variations. One or more of the multiple elements of climatic factors can play a leading or decisive role in a specific area, such as sunlight, temperature, and precipitation. The variation of climate factors is mainly seasonal and inter-annual changes. Due to the topography, landform, soil, and vegetation conditions, the climate capacity varies from place to place. Climate capacity in some areas decreases as precipitation shifts to other regions and vice versa. For example, global warming has led to increased drought in western China, leading to soil erosion and declining climate capacity. In contrast, alpine snow melting has increased the water and runoff in lakes and downstream rivers in some areas, enhancing the climate capacity in these areas. The safety threshold for climate capacity is its natural low limits, such as precipitation in the driest year. The use of multi-year averages as an indicator of safety threshold can be unsafe as it may have sizeable interannual fluctuation or variability. A threshold capacity refers to the most basic guaranteed capacity (safe capacity range) to ensure that the natural and socio-economic system will not collapse under the worst scenario (climate change) conditions. For example, if 300 mm or less annual precipitation will cause irreversible security problems in the urban water supply or other aspects, then 300 mm is the minimum acceptable threshold capacity. Derived Climate Capacity. Derived climate capacity refers to ecological carrying capacity, water resources carrying capacity, land carrying capacity, and environmental carrying capacity within a given range of climate capacity. Derived capacity is mainly affected by climatic factors. Human activities, such as the progress of science and technologies, and management approaches, and other economic and social improvements, can raise the ecological carrying capacity, water resources carrying capacity, land carrying capacity, and environmental carrying capacity to a certain extent. Derived climate capacity mainly includes: (1)

(2)

(3)

Ecological carrying capacity: based on artificial ecosystems, such as afforestation, planting pastures, constructing wetlands, and water diversion projects. The indicators of ecological carrying capacity include biomass, animal carrying capacity, primary productivity, etc. Water resources carrying capacity: the total amount of water resources (including the total theoretical amount or actual available amount under certain technical conditions) formed by accumulating precipitation, surface water, and groundwater in a particular area for multiple years. Land carrying capacity (or biological yield per unit of land area): the total amount of various organic matter produced and accumulated by crops through photosynthesis and absorption during the whole growth period, that is, through the conversion of matter and energy. An example of indicators can be the output

1 Relevant Concepts and Connotations of Climate Capacity

(4)

211

of agricultural products per unit area, including the production of rice per mu, the production of cotton per mu, etc. Environmental capacity or environmental carrying capacity: the ability of ecological restoration and self-purification in a specific area to meet certain environmental standards. For example, the self-purification capacity of the chemical oxygen demand (COD) or ammonia nitrogen in the water body and the maximum allowable emission of atmospheric sulfur dioxide or dust.

Climate Capacity and Population Carrying Capacity. The population carrying capacity is affected by both natural and social-economic factors. China’s natural environment has a profound impact on the country’s population distribution and the overall pattern of social and economic development. Climate change is a critical factor that has shaped China’s population distribution pattern since 2000 and has caused several major population distribution changes in history (Wu & Wang, 2008). Hu (1990) discovered a dividing line of population and density from Heihe River in Heilongjiang to Tengchong in Yunnan, namely the “Heihe-Tengchong Line.” This dividing line not only hits the boundary of population distribution but also coincides with the natural geographic boundary of 400 mm precipitation, as well as the boundary between the semi-humid and semi-arid regions of China. From a meteorological and geographical perspective, China’s population distribution patterns of “dense east and sparse west” were primarily affected by the geomorphological characteristics of “dry west and wet east, low south and high north,” and the atmospheric circulation introduced by monsoon (Fang et al., 2012; Wang, 1998). China’s population distribution pattern, which is closely related to the climate and geographical environment, has shown a high degree of stability. According to the results of the fifth census in 2000, 94% of the Chinese population concentrated in the southeast side of the Heihe-Tengchong Line; and the rest 6.0% lived on the northwest side of it. Fang et al. (2012) analyzed the correlation between population distribution and natural factors in China. They found that climate, topography, and water systems are the main natural factors affecting Chinese population distribution. Among the natural factors, the climate factor consists of the average annual temperature, average annual precipitation, are as with an accumulated temperature of 5 °C and above, precipitation variation, net primary productivity, warmth index, sunshine hours, relative humidity, and other indicators. With the impacts of these natural factors, China’s population concentrates in areas with favorable natural environments, such as coastal areas, riversides, and plains; and abundant resource and environmental carrying capacity. While sparsely populated areas are mainly distributed in plateaus, mountains, and deserts—areas with poor natural conditions, insufficient resource and ecological carrying capacity, and lagging behind other parts of the country in economic development (Liu et al., 2010). It can be seen that China’s population distribution and socio-economic development pattern, which have evolved through thousands of years of history, are constrained by the condition of climate capacity. That is precisely why climate capacity should be considered a fundamental precondition in climate change adaptation.

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The Threshold of Climate Capacity and its Application. Different threshold indicators can be used for the calculation of climate capacity. For example, crop yield and grassland carrying capacity can be used to evaluate the productivity and economic output changes of agriculture and animal husbandry in specific areas under future climate change scenarios. Water resources carrying capacity or land carrying capacity can be used to calculate the population threshold of an arid region in the future. Risk indicators such as a sea-level rise or typhoon, flood, and waterlogging can be used to predict optimal population, industrial and infrastructure layout of a coastal area in the future. Table 1 lists some reference indicators that can be used as thresholds for climate capacity. It should be noted that climate risk factors are also actual thresholds for climate capacity. Some areas may have relatively good natural climate capacity but may not be livable. The evaluation of population carrying capacity and socio-economic development planning needs to consider the impact of climate change-induced disaster risk on livability, population, and socio-economic security. For instance, Shaanxi Province has launched a wide-ranging ecological immigration plan involving more than 2.4 million people in its poverty-stricken mountainous areas in the southern. The area is located south of the Qinling Mountains, with amiable sunlight, temperature, and water conditions. Still, it has suffered all year round from meteorological disasters such as debris flows and landslides. Massive disaster relief investment has little effect, making migration a rational choice for mitigating disaster risk, developing the economy, and alleviating poverty. The characteristics of climate capacity are mainly reflected in: (1)

(2) (3)

(4)

(5)

Rigid constraint: climate capacity is relatively stable in a specific time and space, and it is difficult for human activities to change this strict constraint in a short period. Volatility: Affected by the climate system and its changes, climate capacity has seasonal and inter-annual fluctuation characteristics. Regional differences: Climate capacity is reflected in regional differences. For example, there are significant differences in the distribution of water resources in different river basins in China. Conductivity/Transferability: Affected by topography, landform, water resources, and other factors, the climate capacity of a specific region is often related to the capacity of neighboring regions. For example, in different areas across a watershed, the climate capacity of water resources can be exported or imported. Besides, with manual activities such as cross-regional water transfer projects, the climate capacity can be transferred between regions. Interactivity/Feedback: From a global perspective, Anthropogenic activities and climate capacity can interact. Human activities can change climate capacity. For instance, GHG emissions can cause a warming effect and induce global climate change. On the other hand, the shift in climate capacity can also transform human behavior. For example, extreme events such as longterm drought, floods, typhoons, or sea-level rise caused by climate change can trigger population migration and promote local adoption.

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Table 1 Thresholds and reference indicators of climate capacity Climate and its derived capacity threshold

Threshold factors

Reference indicators

Natural capacity threshold

Temperature

Accumulated temperature

Precipitation

Average annual precipitation

Extreme events

Frequency, intensity, and variation of extreme weather or climate disaster

Water resource carrying capacity

Per capita water resources (e.g., no less than 500 m3 )

Change the spatial and temporal pattern with engineering measures

Ecological carrying capacity

Primary productivity (e.g., animal carrying capacity)

Alter demand or improve efficiency with technical measures

Derived capacity: ecological threshold

Policy measures for capacity increase or stabilization

Biodiversity index (high, middle, low) Land carrying capacity

Per capita land resources Engineering plus available technical measures Per capita land output

Derived capacity: Climate risk threshold

Climate risk index (climate disasters, sea-level rise, etc.)

A region is considered a Engineering, technical, high-risk area and needs and institutional to take such measures as measures immigration and control the population size and economic development if climate disasters affect more than 30% of its population, or disaster economic losses accounting for more than 5%-10% of its GDP (multi-year average)

For the content of reference indicators, see Qin et al. (2005) and IPCC (2012)

Principles and Methods to Improve Climate Capacity. Climate capacity is determined by the natural function of climate change. Suppose there is no technological progress or human resources inputs, the socio-economic development level that the natural function of climate change can support is fixed. With increasing population and pursuit of better living standards, the gap between climate capacity (including natural capacity and derived capacity) and socio-economic development

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demand is enlarging. Various climate security issues emerge, including water security, food security, economic security, social stability, and national security. Therefore, it is necessary to take engineering, technical, institutional, and other measures to reduce the gap. Climate capacity is a comprehensive integration of natural elements, but it can also be changed by human activities such as technological progress, scientific management, and water conservancy projects. In the history of humankind, the transformation of the natural land into human habitation and the transfer of ecological footprint through production and trade can be seen as a human-induced enhancement of climate capacity. Land transformation is mainly through engineering and technical measures, including artificial weather, water transfer projects, water conservancy facilities, ecological protection, etc. The transfer of ecological footprint is mainly the import and export of grain, wood, and other high-energy-consuming products, which is, in fact, a transfer of connotative energy and water resources through time and space. Fossil energy, which is indispensable in the industrial age, comes from solar energy stored by organisms dating back to a long geological period. Thus, it is also a case of inter-spatial and intertemporal utilization of climate capacity. However, it must be noted that the human-induced adjustment of climate capacity is limited in scale and embeds certain risks. For instance, the construction of dams or the extraction of groundwater resources in arid regions will exacerbate the vulnerability of local natural systems and socio-economic systems. Several principles need to be followed if people want to improve (increase) the climate capacity of a region through human activities: (1)

(2)

(3)

(4)

The principle of economic rationality: measures to change the climate capacity of a region need to evaluate the financial costs and benefits. Ideas like introducing the Bohai Sea into Inner Mongolia, truncating the Himalayas are conceptual and lack technical and economic feasibility. The principle of ecological environment integrity: measures to change the climate capacity need to consider their impacts on the regional and broader ecological environment and ensure the ecosystem’s health and integrity and its service functions. The principle of precautious protection: measures to change the climate capacity should prioritize those areas and groups with poor basic living conditions and susceptibility to life and property. For example, people who live in regions sensitive to sea-level rise or with high disaster incidence should be helped to emigrate out of the areas. The principle of equitable distribution: The change and transfer of climate capacity will redistribute climate resources. Priorities should be given to the most vulnerable group and people in need mostly to ensure equitable distribution of resources and the sharing of benefits. Large-scale water conservancy projects like the South-North Water Diversion Project (SNWDP) and the Three Gorges lead to spatial and temporal changes in climate capacity in different regions. Thus corresponding compensation and benefit-sharing are needed.

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The above principles can be prioritized case by case. For instance, when rising sea-level and climatic disasters would result in casualties of people and property lost, measures should be taken to relocate people and rescue properties. In this case, the principle of precautious protection should be placed before the principle of economic rationality.

2 Climate Capacity Case Studies Economic development and poverty eradication are the primary means to improve climate change adaptation capacity. However, the effects of developmental poverty alleviation policies in Northwest and North China were not satisfactory. Under certain circumstances, economic development may not be the most effective way to deal with climate change. To better understand the policy implications of climate capacity, two case studies in Ningxia and Shanghai, located on either side of the population distribution dividing line, are selected to illustrate their unique climate risks and response strategies from the perspective of climate capacity. Climate Capacity Limitation and Ecological Migration in Ningxia. Ningxia is located in the arid region of western China. It has implemented more than 600,000 immigrants in stages since the 1980s, with 350,000 people are relocated after 2010 (Zhang et al., 2012). The original thinking of Ningxia’s immigration policy is for poverty alleviation, development, and ecological protection. On the face of it, immigration is caused by the deterioration of the ecological environment and poverty. But the driving force behind the vicious cycle of population-ecological degradationpoverty is the limit of climate capacity. Climate change reduced the population carrying capacity and made some people have to be moved out of the area. By analyzing the two specific cases of Xihaigu emigrants and Hongsipu immigrants, the relationship between adaptation and development can be interpreted from the perspective of climate capacity. A Local Environment can no Longer Support its Inhabitants: Xihaigu Under the Limitation of Climate Capacity. Xihaigu, Ningxia, known as “the worst place to live on Earth,” is one of the key national poverty alleviation areas. It has nine listed national poverty alleviation counties (districts) in central and southern Ningxia, with 2 million people accounting for 1/3 of Ningxia’s population. This place is exceptionally ecologically fragile, with an arid climate, barren land, inadequate resources, frequent natural disasters, and severe soil erosion. The average annual rainfall is 200–650 mm, and the per capita water resource occupation is only 136.5 m3 , making Xihaigu one of the most water-scarce and drought-affected areas in the country. People lived in arid mountainous areas with remote transportation, blocked information, imbalanced ecology, and extremely harsh natural conditions. They have a strong desire to relocate as their livelihood is deeply affected by the local climatic and environmental conditions. In this regard, conventional development and poverty alleviation measures cannot solve the fundamental problems. The pursuit of development in Xihaigu, such as infrastructure construction, water resources exploitation,

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industrialization, and urbanization, will only further deteriorate the local ecological environment and by no means can enhance its climate capacity. “Turn Barren Land into Oasis”: Human-Induced Climate Capacity Enhancement in Hongsipu Immigration District. Due to water and land resources limitations, only a small part of the resettlement in Ningxia can be relocated to the northern Yellow River Irrigation District with better climate capacity and larger population capacity. To meet the needs of a large number of migrants, Ningxia used the Yellow River water to transform a desert into an agricultural oasis and built the Hongsipu immigrant settlement district with a population of 190,000 in the central Yanghuang irrigation area. Hongsipu is a typical successful case of how to humaninduced measures to increase climate capacity. However, in the long run, Hongsipu is still a place with a fragile and unstable climate capacity. While the immigration and population agglomeration bring better development opportunities to the economy, local government authorities also realized the water resources and environmental constraints faced by emerging townships and growing populations. If there are large fluctuations in the future runoff of the Yellow River caused by climate change, the oasis in Hongsipu will face strong constraints and threats of survival. Climate Risks in Coastal Cities. The eastern coastal areas of China are prone to typhoons, storm surges, and other meteorological disasters. The dense distribution of population and wealth makes the area bearing high risks of potential climate change. Shanghai is located in the coastal city of the Yangtze River Delta with a superior location, abundant natural resources, and a developed economy and culture. As the leading city in the Yangtze River Delta economic zone with a population of more than 23 million, the per capita GDP of Shanghai in 2010 has exceeded US$10,000, reaching the level of a moderately developed country. The urbanization rate exceeds 80%, ranking first in the country. Because it is located in the alluvial plain of the Yangtze River Delta, Shanghai is backed by affluent areas in the south of the Yangtze River and has sufficient climate capacity. The population density in Shanghai is more than 30 times that of Ningxia, while its land area is only 1/10 of Ningxia’s. Still, Shanghai’s per unit of land GDP output is 106 times that of Ningxia. To further utilize its full development advantages and overcome the bottleneck of land resources, Shanghai has invested 40 billion yuan in building 133 km2 of “Lingang New City,” of which 45% of the land came from reclaimed land. The practice of reclaiming land from the sea helps to alleviate population and urbanization pressures. But it also increases the risks of corresponding extreme hazards caused by climate change and sea-level rise, including typhoon attacks, storms, tsunamis, and relocation caused by seawater intrusion and submergence. In this regard, it is necessary to conduct a climate capacity assessment, taking into consideration potential climate risks and adaptation issues in urban development planning. Judging from the cases of Ningxia Xihaigu and Shanghai, climate capacity is a fundamental premise and directly determines whether or not a specific area is suitable for human development. Climate capacity is subject to constraints on land, ecology, water resources, and disaster risks. Both development and adaptation strategies must be formulated on this premise. In China, it is necessary to strengthen climate change and ecological environment monitoring in high-density areas in the east to avoid

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the deterioration of the ecological environment caused by population growth. It is equally important to strengthen the environmental protection of those ecologically fragile areas in the central and western regions to enhance climate capacity and the population’s carrying capacity.

3 Policy Implications of Climate Capacity The concept of climate capacity has a solid scientific foundation and clear policy implications. Compared with related concepts like ecological carrying capacity and population carrying capacity, the concept of climate capacity adds a dynamic variable of climate change, which has clear policy implications for the development of climate change adaptation strategies based on local circumstances. First, the issue of adapting to capacity constraints is mainly due to inadequate background resources such as the natural environment and climate. It is necessary to fully respect the laws of nature, limit the total population, the speed and scale of economic development, and avoid the collapse of the ecosystem that threatens humanity’s safety. Second, the adaptation needs are driven by the rapid growth of the population and the economy. It is necessary to enhance adaptive capacity through development. On the one hand, it requires strengthening adaptation capacity through development; on the other hand. It is needed to increase financial, human, and technical investments in adaptation and to have a rational distribution of population and industries to reduce climate vulnerability and risk. Climate capacity reflects the interaction of human societies and ecosystems. Moreover, people can assess the impacts, vulnerability, and risks assessment based on the findings of climate science. Meanwhile, climate capacity adheres to the concepts and methods of ecological economics. It studies the optimal population capacity and the scale of socio-economic development under the limitation of climate capacity, which is the economic perspective of climate capacity. Therefore, the assessment of climate capacity and its threshold can support the decision-making on socio-economic development and adaptation actions. The steps are as follows: (1)

(2)

(3)

Step one is to evaluate the essential elements of climate capacity based on future climate change scenarios. Based on the climate model, researchers should first determine the critical factors of regional climate change risk. Then they need to calculate natural capacity threshold levels and core indicators of climate risk assessment, such as temperature, precipitation, and extreme climate events in specific areas under different climate scenarios. Step two is to analyze the spatial and temporal distribution changes of the derived capacity factors such as regional water resources, ecological resources, land resources, atmospheric resources, and climate disaster risks under different climate change scenarios. Step three is to design different population and socio-economic development scenarios and estimate the maximum potential of a population, industry,

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or socio-economic system constrained by specific resources (such as water resources, grassland biomass, and climate risks). Step four is to formulate the corresponding medium- and long-term development planning or adaptation policies, such as government-led immigration projects, climate protection infrastructure investment, exalted building protection standards, and adaptation technology research and development, based on the results of climate capacity assessment, such as the maximum development potential (population, economy, etc.) or the minimum population or social wealth risk exposure level under a particular climate change scenario in a specific area. Step five is to assess the effects of adaptation policies. According to the changes in the climate capacity indicators in the region before and after implementing the adaptation policies, it serves as an objective basis for evaluating the effects of adaptation policies.

Climate capacity can be used as a basis for making or evaluating development policies and adaptation actions. Suppose that regional population and economic development deteriorate the local climate capacity (such as excessive urbanization in arid regions), the policy should be seen as unsustainable or poorly adapted. If an approach helps improve regional climate capacity in the long term (like returning farmland to forest), it can be viewed as sustainable and adaptable. The concept of climate capacity helps to integrate the fields of emission reduction, adaptation, disaster risk management, and sustainable development. Climate capacity provides a reference for formulating policies in ecological protection, climate change, trade, disaster prevention, and mitigation. First of all, from a global perspective, all actions to reduce emissions and adapt to climate change are approaches to maintain and increase global climate capacity in the long run. They are all aimed at keeping the worldwide population in balance with climate thresholds. Human society can survive and develop sustainably. Secondly, at the regional level, an increase in the climate capacity of a specific area is likely to reduce the capacities of other regions. For example, short-term artificial rainfall measures or the construction of dams on rivers could be cost-effective measures for the benefited areas. However, it may impact the fair and sustainable use of climate resources from a larger scale of time and space. Theoretically, under particular climate change scenarios and on the premise of ensuring the essential human development needs of every individual on the planet, the population capacity corresponding to fundamental elements such as water resources, land, and ecosystems is limited. To make full use of the existing climate capacity is similar to a Pareto optimal process. The increase in the climate capacity of any country or region must be based on the climate capacity of other countries/regions at the reduction cost. However, as technology advances, climate capacity can undergo Pareto improvements. Under an open economy, climate capacity can be transferred (paid or unpaid) in different countries, regions, and time scales. Measures like carbon taxes, emission reduction policies, food trade, and ecological compensation policies can all redistribute climate capacity. A country’s comparative advantages are not limited to the capital, technology, and human capital as climate resource

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becomes more and more valuable. Countries with abundant natural resources such as wind, solar, land, water, and renewable energy may have incomparable development potential and comparative advantages with future technological progress. Multiple social development goals must be considered to achieve the synergies between adaptation and development goals when formulating specific policies. The concept of climate capacity has a scientific and empirical basis and can reflect the interactive relationship between human development and the natural environment and can be an analytical tool for population resources and environmental economics to carry out climate change risk assessment and adaptation policy research. China is a typical agricultural country. Population and resource constraints are the essential characteristics of development. Fundamentally speaking, China’s adaptation to climate change is a matter of climate capacity, i.e., the intensity and scale of natural ecosystems and human socio-economic activities carried by a particular climate resource in a region. In regions with abundant climate capacity, adapting to climate change is often a problem caused by development. In contrast, in areas with severely limited climate capacity, economic growth may worsen the climate environment. China has a vast territory, and the development levels of different parts vary in a wide range. Therefore, the author believes that the climate change adaptation policies should tailor to the concrete circumstances of each region. Climate adaptation should be synergized with local climate capacity and economic growth. There should be a cost–benefit analysis to ensure that climate adaptation is fair, efficient, and without regret. Due to the significant regional differences in climate capacity, it is necessary to take adaptation measures across departments and administrative divisions. The “National Strategy for Adapting to Climate Change” (The Central People’s Government of the People’s Republic of China 2013) had been launched at the end of 2013. From the national to the local level, adaptation policies and actions all require macro guidance and local assessment and planning (He, 2017). The concept of climate capacity can function as a scientific basis for carrying out research on adaptive zoning, measuring the sufficiency of water resources and ecological carrying capacity in specific areas in the context of climate change, and thereby formulating scientific and reasonable population and development plans.

References Bai, M., Hao, R., Gao, J., Li, X., & Yang, J. (2010). Climatic resources potential productivity and its population capacity evaluation in inner Mongolia. Agricultural Research in the Arid Areas, 28(6), 253–257. Batchelder, H. P., & Kashiwai, M. (2007). Ecosystem modeling with NEMURO within the PICES climate change and carrying capacity program. Ecological Modelling, 202(1–2), 7–11. Berck, P., Levy, A., & Chowdhury, K. (2012). An analysis of the world’s environment and population dynamics with varying carrying capacity, concerns and skepticism. Ecological Economics, 73, 103–112. Del Monte-Luna, P., Brook, B. W., Zetina-Rejón, M. J., & Cruz-Escalona, V. H. (2004). The carrying capacity of ecosystems. Global Ecology and Biogeography, 13(6), 485–495.

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Fang, Y., OuYang, Z., Zheng, H., Xiao, Y., Niu, J., Chen, S., & Lu, F. (2012). The natural causes of population distribution in China. Chinese Journal of Applied Ecology, 23(12), 3488–3495. Gao, Z., Liu, J., Cao, M., Li, K., & Tao, B. (2004). Effects of land use and climate change on ecosystem productivity and carbon cycle in the transitional region of agriculture and pastoral areas. Science in China Series d: Earth Sciences, 34(10), 946–957. Gong, X. (2010). On the legal attributes and distribution priciples of global climate capacity. Wuhan University International Law Review, 2010(1), 297–298. Gong, Y., Hu, Y., Adelie, M., Li, K., Yi, W., Zhang, W., & Wang, J. (2010). Adaptability analysis of alpine grassland to climate productivity model. Acta Prataculturae Sinica, 19(2), 7–13. He, X. J. (2017). Information on impacts of climate change and adaptation in China. Journal of Environmental Informatics, 29(2). Hu, H. (1990). The distribution, regionalization and prospect of population in China. Acta Geographica Sinica, 45(2). IPCC. (2012). In Field, C.B., V. Barros, T.F. Stocker, D. Qin, D.J. Dokken, K.L. Ebi, M.D. Mastrandrea, K.J. Mach, G.-K. Plattner, S.K. Allen, M. Tignor, and P.M. Midgley (Eds.), Managing the risks of extreme events and disasters to advance climate change adaptation. A special report of working groups I and II of the intergovernmental panel on climate change, (p. 582). Cambridge University Press. Kessler, J. J. (1994). Usefulness of the human carrying capacity concept in assessing ecological sustainability of land-use in semi-arid regions. Agriculture, Ecosystems and Environment, 48(3), 273–284. Li, Y. (2010). Distribution characteristics of climate carrying capacity in arid region of Ningxia. Journal of Arid Land Resources and Environment, 24(8), 96–100. Liu, R., Feng, Z., & You, Z. (2010). Research on the pattern and mechanism of population distribution in China. China Population, Resources and Environment, 20(3), 89–94. Parry, M., Arnell, N., Berry, P., Dodman, D., Fankhauser, S., Hope, C., Kovats, S., Nicholls, R., Satterthwaite, D., Tiffin, R., Wheeler, T., & Hanson, C. (2009). Adaptation to climate change: Assessing the costs. Environment, 51(6), 29–36. Qin, et al. (2005). Assessment of climate and environmental evolution in China (I): Climate and environmental changes in China and future trends. Advances in Climate Change Research, 1(01), 4. Rees, W. E. (1992). Ecological footprints and appropriated carrying capacity: What urban economics leaves out. Environment and Urbanization, 4(2), 121–130. Smith, J. B., Dickinson, T., Donahue, J. D., Burton, I., Haites, E., Klein, R. J., & Patwardhan, A. (2011). Development and climate change adaptation funding: Coordination and integration. Climate Policy, 11(3), 987–1000. Teng, F., & Gu, A. (2007). Climate change: National and local policy opportunities in China. Environmental Sciences, 4(3), 183–194. The Central People’s Government of the People’s Republic of China. (2013). National strategy for adapting to climate change, NDRC, Climate [2013] No. 2252, November 2013, http://www.gov. cn/gzdt/att/att/site1/20131209/001e3741a2cc140f6a8701.pdf. Accessed 12 August 2021. Tong, Y. (2012). Evolution of population carrying capacity research, problems and prospects. Population Research, 36(5), 28–36. Wang, G. (1998). The geographical distribution and its changes of China’s population. Population Research, 22(6). Wu, J., & Wang, Z. (2008). An agent simulation analysis of population geographical evolution in China since 2000. Acta Geographica Sinica, 63(2), 185–194. Zhang, J. S., Huang, X., Tan, Y., Wang, T., Ren, T., Li, S., Ji, H., Liu, C., Yang, J., Ma, N. and Yang, B., & Zhang, L. (2012). Adapting to climate change: Ecological migration in Ningxia. A Study of Strategic Solutions to Global Climate Change in Ningxia, 230–370. Zhou, G., Yuan, W., Zhou, L., & Zheng, Y. (2008). Analysis of productivity and population carrying capacity of terrestrial ecosystem in Northeast China. Chinese Journal of Plant Ecology, 32(1), 65–72.

Chapter 13

An Analytical Framework for Climate Adaptation

The risks of climate change pose severe challenges to China. Adaptation to climate change has become an inevitable choice (Huitema, 2016). Meanwhile, China is still in the early stages of exploration in terms of the theoretical framework, analytical methods, planning, and implementation of climate adaptation. To this end, we have proposed an analytical framework for China’s adaptation to climate change in light of the current status, problems, and basic needs and distinguished between developmental and incremental adaptation challenges and engineering, technical and institutional adaptation measures. Adapting to climate change requires a tailored policy design and economic analysis.

1 Theoretical Analysis Framework for Climate Change Adaptation Adaptation is the adjustment of the natural or human system in response to actual or expected climatic stimuli or their effects (Smit et al., 1999). There are three primary purposes for adaptation: enhancing the ability to adapt, reducing vulnerability, and exploiting potential beneficial opportunities. Although all sectors are subject to climate change risks, some sectors or groups are more sensitive and more vulnerable to the risks. The primary challenge posed at natural resource management at the local level and to promote adaptive capacity in the context of competing for sustainable development objectives (Adger et al., 2003). The short-term goal of adaptation is to reduce climate risks and enhance adaptability. The long-term goal should be consistent with sustainable development targets. It can be seen that adaptation is inseparable from sustainable development (Leary & Barros, 2008). Socio-economic See “Analytical Framework and Policy Implications of Climate Change Adaptation” in China Population-Resources and Environment, Vol. 10, 2010, with Zheng Yan making the main contribution to this section. © China Social Sciences Press 2022 J. Pan, Climate Change Economics, https://doi.org/10.1007/978-981-19-0221-5_13

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vulnerability comes from climate change challenges and relies on the status quo and path of development. Sustainable development can reduce vulnerability, and adaptation policies may only succeed when implemented within the framework of sustainable development. At present, some publications confuse climate change adaptation with growth. In that case, the concept of climate change adaptation tends to be over-generalized and all-encompassing, and thus often far-fetched. There has to be a clear conceptual framework to deepen the analysis of climate change adaptation, growth and clarify policy implications (Bowen et al., 2012; Dumas & Ha-Duong, 2013; Millner & Dietz, 2015; Zhao, 2018). Here, we propose that climate change adaptation covers two major categories: incremental adaptation and developmental adaptation. In a strict sense, adaptation mainly aims at the incremental part. There are primarily three types of adaptation in terms of measures: engineering, technical, and institutional adaptation. A combination of two or three measures may be required for a specific adaptation activity. Adaptation to human-induced change in climate has primarily been envisioned as increments of these adaptations intended to avoid disruptions of systems at their current locations. Incremental adaptation is the additional investment required to consider new risks based on the existing system. Climate change increases the risk level, making the original facilities or investments inadequate to resist disasters’ frequency and intensity, so the additional investment is needed to resolve the challenge. Incremental adaptation applies when basic development needs have been met, and only additional activities are required to deal with increased climate risks. It is often the case in developed countries or developed regions. Infrastructures to resist extreme natural disasters like dikes, flood discharge, and drought relief facilities have been put in place. Only new risks caused by climate change need to be taken into consideration. For instance, an existing dike may need to be heightened and reinforced when there is a 20 cm rise in sea level. Additional investments are required in this case to make up for the shortage of original design, which is called incremental adaptation investment. However, for developing countries and underdeveloped regions, in most cases, the infrastructure to resist climate risks is far from sufficient. There may have no established engineering facilities for flood control or drought resistance. Droughtresistant crops and varieties may not have been bred. Thatched houses can by no means resist any type of typhoon. Therefore, adapting to climate change in these cases requires holistic measures to combat all the challenges in various aspects, including building facilities, breeding new bred, and constructing high-quality housing. These measures may need to be carried out to improve people’s living standards, even if there is no climate change. But in fact, due to backward economic growth and low capabilities, many countries/regions do not have adequate facilities and investments. Hence, climate change adaptation can be viewed as a development issue in this situation. Both regular development needs and incremental climate change risks should be taken into consideration. Separating development needs from incremental climate change risks is often not likely and not necessary. For instance, in facing the challenge of a 20 cm sea-level rise caused by climate change, it is necessary to calculate the safety requirements in all scenarios besides the sea-level rise to build a

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Table 1 Incremental adaptation and developmental adaptation Adaptation mode

Current risk level

Future risk level (in climate change scenario)

Incremental adaptation (Developed areas)

Regular risk: 60 Climate change risk: 0 Adaptation investment: 60 Net loss of climate risk: 0 Incremental investment: 0

Regular risk: 60 Climate change risk: 30 Adaptation investment: 90 Net loss of climate risk: 0 Incremental investment: 30

Developmental adaptation (Undeveloped areas)

Regular risk: 60 Climate change risk: 0 Adaptation investment: 30

Regular risk: 60 Climate change risk: 30 Adaptation investment: 90

Net loss of climate risk: 30 Incremental investment: 30

Net loss of climate risk: 60 Incremental investment: 60

Note It is assumed that adaptation investment is proportional to benefit. One unit of adaptation investment can correspondingly reduce 1 unit of climate change risk, neglecting inevitable risk

new dike once for all. This example illustrates what developmental adaptation is. Due to backward development stages and lagging facilities and measures, climate change adaptation in developing countries/regions needs to consider both basic development needs and incremental climate risks. The difference between incremental adaptation and developmental adaptation can be explained with a cost–benefit analysis (see Table 1). Developed countries/regions can adequately respond to regular climate risks in the baseline scenario, while underdeveloped countries/regions are under-invested to cope with these risks. Therefore, developed countries/regions only need incremental investments in the climate change scenario, whereas underdeveloped countries/regions have to incorporate additional risks while making up for the deficiency in regular investments. The above analysis shows how “Adaptation Deficit” is caused by lagging development level and also explains why climate change adaptation should be viewed as an additional cost of development brought by developed countries/regions to the underdeveloped world (Preston et al., 2011). China is a developing country with rapid urbanization and industrialization. Chinese regions vary widely in development levels, and hence significant developmental adaptation needs coexist with substantial incremental adaptation needs. Some developed coastal areas may have sizable economic wealth and reliable infrastructures but face soaring climate change risks and vulnerability. Therefore, it is essential to enhance their incremental adaptation activities, such as strengthening existing reservoir dams. For developed regions, many climate change adaptation activities have incremental characteristics. On the other hand, underdeveloped areas may have to rely on fiscal appropriation to carry out developmental adaptation activities, including the construction of sea dykes and dams, added investments in water conservancy facilities, more meteorological monitoring stations, better transportation, energy, and other infrastructures, and improved insurance coverage and social security for vulnerable groups.

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Climate change adaptation is a complex systematic project (Klein et al., 2005). Generally speaking, there are engineering, technical, and institutional adaptation measures. Different adaptation methods and their combinations can be applied to various sectors in specific climate risk zones. Engineering adaptation uplifts social and economic adaptability by engineering and constructing infrastructures, including water conservancy facilities, environmental protection facilities, interbasin water transfer projects, epidemic monitoring networks, meteorological monitoring stations, etc. Technical adaptation enhances adaptability through scientific research and technological innovation, including R&Ds on climate risk assessment, new crop varieties, ecosystem adaptation technology, disease control, and prevention technology, and risk monitoring and early warning technology. Institutional adaptation promotes adaptability through institutionalization and legislation of incentive policies, such as carbon tax, forest carbon sink, watershed ecological compensation, climate insurance, social security, education and training, awareness-raising, and communication.

2 Economic Analysis of Climate Change Adaptation Adapting to climate change is a long-term action. Adaptation policies and actions require comprehensive consideration of climate risk, socio-economic conditions, and regional development planning. The “National Adaptability Framework (NAC)” developed by the World Resources Institute proposes that adaptation actions should focus on the following principles: advancing adaptation actions in the process of capacity building, adopting a learning-by-doing approach and participating in an equal and transparent decision-making process, considering adapting national conditions to local conditions and flexible adaptation options (McGray, 2009). The Organisation for Economic Co-operation and Development’s issued adaptation policy guidelines in 2009. It proposed four basic steps for adaptation: (1) (2) (3) (4)

define current and future climate risks and vulnerabilities; screen various possible adaptation strategies; evaluate and select feasible adaptation measures; assess “successful” adaptation actions (OECD, 2009).

A socio-economic analysis of adaptation measures is required in the above steps. One way to define climate risk and vulnerability is to estimate the economic cost of climate risk. There are many loss assessment methods for climate risk in different fields. From an economics perspective, it is mainly a bottom-up microanalysis method and a top-down macro-analysis method. Micro-analysis methods are based on industries, departments, and individuals. Empirical data and statistical methods are used to infer the economic losses caused by climate risks to specific sectors or groups in a region, such as field survey methods, econometric methods, and environmental value assessment methods. Macro analysis methods use macrolevel data and information to reveal the inherent relationship between climate risks

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and economic impacts, such as computable general equilibrium analysis models (CGE), input–output methods, and linear programming methods. Based on different recognition of the facts of climate change, adaptation can be divided into “No Regrets” or “Less Regrets” adaptation actions and “Climate Justified” adaptation actions (Heltberg et al., 2009). Development-based adaptation includes many regret-free measures to improve adaptive capacity, such as reducing poverty, reducing air pollution, reducing biodiversity loss, water resources protection, and improving the construction of public health systems. Even if sometimes the climate risk is overestimated, it is indispensable in social and economic development. According to different social and economic development scenarios, incremental adaptation needs to be based on scientific evaluation of future climate change to formulate targeted adaptation countermeasures. For example, the seawall and dam need to be raised according to the prediction of sea-level rise. Other measures include moving the residents from submerged zone residents, changing land use patterns in threatened areas, etc. The selection of adaptation measures requires cost–benefit analysis or costeffectiveness analysis (Pearce et al., 1998). Cost–benefit analysis refers to estimating various economic and non-economic costs of a specific adaptation investment and comparing the results of not taking adaptation measures. If the net benefit is greater than 0, the adaptation measures are cost-effective and can be implemented. Costeffectiveness analysis refers to judging whether an adaptation measure can reduce vulnerability more effectively in the face of diversified adaptation policy options. Effective adaptation measures must have a certain degree of flexibility. When climate change scenarios and socio-economic conditions change, the expected adaptation goals can also be achieved. At the same time, the co-benefit effect of adaptation measures is also significant. For example, afforestation can conserve water, purify the air, and develop forest by-products to increase residents’ income. Cost-effective adaptation measures also need to consider feasibility, including corresponding policy, legislation, institutional environment, technical conditions, and comparability with local procedures and priorities. Multiple risk losses can be avoided by taking planned adaptation actions. Figure 1 shows how the loss of climate risk will gradually decrease with increasing adaptation investment (Tol, 2002). In actual adaptation policy research, it is necessary to analyze the cost and benefit of specific adaptation measures. It is possible to actively implement adaptation measures that conform to the principle of cost-effectiveness. For adaptation investments where costs are greater than benefits, it is necessary to determine whether they have potential synergies or long-term benefits, such as promoting poverty reduction, sustainable livelihoods, and ecological protection. In short, economic analysis of climate change adaptation actions requires assessment at the industry or project level and selection of adaptation measures, analysis of the costs and possible effects of adaptation policies, clarification of the combination and sequence of policy measures, and estimation of funding needs. For instance, a cost–benefit analysis of adaptation in coastal areas needs to consider total economic output and population and ecological capacity, as well as potential disasters brought by climate change such as typhoons, floods, and sea-level rise. It also needs to

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Fig. 1 Climate risk loss and adaptation investment income

consider the cost of protective measures, adaptive measures and managed retreat of particular social and economic activities from the coast. In addition, there are direct economic impacts caused by typhoons, floods, or sea-level rise (such as house collapse, casualties, road damage, crop failure, etc.), and indirect effects caused by disasters, including post-disaster epidemic, psychological impact, social instability, unemployment, and rising prices. There can be various investment entities and funding sources for incremental and developmental adaptation activities. For example, coastal infrastructure investment often comes from national public expenditure, while disaster insurance and ecological compensation may utilize market mechanisms in the private sector.

3 Policy Options for Climate Change Adaptation The IPCC states that climate change will expose an increasing number of people to climate risks. The vast development deficit and the added climate risks make the adaptation needs of developing countries and regions even more urgent. Adaptation to climate change, whether incremental or developmental, engineering, technological or institutional measures, requires corresponding adaptation policies and institutional arrangements. Based on the priority areas for adaptation proposed by the IPCC, combined with the scientific assessment conducted in China’s Climate and Environmental Evolution (Chen et al., 2005), it is suggested that China should focus on promoting adaptation policies in the following areas.

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3.1 Agricultural Adaptation Capacity Building Compared to urban areas, most of China’s rural areas suffer from low-income levels, a homogeneous economic structure, relatively backward infrastructure related to water conservation, environment, and public health, and severely insufficient social security coverage. People in rural areas lack the necessary resources to protect their properties and themselves against disasters. In extreme weather events such as typhoons, floods, and droughts, their crops and properties are often threatened. In response, first, continue to improve the construction of agricultural production infrastructure, use financial transfer payments and develop rural private financial investment to increase the enthusiasm of local investment in infrastructure such as farmland water conservancy, irrigation facilities and meteorological monitoring stations to enhance agriculture’s ability to withstand climate risks; second, adjust the structure of agricultural production through relevant institutional reforms and policy measures, and summarize and promote water-saving, drought-proof, cold-proof, insect-resistant pests and other adaptable varieties of agriculture, forestry and animal husbandry; third, actively promote agricultural insurance and explore a risk-sharing mechanism combining agricultural policy insurance and commercial insurance; fourth, focus on developing a variety of sustainable livelihood industries, develop rural microfinance, and improve the economic capacity of rural areas, such as energy forestry, biomass industry, agricultural product processing, and ecological tourism.

3.2 Water Resources Management and Ecological Protection Climate change will reduce the runoff of China’s major river basins, exacerbate ecosystem degradation and land desertification in China’s arid regions, and directly threaten water security. China has already carried out measures like large-scale ecological reforestation, returning farmland to grass, and water-saving irrigation. However, there is a need to evaluate further the social, economic, and ecological impacts of these measures on rural areas in arid areas to sum up experiences and lessons. The aim is to identify and develop more effective prevention and countermeasures. In water management and ecological protection, engineering adaptation measures include river dredging, planting trees and grasses, adopting an ecosystem approach to protect wetlands, purifying water pollution, etc. Additional measures, such as developing a scientific and reasonable water pricing mechanism, shifting to water conservation products, and improving demand-side management, integrating water resources management with regional economic development, ecological protection, and sustainable livelihoods, carrying out integrated management of river basin ecosystems, actively promoting river basin ecological compensation mechanisms, and broadening adaptation funding channels, can enhance capacity building in terms of the institutional environment.

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3.3 Health Risk Management and Urban and Rural Health Insurance System The necessity to establish an early warning, prevention and control mechanism for climate change inducing diseases. Climate change brings dangers of heatwaves, vector-borne infectious diseases, and post-disaster diseases. It can cause diseases among some populations, increase the risk of mortality and morbidity, impact urban and rural habitats and health security, and stress out the current disease surveillance, prevention, and treatment systems. The disease prevention and control system in China needs to have both developmental and incremental adaptation. For instance, after decades of accumulation and construction, China already has good surveillance capabilities in regions with a high prevalence of infectious diseases such as dengue fever and malaria. Still, in the face of potential future epidemic risks, there is a need to assess potential epidemic risks further and adopt corresponding adaptation countermeasures. In addition, an effective public health system should include “soft adaptation” measures such as institutional safeguards and policy design besides “hard adaptation” measures such as establishing disease surveillance networks and increasing investment in personnel and equipment in health institutions. Due to the shortage of public health care institutions and medical personnel in rural areas, poor sanitary conditions, and poor living environment, not only are the lives and health of the rural population at risk, but the unequal distribution of public medical resources and the difficulty in accessing medical care also further aggravate the survival pressure of rural groups. In this regard, policies need to be formulated to strengthen social security and reform the existing public medical system to effectively protect health care in rural and remote areas and effectively improve the adaptive capacity of this vulnerable group.

3.4 Coastal Infrastructure and Habitat Construction More than 70% of China’s large cities and 50% of its population are located in the eastern and coastal areas (Han et al., 1995). Under the influence of climate change, the vulnerability of coastal habitats is becoming increasingly evident. In the past 50 years, China’s coastal regions have experienced an average 2.5 mm annual sea-level rise (Qu et al., 2019), a rate higher than the global average, causing significant negative impacts on the production and people in coastal areas, such as seawater back-up, salinization of agricultural land, and even the risk of collapse of coastal protection dikes. At the same time, the eastern coastal areas are also hit by frequent meteorological disasters such as typhoons and floods. A study by the Organization for Economic Cooperation (OECD) showed that if ranked by the total social assets exposed to flood, many Chinese cities are listed in the top 20 cities at the greatest risk worldwide, including Guangzhou, Shanghai, Tianjin, Hong Kong, Ningbo, and Qingdao (Nicholls et al., 2008). In coastal areas, adaptation

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measures can take a wide range of forms. Engineering-based measures include the construction of seawalls, flood control measures, reinforcement of buildings, and the relocation of people and property; technical means such as improvements in water management patterns, changes in the production methods of agriculture and fisheries in coastal areas (e.g., promotion of flood- and saline-resistant crops), and the adoption of new permeable ground materials; and institutional components involving building standards, legislation, tax subsidies, property insurance, and the construction of social security systems. Moreover, there is a need to study the population migration and urban planning issues brought about by sea-level rise and explore the prevention costs of public facilities and specific measures to enhance the government’s risk management capacity.

References Adger, W. N., Huq, S., Brown, K., Conway, D., & Hulme, M. (2003). Adaptation to climate change in the developing world. Progress in Development Studies, 3(3), 179–195. Bowen, A., Cochrane, S., & Fankhauser, S. (2012). Climate change, adaptation and economic growth. Climatic Change, 113(2), 95–106. Chen, Y., Ding, Y., She, Z., Lin, E., Pan, J., Zhou, G., Wang, S., Zhou, D., Li, C., Zhang, J., Xu, G., Li, C., & Wu, Z. (2005). Assessment of climate and environmental evolution in China (II): Impacts of climate and environmental change and adaptation and mitigation policies[J]. Advances in Climate Change Research, 2005(1), 2. Dumas, P., & Ha-Duong, M. (2013). Optimal growth with adaptation to climate change. Climatic Change, 117(4), 691–710. Folke, C., Carpenter, S., Elmqvist, T., Gunderson, L., Holling, C. S., & Walker, B. (2002). Resilience and sustainable development: Building adaptive capacity in a world of transformations. AMBIO: A Journal of the Human Environment, 31(5), 437–440. Han, M., Hou, J., & Wu, L. (1995). Potential impacts of sea-level rise on China’s coastal environment and cities: A national assessment. Journal of Coastal Research, 79–95. Heltberg, R., Siegel, P. B., & Jorgensen, S. L. (2009). Addressing human vulnerability to climate change: Toward a ‘no-regrets’ approach. Global Environmental Change, 19(1), 89–99. Huitema, D., Adger, W. N., Berkhout, F., Massey, E., Mazmanian, D., Munaretto, S., Plummer, R., & Termeer, C. C. (2016). The governance of adaptation: Choices, reasons, and effects. Introduction to the Special Feature. Ecology and Society, 21(3). Klein, R. J., Schipper, E. L. F., & Dessai, S. (2005). Integrating mitigation and adaptation into climate and development policy: Three research questions. Environmental Science and Policy, 8(6), 579–588. Leary, N., Adejuwon, J., Barros, V., Kulkarni, J., & Burton, I. (Eds.). (2008). Climate change and adaptation. Routledge. McGray, H. (2009). The national adaptive capacity framework: Key institutional functions for a changing climate, (pp. 3–4). World Resources Institute. Millner, A., & Dietz, S. (2015). Adaptation to climate change and economic growth in developing countries. Environment and Development Economics, 20(3), 380–406. Nicholls, R., et al. (2008). Ranking port cities with high exposure and vulnerability to climate extremes: Exposure estimates. OECD Environment Working Papers, No. 1, OECD Publishing. https://doi.org/10.1787/011766488208 OECD. (2009). Integrating climate change adaptation into development cooperation: Policy guidance[M]. OECD Publishing, 2009, 56–60.

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Pearce, D. (1998). Cost benefit analysis and environmental policy. Oxford Review of Economic Policy, 14(4), 84–100. Preston, B. L., Westaway, R. M., & Yuen, E. J. (2011). Climate adaptation planning in practice: An evaluation of adaptation plans from three developed nations. Mitigation and Adaptation Strategies for Global Change, 16(4), 407–438. Qu, Y., Jevrejeva, S., Jackson, L. P., & Moore, J. C. (2019). Coastal sea level rise around the China seas. Global and Planetary Change, 172, 454–463. Smit, B., Burton, I., Klein, R. J., & Street, R. (1999). The science of adaptation: A framework for assessment. Mitigation and Adaptation Strategies for Global Change, 4(3), 199–213. Tol, R. S. (2002). Estimates of the damage costs of climate change. Part 1: Benchmark estimates. Environmental and Resource Economics, 21(1), 47–73. Zhao, L. (2018). Urban growth and climate adaptation. Nature Climate Change, 8(12), 1034–1034.

Chapter 14

Adaptation Planning

Climate change poses many challenges to sustainable development globally, especially in developing countries (Adger et al., 2003). Adaptation addresses more “realistic and urgent issues” compared with mitigation. As a new field of public policy research, adaptation to climate change involves cross-sectoral, multi-level, and multiobjective environmental management, which poses high demands on the concept, methods, and management tools of decision-making. According to the special report of the IPCC, Managing the Risks of Extreme Events and Disasters to Advance Climate Change Adaptation (IPCC, 2012), scientific and rational development planning can help enhance disaster risk management and climate change adaptation. In response to the global climate and environmental changes, developed regions such as Europe and the United States have actively promoted adaptation planning based on adaptive management at the policy and practical levels in recent years. Since 2010, China has included “addressing global climate change” as a separate chapter in its five-year development plan, clearly proposing that “we should improve the institutional mechanism and policy system and enhance the capacity to cope with climate change.” It is foreseeable that as China actively promotes climate change adaptation strategies and planning from national to local levels, the demand for relevant policy research will become increasingly imperative.

This part can be found in “Adaptation Planning: Concepts, Methodology and Cases” in China Population-Resources and Environment, Vol. 3, 2013, to which Yan Zheng made the main contribution and Mao-Lin Liao participated in part. © China Social Sciences Press 2022 J. Pan, Climate Change Economics, https://doi.org/10.1007/978-981-19-0221-5_14

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1 The Concept and Content of Adaptation Planning 1.1 Adaptation Planning Implications Planning is one of the essential concepts in the field of public policy. The ultimate goal of public policy is to achieve “good governance” (Keping, 2018), in other words, “good development,” which includes: (1) optimal economic growth; (2) the most equitable distribution of existing and potential wealth and resources; and (3) minor damage to the natural environment. This development concept also means simultaneously achieving sustainable development goals of economic growth, social progress, and environmental protection. As a bridge from the real world to a sustainable future, planning is a dynamic process of continuous selection and decision-making based on available information at different temporal and spatial scales, aiming to use limited resources to accomplish specific goals in a specific future period. Therefore, planning often needs to be systematic, planned, and forward-looking, with future-oriented development strategies and the design of scientifically feasible development paths and action plans. Adaptation Planning is a new demand for decision-making that comes with climate change (Füssel, 2007). It is also a positive response at the policy level after people have gained a deeper understanding of the climate change issue and its laws. Climate change is a typical problem of the “Social-Ecological System” with long-term complexity, uncertainty, irreversibility, potential impact, and urgency. This makes adaptation to climate change a real challenge for policy makers (Tompkins & Adger, 2004). As a long-term strategy, adaptation policies and actions need to take into consideration holistically the climate risks, socio-economic conditions, and regional development planning, as well as timely scientific updates. The policy design concept embedded in adaptation planning is “adaptive management” or “adaptive planning.” After more than 30 years of development and practice, the concepts of adaptive policy, adaptive governance, and adaptive strategic planning have been developed and widely applied in climate change, water resources management, biodiversity management, disaster risk management, and environmental impact assessment. (Allen et al., 2011; Williams, 2011). Incorporating adaptive management concepts into adaptation policy and planning design can help change the traditional risk-response approach toward a risk-adaptive management pathway. The international understanding of adaptation planning is a decision-making and management process to achieve policy goals. It emphasizes the context in which the plan is developed and implemented and its organizational and operational mechanisms, i.e., the influence of governance structures, mechanism design, and institutional environment. A related concept is “adaptation governance,” which can be defined as “a joint approach to climate risk management by public authorities, the public, businesses, NGOs, and other stakeholders with the common goal of achieving climate security, social equity, and sustainable development.” Adaptation planning is an important goal and a policy tool to promote adaptation governance.

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1.2 The Objectives and Primary Actors of Adaptation Planning Adaptation to climate change reduces adverse impacts or losses due to climate risks and increases potentially beneficial opportunities. Adaptation planning can be designed with different objectives according to various decision levels, policy sectors, and areas. It can be a single objective for a single sector or multiple objectives integrated with regional sustainable development and other relevant sectors. For example, when considering climate change adaptation, traditional disaster management focuses on climate disasters and their risks, intending to reduce climate disaster risks and their losses. From the perspective of national and regional development strategies, adaptation planning needs to be considered in conjunction with multiple objectives such as natural resource development and utilization, poverty reduction, emission reduction, and ecological, environmental protection. Therefore, it is necessary to focus on extreme weather and climate events and their disaster risks and expand the horizon to a wide range of areas closely related to national security, social equity, vulnerable groups, poverty reduction, and other sustainable development goals. As an environmental issue, climate change has an innate characteristic of public goods (Hasson et al., 2010). Adverse climate change impacts and the mitigation of GHG can be viewed as public goods. However, the adaptation to climate change can be seen as a private good, as the benefits can be confined to a country, a region, or an individual that invests in adaptation. The primary actors of adaptation planning are generally government agencies at the national and regional levels. The primary actors of adaptation planning can be stakeholders like communities and non-governmental organizations (NGOs) at the local level. The IPCC special report clarifies the primary actors and their functions at different governance levels and governance pathways in adaptation planning (Fig. 1), noting that research institutions, the private enterprises, civil society, and community organizations have different roles and can play complementary roles to government management (Murray & Ebi, 2012) (Fig. 2).

1.3 The Connotation and Implementation Steps of Adaptation Planning In order to facilitate the development of adaptation policies in countries, the United Nations Development Programme (UNDP) has developed the Adaptation Policy Framework (Framework, 2004), which divides the adaptation decision-making process into the following five main stages: (1) research scoping; (2) assessment of current vulnerability; (3) assessment of future climate risks; (4) development of adaptation strategies; and (5) implementation of adaptation policies and actions. Based on adaptation case studies conducted in several countries, the World Resources Institute (WRI) has proposed the National Adaptation Capacity Framework (NAC)

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Fig. 1 Different governance subjects of climate change adaptation and their functions

Fig. 2 Adaptation planning process

(McGray, 2009)as an adaptation planning guideline for policymakers, researchers, and the public. The fundamental principles include: (1) promoting adaptation actions in the process of capacity building; (2) adopting a learning-by-doing approach; (3) an equitable and transparent decision-making process; and (4) adapting to local circumstances and flexible adaptation options, taking into account national circumstances. In addition, the Organization for Economic Cooperation (OECD) (OECD, 2009), in its adaptation policy guidance, proposes four basic steps for adaptation planning: (1) defining current and future climate risks and vulnerabilities; (2) screening all possible adaptation responses; (3) assessing and selecting feasible adaptation measures; and (4) evaluating “successful” adaptation actions. In summary, the main elements of

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adaptation planning and implementation steps can be summarized in the following five areas: (1)

(2)

(3)

(4)

(5)

Objectives setting and planning scoping. Given the variability of climate change adaptation in different regions, sectors, and management levels, it is necessary first to define the specific scope of adaptation planning and its objectives so that the design and formulation of the plan can be more focused. Vulnerability and risk assessment. Vulnerability refers to the tendency or trend of a system to be adversely affected (IPCC, 2012). The climate change vulnerability assessment includes the evaluation of natural resources, ecological environment, social groups, economic property, human habitat, health, governance capacity, and many other aspects. Based on the results of various climate change scenario predictions, different climate risk assessments are provided for different socio-economic development scenario analyses, which serve as a scientific basis for planning. Adaptation measures identification and prioritization. First, it is necessary to set scientific and reasonable adaptation goals consistent with the majority of people’s values, i.e., to build consensus for action. Second, analytical methods such as expert consultation, stakeholder workshop, and cost–benefit analysis identify the most realistic and operational adaptation responses and prioritize the adaptation responses according to specific principles. Adaptation strategies development and implementation. Road-mapping and Policy design for future scenarios needs to reflect adaptability and flexibility. For example, diversification of development pathways and risk management instruments; selection of no-regret or low-regret policy measures; avoidance of investment or technology lock-in effects; phased implementation; timely adjustment and change of policy content based on new scientific knowledge, information, and feedback, etc. Monitoring, feedback, and evaluation in the process of policy implementation. Due to the complexity and long-term nature of climate change issues, there is a gradual process to raise awareness. Therefore, in the process of policy implementation, continuous monitoring, feedback, and evaluation of the process and effects of policy implementation are conducive to timely correction of possible mistakes and problems in the decision-making process and opportunities for learning and improvement from errors.

Based on domestic and international research and practice, several critical points of adaptation planning can be summarized (Allen et al., 2011; IPCC, 2012; Williams, 2011), namely: (1) stakeholder participation; (2) clear and assessable consensus goals; (3) designing future policy scenarios based on uncertainty; (4) providing a variety of policy options to improve management flexibility; (5) emphasizing “learning by doing” and “improving from mistakes,” focusing on improving the learning capacity of all participants and advocating a learning organization; (6) ensuring that the planning achieves the desired goals. (7) establishing adaptation governance mechanism to ensure concrete actions and initiatives, etc.

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1.4 The International Practice of Adaptation Planning In response to the challenges of climate change to the traditional environmental management field, several pieces of literature and cases have explored how existing policy and institutional designs can be improved through climate change adaptation planning, theoretically and practically (Carter et al., 2015). For example, Nelson et al. use the example of Australian drought policy to point out that traditional research areas and institutional frameworks do not provide practical solutions for policy improvement (Nelson et al., 2008). Mirfenderesk and Corkill (2009) pointed out the lack of adaptability in the traditional flood risk strategic planning, proposed establishing a strategic decision support system, and designed a feasible adaptation strategy based on corresponding decision-making and implementation principles. Gemmer, Wilkes & Vaucel compared the adaptation governance frameworks of China and EU countries in water resources management, including policymaking, legislation, planning, and specific activities (Gemmer et al., 2011). Biesbroek et al. (2010) compared the ‘national adaptation strategies’ of seven European countries, noting different roles played in each country’s adaptation governance structure and the practical difficulties and challenges these countries faced in implementing multilevel governance and policy integration strategies. Urwin and Jordan (2008) took the UK’s agricultural, ecological, and water policies as an example and looked at both “top-down” and “bottom-up” adaptation planning pathways. Juhola & Westerhoff compared the similarities and differences in the governance models for climate change adaptation in two EU member states. They point out that many adaptation actions are spontaneously generated at the local level. More attention should be put on the policy integration between the national and local levels (Juhola & Westerhoff, 2011). In recent years, in response to the complexity and comprehensiveness of climate change decision-making and management, European countries, starting with the United Kingdom, have emerged to reform the modern public management model, which is shifting from the traditional administrative model and decentralized new public management model to a systematically integrated model of collaborative governance with fewer agencies within the government (Weng, 2010). Many developed countries have made adaptation strategies at the national, regional, and city levels, with the commonality of emphasizing a scientific basis for decision-making and broad stakeholder participation while giving full play to the role of the market. In the UK, for example, the City of London established the London Climate Change Partnership (LCCP)1 in 2001, with over 200 agencies involved in promoting urban climate decision-making and information communication. In 2008, the City of London launched the world’s first. “The London Climate Change Adaptation Strategy,” which recommends the preparation and implementation of urban plans based on the following policy frameworks: climate impact assessment, vulnerability, 1

The London Climate Change Partnership is the centre for expertise on climate change adaptation and resilience to extreme weather in London. http://climatelondon.org/lccp/. Accessed 12 August 2021.

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and risk assessment, climate change-related flooding, water resources, and climate change (Authority, 2008). The strategy recommends preparing and implementing city plans based on the following policy frameworks: climate impact assessments, vulnerability and risk assessments, climate change related flooding, water scarcity, heat waves, and air pollution, and adaptation options and roadmaps. After a 2-year revision and consultation process, the London Councils are currently assessing urban planning policies to advance the implementation of adaptation strategies (Davoudi et al., 2011). In 2010, the Committee on Climate Change (CCC) released a report to identify the five priority adaptation issues: land use planning, nationally essential infrastructures such as energy, water resources, transport, waste treatment and telecommunications, design and retrofitting of buildings, sustainable management of natural resources, and effective emergency management planning (CCC, 2010). Under the Climate Change Act 2008, the UK government has published a Climate Change Risk Report (CCRA) every five years since 2012, with the CCC providing guidance and advice. The CCRA provides the basis for regional adaptation programs in England, Scotland, Wales, and Northern Ireland. The first CCRA, published in 2012, set out the UK’s priorities for climate change adaptation: agriculture and forestry, business and industry and services, health and wellbeing, the natural environment, buildings, and infrastructure (Wallingford, 2012). The second climate change risk report, published in 2017, set out six risk areas where more adaptation action is needed: risk of flooding and coastal change, risk of health and wellbeing impacts from high temperatures, risk of water supply shortages, risk of natural assets, risk of food production and trade, and risk of new and emerging pests and diseases and invasive non-native species (CCC, 2017). Recommendations for future CCRAs included (i) adopting more innovative methodological approaches, (ii) developing more effective mechanisms for operationalization of the CCRAs, and (iii) improving the communication of the CCRAs, their risks, and recommendations (Howarth et al., 2018). Australia also attaches great importance to strategic planning and research support for climate change adaptation. In 2007, the Queensland government issued the Climate Flexible Adaptation Strategy, which includes integrating adaptation plans into land use and development planning and climate risk analysis for regional water management (Kennedy et al., 2010). In Australia, cities such as Sydney and Melbourne have integrated urban planning with economic, environmental, and social development to formulate their 2030 urban development strategies, including elements to address climate change. The Climate Change Adaptation Strategy (2009– 2014) developed by the Gold Coast City Council contains a comprehensive local plan covering various areas such as infrastructure development, including transportation and housing, urban governance, scientific research, science outreach, and climate awareness (Howes & Dedekorkut-Howes, 2016). To promote research support capacity for adaptation planning. In 2009, the Australian Climate Change Agency invested $30 million to establish the National Climate Change Adaptation Research Facility (NCCARF) in partnership with eight universities, including Griffith University, to develop and implement the National

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Adaptation Research Plan, integrate climate science research resources, incorporate the latest research findings from home and abroad, and provide information to governments, businesses and the public for climate impact assessment and adaptation decisions. NCCARF co-hosted the first International Conference on Climate Change Adaptation in Gold Coast, Australia, with the CSIRO Climate Adaptation Flagship, Climate Adaptation Futures, which attracted over 1000 delegates who included scientists and decision makers from developed and developing countries to share research approaches, methods and results, and established a platform for international climate change research communication (NCCARF, 2010). This conference was one of the first international forums to focus solely on climate impacts and adaptation. The adaptive management of climate change and the governance mechanism of climate change adaptation are new topics both at home and abroad. They need to be deeply explored and refined on an existing basis. For China, what needs to be learned from developed countries is not only the specific contents of planning, policy, and strategy design for climate change adaptation, but also the more critical understanding of the various mechanisms and governance structure characteristics of different countries in supporting the process of adaptation planning, such as innovations in organizational structure, coordination mechanism, environmental management, etc., differences in institutional and cultural background, governance model, and governance environment, as well as the development and stakeholder interactions throughout the process of planning development and implementation.

2 Primary Methods of Adaptation Planning We present a selection of the most widely applied methods, including stakeholder analysis, cost–benefit analysis, cost-effectiveness analysis, and SWOT strategic planning analysis.

2.1 Stakeholder Analysis Stakeholder Analysis is a widely used participatory development research method in development planning and policy evaluation worldwide. Stakeholder research methods include literature analysis, case studies, Delphi method (expert consultation), stakeholder workshops, participatory research, semi-structured questionnaires, and other methods. Stakeholder research can provide basic information for adaptation planning. Different methods can be used towards specific needs, such as: (1)

Interviews and workshops, where interviewees are asked to present their work areas. There are group interviews, focus group interviews, and individual interviews. Group interviews can be conducted using analytical tools such as Venn

2 Primary Methods of Adaptation Planning

(2) (3)

239

diagrams, problem trees, decision trees, cause-effect correlation tables, and scoring and ranking methods; Field Visit, to visit related agencies and institutes and do individual interviews; Questionnaires or score sheets for adaptation policy assessment.

In the stakeholder research, we can focus on understanding the current situation, problems, and needs of each party in climate change adaptation, including: (1) (2) (3)

(4)

(5)

What are the sectors, regulatory bodies, and stakeholders related to climate change adaptation? What are the priorities for climate change adaptation? Such as key industries, vulnerable groups, high-risk areas, etc.? What are the existing policies, mechanisms, information, and resources for managing future climate risks? What are the remaining weaknesses in establishing a suitable adaptation decision-making mechanism? What are the primary needs for climate change adaptation, such as policy legislation, development planning, information sharing, public participation, technical support? Suggestions and countermeasures of diverse stakeholders (decision-makers, experts, the public, etc.).

2.2 Cost–Benefit Analysis (CBA) and Cost-Effectiveness Analysis (CEA) Cost–benefit analysis (CBA) is widely used in decision analysis in both the private and public sectors. Cost–benefit analysis means that a policy option or project is economically feasible only if the benefits exceed the costs or at least equal the costs in terms of economic effectiveness or economic feasibility. Cost-Effective Analysis (CEA) focuses on those policy objects for which benefits cannot be identified and quantified. The costs of many public policies can be estimated, but the benefits are often difficult to estimate. For example, the costs of ecological migration are calculable, while the benefits involve ecological benefits, social equity, poverty reduction, community development, education, and health improvement, which are difficult to assess in a simple way. In this case, it can be judged by analyzing the effectiveness of the policy in achieving one or more objectives. Policy effectiveness can be assessed in qualitative standards, such as high, medium, and low. Climate change adaptation is a typical public sector decision-making issue. It needs to consider the direct costs and benefits, as well as various indirect costs and benefits. Some of the costs and benefits can be measured in monetary terms. But there are also a large number of costs and benefits that are difficult to be monetized, such as environmental pollution, ecological services, health and life values, cultural heritage, etc. Besides, the explicit or hidden externalities make it difficult to quantify all the costs and benefits of a particular adaptation policy. Usually, the costs and benefits of adaptation responses can be determined directly through a free market, based on two

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premises: (1). the social value of a policy equals the sum of the social value to all its social members; (2) the program’s value to each individual must be based on the full expression of the individual’s willingness to pay and preferences in the presence of transparent information. However, the assumption of a completely free market is usually not satisfied in the real world. There are market price distortions caused by monopolies, regulations, taxes, or subsidies. Sometimes certain products and services cannot be valued in the market. Public investment decisions for environmental goods are generally determined by the shadow price method, alternative market method, and environmental value assessment.

2.3 SWOT Analysis of Strategic Planning for Adaptation SWOT analysis, also known as situation analysis or strengths and weaknesses analysis, is a strategic planning analysis tool widely used in management, which distinguishes various major internal and external factors closely related to the object of study into Strengths, Weaknesses, Opportunities, and Threats. SWOT analysis can simplify complex and massive information, making the decision-making process more scientific and forward-looking. By conducting a comprehensive, systematic and accurate analysis and evaluation, The SWOT analysis helps formulate macro policies, development strategies, and the corresponding action plans of an organization. For instance, a study used the SWOT approach to avoid adverse impacts and explore potential opportunities for the Swiss tourism industry in the context of climate change. It showed that this analytical tool is valuable for decision-makers and stakeholders to jointly design comprehensive adaptation plans to reduce vulnerability (Hill et al., 2010). As the SWOT analysis favors qualitative assessment of subjective judgments, the SWOT-AHP method, which combines quantitative and qualitative research, was developed to multi-objective environmental management decisions (Kurttila et al., 2000). The SWOT-AHP method is based on the SWOT strengths and weaknesses analysis. It uses AHP analysis to optimize the SWOT response matrix and policy options by quantitatively ranking them to select adaptation strategies under different objectives and principles.

3 Adaptation Planning Case Study 3.1 Screening for Adaptation Policy Options Adaptation to climate change is a complex and systematic project. In general, adaptation methods include engineering adaptation, technical adaptation, institutional adaptation, and ecosystem adaptation approaches. Different adaptation tools can be

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selected according to adaptation needs in different climate risk zones and different sectors and industries (Pan and Zheng, 2010). Adaptation responses can be classified according to various criteria, e.g., the UK Climate Impacts Programme uses an analytical framework of adaptation responses as No-regret, Low-regret, Win–win, and Flexible. Ningxia is located in the northwest inland arid region and the middle part of the upper reaches of the Yellow River. Agriculture occupies a substantial proportion in the regional economy. According to its climatic conditions, agricultural and animal husbandry structure, and geographical conditions, Ningxia is divided into the Yellow River Irrigation Area, the Central Arid Zone, and the Southern Mountainous Area from north to south. The southern part is mainly composed of hills and mountains, with poor soil and a relatively concentrated poor population. The topography of Ningxia is high in the south and low in the north, while the temperature is “low in the south and high in the north, cold in the south and warm in the north,” an “inverse” phenomenon and very sensitive to climate change. In general, the ecological environment of Ningxia is fragile and agricultural production is significantly affected by climate change. Taking Ningxia as an example, the following analysis of adaptation measures that the agricultural sector can take can be divided into the following four categories: (1)

(2)

(3)

(4)

Engineering adaptation measures. Mainly water conservancy infrastructure construction can be taken, including the Yellow River Daliushu water conservancy project, irrigation district pumping station renewal, dry canal water conservation, and renovation project. Technical adaptation measures are mainly in two aspects. First, the development of facility agriculture: to build greenhouses and other facility agriculture that gives full play to regional advantages according to local conditions and improve farmers’ economic income and adaptability in the south-central region of Ningxia, as the place has sufficient sunshine and significant temperature difference between day and night. Second, the development of water-saving agriculture: to construct rain-farming and water-saving recharge irrigation and other technologies in dry farming land, establish a dry farming production system and cope with the increasing trend of drought in south-central Ningxia. Institutional adaptation measures. The central policies are ecological migration projects, social security, poverty reduction, rural health insurance, education, and other policy designs. Ecological migration is an essential institutional adaptation policy in Ningxia. Through the construction of new settlements, subsidies for returning farmland to forests, and other related supporting measures, the production and living conditions of migrants can be effectively improved, and the ecological environment of the relocation site can be restored and protected. Ecosystem-based adaptation measures. Ecological projects such as creating anti-sand forests and planting trees and grasses can reduce soil erosion and desertification, and transforming saline land can increase the amount of arable land while improving the ecological environment and enhancing the adaptive capacity.

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3.2 Determine the Basic Principles of Policy Preference The selection of adaptation policies needs to consider the variability of different regions, sectors, subjects, and adaptation objectives in a localized manner. The UK Climate Impacts Programme (UKCIP) has proposed the “SMART” principle for defining adaptation targets, i.e., adaptation targets should have five main characteristics: specificity, measurability, achievability, realistic, and time-bound. In addition, the assessment principles include cost efficiency (economic feasibility), social equity, broad participation, ecological sustainability, no regrets, flexibility and adaptability, and effectiveness. These principles are informative for selecting and developing adaptation planning objectives in specific areas, which can be chosen explicitly according to local adaptation objectives, development stages, technical means, and needs of adaptation sectors or regions. The objectives of the adaptation policy and its selection principles need to be determined through methods such as expert consultation and stakeholder workshops. Assessment questions can be designed based on specific directions and scored and quantified using Richter scales, AHP methods, and expert judgment. Some specific principles for adaptation policy assessment are listed (see Table 1). Table 2 explains the meaning of each principle and the related issues and lists a Likert scale based on five ratings that can be used to measure the extent to which a policy performs on a specific principle. The assessment results can be quantitatively summed, and the priority of each approach is listed.

3.3 Adaptation Policy Assessment: Identification of Policy Preference Sets Four main principles were selected (see Table 2), and the following adaptation response matrix (examples) was used to simulate the expert assessment process. The ranking of adaptation policies can be obtained using the AHP method or ranking scoring. In total, nine adaptation measures in 4 major categories were sorted out for Ningxia. Assuming that up to 5 priority measures were selected under each principle, the simulated scoring results of experts are shown in Table 2. According to the above assessment scoring results, two countermeasure options meet one assessment principle and target, three countermeasures meet two assessment principles and targets, and four countermeasures that meet three principles and targets, namely: development of facility agriculture, water-saving agriculture, ecological migration, and sand prevention and afforestation projects. After selecting multiple experts for scoring, the comprehensive assessment results can be aggregated, and the priority ranking set of agricultural adaptation countermeasures in Ningxia can be listed. On this basis, a cost–benefit analysis of the project investment is further conducted to evaluate the economic, social, and ecological benefits of each policy before making trade-offs.

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Table 1 Examples for adaptation policy evaluation: major criteria and Likert scale Principles

Corresponding questions

1

2

3

4

5

Relevance

Relevance of the policy to the goal? Does it help address existing priority/urgent adaptation issues?











Effectiveness

How effective is the policy in terms of efficiency and implementation?











Equity

Do the adaptation policy design and implementation help to reduce regional social divisions and promote social harmony?











Participatory

What are the roles and responsibilities of the different actors involved?











Competitiveness

Are there multiple actors involved, and does it play a market role?











Flexibility

How flexible are the coordination  mechanisms and policies?









Scientificity

Is the basis and procedure of decision-making scientific and comprehensive?











Integrity

What is the degree of integration of related policy design and coordination of sectoral work?











Transparency

Is the communication and sharing of information in the decision-making process open, transparent and adequate?











It is foreseeable that the theory and practice of climate change adaptation planning and governance will become a hot area of public policy and management worldwide in the future. Adaptation problems have the characteristics of complexity, uncertainty, and local. Research on adaptation planning and decision support requires pioneering exploration of management concepts, methods, and practical applications. According to local conditions, researchers and decision-makers need to adopt specific planning processes and methodological applications to explore and innovate along with practices.

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Table 2 Examples for prioritization of adaptation options matrix Options

Engineering adaptation measures

Principle

Cost–benefit principle

Equity principle

Goal

How Does it help economically reduce the viable is it income gap and promote social development?

Yellow river Daliushu water conservancy project Water-saving renovation of dry canals

✔

✔

Technological Facility adaptation agriculture measures Water-saving agriculture

✔

✔

✔ ✔

Institutional adaptation measures

Eco-migration Rural health insurance

✔

Ecosystem adaptation measures

Anti-sand afforestation project

✔

Saline land renovation

Ecological sustainability principle

Multi-benefits principle

Does it contribute to local ecological protection, disaster prevention and mitigation, and desertification reduction?

Can it simultaneously enhance employment, emission reduction and other goals?

✔

✔

Total

2

2

✔

3

✔

✔

3

✔

✔

✔

3 2

✔

✔

✔

3

1

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Carter, J. G., Cavan, G., Connelly, A., Guy, S., Handley, J., & Kazmierczak, A. (2015). Climate change and the city: Building capacity for urban adaptation. Progress in Planning, 95, 1–66. Davoudi, S., Mehmood, A., & Brooks, L. (2011). The London climate change adaptation strategy: Gap analysis. Electronic Working Paper No. 44, 44. Framework, U. A. P. (2004). Adaptation policy frameworks for climate change: Developing strategies, policies and measures. United Nations Development Programme. https://www.preventio nweb.net/files/7995_APF.pdf. Accessed on September 2021. Füssel, H. M. (2007). Adaptation planning for climate change: Concepts, assessment approaches, and key lessons. Sustainability Science, 2(2), 265–275. Gemmer, M., Wilkes, A., & Vaucel, L. M. (2011). Governing climate change adaptation in the EU and China: An analysis of formal institutions. Advances in Climate Change Research, 2(1), 1–11. Hasson, R., Löfgren, Å., & Visser, M. (2010). Climate change in a public goods game: Investment decision in mitigation versus adaptation. Ecological Economics, 70(2), 331–338. https://media. rff.org/archive/files/sharepoint/WorkImages/Download/EfD-DP-09-23.pdf. Accessed 12 August 2021. Hill, M., Wallner, A., & Furtado, J. (2010). Reducing vulnerability to climate change in the Swiss Alps: A study of adaptive planning. Climate Policy, 10(1), 70–86. Howarth, C., Morse-Jones, S., Brooks, K., & Kythreotis, A. P. (2018). Co-producing UK climate change adaptation policy: An analysis of the 2012 and 2017 UK Climate Change Risk Assessments. Environmental Science and Policy, 89, 412–420. Howes, M., & Dedekorkut-Howes, A. (2016). The rise and fall of climate adaptation governance on the Gold Coast, Australia. Climate Adaptation Governance in Cities and Regions: Theoretical Fundamentals and Practical Evidence, 237–250. IPCC. (2012). Managing the risks of extreme events and disasters to advance climate change adaptation. A special report of working groups I and II of the intergovernmental panel on climate change, (p. 582). Cambridge University Press. Juhola, S., & Westerhoff, L. (2011). Challenges of adaptation to climate change across multiple scales: A case study of network governance in two European countries. Environmental Science and Policy, 14(3), 239–247. Kennedy, D., Stocker, L., & Burke, G. (2010). Australian local government action on climate change adaptation: Some critical reflections to assist decision-making. Local Environment, 15(9–10), 805–816. Keping, Y. (2018). Governance and good governance: A new framework for political analysis. Fudan Journal of the Humanities and Social Sciences, 11(1), 1–8. Kurttila, M., Pesonen, M., Kangas, J., & Kajanus, M. (2000). Utilizing the analytic hierarchy process (AHP) in SWOT analysis—A hybrid method and its application to a forest-certification case. Forest Policy and Economics, 1(1), 41–52. McGray, H. (2009). The national adaptive capacity framework: Key institutional functions for a changing climate, (pp. 3–4). World Resources Institute. Mirfenderesk, H., & Corkill, D. (2009). The need for adaptive strategic planning. International Journal of Climate Change Strategies and Management., 1, 146–159. Murray, V., & Ebi, K. L. (2012). IPCC special report on managing the risks of extreme events and disasters to advance climate change adaptation (SREX). Nelson, R., Howden, M., & Smith, M. S. (2008). Using adaptive governance to rethink the way science supports Australian drought policy. Environmental Science and Policy, 11(7), 588–601. OECD. (2009). Integrating climate change adaptation into development cooperation: Policy guidance[M]. OECD Publishing, 2009, 56–60. Pan, J., & Zheng, Y. (2010). Analytical framework and policy implications of adaptation to climate change[J]. China Poinjiation, Resources and Environment, 20(10). The National Climate Change Adaptation Research Facility (NCCARF) (2010). 2010 International climate change adaptation conference. https://nccarf.edu.au/climate-adaptation-2010/. Accessed 12 August 2021.

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The Committee on Climate Change (2010). How well prepared is the UK for climate change?. Executive Summary. September 2010. https://www.theccc.org.uk/wp-content/uploads/2010/09/ CCC_ASC_Report_ES_web_1.pdf Accessed 12 August 2001. The Committee on Climate Change. (2017). UK Climate Change Risk Assessment 2017. https://www.theccc.org.uk/wp-content/uploads/2016/07/UK-CCRA-2017-Synthesis-Rep ort-Committee-on-Climate-Change.pdf. Accessed 13 August 2021. Tompkins, E. L., & Adger, W. N. (2004). Does adaptive management of natural resources enhance resilience to climate change?. Ecology and society, 9(2). Urwin, K., & Jordan, A. (2008). Does public policy support or undermine climate change adaptation? Exploring policy interplay across different scales of governance. Global Environmental Change, 18(1), 180–191. Wallingford, H. R. (2012). The UK climate change risk assessment 2012 evidence report. Project Deliverable Number D, 4(1). Weng, S. (2010). Collaborative and Networked: A comparison of holistic models of government in Britain and the United States[J]. Journal of Tianjin Administration Institute, 12(6). Williams, B. K. (2011). Adaptive management of natural resources—Framework and issues. Journal of Environmental Management, 92(5), 1346–1353.

Chapter 15

Climate Migration

The influence of climate and environment on population migration has accompanied the history of human development. Since the 1980s, the international community has begun to pay new attention to climate migration in the context of global environmental and climate change. Due to different understandings and perceptions of climate migration and related concepts such as environmental refugees and environmental migrants in academia and international communities, there are different standards and problems in the policy formulation and practical application in various countries. Therefore, it is necessary to analyze the connotation and characteristics of climate migration and their policy implications using country-specified cases, starting from the concept of climate migrants.

1 Retrospective of the Concept of Climate Migration In the twenty-first century, environmental migration and climate-induced migration (climate-migration) has become the new frontier of global migration. Climate change exacerbates environmental problems and can trigger more and larger population movements and conflicts, creating “Climate Migrants” or “Climate Refugees” (IPCC, 2007). The World Migration Report 2010 published by the International Organization for Migration (IOM) (Martin, 2010) identifies four main ways in which climate change affects human migration behavior: (1) extreme weather and climate disasters destroy homes and habitats, resulting in short- or long-term relocation and resettlement in affected areas, (2) continued warming and droughts affect agricultural output, reduce livelihoods and clean water use, resulting in people being forced to leave their homes, (3) rising sea levels make coastal areas uninhabitable and See “Discerning the Concept of Climate Migration and Policy Implications: Concurrently Discussing Ningxia’s Ecological Migration Policy,” China Soft Science, Issue. 1, 2014, with Zheng Yan making the main contribution to this section. © China Social Sciences Press 2022 J. Pan, Climate Change Economics, https://doi.org/10.1007/978-981-19-0221-5_15

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require permanent relocation, and (4) climate change affects ecosystem services, and people’s competition for natural resources has the potential to trigger social conflict and population movements. The International Organization for Migration has compiled various projections of the scale of climate migration, noting that the number of “climate refugees” who will need to be permanently relocated and resettled globally could be as high as 200 million to 1 billion by 2050 (Laczko & Aghazarm, 2009). Cross-border population movements, rural–urban migration, health impacts, and climate security in developing countries and regions that may be triggered by climate change and population growth require attention and appropriate responses. A report by the Asian Development Bank (ADB) (ADB, 2012) focuses on “climate changeinduced migration,” noting that climate migration is the result of a complex interplay of environmental and socioeconomic drivers. Asia’s high incidence of natural disasters and rapid urbanization will drive this trend, with less developed countries more prone to social and political conflict due to migration. Lilleør & Broeck (2011) analyze the association between declining economic incomes and population migration in LDCs due to climate change. There is a complex mechanism of interaction between global population change, environmental change, and population migration. Future spatial and temporal distribution of population change on climate migration needs to be integrated into current disaster mitigation and adaptation strategies. Early warning systems need to be strengthened in the mechanisms of population migration and adaptation to climate change. Ecological migration and climate migration are both subcategories of environmental migration. They are both different and related. The theoretical basis of environmental migration includes theories of resource scarcity, population migration, resource, and environmental carrying capacity, and sustainable development (Zheng, 2013). The impact of climate change on different types of migration in Ningxia shows that spontaneous migration has the strongest association with climate change, followed by government-led ecological migration and involuntary migration (Chen et al., 2013). Climate change and its adverse effects lead to actual or potential large numbers of climate migrants, and relevant mechanisms are needed to address this global challenge (Cao & Chen, 2013). Due to insufficient empirical studies to reveal the complex linkages between environmental/climate change and population migration, the definition of related concepts such as “climate migration” is not yet uniformly understood. A report published by the Office of the United Nations High Commissioner for Human Rights (OHCHR) points out that while traditional international migration management has focused on transnational economic migration and refugee issues, climate changeinduced migration is far beyond the existing global migration management and policy legislation system in terms of concept, classification, and response mechanisms, and requires new governance mechanisms (McAdam & Limon, 2015).

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2 Connotation of Climate Migration and Its Characteristics The definitions of climate migration, environmental migration, and ecological migration are not uniform at home and abroad. The widely adopted concept of ecological migration in China does not distinguish the difference between ecological migration and climate migration, which has the disadvantage of misleading policy design and practical application. In our opinion, climate migration refers to the irreversible or unexpected change of one or more climate and ecological factors (mainly temperature and precipitation), which makes the climate capacity decay and cannot carry the population size, economic activities and intensity anymore. This leads to a vicious cycle of environmental degradation and poverty or the loss of living conditions for a short period. In order to adapt to the effects of climate change, people will take spontaneous or organized, permanent or short-term out-migration. Some outbreaks of climate events are short-term and reversible; these climate migrants are mostly contingent climate refugees. In contrast, climate migrants formed by irreversible and continuous climate changes are anticipatory and long-term. Although climate refugees may also become permanent migrants, climate migrants in the usual sense have a long-term and irreversible nature. Migration due to climate change can be divided into several primary types: migration triggered by sudden climate hazards (e.g., typhoons, floods), migration triggered by gradual climate hazards (e.g., sea-level rise, salinization), migration from small island states, migration from high-risk areas, and refugees triggered by resource and political conflicts. Climate migrants are often forced to leave their place of origin because their livelihoods, personal property, and habitat are threatened by sudden climate disasters (e.g., typhoons, floods, etc.), long-term climate risks (e.g., sea-level rise), or gradual ecological changes (e.g., droughts). Although it is difficult to predict where climate migration will occur and where it will flow, it is relatively confident that high-hazard risk areas and ecologically sensitive areas are the most vulnerable. These areas tend to have the highest incidence of climate migration, including urban delta areas, small island states, low-lying coastal areas, arid regions, polar regions, and those areas vulnerable to extreme emergencies. In fact, there are both connections and differences between the issue of climate migration and the concepts of international refugees, environmental migration, ecological migration, and disaster migration that have been the focus of traditional research perspectives, as briefly compared in Table 1. The connotation and characteristics of climate migrants can be analyzed in-depth in terms of the motivation of climate migrants, the purpose of migration, the principles or basis of policy intervention, and the subjects and ways of governance. A comparative analysis with ecological migration as an example is as follows.

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Table 1 Comparison of concepts related to climate migration Climate migration

Climate refugees

Environmental Eco-migration Disaster immigration migration

Time scale

Long-term

Short-term

Long-term, short-term

Spatial scale

Global, regional, cross-border

Global, regional, Global, cross-border, local regional, cross-border

Driving factors

Irreversible changes in climate factors

Climate change/emergency disasters and the political and military conflicts they cause

Environmental Ecosystem changes, degradation environmental events, natural disasters

Purpose of migration

Changing the source of disaster is the main

Risk aversion dominates

Survival, risk Ecological Evacuation avoidance, restoration environmental and protection protection, etc.

Short-term

Short-term

Regional, local

Global, regional, cross-border, local Natural Disasters

Policy basis Polluter pays Humanitarian principle principles (climate-proof principle, precautionary principle)

Humanitarian principle, financial compensation principle

Principles of Humanitarian ecological principles compensation

Governance National, subjects local

Sovereign states

National, local National, local

National, local

Willingness Active, to move passive

Passive

Active, passive

Passive migration

Active migration

2.1 The Motivation of Climate Migration Climate migration results from long-term climate change trends that lead to unfavorable ecological and human habitats. The ecological migration policy in China’s western region is, from the superficial view, triggered by ecological degradation and poverty. Still, the driving factor behind the vicious circle of population pressureecological degradation-poverty is climate change. In contrast, “ecological migration” emphasizes the protection of ecosystem services and biodiversities, such as establishing nature reserves, implementing environmental protection projects of returning fields to lakes, grass to forests, and farmland to pasture. Most immigrants involved in these projects are organized and non-spontaneous under the government’s leadership and are given corresponding economic compensation. The reasons for migration are twofold. One reason can be the population growth exceeding ecosystem carrying capacity. So there is an urgent need to restore nature and ecological carrying capacities, such as returning farmland to forests, lakes, and grasses. Another reason is to

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protect specific species resources and ecological values in the area, even although the ecosystem carrying capacity is sufficient to support the population. For instance, the ecological migration in the mountains of Zhejiang Province is not because of survival but of the pursuit of better education for the next generation of residents. After the residents in the mountains moved down and found employment, they would not return to live in the mountains. In this way, the ecological environment in the mountains is also protected. Voluntary and compensatory are the characteristics of ecological migration in the Zhejiang mountains, other than compulsory or under environmental pressure. It is an active evacuation rather than a forced migration driven by a fragile and unsupportable ecosystem.

2.2 The Purpose of Climate Migration There are often multiple objectives for migration decisions, such as seeking security, higher income, better living conditions, etc. The distinction between climate and ecological migration requires an analysis of specific migration behavior’s primary and secondary purposes. The primary purpose of climate migrants is for risk avoidance and survival, aiming to provide protection from climate risks and achieve population security and sustainable regional development. On the other hand, ecological migration has the primary purpose of ecological protection and restoration of ecological service functions. But in practice, it also includes many considerations of other goals such as poverty alleviation and enrichment of migrants, the transformation of lifestyles and production methods, coordinated development of regional economies, and space for future human survival and growth. This makes the concept of ecological migration somewhat ambiguous in terms of policy objectives, leading to many practice problems and implementation effects. Therefore, in our policy practice, it is necessary to clearly distinguish different types of migration methods and their policy design to make migration decisions in a targeted manner.

2.3 The Policy Rationale for Climate Migration Climate change is essentially an externality of global environmental public goods. Therefore, the theoretical basis for climate migration is the Polluter Pays Principle (PPP). Compensation for climate migrants should reflect the principle of climate security, with the priority of ensuring basic development needs (poverty reduction) and implementing climate risk protection, while taking into account the principles of climate equity and prioritizing vulnerable areas and groups. Ecological migration, on the other hand, is based on the principle that “whoever protects the environment benefits from compensation.” Therefore, it has different operational characteristics in compensation for migrants, funding sources, and policy implementation entities.

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In contrast, the primary objective of ecological migration is to restore the fragile ecological environment. So in terms of methodology, ecological migrants can adopt the principle and method of “payment for ecological services (PES)” (Zhang et al., 2010). This method assesses the ecological services provided by the area protected by ecological migrants, such as the prevention of soil erosion and conservation of biodiversity. These can be quantified and analyzed by the corresponding environmental economics methods and estimated by the market value. The current compensation made by some regions in China is also based on quantifying ecological service payments. For example, Zhejiang’s compensation for the water conservation area and Shanghai’s compensation for the water source of Huangpu River are based on the secondary and tertiary water quality, consumers’ willingness and ability to pay, ecological public services, etc. The principle is “whoever benefits, compensates.”

2.4 Climate Migration Governance Entities and Evaluation Methods The decision-making and governance of climate migration are mainly at the local level, but its context is a much larger scale climate change issue. Therefore, the governance of climate migration needs to be raised to the level of national development strategies and international security mechanisms. On the one hand, it is necessary to clarify the different responsibilities of developed and developing countries in international negotiations and view climate migration as a “climate debt.” It is also necessary to have corresponding evaluation methods and theoretical bases for climate migration scale prediction, policy design, and evaluation of implementation effects. The migrating population caused by climate change will lead to various social, economic, and ecological impacts, theoretically measured through cost–benefit analysis, impact assessment, and other methods to make migration decisions. In addition, different from the benefits orientation of ecological migration, climate migration is often very costly and time-consuming, such as migration in coastal inundation areas due to sealevel rise. The uncertainty of future climate change risks makes climate migration decisions more complex and the cost–benefit harder to measure.

3 Ecological or Climate Migration: The Case of Ningxia1 In the face of environmental and climate change, people have three approaches or responses: passive acceptance of the unfavorable status quo, active mitigation of 1

Ningxia, officially the Ningxia Hui Autonomous Region (NHAR), is an autonomous region in the northwest of the People’s Republic of China. It is a relatively dry, desert-like region and features a diverse geography of forested mountains and hills, table lands, deserts, flood plains and basins cut through by the Yellow River.

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impacts, and leaving the affected region. The disadvantage of migration as the last option is that it may trigger resource and environmental pressure (e.g., food supply) and conflicts in the places where the population moves to. There are two different perspectives on migration due to environmental and climate change. The traditional view is that migration is a manifestation of the failure of local populations to adapt to ecological degradation and climate change, as reflected, for example, in the concept of climate refugees. The other view, which has become more accepted in recent years, is that population migration is seen as a means of coping with environmental and climate change (ADB, 2012; Adger et al., 2013). China has carried out a large number of ecological migration projects since the 1980s and 1990s in ecologically fragile and poor areas in the west and natural disaster-prone regions in the Yangtze River basin. All of these migration projects are closely related to environmental and climate change factors. In fact, most of these government-led ecological migrations in China are proactive and planned adaptation actions. Ecological migration is derived from the practice and concept of environmental migration in China, which essentially is a kind of Environment-induced migration (Reuveny, 2008). Domestic studies on ecological migration show significant regional differences. The regions with more impoverished geographic and climatic conditions, higher ecological and environmental vulnerability, and lower population carrying capacity have more typical and universal ecological migration problems. There are mainly three types of poverty: resource-deprived poverty, ecologically-deplorable poverty, and disaster-induced poverty. Most of the poverty-stricken areas in China are located in the significant impact areas of global climate change. The distribution of the poor population is highly consistent with the distribution of ecologically fragile areas. Seventy-four percent of the population in ecologically sensitive regions live in less developed counties. Ecological poverty and climate poverty caused by the deterioration of the ecological environment have become the regional characteristics of poverty in the western region. Therefore, the ecological migration in the west part of China is closest to the concept of climate migration because of insufficient climate capacity and poverty trap. Climate capacity refers to the carrying capacity of climate resources to the ecological environment and population. The poverty trap is low-development living conditions under long-term climate and environmental pressures. Both are closely related to the vulnerability caused by climate change (Zheng, 2013). There is a large demand for ecological migration research, driven by ecological migration policies in western provinces. The effect of ecological migration in some regions of China is not satisfactory, partly because the purpose of ecological migration is not clear. In practice, ecological migration is generally regarded to alleviate the incompatibility between population and land carrying capacity in western regions and resolve the conflicts between ecological, environmental protection, and farmers and herders getting out of poverty and getting rich with smaller costs and more considerable benefits. However, ecological migration practices in some regions of China often assume multiple objectives, such as ecological restoration, poverty alleviation, and economic development, complicating the concept of ecological migration. The concept of ecological migration is too comprehensive and generalized, failing to

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distinguish or even confuse different environmental drivers and different purposes. Hence, the concept lacks a solid theoretical foundation and a clear goal in practical application. It is reflected in a wide range of differences in policy design, compensation standards, and migration methods in different regions, which is not conducive to comparative studies or the lesson learning and widening and deepening of the policies. There are conceptual intersections and overlaps between climate migration and ecological migration, but there are also relatively significant differences. Therefore, we chose Ningxia, a hot spot of domestic ecological migration research and practice, as a case study for specific analysis to elucidate such differences. The mountainous area of southern Ningxia was an intermingled agricultural and pastoral area and an ecologically fragile zone in northern China. Ecological migration projects have been implemented in this area since the 1980s. The initial goal of poverty alleviation has evolved into multilayers of objectives to drive local economic development, promote ecological protection, and adapt to climate change, reflecting a gradual increase in the depth of understanding of migration issues. With various objectives and as an early implementation in the country, the policy and practice of ecological migration in Ningxia have revealed many practical problems in addition to the valuable experiences accumulated. There are problems such as incompatibilities between the demand of migrants and the limited supply of resettlement land; hardships for migrants to adapt to a new place and the returning of poverty; the protection and development of the emigrated land; and the interaction between migrants employment and urbanization. From the actual situation in Ningxia, ecological migrants and climate migrants have significant differences in several aspects, including migration motives, funding sources, and policy implications.

3.1 Different Drivers of Migration The migration in Ningxia is a “climate- and climate change-driven migration.” It is an overall relocation when the arid and rainy environment is no longer suitable for human survival, an adaptation choice to cope with the immediate or long-term adverse climate change, and a forced migration. The research team conducted several social studies in the south-central region of Ningxia and found that the southern mountainous region, which is the main ecological migration area, has typical climate poverty characteristics. The livelihood problems of farmers mainly come from the rigid constraints in the “climate capacity.” From the root of the problem, it is due to the limitation of climate capacity, which cannot provide sufficient products and has a very limited population carrying capacity, so that the population has to migrate beyond the climate capacity. Ecological values such as ecological services, ecosystems, and biodiversity conservation are not the motivating factors that trigger migration from Ningxia. Due to climate change, both the “national blood transfusion” poverty reduction mode and the “local economic growth-pull” poverty reduction

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mode failed to completely alleviate the vicious circle of poverty and ecological deterioration in the south-central Ningxia. However, the emigration policy can reduce or limit the impacts of human developmental activities on ecologically fragile areas. On the other hand, raise the living conditions for outgoing populations in relatively well-off regions.

3.2 Different Sources of Funding Migration requires a large number of financial support. Meanwhile, the allocation and use of funds involve various interests and issues, including measuring migration costs and benefits, determining compensation principles and bases, etc. However, the criteria for benefits dispersal and cost-sharing of ecological migrants under such multiple policy objectives are difficult to define. In the case of ecological migrants, the funding source should be ecological benefits or ecological service values. Still, the primary funding source for ecological migrants in Ningxia is poverty alleviation funds, which are not much related to ecology. Due to the unique nature of the funds and local financial attributes, it isn’t easy to guarantee the amount of funds and the effect of ecological migration. If defined as climate migration, the funding source should be sought on a larger climate scale rather than the finance of local administration. As climate change originates from GHG emissions, theoretically, all GHG emitters should bear the related costs, i.e., the principle of polluter pays. Therefore, it is necessary to establish funding mechanisms at the national and international levels to provide solid financial and policy support for climate migration.

3.3 Different Policy Implications and Their Impacts Ecological migration and climate migration are related yet distinct from each other. The migration policy of Ningxia, which is called “ecological migration,” is a regional population policy integrating ecological protection, poverty alleviation, and regional development on the surface. But, deep in the root, it is a policy choice to climate change adaptation. Climate migration is related to sustainable regional growth and long-term strategic response to climate change. Hence, it should not be confused with ecological migration. Different understanding and definitions of climate migration will affect the policy design and implementation, especially the financial mechanism, which is closely related to the adaptation. Adaptation to climate change is a development issue that requires dedicated funding channels. Given limited national revenue, the funding sources of climate migration must be integrated with developmental issues and considered countermeasures to climate change. The National Strategy for Climate Change Adaptation takes Ningxia ecological migration as a pilot demonstration project for adaptation to climate change. As an essential and effective adaptation tool, climate migration requires concerted consideration of policy design

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issues such as funding, population policy, and regional development layout at the national and local levels.

4 Policy Implications of Climate Migration In places where climate capacity is insufficient to support the whole population, part of the population will have to be relocated outside of the region. Such migration due to climate capacity limitations requires policy support.

4.1 Clearly Define the Concept of Climate Migration Climate security has to be on the agenda at a macro level for policy making. In practice, clarifying the differences between climate migrants and different types of migrants, such as environmental migration, ecological migration, and disaster migration, can help rationalize policies and achieve the goal of addressing climate change. In the context of global environment and climate change, clarifying the concept of climate migration has positive effects. Firstly, it helps guide decisionmaking and helps governments and international institutions cope with population migration caused by the environment and climate change. Secondly, it helps establish a statistical system for environmental migration caused by different reasons. During socio-economic development, many potential social conflicts due to income disparity, social differentiation, ethnic conflicts, ecological issues, resource allocation, and other factors, and climate change may become the last straw to break the fragile balance of social stability. Therefore, the issue of climate migration needs to be given full attention.

4.2 Integration of Climate Migration into National Strategies to Address Climate Change The policy implications of climate migration are evident in terms of social stability, ecological protection, and economic costs. Under the premise of clarifying the concept, climate migration policy needs to be considered in concert with climate change adaptation strategies, sustainable regional development, industrial layout, and urbanization. Due to the significant impact of climate change on regional ecology, natural resources, and residents’ livelihoods, strengthening climate change adaptation governance and migration planning can help reduce population migration and its adverse effects caused by climate and environmental changes. Especially

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in the context of urbanization, there will be regular and ongoing population movement between urban and rural areas. The government can encourage or lead the process of migration out of ecologically fragile and climate-hazard-prone regions. The relocation and resettlement plans should be reasonably designed according to the ecological, land, and water resources and population carrying capacity in the context of climate change to avoid “maladaptation,” “poverty aggravation,” or ecological deterioration social conflicts in the relocation areas.

4.3 Providing Financial Security for Climate Migrants Climate migration is essentially an issue of sustainable regional development and adaptation in the context of climate change. The national government should consider regional differences and establish specific financial mechanisms to support regions with higher climate change risks and migration needs. Climate migration is caused by natural environmental changes rather than profit-oriented actions, so the whole society is responsible for contributing financially. The government must guarantee financial security for climate refugees and climate migrants. Otherwise, if categorized as disaster issues or ecological protection issues, the policy effect and financial security for climate refugees/migrants may be diminished. What is most needed for migration programs is funding, which can be raised in the form of a tax on GHG emissions, in addition to coordinating financial support from various sectors and levels. Most climate migrants live in climatically and ecologically fragile areas with arduous livelihoods and widespread poverty. Many of the climate migrants are farmers with no savings or ability to borrow or repay loans. This situation either requires the national government to establish special funds through fiscal treasury or implement differentiated policies that prioritize vulnerable groups and areas based on local conditions.

4.4 Integrated Planning in Key Areas of Climate Migration There are different types of climate change risks in different regions in China. Correspondingly, the climate migration responses can be short-term (floods, typhoons, etc.) and long-term (sea-level rise, drought, desertification, etc.). Along with population growth, industrialization and urbanization, many climate-vulnerable areas are also prone to climate migration. On the one hand, comprehensive planning is needed to rationalize population policies, industrialization layout, and urban planning to reduce the risk of climate migration. On the other hand, differentiated policies need to be implemented based on security principles and priority for vulnerable groups. There are distinct differences in resource endowments between China’s eastern and western areas regarding land, water resources, climate, and geographic conditions.

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The national government can make favorable policies towards the western areas, such as ecological compensation, disaster prevention and mitigation measures, poverty alleviation, tax benefits, and emission mitigation plans, to help with sustainable socio-economic development and climate adaptation. The government should also actively create a pleasant and permissive entrepreneurial environment, offer abundant career opportunities, and provide social security for climate migrants as much as possible. Besides government efforts, institutional innovation on market mechanisms should be encouraged to reduce the administrative burden. These innovative methods can be catastrophe insurance and diversified risk-sharing methods like commercial insurance, policy insurance, international reinsurance, etc.

4.5 Construction of International Climate Regime and Relevant Mechanisms Climate migration has attracted a lot of attention in international climate negotiations. Some small island states that are highly affected by climate change have actively promoted “Loss & Damage” (L&D) in the climate negotiation. At the 19th Conference of the Parties to the UNFCCC in Warsaw, Poland, in November 2013, this issue became one of the formal mechanisms for international adaptation negotiations (Nash, 2019). With the help of the global platform, China will actively publicize its great investment and successful experience in climate migration, sharing with other developing countries and regions the lessons learned and play an active role as a responsible country. As the earliest province to implement migration policy, Ningxia has accumulated more than 30 years of experience. The government-led migration policy has played a positive role in achieving multiple goals, including poverty reduction, economic development, ecological protection, climate change adaptation, disaster prevention, and mitigation in Ningxia. Some of the problems, difficulties and countermeasures encountered are worth learning by other regions. Other Chinese provinces, and some African and South Asia countries, can also benefit from Ningxia’s migration practices. Climate change increases drought in inland areas, raises sea levels, and causes more extreme disasters, making climate migration an issue that cannot be ignored. Distinguishing the concepts of climate migration and ecological migration is essential for formulating migration policies, planning local economic development, and coping with climate change from a macro-strategic perspective. From the standpoint of climate migration research, migration is both an adaptation initiative to avoid climate change risks and an essential means for climate-vulnerable groups to achieve long-term sustainable development goals. Currently, some ecologically fragile and disaster-prone areas in China have started to implement migration planning as one of the means to promote urbanization development. Climate migration is different from ecological migration and developmental migration in terms of migration purpose and funding source. It is essentially a climate

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and environmental issue that requires careful consideration of climate protection, humanitarian and sustainable development principles. It is necessary to pay attention to the migration problems brought by climate change to coastal regions and vulnerable areas along rivers in east China at the domestic level. In the west part of the country, it is needed to set up special adaptation funds, give integrated consideration in the industrial layout and regional development strategies, and provide related policies and financial support. At the international level, it should be recognized that the inherent driving force of climate migration is climate change, and the main responsible entities for this global environmental problem are developed countries. This judgment can be one of our strategies for climate negotiations and national interests. In the field of climate migration research, there are many focused topics and space for exploration in the future, such as climate migration trajectory based on climate change risk assessment, climate migration and national and regional security, migration planning and climate change adaptation strategy, decision-making mechanism of climate migration, etc.

References ADB. (2012). Addressing Climate Change and Migration in Asia and the Pacific. Mandaluyong City: Asian Development Bank. https://publications.iom.int/system/files/pdf/migration_and_env ironment.pdf. Accessed on September 7, 2021 Adger, W. N., Barnett, J., Brown, K., Marshall, N., & O’Brien, K. (2013). Cultural dimensions of climate change impacts and adaptation. Nature Climate Change, 3, 112–117. Cao, Z., & Chen, S. (2013). Analysis of climate migration and countermeasures under climate change conditions. Resources and Environment in the Yangtze Basin, 22(4), 527–534. Chen, S., Shi, M., & Cai, M. (2013). An empirical study on the correlation between climate change and population migration: A case study of arid region in central Ningxia. Journal of Economics of Water Resources, 31(2), 55–59. IPCC. (2007). Climate Change 2007: Impacts, Adaptation and Vulnerability. Contribution of Working Group II to the Fourth Assessment Report of the Intergovernmental Panel on Climate Change. In M. L. Parry, O. F. Canziani, J. P. Palutikof, P. J. van der Linden, & C. E. Hanson (Eds.), Cambridge University Press, (p. 976). Laczko, F., & Aghazarm, C. (2009). Migration, environment and climate change: Assessing the evidence. International Organization for Migration (IOM). https://publications.iom.int/system/ files/pdf/migration_and_environment.pdf. Accessed on September 7, 2021. Lilleør, H. B., & Van den Broeck, K. (2011). Economic drivers of migration and climate change in LDCs. Global Environmental Change, 21, S70–S81. Martin, S. F. (2010). Climate change and international migration. Climate change and international migration. McAdam, J., & Limon, M. (2015). Human rights, climate change and cross-border displacement: The role of the international human rights community in contributing to effective and just solutions. Universal Rights Group. https://www.universal-rights.org/wp-content/uploads/2015/ 12/CC_HR_Displacement_pge.pdf. Accessed August 12, 2021. Nash, S. (2019). Negotiating migration in the context of climate change: International policy and discourse. Bristol University Press. Reuveny, R. (2008). Ecomigration and violent conflict: Case studies and public policy implications. Human Ecology, 36(1), 1–13.

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Zhang, Q., Bennett, M. T., Kannan, K., & Jin, L. (2010). Payments for ecological services and eco-compensation: Practices and innovations in the People’s Republic of China. Asian Development Bank. Philippines. https://www.adb.org/sites/default/files/publication/27468/payments-eco logical-services-prc.pdf. Accessed on September, 7, 2021. Zheng, Y. (2013). Environmental migration: Concept discrimination, theoretical basis and policy implications. China Population, Resources and Environment, 23(4), 96.

Part IV

Paradigm Shift for Achieving Paris Targets

The year 2015 is critical for global transformation and development, marked by the adoption of the United Nations 2030 Agenda for Sustainable Development and the 17 Sustainable Development Goals (SDGs), which lays out a “blueprint to achieve a better and more sustainable future for all.”1 The year also witnessed the successful conclusion of the Paris UN Climate Conference and the adoption of the Paris Agreement. The Paris Agreement is a legally binding international treaty on climate change. It sets out a global framework to avoid dangerous climate change by limiting global warming to well below 2 °C and pursuing efforts to limit it to 1.5 °C, and achieving carbon neutrality by the middle of this century. Both Sustainable Development Goals (SDGs) and the Paris Agreements center around sustainable development and aim to build a people-centered, prosperous, peaceful, and multiple-wins development within the planetary boundaries. The world has officially started a process of transformation and development after these agreements and treaties entered into force. As different countries have different levels of understanding of these issues, there will be twists and turns along with the progress. For example, the USA, under the Trump administration, formally announced the decision to withdraw from the Paris Agreement in 2017. Later, under the Biden administration, the USA rejoined and expressly committed to achieving net-zero carbon by 2050 in 2021. Nevertheless, it is universally accepted that human society should pursue co-existence and co-prosperity with nature and a sustainable future. And the will is firm. China is an emerging economy facing the challenges of both developed and developing countries. On the one hand, China’s resource endowment and level of economic development constraining its ambition toward net-zero carbon. On the other hand, China’s efforts to build an ecological civilization have initiated a paradigm shift in economic and social development from an industrial to an ecological civilization. In 2020, China pledged to the international community to achieve carbon neutrality by 1

United Nations (2017) Resolution adopted by the General Assembly on 6 July 2017, Work of the Statistical Commission pertaining to the 2030 Agenda for Sustainable Development (A/RES/71/313 Archived 28 November 2020 at the Wayback Machine).

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2060 and significantly enhanced its Nationally Determined Contributions (NDCs) in 2030. We can say that China’s boosted climate ambition to achieve carbon neutrality is a strong impetus and pressure for developed countries to achieve net-zero carbon and a role model for developing countries.

Chapter 16

Meeting SDGs Through Paradigm Shift in the Evolving World Pattern

The world has been kept changing. Before 1990, the world was characterized by the East and West divide, or rivalry between socialist planning and capitalist market economies (Chavance, 2003). With the dissolution of the Soviet Union, the world evolved into two main groups, the developing South and the developed North (Slater, 1997). This dichotomous approach was reflected in the UNFCCC and its Kyoto Protocol, as Annex I (the industrialized or the primarily developed rich) and NonAnnex I (the industrializing or essentially the developing) countries/Parties. When the Paris Agreement targets and SDGs were agreed upon in 2015, the world faced an urgent need to transform the industrial development paradigm to realize the climate targets and SDGs and to explore a new paradigm of development in the changing international landscape to help achieve a sustainable future for the whole world to prosper in harmony with nature (Hermwille, 2016; Horner, 2020).

1 The Emerging Pattern of World Geopolitics and Its Implications for Sustainable Development National circumstances differ. An individual country can decide the best way to implement the United Nations’ Sustainable Development Goals (SDGs), based primarily on its social, economic, and environmental condition and its natural resource endowment (Pan & Chen, 2016). Since the late 1980s, the world has initiated a shift away from ideological competition between the East (led by the former communist Soviet Union) and the West (headed by the United States and its allies) toward global economic integration. During the early stages of that process, the world changed from a bi-polar (capitalist vs. communist) divide into a tripartite structure comprised of wealthy developed countries, countries in transition (Russia and Eastern Europe), and other developing countries. With the East Bloc completing the transition from centrally-planned to market economies and China accelerating its market-oriented reform process, the world now divides neatly into two groups: © China Social Sciences Press 2022 J. Pan, Climate Change Economics, https://doi.org/10.1007/978-981-19-0221-5_16

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the rich developed and the poor developing countries, or—in geopolitical terms—the North and the South. Some former transitional countries such as Hungary and Poland and a few former developing countries like South Korea and Singapore have upgraded their development levels and become members of the rich countries club. The Organization for Economic Cooperation and Development (OECD) and the South-North divide remained essentially unchanged in the 1990s and the early 2000s. However, late in the 2000s and early in the 2010s, when a few large developing economies—China and India, in particular—experienced a sustained period of high growth, a new group began to appear, known as "emerging economies." By contrast, most other less developed countries have maintained the same status in the past few decades with respect to their economic development levels, population growth, energy consumption, and GHG emissions. As we enter the 2020s, a new world political landscape is becoming apparent (see Fig. 1). In general, the world shows a shift from a simple South-North divide into three categories: the rich North, the newly emerging countries, and other developing countries. However, the less developed states share some common features, particularly a low level of economic attainment. The other two groups are not exactly the same. Within each of them, different prospects of and roads to development are readily apparent. In brief, the developed North displays two types of economies: one characterized by physical saturation and the other in actual or potential physical expansion. The emerging economies group also covers two types: those approaching physical saturation and those with large-scale expansion potential. These five types of economies have highly distinct capabilities for meeting their sustainable development goals. To be specific, developed countries, also referred to as high-income countries, share comparable economic development and high consumption levels. Their per

Fig. 1 A new world pattern emerging

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capita income may continue to grow, but their consumption level is primarily saturated as far as the basic necessities are concerned. However, there are clearly two categories here regarding physical space for economic expansion and demographic trends. Europe and Japan represent one specific category, with limited or no physical space for economic growth and stable or even declining population levels. It is easily understandable that a mature economy like an EU country or Japan does not need to build more miles of highways or high-speed rail lines since almost all of their land area is utilized. On the other hand, as the population has stopped growing or even entered into a steady decline, there will be no need to construct many more new houses or manufacture more durable capital goods such as cars. Nonetheless, replacement or upgrading will take place. Statistics show that Japan’s population has been shrinking at an annual rate of 250,000–500,000 since 2016 (United Nations, Department of Economic and Social Affairs, Population Division, 2019). It is unlikely that such a trend will be reversed. In European cases, immigration from outside the EU—especially from Muslim countries—may stabilize or even increase their populations, but the consequences will be more complicated. The other prosperous economies such as the United States, Canada, and Australia have lower population densities and relatively higher population growth levels (above zero). That combination of factors would mean that a country like the United States has plenty of space for physical expansion and will see an increasing demand for housing and durable capital goods as its population continues to grow. The United Nations’ population statistics show that the United States population had increased from about 250 million in the 1950s to 320 million in the 2010s and is projected to reach 450 million by the end of this century. The projected population growth suggests that the United States economy is mature but not saturated. After decades of rapid economic growth, emerging economies have reached a level of higher middle income, more prominent than many other developing countries, and with a prospect of continued increase. Yet, even their economies will remain at a substantially lower level of affluence than those of the developed world. China provides an example. In 2019, its per capita GDP reached $10,000, approaching the world average or the threshold of high-income countries.1 However, the projection is that China will continue its rapid growth and surpass the lower limit of the high-income economies by around 2025 (Li et al., 2020). In China, the level of consumption remains low relative to developed rich countries. Although China and the USA have almost the same number of vehicles on the road, China has less than 200 cars per 1000 people compared to 838 per 1000 in the USA, and over 550 in the EU and Japan in 2020, according to the World Bank data (Jung, 2021). Due to land scarcity, most Chinese people reside in multistory, high-rise apartment buildings. Their per capita living space averages around 40 square meters, which is similar to that in Japan but much lower than the European average and substantially lower than the level in the United States. Just like in Europe and Japan, the space for physical 1

According to World Bank thresholds for income classification, high-income economies are those with a GNI per capita of $12,376 or more.

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expansion in China is limited. As a result, population growth is peaking and will decline in the longer run. Meanwhile, over 600 million Chinese in rural areas remain at a very low level of consumption (Chen & Ravallion, 2013). Upgrading their living standards to match their urban counterparts would mean a substantial increase in demand for housing, automobiles, and other essentials. The average rural income is about a third of urban income.2 India is an emerging economy, though it is relatively less affluent and much less saturated regarding physical infrastructure and consumption levels. In 2019, China produced 996.3 million tons of raw steel while India produced only about 111.2 million tons.3 One can imagine that further increases in steel production may be minimal or even negative in China. And yet, India is expected to produce more to meet the demand from its ongoing urbanization and industrialization. In contrast to China’s population stabilization, high rates of population growth are expected in India. In fact, India will surpass China to become the world’s most populous country before 2025. Its population is expected to continue increasing until it reaches 1.7 billion after 2050, according to the World Population Prospects 2019 produced by the Department of Economic and Social Affairs of the United Nations (2019). Clearly, the increasing population will need more housing and consumer goods. In general, the category of “other developing countries” includes many at a lower level of income and development but still with high population growth rates (see Fig. 2). That would mean that although these economies will be far from mature and saturated, their continued growth will be problematic. Indeed, they still will have to struggle to meet the basic needs of their citizens.

2 A Change in the Global Landscape for Development Besides the overall features of physical space for economic expansion and demographic transition, the global landscape of geopolitics can also be portrayed in terms of percentage share of the global total by individual economies or groups of economies, using indicators like GDP, energy consumption, and GHG emissions. In addition to these indicators, there are more comprehensive ones as the Human Development Index (HDI). The weight of an economy over the world total is a straightforward indicator that reveals the relative importance of an individual country’s economy (Wang, 2015). Mature or developed economies take a massive share of the world’s total production. As a result, these economies dominate the operation of the global economy, including rule-making and -enforcement. With the rise of the developing countries, especially the newly emerging economies, their share of the total product declines. 2

According to National Bureau of Statistics, average rural income is RMB 16,021, and urban is RMB 42,359. 3 According to the data from world steel association. https://www.worldsteel.org/steel-by-topic/sta tistics.html. Accessed 12 August 2021.

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(thousands) 4500000

4000000

3500000

3000000

2500000

China India

2000000

the US Africa

1500000

the EU

1000000

500000

0

Fig. 2 Population estimates in selected countries (1950–2100). Source United Nations, Department of Economic and Social Affairs, Population Division (2019). World Population Prospects 2019, Online Edition. Rev. 1. https://population.un.org/wpp/

Consequently, their power to make and enforce rules for their own benefit will be challenged by those who are increasingly big players. As calculated from the World Bank data, the United States and the EU are the world’s two largest economies. The combined share of the global total amounted to 60% in the early 1990s and diminished steadily to around 45% in the late 2010s. On the other hand, emerging economies have been increasing their share of the world’s total output. Take China as an example. The Chinese economy’s share of the world total was only 1.6% in 1990, but it continued to grow year by year, reaching 16% in 2018. Interestingly, the least developed countries’ proportion has remained roughly the same at less than 1%, even while their share of the global population has risen a lot. Despite the substantial changes going on in the international economic landscape, the wealthy developed economies would like to keep existing global economic institutions as they are. The latter, after all, was established under their rules, which may not be fair to poor developing countries. The trade dispute between developed countries and many of the rest may well illustrate that rich countries are unwilling to assume responsibilities to support sustainable development goals in the least developed countries. While rich countries resist changing the rules, they nevertheless urge the developing countries, especially newly emerging economies, to take responsibility for sustainability and other related issues in international trade. Meanwhile, the newly emerging economies have made use of existing regulations in their development process. Still, they would like to make changes to reflect and protect their interests in the global economic regime. Self-interest among industrialized civilizations is probably not enough to motivate them to provide the amount

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of financial support emerging countries need to achieve sustainable development goals. The newly emerging economies wish to make a deal for cooperation between the developed and more advanced developing economies; however, without a true paradigm shift, such collaboration probably will prove difficult. Generally, higher levels of economic development will increase demand for energy consumption. However, over time, the increase will fall to zero and even turn negative. Figure 3 (Dudley, 2019), shows that the United States and the EU’s energy use already peaked by 2007 and 2006, respectively; still, the decrease from that point has been minimal as both economies have maintained a relatively high level of consumption. Energy demand in developing economies has been growing and has yet to peak. Future energy demand in the United States is likely to increase to keep up with the need for a high quality of life. However, any such augmentation will be offset by improvements in energy efficiency so that the actual increase will be minimal or even negative. If we look at energy demand in the EU and Japan, energy consumption decreases would be expected as these saturated economies’ population falls. Since the quality of life in China is still low compared to the developed rich countries, Chinese energy consumption exhibits an upward trend. Still, the increase will not be substantial and is expected to peak in the near future. Under the double pressure of a rapidly growing population and citizens’ expectations for improvement in their quality of life, low-income countries will see increases in energy demand intended to support their economic development. Since sustainable energy is central to economic growth, social progress, and environmental sustainability, sustainable energy supplies are indispensable in developing countries to facilitate their SDGs. Carbon emissions come mainly from fossil fuel combustion. Industrialization and urbanization require low-cost energy consumption. For that reason, fossil fuels are (Million tons oil equivalent) 3500

3000

2500

2000

China India

1500

the US Africa

1000

the EU

500

0

Fig. 3 Primary energy consumption in selected countries (1965–2018). Source Dudley (2019)

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269

a good choice compared to low emission renewables and nuclear energy. Developed countries have reached peak levels in aggregate and per capita emissions and total energy consumption, but the per capita emission levels have remained high. For example, per capita CO2 emissions (see Fig. 4) in the United States declined from more than 22 tons in the 1970s to 14 tons in 2017, twice the number in the EU and China, and the rate of decline is slow. Projections show that the numbers will be over 10 and 5 tons in 2050 and 2100, respectively, in the absence of additional efforts. The EU has done a better job than the United States in promoting a low-carbon economy, but the emissions rate still lags far behind the Paris Agreement target. Newly emerging economies like India are in the process of rapid industrialization and urbanization. Hence, they will witness per capita increases in emissions. If India were to follow a development path similar to that of China, where per capita emissions have increased from 0.9 to 7 tons in the last 50 years, India’s CO2 emissions would eventually surpass China and the United States’ total. Africa, the continent with the highest population growth rate globally, will emit more CO2 in 2100 than the EU did in 2017, even without any increase in the per capita emissions. The Human Development Index (HDI) is calculated based on several factors: life expectancy to represent long and healthy life, the number of years of education to indicate the level of knowledge attained, and per capita national income to capture the extent to which purchasing power matches consumer demand. In general, such an index provides a supplementary metric for evaluating a country’s overall level of development. It is thought to be a better measure than GDP using a national system of accounting. As the statistics show in Table 1, the United States consistently achieves a very high human development level and positions itself among the top 15 countries (tonnes CO2/capita) 25

20

15

China India

10

the US Africa the EU

5

0

Fig. 4 Per capita CO2 emission in selected countries (1971–2017). Source IEA (2019), CO2 Emissions from Fuel Combustion. https://www.iea.org/reports/greenhouse-gas-emissions-from-energyoverview

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Table 1 Human development index (HDI) in selected countries (1990–2018) 1990

2000

2005

2010

2015

2018

Very high human development

0.779

0.823

0.846

0.866

0.886

0.892

High human development

0.568

0.63

0.665

0.706

0.738

0.75

Medium human development

0.437

0.497

0.536

0.575

0.616

0.634

Low human development

0.352

0.386

0.435

0.473

0.499

0.507

World

0.598

0.641

0.669

0.697

0.722

0.731

China

0.501

0.591

0.643

0.702

0.742

0.758

The EU

0.755

0.810

0.842

0.862

0.879

0.888

The US

0.86

0.881

0.896

0.911

0.917

0.92

India

0.431

0.497

0.539

0.581

0.627

0.647

Source Human Development Report (1990–2018), data available at: http://hdr.undp.org/en/data

as judged by this standard. The numbers for the EU also reveal a very high overall level of human development but still lower than the United States level because some EU member states have achieved a very high level while others remain at a relatively moderate level, with Ireland ranked fourth but Bulgaria ranked 58th. China has made steady progress over the past three decades, from medium to high human development levels. Still, it ranks only 85th among some 170 countries. Although India’s human development level has been classified as medium, it remains far below the world average, ranking 130. Most developing countries exhibit only a low or medium level of human development. While progress certainly has been made in these countries, the achievements are inadequate to narrow the gap with the developed world. A sustainable energy supply requires a large and increasing share of zero-carbon renewable sources in the energy mix to mitigate climate change and reduce emissions of conventional air pollutants such as NOx and SO2 . Dirty coal is usually cheaper in the energy market since its negative environmental costs are often not considered. Therefore the share of coal in the energy mix is higher in developing countries than in developed countries. The percentage of coal in the energy consumed in China and India remains much higher than the world average, and zero-carbon renewables are far behind the level attained by developed countries. However, newly emerging economies are making more efforts to decarbonize their economy than highly developed economies. Some EU countries like the U.K. and Germany will have gotten rid of coal by 2040. It does not look possible for China to cut coal consumption to zero by 2050. Still, the share of coal consumption in the energy mix in China has been falling at an impressive rate, from 66% in 2015 to 57.7% in 2019 (Dudley, 2019), an average annual rate of reduction of 1.6% points. Wind and solar power capacity installed in China is first in the world now, while 20 years earlier, that number was nearly zero. By contrast, both the United States and India have much lower renewable energy utilization levels, below the average world number of 7% or so. To reduce fossil fuels in the energy mix, a country’s resource endowment matters, but financial

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and technological capabilities also are of great importance for making progress in that endeavor. The global landscape has changed substantially and is evolving continuously. The United States economy will retain its economic power in the years to come. In contrast, developed economies with a high rate of development saturation will remain mature and rich. However, their share of the world’s entire economy will continue to decline. As an emerging economy, China will enlarge its share of the global economic pie, and the increases in its energy consumption will be minimal in the future. India will differ from China regarding its economic growth and the projected increases in its energy consumption. As their populations grow at a relatively high rate, many other less developed countries will have difficulty transitioning to a lower carbon-use future. The developed rich countries will need to take the lead and demonstrate how low-carbon development can succeed. However, the less developed countries will have to avoid taking a high carbon development path to achieve their sustainable development goals. The Chinese project of moving away from a heavy-industrial approach to development toward an ecologically responsible transformation has shown that such policies can work as a means of achieving SDGs. China’s transformative policy can be of great value to the global community as an example of how a transition toward a low-carbon economy can realize SDGs simultaneously.

3 A New Vision for a Sustainable Future Wealth accumulation and economic growth have been the taken-for-granted goals and foundations of policymaking since the industrial revolution. Serious problems, such as widening income disparities, environmental degradation, resource depletion, and biodiversity loss, have worsened over the same period as most countries have followed this logic. Sustainable development has been recognized as the solution to such problems. However, policymaking in the process of industrialization has failed to harmonize the relationship between humanity and nature. Fast-changing world patterns require a new approach that will allow for sustainable development. The launch of the 2030 Agenda for Sustainable Development (also referred to as the 2030 Agenda) represents a new start of the transformative process at the global level, as the document’s title indicates: “transforming our world.” As detailed in the Agenda, the action list goes beyond the conventional three pillars approach to sustainable development: economy, society, and the environment. That approach did not work well in the past because it still adhered to the model of industrial civilization, calling for economic efficiency, environmental protection, and equity among people and generations. The problem is that although people assumed that all these individual pillars would be consistent with each other, they were not. Given the assumptions of the industrialization model, each pillar functions independently of the others and can offset one another. As a result, it is hard to see how any sort of harmony between man and nature ever could emerge. The United Nations sustainable development agenda

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adds two new dimensions: peace and partnership. Evidently, these two elements are supposed to promote harmony among nations, among people, and between man and nature. Peace is the condition for economic prosperity, environmental protection, and social equity. For the achievement of peace, mutual understanding and cooperation are indispensable; otherwise, people will seek to maximize their advantages without taking into account others’ needs. In fact, they might try to prosper at the expense of others. In short, we now have a transformative structure for implementing SDGs, namely, the integration of the so-called five Ps: people-centeredness, economic prosperity, the planetary boundary, peace, and partnerships (Pan & Chen, 2016). The purpose of development is to serve people’s needs, and no one should be left behind in the process. The key elements behind human rights to survival and prosperity are the eradication of absolute poverty, hunger, gender discrimination, access to basic education and health care, clean water, and energy. People-centered development requires that the necessities of life must be secured. The satisfaction of people’s basic needs can be achieved only by creating decent jobs, improving physical and social infrastructure, fair income distribution, constructing livable and resilient settlements, and producing and consuming in a sustainable manner. Economic prosperity must be green so as not to endanger our living environment in the longer run. Climate security, biodiversity, and healthy oceans are vitally important for the sustainability of planet Earth. Human beings are highly constructive and, at the same time, can be very destructive. Misconduct and crime can disrupt harmony at local levels, while the clash of civilizations and warfare can destroy trust, social order, and the accumulated wealth of humankind. Loss of biodiversity damages our living community. Without harmony between man and nature, our environment will be degraded. Harmony is the precondition for human well-being, economic development, and environmental protection. And we must work together to build partnerships for strengthening global solidarity. All human beings inhabit the same global village. For both short-term challenges and longer-term concerns, all the stakeholders should stand together, hand in hand, to find “win–win” solutions. The new vision of 5-P integration has certain advantages for achieving sustainable development goals mutually supportive and reinforcing. Harmony and partnership are the keys to operationalizing and enhancing people-centered economic development and environmental protection. Peace and partnership must be built into the process of human and economic development and planetary preservation. This 5P integration represents a new approach, a transformative model for sustainable development. In other words, the UNITED NATIONS Agenda provides a vision and elements for a new development paradigm, although it does not show that—or how—we must shift away from industrial civilization.

4 A Shift Towards a New Paradigm of Ecological Civilization

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4 A Shift Towards a New Paradigm of Ecological Civilization A paradigm shift is implied in the United Nations Agenda for sustainable development. However, some critical elements implied in this paradigm shift, such as harmony, sustainability, transformation, justice, and inclusiveness, do not fit well with industrial civilization’s characteristic language. China has followed the industrial approach toward development since its reform and opening-up in the late 1970s. But adopting the Western model of industrialization inflicted tremendous harm on nature and society. However, by the turn of the century, the cultural heritage and oriental philosophical understanding of human and nature relationship had already launched the revival and reframing of the practice of ecological civilization. Moreover, this “ecological civilization” approach to development has been further enhanced, summarized, and promoted in the process of urbanization and industrialization. The outcome shows that China has acted as a pioneer in building an ecological civilization and has mitigated the harmful impact of the industrial approach to nature and society, with positive implications for global efforts to tackle the challenge of transformation. Industrial and ecological civilization are two different paradigms for development, and we need to understand and compare the differences between them such that a transformation can be directed and accelerated. From Fig. 5, we can see that some differences are fundamental, while others are somewhat technical. Under industrial

Fig. 5 A comparison of essentials between the industrial and ecological civilizations. Source Pan (2015)

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civilization, the ethical foundation is utilitarian, and value measurement is based on human labor, with limited or no attention to nature. The key indicator to measure the success of an individual, a group, or a country is utility: i.e., only things considered useful to possess value; otherwise, there is no value to be measured. This mode of reasoning explains why self-interest dominates a company’s or a nation’s decisionmaking processes. In contrast to the characteristic utilitarianism of industrial societies, ecological civilization pursues harmony between man and nature. Moreover, ecological civilization seeks ecological justice and social justice: equitable sharing of gains from natural resources, combined with respect for human rights. In industrial civilizations, the overarching objective is to maximize profits and accumulate wealth. As a result, entire societies come to worship GDP as the indisputable measure of success while staking everything on competition and the quest for immediate financial gains. However, in ecological civilization, objectives are more broadly conceived. They include both the preservation of natural assets and the production of material wealth. Natural assets can be maintained by allowing natural processes to work on their own without extra investment. And in fact, the value of such natural assets actually may appreciate, in contrast to the declining value of human-generated assets over time. On the other hand, the accumulation of material wealth requires a vast amount of costly maintenance and upkeep, eventually evaporating through depreciation. Furthermore, the supply of energy services in industrial civilization relies heavily on fossil fuels. By contrast, ecological civilizations seek to bring about a transition toward sustainable sources. In addition, economic operations under ecological civilization clearly acknowledge the existence of natural limits and are made compatible with the rigidity of resource constraints. As the dominant paradigm begins to shift, production and consumption patterns will also start to adapt to changed realities. For example, the production mode is linear under industrial civilization, moving from the extraction and use of raw materials through the production process to culminate in products and waste. Under ecological civilization, on the other hand, the mode will be circular, from raw materials through the production process to products and raw materials. Moreover, lifestyles will be transformed from wasteful and luxurious consumption under industrial civilization into low-carbon, quality-conscious, healthy, and rational consumption in the era of ecological civilization. Of course, shifting from industrial to ecological civilization does not mean that the merits of industrial civilization must be shunted aside completely. Indeed, all the positive features of industrial civilization should not only be retained but further developed. For example, technological innovation that can contribute to sustainability and efficiency improvements should be encouraged, but such innovations can damage nature. The wasting of resources must be restricted or even forbidden. Moreover, institutional systems based on utilitarian principles—for instance, democracy, the rule of law, and market mechanisms—can be incorporated directly into the new era of ecological civilization. However, the paradigm of ecological civilization has unique features, such as ecological compensation and ecological red lines and the appraisal and evaluation of natural resource inventories and changes.

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5 Accelerating the Transformative Process As a plan for social and economic transformation, the vision and the implications of ecological civilization are clear. However, there is a long way to go as the sustainable development goals are comprehensive, including the 17 SDGs and 169 targets. Moving ahead one step at a time is the only reasonable way to undertake that transformative process. Besides, transformation literally and fundamentally is different from either revolution or transition. Revolution destroys the old without considering how it is to be replaced. Transition moves from start to finish without looking at how structures undergo intrinsic change (Pan, 2016). Transformation is a process that builds upon what already exists, creating a new system that differs from the old one. Even though some fundamental principles will carry over, a new era of ecological civilization must be different from what preceded it. One implication is that we should learn some lessons from ecological practices employed in agrarian societies. Also, the transformation process should be made more inclusive in several respects: ways of thinking, forms of cooperation, and the reform of institutional systems. Transformative thinking is crucial for the shift from industrial to ecological civilization. It aims at rethinking or reconsidering the fundamental source of our problems. In the past, poverty alleviation was regarded as burdensome, and it was not seen as the responsibility of the rich countries/parties. If the issue is examined further, people trapped in poverty can be productive laborers and attractive targets for market expansion. And there is no guarantee that anybody will be exempt from falling into a poverty trap, no matter the reason. Zero-sum thinking overlooks the potential demand for consumption and economic growth when poverty is alleviated. Besides, environmental fragility is often the root cause of extreme poverty. Ecological rehabilitation and restoration are very much in line with the improvement of primary productivity. Wastewater treatment and air pollution control help secure a high-quality environment, which, in turn, is an essential part of human well-being. Moreover, improving environmental conditions may help enhance productivity. For example, high-quality natural assets bring ecological dividends. Ecologically sustainable products can often be sold, while a healthy environment attracts eco-tourism. Investment in renewables certainly will create jobs, generate income, and lead to zero-carbon electricity for energy services. The importance of cooperation is highlighted in the transformative process through two new pillars: peace and partnerships. First, developed countries provide financial and technical support for their developing counterparts to alleviate poverty. This is the bright side of the wealthy countries’ efforts in the global South, but we have to make sure that support from the rich world should be environmentally friendly and ecologically sustainable. For instance, climate change and environmental risks are, in many cases, the root cause of poverty; hence, cooperation should meet the criteria of low carbon energy and affordability. Partnership-building, as specified in the 2030 Agenda, must be mutually beneficial and complementary. The developed rich countries such as the United States have

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the economic capability and advanced technology. Still, support for SDG implementation in developing countries should avoid high carbon lock-in technologies and demonstrate low carbon lifestyles. As most developing countries lack the funds and technologies to accomplish sustainable transformation, cooperation between them and wealthier countries will ensure a win–win partnership for economic prosperity and global environmental sustainability. Institutional innovation will promote the effective implementation of cooperative transformation. The Paris Agreement under the UNFCCC initiates another international transformative agenda. The Paris Agreement adopts a bottom-up approach to climate actions, calling for individual parties to make NDCs. However, what the parties have committed to, falls short of meeting the Paris Agreement targets of keeping temperature rise below 2 °C by 2100 compared to pre-industrial levels. Most experts believe that aiming at a target of 1.5° would be safer. The negotiations among the parties have been painfully slow and difficult. Protecting and maximizing national interests under the industrial civilization model prevents the delegates from taking more ambitious actions. This is another area for global transformation that has to be accelerated. Climate targets are somewhat more distant: the 2 °C limit on global temperatures by the end of the century and net zero emissions by the middle of the century. Yet all these longer-term targets will require action right now; otherwise, there will not be enough time to get climate change under control. The SDGs set in the 2030 Agenda has a clear timeline: achieving the goals within the next decade. SDGs are shorterterm targets than those of climate change. However, all the targets can be and should be translated into immediate actions. We have no time to wait, let alone to waste. To accelerate the transformative process, we need to make fundamental changes. As argued here, that means initiating a shift of the development paradigm, from pursuing and preserving one’s self-interest under industrial civilization to a win–win scenario in which man and nature are brought into harmony under ecological civilization. Heading in the right direction is indispensable to transformation. China’s practices in its ongoing effort to build an ecological civilization may serve as a model. A lowcarbon consumption policy encourages the use of renewable forms of energy and promotes their development. More importantly, there is an urgent need to follow and enforce the principles and institutions implied and specified in the process. We must push forward the shift towards ecological civilization in green, creative, and sharing ways. In this regard, the Chinese experience—setting forth all the relevant targets in five-year plans—secures the step-by-step transformation process.

References Chavance, B. (2003). The historical conflict of socialism and capitalism, and the post-socialist transformation. Trade and Development. Directions for the 21st Century, pp. 16–35. Chen, S., & Ravallion, M. (2013). More relatively-poor people in a less absolutely-poor world. Review of Income and Wealth, 59(1), 1–28.

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Dudley, B. (2019). BP statistical review of world energy. BP Statistical Review. Hermwille, L. (2016). Climate change as a transformation challenge. A new climate policy paradigm? GAIA-Ecological Perspectives for Science and Society, 25(1), 19–22. Horner, R. (2020). Towards a new paradigm of global development? Beyond the limits of international development. Progress in Human Geography, 44(3), 415–436. Jung, E. O. (2021). The 500-million-vehicle question: What will it take for China to decarbonize transport? World Bank Blog, June 07, 2021, https://blogs.worldbank.org/transport/500-millionvehicle-question-what-will-it-take-china-decarbonize-transport. Accessed August 12, 2021. Li, P., Chen, G., Wang, C., Li, W., Feng, T., & Zou, Y. (2020). Society of China: Analysis and forecast. Social Sciences Academic Press. Pan, J. (2015). China’s environmental governing and ecological civilization. Springer/China Social Sciences Press. Pan, J. (2016). China’s environmental governing and ecological civilization. Springer. Pan, J., Chen, Y., Zhang, H., Bao, M., & Zhang, K. (2016). Strategic options to address climate change. In Climate and environmental change in China: 1951–2012 (pp. 129–137). Springer. Pan, J. & Z. Chen, (2016). A transformative agenda. In Sustainable development goals for 2030: Global vision and Chinese experience. Social Sciences Academic Press Slater, D. (1997). Geopolitical imaginations across the North-South divide: Issues of difference, development and power. Political Geography, 16(8), 631–653. United Nations, Department of Economic and Social Affairs, Population Division. (2019). World Population Prospects 2019, Online Edition. Rev. 1. https://population.un.org/wpp/. Accessed August 12, 2021 Wang, M. (2015). Road to Paris: The changed and unchanged in international responsibility system. In W. Wang & G. Zheng (Eds.), Annual report on actions to address climate change: A new start and hope to Paris (pp. p001-p016). Social Sciences Academic Press.

Chapter 17

Gaining Momentum Pushing the Paris Agreement Process

The Paris Agreement, reached at the United Nations’ climate conference in Paris, France, in December 2015, is a landmark in the international climate negotiation and has been highly evaluated by all parties. It can be said that the biggest highlight of the Paris Agreement is that the global climate architecture will not be demolished. There may be ups and downs ahead, but there won’t be a way of heading backward. But we also need to recognize the pitfall of distributing the NDCs among countries and responsibility-sharing. Therefore, it can be hard to imagine that the post-Paris progress will be fast and smooth. Nevertheless, a transformational breakthrough will be fundamental to achieve the global temperature rise cap of 2 °C target sets out in the agreement.

1 The Paris Agreement: Launching a New Process The multilateral efforts to address the threat of global climate change have been wading through difficulties and fraught with twists and turns because of the tragedy of global common, the long-term process of climate change, and the scientific uncertainties. Nevertheless, the adoption of the Paris Agreement is a milestone in international climate negotiations and a historic success to bring years of near deadlock negotiations to a conclusion. It is characterized by clear goals, broad participation, “many a little makes a mickle,” inventory transparency, and steady progress. First of all, the Paris Agreement sets a clear goal. It is the first legally binding document that sets the objective of holding the increase in the global average temperature rises to well below 2 °C above pre-industrial levels. Furthermore, it pushes efforts to limit further the temperature rise within 1.5 °C. The UNFCCC adopted in 1992 does

See “The Post-Paris Process for Addressing Climate Change: Transformational Breakthroughs Still Needed” in Environmental Protection, No. 24, 2015. © China Social Sciences Press 2022 J. Pan, Climate Change Economics, https://doi.org/10.1007/978-981-19-0221-5_17

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not have an explicit temperature target and has no near-term, medium-term, or longterm emission reduction targets. The Kyoto Protocol only specifies the immediate or medium-term GHG reduction targets for developed countries. The Copenhagen Accord does not address long-term carbon emission reductions, although it proposes a 2 °C temperature control target. The 2 °C target in the Paris Agreement sets longterm expectations and constraints and provides a benchmark for a gauge for near-term or medium-term mitigation targets. By broad participation, it means that 195 countries, or all Parties, have participated in the negotiations and agreed to reach the agreement. Moreover, by October 1, 2015, 117 NDCs pre-proposals had been submitted by 147 Parties, representing 75% of the total number of Parties and 86% of global emissions in 2010. All Parties provided information on their mitigation contributions. A total of 100 Parties, representing 84% of the NDCs, also provided information on adaptation in their NDCs proposals. By the eve of the Paris conference, the number of countries submitting NDCs had increased to 186, covering 96% of global emissions. While the second commitment period of the Kyoto Protocol currently has only the EU and New Zealand, covering less than 14% of the global total. The Paris Agreement is a “many a little makes a mickle,” not by participation, but rather by ownership, i.e., bottom-up self-motivated participation. The Agreement does not have a unified program for emission reduction and financial allocation. Instead, it is left to the discretion of each party. And this discretion is not a legally binding commitment but rather a “contribution” as indicated in the decisions of the Agreement. There is no single agreed framework on emission reduction contributions. Each party is allowed to choose its own indicators and parameters. As a result, there is no consistency in measuring the “contribution” claimed by each Party in terms of indicators such as the selection of base year and target year, absolute and relative mitigation amounts, peaks, renewable energy, and forest carbon sinks. In addition, the financial contributions are also made by each party according to its unique national circumstances. Not only developed country Parties have contributed, but the developing country Parties have also claimed their contributions. For example, the Prime Minister of Vietnam, Nguyen TanDung, announced at the plenary session of the Paris Climate Change Conference that Vietnam would contribute USD 1 million to the Green Climate Fund (GCF) under the Convention and would gradually increase their support to the Fund. As a developing country, China provides 20 billion RMB, not to the GCF, but directly to South-South climate change cooperation. Neither the emission reduction nor the financial contribution is a “top-down” arrangement. No specific task-sharing was included in the terms of the Paris Agreement and thus is not legally binding. However, this bottom-up approach has allowed a trickle of water to flow into a large river collectively; many a little makes a mickle. The bottom-up approach requires an inventory system to calculate and adjust voluntary contributions to meet the Paris Agreement targets. Therefore, the inventory system needs to be open, transparent, and standardized. In addition, the inventory system should be able to assess the NDCs individually, exam the cost and progress, and evaluate the gap between all the NDCs and the Paris Agreement targets. To this end, in the Decisions adopted by the Conference of the Parties (UNFCCC, 2016), it is

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requested that an Ad Hoc Working Group develop recommendations for modalities, procedures, and guidelines to facilitate the clarity, transparency, and understanding of the intended nationally determined contributions (Decision 13 and 91) and that this work be concluded no later than 2018 (Decision 96). Voluntary contributions are not just claimed by words, and they need to be checked and evaluated transparently by the public. Although the submitted NDCs were not implemented, there is no legal compliance, but they will be assessed and revealed in the transparent inventory system. In a sense, the Paris Agreement is a kind of “loose” constraint. More stringent constraints on the NDCs are written in the Decisions adopted by the Conference of the Parties, but not in the Paris Agreement. But there is also rigidness in the softness of the Paris Agreement (United Nations, 2015), which is the steady progress of the legal arrangements. For example, it requests each Party shall communicate a nationally determined contribution every five years (Article 9), reflect its highest possible ambition (Article 4), and efforts of all Parties will represent a progression over time (Article 3). In addition, article 14 requests the Party to undertake its first global stocktake in 2023 and every five years thereafter. The outcome of the global stocktake shall inform Parties in updating and enhancing, in a nationally determined manner, their actions and support according to the relevant provisions of the Paris Agreement. These provisions indicate that NDCs must be “in progress” and making references and adjustments based on the global stocktaking, which predictably shows that contributions are insufficient and fall short of targets. One reason for the Paris Agreement to be progressed steadily ahead is that the conditions for the Agreement to enter into force are relatively easy to meet, requiring that no fewer than 55 parties ratify the Agreement and that the emissions of those parties account for no less than 55% of total global emissions. The situation was difficult for the Kyoto Protocol. Although it was not difficult to have more than 55 parties to ratify, it was challenging to have the ratifying parties account for 55% of the emissions of Annex I countries. The United States accounted for 35.1%, and Russia accounted for 15.7% of the Annex I countries’ emissions. As long as these two countries did not ratify, the Kyoto Protocol would not enter into force. The US Senate had explicitly refused to ratify. The EU approached and persuaded Russia before the protocol could barely enter into force in 2005. The Paris Agreement avoided this kind of pitfall by bringing all nations into a common cause to undertake ambitious efforts to combat climate change and adapt to its effects. According to the Paris Conference decision, on April 22, 2016 (World Earth Day), the UN Secretary-General invited leaders to collectively sign the Paris Agreement in New York. As a result, the Paris Agreement entered into force on November 4, 2016, and was highly endorsed by the leaders of the vast majority of countries in the world. Therefore, it can be well said that the Paris Agreement has initiated a new process of global emission mitigation.

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2 How Fast Can We Go: Constraints Still Exist The Kyoto Protocol was adopted, entered into force, and implemented. However, even if it is not considered a failure, it is not satisfactorily completed. The Copenhagen Accord was negotiated, but it should be “noted” that the accord was not officially adopted by the UN climate conference, and the expression in the General Assembly resolution was “take note of.” The negotiations on the Durban Platform launched in 2011, and the Paris Agreement was reached in 2015, continued to a certain extent the tone and content of Copenhagen. To some extent, the “progress” of the Paris agreement, such as the medium- and long-term goals and the principle of CBDR, even surpassed the Copenhagen agreement. However, many of the elements of the Copenhagen Accord, either in their original form, or in a modified form, or in an updated form, are reflected in the Paris Agreement. In this sense, the failure of the Copenhagen Accord is not simply a foil but a path to the success of the Paris Agreement. But some of the challenges of the Copenhagen Accord still persists in the Paris Agreement. As can be seen from the comparisons in Table 1, the Kyoto Protocol has limitations and strengths. The Kyoto Protocol does not have specific long-term and medium-term targets and non-Annex I parties do not participate in emission reduction commitments. Furthermore, due to the legally binding nature of emission reductions, some developed Parties unwilling to reduce emissions would choose to withdraw from the Protoco and avoid their responsibility to reduce emissions, making the Kyoto Protocol much less effective in climate mitigation. On the other hand, developing countries have no legally binding obligation to reduce emissions. But, on the other hand, they have access to financial support for low-carbon development. So the Kyoto Protocol was seen as a more favorable legal arrangement for developing countries. Thus, some developed countries tried to reverse the “unfair” pattern. As a result, developing countries were included in the emissions reduction group when it comes to the Copenhagen Accord. The results of emissions reduction should be reported every two years to be verified. The mitigation targets for developed countries have been reduced into pledges. Developed countries still need to provide funding in the Copenhagen Accord, but the sources of financing are not explicitly stated. In retrospect, the Copenhagen Accord was made before the developing countries are ready to take responsibility. It was also a bit too hasty for the developed countries to make a serious commitment to financial support. So the developing countries shelved the Copenhagen agreement, as the developed countries abandoned the Kyoto Protocol, which is not surprising. The acceptance of the Paris Agreement by developing countries has been accompanied by changes in emission patterns, in addition to the will and determination to address climate change. According to IEA data on GHG emissions from fossil fuel combustion, Annex I countries accounted for more than 2/3 of global emissions while developing countries accounted for less than 1/3 in 1990. However, in 2013, the share of Annex I countries fell to 40%, with nearly 60% of emissions originating from non-Annex I countries. The per capita emission in the Annex I countries

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Table 1 From the Kyoto Protocol to the Paris Agreement: objectives, legal bindingness, and participation The Kyoto protocol The Copenhagen accord

The Paris agreement

Long-term

/

2 °C

2–1.5 °C

Medium-term

/

Achieving the peaking of global and national emissions as soon as possible

reach global peaking of GHG emissions as soon as possible; achieving net-zero emissions after 2051

Near-term

Annex 1 countries to limit and reduce GHG emissions by 5.2% below the 1990s base year level

Each party submits its own pledge to reduce emissions

Each party submits NDCs

Target year

2010(2008–2012)

2020

After 2020 (2030)

Base year

1990

Various(mostly 1990, 2005)

Last updated national communication data at or before the time of adoption of the agreement (December 2015)

Legal force

Strong: commitment

Relatively strong: pledge

Relatively weak: contributions

Finance

Adaptation Fund, CDM

Developed countries to raise $30 billion funding in 2020–2012, $100 billion funding per year by 2020 to help developing countries

Co-financing of no less than $100 billion per year by 2025

Review mechanism

National communication

MRV, national communication every two years

Inventory(each party updates NDCs every five years, global stocktaking as reference for the next five-year NDCs)

Mitigation Goal

(continued)

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Table 1 (continued) The Kyoto protocol The Copenhagen accord

The Paris agreement

Participation

Only Annex I All parties make countries have pledges emission reductions targets

All parties submit NDCs

Common but differentiated responsibilities (CBDR)

Explicit: additional funding from developed countries to developing countries; low-carbon development, climate change adaptation in developing countries

Weak: all Parties to submit pledges; still distinguishes between Annex I and non-Annex I countries in the text

Ambiguous: all Parties are required to submit their NDCs; no longer used Annex I and non Annex I in the text

Action parties

Sovereign government

Sovereign government

Sovereign government, municipal government, enterprises

Market mechanism

Emission trading, JI, CDM

Pursue various approaches, including opportunities to use markets (Article 7)

Voluntary basis in cooperative approaches with no clear mechanism (Article 6)

dropped over the same period from 1990 to 2013. But the per capita emission in the non-Annex I countries doubled from 1.53 tons of CO2 in 1990 to 3.13 tons in 2013. Still, Annex I countries emitted a whopping 9.89 tons in 2013, more than three times the per capita level of non-Annex I countries (IEA, 2020). Based on these arguments, the Paris agreement is a compromise between all parties. However, constraints are still in place that may affect the post-Paris progress. (a)

Emission reduction efforts. The intention of the Kyoto Protocol was for developed countries to take the lead in low-carbon development, as in the case of the industrial revolution, and provide a model for developing countries. However, developed countries have failed to do that, and developing countries continued the old path of developed countries, i.e.,high-carbon industrialization. Despite their limited incremental carbon emissions, many of which are already in negative growth, developed countries do not have a zero-carbon paradigm to follow. In such a situation, developing countries lack the confidence and capability to peak at a relatively lower level of per capita emissions. It is also very challenging

2 How Fast Can We Go: Constraints Still Exist

(b)

(c)

1

285

for developing countries to explore a rapid low-carbon or zero-carbon development path at the cost of lowering down their economic and social development. They may not choose to transform as it is not seen happening in the developing countries either. The submission of the next NDCs after each country’s inventory needs to refer to the results of the global stocktake. Suppose the per capita emission levels of developed countries do not come down rapidly, it is evident that the NDCs of developing countries will not exceed those of developed countries. Moreover, the NDCs of some developing countries are conditional: they can only be delivered if developed countries provide funding and technology. If funding or technology is unavailable, these conditional contributions will only be “pie in the sky.“ For example, India’s NDCs include reducing its emissions intensity by 33–35% in 2030 compared to 2005 (60%-65% in China), generating 40% of its electricity from non-fossil sources, and creating 2.5–3 billion tons of carbon sinks through afforestation.1 However, there are conditions attached to India’s NDCs: finance, technology transfer, and capacity building. The debate over ambition or responsibility for emission reductions will slow down the post-Paris process. The Paris Conference decision (Article 134) to involve “non-state stakeholders,” including civil society, the private sector, financial institutions, cities, and other local authorities, should be considered a step forward. Still, they are only actors, not “contributors,” and are not reflected in the Paris agreement. Finance A good scenario is that countries with emerging economies already at or near middle income will not compete with less developed countries for climate change funding. In addition, some developing countries may also provide funds in the form of South-South cooperation. But even so, the overall funding is unlikely to meet the expectations of less developed countries. In some developed countries, climate change funding needs to be approved by Congress, and that government power is limited. The Paris Agreement (Article 9) stated a general principle as “developed country Parties should continue to take the lead in mobilizing climate finance from a wide variety of sources, instruments, and channels,” but did not nail down a specific amount or source. In the non-legal binding Decisions adopted by the Conference of the Parties (Article 114), it “strongly urges developed country Parties to scale up their level of financial support, with a concrete road map to achieve the goal of jointly providing USD 100 billion annually by 2020 for mitigation and adaptation.“ The 100 billion USD is a “collective” target for all Parties. As a result, developed countries are looking into the private sector to offer financial support, while the private sector can offer very limited funding if it is not profitable. Legal Bindingness The NDCs submitted by country Parties, whether in terms of emission reductions or finance, are not included in the legally binding Paris

UNFCCC, (2016). “INDIA’S INTENDED NATIONALLY DETERMINED CONTRIBUTION: WORKING TOWARDS CLIMATE JUSTICE”, 02/10/2016, https://www4.unfccc.int/sites/ndcsta ging/PublishedDocuments/India%20First/INDIA%20INDC%20TO%20UNFCCC.pdf. Accessed 30 May 2021.

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agreement but rather in the non-legally binding Decisions adopted by the Conference of the Parties. “Contributions” are clearly weaker than “pledges” and even weaker than “commitments” in the legal sense. The NDCs are not in the Paris Agreement, which means that country parties’ NDCs are totally voluntary. There is no compliance mechanism for the NDCs either. The Kyoto Protocol was legally binding. However, some Parties opted out to avoid the responsibilities. So the post-Kyoto progress has not gone far or fast. Although the Paris Agreement has no legally binding targets for emission reductions or finance, the post-Paris progress may go very far, but not necessarily very fast, as it is inclusive and adaptable. Some believe that the principle of Common but differentiated responsibilities (CBDR) will remain the focus of the North–South conflict. In the Copenhagen Accord, all countries submitted their emissions reduction “pledges,” but there is still a nominal distinction between Annex I and non-Annex I countries. Thus, the principle of CBDR is de facto diluted but still reflected. A few places in the Paris Agreement where the CBDR principle is reiterated in text, but the absence of Annex I and non-Annex I distinction throughout the text of the Agreement de facto removes the CBDR principle. The distinction between Parties is no longer expressed in the dichotomous form of Annex I and non-Annex I, but rather in the form of a continuous “spectrum.” The emissions reduction commitments of Annex I countries in the Kyoto Protocol are differentiated from each other even with the CBDR principle. In the Paris Agreement, the NDCs submitted by developing countries are also differentiated according to each country’s unique circumstances. Therefore, the CBDR principle is not de facto distinctive in these documents. Some developing countries also provide climate change funding through south-south cooperation or direct funding to the Green Climate Fund (GCF). In fact, there is some ambiguity in terms of who should provide funding for climate change, not developing countries only. Moreover, there will be further debate on the technical aspects of the Paris Agreement, including the stocktaking methodologies and procedures. Still, the challenges are not as critical as the three areas discussed above, i.e., emissions reductions efforts, finance, and legal bindingness.

3 Enhanced Actions: Urgent Need for Transformational Breakthroughs The self-determined national contributions tend to be conservative for Parties to ensure successful implementation. Meanwhile, if the NDCs are not achieved in the end, there will be no consequences directly associated. In such a scenario, the new targets for enhanced actions based on stocktaking of NDC would be improbable to meet the 2 °C temperature rise cap and the goal of achieving net-zero emissions by the second half of the century. Although these goals are written in the Paris agreement

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1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017

8 7 6 5 4 3 2 1 0

United States

Europe

China

India

Africa

World

Fig. 1 Trajectory of per capita emissions in selected economies (1971–2018). Note 1971 = 1.00. Data source IEA (2020), CO2 Emissions from Fuel Combustion: Overview, IEA, Paris https:// www.iea.org/reports/co2-emissions-from-fuel-combustion-overview. Accessed 12 August 2021

and are legally binding, there is no clear statement on who and how to take the responsibilities. The evolutionary dynamics of the world’s population and emission patterns show that some developed and developing economies will continue to require an increase in energy consumption due to population growth and economic development. If non-fossil energy sources cannot meet the needs of industrialization and economic expansion, fossil energy is bound to become the preferred choice. In Fig. 1, the rate and magnitude of per capita GHG emissions in industrialized countries such as many European countries and the United States have been slightly decreasing. Interestingly, the rate of decline in the United States and Europe is almost identical: the per capita emission level in the United States in 2018 is 27% lower than that of 1971. While in Europe, the per capita emission level has seen a 30% drop from 1971 to 2018. In terms of absolute emission reduction, the United States has decreased from 20.6 tons in 1971 to 15 tons, a decrease of 5.6 tons; Europe has decreased from 8.6 to 6.0 tons in the same period, a decrease of less than half of the United States. Based on these data, the per capita CO2 emissions in many developed countries are downward. Moreover, the rate of decline is roughly the same. However, developed economies with high per capita CO2 emissions have declined more than those with relatively low per capita CO2 emissions. Emerging economies, typically like China and India, have rapid per capita carbon emissions growth due to economic development and rising consumption associated with industrialization and urbanization. China’s per capita carbon emissions have increased 6.5 times compared to the 1971 level, while India’s per capita carbon emissions have increased nearly 5 times. On the other hand, as a developing economy that is still in the early stages of industrialization or industrialization, Africa has not seen a rapid increase in economic growth and consumption levels yet. Africa’s per capita emissions level in 2018 only increased by 45% compared to 1971, from 0.67 ton/per capita to 0.98 ton/per capita, with only 0.3 tons net per capita raise. The world average increase in per capita emissions was 0.7 tons during the same period,

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while the increase was 5.9 tons in China and 1.4 tons in India. From the trajectory of increasing per capita emissions, developing countries following the conventional industrialization path have a faster emissions growth rate and more considerable increase. They will reach the per capita emission level of developed countries in a relatively short period of time. China’s per capita emissions are already at the same level as those of the EU. Parties are requested to submit the next round of NDCs (new NDCs or updated NDCs) by 2020 and every five years after that (e.g., by 2020, 2025, 2030), moving forward continuously to achieve net-zero emissions after 2050. If the energy transition occurs at a normal speed, it would be difficult for the developed countries to reduce emissions significantly. For example, in China, the peak of total emissions and per capita emissions will be achieved once China’s NDCs are completed. While in India, the per capita emissions will continue to rise significantly as industrialization is still in the interim stage. In low-income developing countries, the per capita emission level will increase, but the increase may not be significant because the rapid industrialization process does not start in the near future. According to the UNFCCC secretariat’s comprehensive assessment of NDCs submitted by parties by October 1, 2015, including conditional emission reduction contributions from some developing country parties, total global emissions would reach 49 billion tons by 2030 (with a range of 37.4–48.7 billion tons of CO2 -equivalent. (The figures in the text are median figures).2 According to the analysis of the IPCC 5th Assessment Report, the total global carbon emission budget available after 2011 is only 100 billion tons if there is a 66% probability of achieving the 2 °C goals. Even if all the NDCs are met, the world will have accumulated 748 billion tons of emissions by 2030 (IPCC, 2014). With 2 °C targets, the world will be left with merely 252 billion carbon mission budget after 2030, not to mention the 1.5 °C targets. The International Energy Agency (IEA) report shows that the world’s carbon dioxide emissions from fossil energy combustion alone totaled 32.19 billion tons in 2013 (IEA, 2020). The 2013 emissions have not yet reached the global peak. Even if the emission level in 2030 can be reduced to the level of 2013, the global carbon mission budget will be sufficient for another eight years only. Thus, to achieve the Paris Agreement’s 2 °C temperature control target, an additional 15.1 billion tons of carbon emissions would need to be subtracted from the NDCs. Considering the other GHGs not covered by the NDCs, total global emissions in 2030 would be 56.7 billion tons (median of 531 to 586 billion tons). That means, in 2030, an additional 26. 6% reduction from the NDCs will be needed. The problem is that, even if we do not consider the mitigation of other GHGs not covered by the Paris Agreement, there are still many challenges to achieving NDCs. As seen in the data in Fig. 2, the future demographic dynamics of the major economies suggest that many countries will have to increase their emissions. Since GHGs emissions result from socio-economic development, population size and consumption 2

UNFCCC. Nationally Determined Contributions (NDCs). https://unfccc.int/process-and-mee tings/the-paris-agreement/nationally-determined-contributions-ndcs/nationally-determined-contri butions-ndcs. Accessed 24 July 2021.

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Fig. 2 Population change dynamics of selected world economies (2015–2050). Note The vertical coordinates are the net change multipliers of the population in each year relative to 2015. Data source United Nations, Department of Economic and Social Affairs, Population Division (2019). World Population Prospects 2019, Online Edition. Rev. 1. https://population.un.org/wpp/. Accessed 12 August 2021

levels are two of the determining factors. The future population dynamics of Europe and China indicate that the achievement of NDCs is relatively promising with accelerated renewable energy. Whereas the US population is to grow by 20%, if US per capita emissions decline by 20% over the next 35 years, total US GHG emissions will be the same as current by 2050. With the United States per capita emissions nearly four times the world average and 17 times that of Africa (2013), US emissions reductions are particularly important. India’s population is going to increase by 1/3 in 2050 compared to 2015. If per capita emissions levels increase by a factor of 3, India’s total emissions will far exceed China’s emissions peak in 2050. Even if per capita emissions do not increase in Africa, the population in 2050 will more than double from the current level, and emissions will have to double at least. From the above napkin calculation of emissions and population dynamics, it seems clear that we may not meet the 2 °C target in the Paris Agreement, even if we achieve all the NDCs. Moreover, the emissions will rise in the areas where the population continues to grow, like the United States, India, and Africa. The US will have severe difficulties in mitigation if its consumption is not shifted to a more sustainable pattern. Developing countries, especially those low-income countries, still need high-carbon fossil energy to move forward the industrialization and improve living standards, as fossil energy is more affordable than alternatives. Thus, the demand for carbon missions is vast. President of China, Xi Jinping, has emphasized the unity of environment and humans, the respect for nature, and the necessity of a transition towards a new pattern of modernization and ecological civilization for the harmonious development of humans and nature. The United Nations’ 2030 Agenda for Sustainable Development Goals (SDGs) also highlighted the importance of a

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worldwide transformation. It will be challenging to achieve the Paris Agreement goals without the breakthrough of the overall transformation towards ecological civilization.

References IEA. (2020). CO2 Emissions from Fuel Combustion: Overview, IEA, Paris https://www.iea.org/rep orts/co2-emissions-from-fuel-combustion-overview. Accessed August 12, 2021. IPCC. (2014). Climate Change 2014: Synthesis Report. Contribution of Working Groups I, II and III to the Fifth Assessment Report of the Intergovernmental Panel on Climate Change [Core Writing Team, R. K. Pachauri, & L. A. Meyer (Eds.),]. IPCC (p. 151). https://www.ipcc.ch/report/ar5/ syr/. Accessed August 12, 2021. United Nations. (2015). Paris agreement. In Report of the Conference of the Parties to the United Nations Framework Convention on Climate Change (21st Session, 2015: Paris). Retrived December (Vol. 4, p. 2017). https://unfccc.int/sites/default/files/english_paris_agreement.pdf. Accessed July 29, 2021. UNFCCC. (2016). Conference of the Parties (COP). Decisions adopted by the Conference of the Parties. 29 January 2016. FCCC/CP/2015/10/Add.1. https://unfccc.int/resource/docs/2015/ cop21/eng/10a01.pdf#page=2. Accessed July 29, 2021.

Chapter 18

A Comprehensive Transformation Required for Achieving the Paris Targets

The year 2015 saw the global adoption of two significant agendas for the future development of humanity: the United Nations Sustainable Development Goals and the Paris Climate Agreement. The target year for both agendas is 2030, and the implementation phase began in 2016. As a result, the international community has been working hard to advance the implementation of both agendas. China shouldered its responsibilities as a responsible developing country and actively participated in international development cooperation to promote global implementation. Along the way, China is willing to share the exploration, experience, wisdom, and Chinese solution to the cause of global sustainable development.

1 The Challenge of Low Carbon Transformation Although the global climate negotiations began in 1990, only after a quarter of a century, the negotiation finally resulted in a landmark international agreement with the following specific mitigation targets. One is to limit global warming to well below 2 °C, preferably to 1.5 °C compared to pre-industrial levels. The other is to reach the global peaking of GHG emissions as soon as possible and achieve a carbon–neutral world by the second half of the century. However, the analysis based on the NDCs submitted by Party countries shows little chance of achieving the goals of the Paris Agreement (UNFCCC, 2015). It is perpetual challenging to reach a consensus on who should cut the GHG emissions, by how much, in numbers. In 2016, the 2nd International Cooperation Conference on Green Economy and Climate Change was held in Beijing, jointly hosted by China Center for International Economic Exchanges (CCIEE) and the US “Climate Reality Program,” under the theme of “Low Carbon Innovation, Green Future—the Power of Role Model.” At See “Transformative Development and the Implementation of the Paris Agreement” in Environmental Economics Research, No. 1, 2016, and “The Gore Paradox”. © China Social Sciences Press 2022 J. Pan, Climate Change Economics, https://doi.org/10.1007/978-981-19-0221-5_18

291

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this meeting, the Nobel Peace Prize winner for 2007, former vice president of the United States, Al Gore, cited an African proverb, “If one wants to go fast, go alone. If one wants to go far, go together.”, and emphasized that global mitigation needs to go fast and far at the same time. But, how can we do it? The international community has been negotiating for decades with limited progress. Finally, the Paris Agreement has been reached with targets, yet, without a practical path. Apparently, going fast and going far is a paradox. As Al Gore brought it up, let’s call it the “Gore Climate Paradox.” To resolve the “Gore Climate Paradox” is an urgent task the international community has to take. Fortunately, some cognitive breakthroughs and practical experience can be used to help break the paradox. At the beginning of the industrial revolution, Malthus (1992) proposed that the natural productivity of traditional agricultural civilization was insufficient to support population growth. Malthus argued that as population increases on a geometric scale and the means of subsistence is produced on an arithmetic scale. As a result, overpopulation and food scarcity are inevitable. And the dynamic equilibration between overpopulation and food scarcity will be poverty and sin. The vicious spell of poverty and sin was largely avoided by the industrial civilization. However, the massive resource consumption and environmental pollution that came with the industrial civilization have put the human living environment under serious threat. The severe haze and smog in some European and American cities in the 1950s and the chemical pollutants in Japan and the United States in the 1960s threatened people’s health and survival. They made people longing to go back to the natural environment (Sachs et al., 2016). Environmental issues have gone beyond the scope of one person, one community, and even one country. It is a genuine global issue. Environmental problems cannot be solved by fighting alone but require the joint efforts of the whole human society, and we need to “go together.” In 1972, the United Nations Conference on the Human Environment, held in Stockholm, Sweden, brought environmental issues to the international agenda for the first time. Forty years later, on the occasion of the 20th anniversary of the UN Summit on Environment and Development held in Rio in 1992, a summit on the theme of sustainable development, the 2012 United Nations Conference on Sustainable Development (Rio + 20), failed to reach consensus on post-2015 sustainable development. However, one of the primary outcomes of the Rio + 20 was the agreement by the Member States to designate a 30-member Open Working Group (OWG) of the General Assembly to prepare a proposal on the SDGs and to submit the “2030 Agenda for Sustainable Development” to the United Nations by July 8, 2015. After three years of work, the OWG (2015)1 submitted a proposal that gave the option of “transformation,” which was endorsed United Nations Sustainable Development Summit in September 2015. Since the beginning of this century, the international community has widely recognized China’s practice of ecological civilization UN “Rio plus 20 (Rio + 20)”, is held in Rio in 1992 20th anniversary of the UN summit on environment and development held for the sustainable development of the theme of the summit, but failed to agree on the sustainable development of 2015 years, and set up a working group on “open” authorization, after determine the sustainable development goals and agenda 2015. OWG submitted the 2030 Agenda for Sustainable Development to the United Nations on 8 July 2015.

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for its attempts to seek harmony between human beings and nature without following the old path of developed countries at the summit. Moving forward, transformational development is the way out to harmonize the relationship between people and nature. The following 15 years, from 2016 to 2030, is a critical and decisive timeframe for the global transformation of development. The international community needs to deepen its knowledge of transformation further and consciously practice sustainable development to abandon the development paradigm of industrial civilization, under which the humans and nature were against each other, and move forward to a new era of ecological civilization.

2 Comparison of Available Pathways People have been exploring various possible pathways to harmonize the relationship between humans and nature for a long time. They can be systematically sorted into five categories: change, reform, transition, revolution, and transformation. Some of these approaches may achieve a certain degree of success under certain conditions, but they are constrained by various conditions, making it difficult to solve the paradox at the root. Change. Change is an instinctive reaction or choice people have when facing a problem or challenge. In 2008, the former President of the United States, Barack Obama, chose “change” as one of his presidential campaign slogans. Naturally, people expect things to change and change in a way that maximizes their respective interests. But the problem is that change can be of any direction. Moreover, changes can be for better or worse and go forward and reverse. The Obama administration had tried to make changes in the eight years of being in charge, promoting the “Clean Power Act” and taking a leading role in the international climate change arena. However, these changes did not bring the expected results, and the United States maintained a “lack of strength, or unwilling to take charge” in the international climate governance. Reform. Reform means a formal reorganization, which can be stronger and more powerful than “change.” Reform often has a clear direction. The results of reform may be solidified and thus has a lasting impact. However, most of the reform activities involve adjustments of interests pattern. Some parties will benefit from the reform, while some parties may be harmed from the reform. Parties with vested interests may choose to obstruct the reform or even deprive the interests of disadvantaged groups. Historically, many reforms have failed due to the advantaged groups’ sabotage to reinforce their vested interests, while disadvantaged groups were suppressed to speak up. Similar patterns have taken place in the international climate change negotiation since 1990. Power jockeying won’t lead to a positive outcome. The reform of the global climate regime had a turning point when the North–South landscape (i.e., developing and developed countries) in the 1990s had been evolved into a new pattern of three major blocks of developed, emerging, and less developed economies in the twentieth century (Zhang &Wang, 2018).

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Transition. In the early 1990s, after the termination of totalitarian regimes in the former Soviet Union and Eastern Europe, these countries became so-called “Economies in Transition” (EIT), i.e., an economy changing from a centrally planned economy to a decentralized market economy (Feige, 1994). In the 1997 Kyoto Protocol, there was a market mechanism for GHG emission reduction in Annex I countries,2 specifically the joint implementation (JI)3 that allows EIT countries to sell their emission reduction credits for energy efficiency improvements to developed countries Annex I (UNFCCC, 1997). However, after two decades, the EIT countries are no longer in existence, and the transition does not seem to have been successful. After the collapse of the former Soviet Union, Russia’s per capita carbon emissions (fossil energy combustion) went from about 10.5 tons in the mid-1990s to about 10.8 tons in 2010, showing no sign of “turning around” or transition. Thus, in terms of low-carbon development, the market economy of developed countries and the “planned economy” of EIT seem to be two parallel tracks that will not shift towards a low-carbon path. Revolution. The industrial revolution in England in the eighteenth century led to a fundamental change in society through technology. It “went” very fast, taking the world towards industrialization and urbanization, and has now gone very far compared to agricultural societies. The industrial revolution, led by Britain, was followed by the world. The rest of the world tried their best to catch up with it. But three centuries later, some of the less developed countries are still catching up. In Britain, the glorious birthplace of the industrial revolution and other developed economies, where industrial revolution continues with technology innovations, but there are multiple social and environmental problems associated with industrialization and urbanization in these countries, such as the sizeable social disparity between rich and poor, ecological damages and GHG emissions. China advocates a revolution in energy production and consumption and has also achieved significant success, although many do not follow it. If there will be a low-carbon revolution, it may go fast and far. But a low-carbon revolution needs tremendous explosive momentum to break the social inertia and to be successful. Apparently, the current low-carbon revolution has limited momentum and is by no means “explosive.” The lack of momentum in further industrial revolution and energy revolution shows that the paradigm of industrial civilization is powerless to effectively break the “Gore climate paradox” of going fast and far. Transformation. Transformation is more than a quantitative improvement, but a qualitative leap and change. Civilizational transformation is a change in values, development goals, lifestyle, production and consumption, and institutional mechanisms that are compatible with it. Moreover, transformation is comprehensive and 2

Annex I countries are those countries listed in Annex I of the Kyoto Protocol, which are countries that have reached the post-industrial stage. Countries that are not listed are referred to as non-Annex I countries, meaning developing countries. 3 The joint implementation clause in the Kyoto Protocol. The other two mechanisms refer to emissions trading, which is simply the trading of carbon allowances between developed countries, and the Clean Development Mechanism (CDM), which sells emissions reductions from developing countries to developed countries to offset their emissions reduction obligations.

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holistic. The low-carbon transformation doesn’t mean for one country going fast, or for all countries going fast in one aspect, but for all countries going fast in all aspects of civilization. Only in this way can the whole world go both “fast and far” in low-carbon development and achieving the Paris Agreement goals.

3 The Need for Transformational Thinking A civilizational transformation is fundamental and at the root of the problems the world is facing today, but transforming from where to where? It should be a shift from industrial civilization to an ecological civilization. Industrial civilization is ethically based on utilitarianism. The utility is the norm to make a value judgment. The objective of the production function is profit maximization. Fossil energy laid the foundation of industrial civilization. The production mode is linear (from raw materials through the production process to products and waste), and the consumption mode is wasteful and luxurious. While on the contract, the ethical basis of ecological civilization is the respect for nature and recognition of natural values and ecological assets. The objective of the production function is social well-being and sustainable development. Renewable energy will pave a solid foundation for ecological civilization. The production mode is circular, and the consumption mode is green, low-carbon, healthy, and high quality for both humans and nature. Thus, the ecological transformation is not simply environmental protection or poverty alleviation but also touches and eliminates the deep-seated causes of environmental degradation and poverty. What makes the low-carbon transformation so challenging to achieve? One possible reason lies in people’s mindset: our thinking is solidified. People tend to see low-carbon as a constraint, which is not conducive to economic development. Emissions reduction is indeed a responsibility that needs to be shared. But as Chinese President Xi Jinping said, “The environment is people’s livelihood. To protect the environment is to protect productivity, and to improve the environment is to boost productivity.”4 This is transformational thinking. With extreme heatwaves, floods, droughts, and urban flooding, species extinction, the environment that people rely on to survive has been deteriorating. There is no way to expect prosperity. The wellbeing of people’s livelihoods will only wither into destitution. Climate is also the livelihood of the people. To protect the climate is to protect productivity. An old Chinese saying goes: “Seasonable weather with gentle breeze and timely rain will bring a good crop yield in the coming year, and the country will prosper, and the people will enjoy peace.” Another similar saying goes: “A fall of seasonable snow gives promise of a fruitful year.” High temperatures and heatwaves, droughts, and

4

Xinhua Net, “Full Text: Remarks by Chinese President Xi Jinping at Leaders Summit on Climate”, 2021–04-22, http://www.xinhuanet.com/english/2021-04/22/c_139899289.htm. Accessed 12 August 2021.

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water depletion will only make land arid and barren, with no harvest. Thus, it is evident that improving the climate is to elevate productivity. The most effective way to mitigate climate change is to improve energy efficiency and develop zero-carbon energy. The development and utilization of zero-carbon wind, water, solar and geothermal energy, as well as carbon–neutral biomass energy, can be seen as investment opportunities. The production, installation, maintenance, and utilization of these energies can create more jobs and become a source and driver of economic growth. Furthermore, improving energy efficiency requires technological innovation, research and development of new materials and products, creating new opportunities, motivation, and potential economic growth. The national economic accounting system must undergo a transformation process too. The current System of National Accounts (SNA) is an accounting system based on the industrial civilization models, which ignores the value of nature and underestimates ecological assets. National Income and Gross Domestic Product (GDP) are market transactions measured in terms of utility and the amount of money realized. Natural values and ecological assets are not scientifically and effectively reflected in this accounting system. Moreover, the accounting system does not have the connotation of sustainability and will lead to “drain the pond to get all the fish” way of resources utilization. The international poverty line is also measured in terms of per capita monetary amount, currently set at $1.90 per person per day, in 2011 PPP dollars (Francisco & Sanchez-Paramo, 2017). The Chinese “impoverished counties” are also measured in terms of per capita annual income.5 In the UNDP (2016) Human Development Index, based on Amartya Sen’s three-dimensional measure of income, education, and health, monetary income and utilization play a decisive role. The value of natural assets is not included. An unofficial SDG index was published by Sachs et al. (2016). High-income developed countries also have higher scores in this SDG index, and the poverty line was set to be US$1.90 per person per day.6 But in reality, the per capita monetary poverty line is only a symptom, and the deep inherent poverty is about environmental, natural resource depletion, and ecological poverty. For example, suppose there is no water in an area; it would be extremely tough to get rid of poverty by only providing people with a certain amount of money in that area. 5

China’s impoverished county standards have not adopted the international standards. But there is a convergence trend in gradual adjustment. The poverty line is about 3000 Yuan per year in 2016 and 2800 Yuan in 2015. China’s current poverty line is based on the 2011 constant price of 2300 Yuan, which may be adjusted from time to time. The current poverty line standard was established in 2011. The rural (net income per capita) poverty standard is 2300 Yuan, which is an 80% increase from the 2010 poverty standard of 1274 Yuan. Based on the 2011 raised poverty standard (rural household net income per capita of 2300 yuan/year), China still has 82 million people live in poverty, accounting for 13% of the total rural population and nearly one-tenth of the country’s total population. 6 Sachs et al. (2016) obtained a composite score index for the SDGs based on indexation of data related to 17 target areas, with a score of 100 out of 100. Sweden scored the highest, 84.5, and the Central African Republic scored the lowest, 26.1. according to their measure, China scored 59.1, ranking 76 out of 149 countries that participated in the measure. This measure is roughly comparable to the human development index score and ranking of UNDP (2016).

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Another example is that some prosperous cities can still suffer from severe air pollution like haze and smog. By restoring the ecology and enhancing the natural products, people can prosper on the natural resources that they have in place, just like what was said in an old Chines proverb, “Those living on a mountain live off the mountain, those living near the water live off the water.” Natural resources like mountains and rivers can be a constant source of sustainable assets. However, only when natural values and ecological assets are reflected in the national economic accounting system can these assets be objectively and scientifically recognized by market value and be coordinated into the economies. For instance, the Linzhi area in Tibet7 has stunning views of mountains and clouds, looks like a fairyland. But these high-quality natural and ecological assets are not commodities that have monetary value in the current national economic accounting system and can not be traded or circulated in the market, and thus failed to provide direct revenue for the people live in the area.

4 Collaboration Transformation The developed countries provided financial and technical assistance to developing countries for poverty alleviation and environment protection efforts. This kind of international cooperation pattern has been going on for a long period of time. In the climate change arena, the developed countries also take the lead in emissions mitigation, provide financial resources and technologies for the developing countries to adapt to climate change and implement low-carbon development. Unfortunately, this one-way pattern of international cooperation makes the developing countries follow the footsteps of developed countries in the traditional pathway of industrial civilization, lack proactiveness and innovation, and eventually move towards high carbon development. We need to realize that a low-carbon transformation is imperative for developed and developing countries alike (Pan, 2015). However, the transformation should not be passively and unilaterally led but requires synergy, interaction, complementarity, and mutual leadership between both developed countries and developing countries. An interactive and cooperative transformation will yield twice the result with half the effort. For example, the United States has ample financial and technological resources needed for a low-carbon transformation. Still, its high-carbon locked-in infrastructures and persistent materialistic lifestyle make an endogenous transformation extremely difficult. Moreover, according to UN population projections, the United States population will continue to grow rapidly, increasing from the current 320 million to 450 million by the end of the century (United Nations, 2015), as shown in Table 1. 7

Linzhi area is the venue of the International Symposium on “Implementing the 2030 Agenda for Sustainable Development”, 29–30 May 2016, organized by the Ministry of Foreign Affairs and the UN system in China.

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Table 1 Population change trends in selected countries and regions of the world (1950–2100) 1950 Population

2015 Population

2050 Population

2100 Population

million

million

million

million

%

%

%

%

Africa

228.90

19

1186.18

100

2477.54

209

4386.59

370

China

544.11

40

1376.05

100

1341.97

98

1004.39

85

India

376.33

29

1311.05

100

1710.76

131

1659.79

127

Europe

549.09

74

738.44

100

706.79

96

645.58

87

South America

113.74

27

418.45

100

507.22

121

464.00

111

The U.S.A

157.81

49

321.77

100

388.87

121

450.39

140

The World

525.15

34

7349.47

100

9725.15

132

11,213.32

153

Note The percentage column of the population is the current year’s population over the base year, which is set at July 1, 2015. The population in 2100 is estimated Source United Nations, Department of Economic and Social Affairs, Population Division (2015). World Population Prospects: The 2015 Revision, Key Findings and Advance Tables. Working Paper No. ESA/P/WP.241.https://population.un.org/wpp/publications/files/key_findings_wpp_2015.pdf. Accessed 12 August 2021

The per capita emissions in the United States was 3.4 times the world average and 15 times that of Africa in 2018 (see Fig. 1). By estimation, 130 million new population will increase in the United States by the end of the century. In other words, the total incremental increase of carbon emissions in the United States will be equivalent to those of 2 billion Africans. Objectively speaking, the per capita CO2 emissions in the United States peaked more than 40 years ago and have subsequently 25.00

tonnes CO2 / capita

20.00

15.00

10.00

5.00

India

Africa

Year

2017

2013

2015

2009

2011

2005

Brazil

2007

2003

2001

1997

1999

1993

China

1995

1991

1989

1985

Europe

1987

1981

1983

1977

United States

1979

1975

1973

1971

-

World

Fig. 1 Per capita carbon dioxide emissions in selected countries and regions of the world. Data source IEA (2020), CO2 Emissions from Fuel Combustion: Overview, IEA, Paris https://www.iea. org/reports/co2-emissions-from-fuel-combustion-overview

4 Collaboration Transformation

299

been declining, albeit with fluctuations, from a peak of more than 22 tons in the early 1970s to a gradual reduction to 16 tons in 2010. This represents a reduction of more than 6 tons in absolute terms and more than a quarter in relative terms. The declining per capita carbon emissions in the United States resulted from technological progress under industrial civilization. But even if the per capita emissions were kept reducing at the above rate, it will still exceed 10 tons in 2050 and will be no less than 5 tons in 2100 in the United States. In Europe, which has an established lower emission lifestyle, the per capita carbon emissions will decrease from 9 tons per capita in the late 1970s to 6 tons at present. The absolute reduction would be 3 tons, and the relative reduction is roughly one-third. The population in Europe is diminishing. While in the United States, the population will keep increasing, so it is likely that the total carbon emissions will increase even though the per capita emissions are going down in the near future. All in all, the reduction of per capita emissions in the developed countries will not make the Paris Agreement targets meet. This is why developed countries cannot simply follow the conventional path of technological progress under the paradigm of industrial civilization but must achieve a profound transformation of production and lifestyles—not to reduce carbon but to decarbonize. In Africa, the per capita emissions were at about 0.8 tons in the 1970s, a relatively lower level compared to other parts of the world. The per capita emissions are still below 1 ton more than 40 years later, with an absolute increment of only 0.2 tons of CO2 emissions per person per year. However, Africa’s population is growing rapidly. Hence, even if the per capita carbon emissions do not increase, the total emissions are bound to rise significantly due to increased population size. The population of Africa in 2015 is nearly five times larger than it was 65 years ago, and at this rate of growth, Africa’s population will double in 35 years. In 2100, the medium of the estimated population will be 2.7 times the population in 2015, reaching 3.2 billion in absolute terms! With current levels of per capita carbon emissions, the total emissions in Africa will exceed those of the European Union in 2100. Suppose the per capita carbon emissions will be of the current world average level; the total emissions in Africa in 2100 will exceed the total emissions of China, the United States, the European Union, and India. Furthermore, Africa’s per capita carbon emission level will increase more significantly with the progress of industrialization and urbanization. The incremental energy consumption and carbon emissions in India, a country in the process of rapid industrialization and urbanization, will be five times higher than the level in 2017 if it continues the current pathway of industrialization (see Fig. 1). There are two reasons behind this: the improvement in quality of life and the population growth. India has a population of 1.37 billion at present. By the end of the century, it could reach more than 1.6 billion. Let’s take a look at China’s population growth and emissions over the past 40 years. In the early 1970s, China’s per capita carbon emissions were only 0.9 tons, a quarter of the world’s average level. Two decades later, China’s per capita emissions doubled to half of the world’s average level. In 2010, China’s per capita emissions reached the EU’s level, exceeding the world average by 70%. As a result, the share of China’s total carbon emissions in the world has also increased from 5.9% in the early 1970s to about 27.9% at present.

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The current per capita carbon emissions are 1.7 tons in India. And if in 40 years, the per capita carbon emissions in India reaches 7 tons, the total emissions will likely be more than the total of China, the United States and the EU by the time. Therefore, a possible cooperation between developed and developing countries in the civilization transformation can be: the developed countries learn from developing countries on low-carbon consumption and lifestyle; the developing countries learn from developed countries on low-carbon production and innovation, to avoid highcarbon lock-in effect.

5 Accelerating the Transformation Process In fact, the global transformation process has already started, and there is a plan available: the United Nations 2030 Agenda for Sustainable Development.8 Unlike Agenda 21 and the Millennium Development Goals (MDGs) (McArthur, (2014), the 2030 Agenda and the Sustainable Development clearly state the five-sphere integrated principles of people, planet, prosperity, peace and partnership, 17 sustainable development areas, and 169 specific Sustainable Development Goals (SDGs). In addition, Agenda 21 emphasized the parallel development of the economy and environment, and the Millennium Development Goals focused on poverty alleviation. In contrast, the 2030 Agenda for Sustainable Development is a comprehensive transformation of social and civilizational forms. The current low-carbon development often places emphasis on technological innovation. The Kyoto Protocol, negotiated in 1997, was a top-down treaty on emission mitigation with an unfavorable result. The Paris Agreement differs from the Kyoto Protocol in that it is a bottom-up method, with countries making intended commitments, which could be a historic breakthrough. In terms of transformation cooperation, similar institutional innovation as to the Paris Agreement methodologies can be extended to non-state parties to promote low carbon development of the whole world. As we know, that there are NDCs in the Paris Agreement, which are regularly inventoried and updated at the national level. How about having Intended City Determined Contributions (ICDCs), Intended Firm Determined Contributions (IFDCs), and even Intended Personally Determined Contributions (IPDCs) at municipal, business, and personal levels? A stocking and evaluation system can also be established on a regular basis to identify and adjust the gaps between actions and goals and strengthen actions. With the participation of the whole society and the cooperation of the whole world, “we will go together” and “go fast.” Therefore, the targets of the Paris Agreement will be accelerated. China has been deepening its ecological civilization since 2002, and its achievements have been widely recognized worldwide (IRENA, 2015). China’s renewable energy development speed and scale have rapidly surpassed developed countries to become the world’s number one in just over a decade. The rapid development of 8

Desa (2016).

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renewable energy has created a large number of new jobs and boosted economic growth, besides improving energy supply and security. China has taken a leading role in the geothermal energy and solar water heater sectors too. In addition, various stimulus measures have been adopted to encourage the consumption of renewable energies and other low-carbon ways of life, including tiered electricity tariffs, subsidies for pure electric vehicles, a ban on plastic bags in supermarkets, etc. China has accumulated numerous experiences in the circular economy and can be seen as a role model in practice. Most importantly, China’s ecological civilization system and mechanism reform9 have established ecological, ethical concepts such as respect for nature, natural values, ecological assets, life community of mountains, rivers, forests, fields, lakes and grasses, and spatial synergy, which have become core values of universal significance. The ecological civilization concepts such as innovation, coordination, green, openness, and sharing have been incorporated into the 13th Five-Year Plan for national economic and social development10 and have entered the implementation stage. China’s ecological civilization construction can be seen as a best practice promoting civilization transformation. We will have a transformed future, a new era of ecological civilization. Sustainability, harmony, ecology, prosperity, quality of life, and the corresponding value system and institutional mechanism are the essential hallmarks of the era of ecological civilization.

References Desa, U. N. (2016). Transforming our world: The 2030 agenda for sustainable development. Feige, E. L. (1994). The Transition to a Market Economy in Russia: Property Rights, Mass Privatization and Stabilization”(PDF). In G. S. Alexander & G. Sk˛apska (Eds.), A Fourth way?: Privatization, property, and the emergence of new market economics (pp. 57–78). Routledge. ISBN 978-0-415-90697-5. Francisco, F., & Sanchez-Paramo, C. (2017). A richer array of international poverty lines. October 13, 2017, World Bank Blogs, https://blogs.worldbank.org/developmenttalk/richer-array-internati onal-poverty-lines .Accessed August 12, 2021. IRENA. (2015). Renewable Power Generation Costs in 2014. International Renewable Energy Agency. http://www.irena.org/publications. Accessed August 10, 2021.

The reform of the ecological civilization system is being promoted in the form of “1 + 6” documents. “1” is the “Overall Program of Ecological Civilization System Reform”, “6” includes the “Environmental Protection Inspector Program (for trial implementation)”, the “Ecological and Environmental Monitoring Network Construction Program”, the “Pilot Program on the Conduct of Discharge Audit of Natural Resources Assets of Leading Cadres”, “the Measures for Pursuing Responsibility for Ecological and Environmental Damage by Leading Party and Government Cadres (for Trial Implementation)”, “Pilot Program for Preparing Natural Resource Balance Sheets” and “Pilot Program for Reforming the Ecological and Environmental Damage Compensation System”. 10 See the 13th Five-Year Plan for National Economic and Social Development of the People’s Republic of China. 9

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Malthus. (1992). (Translated by Zhu Yang, Hu Qilin, Zhu Hezhong). Principles of population. The Commercial Press. McArthur, J. W. (2014). The origins of the millennium development goals. The SAIS Review of International Affairs, 34(2), 5–24. Pan, J. H. (2015). Post-Paris proces: Transform ational breakthrough is still needed. Environmental Protection, 2015(24). Sachs, J., Schmidt-Traub, G., Kroll, C., Durand-Delacre, D., & Teksoz, K. (2016). An SDG Index and Dashboards—Global Report. Bertelsmann Stiftung and Sustainable Development Solutions Network (SDSN). Sachs, J. D., Schmidt-Traub, G., Mazzucato, M., Messner, D., Nakicenovic, N., & Rockström, J. (2019). Six transformations to achieve the sustainable development goals. Nature Sustainability, 2(9), 805–814. United Nations, Department of Economic and Social Affairs, Population Division. (2015). World Population Prospects: The 2015 Revision, Key Findings and Advance Tables. Working Paper No. ESA/P/WP.241.https://population.un.org/wpp/publications/files/key_findings_wpp_ 2015.pdf. Accessed August 12, 2021. UNDP. (2016). Human Development Report 2016 (R), Chinese version. http://hdr.undp.org/sites/ default/files/hdr_2016_report_chinese_web.pdf. Accessed August 12, 2021. UNFCCC. (1997). Kyoto Protocol, United Nations Framework Convention on Climate Change, Information Unit for Conventions. UNEP. http://www.unfccc.int/resource/protintr.html. Accessed on August 12, 2021. UNFCCC. (2015). Conference of the Parties (COP). Adoption of the Paris Agreement: Proposal by the President, Draft Decision. FCCC/CP/2015/L.9/Rev.1. 12 Dec 2015. https://unfccc.int/sites/ default/files/resource/docs/2015/cop21/eng/l09r01.pdf. Accessed August 12, 2021. Zhang, Y., & Wang, M. (2018). Climate change actions and just transition. Chinese Journal of Urban and Environmental Studies, 6(04), 1850024.

Chapter 19

China as a Transformative Power in the Shaping of a New Global Climate Regime

The Paris Agreement is a power contest among the major forces and a demonstration of the changing landscape in international climate negotiation in the future (Galbraith, 2017). China is still a developing country compared to developed economies such as the United States and European countries. But China is also different from other emerging economies or developing countries. China’s “duality” characteristic shows that China is under double pressure from both developed and developing countries (Park, 2018). China’s low-carbon development and ecological civilization practices are characteristic of a “country in transition.” Universal values are needed in this age of globalization. However, they may not be able to provide a straightforward solution to the international governance of climate change. China’s ecological transformation explores the values and methods for the future civilizational form and a “moral banner” addressing climate change. The duality of China’s positioning objectively indicates that China has been shifted from being a recipient to a maker of international rules. Moreover, China’s duality of a transition economy makes it possible for China to invest in low-carbon development and explicitly requires other economies to abandon high carbon investments or expand the market. Implementing China’s NDCs will lead the global low-carbon transformation and make it a new engine for economic growth.

1 The Evolution of the International Climate Governance Landscape and the New Challenges The Paris Agreement is a critical turning point in the international climate negotiations. It will shape the global climate governance in the next 15 years or even longer and reposition the roles of major countries in the international climate landscape, with significant and far-reaching impacts on our development. Therefore, in this critical transition period, it is necessary to carefully examine the evolution of international climate governance and turn challenges into opportunities. © China Social Sciences Press 2022 J. Pan, Climate Change Economics, https://doi.org/10.1007/978-981-19-0221-5_19

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1.1 The World Carbon Emissions Pattern Has Changed Significantly Since the adoption of the UNFCCC at the World Conference on Environment and Development held in Rio in 1992, the world carbon emission pattern has changed significantly (Boden et al., 2009). At that time, developed countries’ total carbon emissions accounted for about 68% of the global carbon emissions, and developing countries accounted for about 32%. Since then, carbon emissions in developing countries have grown rapidly, and those in developed countries are on a declining trend. At present, the total carbon emissions of developing countries account for more than 65% of the global total, which overall exceeds the total amount of developed countries. The World Bank data shows that from 1990 to 2016, the United States’ share of global carbon emissions fell from 21.7% to 13.9%, and the EU’s share decreased from 16 to 8%.1 Among developing countries, China’s carbon emissions grew the fastest. From 1990 to 2016, China’s total carbon emissions increased from 11 to 27.5% of the world, and in 2016 China’s emissions totaled 9.89 billion tons, more than the combined 7.89 billion tons of the United States and the EU. The next fastest-growing country is India, where total carbon emissions grew from 2.8 to 6.7% of the world from 1990 to 2016. In contrast, the share of carbon emissions of low-income countries in the world declined slightly over the same period, from 0.9 to 0.5%. In terms of carbon emissions per capita, from 1990 to 2016, the United States’ carbon emissions per capita decreased from 19.3 to 15.5 tons, and the EU decreased from 8.5 to 6.5 tons. China’s carbon emissions per capita increased from 2.2 to 7.2 tons and reached the EU level. India increased from 0.7 to 1.8 tons, while some low-income countries decreased from 0.7 to 0.3 tons. Trends in world carbon emissions are highly correlated with economic and population growth. Data from the World Bank2 show that from 1990 to 2019, the US GDP share of world GDP decreased from 23.7 to 21.6% (in constant 2010 United States dollars, same below), the EU decreased from 27 to 20%, China increased from 2.1 to 13.6%, India increased from 1.3 to 3.5%, and low-income countries increased from 0.5 to 0.6%. In terms of GDP per capita, during the same period, GDP per capita grew from $36,000 to $56,000 in the US, from $24,000 to $37,000 in the EU, from $729 to $8,255 in China, from $581 to $2,152 in India, and from $596 to $810 in the low-income countries with negligible increments. Although the share of world GDP in China, India, and the low-income countries GDP have all increased, China’s population share of the world population is declining during this period. It indicates that China’s GDP share growth is mainly driven by per capita GDP growth. In contrast, India’s GDP share growth has been attributed to both per capita GDP growth and population growth factors. The low-income countries’ economic 1

The World Bank open data: https://data.worldbank.org/indicator/EN.ATM.CO2E.PC?end=2016& start=1960 Accessed 12 August 2021. 2 The World Bank open data: https://data.worldbank.org/indicator/NY.GDP.MKTP.CD?end= 2019&start=1960 Accessed 12 August 2021.

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share increase is mainly driven by population growth. According to the International Energy Agency,3 from 1990 to 2018, the global carbon emissions per capita increased from 3.9 to 4.4 tons, an increase of only 11.4%, while the total global carbon emissions increased from 20.5 to 33.5 billion tons, an increase of 63.4%. The population increased by 44% during the same period. It can be seen that population growth is also an important factor in the growth of global carbon emissions.

1.2 The Principle of “Common but Differentiated Responsibilities (CBDR)” Has Been Destabilized The principle of “Common But Differentiated Responsibilities (CBDR)” was born in the Stockholm Declaration and Action Plan for the Human Environment adopted by the 1972 United Nations Conference on the Environment. However, the full expression of CBDR first appeared in the UNFCCC in Rio in 1992. As an important principle among the five principles of the Convention, CBDR has been the core issue and an essential legal basis of international climate negotiations. Based on the CBDR principle, the Kyoto Protocol distinguishes between “Annex I Parties” and “non-Annex I Parties,” i.e., developed and developing countries. It specifies that the Annex I countries have an obligation to meet quantified emission targets and provide new and additional financial resources and transfer technology. However, the non-Annex I countries are responsible for developing national mitigation and adaptation programs, preparing and regularly updating national inventories of GHG emissions, and national communications. In other words, the principle of CBDR has been transformed from a principle to an enforceable and binding legal document since the Kyoto Protocol. In essence, is the principle of CBDR a moral principle, a political principle, a legal principle, or a bit of everything? Naturally, it isn’t easy to distinguish between each other. However, in the international climate negotiations, the principle of CBDR has become the focus of debate and tools for countries to utilize, especially developing countries, to take moral advantage, compete for the right to speak, and pursue political and economic interests. The principle of CBDR was given concrete expression in a legal sense in the Kyoto Protocol. However, in March 2001, the United States refused to ratify the Kyoto Protocol. It claimed that the principle of CBDR cannot maintain the integrity of the global environment and encourages non-Annex I countries to be inactive or exempt from their responsibilities, while there was no jurisprudential basis for determining the historical responsibility of developed countries. International law cannot punish current or future generations for historical ignorant wrongdoings made by ancestors. Although the Kyoto Protocol entered into enforcement in 2005 with the insistence and support of the European Union, the United States has been clearly opposed to the principle of CBDR in the legal sense. 3

International Energy Agency. http://www.iea.org.

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The Bali Climate Conference in 2007 launched the post-Kyoto climate negotiations. The developing countries insisted on the CBDR principle and were supported by the EU. The Bali Roadmap accepted the CBDR principle with compromise and launched the “dual-track “negotiations. One track is the negotiation of the second commitment period for the Parties to the Kyoto Protocol, which determines the quantitative emission reduction targets of Annex I countries after 2012 in accordance with the CBDR principle. The other track is the negotiation of long-term cooperative action that includes all Parties to the Convention. However, at the 2009 Copenhagen Climate Conference, the Copenhagen Accord was not adopted. As a result, no legally binding agreement was reached on developed countries’ quantitative emission reduction obligations for the post-2012 period. The Durban Climate Conference in 2011 launched the Durban Platform, and the Doha Conference in 2012 formally terminated the negotiations for the second commitment period of the Kyoto Protocol. The international climate negotiations from 2013 onwards will start with the Bali Roadmap. In 2013, the international climate negotiations shifted from the “dual-track” established by the “Bali Roadmap” to the “one-track” negotiations under the “Durban Platform.” The goal is to achieve a legally binding protocol applicable to all Parties by 2015. By now, the original meaning of the CBDR principle in the Convention has been de facto reduced to a moral flag and political slogan. It is no longer legally binding, especially for developing countries.

1.3 The Parties in the International Climate Negotiation Have Been Divided and Reorganized From the start of the global climate change negotiations at the United Nations in the mid to late 1980s to the Bali Climate Conference in 2007, the international climate landscape has been characterized by two main forces: the developed countries represented by the EU and the United States, and the developing countries represented by the G77 + China. Although the interests and goals of the two parties are pretty different, the overall pattern is solid. The United States was the rule maker first and then became the rule breaker after the Kyoto Protocol within the developed countries. The EU has been pursuing its international morality and a leading role in global climate change and the defender of the Convention and the Kyoto Protocol. Although the interests and goals of the United States and the EU do not coincide, the group of developed countries is solid in its position to developing countries. Despite the rapid growth of China’s total carbon emissions, China is still a low- and middle-income country, and its per capita carbon emissions are still low. The G-77 and China are united in insisting on the principle of CBDR and asking developed countries to take on emission reduction, financial and technological obligations. After 2008, with the outbreak of the financial crisis in the United States, the debt crisis in Europe, and the rapid growth of China, India, and other emerging economies, Australia, Canada, and Japan followed the United States’ position on the

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Kyoto Protocol. They explicitly opposed the principle of CBDR. Nevertheless, the United States still insists on exerting pressure on large developing countries, accusing China and India’s rapidly increasing total emissions. The United States is unwilling to assume emission reduction targets. Small island countries and least developed countries (LDCs) are most affected by climate change, so they hope that large emitters will substantially reduce their emissions and offer financial support. Their interests and requests are different from those of large developing countries, like China and India. These large developing countries face pressure from developed countries, small island countries, and LDCs, whose interests are converging. As a result, after the Copenhagen Climate Conference in 2009, although the two parties of North and South still exist, the boundary between the two parties has been blurred. The two parties have begun to fall apart, forming quadrilateral groups led by the United States umbrella countries, the EU, the “Basic Four” of China-India-Brazil-South Africa, and the LDCs. After the launch of the Durban Platform negotiations in 2011, the United States has seen a decline in total carbon emissions due to the financial crisis and the shale gas revolution. The Obama administration hopes to regain its position as the global climate change leader and the maker of new climate agreements. The EU’s position in the international climate landscape is relatively weaker, but it still wants to play an important role and strive for international discourse. China’s national strength has further increased, and its GDP per capita has reached middle to high-income level. At the same time, its total carbon emissions are much higher than those of other countries. Its carbon emissions per capita are close to those of the EU, showing the “dual nature” between developed and developing countries. India’s economic growth is accelerating, and its demand for energy, resources, and GHG emission space is increasing. Its competition with China in the international arena is becoming more apparent, and its interests are diverging. Low-income developing countries are still at the bottom of the development ladder. Still, they frequently consider themselves climate change victims and “underdog” in the climate change negotiation; and their voices and influence cannot be ignored under the banner of morality. Thus, today’s basic pattern of global climate change can be summarized as follows: North–South intertwined with part of the South becoming rich, more divergence within the North, and a continuum over the entire spectrum, which can be roughly described as “two blocks,” “ three major groups, “and “five types of economies.” The two parties are of developing and developed countries. The North and South divide still exists vaguely. The three major segments include developed, emerging, and low-income countries and can be broadly identified. Developed economies can be divided into two categories: the United States as the representative of rapid population growth countries and the European Union and Japan as the representative of population stabilization or decline countries. Emerging economies can also be seen in China as the representative of population stabilization and India as the representative of rapid population growth. Emerging economies can also be divided into two categories: the stabilizing population represented by China and the fast-growing population represented by India; low-income economies are mainly low-income countries. These

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countries may be subject to continuous fragmentation and restructuring in the future, but as a whole, they may exist for a considerable period of time.

1.4 The “Duality” Puts China Under Double Pressure From a number of indicators, China is still a developing country. In 2019, China’s GDP per capita was US$10,000 (current exchange rate), only 80% of the world average. In 2019, China’s human development index was 0.758, ranking 85th globally (UNDP, 2019). At the same time, the development is highly uneven among regions, with seven provinces and cities, including Tianjin, Beijing, Shanghai, Suzhou, Zhejiang, Guangdong, and Fujian, passed the minimum threshold of highincome countries in terms of GDP per capita and crossing the middle-income trap. In contrast, some northeastern, central, and western resource-based provinces and cities show initial signs of falling into the middle-income trap. A dozen western provinces and cities are still at the low-income level. China is now the second-largest economy, the largest country with manufacturing capacity and trade flow, the first foreign exchange reserve country, and the largest energy consumption and GHG emissions at an aggregated level. Global carbon dioxide emissions from fossil fuels and industry are expected to drop by 7% in 2020. Fossil GHGs emissions have fallen in all the world’s biggest emitters. A study (Carbon Brief, 2020) estimated a 12% emission reduction in the US, 11% in the EU, 9% in India due to COVID-19, while the reduction in China was 1.7%, resulting from an earlier, shorter lockdown that allowed emissions to rebound more quickly. Thus, some developed and developing countries believe that if China continues to grow its emissions, developed countries can’t mitigate climate change no matter how much effort they make. Moreover, from the viewpoint of economic strength, these countries believe that China is capable of contributing to climate change mitigation and should undertake emission reduction targets like developed countries. On the other hand, small island countries and LDCs consider themselves direct victims of China’s rapid growth in carbon emissions, requesting China’s mitigation targets and expecting financial and technical assistance from China. Under this dual pressure from both developed and developing countries, China in international climate negotiations has shifted from being relatively less-focused to a player being paid more attention to, facing more severe challenges and pressure.

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2 China’s Strategic Positioning in the New International Climate Change Landscape 2.1 After Paris: The New Landscape for Climate Policy China’s role in the international climate landscape has evolved through three stages. First, before the Kyoto Protocol was negotiated in 1997, China, as a low- and middleincome developing country and limited by its level of scientific understanding at that time, basically regarded the Convention as an international environmental agreement and its role in the international climate landscape was basically that of an “active follower.” “Second, from 1998 to 2009, before the Copenhagen Conference, China’s role was that of an “active but cautious participant.” Third, after 2009, China’s role has changed to that of an “active participant” and “important contributor.” The Paris climate agreement sets out the post-2020 international climate regime. A good judgment of China’s economic development, carbon emission trends, and the international situation after 2020 will help decide China’s role in the global climate regime in the following perspectives. 1.

2.

3.

4.

5.

If maintaining a growth rate of 6%, China may escape the middle-income trap around 2025 and enter the lower ranks of high-income countries. However, the regional differences will remain, and China will maintain the characteristics of developing countries for a certain period of time. The outward expansion of urbanization will slow down. The production capacity of high-energy-consuming raw material industries such as steel, cement, and glass has basically reached its peak, with a slight possibility of significant growth in the future. The growth of energy consumption and carbon emissions will mainly come from low-energy-consuming new industries and the construction and transportation sectors. In addition, China’s population will reach its peak by 2025. Therefore, it is unlikely that China’s carbon emissions will continue to grow at a high rate in the future, and the likely trend is to oscillate at a high level and show signs of decline around 2025. The populations in the United States, Australia, New Zealand, and Canada will continue to grow. The United States still has strong economic dynamics, and carbon emissions will slowly decline under the hedge of “energy revolution” and “re-industrialization.” Economies in the EU and Japan are saturated, with limited development potential. Their populations have steadily declined, and their carbon emissions will be in a continuous downward trend. Despite its vast land area, Russia has a negative population growth and a lack of economic vitality, so there will not be much growth in carbon emissions in the future. India’s rapid population growth, potentially dynamic economy, and large-scale infrastructure construction have just started. However, suppose India follows the development trajectory of China, and its per capita carbon emissions grow from

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the current 1.6 tons to about 7 tons. In that case, it will bring severe challenges to global climate change. The economic growth in some low-income countries may not be very rapid, with substantial population growth, the increase of GHGs emissions should not be neglected.

2.2 Harmonious Development Between Humans and Nature for a Transition Economy Based on the above judgments, it is reasonable for China to take a leading role in constructing and implementing the Paris agreement. China needs to adhere to a harmonious development between humans and nature to take the double pressure on emission mitigation and economic development with its dual nature of transition economy. The United States flag, a universal value marked by freedom, democracy, human rights, markets, etc., is not directly applied in the climate change regime. China’s moral flag of harmony and coexistence between man and nature is in line with the principles of climate morality. China’s promotion of ecological civilizational transformation indicates that China’s economy is different from all other countries at the various development level. It is not like developed countries with industrial civilization, low-income countries with agricultural civilization, or emerging economies (e.g., India) moving from agricultural to industrial civilization. As discussed in the previous chapter, the differences between transition and transformation and the “transition economy” differ from the “transformational economy.” The former Soviet Union had gone through a “transition” phase, shifting from a planned economy to a free-market economy. In comparison, the transformational economy is an overall transformation from industrial civilization to ecological civilization, which is more innovative and inclusive at the conceptual and practical levels. The positioning of China as a country with a transformational economy can turn the disadvantages of the “duality” into favorable factors. First, we need to let the world know about China’s ecological civilization policies, achievements, and lowcarbon green performance and highlight China’s leading position in the world’s lowcarbon development and ecological civilization transition process. Second, China’s economic transformation starts from a developing country position and is oriented toward ecological civilization. Thus, reiterating that China is still a developing country, the transformation exploration takes time and has costs. China can control GHG emissions, but it also needs space for development and cannot yet undertake the same mitigation obligations as developed countries. Third, China can join hands with developing countries to urge developed countries to take on emission reduction obligations, assume financial assistance and technology transfer responsibilities, change lifestyles, pursue low-carbon consumption, and accelerate the transition to an ecological civilization. Fourth, China can join hands with developed countries to

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implement financial assistance, but not unconditionally, and ask developing countries to take a low-carbon development path and learn from China’s ecological civilization concept and development model. India’s low-carbon development will not only provide market space for China. Still, it will also facilitate India’s accelerated progress toward climate-friendly development in the energy, emissions, raw materials, and manufacturing markets. Moreover, those less developed countries can avoid the rapid industrialization and urbanization that China had gone through, helping to slow down the growth rate and increase global emissions over some time and help expand market space and reduce climate risks. As a leader in climate change, if there is no banner, there will be no followers. It is such a banner of harmony between human beings and nature that China can stand on the high ground of climate morality and lead the formation of a more equitable and effective global governance pattern in the future. We need to coalesce theories, policies, models, and practical experiences of ecological civilization into an international consensus. Together with the international community, we need to criticize and reject industrial civilization and move towards ecological civilization. The banner of China’s ecological civilization should be raised to promote the overall transformation of industrial civilization to an ecological civilization. The shift from industrial civilization to ecological civilization should be the basic principle to address climate change and build the international climate regime. As a transitional country towards ecological civilization, China will realize the Paris Agreement targets effectively and pragmatically.

2.3 Weighing the Pros and Cons of the CBDR Principle There are three options concerning the future strategies for the CBDR principle. First, to continue to fight with developed countries, emphasizing and strengthening it. Second, to dilute and weaken it. Third, to completely abandon it. Which one should China choose? The potential advantages and disadvantages of the CBDR principle should be analyzed, not only for China but also for the overall needs of the global response to climate change and the implementation of the Paris Agreement targets. Before the Copenhagen Climate Conference, China was a beneficiary of the CBDR principle, which exempts China from the obligation to reduce emissions and allows China to receive financial support through the Clean Development Mechanism (CDM). But after Copenhagen, the boundaries of the CBDR principle have become blurred. China would no longer benefit from it, nor does China need to. If China continues to adhere to the CBDR principle, China may fail to benefit from it or even carry a heavy burden. However, for the sake of global climate security, China should and can take responsibility for emission reduction and accelerating its progress toward a zero-carbon society. This is the future of humanity and China’s commitment.

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First, the CBDR principle does not free China from its obligation to control GHG emissions. China is already one of the world’s largest emitters. The international community has good reason to believe that if China does not control its GHG emissions, the global mitigation effect will not be noticeable. The least developed countries, which are most affected by climate change, also want China to control GHG emissions. In addition, China’s NDCs have already put forward a clear target for controlling GHG emissions and have, in fact, undertaken quantitative mitigation obligations. So there is no point in insisting on the principle of CBDR to get rid of mitigation obligations. Second, China does not need the CBDR principle to obtain financial and technical support. China is still at the level of a developing country in general, and the sudden outbreak of the COVID-19 has made China suffer in the first half of 2020. The pandemic has caused negative growth in some economies, but China managed a positive growth rate, although the rate is much lower than projected. As the world’s second-largest economy and the largest emitter of GHG, China has the strength and ability to contribute to the global response to climate change. In fact, China has long been transformed from a recipient to a contributor. In 2015, China announced that it would provide 20 billion CNY for the global response to climate change through South-South cooperation, exceeding the $3 billion pledged by the United States at the time. From this point of view, adherence to the CBDR principle did not bring tangible benefits to China. Assisting less developed countries is also part of the common responsibility that China is willing to take. It is natural that different countries have different levels of capacity and technology, and China does not have to emphasize the CBDR principle to avoid responsibilities that it is happy to take. Third, continuing to adhere to the CBDR principle is in the interest of neither China nor the world. If China continues to maintain an annual 6% economic growth rate, it is expected to enter the ranks of high-income countries around 2025. So, it is likely that China will no longer be a developing country after 2030. If the CBDR principle persists, China and the other developing countries may not take the initiatives to reduce emissions. As a result, these countries may lose their competitive edge in the global low-carbon transition. Fourth, adherence to the CBDR principle will benefit potential competitors. Damage to the climate and the subsequent need for more and greater efforts will not be worth the losses. India, for example, has a fast-growing population and a potentially dynamic economy and is about to enter into fierce competition with China in terms of industry, markets, energy, space for GHG emissions, and diplomacy. India’s massive infrastructure development has already taken off, and carbon emissions will overgrow in the future. If India follows the development trajectory of China, the per capita carbon emissions will increase from the current 1.6 tons to about 7 tons, which will be a great challenge to achieve the Paris Agreement 2 °C target. Therefore, the current design of the international climate regime should require countries to choose a low-carbon development trajectory and avoid high-carbon lock-in. This will benefits both the nations individually and the international community as a whole. However, suppose China completely abandoned the principle of CBDR.

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In that case, it may lose its advantage in international negotiation and alienate the Least Developed Countries (LDC), which may damage the South-South cooperation and impede the implementation of strategic development initiatives like the Belt and Road Initiative. It is evident that in the current international climate situation, there is a need to dilute and weaken the principle of CBDR. It is no longer necessary to emphasize the CBDR principle, nor is it necessary to openly oppose and abandon the CBDR principle but to understand and sympathize with the situation and interests of the least developed countries and give moral support. In the negotiations with developed countries, it is necessary to weaken the position of the CBDR principle, mainly not to exchange the benefits or interests for the developed countries’ support for the CBDR principle. In addition, it is also necessary to redefine the international climate morality and replace the principle of CBDR with the principle of harmonious coexistence between human beings and nature. We need to confidently raise the banner of ecological civilization, occupy the high ground of international climate morality, and form an international discourse. China’s ecological civilization policies, achievements, and low-carbon green performance are successful, highlighting China’s leading position in the world’s low-carbon development and ecological civilization transformation and illustrating to the whole world that ecological civilization is the greatest moral righteousness.

2.4 Strategic Positioning of Climate Cooperation with Major Economies China’s pursuit of ecological transformation needs to build up strategic cooperation with the following four parties/groups in the North–South landscape of the international climate change arena. 1.

The United States

First of all, the U.S.–China climate cooperation has gone beyond the bilateral level and should be explored at the global level too. At the global level, despite the Trump administration’s retrograde withdrawal from the Paris Agreement, the Biden administration has inherited the Obama administration’s role as “global leader” and “rule maker” in the new climate landscape, with a competitive relationship with China and a need for cooperation. The United States cannot lead the world and set rules without China’s support because China can represent both developing and BRICS countries. Moreover, China is an essential Party in the Paris Agreement. Global climate governance will not be very successful without China’s support and commitment. But on the other hand, the United States may take China as a potential competitor in the

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leading role of international climate change governance. Hence, the United States may expect China to accept and follow the rules set by the United States. At the bilateral level, the United States and China should work together to achieve mutual benefits. Even if it may sometimes be challenging to have mutual benefits in economic or political terms, it is still vital to maintain good relationships, enhancing mutual understanding, mutual comprehension, and mutual accommodation. At the same time, China should actively promote the cooperation between municipal governments and enterprises to strengthen cooperation with the United States. China can also share the experience of ecological transformation with the United States, help to promote low-carbon consumption and ecological civilization in the country. 2.

The European Union

The European Union has been an active advocate of climate change and has always wanted to act as a global leader on climate change. Although the European Union showed its weakness in the Copenhagen Conference, it has made outstanding contributions in the international climate negotiations. China should respect, encourage, and praise the EU’s contribution and respect its core interests at the global level. At the bilateral level, China and Europe have carried out a lot of fruitful and practical cooperation. China has benefited greatly in terms of capital, technological, and industrial support from the European Union. In the future, China and the European Union should continue to strengthen and deepen pragmatic cooperation and expand the areas of cooperation, especially in technology innovation. In addition, the European Union has been recognizing and appreciating China’s ecological civilization transformation and should be seen as a strategic partner for China’s implementation of the low-carbon transition. 3.

India

India and China have many common interests and needs. Both countries are emerging economies and large developing countries with rapidly growing energy consumption and carbon emissions. In addition, both countries are under pressure from developed and low-income countries (although India is under much less pressure than China). Thus, India and China should seek active cooperation and jointly address the challenges of climate change using the platform of the BRICS.4 On the other hand, India is also a major competitor of China in various aspects such as industry, market, energy, GHG emissions, and diplomacy. Therefore, China should emphasize the cooperative opportunities and positive competition with India, urge and help India move forward towards low-carbon transformation, curb the rapid growth of population and carbon emissions, and reduce future global climate risks. 4

BRICS is the acronym of five major emerging economies: Brazil, Russia, India, China, and South Africa.

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Low-income countries

Low-income countries5 need more moral and financial support from China in terms of climate cooperation. Meanwhile, China needs to unite with low-income countries to pressure developed countries to take the lead in the implementation of the Paris Agreement to reduce emissions and achieve zero carbon growth. In addition, low-income countries are potential markets for low-carbon development. They are more likely to adopt ecological civilization as there would be fewer vested interests. Therefore, China should use the international platform of climate change and strategic development initiatives, such as the Belt and Road Initiative, to promote mutually beneficial and win–win development with low-income countries.

3 Leveraging on Climate Change to Expand International Cooperation China is an active and constructive force of growing importance in the changing landscape of geopolitics and the world economy that needs to have a corresponding voice being heard. Historical lessons and seem to show that the vested interests groups would often suppress emerging forces. China’s Belt and Road Initiative and the Asian Infrastructure Investment Bank (AIIB), despite being initiatives for cooperation and mutual benefits, have received strategic suspicion and skepticism from some countries. China’s production capacity and market potential can be a huge opportunity for international cooperation. However, China has often been criticized and suffered from multiple suppressions in the international arena, with a tarnished image and vanished competitive edge or interests. Hence, China should use its ecological transformation and duality, promote ecological civilization’s discourse system and strategic initiatives like the Belt and Road Initiative, and expand its production and market potential. Furthermore, China should continue to lead the low-carbon development, fight against climate change, share the knowledge of ecological transformation, protect and harvest the benefits it deserves, and promote international cooperation and multiple wins. First, China should clarify its identity as a transformational country in the general pattern of five groups of economies, namely, the United States, the European Union, China, India, and low-income countries. To take advantage of its duality, China can work with both developing countries and developed countries to promote mutual 5

Economies are currently divided into four income groupings: low, lower-middle, upper-middle, and high, based on GNI per capita (in U.S. dollars, converted from local currency using the Atlas method) by the World Bank. Similar groupings had originally been introduced with the World Development Report in the late 1970s, but countries were not classified consistently. “Developing economies” were divided into low income and middle income; OECD membership was used to define “industrial” countries; and other economies were listed as “capital surplus oil exporters” and “centrally planned economies.” https://datahelpdesk.worldbank.org/knowledgebase/articles/ 378833-how-are-the-income-group-thresholds-determined. Accessed 12 August 2021.

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benefits, resolve the dual pressure, and most importantly, and ensure the smooth implementation of the Paris Agreement goals. Second, in the new international climate regime, some universal values such as free market and democratic human rights that some countries have boasted turned out not to work well. In this case, China should establish a moral banner of ecological civilization, build an international discourse system on ecological transformation and net-zero carbon emissions. Third, the principle of CBDR may be fundamentally detrimental to the accelerated achievement of the Paris Agreement targets and should be diluted, weakened, or even abandoned in the future. Fourth, China should seek bilateral cooperation with the United States, maintaining good relationships with each other, even if there may not be direct mutual benefits. Moreover, China should actively promote the cooperation between municipal governments and enterprises to strengthen cooperation with the United States. The China-EU climate cooperation should strengthen pragmatic programs and clarify the strategic partnership of low-carbon innovation and civilizational transformation. Fifth, India’s progress towards net-zero carbon can be highly challenging. In the short term, Sino-Indian cooperation is conducive to coping with the dual pressure from developed and less developed countries. It should unite developed and less developed countries to promote India’s zero-carbon development in the long term. Cooperation with less developed countries should focus on moral and financial support and make use of the international platform for addressing climate change to carry out in-depth and comprehensive cooperation with financial, personnel, and technical assistance as a bridge to make it a firm follower of China’s ecological civilization. Sixth, in the process of implementing the Paris climate agreement, China should take an active role as a “global leader,” a “rule maker,” and an innovative practitioner. China can provide support in the financial mechanism under the UNFCCC and the South-South cooperation. China can also encourage local governments, enterprises, and other non-state actors to take constructive actions to reduce the gap toward 2 °C targets. Seventh, Low-carbon development is a new engine of China’s economic growth. Therefore, it should leverage historical opportunities to fight climate change and transform the development pathway, promoting the values of China’s ecological civilization through climate cooperation, expanding markets, and establishing a leading role in the neighboring regions. Eighth, China should commit to incorporating climate ethicality in other international regimes, strive to promote low-carbon transformation and safeguard the common interests of humanity.

References

317

References Boden, T. A., Marland, G., & Andres, R. J. (2009). Global, regional, and national fossil-fuel CO2 emissions. Carbon dioxide information analysis center, Oak ridge national laboratory, US department of energy, Oak Ridge, Tenn., USA. Carbon Brief. (2020). Global Carbon Project: Coronavirus causes ‘record fall’ in fossil-fuel emissions in 2020. 11 December 2020. https://www.carbonbrief.org/global-carbon-project-corona virus-causes-record-fall-in-fossil-fuel-emissions-in-2020 Accessed August 12, 2021. Galbraith, J. (2017). From treaties to international commitments: the changing landscape of foreign relations law. The University of Chicago Law Review, 1675–1745. Park, B. J. (2018). The strategic duality and convergence of China’s transition in the global climate regime: From a veto to a leading country. Journal of Global and Area Studies (JGA), 2(1), 49–63. UNDP. (2019). Human Development Report 2019-Beyond income, beyond averages, beyond today: Inequalities in human development in the 21st century. http://hdr.undp.org/sites/default/files/hdr 2019.pdf. Accessed August 12, 2021.

Chapter 20

Basic Approaches to Low-Carbon Economy

Low-carbon development is an inevitable choice for human beings in the context of climate change (Bao et al., 2008). After the Copenhagen Conference, the international community has increasingly reached a consensus that the development of a lowcarbon economy is the primary way to combat climate change (Yang, 2009; Yuan, 2010). Although all countries agree on the necessity and urgency of developing a lowcarbon economy, there is no universal definition yet. Researchers and policymakers have their different interpretations. Therefore, it is urgent to carry out a systematic analysis on various low-carbon concepts and provide a theoretical foundation to the global practices of the low-carbon economy, which should bloom globally as soon as possible.

1 The Concept of a Low-Carbon Economy and Its Connotation The concept of a low carbon economy emerged in the context of fighting climate change. Scientific evidence indisputably shows that human activities are the leading cause of global climate change. In response to the challenges posed by climate change, the international community has agreed on the UNFCCC and the Kyoto Protocol, confirming the principle of “Common but Differentiated Responsibilities” and cooperating to address climate change. At the domestic policy level, many countries have been actively reducing their GHG emissions, recognizing the need to reverse the high dependence of traditional economic systems on fossil energy and achieve sustainable development with low carbon emissions.

See “Identification of the concept of low carbon economy and analysis of its core elements”. International Economic Review, 2010, No. 4, with contributions from Zhuang Guiyang, Zheng Yan, Zhu Shouxian, etc. © China Social Sciences Press 2022 J. Pan, Climate Change Economics, https://doi.org/10.1007/978-981-19-0221-5_20

319

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Although the term low carbon economy appeared in the literature in the late 1990s (Kinzig & Kammen, 1998), its first appearance in an official document was the “Our energy future—Creating a low carbon economy” white paper published by the then British Prime Minister Tony Blair on February 24, 2003. In this Energy White Paper, the UK government stated that the country would cut its GHG emissions by 60% from 1990 levels by 2050, fundamentally transforming itself into a low-carbon economy (DTI, 2003). In October 2006, the Stern Review, led by former World Bank chief economist Nicholas Stern, pointed out that a global investment of 1.0% of GDP per year could avoid future losses of 5–20% of GDP per year and called for a global transition to a low-carbon economy (Stern & Stern, 2007). Riahi et al. (2011) state explicitly that future global GHG emissions depend on the choice of development pathways. With the conclusion of the Bali Roadmap, international action to address climate change continued to advance, and the development path of a low-carbon economy has received increasing attention at the global level. The United Nations Environment Program selected the theme of World Environment Day as “Kick the Habit! Towards a Low Carbon Economy” in 2008 to stimulate people’s awareness of the environment and enhance political attention and public action (Zhu & Xie, 2011). Furthermore, the UN Secretary-General Ban Ki-moon likened fossil fuel dependence to a dangerous addiction at an event approaching World Environment Day, saying that “addiction is a terrible thing. It consumes and controls us, makes us deny important truths, and blinds us to the consequences of our actions. Our world is in the grip of a dangerous carbon habit”(IISD, 2008). Although the Copenhagen Conference in 2015 did not reach an agreement on controlling GHG emissions, it was the beginning of a global transition to a low-carbon economy. The UK has proposed the concept of a low-carbon economy without providing a clear definition. Researchers and policymakers have argued whether a low carbon economy is an economic form, a development model, or both. One of the objectives of the Strategic Programme Fund (formerly known as the Global Opportunity Fund), which the UK Foreign Office has been working on since 2003, is to promote low carbon-high growth in the global economy (Dai & Diao, 2010). To some extent, this can be seen as the UK government’s understanding and interpretation of a low-carbon economy. Using carbon elasticity as an indicator, Zhuang (2007) analyzed the decoupling characteristics between per capita income and GHG emission growth in 20 major GHG emitting countries at different stages of development, pointing out that the global transition to a low-carbon economy is characterized by stages. Zhou Shengxian, Minister of Environmental Protection of China, pointed out that "lowcarbon economy is an economic model based on low energy consumption, low emissions and low pollution, which is another significant progress of human society after the primitive civilization, agricultural civilization and industrial civilization (Zhou, 2008). The essence of a low carbon economy is to improve energy use efficiency and create a clean energy structure, the core of which is technological innovation, institutional innovation, and a change in the development mindset. “Developing a low-carbon economy is a global revolution on multiple areas such as production patterns, lifestyles, values, and national rights and interests”(Zhou, 2008).

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The China Council for International Cooperation on Environment and Development (CCICED, 2008)indicated that “a low-carbon economy is an economic form that emerges in post-industrial societies and aims to reduce GHG emissions to a level that will prevent countries and their people from being adversely affected by climate warming and ultimately safeguard a sustainable global habitat.” According to He (2009), “The essential requirement of a low-carbon economy is to increase the productivity of carbon—to produce more GDP per unit of CO2 emitted.” In fact, all of the above concepts partially capture the core characteristics of a low-carbon economy, namely “low carbon emissions,” “high carbon productivity,” and “phased characteristics.” Moreover, they all point out that the purpose of a lowcarbon economy is to address the challenges of energy, environment, and climate change. The way to achieve a low-carbon economy is through technological innovation and improving energy efficiency and structure. However, these concepts of a low-carbon economy have missed two elements. One is that they did not elaborate on the relationships between low-carbon emissions and the achievement of human development goals. The other element that has been neglected is the intrinsic driving force of a low-carbon economy. At present, there are different perspectives on understanding “low-carbon emissions” in the international climate regime and climate change academic research. One is based on the International Equity Principles, which says that the account of carbon emissions is based on a country’s total amount. Therefore, the low-carbon emissions should be the absolute reduction of a country’s total emissions. The second is based on the Human Equity Principle. Carbon emissions are seen to be one of the basic rights of a country or an individual to achieve human development. Under this principle, developed countries need to reduce carbon emissions from luxury lifestyles, and developing countries need to ensure the supply of basic needs for their people. Third, the Cost–benefit Principle. Under this principle, carbon is viewed as an input factor embedded in the energy and material goods and measured by the corresponding output brought by an economy consuming a unit of carbon. If the increase in GHG emissions is less than the increment of economic output, it can be called low carbon emissions. Carbon Productivity is the value (in the amount of GDP) generated per ton of CO2 equivalent emissions. Carbon productivity is the reciprocal of carbon emissions per unit of GDP output and can generally be used to measure the level of efficiency of an economy. Since carbon productivity depends on two indicators, per capita carbon emissions and per capita GDP, there is no direct link between a country’s income level and its carbon productivity level. According to the World Resources Institute, among the developed countries, Norway has the highest level of carbon productivity, at US$5656/ton (CO2 ) in 2005, and the carbon productivity was at US$2104/ton in the United States, US$1998/ton in India and $956/ton in China in 2005. It is worth noting that some impoverished and small countries have the highest carbon productivity in the world. For example, Chad’s carbon productivity was US$107,527/ton. Afghanistan and Mali are ranked second and third in the world,

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respectively.1 Therefore, it can be seen that, as one of the indicators to measure the state of low carbon economic development, the carbon productivity indicator is more suitable for comparison between countries with similar economic development levels (or human development levels). In addition, the carbon productivity indicator cannot reflect a country’s) human development level and luxury (as opposed to survival) emissions level. Countries are at different stages of development, and consequently, their carbon emissions also have phase characteristics. This phase-specific characteristic can be expressed by the carbon emission elasticity indicator (the ratio of carbon emission growth rate to GDP growth rate or the income elasticity of CO2 emission). The goal of a low-carbon economy is to have high economic growth with low carbon emissions. Hence, the carbon emission elasticity indicator measures how much the rate of mitigation is to the rate of economic growth decline, with the premise of positive economic growth. Research analysis (Zhang & Cheng, 2009; Acaravci & Ozturk, 2010) found that the relationship between carbon emissions and economic growth in developed countries, such as the United States, the United Kingdom, the 27 member countries of the European Union, Canada, Australia, Japan, and Russia, is mainly characterized by strong decoupling (carbon emission elasticity less than 0) and weak decoupling (carbon emission elasticity less than 0.8). The United Kingdom is the most prominent among these countries and shows strong decoupling between carbon emissions and economic growth. Some developing countries also showed negative carbon emission elasticity at a certain period. However, this kind of negative elasticity might be caused by economic fluctuations. Apparently, negative economic growth is not an expectation of a low-carbon economy. Although weak decoupling (i.e., carbon emission elasticity between 0 and 0.8) also occurs in some developing countries, it has not yet become the dominant trend. Developing countries are mainly in the expansionary linkage phase (carbon emission elasticity greater than 0.8 and less than 1.2). Therefore, an ideal trajectory for the transition to a low-carbon economy for developing countries is a decreasing carbon emission elasticity with a positive economic growth rate. According to Pan and Zhuang (2009), a low-carbon economy is an economic form in which carbon productivity and human development reach a certain high level, aiming to achieve a globally shared vision2 of GHG emissions reduction. As carbon productivity refers to the GDP output per unit of CO2 emissions, the increase in carbon productivity means more social wealth is produced with less energy consumption and other material inputs. Human development means economic development and social progress in human dimensions such as economic capacity, health, education, ecological protection, and social equity. The characteristic of this concept is that, on the one hand, it imposes carbon emission constraints on human 1

See the World Resources Institute (WRI) Climate Analysis Indicator Tool. Available at: http:// cait.wri.org/. Relevant carbon productivity data in the following text came from the same sources. 2 A shared vision is one of the elements listed in the Bali Action Plan in the Convention’s long-term cooperative action, and is an important issue in the current international climate negotiations. At the heart of the shared vision is a long-term emissions reduction target for 2050. The Copenhagen conference agreed on a global warming of no more than 2 °C degrees.

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development. On the other hand, it emphasizes that carbon emission constraints must not undermine the goal of human development. The solution is to improve carbon productivity through technological progress and energy conservation. This concept does not deliberately distinguish between absolute or relative low carbon emissions. However, it is possible to achieve relatively low carbon emissions without changing a country’s energy and industrial structures and by improving energy use and carbon output efficiency only in the short term. An absolute reduction in a country’s total carbon emissions can be achieved in the long term by technological progress in energy substitution and low-carbon technology implementation. The above discussion on the concept of a low carbon economy shows that low carbon is not an end but a means to an end. It is essential to guarantee the achievement of human development goals. With almost no fossil energy consumption and carbon emissions, agricultural societies may have a high economic output per unit of carbon emissions and low social productivity. Due to the overall low level of social development, an agricultural society is apparently not the low carbon economy sought by the human social development purpose. On the other hand, industrialization consumes a lot of fossil energy and emits a large number of GHG. Although industrialization accumulates a lot of material wealth, it also brings consequences for the long-term future of humankind. Thus, industrialization is not the goal of human development that we are seeking too. There are differences in the understanding of the concept of a low-carbon economy. Some people tend to mix up the concepts of a low-carbon economy and low-carbon development. However, there is, in fact, an organic and unified complementary relationship between these two concepts. A low-carbon economy is an economic form. The transition process to a low-carbon economy is the process of low-carbon development, with the goal of high low-carbon growth and emphasis on the development model. The low-carbon economy is realized through technological leapfrog development, and institutional restraints manifested in energy efficiency improvement, energy structure optimization, and rational consumption behavior. The competition of low-carbon economy is reflected as the competition of low-carbon technology, focusing on the long-term competitiveness of low-carbon products and low-carbon industries. Low carbon development has different meanings for different countries. As the core connotation of low-carbon development, low-carbon emissions can be in a relative sense or an absolute sense. The key is to distinguish between development stages and emission reduction obligations. For developing countries, because the basic needs of human development have not yet been met, promoting a relative decrease in carbon emissions while increasing the total economic volume can be regarded as low-carbon development. On the other hand, as developed countries have already achieved high human development goals, they should fulfill their emission reduction obligations and achieve an absolute total carbon emissions reduction in the face of increasingly limited global emission capacity in the future.

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2 Core Elements of a Low Carbon Economy Based on the above definition of a low carbon economy, its goals are inevitably linked to international efforts to control GHG emissions globally. It is undisputed that a successful climate change action plan must support two goals: stabilizing GHG concentrations in the atmosphere and sustaining economic growth. The decarbonization process of transition to a low-carbon economy has two implications: a decreasing share of carbon emissions from energy consumption, i.e., a cleaner energy mix, depending on resource endowments and financial and technological capabilities; and decreasing energy consumption required per unit of output, i.e., increasing energy use efficiency. In terms of the long-term trend of socio-economic development, carbon productivity is also increasing due to technological progress, energy structure optimization, and energy-saving measures. Therefore, the process of decarbonization is also the process of increasing carbon productivity. However, high carbon productivity does not necessarily indicate a low-carbon economy. This is because extravagant and wasteful consumption can completely offset the improvement in carbon productivity, keeping total social emissions high. A salient example is that developed countries have much higher carbon productivity than developing countries. Still, their per capita emissions levels are also several times higher than those of developing countries. According to the aforementioned conceptual analysis, a low carbon economy should encompass four core elements: development stage, low carbon technology, consumption pattern, and resource endowment. Hence, the following conceptual model can represent the low-carbon economy: LCE = f(E, R, T, C). Among them, E represents the stage of economic development, mainly in terms of industrial structure, per capita income, and urbanization. R represents resource endowment, including traditional fossil energy, renewable energy, nuclear energy, carbon sink resources, etc. The resources here include both natural resources and human resources. Without human and capital investment, renewable energy, nuclear energy, etc., cannot be used efficiently. T stands for technology factor, which refers to the carbon efficiency level of major energy-consuming products and processes. Usually, the technology level depends on the overall development stage. But it is not necessarily the case for a low-carbon economy. Some countries can advance in low carbon technologies and avoid the pitfall of “treatment after pollution,” and achieve leapfrog development. C stands for consumption pattern, mainly referring to the demand or emission of carbon from different consumption habits and quality of life.

2.1 Resource Endowment Resource endowment is the material basis for realizing a low-carbon economy. Resource endowment covers a wide range of elements, including mineral resources, renewable energy, land resources, labor resources, financial and technological

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resources, etc., all of which are essential input elements for the development of a low-carbon economy. In addition to the well-known energy resources and carbon sinks, it should also include climate resources and ecological resources that can regulate the atmospheric and hydrological cycles and affect the habitat. Furthermore, the livability of natural geographic conditions affects the degree of the energy dependence of residents for food, clothing, housing, transportation, and the social economy. Thus, it can be seen that the abundance of low-carbon resources has a very positive contribution to low-carbon development. Carbon emissions originate from the use of fossil energy and occur widely in human production and life. Coal, oil, and natural gas have decreasing carbon emission factors. Plants can be seen as carbon neutral. Renewable energy sources such as solar, hydro and wind energy, and nuclear energy are clean and have zero carbon emissions. Energy resource endowment can be evaluated in terms of energy mix (i.e., carbon emission factor per unit of energy consumption) and the proportion of non-fossil energy sources in primary energy. A more prominent figure for the carbon emission factor per unit of energy consumption indicates a less clean energy mix. According to the International Energy Agency (IEA, 2018), in 2017, the carbon emission factor per unit of energy was 3.03tCO2 /toe (3.03 tons of CO2 per ton of oil equivalent) in Australia, 2.21tCO2 /toe in the United States, 1.98tCO2 /toe on average in the EU-28, 2.62tCO2 /toe in Japan, and 2.31tCO2/toe in Germany. Among developed countries, the carbon emission factor per unit of energy was 2.45 tCO2 /toe, 3.02 tCO2 /toe, and 1.47 tCO2 /toe in India, China, and Brazil, respectively. Most countries attach great importance to the development of renewable energy to optimize and clean up the energy structure. The Medium and Long-term Plan for National Renewable Development " in China clearly put forward that China’s renewable energy will account for 10% and 15% of primary energy consumption by 2010 and 2020. The European Union proposes that the proportion of renewable energy consumption should account for 20% of the final energy consumption by 2020. The energy consumption structure of countries (examples illustrated in Fig. 1), in addition to resource endowment, depends on the strength of each country’s capital and technology capabilities. A forest carbon sink is the process, activity, or mechanism by which forest ecosystems reduce the concentration of carbon dioxide in the atmosphere. Forests are the largest terrestrial carbon reservoir and the most economical carbon absorber. According to The IPCC (2018) estimation, about 2.48 trillion tons of carbon are stored in global terrestrial ecosystems, of which 1.15 trillion tons are stored in forest ecosystems. Scientific studies have shown that an average of about 1.83 tons of carbon dioxide is absorbed for every cubic meter of forest growth. Therefore, restoring and protecting forests has become one of the critical measures to mitigate global climate change at a low cost. Thus, forestry has multiple benefits and has dual functions of climate change mitigation and adaptation.

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Fig. 1 Energy consumption structure by country (2019). Source BP Statistical Energy of World Energy 2020. 69th Edition. https://www.bp.com/content/dam/bp/business-sites/en/global/corpor ate/pdfs/energy-economics/statistical-review/bp-stats-review-2020-full-report.pdf. Accessed 12 August 2021

2.2 Technological Advancement Technological advancement is crucial to the impact of a low carbon economy. Technological progress can drive the process of decarbonization from different perspectives, including energy efficiency, the level of low-carbon technology development (e.g., carbon capture technologies, etc.), management efficiency, energy mix, etc. The low carbon technologies are generally implemented in key energy-consuming sectors such as electric power, transportation, construction, metallurgy, chemical, petrochemical, and automobile industry. These technologies include both existing technologies that can be commercialized in the near future and those that may be applied in the long term. For example, from the current stage, low-carbon technologies used in the energy sector involve energy conservation, clean and efficient utilization of coal, exploration and development of oil and gas resources and coal-bed methane, renewable energy and new energy utilization technologies, carbon dioxide capture, and storage (CCS) and other areas of new technologies for emission reduction. For example, China’s wind power has developed rapidly in recent years, thanks to the implementation of the Renewable Energy Law and the Medium and LongTerm Plan for the Development of Renewable Energy and to the implementation of the Clean Development Mechanism (CDM) project that has brought in advanced foreign wind power technologies. The Stern Report (Stern & Stern, 2007) predicted that by 2050, CCS could make a 20% contribution to reducing global CO2 emissions,

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while energy efficiency improvement technologies could contribute more than 50% to emissions reductions. Table 1 compared China’s energy consumption for major industrial products with those at the advanced international level. Generally speaking, there are gaps between China’s technology and the technologies at the advanced international level. Significant gaps observed are as follows: • The advanced international level of electricity consumption for coal mining and washing was in the United States. • The advanced international level of heat consumption for power generation in thermal power plants was in Japan, and heat consumption for the power supply was in Italy. • The advanced international level of comprehensive energy consumption for cement was in Germany. • The advanced international level of comprehensive energy consumption for wall materials was in the United States. • The advanced international level of comprehensive energy consumption for ethylene is the Middle East. • The advanced international level of comprehensive energy consumption for caustic soda was in the German-Italian joint venture Woodinola • The advanced international level of comprehensive energy consumption for synthetic ammonia was in the United States. The efficiency gap of large units was not significant between China’s power industry and the advanced international level. However, the existence of a large number of small thermal power units lowered the overall level of energy efficiency in China’s power industry. Technological advancement is the core element of the response to climate change and low-carbon transition. To accelerate technological progress in the future, China should strengthen its own technological innovation on the one hand, and strengthen international technology research and development cooperation on the other hand, and also accelerate the speed of technology introduction and digestion. Although the implementation of technology standard indicators may bring technical or trade barriers and trade protectionism, national mandatory technology standards will urge enterprises to eliminate lagging technologies and accelerate low-carbon technology investment and R&D.

2.3 Consumption Pattern All socio-economic activities are ultimately reflected as current or future consumption activities. Thus all energy consumption and its emissions are fundamentally driven by various consumption activities of the whole society. People’s consumption needs and desires and are increasing with economic development. Manufacturers are doing everything possible to meet people’s various consumption needs and provide

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Table 1 Energy consumption level comparison of high energy-consuming products in China and the world 2000

2010

2015

2016

2017

2018

Advanced Int. level

Integrated energy consumption/kgce/t

38.2

32.7

29.5

31.0

30.5

31.0

Electricity consumption/kWh/t

29.0

24.0

23.6

24.8

25.8

26.7

17.0

Integrated energy consumption/kgce/toe

208

141

121

117

115

118

105

Electricity consumption/kWh/toe

172

121

137

132

129

133

90

Thermal power generation heat consumption/gce/kWh

363

312

298

294

292

290

287

Thermal power plant power supply heat consumption/gce/kWh

392

333

315

312

309

308

275

Industry-wide

1475

950

899

898

890

861

Large and medium-sized enterprises

906

701

663

676

670

634

Comparable energy consumption of steel/kgce/t

784

681

644

640

634

613

576

Aluminum electrolysis AC power consumption/kWh/t

15,418

13,979

13,562

13,599

13,577

13,555

12,900

Comprehensive energy consumption of copper smelting/kgce/t

1227

500

372

366

359

342

360

Comprehensive energy consumption of cement/kgce/t

172

143

137

135

133

132

97

Comprehensive energy consumption of wall materials/kgce/10,000 standard bricks

763

468

444

434

429

425

300

Coal mining and washing

Oil and gas extraction

Comprehensive energy consumption of steel/kgce/t

(continued)

2 Core Elements of a Low Carbon Economy

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Table 1 (continued)

Comprehensive energy consumption of building ceramics/kgce/m2

2000

2010

2015

2016

2017

2018

Advanced Int. level

8.6

7.7

7.0

6.9

6.8

6.7

3.4

160

145

144

143

142

120

Comprehensive energy consumption of building lime/kgce/t Comprehensive energy consumption of flat glass/kgce/weight box

25.0

16.9

14.7

14.4

14.2

14.0

13.0

Comprehensive energy consumption of crude oil processing/kgce/t

118

100

96

97

97

97

73

Comprehensive energy consumption of ethylene/kgce/t

1125

950

854

842

841

841

629

Comprehensive energy consumption of synthetic ammonia/kgce/t

1699

1587

1495

1486

1463

1453

990

Comprehensive energy 1439 consumption of caustic soda/kgce/t

1006

897

878

875

871

670

Comprehensive energy consumption of soda ash/kgce/t

406

385

329

336

333

331

255

Calcium carbide electricity consumption/kWh/t

3475

3340

3303

3224

3279

3208

3000

Comprehensive energy consumption of paper and paperboard/kgce/t Industry-wide

912

390

339

333

326

318

All pulp production

1540

1200

1045

1027

1006

981

506

Source Wang (2019)

various conveniences. For example, Table 2 shows that in the 1970s, a typical British household had only 15 household appliances, but by 2006, there were 51 household appliances. Studies have shown that the energy consumption and carbon emissions generated by consumption in different countries vary significantly due to the differences in development level, natural conditions, and lifestyles. In fact, in addition to the influence of natural climatic conditions, per capita income level, cultural practices,

330 Table 2 List of appliances in a typical British household

20 Basic Approaches to Low-Carbon Economy 1970s

2000s

Television Vacuum cleaner Electric bar heaters Hi-fi music system Hairdryer Electric kettle Washing machine Iron Electric blanket Radio Sewing machine Cooker Cassette player Fridge DIY appliance Toaster Occasional lamps

Televisions Video players DVD player/recorder Portable music players Mobile phones Hairdryers Hair irons Electric toothbrushes Wireless telephone/answering machine Slave portable phone handsets Electric kettle Smoothie maker Magimix Ice-cream maker Digital radio Mini hi-fi systems Washing machine Tumble dryer Dishwasher PlayStation/games console Cappuccino maker Digital clock/radios Electric lawnmower Strimmer Microwave Electric oven Electric hob Extractor fan Large fridge/freezer Drinks cooler Portable fan Vacuum cleaner PC computer Monitor Printer Scanner/fax Digital camera Set-top box Electric shaver Steam iron Juicer Home security system Broadband connection Halogen bulb light fittings Personal care products Power tools Electric blanket

Source Energy Saving Trust (2006)

2 Core Elements of a Low Carbon Economy

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and resource endowment, the impact of consumption patterns and behavioral habits on emissions cannot be underestimated. For example, the United States and some European Union countries, like the United kingdom, both have a per capita GDP of more than $30,000, but there is a large gap in consumption emissions. Taking transportation emissions from the household sector as an example, the United States’ per capita travel emissions are about 4 tons, twice as much as other countries due to the reliance on private cars. The United States has the highest number of motor vehicles per 1000 people globally, higher than the European Union countries and Japan, which have comparable levels of per capita GDP. In addition, the separation of production and consumption activities due to globalization makes a country’s actual consumption emissions masked by the problem of embedded emission transfer in international trade. Suppose that every country has the same carbon emission intensity. The country with higher external consumption dependency has higher carbon emissions caused by consumption. Therefore, exploring a country’s carbon emissions caused by the actual consumption rather than caused by the production can help the country promote a low-carbon from a more equitable perspective.

2.4 Economic Development Stage When reached a certain level of economic development, the cumulative effect of social wealth can contribute to low-carbon development in two ways: first, the accumulation of knowledge and technology speeds up low-carbon technological progress; second, the accumulated need for the economic capital stock is substantially reduced, allowing more energy supply spent on services and raising the nation’s consumption level. Thus, although the drivers of carbon emissions vary from country to country, in terms of the development stage, they are determined by no more than two factors: consumption and production. In short, carbon emissions in developed countries are mainly driven by the consumption-based society in the post-industrial era, while carbon emissions in developing countries are mainly due to the accumulation of economic capital stock driven by production investment and infrastructure inputs. For example, developed countries like the United Kingdom, the United States, and Germany have relatively large economic capital stocks and material stocks (such as public facilities including stores, dams, roads, and houses) from centuries of economic growth and are still enjoyed by the current population. Therefore, these countries are able to maintain a high level of living and consumption with an average annual economic growth rate of about 2% because very little of the national wealth growth is spent on stock investment, and most of the energy input is spent on services and residential consumption. On the contrary, in developing countries, like China, the sustained high economic growth is to make up for the shortage of economic capital stock such as infrastructure. And only when the physical capital stock accumulates to a certain level will the level

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of human development rise. Therefore, it is challenging to reduce resources and energy consumption during this period to sustain rapid economic growth. The stage of economic development is the starting point and background of a country’s transition to a low-carbon economy. Developed countries have already achieved high human development. In contrast, developing countries must achieve the dual goals of low-carbon transition and human development, which will undoubtedly increase the difficulty for developing countries to achieve low-carbon transition. The European Union countries have a slight downward trend in emissions due to slow population growth and active measures to reduce emissions. The population and economy of the United States, Australia, Canada, and some other countries are still growing, the economic developments are expanding, and emissions are still increasing. Moreover, the populations in developing countries are growing faster, with unmet basic needs. Therefore, future emissions in developing countries are bound to continue to grow. Studies have found an approximately inverted U-shaped curve between per capita GHG emissions and per capita GDP. Many developing countries, including China, are in the climbing phase of this curve (Zhuang, 2008). As countries are at different historical stages, they face different problems in moving toward a low-carbon economy. The corresponding policy measures, pathways, and costs of emission reduction will also vary.

3 Eliminating Misconceptions About Low-Carbon Economy There are still many misconceptions in understanding the low-carbon economy as it is a relatively cutting-edge concept (Zeng, 2009; Zhuang, 2009). Eliminating these misconceptions is an essential prerequisite for the transition to a low-carbon economy. It may go through a loop of practice and learn since no developed model can be copied from. First, a low-carbon economy is not the same as a poverty economy. The level of commercial development and utilization of fossil fuel and energy was very low in societies before the industrial revolution or in the world’s poorest and least developed regions and countries. The production and consumption level was also very limited. Hence, it wasn’t easy to enjoy the comfortable living environment brought by cooling and heating and could not enjoy the convenient travel brought by modern transportation. So the level of GHG emissions generated by human activities was relatively low. It was a “natural” low-carbon economy. For example, the carbon productivity in countries with low levels of development, such as Chad and Senegal, is even higher than that of developed countries such as Germany and Canada. But this is far from the level of development expected by human society and is therefore not a low-carbon economy. Developing a low-carbon economy is not about poverty but prosperity while protecting the environment and climate.

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Second, high quality of life does not necessarily associate with high emissions. The current level of per capita carbon emissions in developed countries is very high, about ten tons in European countries and Japan, etc., and even up to twenty tons in the United States, far exceeding the average level of developing countries and the world. Therefore, many people believe that only high emissions can achieve a higher quality of life and that a low-carbon economy is unattainable. The transition to a low-carbon economy is characterized by multiple phases. During a specific phase, the transition to a low carbon economy requires carbon emissions growth. However, it must be pointed out that the current high level of social productivity in developed countries depends on the considerable capital accumulation resulting from their history of uncontrolled emissions. But the extravagant and wasteful emissions in developed countries, to some extent, offset the increase in their carbon productivity. The Nordic countries and their cities have a high standard of living and high carbon productivity. However, they managed to show a declining trend in carbon emission levels. Thus, quality of life is not measured by the amount of carbon emissions. In other words, the level of GHG emissions and socio-economic development can be “decoupled.” Third, the development of a low-carbon economy will not restrict the development of specific industries, especially the energy-intensive industries, as long as these industries’ technological level is leading and meets the requirements of low-carbon economic development. Historically, the general trend for industrial expansion and upgrade is as follows: agriculture–light industry–basic industry–heavy industry–high value-added processing industry–modern service industry and knowledge economy. Among the tertiary Industries, the upward movement of the secondary industry from low to a high level is particularly evident. The secondary industry can expand continuously and move forward in Industrial upgrading simultaneously. Energy-intensive industries, the main areas where the misunderstanding of the low-carbon economy takes place, and their related industrial products are essential to China’s industrialization and urbanization. They can provide an indispensable material basis and an insurmountable development stage for China’s modernization. It can be seen that industrial development has its own objective scientific development law. The development of a low-carbon economy should not blindly exclude the development of specific industries, particularly energy-intensive industries. Fourth, a low-carbon economy does not mean “high input.” Developing a lowcarbon economy requires energy conservation, energy efficiency, development of low-carbon energy sources including renewable energy, development and application of GHG reduction technologies, development of forestry carbon sinks, and promotion of behavior change at the consumer end, all of which require financial investments. However, at the same time, these corresponding measures and investments will also bring benefits in terms of energy-saving, environmental protection, employment, and economic growth. Therefore, it makes no sense to look at the cost of developing a low-carbon economy separately. According to McKinsey & Company (2009), in order to achieve the 2 °C target, 75% of the corresponding GHG emission reductions can be achieved through non-technological measures or existing mature technologies without the need to research and develop new technologies. Moreover, about 25% of all emission reduction potentials and technologies have zero or even negative costs

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(net benefits) over the lifetime of the technology. In addition, even if there are some special costs to be paid for developing a low-carbon economy, they are worthwhile given the attractiveness of a low-carbon economy for international investment and the cultivation of long-term strategic competitiveness. Fifth, a low-carbon economy is not just something that needs to be done in the future. Developing a low-carbon economy is a long-term goal, but it is not just an “economy of the future. In order to achieve the goals set by the UNFCCC to address global climate change, the world must achieve no further increase in the concentration of GHG in the atmosphere as soon as possible. Developed countries have a huge historical responsibility, and their current high level of socio-economic development and carbon productivity has laid a solid foundation for their low-carbon transition. Developed countries have made or are making strategic deployments to a low-carbon transition. A low-carbon world is the future. Countries that have competitive edges on low-carbon development have the key to the future world. As far as developing countries are concerned, the current promotion of low-carbon transition can avoid a severe “lock-in effect” and help build competitiveness for the future. Preventing global warming requires international cooperation, which concerns every country (region) and person on earth. Developing a low-carbon economy is inevitable for sustainable human development in the medium and long term, which has nothing to do with “morality.” Studies have shown that delaying action will bring more significant losses. Sixth, the development of a low-carbon economy is not only the action of developed countries. According to the principle of CBDR, countries should carry out “common but differentiated” actions according to their national conditions and capabilities. Developing a low-carbon economy and following a low-carbon development path, or achieving low-carbon socio-economic development, are essentially the core elements of mitigating GHG emissions and addressing climate change. Major economies worldwide have put forward strategies and measures to develop a low-carbon economy, often based on their national conditions. Many countries have carried out many successful low-carbon practices at the regional and municipal levels. Therefore, the development of a low-carbon economy is a common global goal. The focus of China’s national and local low-carbon development is to promote technological innovation, improve policies and institutions, transform economic and social development mode, and coordinate the relationship between economic development and global climate protection so as to achieve a win–win situation between the global response to climate change and sustainable domestic development. Seventh, a low-carbon economy does not mandate a “zero-carbon economy.” The concept of low-carbon has three layers of meanings: absolute low carbon, low-carbon with conditions, and relative low carbon. Absolute low carbon, that is, zero-carbon, is neither objective nor realistic under the current socio-economic conditions. From high carbon to low carbon is a large-scale, complex, and systematic transformation, which must progress step by step. A zero-carbon economy is a low-carbon economy, but a low-carbon economy does not mandate a zero-carbon economy. It is

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feasible yet very challenging to achieve the Paris Agreement targets, and the difficulties are part of why countries have been negotiating intensely. Developing countries should do everything possible to reduce carbon intensity and increase carbon productivity at this stage. A low-carbon economy does not mean low returns. With increased inputs and policy support, the cost curve of low carbon technologies shows a decreasing trend through learning and technology transfer. For example, some new energy technologies can be commercialized and will ultimately replace fossil fuel power generation. Eighth, there are similarities and differences between a low-carbon economy and a low-carbon society, mainly due to the carbon emissions structure of a particular country. For example, industrial emissions account for 70% of total emissions in developing countries (Martínez-Zarzoso, & Maruotti, 2011). On the other hand, industrial, construction, and transportation emissions account for one-third of total emissions in developed countries, respectively. Therefore, developing countries like China should focus the first steps of low-carbon transformation on the industrial sector. In contrast, the transformation in developed countries should be on reducing carbon emissions in consumption and lifestyle. However, although China’s lowcarbon transformation is mainly focused on technology and industry currently, the importance of reducing GHG emissions from social consumption should not be neglected. All in all, we should develop a low-carbon economy and work on promoting social change and building a low-carbon society at the same time. Ninth, a low-carbon economy cannot be replaced by “energy-saving and emission reduction.” Reducing GHG emissions should include both increasing carbon sinks and reducing carbon sources. According to the KAYA (1989) equation, the growth of CO2 emissions in a country depends on four factors: population, per capita GDP, energy consumption per unit of GDP, and energy mix. China’s large population base will continue to increase in the future. In addition, it requires rapid per capita GDP growth to meet people’s growing material and cultural needs. So these two factors play an impediment role in controlling the growth of carbon emissions in China. To cope with this situation, China can take two actions: reduce energy consumption per unit of GDP and increase the proportion of renewable energy in primary energy consumption. Energy conservation is consistent with emissions reduction. However, it is only one of the specific actions that China currently takes to transit towards a lowcarbon economy. The low carbon economy is comprehensive and includes all aspects of production, consumption, buildings, transportation, lifestyles, environment, and low carbon society. Tenth, a low-carbon economy is not a “carbon trading economy.” It is imperative to establish a carbon trading market in China, build a long-term, transparent and definitive market mechanism to promote carbon emissions reduction, explore the enormous potential of China’s carbon market, and drive the growth of China’s low-carbon economy. Compared with Europe and the United States, China is still in a period of high-carbon industrialization. The share of coal in China’s energy consumption is rapidly decreasing from 69.5% in 2010 to 57.5% by 2020, but it is still more than double of the world average (Wei & Hong, 2009). China’s energy structure is not favorable. Many cities in China are now keen to build carbon emission

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trading platforms, such as the Beijing Environmental Exchange, Shanghai Environmental Energy Exchange, and Tianjin Emissions Exchange, which were all established around 2008. The transition to a low-carbon economy is a holistic project, and the low-carbon economy should not be interpreted merely as a carbon trading economy. Eleventh, a low-carbon economy has similarities and differences with a green economy and a circular economy too. On September 22, 2009, President Hu Jintao delivered an important speech at the opening ceremony of the United Nations Climate Change Summit entitled “Working Together to Address the Challenges of Climate Change,” proposing that China should vigorously develop a green economy and actively develop a low-carbon economy and a circular economy (Ministry of Foreign Affairs, 2009). But, in fact, there are still many misunderstandings about the three concepts of green economy, low-carbon economy, and circular economy in practice. The low carbon economy is related to, yet different from, the circular economy. The low-carbon economy is a specific economic form, targeting greenhouse gases such as carbon dioxide, which cause global climate change, and the carbon-based energy system, which is mainly composed of fossil fuels. The low-carbon economy aims to achieve efficient allocation and utilization of carbon-related resources and the environment. Reducing energy consumption and improving energy efficiency are two specific ways to achieve a low-carbon economy, reflecting the requirements of “reduction” in the circular economy. The capture and storage of carbon dioxide and other greenhouse gases, especially the measures to sequester carbon dioxide and improve the recovery rate of crude oil, well reflect the requirements of “reuse” and “recycling” in the circular economy. In addition, the development and application of non-greenhouse gas substitutes for ozone-depleting substances embody the principle of “reuse” and “resourceization” of the circular economy in the broader sense of “redesign, repair and remanufacture.” Therefore, a low carbon economy and a circular economy are closely related. The green economy is a relatively vague concept. It can be assumed that any economic form and development model associated with environmental protection and sustainable development can be included in the green economy. However, the green economy itself is difficult to be assessed quantitatively. It does not imply the constraints faced by socio-economic development from the perspective of input factors. A low-carbon economy, on the other hand, further refines the natural resource inputs. For example, the land will be viewed as an environmental capacity constraint for natural resources such as energy and GHG emissions, besides the traditional basic elements of socio-economic development (i.e., labor, land, and capital), making carbon emissions both an input factor and a constraint indicator for socio-economic development. Green and low-carbon economies are relatively broader than the circular economy concept, including green production, green consumption, and low carbon consumption. The green economy also refers to the green ethics and environment besides the economy. The low carbon economy is mainly targeted at carbon emissions. Its scope is smaller than the green economy but broader than the circular economy. Green is not necessarily low-carbon. The reason for China’s greater focus and emphasis on

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the green economy lies in the fact that China’s traditional ecological and environmental problems such as water pollution, air pollution, and solid waste have not yet been solved. And it is hoped that the traditional pollutant problems will be solved together in the process of combating climate change. The development of a lowcarbon economy will seek synergistic effects on pollution alleviation. The green economy is more difficult to be evaluated compared with the low-carbon economy in the areas such as the accounting of green GDP. China studied the green GDP for a few years, yet the study has not been promoted or implemented. The most significant difference between a green economy and a low-carbon economy is that a green economy does not have the rigid constraint of carbon emissions. As a shared vision of world economic development, the transition to a low-carbon economy is bound to be a long-term process. The transition to a low carbon economy has to consider all aspects of the development stage, resource endowment, technology level, and consumption pattern. The low-carbon economy is not a fashionable concept. However, it is an action that can be implemented into reality, and misconceptions must be eliminated in practice. China’s carbon emissions per unit of GDP in 2020 decreased by 48% from 2005 (Cui et al., 2014). The proportion of non-fossil energy to primary energy consumption exceeded 15%, while the forest stock increased by 4.5 billion cubic meters. China’s low-carbon economic actions revolve around the above work areas to move towards a low-carbon economy and society through the transformation of economic development, consumption, energy structure, and energy efficiency.

4 Indicators for Evaluating Low Carbon Economy3 The purpose of establishing a comprehensive evaluation index system for a lowcarbon economy is to evaluate the current status of low-carbon development, guide the practice, and support policy design and planning, every indicator has three values: an ideal value, a target value, and a current value, To avoid a human error in setting indicator weight. The target value is set according to the ideal value, and the current value needs to be improved towards the target value. According to the previous analysis, measuring the progress of a low-carbon economy needs to first take into consideration the development stage. Moreover, it needs to consider the potential a country (or economy) has in the following three main aspects: resource endowment, technology level, and consumption pattern. Finally, The efforts made by the country (or economy) to transition to a low-carbon economy should also be examined. Specifically, the comprehensive evaluation index system of low carbon economy developed in this paper categorizes indicators in the following four dimensions: (1) low carbon output indicators; (2) low carbon consumption indicators; (3) low 3

See “The connotation of low-carbon economy and the construction of comprehensive evaluation index system” in Economic Dynamics, No. 1, 2011, with the main contribution of Guiyang Zhuang and the participation of Shouxian Zhu.

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carbon resource indicators; and (4) low carbon policy indicators. Among them, low carbon output indicators characterize low carbon technology level; low carbon consumption indicators characterize consumption pattern; low carbon resource indicators characterize low carbon resource endowment, development, and utilization; low carbon policy indicators characterize the degree of effort to transform to low carbon economy. Under each dimension, one or more core indicators are selected and assigned with corresponding thresholds or qualitative descriptions (see Table 3). The starting point of the indicator system is to evaluate the current status of low carbon development in designated places (a country, city, etc.). The focus is more on the relative evaluation of the current status of low carbon development, i.e., the gap between the current value and target value. To be compared with others and to know the gap between the current and ideal values (best practices), the indicator system also sets an absolute evaluation criteria. The absolute evaluation criteria complete the relative evaluation criteria in terms of comparison in a broader scope. Low carbon output indicators. These indicators directly link carbon emissions caused by energy consumption with GDP output, which can visually reflect the improvement of overall socio-economic carbon resource utilization efficiency, and also measure the comprehensive level of low carbon technology of a country or economy in a specific period. In addition, low carbon output indicators should include the unit energy consumption indicators of critical products, such as the integrated energy consumption of tons of steel, cement, coal consumption of thermal power supply, etc. Carbon emission indicators per unit of industrial value-added of key industries can also be compared. Although different climatic zones may affect the heating energy consumption of production in some regions, the climatic conditions are not considered here because those different climatic conditions bring different industrial competitiveness to each region. Low carbon consumption indicators. The level of carbon consumption aims to measure the level of carbon demand and per capita emissions of a country (or economy) from a consumption perspective. Although consumption patterns are influenced by various factors, per capita carbon emissions can be used as a comprehensive indicator to define the impact of consumption patterns on carbon emissions. Considering that the residents’ final consumption expenditure includes both products and services produced in the country (locally) and products and services imported from other countries (or regions), the per capita carbon emission level used here instead of the per capita carbon emission on consumption, to simplify the calculation, especially when comparing the carbon consumption levels among regions or countries. Furthermore, the per capita carbon emission index is measured according to the level of per capita GDP with the national average to eliminate the impact of different development stages. Another important indicator is the per capita living carbon emissions, which mainly refers to the carbon emissions generated by domestic energy use such as heating, cooling, cooking, and lighting (China’s statistical yearbook does not include automobile energy use) by residents (households). This indicator also compares the per capita disposable income with the national average of per capita disposable income to measure whether the target value is reached.

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Low carbon resource indicators. Low carbon resource endowment and utilization level mainly include three core indicators, namely: the proportion of non-fossil energy in primary energy consumption, forest coverage, and CO2 emission factor per unit of energy consumption. Renewable energy resources such as hydro, wind, solar, biomass, and nuclear energy are zero carbon emission resources. Forest carbon sinks contribute positively to climate change mitigation and are vital to achieving Table 3 Comprehensive evaluation indicators system of low carbon economy (municipal city level) Tier 1 indicators

Serial number

Secondary indicators

Relative evaluation criteria

Absolute evaluation criteria

Low carbon output indicators

(1)

Carbon productivity (ten thousand yuan/ton CO2 )

20% above the national average

Low carbon: above the average of the five Nordic countriesa Medium carbon: between the five Nordic average and the OECD average High carbon: below the OECD average

(2)

Energy National consumption per leader/industry unit of product or leader carbon emission per unit of industrial added value in key industries (ton CO2 / ten thousand yuan)

(3)

Per capita carbon emissions (tons of CO2 /person)

Low carbon consumption indicators

If the per capita GDP is lower than the national average, the per capita carbon emission should be lower than the national average if the per capita GDP is X % higher than the national average, the per capita carbon emission shall not exceed 0.5X % the national average

Low carbon: per capita carbon emission below 5tCO2 /person Medium carbon: between 5 and 10tCO2 /person High carbon: above 10tCO2 /person

(continued)

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Table 3 (continued) Tier 1 indicators

Low carbon resource indicators

Low carbon policy indicators

Serial number

Secondary indicators

Relative evaluation criteria

Absolute evaluation criteria

(4)

Per capita living carbon emissions (tons of CO2 /person)

If the per capita disposable income is lower than the national average, the per capita living carbon emission should be lower than the national average; if the per capita disposable income is X % higher than the national average, the per capita living carbon emission shall not exceed the national average

Low carbon: per capita living carbon emission below 5/3tCO2 /person; Medium carbon: between 5/3 and 10/3tCO2 /person High carbon: above 10/3tCO2 /person

(5)

Non-fossil energy as a percentage of primary energy (%)

Exceeds national average

Low carbon: at least 20% higher than the national average Medium carbon: 10 to 20% higher than the national average High carbon: less than 10% higher than the national average

(6)

Forest coverage (%)

Refer to the level of the national functional areas

(7)

CO2 emission factor per unit of energy consumption

Less than the national average

(8)

Low carbon economic development planning

Availabe or not

(9)

Establishing Comprehensive or carbon emission not monitoring, statistics, and supervision system (continued)

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Table 3 (continued) Tier 1 indicators

Serial number

Secondary indicators

Relative evaluation criteria

(10)

Level of public knowledge of the low-carbon economy

More than 80%

(11)

The implementation rate of building energy efficiency standards

More than 80%

(12)

Non-commodity energy incentives and strength

Available and in place

Absolute evaluation criteria

Source Pan et al. (2015) a The five Nordic countries—Finland, Denmark, Norway, Sweden, and Iceland

low carbon targets. Due to the lack of statistical data, no specific indicators are listed here for non-commodity energy sources such as small biogas, solar water heaters, and biomass to be considered at the policy level. In order to compare the structural differences of fossil energy, the CO2 emission factor per unit of energy consumption is selected as an important indicator to evaluate the proportion of coal, oil, and natural gas, which have decreasing emission factors, are in the fossil fuel. The forest coverage rate should be linked to the ecological function zone standard (refer to the index of the ecological province and ecological city construction by the Ministry of Environmental Protection) to take into account the different levels of resource endowment. Last, the structure of non-fossil energy in primary energy consumption is measured by whether it reaches the national average level. Low carbon policy indicators. To develop a low-carbon economy, we must take into account the current stage of economic development and resource endowment, carefully examine the connotation and development trend of low-carbon economy, and incorporate the cleanliness of energy structure, optimization and upgrading of industrial structure, improvement of technology level, change of consumption pattern, and the potential of carbon sink into the strategic planning of economic and social development. Research shows that a cleaner energy structure can reduce the carbon emission intensity per unit of energy consumption. The optimization of industrial structure can promote carbon output efficiency (carbon productivity) in all socio-economic sectors. And the promotion of green consumption patterns can curb the demand for energy from the root. However, all these approaches cannot be achieved without the support of institutional mechanisms and policy tools. Therefore, these indicators are evaluating the readiness and effectiveness of low carbon policy from multiple perspectives:

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(1) (2)

whether there is a strategic plan for low-carbon economic development; whether carbon emission monitoring, statistics, and regulatory systems are established; how much the public is aware of the low-carbon economy; how well the building energy efficiency standards are implemented; whether incentives and efforts are available for non-commodity energy sources such as small biogas, solar water heaters, and biomass.

(3) (4) (5)

All these indicators can reflect how much effort has been put towards a low-carbon economy. As many Chinese municipal cities do not have energy balance sheets, or other forms of carbon emission statistics, monitoring, and management systems, the above low-carbon indicators evaluation system developed by the Chinese Academy of Social Sciences can be well applied to low-carbon city development planning from a macro level. Meanwhile, this evaluation indicator system has obvious policy implications by pointing out the advantages and disadvantages by evaluating the current situation of low-carbon economic development. Hence, it can be a valuable tool for local governments to understand their current situation and develop policies and measures accordingly. This indicator system has been well received after the launch of the “Low Carbon Development Roadmap for Jilin City”4 and received broad media coverage in the 21st Century Business Herald (2010), China Environment News (2010), etc.; and was seen as the national benchmark in China. Pan et al. (2010) and Jiahua et al. (2010) further analyzed the current status of low-carbon development in eight pilot cities in five provinces based on the theory and methodology of this indicator system. However, although this indicator system has a sound theoretical foundation, there is still room for further improvement in evaluating some qualitative indicators. For example, the dichotomous approach of a “yes” or “no” to evaluate the availability of a low-carbon city development plan cannot objectively reflect the degree of effort. More cities and provinces have joined the low-carbon pilot program in China. As a result, more solid low-carbon development implementation plans will be formulated, and various departments will take corresponding policy measures. Therefore, it is of great practical significance to continue to deepen and improve the comprehensive indicator evaluation system, drawing on the merits of the lowcarbon economy evaluation system at home and abroad as well as the experience learned from its application in China, to guide the transformation of low-carbon development in China.

4

CASS(Chinese Academy of Social Sciences) and The Chatham House (2010). Low -Carbon Development Roadmap For Jilin City, A Research Report Of Sino-UK Project “Establishing A Methodology Of Low -Carbon Economy And Piloting Low - Carbon Development Zone In China”. Sponsored By Strategic Programme Fund, UK.

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Ministry of Foreign Affairs of the People’s Republic of China. (2009). UN Climate Change Summit Opens in New York Hu Jintao Attends the Opening Ceremony and Delivers an Important Speech. 2009-9-23. https://www.fmprc.gov.cn/mfa_eng/topics_665678/hujintaoG20f enghui_665788/t616862.shtml. Accessed August 12, 2021. Pan, J., & Zhuang, G., (2009). Conceptual identification and evaluation index system of low-carbon economy, Internal Report. Pan, J., Zhuang, G., Zheng, Y., Zhu, S., & Xin, Q. (2010). Clarification of the concept of low-carbon economy and analysis of its core elements. International Economic Review, 4, 88–102. Pan, J., Zhu, S., & Zhang, Y. (2015). Reconstruction of China’s low-carbon city evaluation indicator system: A methodological guide for applications. World Scientific Publishing. https://doi.org/10. 1142/9214 Riahi, K., Rao, S., Krey, V., Cho, C., Chirkov, V., Fischer, G., ... & Rafaj, P. (2011). RCP 8.5—A scenario of comparatively high greenhouse gas emissions. Climatic Change, 109(1), 33–57. Stern, N., & Stern, N. H. (2007). The economics of climate change: The Stern review. Cambridge University Press. Wang, Q. Y. (2019). 2019 energy data. Green Innovation Development, Energy Foundation. https:// www.efchina.org/Reports-zh/report-lceg-20200413-zh. Accessed August 12, 2021. Wei, Z., & Hong, M. (2009). Systems dynamics of future urbanization and energy-related CO2 emissions in China. World Scientific and Engineering Academy and Society Transactions on System, 8, 1145–1154. Yang. Y. (2009). Reflections on Copenhagen conference. Power System and Clean Energy, 12. Yuan, L. (2010). The challenge and the change of the ways of thinking in low-carbon economy era-the green missions of Copenhagen meeting. Studies on Marxism, 1, 57–63. Zeng J. F. (2009). Ten misconceptions must be clarified to develop a low-carbon economy. China Financial News. Accessed September 9, 2009. Zhang, X. P., & Cheng, X. M. (2009). Energy consumption, carbon emissions, and economic growth in China. Ecological Economics, 68(10), 2706–2712. Zhou, S. X. (2008). Preface. In Zhang et al. (Ed.), On low-carbon economy. China Environmental Science Press. Zhuang, G. Y. (2007). How will China move towards a low carbon economy? China Meteorological Press. Zhuang, G. Y. (2008). How will china move towards becoming a low carbon economy? Journal of China & World Economy, 16(3), 93–105. Zhuang, G. Y. (2009). Understanding Low-carbon economy from the outside to the inside. Rural Economy, 1(2009), P23-23. Zhu, K., & Xie, M. (2011). A comparative study of the world environment day theme slogans and Chinese environmental protection slogans. Asian Social Science, 7(8), 219. 21st Century Business Herald. (2010). China’s first low-carbon city standard released Jilin City becomes preferred application sample. March 19, 2010. http://finance.sina.com.cn/roll/201 00319/22577598738.shtml. Accessed August 12, 2021 (in Chinese)

Chapter 21

Choices and Actions to Climate Mitigation in China

Climate Change is an unprecedented challenge for the global community. Therefore, reducing GHG emissions in China is crucial as part of the global efforts for any meaningful response to climate change. Under the new circumstances, China’s 14th Five-Year Plan (2021–25) (FYP) will set new targets to address climate change, drafted over 2019 and 2020. Climate change issues were first introduced in the 12th Five-Year Plan (2011– 2015) when climate change mitigation was included in the text. Then, climate change was featured extensively in the 13th Five-Year Plan, emphasizing greening and developing the environmental technology industry, ecological living, and culture. Climate change will remain a crucial part of the upcoming FYPs and affect the targets, actions, and plans. By reviewing the experience of developed countries, and China’s commitments under UNFCCC–NDCs and China’s expertise within the global pattern of carbon emissions, it is crucial to explore the potential and challenges and how these are integrated into China’s national climate change policy and sets out possible future targets to address climate change at the international, national, and regional levels.

1 The Experience of Developed Countries To address climate change, we need clear targets or goals to be incorporated into the Five-Year Plan. In the 2015 Paris Agreement, China committed to reaching peak carbon emissions around 2030 and endeavored to peak earlier (Qi, 2018). Worldwide experiences, particularly lessons learned from developed economies, will help China better judge the actions to take and the expected results the actions would bring. Multiple factors, such as industrialized rate, GDP, urbanization rate, the share of renewable energy consumption, industrial energy intensity, etc., affect the path to carbon reduction. For example, some research shows that industrial clean-coal, lowcarbon technology, and industrialized rate affect the time to peak (Duan et al., 2020). The earlier a country starts the process of industrialization, the longer it takes to reach © China Social Sciences Press 2022 J. Pan, Climate Change Economics, https://doi.org/10.1007/978-981-19-0221-5_21

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the emission peak. For example, it took the United Kingdom nearly 200 years to peak its emission in the early 1970s. As the Second Industrial Revolution representative country, the United States achieved its emission peak in 2005, using over 150 years. The later comers, such as Japan and Korea, used around 60 years to peak. Now China is committed to peak in a much shorter time, which will be very challenging. China is still in its early stage of industrialization, with historical issues of poverty, economic backwardness, and dominance of fossil fuels in the energy mix. As a result, China’s carbon emissions increase in line with the growing energy demand. Moreover, due to different geospatial constraints, population dynamics, and evolving energy and industrial structure, the regional emissions may peak successively in a varied pattern in China. It is critical to understand when, how, and why the turning point appears in the emission curve. With the vast territory space for physical expansion and relatively high population growth rate, carbon emissions in the United States fluctuated at a high level and peaked around 2005, lagged behind some other developed countries. The EU and Japan represent another typical category, with limited or no physical space for economic expansion and population stabilization or decline. The downward emission trend in the EU and Japan is partly due to stringent geospatial constraints, and decreasing population as energy consumption and GHG emissions are driven by demand. But how did an economy that has ample space for expansion and a growing population peak its emissions, like the United States? The answer is energy structure decarbonization and energy efficiency improvement. As long as the rate of low carbonization exceeds the expansion rate, the decoupling of economic growth from carbon emissions becomes possible. Even though President George W. Bush rejected the Kyoto Protocol and the Trump Administration has pulled out of the Paris Agreement, the carbon emissions in the United States, both in aggregate and per capita terms, have been declining over that period. This trend is a clear and natural process regardless of US federal policy. Clear policy orientation played an essential role in low-carbon development and transformation (Lin, 2010), another experience from developed countries that is worth learning. The Paris Agreement is historically significant as it gives countries long-term targets and aims to make net-zero emissions by or after 2050. Some developed countries consider and transfer the Paris Agreement targets into long-term market signals and developed restrictive regulations accordingly. For example, the European Union proposed a ban on the sale of new gas and diesel-powered automobiles by the year 2035(Yekikian, 2021). Clear regulations like this will discourage investors from further investing in gasoline automobile manufacturing and research in gasoline engines. National circumstances across countries differ substantially and need to be evaluated in national carbon mitigation strategies (Fragkos et al. 2021). Some countries may have heavy industrial-economic structures, while others are on the opposite side. Some countries can make an earlier transition to a zero-carbon economy, whereas others may take more time. Some countries may not need to go through fundamental changes, while others may not have to. Many countries are reluctant to make the low-carbon transition because they are concerned about their quality of living and

1 The Experience of Developed Countries

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Fig. 1 Global Share of the Four Major CO2 Emitters in 1970 and 2016. Source IEA, Global Carbon Atlas, http://www.globalcarbonatlas.org/en/CO2-emissions

development. China’s per-capita GDP has grown to $8000 after three decades of economic development,1 and people have the need to improve their quality of life. However, high carbon emissions are not necessarily associated with high quality of life; instead, energy services are indispensable for a high quality of life. Understanding that and finding ways of ensuring energy services without relying on the use of high carbon energy will be crucial for China’s national strategy to lower emissions while improving life quality. China’s energy consumption and emissions will go up along with the development process, as was the experience of other countries, but it will not go up endlessly. It will peak and then decline as in other countries.

2 China’s Experience Within the Global Pattern of Carbon Emissions As Fig. 1 shows, China is now the biggest carbon emitter and the largest energy consumer in the world (IEA, 2017), which is unsurprising because of its economic growth and large population base. In 1990, when climate negotiations started, the developing world’s emissions were negligible in both aggregates and per capita terms, and nearly 70% of emissions were from the developed (Annex 1) countries (Parker et al., 2008). Besides, in 1971, the current OECD countries were responsible for 67% of world CO2 emissions (OECD, 2016). As a consequence of rapidly rising emissions in the developing world, the OECD contribution to the total fell to 37% in 2013, showing a changing world pattern. Specifically, the ‘big four emitters’ are the United States, China, India, and the European Union (Antholis, 2014). In 1970, the United States and the European Union accounted for 30% and over 25% of global emissions, respectively, while China, as the world’s most populous country, 1

China’s State Council Information Office, “The Right to Development: China’s Philosophy, Practice and Contribution”, The State Council Information Office of the People’s Republic of China, 2016–12-02, http://www.scio.gov.cn/32618/Document/1534069/1534069.htm. Accessed 12 August 2021.

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had only taken up 5%. The current global landscape of emitters changes completely. Accounting for nearly 30% of global emissions, China’s circumstance was similar to that in the United States 40 years ago. The emission in the United States was 15%, the European Union was close to 10% in 2016. The share of India’s emissions has risen from less than 1–7% from 197 to 2016. The developed countries had acquired advanced technology and development experience at the turn of the century. However, they did not take advantage of that to take the lead in climate change mitigation. The pace and speed of increasing renewable energy generation are much more extraordinary in developing countries. For example, China’s total renewable energy capacity and renewable electricity was lower than those of the European Union ten years ago and exceeds now (Chiu, 2017). Developed countries were expected to take the lead to demonstrate the potential of renewable energy, but in fact, developing counties are taking the leading role and showing that renewable energy is feasible and will dominate energy service in the future (Fig. 2). In the past, since oil is crucial for automobiles and road transport, it had been viewed as an indispensable part of energy security. In the 2020s, however, it is broadly recognized that heavy reliance on oil impacts a country’s energy security. Therefore, China has started researching and manufacturing electric vehicles (EV) to address this issue, reduce dependence on oil, and offer benefits to consumers. After electric vehicles entering commercial markets in 2015, sales have soared. Only about Fig. 2 Renewable Energy Development in Selected Countries: total renewable energy capacity(MW). Source IRENA (2019)

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17,000 electric vehicles were on the roads in 2010. By 2019, that number had grown to 7.2 million, 47% of which were in China (IEA, 2020). Moreover, the electric vehicles market is lucrative. A study found out that electric vehicles cost less than half as much to operate as gas-powered vehicles. The average cost to operate an electric vehicle in the United States is $485 per year, while the average for a gasoline-powered vehicle is $1117 (McMahon, 2018). The electric vehicle’s batteries, however, remain a problem. When the battery comes to the end of its life, its green benefits fade. In addition, if it ends up in a landfill, the electric vehicle battery can release problematic toxins, including heavy metals, and recycling it can also be hazardous. Turning to hydropower, although it has many advantages as renewable energy, it can have adverse effects on the environment and local ecology and is constrained by the local topographical conditions. For example, the Three Gorges Dam in China has a generating capacity of 22,500 megawatts (MW), and the Yangtze River can provide over 50 GW of generation capacity in total (Zhang et al., 2017). This capacity is aided by the Himalayas’ steep height difference, feeding down from the top to the lower plains of China’s eastern seaboard. A similar story is found in forest recovery. Many parts of China experienced environmental degradation during industrialization and urbanization in the past serval decades. However, China is now seeing a natural recovery and restoration. The land that was previously used has now been freed up. In particular, over the past 25 years, China’s forest area has increased faster than any other country in the world. As a result, there is an expectation that forestation and forest sinks will continue to increase. However, this trend is not pervasive, as many parts of China, such as Beijing, are arid with only 500 mm average annual precipitation (Song et al., 2014). China’s successes in renewable energy and climate change mitigation have led many to say that China should do even more. Others have argued that climate change mitigation is something that China wants to do but should not be thought of. Successful mitigation needs to be done for China’s benefit and interest and with due consideration of China’s national conditions. The GDP per capita in China was last recorded at 8405.18 US dollars in 2020 and is equivalent to 67 percent of the world’s average.2 According to World Bank classifications, per capita income should be approximately $12,500 annually to qualify as a high-income country. However, China is still a developing country with an upper-middle-income standard at $9000, similar to Thailand and the Philippines. Hence, citizens’ living standards require further improvement, and the financial resources available for climate change are not abundant compared with developed countries. On the other hand, although China is the second-largest economy globally, its economic importance is not reflected evidently in organizations that manage the global economy. For example, in the International Monetary Fund (IMF), the United

2

The World Bank, open data, https://data.worldbank.org/country/china.

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Fig. 3 World Demographic Trends, 2015 (7.35 billion) to 2100 (11.2 billion, assuming a medium rate of fertility). Source United Nations, Department of Economic and Social Affairs, Population Division (2018). World Population Prospects 2018: Data Booklet (ST/ESA/SER.A/424)

States has veto power, but China only holds a voting share of 6%, not even close to the 16% that the economy represents.3 Carbon dioxide is the leading cause of anthropogenic climate change. Humans increasingly influence the climate and the earth’s temperature by burning fossil fuels, adding enormous amounts of greenhouse gases to the atmosphere. In other words, the ultimate driver of climate change is people. Population size is, therefore, essential. However, it should be emphasized that it is not the growth in populations that drives GHG emissions but rather the growth in consumers and their consumption levels. If per capita energy consumption remains the same, the corresponding energy use would be double for a country with twice the population size. The quality of living is already saturated in developed countries like New Zealand, Japan, and Europe. For example, there are already roughly 550 automobiles per 1000 people, so there is no need for more automobiles. The figure in China is approximately 300 automobiles per 1000 people (Wang et al., 2012), close to saturation due to the high population density. Therefore, if the quality of living is improving, then the per-capita emissions will also increase. Walking and bicycles do not use fossil fuels except in production, but cars need fossil fuels in production and use. Population size and consumption, therefore, are two key factors determining energy use and driving climate change. The United Nations medium fertility rate shows that China’s one-child policy has resulted in an aging and shrinking population. Therefore, there is a concern of aging and lacking of young population in the labor force and caregiving as the population shifts from 1.4 billion to 1.07 billion (see Fig. 3). Europe and Japan also experience the same demographic trend, but Africa is entering a population 3

International Monetary Fund, “IMF Members’ Quotas and Voting Power, and IMF Board of Governors”, Last Updated: August 10, 2021, https://www.imf.org/en/About/executive-board/mem bers-quotas.

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explosion. According to a United Nations report, the world population of 7.6 billion is expected to reach 8.6 billion in 2030, 9.8 billion in 2050, and 11.2 billion in 2100, among which 4 billion will come from Africa (United Nations, 2017). Thus, SubSaharan Africa will account for most of the growth of the world’s population over the coming decades. With a doubling population in the future, even if the current per capita emission rate can be maintained, the additional emissions are enormous.

3 China’s International and Domestic Commitments to Address Climate Change This section overviews the evolution of China’s international and domestic commitments to address climate change. The Chinese government made a national pledge in the Copenhagen Accord (Gao, 2018), endeavoring to reduce carbon intensity and share of non-fossil energy over energy mix. In particular, China pledged to: (1) reduce its carbon intensity by 40–45% by 2020 from 2005 levels, (2) increase the share of non-fossil energy in its primary energy consumption to around 15% by 2020, and (3) increase forest coverage by 40 million hectares and forest stock volume by 1.3 billion cubic meters by 2020 from 2005 levels (Finamore, 2010). At that time, China was not confident in targeting renewable energy share because renewable energy was expensive. So instead, the plan included nuclear energy, as it is also believed to be zero carbon to meet the target. However, this changed with the 2011 earthquake and Fukushima Daiichi Accident4 in Japan, which helped spur China’s pivot to renewable energy. As a result, China is seeking an increasing share of non-fossil fuels (nuclear included) and forest coverage and is on track to achieve these targets. The intensity target, for example, was reached in 2018, 45.8% lower than the 2005 level. The non-fossil fuels target of 15% is nearly achieved in 2019 (Ministry of Ecology and Environment, 2020), and it will likely be achieved after 2020. Under the Paris Agreement, all parties are required to make Nationally Determined Contributions (NDCs). China made it clear that its carbon dioxide emissions will peak by around 2030 and doing its best to peak earlier. China also committed to lowering carbon dioxide emissions per unit of GDP by 60–65% compared to 2005 levels; increasing the share of non-fossil-fuel (renewable and nuclear) energy sources in the energy mix to around 20%; increasing forest stock volume by around 4.5 billion cubic meters from 2005 levels. Increasing the share of non-fossil fuels in primary energy consumption from 15% in 2020 to 20% by 2030 is a considerable challenge as it is the goal regarding forest stock and forest sinks.

4

Fukushima Daiichi Accident, following a major earthquake, a 15-m tsunami disabled the power supply and cooling of three Fukushima Daiichi reactors, causing a nuclear accident beginning on 11 March 2011. https://www.world-nuclear.org/information-library/safety-and-security/safety-ofplants/fukushima-daiichi-accident.aspx. Updated April 2021. Accessed 12 August 2021.

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Table 1 China’s National Plan on Climate Change (2014–2020) #

Climate change targets

1

Reduce carbon dioxide emissions per unit of GDP by 40% to 45% compared to the 2005 level

2

Increase the share of non-fossil fuel in primary energy consumption to 15%

3

Increase forest coverage by 40 million hectares and forest stock volume by 1.3 billion cubic meters

4

Raise the effective utilization coefficient of farmland irrigation water to above 0.55

5

Bring more than 50% of manageable land desertification under control by 2020

6

Achieve a 10% proportion of natural gas consumption and the utilization of 360 billion cubic meters by 2020

7

Achieve installed capacity of 350 GW of hydropower, 58 GW of nuclear power, 200 GW of wind energy, 100 GW of solar energy, and 30 GW of bioenergy by 2020

8

Have the large power generation enterprise group control the carbon emission from the power supply at 650 g/kWh by 2015

9

Decrease by about 3% compared to 2010 levels the national thermal power unit’s carbon dioxide emissions by 2015

10 Have green buildings in urban areas account for 50% of new buildings by 2020 11 Decrease carbon dioxide emissions per unit of industrial added value by about 50% compared with 2005 by 2020 12 Increase the share of public transit to 30% in large and medium-sized cities by 2020 13 Decrease carbon emissions from passage turnover and freight turnover per unit by about 5% and 13%, respectively, by 2020 Source Compiled by Author from sources including National Economic and Social Development Plan for the 13th Five Year Period (2015–2020),5 National Energy Plan for the 13th Five Year period (2015–2020),6 National Renewable Energy Plan for the 13th Five Year Period (2015–2020)7 , and National Plan on Climate Change (2014–2020)8

The Chinese approach is efficient and effective. Indicators in the FYP have clear aims to address climate change and are quantitative measures. They show how international pledges are incorporated into China’s national plans. All targets are disaggregated and translated into sectoral and regional FYPs. These can be found in the national climate change action plan, the energy development FYP, the renewable energy FYP. Table 1, for example, outlines the essential parts of China’s National Plan on Climate Change (2014–2020). All these plans are highly detailed and show the actions to be taken. Targets in the past may not be compatible with the Paris 5

National Economic and Social Development Plan for the 13th Five Year Period (2015–2020). (2016). http://www.gov.cn/xinwen/2016-03/17/content_5054992.htm. Accessed 12 August 2021. 6 National Energy Plan for the 13th Five Year period (2015–2020). (2017). http://www.nea.gov.cn/ 2017-01/17/c_135989417.htm. Accessed 12 August 2021. 7 National Renewable Energy Plan for the 13th Five Year Period (2015–2020). (2017). http://zfx xgk.nea.gov.cn/auto87/201707/t20170728_2835.htm. Accessed 12 August 2021. 8 National Plan on Climate Change (2014–2020). (2014). http://www.scio.gov.cn/xwfbh/xwbfbh/ wqfbh/2015/20151119/xgzc33810/document/1455885/1455885.htm. Accessed 12 August 2021.

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agreement ambitiously, so China is enhancing these measures and thinking about what opportunities and challenges can realistically be tackled in the future FYP. Four of the total 20 main economic and social development indicators in the 14th FYP are related to energy and climate change (Table 2): Reduction in energy consumption per unit of GDP (%), Reduction of carbon dioxide emissions per unit of GDP (%), Forest cover rate (%), and Comprehensive energy production capacity (100 million metric tons of standard coal equivalent). And all these four indicators are legally binding. Therefore, it can be seen that China’s 14FYP strongly supports the implementation of the NDCs for 2030 and laid out an action plan for carbon emission peak before 2030 and carbon neutrality before 2060.

4 The Challenges of Addressing Climate Change As one of the world’s largest GHG emitters in recent years, China will face increasingly harsh consequences of climate change. Meanwhile, its carbon-intensive industries have caused additional environmental challenges, including severe air pollution and soil contamination. So, the first challenge China faces in addressing climate change is reducing the use of coal. In fact, China’s energy structure has long been dominated by coal, which once accounted for more than 70% of primary energy. The percentage of coal in energy usage has dropped to 58% in2019 (Daly & Zhang, 2020), but this is still much higher than the world average. Moreover, China’s 11% reduction in coal usage from 2000 to 2010 is highly oppressive compared to a global reduction in coal usage of 2% during the same period. Yet coal still dominates China’s energy mix, even with this rapid reduction. Moreover, China has implemented strict control of air pollution. Still, the clean coal utilization technology does not fully meet the goal of pollution control, and thus, it is necessary to reduce and remove the use of coal in the total amount. According to the coal control and removal policy, by 2035 and 2050, China’s coal consumption will further decrease to 40 and 31% (CETRI, 2019). Therefore, the reliance on coal remains a significant challenge, but it can also be viewed as an opportunity. China is still the world’s factory, producing 900 million tonnes of raw steel annually, accounting for 50% of the world’s total. This industry, in particular, is very energy-intensive. Many products are made in China. For example, 2 billion mobile phones, 900 million tonnes of raw steel, 28 million automobiles have been produced annually in the last few years. All of these activities require energy to manufacture. There is currently no need and no room for further capacity expansion of these industries that are already operating in saturated markets. In the manufacturing sector, we can assume instead that the quality of goods will increase while the quantity will fall. Energy consumption in the manufacturing and industrial sector will then decrease. That is an opportunity as China can change the energy mix and improve energy efficiency, speeding up efforts to reduce coal reliance and emissions. The second challenge China faces is geography. Over half of China’s land is not suitable for habitation, like the Gobi Desert’s arid land or the Himalayas’ highlands

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Table 2 Main Energy and Climate Change Indicators in the Outline of the People’s Republic of China 14th Five-Year Plan for National Economic and Social Development and Long-Range Objectives for 2035 Category

Indicator

2020

2025

Annual average (cumulative)

Nature

Economic development

GDP growth (%)

2.3

–

Proposed based on annual conditions, maintained in an intermediary interval

Anticipated

Overall labor productivity growth (%)

2.5

–

Greater than GDP growth

Anticipated

Urbanization rate of the permanent resident population (%)

60.6*

65

–

Anticipated

Corporate and social R&D expenditure growth (%)

–

–

>7, strive for investment intensity to exceed actual intensity during the 13th FYP period

Anticipated

High-value innovation patents held per 10,000 people (patents)

6.3

12

–

Anticipated

Added-value of core digital economy industries as a proportion of GDP (%)

7.8

10

–

Anticipated

Growth in per capita disposable income of residents (%)

2.1

–

Basically synchronized with GDP growth

Anticipated

Urban surveyed unemployment rate (%)

5.2

–