A Dirty Secret - China's greatest import: Carbon emissions

by Michael Webber
Friday, January 20, 2012

A factory along the Yangtze River in China. High Contrast, Creative Commons Attribution 2.0 Germany

The U.S. and much of the Western world have a dirty secret.

While we claim to be working diligently to decrease our emissions and switch to cleaner, non-fossil fuel energies, we are actually just exporting emissions to other countries, most notably China. We don’t talk about it. We get on our soapboxes at international meetings and claim to be making great progress to halt ever-increasing carbon dioxide concentrations in the atmosphere. And we complain vociferously about developing countries — again, most notably China — not doing the same.

Meanwhile, the industrial world is producing a smaller fraction of durable goods, and China is picking up the slack: For example, the value of U.S. manufacturing has nearly doubled in the last 20 years, whereas Chinese manufacturing has gone up by an order of magnitude over the same time span. The upshot is that as the world turns toward China to be its dirty manufacturer, we all clean up our books, pushing our emissions and energy consumption onto them. We let China produce and ship our goods, and then say, “Who me? I don’t produce emissions. I’ve cut mine. China is to blame.” We are misleading ourselves into believing that we’re cleaning up our act.

Decarbonization at Home, Carbonization Abroad

One of the fascinating stories of the 21st century’s first decade has been China’s rise as the world’s largest energy consumer. At first blush, this leadership is a good sign for the world, as it signals China’s economic growth, increased capabilities as the world’s factory and prospects for democracy. But there’s a downside: Compared with the United States, the world’s second-largest energy consumer, and the European Union, China’s energy mix includes a high fraction of coal — 70 percent in China compared with 23 percent in the U.S. and 18 percent in the EU. That makes China’s energy consumption much more carbon-intensive on average, and so the country is now also the world’s leading carbon emitter. And its demand for energy is increasing to keep up with its economic growth.

Meanwhile, because of all the attention to carbon emissions and energy consumption, the U.S. is starting to change its behavior. Our energy consumption has dropped from 359 million BTU (British Thermal Units) per person per year in 1978 to 308 million BTU per person in 2009, continuing a decades-long push toward greater energy efficiency. Furthermore, we are using less coal. Just a few years ago, coal made up more than 50 percent of our electricity fuel mix; today it’s just 45 percent, and dropping, despite a drop in overall electricity consumption because of the recession. And with looming standards for air quality that are likely to be much stricter in the future, many foresee a steady replacement of coal plants by wind, solar, nuclear or natural gas combined-cycle power plants. For environmental advocates, this trend has been good news, because it reveals the potential steady, albeit slow, decarbonization of the U.S. power sector. The bad news is that much of the success in reducing our energy consumption has been achieved by shifting some manufacturing to China.

The worse news is that now we’re not only sending manufacturing to China; we’re also sending coal itself.

While the world is turning away from coal, Chinese demand keeps on rising. And because China’s coal reserves and production are not self-sufficient, the country has become the world’s largest coal importer. That means American providers of coal, whose domestic markets are shrinking, are looking for ways to send their product to dirtier, less-efficient coal plants in China. And for U.S. coal producers with easy access to West Coast ports, business is booming. Coal mines in the U.S. might be just as productive as ever, even in the face of declining use at home, because of growing use abroad.

To illustrate the growth in coal exports, U.S. coal exports grew more than 50 percent in the first half of 2010 compared with the first half of 2009, from 26 million short tons to 40 million short tons. That means the total exports for 2010 are on track to be 10 percent of total coal production — a relatively high level. And U.S. coal exports to China are more than 1,000 times higher in the first half of 2010 compared with the first half of 2009, representing incredible rates of growth. The message is clear: If we don’t burn our coal at home, we will send it to China to be used.

Whereas this exportation of coal might be helping the U.S. coal industry — as well as our carbon emissions bottom line — this approach is short-sighted. After all, pollution and emissions produced in China do not stay in China. This is especially disconcerting because Chinese power plants are not scrubbed for many pollutants and are inefficient, allowing them to emit more nitrous oxide, sulfur oxides, particulate matter and carbon dioxide per megawatt-hour of electricity that is generated than power plants in the U.S. In addition, by producing coal that is dedicated for export, we endure all the environmental impacts of producing it, but without the economic benefits of using it for power. Add in the transportation costs of shipping that coal across the Pacific, and it looks like the world is headed the wrong way on carbon.

Exporting Goods, Importing Carbon Dioxide

The important factor to consider in this world transfer of carbon emissions is that a substantial fraction — about one-sixth or more — of China’s coal consumption and resulting emissions comes from the manufacturing of products dedicated for the same countries that are trying to lessen their use of coal in the first place. It’s like a massive Ponzi scheme where we emit more carbon than ever before, but we do so through Chinese smokestacks instead of our own.

It works like this: Just as companies use offshore bank accounts to hide their cash flows, countries use offshore manufacturing to hide their carbon flows. As a consequence, the carbon emissions for European countries and the U.S. hold steady or decline despite economic and population growth, while China’s emissions grow exponentially as they accommodate their own growth while soaking up some of the emissions from developed countries.

This concept is referred to as “embedded carbon emissions.” Researchers have determined that approximately 1 billion tons of carbon dioxide emissions in China are from the creation of products destined for export to other countries. Because of their carbon emissions, you could say that carbon emissions is China’s greatest import. Or it’s our greatest export.

The irony is that American negotiators like to point to Chinese emissions as a reason not to engage in international climate negotiations. “After all, why on earth should we clean up our act if the world’s dirtiest emitter doesn’t do the same?” During those negotiations, we fail to recognize our own present and future complicity in shipping China coal and in our demand for products from their factories. And there’s a further complication: Climate change is a consequence of accumulated greenhouse gas emissions. Consequently, the emissions in any particular year aren’t really the issue; it’s the accumulation of emissions that are the important issue.

On this tab, the U.S. stands far above the rest of the world. For example, although China emitted more carbon dioxide in 2007 — 22 percent in China to 20 percent in the U.S. — the U.S. has emitted more carbon dioxide cumulatively in the last 150 years, by far — 29 percent in the U.S. compared to 9 percent for China. In fact, the Chinese often turn our carbon complaints against them back on us. They wonder why they should have to restrict their emissions in light of the fact that we emitted a lot of carbon for more than a century while we grew our economy. All China is doing is following us in our footsteps. It’s a fair argument, and I’ve never heard an effective counter-argument.

Texas As a Proxy for China

The view from Texas is particularly interesting, because in many ways, Texas is the China of the United States — it’s the dirty manufacturer that makes things the nation wants (namely fuels, chemicals and concrete), but in the process, it emits a lot of carbon and consumes a lot of energy. For example, Texans consume 60 percent more energy per person per year than the average American, who consumes twice as much energy as the average Briton, who consumes twice as much energy as the average Chinese. If Texas were a country, it would be the world’s seventh-largest emitter of carbon dioxide. What happens when those Chinese manufacturers and citizens consume energy like Texans? What if the rest of the world does the same? From where would we get that energy?

So what does it mean for Texas and China that such a significant fraction of our emissions are the consequence of manufacturing goods that the rest of the world buys? Who owns those emissions? Texas and China? Or the people at the end of the supply chain who actually consume the products? Texas and China both have the same stakes in this quest. Setting up a way to attach a price to those emissions — whether through a carbon market or a carbon tax — accelerates reductions in emissions if that price can be passed on to consumers and if it’s universally applied. If the U.S. has a carbon price, but not China, then we will just simply continue to offload our emissions onto their books, especially if they can’t charge us for it.

Carbon regulations designed to punish carbon emitters will simply create an offshoring carousel as we push our carbon emitters from our smokestacks to others' and so forth. But if those prices can be passed to consumers through a carbon tax or some other scheme, then the ultimate consumers — the ones who in the end are an important driver of carbon emissions — can respond to the market signals by consuming less carbon-intensive products.

Ironically, in the face of massive job loss and concerns about competitiveness, it turns out a global carbon price might be our saving grace. Our factories and power plants are much more efficient than Chinese factories and power plants, so a price on carbon would help us gain a competitive advantage because our emissions per product would be relatively lower (and therefore cheaper). The same is true for Texas. If every refinery in the world had to pay a carbon price, Texas refineries — which are among the most efficient in the world, and therefore cheaper to operate in a carbon-constrained environment— would gain an advantage.

A Global Challenge

We Americans seem determined to reduce our energy consumption and to decarbonize society, but we’ve been going about it all wrong. Unfortunately, our solution has been to shift the consumption and emissions (and the economic gain) to China. And if that wasn’t enough, we send them the coal they need to do it.

The proper way to regain our competitive advantage is to quit sending China our coal and our jobs and our money, and instead set up strict standards for the world’s emitters, and then make sure we win the race in meeting them.

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