China on Climate: Friend or Foe?

China on Climate: Friend or Foe?

October 3 2020

In a surprise announcement at the UN last week, President Xi Jinping, in a sharp reversal of its prior position, declared that the world’s most populous country will reach “peak carbon” before 2030 and net zero carbon emissions by 2060. China’s Paris accord pledge came less than an hour after President Trump slammed China’s environmental record on the virtual UN Assembly floor, despite having repeatedly called climate change a “hoax” and pulling the US from the Paris Climate Accords. Xi’s move was especially bold given that China was expected to wait to make any announcement until the outcome of the US election in November. It was believed that China would only reluctantly follow the U.S lead –whatever that might be. Instead, it is acting like a global leader thus giving it credibility and legitimacy to support its goals of economic and political dominance throughout the world.


China is the world’s largest emitter of carbon, contributing 27% of global greenhouse gases every year. In one three-year period (2011-2013), China consumed more cement than the United States did in the entire 20th century. China has 1,000 gigawatts (GW) of operating coal plants and another 250 GW under construction, more than the rest of the world combined. China’s population of 1.4 billion, which emits 7 tons of carbon per capita annually (vs 16.5 tons per capita in the US), will continue to demand more goods and services that emit carbon, both for its own 400 million strong middle class and for export to the rest of the world. Ten years to peak emissions in 2030 and net zero by 2060 leaves a lot of room. However, once started, many countries have found the path to much lower emissions to be faster, easier and more beneficial than first thought.


While China is a leader in coal consumption and carbon emissions, it is also the world’s largest producer of renewable energy equipment and inputs, producing 72% of the world’s solar modules, 69% of its lithium ion batteries, 45% of its wind turbines and 95% of the rare earth metals required for batteries and turbines. China also makes the largest amount of renewable energy in the world (728 GW of renewable power production vs 260 GW in the US). China also has the world’s largest electric vehicle fleet, with 1 million EVs sold in 2019 (double US EV sales). It is setting aggressive mandates to phase out gas/diesel cars. China has been a global innovator in renewable technology, helping drive up productivity and pushing down installation costs across the board for all types of renewable technology.


Is China finally for real on climate? Xi did not give a roadmap for his plans to get to net zero carbon by 2060 but it will almost certainly involve massive installations of wind and solar, large scale adoption of electric vehicles, drastic cutbacks in coal consumption, expansion of nuclear and hydro and a tax on carbon. One big advantage for China is that air pollution belching from China’s coal plants make its major cities unsafe to live in. Another big advantage is that eighty percent of China’s oil and natural gas is imported from the Middle East costing China a big chunk of its vital income from its made in China exports. The oil and gas also has to pass through both the Strait of Hormuz and the Strait of Malacca in the South China Sea, both disputed and dangerous chokepoints. So, Xi’s promises could be genuine, plus some analysts believe China stands to gain economically by going green as it would involve trillions invested in its renewable technology sector and further cement its position as the leading manufacturer and exporter of clean energy equipment to the world.


Many in the U.S. either don’t believe in climate change or don’t think it is that important. They rationalize inaction on climate because China’s relentless coal-powered growth will render US climate policies meaningless for the planet. That rationalization looks less valid now. At the same time the whole world has seen the explosion of value that American technology companies like TSLA, AMZN, MSFT, GOOG, and APPL has created for US companies, consumers and investors. Now the US is at a crossroads. Where will we get the growth and value creation for the next ten or twenty years? One clue is that in 2020 alone, the broad based oil and gas energy stock ETF (ticker: XLE) is down 45% in value. The broad based solar stock ETF (ticker: TAN) is up 135% year to date.

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