What does China’s carbon neutrality ambition mean for other emerging economies?
In the last blog post, I was exploring the relationship between sustainability and (sovereignty + economic growth). The underpinning idea was trade-offs between SDGs, and specifically I had in mind climate and economic growth.
In this blog post, I’m going to explore a different track. What if a country didn’t need to exercise a trade-off, and can attract investments and build a carbon-resilient economy at the same time?
I can hear myself scoffing that that is flatly unrealistic, since we already have learned scientists publishing on how to address trade-offs around SDGs [1]. However, on the back of China anchoring its carbon neutrality plans in its 14th Five Year Plan, let’s give this thought experiment a go.
Is China an emerging economy?
What has been extremely exciting about China’s carbon neutrality announcement is its position as a coal-reliant emerging economy. Sure, China has already lifted millions out of poverty and then there are the videos of China’s technology confidence if not superiority to build hospitals in 6 days. And yes, the World Bank classifies it as an upper middle-income category based on gross national income per capita. However, there are significant differences across states, and “wealthy cities mask energy poverty in other regions”. Only six of China’s regions had per capita residential electricity consumption levels that exceeded the world average; most others not only fell well below the world level, they were also lower than China’s own national per capita residential average[2].
Shifting the narrative
Now that we have justified China as an emerging economy, let’s explore how the narrative between climate and economic growth could have shifted away from one of trade-offs.
Narrative 1
Emerging economy -> become a developed economy -> work towards carbon neutrality
Narrative 2
Emerging economy -> become attractive to foreign investors -> work towards carbon neutrality
So, without being endowed with the finances of a developed economy first, an emerging economy can now work towards carbon neutrality. China has made it clear that the government won’t have the financial resources themselves to pull this off. Just a few days ago in March 2021, Yi Gang, governor of the People’s Bank of China, commented at the China Development Forum that it would need hundreds of trillions of yuan to fund the programme and the government could only cover a small proportion.[3]
It’s important to note that China is not asking for aid, which is where many developing countries are at now in messy politics of climate change negotiations. China is asking for investments, meaning investors should have a financial justification to participate while the government will apply regulatory instruments to incentivise these investments for it.
The elegance of the Narrative 2 lies in the international recognition of climate change being a global issue. If a country that proves itself to be an investible environment, and has skin in the game to transform the economy, then global investors can not only help move it towards carbon neutrality but also all other benefits from a healthier, proud and resilient population that comes with it.
Will this work for other emerging economies?
I hope so. While in that hope is the implicit assumption that it will work for China — so far China has met and exceeded its carbon targets, so that assumption is not unfounded. (Apparently so strong is the desire to meet announced targets, that China would command blackouts in Zhejiang.[4])
But how? The problem with emerging economies is that they are not always the most attractive to investors. There are certain elements that could be, for example young demographics bubbling with potential for productivity and consumerism. However, other associated elements like corruption are put-offs. Investments in infrastructure and education are important prerequisites.
If we take a look at the emerging economies in the top 10 global carbon emitters (removing US, EU, Japan), China is extremely well positioned in terms of foreign direct investment (FDI), in fact surpassing US to take the top spot in 2020.
The next largest emerging economy within the top 10 emitters is India, producing about a quarter of China’s GHG emissions in 2018 and attracting a third of China’s FDI flows. So perhaps India can and should consider adopting a similar stance and leadership, shifting away from being demonised in an Al Gore movie to becoming a leader while improving its economy at the same time.
Iran would be worrying; there is no FDI inflow record. Perhaps more attention needs to be paid to this cradle of civilisation to facilitate investments to meet our global carbon target. I had the good fortune to visit this beautiful country in 2018, and I recall just before I left, I saw media ablazed with captions of sanctions in Iran, complete with photos of bearded men. This was nothing like the kind, safe Iran I visited as a pregnant mother, together with my child and husband. Am not a trade expert, but would quote an esteemed Singapore diplomat Tommy Koh in saying that sanctions rarely hurt the people in power as was intended, but do hurt the population. And in the case of Iran, it may well backfire on us if the lack of opportunity to trade and invest takes us away from our unified global target.
In descending order: China, US, India, EU, Russia, Indonesia, Brazil, Japan, Iran, South Korea
This blog post surely bears more scrutiny and research. Yet as a shout out from Asia, which dominates global investible emerging markets, it is exciting to consider the ripple effects China’s carbon neutrality goal can have.
[1] https://www.nature.com/news/policy-map-the-interactions-between-sustainable-development-goals-1.20075
[2] https://www.energypolicy.columbia.edu/research/report/china-still-developing-country-and-why-it-matters-energy-and-climate#_edn40
[3] https://www.scmp.com/news/china/politics/article/3126331/chinas-financial-institutions-must-help-fund-carbon-neutrality
[4] https://www.bloomberg.com/news/articles/2020-12-22/china-s-struggling-to-keep-the-lights-on-amid-high-flying-demand
