Below is a complete transcript of the Earth Day episode of the Sinica Podcast.
Kaiser Kuo: Welcome to the Sinica Podcast, a weekly discussion of current affairs in China, produced in partnership with The China Project. Subscribe to Access from The China Project to get access. Access to, not only our great daily newsletter, but to all of the original writing on our website at thechinaproject.com. We’ve got reported stories, essays and editorials, great explainers and trackers, regular columns, and of course, a growing library of podcasts. We cover everything from China’s fraught foreign relations to its ingenious entrepreneurs, from the ongoing repression of Uyghurs and other Muslim peoples in China’s Xinjiang region, to Beijing’s ambitious plans to shift the Chinese economy onto a post-carbon footing. It’s a feast of business, political, and cultural news about a nation that is reshaping the world. We cover China with neither fear nor favor.
I’m Kaiser Kuo, coming to you from Chapel Hill, North Carolina.
Last week on Thursday, April 20th, I hosted an online event in honor of Earth Day and invited three excellent guests to talk about how we should address the urgent issue of global warming in a time of heightened great power competition. We decided to make a podcast of it, which I now present, with apologies that I didn’t include the usual recommendations segment. Sorry folks. Nevertheless, I hope you enjoy and that you learn something from these brilliant folks, Marilyn Waite, Alex Wang, and Deborah Seligsohn.
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Kaiser: Good morning, good afternoon, and good evening to you all, and welcome to this online conversation about how the United States and China, which rank respectively as the world’s largest cumulative and largest current greenhouse gas emitters, are addressing and failing to address the greatest challenge facing humanity today, and I dare say for the rest of all of our lives. Today is Thursday, April 20th, and the day after tomorrow is Earth Day, the 54th time we’ve observed Earth Day. So, it’s the 53rd anniversary of Earth Day. In oft-quoted remarks to the Climate Summit preparatory meeting, UN Secretary-General, Antรณnio Guterres, said that every week brings new climate-related devastation, floods, drought, heat waves, wildfires, superstorms.
And this was four years ago. This was before we saw a full third of Pakistan underwater last fall, or the massive heat wave and drought in China last summer. To many of us, it is blindingly obvious that when China and the U.S. are so fixated on mutual recrimination, just so hellbent on undermining one another at every turn, working together to decarbonize for the good of the planet can seem impossible โ When one side hyperbolically calls the other an existential threat, it seems to just foreclose the possibility that we will address what is truly the existential threat. And the great pity is that there are so many complementarities between these nations that could be harnessed for the sake of the earth. So, what needs to be done? What do the U.S. and China need to do, whether separately or together, to address the urgent crisis before us?
We’ve convened a terrific troika of truly exceptional individuals today, all of whom have worked on environmental issues between the U.S. and China, to talk about where we are and what we still must do if we hope to avoid even greater catastrophes than the one we are already facing. These three people have thought hard about these issues and have demonstrable knowledge, experience, and commitment. Marilyn Waite is the managing director of the Climate Finance Fund and is the author of multiple books about sustainability. She’s a civil engineer by training. She’s been a lecturer at UIBE in Beijing and works to promote climate finance in China, North America, and Europe. Marilyn, welcome. And I look forward to talking about what China’s Central Banks, The PBoC, is doing in climate finance among many other things. Marilyn, you join us from Paris, I understand.
Marilyn Waite: Yes. I’m so happy to be here. Thanks for having me. I am joining outside of Paris in France, and excited to dive into the content today.
Kaiser: Oh, fantastic. Fantastic. Alex Wang, who has been a guest on the show a few times in the years past, is professor of law at the UCLA School of Law, and a faculty co-director of the Emmett Institute on Climate Change and the Environment. His work on China’s environmental governance from a legal and political perspective dates back for quite some time now. He was at the Natural Resources Defense Council in Beijing. Welcome back, Alex.
Alex Wang: Thanks a lot, Kaiser. Great to be here.
Kaiser: And finally, we’re also joined by Deborah Seligsohn, who I think holds the record for the number of appearances on Sinica because she’s just so good at making sense out of really difficult issues. Debbie is an assistant professor of political science at Villanova University in Philadelphia. She served as the environment, science, technology and health counselor at the U.S. Embassy in Beijing from 2003 to 2007. And then from 2007 to 2012, she was principal advisor to the World Resources Institute’s China Energy and Climate Program. So, welcome. Debbie, welcome back.
Deborah Seligsohn: Thanks so much, Kaiser.
Kaiser: Let’s start by taking stock in honor of Earth Day and just looking at how far the world’s two largest GHG emitters have come before we look at how far they still have the go, I mean, maybe the obstacles they face, the urgency of the cooperation on addressing global warming. But maybe Alex, you can start us off with โ focusing on the U.S. โ with just a few highlights on what the United States has accomplished since that first Earth Day back in 1970.
Alex: Sure. Well, climate wasn’t really on the agenda back in the first Earth Day, but I think what I like to think, if we look way back then and think about what we’ve accomplished on the environment in general, I think that sets a nice tone for how we think about climate. Because these days it seems to be a lot of skepticism and concern that we’re not going to be able to accomplish our goals. And so, if you just think back 50 years ago to Earth Day and just look at air and water pollution, right? If you look at the Clean Air Act in the United States, even as the GDP in the U.S. has quadrupled, air pollution has dropped precipitously. That’s had benefits for health, medical costs. It’s shaved off the cost, economic growth from environmental degradation.
And all of these things have been going for 50 years. But the work on that even started earlier. California started working on it maybe 20 years earlier. So, if you think, we had a sort of 70-year time span, if you shipped over to the climate context and think that we really as an international community started working on climate change in the early โ90s with the passage of the UN Framework Convention on climate change, and you think forward to the sort of carbon neutrality goals that countries have now set for 2050 and 2060, we’re also kind of thinking about a 70-year timeframe that we’re in the midst of. And as we know, the climate action, since the early โ90s, has been frustrating. We’ve gone through a lot of different battles in the U.S., the sort of battles that are thankfully, I think, behind us about whether climate change exists at all.
There’ve been a lot of battles over who should be responsible, right? Relative U.S. or China or other countries. The Kyoto Protocol which set binding targets for developed countries was not that successful, right? But it was a start. And in the last decade, we’ve made a lot more progress, and we now have the Paris Agreement. I think others will talk about China’s contribution. But among others, China has helped bring about a dramatic reduction in the cost of renewable energy. And now that we have the Inflation Reduction Act in the U.S., we’re sort of starting to roll in conjunction with all of the carbon neutrality targets. I just want to start by throwing out this idea that we have had a lot of success in environmental regulation.
And climate is obviously still a work in progress, and it’s a much bigger and broader problem. But we’re really starting to see a lot of the moves that if we look back in 20 years and we look back, I think we’ll see that now is the moment when a lot of those things that we needed to do started to get done.
Kaiser: A little optimism for Earth Day. Great. Debbi, Alex mentioned that China has reduced the cost of renewable energy. I think I saw a statistic once that 75% of the people live in a country right now where the cost of renewables is actually less than the cost of fossil energy. And that is largely due to, probably entirely due to China’s manufacturing prowess. So let’s talk about China. What are some of the impressive accomplishments that China can look back and pat itself on the back for?
Deborah: Well, China in the last 20 years has completely transformed its stance on climate change. I mean, 20 years ago, they were saying it’s up to the developed countries, and it has very little to do with us. And really, starting in 2009 in Copenhagen, which is now astonishingly 14 years ago, right? That was the first time they made an international commitment. And they have continuously ratcheted up the level and specificity of the commitments they’ve made globally, but much more importantly has been the efforts domestically. They have many more commitments in their climate policies and in their five-year plans than they actually make in the international system. I think what’s happened, especially in about the last six, seven years, it is sort of the commitment to reducing carbon, sort of permeating every level of government and business in China, that now you find local governments actively choosing to join webinars to discuss how to decarbonize heavy industry because they genuinely feel they have to do that, and that wouldn’t have been true.
So, what have they done so far? I think they have introduced a lot of renewable energy into their domestic electricity system. They’ve also massively increased the efficiency of the power sector, and of basically every heavy industry โ steel, cement, glass, et cetera. While they’re still often using coal and other dirty energy, they’re using much less of it per unit of production. And then what has excited me recently is the transformations they’ve made in transportation, right? So, China has, just by far, the world’s largest high-speed rail system, which now goes to all corners of the country. And that really only, remember, it started in 2008.
The first line was right before the Olympics, and it’s now absolutely everywhere. And two-thirds of it has been electrified. And, as we know, from our own inflation reduction act, the way you get to a zero-carbon future is you first have to electrify everything so that then you can use non-carbon sources. They have 45 cities with subway systems. When I looked it up for something this year, the last time I’d looked it up, I think it was 35, and there were 10 more cities since the last time I’d checked. They have really transformed the choices people make for private transportation. The New York Times just had that big article, I think it was the Times, or was it the Post? Sorry โ on how Chinese consumers are no longer interested in buying foreign vehicles because the domestically produced electric vehicles sort of meet domestic demand.
And there’s huge benefits, sort of tax benefits, subsidy benefits, permission to drive benefits from driving an electric vehicle. But I think, even more important has been the rise of electric two wheelers. And to me, this is the contribution that China will make to the entire developing world. So, China has over 300 million of these on the road, and a lot of Chinese consumers, even folks who own electric cars, often choose to ride their two-wheeler because it is much easier in traffic and easier to park, doesn’t cost money to park unlike a car. And it provides a private transportation option for ordinary people โ not even just middle class, but really working class. And what we see when you look in countries from India to Kenya is that people want private transportation options.
That they’re not going to only choose public transportation. And in many countries, public transportation is not keeping up. And the chargeable electric two-wheeler as a replacement for the very, very dirty two-stroke engine is an incredible improvement. Now, what you need to have to make that work is reliable electricity, and the Chinese did that first. And I think that’s going to be the big message for other countries. But we even see a growth in interest in e-bikes in the U.S.
Kaiser: Yeah.
Deborah: Bikes not scooters for reasons I don’t totally understand. But I think it’s a good option in a lot of places. And what has become great is that the Chinese have a fully integrated electrified transportation system.
Kaiser: Yeah. It’s fantastic. At least six or seven of those 300 million were stolen from me in my years in Beijing, but hey, whatever. And I ride an e-bike here in the States. The Inflation Reduction Act has come up a couple of times. Let’s turn to that really quickly. We call it the Inflation Reduction Act, but really at its heart, one might say that it has, and it’s an ambitious piece of legislation aimed at accelerating the energy transition through everything from extending solar investment tax credits to budgeting billions of dollars for nuclear for EV incentives, much more. But the Inflation Reduction Act is not an unalloyed win for the planet, is it? Marilyn, can you talk a little bit about what the good and the bad is in that bill?
Marilyn: Sure. So, I actually do think that Inflation Reduction Act, the IRA’s most important provision is actually not climate related. It is the corporate tax loophole that’s been closed, right? So, 50% minimum, huge deal. That’s actually, for me, that matters more than anything else because that’s how you can pay for a lot of these interventions on updating infrastructure including for climate. So, let’s, let’s break down the IRA a little bit. It does provide, mostly in the form of tax credit, amount of capital, roughly around 300 billion over many years for climate solving, climate mitigating activities and solutions that run the gamut across the real economy sectors. Now, some people are excited about that, and it’s important to put that into perspective. Apple, for example, made almost 400 billion in revenues in 2022 alone. So, by itself, it’s actually not that much capital.
We need between three and $4 trillion each year, between now and 2050 to solve climate change, right? To meet the goals of the Paris Agreement and to keep the planet well below two degrees, within 1.5 degrees. So, we actually have that amount of capital in the global financial system. We have over 250 trillion USD available, but it is not being mobilized. We’re currently only at 1 trillion USD globally. So, with the IRA, there are some incentives that provide some amount of capital for climate solutions, yes. And the IRA also expands fossil fuels. So, itโs part of the climate chaos as well. It provides legal approval of the Mountain Valley pipeline, it requires fossil fuel projects on federal lands, and it mandates the government to offer parts of the Gulf of Mexico and in Alaska to further oil and gas development.
As I say all this, fossil fuel production is increasing in the United States and in China. So, there’s both happening. There’s both the renewable energy and other climate solutions investing, and there’s investing in fossil fuel production, and therefore the climate chaos.
Kaiser: Alex, just now Marilyn said that there’s fossil fuels increasing in China. We are often hearing about China bringing online new coal-fired power plants and things like that, or at least announcing the intention to build new coal-fired plants. This always seems to be the case with China. There’s always a good measure of bad news that comes with the good. Looking at China’s really ambitious dual carbon goals, achieving peak by 2030 and 2060, actually achieving carbon neutrality, what is the good news of recent months, and what’s the bad?
Alex: Yeah. So, if you just look at green news bulleting this week, right? You get an exact, very good picture of the kind of mix of things going on, which is in some ways similar to what Marilyn just described in the U.S. If you looked at one of the green news bulletins that came through to me this week talked about the China’s National Energy Administration’s 2023 work guiding opinions. There’s some good statements about increasing the proportion of non-fossil energy to 18.3%, increasing the installed capacity of non-fossil energy to 51 percent, actively develop all manner of wind, solar, and other types of energy projects. The other news was about what Debbi just mentioned, transportation.
So, it was focused on electric vehicles on passenger cars, but that market is just in such a different place than it was 10 years ago. And then in addition, the types of transport that Debbi’s talking about. That’s the good. Then the bad and the ugly is, somewhat well known, there’s been a lot of news about essentially the ramp up in fossil fuel, in particular reopening coal mines and approving new coal power plants in the name of energy security. And over the last couple of years, we saw a lot of signals directly from the highest levels, directly from the mouth of Xi Jinping. There were various types of slogans about building first before you break the old systems, roughly speaking.
The signal was clear that, look, we’re going to keep building the new thing, but we’re not going to get rid of the old thing just yet. There’ve been signals from lots of different parts of the system that energy security is key. And the other news this week on, on coal and oil was that speeding up of new coal mines and then the oil companies and the major coal producers all had record-breaking annual profits for 2028.
Kaiser: Right.
Alex: Yeah. So, that’s the mix. And then I think the hope is obviously that you keep building the renewables, and at some point, once that reaches a certain level, theyโve worked out the stability issues and all of that type of thing, then you can start to phase out the fossil fuel energy. But that transition, that can sound straightforward in the way I described, but obviously there’s a lot of the political economy dynamics, people who will lose money, people who will fight that tooth and nail to slow that down. All of those sorts of things remain to be seen how that will be implemented.
Kaiser: Yeah. And I want to talk about that. I mean, there was just an IEA report that came out about fossil fuel subsidies. There’s a huge spike just in the last couple of years in fossil subsidies. And this is not just a China problem, this is around the world. But first I want to go back to Marilyn. You’ve talked just now about the massive unmet need in climate finance. I think you said anywhere between $3 and $4 trillion, is that right?
Marilyn: Annually, yes.
Kaiser: Yeah. That’s a lot of money, but like, as you say, there’s a lot of money that’s locked in the system. There’s a lot in our pension funds that isn’t going to global projects. I’ve seen you talk about how very little of these major pension fund, these retirement programs, these state fundsโ portfolios don’t have any sort of exposure to developing markets, to emerging markets. I mean, that’s one thing that we can talk about in a bit. But I want to look at some of the things, the good examples that we’re seeing from China. The PBoC has done quite a bit to promote climate-friendly lending. Can you explain for our listeners what some of the measures are that the PBoC has taken, the People’s Bank of China, Chinaโs Central Bank, and what the impact has been thus far? I mean, are you aware maybe of other central banks in other countries that are now looking to the PBoC and its approach, maybe as a model?
Marilyn: Right. So, PBoC, China Central Bank, is definitely the most advanced central bank in the world when it comes to broader green lending, which includes climate friendly lending and support for the green transition in China. And so, PBoC actually launched a program to essentially provide a more affordable rate for banks for the green lending portfolios. Specifically, they’re covering 60% of the loan principal at a much-reduced interest rate, 1.75% to be specific, which is much lower than, let’s say the 4% or more on average that the banks would have to normally use and borrow against to make their own loans. We know that green loans have outperformed in the China context explicitly. They have lower defaults, lower non-performing loan ratios. And so this has been widely successful. Is it by itself enough in terms of the broader climate financial regulatory tools in the toolkit? No, but it is quite remarkable, and I think it should be a model for central banks across the globe. And we have not seen the same kind of action in other economies.
Kaiser: So, it’s not just the central bank, though, there are other regulatory bodies in China โ the CSRC, the China Securities Regulatory Commission, and then the combined CBIRC, the China Banking and Insurance Regulatory Commission have alsoโฆ Oh, this is before the big reorganization from the two meetings, but they’re doing things to advance decarbonization as well. Can you talk about some of the things that those regulatory agencies are doing?
Marilyn: Right. So, the Chinese Securities Regulatory Commission, the CSRC, kind of the equivalent of the SEC in the state, has issued environmental guidance for all the listed companies. So, primarily Shanghai, Shenzhen, although we know now there’s a new exchange in Beijing, which is quite interesting for small and medium-sized enterprises. But essentially for those A-share listed companies, they will have to disclose their carbon footprint. Now we’re still waiting on which methodology will be used for that. So, we’re waiting on that specificity, but we have that, the overall guidance is there, and there’s actually already embedded a fine โ if you fail to disclose, we will fine you. There’s the stick that’s embedded in that regulation. And of course, on the U.S. side, we’re still waiting for a final rule to be issued by the SEC for climate disclosures.
Kaiser: Thank you so much. Debbi, I want to go back to you. I mentioned just now the IEA, the International Energy Agency put out a report that said that fossil fuel subsidies have spiked just in the last couple of years especially pronounced, I think in Europe. But the dilemma seems to be that high fossil fuel prices really hit the poorest the hardest. And so, governments really find themselves in this really difficult position of either subsidizing fossil fuels and setting back decarbonization goals or letting the poor go cold and unable to afford gas to get to work. What’s the way out of this? How can we solve this dilemma, especially in the context of the Ukraine war and all these other things that geopolitically are making it difficult?
Deborah: Well, I mean, the poor don’t use a very high percentage of energy. So, simply giving poor people income support is always the best way to address issues of poverty, rather than trying to subsidize any particular product. I realize in the United States, we have things like food stamps embedded in our system, but if you’ve ever seen someone at a supermarket register who’s told this food counts and this food doesn’t count, I mean, that’s a nightmare that shouldn’t exist. And the simplest way to do it is, when poor people are facing higher prices, is to give them a subsidy and let them figure out whether they’re going to spend it on more gasoline or whether they’re going to spend it on changing the way they go to work or investing in a business that doesn’t require a commute.
There’s so many things you could do, right? I think when countries use poverty as an excuse for fossil fuel subsidies, I think it’s an excuse because most of the subsidy is going to go to big business, to wealthy people. It takes a lot more energy to heat a McMansion than an apartment in New York City. And the one thing I did want to say about the China coal fire power plants, because they are being built, and it’s an interesting definition of energy security because it’s basically local governments are not trusting others to supply them with energy. And the feedback I got from my favorite climate modelers in Beijing when I was there was, yeah, there’s going to be a lot of wasteful building of too many coal fire power plants, but it’s not necessarily going to lead to more use of coal because the economics are stillโฆ Wind is already cheaper in China too.
And so, we’re going to have the same thing where we have underutilized power plants, which is not good, or we’re going to see what happened in the past, which is NDRC telling a whole bunch of the older ones to shut down. And at this point, old power plants in China are probably, were once built in the year 2000. So, it’s not the world’s greatest policy, but it doesn’t necessarily mean that coal use in China is going to massively spike.
Kaiser: Good, good, good. Alex, turning to you, as maybe to be expected, you see a lot of cynical eye-rolling whenever mention is made to Americans or to other Westerners of the Communist Party’s idea of ecological civilization, of eco civilization. Has the inclusion, though, of this idea in China’s official ideology, has it had an effect on popular attitudes about environmentalism and the goal of decarbonization? Is there some good that comes out of this rhetorical move?
Alex: Yeah. I think it’s worth unpacking a little bit why do we think the state has moved in this direction of eco-civilization. Over the last decade, we’ve seen the party state essentially signal in all of the ways that they do signal, adding eco civilization into the constitution, all sorts of party Congress reports, having eco civilization appears, setting bureaucratic targets, all these things signal that the state cares and they are meant to operationalize those goals. I heard a guy on a Caixin seminar on the dual carbon goals say, โWell, why are Chinese leaders doing this?โ And he said, โWell, it’s because they know it’s the right thing, and that’s it, period.โ So, you might be a little cynical that leaders of any country are only doing things because of the right thing.
That may be one of the reasons that’s in the mix, but I think most observers who look at why China is going this direction see a mix of reasons, right? There’re economic reasons, right? It’s part of this economic upgrading or economic transformation policy. There’s energy security. There is social stability issues. When we were on the ground in China, it was a period of rising protests over environmental pollution. And it was having a deep effect on Chinese reputation, right? Chinese citizens were unhappy about the pollution. And globally, it was a huge black eye on, on China. all those things are in the mix, driving what’s been going on. And so, again, when the leaders say, โLook, we’re doing this for self-interest.โ That’s how I understand those are the elements of self-interest that’s driving this.
So, as they’re rolling this out, we are all trying to figure out how well this is being implemented. And so, there’s a lot of areas where we’re not completely sure, but there are areas where there’s demonstrable improvements, like air pollution is probably the clearest example because you have independent third-party data going through NASA satellite data, right? We know that the pollution is way down. And we sort of have a sense of how it was done. Look, you switch out coal and you put in gas boilers, and all the little steps along the way that you take to do that, and it’s had an effect. There is a piece of it, as you reference, that is meant at steering people towards, citizens towards green living.
Not probably sure how that’s working, but it’s all in theโฆ The billboards are everywhere. The posters are everywhere. And, even 10, 15 years ago, we were seeing these pilot projects whereโฆ I visited one in Tianjin where families were being asked to track, in a notebook, everything that they did that was carbon-emitting. I don’t know that many people were really doing that right now, but I think slowly people are changing their behavior, not always voluntarily. If you think about buying EVs, in part was driven by the license plate policies that made it really hard to get a license plate for a gas-powered car. And so, people are changing their behavior, and that’s part of the mix.
We know that a big part of this is policy-driven and macro-driven, right? Energy sector transformations, industry transformation, and those aren’t really about citizen local-level action.
Kaiser: So, speaking of party ideology, Marilyn, you mentioned in a piece that I read of yours, how prominent the idea of common prosperity of ๅ ฑๅๅฏ่ฃ gรฒngtรณng fรนyรบ was in the 20th Party Congress speech. And how this is actually consonant in many ways with the JEDI approach, the just, equitable, diverse, and inclusive approach, that you and many others champion, how should investors or companies be looking at this? Can they incorporate these JEDI ideas into their own ESG targets in the context of China’s decarbonization efforts?
Marilyn: Thanks for the question, Kaiser. Absolutely, so when you actually break down these words, justice, equity, diversity, inclusion, we still don’t really have a good translation for equity in Chinese. Equality is kind of the best we can do. But if you look at any of the public infrastructure projects going on in China, they will often have on the billboard or some kind of signage on the outside with many parts of that word, like ๅ ๅฎน baฬoroฬng, inclusive, inclusivity, justice, the equivalent of equality or equity. And so, these are very much already embedded in the way that the common prosperity or shared prosperity framework is being developed and launched and furthered in the China context. It’s quite nice to see this alignment. And so, I think having that lens is really important for all investing, but especially for climate because that’s what we’re essentially transforming the entire economy, right?
We have to take the carbon dioxide equivalence or all of these greenhouse gas emissions out of the products, the systems, and that will mean impacting people’s lives. And we want to make sure that that’s done in an inclusive manner and equitable manner.
Kaiser: Debbi, just now you wanted to get a point in. We can go back to that.
Deborah: I think a lot of the ideology stuff has to do with the way that the Chinese government engages officials at all levels. That it’s about helping them understand how all of this fits and why itโs sort of in a sort of unified public interest. When I was in Beijing, I attended, it was a webinar, but I joined on that Alex’s old organization, NRDC, ran that had 38,000 people join this webinar to talk about decarbonizing heavy industry.
Kaiser: Wow, that’s more than we have on this one. Wow.
Deborah: I mean, it breaks the brain, right? And it probably, because there was a morning in an afternoon session, it was a half or a third, but we’re talking like more than 10,000 people on this thing. And also they had local government officials, they had industry association people joining. And so, I think a lot of delivering the message, I mean, because there’s a language of political communication, and some of that, that’s been used now for 70 years. And so, linking the ideas because yeah, ordinary citizens are pretty much tied to the built environment that they live in. But a lot of that is up to public officials to think about how they’re going to do it at the city and the county in the prefectural level. And so, it really does matter that they understand the mission. And so, I think a lot of it has to do with that.
Kaiser: That’s an excellent point. I think that’s a very, very good point. Let me turn to Alex. You have written about how U.S.-China competition, and that’s really what we’re here to talk about, can actually be a spur to environmental action, a race to the top as it were. I think you’d have to forgive some of us for thinking that, that, well, that might be true in some areas, and you might see incremental innovation in some green tech sectors. Such benefits are more likely to be dwarfed by the foregone opportunities that are crowded out by all the belligerence, right? And eclipsed by that most carbon-intensive of activities of all, pretty much, which is arms racing, which is building up our militaries.
Certainly, there’s got to be a way to harness competition while keeping it from doing damage. But what are the things to watch out for and worry about? You’ve thought about this an awful lot, and I’m curious to see what you think are the up and downsides of competition.
Alex: Yeah. This topic became a hot one really when Biden came into the office. And everyone was talking about the opportunities for cooperation, which is, of course, is still important, right? And that’s what I think all of us here often are doing projects with Chinese researchers and that sort of thing. And the notion that competition could spur the country’s actions wasn’t as much part of the framing before, but it’s clearly a very central part of the way that we think about it in U.S. and China. And it’s not a hard idea to grasp, right? I think China, for example, when they started to push the clean-tech industries and EVs, that was very much thinking about industries where there weren’t incumbents, global incumbents that they could compete in and dominated, and they’ve been very successful in in those areas, right?
You can think of the Inflation Reduction Act as insignificant part affected by the politics of U.S.-China dynamics, right? The concern about China, Chinaโs dominance of battery and solar supply chain and such, and leading to that sort of bipartisan, relatively bipartisan investment in climate. And so, these are the ways that things can be constructive and spur us to action just because we don’t want to lose out to a geopolitical rival, right? But obviously, there are all sorts of ways that this could go south that we just need to be mindful of. One thing I think we’re all going to have to really confront is what are the real tradeoffs with climate goals? Because for example, the Inflation Reduction Act folds in a lot of different policy objectives.
They’re all ones I agree with, but the more you fold in policy objectives, the more difficult it is to meet all of them. And you have to trade off some of them against others. So, some of them are easy. I think like the Uyghurโฆ We can talk about the implementation of that, but if you want to prevent forced labor in your supply chains, that’s an easy one for me. Yes, let’s try to do that. But there’s a lot of other areas in trade whereโฆ how do you structure trade dynamics? What’s fair trade? What’s not fair trade? All of these types of things are going to require trade-offs between certain jobs appearing in the United States, costs of renewables versus giving business to China. Those things are all in the midst, and very complicated right now.
And I think the other thing I would just mention is all the focus on U.S.-China cooperation or competition sort of takes our focus off the fact that globally there’s always been a sort of exporting of emissions, right? Europe and the United States did it to China that led to contributing to China’s kind of growth and its growth in emissions, and its growth in its economy. And right now China is already exporting its emissions to other parts of the world. And that process is going to continue. So, even as we’re talking about U.S. and China, we have to think about how U.S. and China engage with the global South and other countries, and how do we sort of make that entire global development picture grow in a low carbon way, rather than just thinking, well, now China’s doing this or that, and that’s the end of the problem? But part of their emissions are going elsewhere just as our emissions have left our country to take place elsewhere.
Kaiser: Yeah. Debbi, I want to come back to you. I’ve got a bunch of questions from Marilyn toward the end here, but I want to go back to you first. You’ve suggested that there really isn’t much point in the U.S. and China pushing one another to do more. Why do you cancel avoiding that kind of an approach? And what would you suggest to some of the smarter ways that the U.S. and China can productively engage with one another? For instance, what are some of the big complementarities between the two countries? I mentioned that there are complementarities. Maybe we could spell some of those out in their approaches to decarbonization.
Deborah: Right. I think the reason that I think that pushing as a first sort of choice isn’t the best is because it hasn’t really worked. I think maybe 15, 20 years ago, it did, but most of the changes that have happened in China over the last 15 years have really been driven by domestic politics, by feelings of where China fits in the sort of global system, not U.S. specific, by opportunity, by competition. And so, what I’ve been arguing for decades now is that the more the U.S. does, the more China will do because they’ll feel the pressure. And so the Inflation Reduction Act is a huge step in the right direction. It gets us, by some models, to 80% of President Biden’s goals. If we want to see China step up, the smartest thing we could do is enact a little more legislation and get to 100%, right?
I think that’s the reason for that. I do think things that foster free trade, I mean, I really don’t think our sort of tariff first approach to China is helpful at all. I think our companies should be competing with each other vigorously. That’s what companies do. But in terms of things we can do together, I do think there is policy work we can do together. It’s interesting how much of the Inflation Reduction Act is about decarbonizing kind of the household and building sector. And as I said, I think the Chinese have really interesting innovations on the transport sector in terms of decarbonization. And we have interesting innovations in that sector where, honestly, the Chinese are falling behind themselves. Like, there’s a lot of solar water heating that was there 15 years ago that is now actually not being used and things like that.
I think there’s a lot we could share on those fronts. And then there’s still some hard problems that we can really work on together. One of the best ways to try to avoid this idea of overshooting that even if we could get to 1.5 degrees by 2100, we are seriously running the risk of being well over 1.5 degrees of warming by 2035 or 2040. And so, we’ve got to cut now. And so there are only a few ways to do it that are going to have massive immediate impacts. And the biggest one is to reduce methane pollution. And some things in methane pollution we know how to deal with, like oil and gas pipeline leaks. We know how to deal with sort of landfill, municipal solid waste kind of issues. But there’s a bunch of them that are much, much harder, including the coal mine and coal-bed methane leakage in China, including the leakage from rice paddies, from anaerobic bacteria, etc.
I think there’s a lot of research we could do together that’s more in the scientific research area there. And then the other big risk is because overshooting has become the hot topic at the moment, the risk of a rogue actor doing geoengineering, whether that’s a country or a company sending essentially crud particulate up into the atmosphere or a bunch of [inaudible 0:43:59], there are all a bunch of theories, has become a real concern. and there’s now a UN committee looking at this. I think this is an area where there clearly needs to be some international regulation. And negotiating that kind of treaty, it’s in both the U.S. and the Chinese interests. And while I tend to think in Washington, people look at China and don’t really look at how the Chinese think about global public interests; that the Chinese are extremely cautious about sort of big scientific things that might interfere with agriculture and water supply and things like that.
And so, I think it would actually be a pretty easy one for us to sit down and talk to each other about. But the bottom line for all of this is we have to talk at all levels. There’s been an attitude in the Biden administration that as long as they talk at the Biden to Xi level, or maybe at the climate negotiator level, we’re still engaged. And I don’t think that’s true. We have to engage at the working level as well. And people at the working level want to engage. They just need their leaders to say it’s okay.
Kaiser: Deb, just now you mentioned some of these hard-to-abate sectors and you mentioned methane and other greenhouse gases that we don’t talk about all the time with our fixation just on CO2. Marilyn, you’ve looked into this. I like how you spotlight, for example, the importance of sectors other than power generation and transportation, areas like agri-food. So, maybe we can talk about that and about some of these other sectors like chemical, cement, steel. Just with agri-food, though, I mean, I hadn’t even thought about this before, just the amount of fertilizer that’s produced, of nitrogen-based fertilizer, and that one of the byproducts of this is a very powerful greenhouse gas, a nitrogen-based gas, I think, is it NO2, or am I getting that wrong?
Marilyn: N2O.
Kaiser: N2O. Right, okay. Yeah, close. But see, I’m laughing from the NO2 now, butโฆ Yeah, talk about that.
Marilyn: Yeah. So, nitrous oxide, N2O, we could say it’s the, maybe the third most important greenhouse gas after carbon dioxide and methane, although they’re all important because we will experience, or we are experiencing already the consequences of having all of them. So, N2O is about over 200 times more heat-trapping than carbon dioxide and remains in the atmosphere for 100 years or so. So, it’s important. And China being the largest grain producer and the largest exporter fertilizer has a big role to play in ensuring that the move away from these nitrogen-based fertilizers and that we can decrease the emissions associated with this. Yes, between a quarter and a third of greenhouse gas emissions are coming from the agri-food sector. So, it’s huge. Climate change is not only about energy and transportation, as you just said, it is very important that we decarbonize our food chains, which is associated with our use of land. And so, I think this is where we can definitely use more increased focus within China on climate solutions, clean tech solutions that are concentrated on the nitrate oxide problem.
Kaiser: Yeah. No, that’s really great. I applaud that we should be thinking more about how to make the fertilizer supply chain more climate-friendly. And I would refer to some of the stuff that you’ve written, that Marilyn’s written if you look her up. And I’ll link to some of these pieces in the show notes when we put this into the podcast. Marilyn, the same with you, given China’s pledge to peak carbon in 2030 and achieve net zero emissions by 2060, what sectors or specific investment opportunities do you think will be most promising for investors who are looking to capitalize, who are looking to lean into China’s decarbonization efforts? In spite of the best efforts of the Biden administration right now, outbound investment controls are not yet in place, so while we can still do this, what should we be investing in?
Marilyn: I think there’s the what and then there’s the how. So, the what is across all the real economy sectors and the financial economy. There’s a growing number of climate FinTech companies. So, they’re serving the financial system that are focused on mobilizing capital for climate solutions bringing more transparency and visibility to climate-related risk opportunities and impact. I think all of it is investible. The how is maybe you know, equally important. Roughly that I would say on average an investment advisor will, will say, if you are U.S. based investor, think about having 40% of your portfolio in emerging markets, of which China is a huge component of that. In reality, it’s roughly 15% on average. So, not enough capital allocated to emerging markets, including China. So, we need to get that straight.
I mean, there’s $6 trillion, for example, available in retirement savings. Unfortunately, a lot was lost last year with the S&P 500, so one of the mainstream indexes in the U.S. losing a lot. But there’s still a significant amount of capital available in the public markets to allocate to climate-friendly solutions. And one of the things that we are looking to support more and more of are bringing visibility to the climate solutions listed companies in China, and incentivizing investment funds in the U.S. to create China-based strategies for those climate listed companies. So, these are the pure plays, right? These are the companies that are pure-play into EVs wind companies, plant-based food companies, there are some amazing plant-based food companies in China right now, etc. And that would really help build the capital stack and the visibility to support not just those companies that are already lifted, but the supply chain of startups and small and medium-sized enterprises that want to eventually get to that scale and size that we would absolutely need to solve climate change.
Kaiser: Fantastic. I want to just leave a little bit of time for questions, but before we go, just as quickly as you’re able, maybe each of you, Alex, and then Deb, and then Marilyn could each offer some thoughts on the broader issue of how we should be thinking about balancing competition and collaboration between the U.S. and China when it comes to climate action. Alex, would you be up for going first and try toโฆ?
Alex: Yeah. All of us this space recognize that the key is for each country to be able to implement as fast as possible. So, this is investing overcoming domestic barriers to climate action. So, for example, something we need to really think about hard in the United States is how can we build faster? There’s a lot of, like, we’ve been talking about this at the law school, a lot of permitting or litigation barriers to building. How do we deal with that without sort of giving up our values that put those procedural checks in place in the first place, right? In the China context, you might highlight something like grid reform as a major barrier to efficient electrification, right? To the extent that energy security of thought is thought of as two sort of provincially focused. That is really inefficient, right? As Deb referenced earlier.
And then on the cooperation front, there’s going to be a million little mechanisms that we do to implement this. And so, rather than reinvent all of those, we need to be communicating and sharing. I don’t think that’s going to be hard. I think people are going to apply these ideas. For example, in California, they’ve just been talking about covering the aqueducts which lose a lot of water, to do that with solar panels, right? Apparently, a lot of countries are already looking at the pilot sites. What can we learn from China in that regard? China is a very experimental nation. And so, what are the types of things we can pull from that? Arguably, we’ve been learning industrial policy from them with the inflation, or it made it industrial policy sort of not a dirty word anymore, right? But what are the micro types of things that we could look to in China? we haven’t really thought in that way for a long time. I know Deb’s interested in that.
Kaiser: Yeah. Deb, to you.
Deborah: I mean, I think businesses should compete, and that’s what’s going to make decarbonizing cheaper. And so, I think we have to seriously look at what the purpose of all the tariffs that we currently have on each country are, etc. I think actually improving just standard free trade would be a good-faith measure that would help. But we’re not going to decarbonize the same way. I think we have to recognize and respect that we’re going to have very different policies in each country. And where we need to work together is partly on the sort of science questions that I listed earlier. Then the other is on really helping the developing world because global decarbonization is going to require that everybody make the transition, and especially that developing countries don’t pollute first and mitigate later because we just don’t have room for that. And that’s going to require assistance.
But they also desperately need assistance right now on adaptation. We’re already up to 1.1 degrees Celsius above the pre-industrial average. And, as we know, in our own country, it’s creating massive impacts right now. And many countries don’t have the funds or the capacity to really address all these questions themselves. I think we ought to be working much more diligently in the international agreement to ensure that we’re actually providing that assistance, and that it requires both countries.
Kaiser: Last word is to you, Marilyn. How should we be thinking about balancing cooperation and competition?
Marilyn: I would be very specific and say what we need is to have joint funds to invest in climate solutions in low and middle-income countries, period. That’s where we can come together. And I think that would be very beneficial for everyone involved. And there’s specific expertise, as Deb mentioned, high-speed rail is not something the U.S. can offer, but China can. The U.S. has a lot of experience with home geothermal right now and heat pumps, and so on, something that can be offered. I think having these joint funds, I mean, getting the money together is a surefire way of making sure that peace is kept and that things get done on the ground. So, that would be my suggestion.
Kaiser: Well, I want to thank you all and move on to questions right now from the audience. We have some excellent questions, and I’m going to put one of them to you.
The Sinica Podcast is powered by The China Project and is a proud part of the Sinica Network. Our show is produced and edited by me, Kaiser Kuo. We would be delighted if you would drop us an email at sinica@thechinaproject.com or just give us a rating and a review on Apple Podcasts as this really does help people discover the show. Meanwhile, follow us on Twitter or on Facebook at @thechinaproj, and be sure to check out all of the shows in the Sinica Network. Thanks for listening, and we’ll see you next week. Take care.
