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New Publication on Chinese Climate Change Policy

Readers of this blog need not be reminded that climate change is a global commons problem and therefore necessitates cooperation at the highest jurisdictional level – that is, international cooperation among national governments – if it is to be adequately addressed. This points to the key role for national governments to put in place meaningful public policies, consistent with international cooperation.

But sub-national governments can also significantly advance efforts to mitigate climate change. Provinces and municipalities around the world have indeed undertaken initiatives – sometimes working together across national boundaries – to reduce greenhouse-gas emissions. This includes jurisdictions in the largest-emitting countries – China, the United States, and India – as well as in the European Union.

A New Publication Now Available on the Internet

We – the Harvard Project on Climate Agreements (HPCA) – have just released a new volume that examines sub-national climate-change policy in China. The volume focuses to a considerable degree on carbon-pricing policy in China, including how China’s sub-national (pilot) emissions-trading systems can inform the emerging national carbon-pricing system.

The briefs in this volume – edited by Dr. Robert Stowe and myself – draw on presentations and discussion at a research workshop organized by the HPCA in Beijing on July 18 – 19, 2019. The workshop was hosted and co-sponsored by Tsinghua University’s Institute of Energy, Environment, and Economy, directed by Professor Zhang Xiliang. Workshop participants included 24 researchers and practitioners from China, Australia, Canada, India, Norway, the United Kingdom, and the United States. Chinese participants were based in Guangdong Province, Hubei Province, and Shanghai, as well as Beijing. The agenda and participant list for the workshop are included at the end of the volume.

The volume – and the July 2019 workshop – are part of a larger initiative of the Harvard Project on Climate Agreements examining and comparing sub-national climate-change policy in China, India, the United States, and Canada. The Harvard Project is conducting a similar workshop in New Delhi in the summer of 2020 and will release a volume of briefs on sub-national climate-change policy in India in early 2021.

Overview and Framing

The volume begins with a brief by Zhang Xiliang and Zhou Li that details policies adopted by Chinese provinces and municipalities to address climate change. Ye Qi and Xiaofan Zhao then describe what they see as the most important drivers of climate-change policy in China, providing context for the volume.

Institutional Perspectives

Next, institutional perspectives are provided in four briefs by experts on center-provincial institutional dynamics in China, with applications to climate-change policy. Michael Davidson explores China’s “quasi-federalist” system, and discusses how this system might be leveraged to develop effective institutions for addressing climate change. Gørild Heggelund focuses on China’s national emissions-trading system (ETS).

Tan Xianchun provides a concise yet detailed analysis of China’s administrative systems and procedures for addressing climate change – both carbon pricing and other approaches to reducing emissions, including the results of modeling that estimates the potential impact of a range of “[l]ow-carbon measures and policies” in Chongqing municipality and Guangdong Province.

Providing the final institutional perspective, Christine Wong discusses how the implementation and enforcement of environmental policy in China have evolved over the last decade. She finds that although the central government places greater emphasis on environmental policy than in the past and has provided considerable financial support for implementation and enforcement, renewed financial constraints in a period of low economic growth may prompt sub-national officials to favor carbon pricing over more traditional top-down policy approaches.

Emissions Trading Systems in China: Lessons for National Policy Design from the Pilots

Three contributors examine lessons for national policy design from experience with the pilot ETSs. Shaozhou Qi assesses the performance of the seven pilot ETSs. Tian Qi provides insights based on his study of Hubei’s pilot ETS, focusing on allowance allocation, as well as the closely-related topics of auction design and market-stability measures. Zeng Xuelan examines a range of GHG emissions-reduction policies in Guangdong Province, noting that Guangdong’s pilot ETS has been its “main mechanism for reducing provincial emissions.”

Zeng also notes the possibility of the central government terminating Guangdong’s ETS after lessons have been incorporated into the national carbon-pricing system.

The fate of the pilot ETSs more broadly is the subject of Valerie Karplus’s brief. She discusses three scenarios: “(1) coexistence, that is, maintaining separate sub-national trading systems alongside the national system; (2) partial integration, which would mean allowing credits from one system to be used in other systems; and (3) full integration, which would involve subsuming the seven sub-national pilots under a single national ETS.” Karplus discusses the tradeoffs among these options and then suggests an approach to strengthening the pilot ETSs that is somewhat independent of the path chosen.

Designing and Implementing China’s National ETS

Four briefs focus on the development of the national carbon-pricing system, though in each case with some reference to the sub-national pilots. Pu Wang identifies a set of important challenges to the implementation of the national system, concluding in part – as did Heggelund – that “institutional capacity related to the carbon market needs to be significantly enhanced at all levels, from the central government to the local level.”

We Libo discusses the results of a modeling initiative that explores sub-national distributional impacts of various trading-intensity and allowance-allocation scenarios. Zhang Jianyu presents ten policy recommendations for the implementation of the national system. Among these, he suggests that the pilot ETSs can continue to play a useful role after the national system is implemented, and that the central government should continue to support the pilots.

Finally, Fei Teng examines the important relationship between the power sector in China and the performance of the national carbon-pricing system. The power sector is highly regulated, though the central government is pursuing market-oriented reforms. Teng presents three options for passing through higher electricity costs resulting from carbon-pricing to electricity consumers, with one option including trading in generation rights.

Comparative Perspectives on Sub-National Policy

The final section of the volume includes three briefs providing cross-national comparative context on sub-national climate-change policy.

Radhika Khosla writes on India, Robert Stavins on the United States, and Katie Sullivan and Ellen Lourie on Canada.

Final Thoughts

Each of the seventeen briefs in the volume begins with several key points, and the seventeen sets of key points are compiled immediately following an introduction. We hope that this structure renders the insights, research results, and analysis contained in the briefs more readily accessible.

The Harvard Project on Climate Agreements is grateful to the Harvard Global Institute, which provides generous support for the initiative of which this volume and the July 2019 workshop in Beijing are part. We are also grateful for our ongoing collaboration with Professor Zhang Xiliang and his colleagues – a collaboration that has yielded insights that we hope prove useful to researchers and policy makers working to address the problem of climate change.

New Podcast on Carbon Markets & International Cooperation, Direct from UN Climate Change Conference in Madrid

In my previous posting as this blog, What to Expect at COP-25 in Madrid, I wrote about the “Rulebook” for the Paris Agreement, which puts flesh on the bones of the skeletal 13-page Agreement. It was completed last year at COP-24 in Katowice, Poland, with the exception of one very important part of the Agreement, namely Article 6, which potentially facilitates international carbon markets and other forms of cross-border cooperation.

In the latest episode of our podcast, “Environmental Insights: Discussions on Policy and Practice from the Harvard Environmental Economics Program,” our focus is on precisely this topic in an interview with an individual who has had tremendous experience in this realm, Andrei Marcu, the founder and executive director of the European Roundtable on Climate Change and Sustainable Transition. You can listen to the interview here.

In hosting these podcast episodes, I interview interesting and accomplished people who are working at the intersection of economics and environmental policy. Our first episode featured my interview with Gina McCarthy, former Administrator of the U.S. Environmental Protection Agency (who is leaving Harvard to become President of the Natural Resources Defense Council). Our second episode featured Nick Stern of the London School of Economics discussing his career, British politics, and efforts to combat climate change.

In this third episode – recorded here in Madrid at COP-25 – Andrei Marcu provides an overview of the opportunities and challenges facing the negotiators, with particular attention to the important work now being done on carbon markets and international cooperation via Article 6 of the Paris Agreement. By the way, you can read about the other activities of the Harvard Project on Climate Agreements at COP-25 in Madrid here.

Marcu has long been engaged in multilateral negotiating processes and subsequent implementation action, both at the global and sectoral levels. In various capacities, he has acted as negotiator for developing countries, coordinator for the G-77 and China, and as representative of the international business community. He previously served as Manager of Private Sector Cooperation in the United Nations Development Programme; and founder, president and CEO of the International Emissions Trading Association (IETA).

Marcu attended the first week of negotiations at COP-25, during which time lower-level discussions were held among representatives of many of the 200 countries which signed the Paris Climate Agreement of 2016. Marcu characterizes the Agreement as a “decentralized pledge and review type of approach” to the global emissions problem, one that brings countries to the table, but also one that “creates headaches” in the market.

In the interview, Marcu says that what happens in Madrid during the coming week will be very important. “Presumably you will see three decisions – one for Article 6.2, one for 6.4 and one for 6.8,” he explained, naming three of the key sections of the Paris Agreement that are being negotiated at COP-24. Marcu also remarked that some of the most difficult decisions may be “punted” to future talks.

In general, Marcu said he is “optimistic that we are moving in the right direction” on addressing climate change, while also expressing concern about the pace of change. “To be fair, it is not an easy change. It’s quite a radical change as people are just coming to terms with what carbon neutrality means.” he stated. “It is not an incremental change. It is a radical change.”

If Tillerson Departs State Department, Will We Go from Bad to Worse?

On November 30^th, 2017, the New York Times broke the story that the Trump White House is planning to oust Rex Tillerson as Secretary of State, and replace him with Mike Pompeo, the current Director of the Central Intelligence Agency (CIA) and former Republican member of the U.S. House of Representatives. (Pompeo, the Times story also suggested, would likely be succeeded at the CIA by Tom Cotton, Republican Senator from Arkansas.)

What should we make of this change – in terms of climate change policy – if it does happen?

Looking Backward for Some Perspective

On January 3, 2017, two weeks before Inauguration Day, I posted an essay at this blog on “Trying to Remain Positive,” in which I searched for any remotely positive elements of the incoming Trump administration. I wrote:

“Remarkably, the least worrisome development in regard to anticipated climate change policy may be the nomination of Rex Tillerson to become U.S. Secretary of State.  Two months ago it would have been inconceivable to me that I would write this about the CEO of Exxon-Mobil taking over the State Department (and hence the international dimensions of U.S. climate change policy).  But, think about the other likely candidates.  And unlike many of the other top nominees, Mr. Tillerson is at least an adult, and – in the past (before the election) – he had led his company to reverse course and recognize the scientific reality of human-induced climate change (unlike the President-elect), support the use of a carbon tax when and if the U.S. puts in place a meaningful national climate policy, and characterize the Paris Climate Agreement as “an important step forward by world governments in addressing the serious risks of climate change.”

It’s fair to say that it is little more than damning with faint praise to characterize this pending appointment as “the least worrisome development in regard to climate change policy,” but the reality remains.  Everything is relative.  Of course, whether Mr. Tillerson will maintain and persevere with his previously stated views on climate change is open to question.  And if he does, can he succeed in influencing Oval Office policy when competing with Scott Pruitt, Trump’s pick to run EPA, not to mention Rick Perry, Trump’s bizarre choice to become Secretary of Energy?”

Since then, we have learned the answer to that question. Despite Secretary Tillerson’s (apparent) support for the U.S. to remain in the Paris Agreement, the combined forces of EPA Administrator Pruitt, Secretary of Energy Perry, and – most important – former White House Chief Strategist, Steve Bannon, the President announced in June his intention to withdraw the United States from the Agreement, following on a host of moves to reverse the Obama administration’s domestic climate change policies.

Secretary Tillerson’s Record at the State Department

Perhaps Mr. Tillerson should be credited for the fact that the State Department has at least remained engaged in the climate change negotiations under the United Nations Framework Convention on Climate Change (UNFCCC), including by sending a delegation to the annual talks in Bonn, Germany (from which I recently returned), where negotiators from other Parties to the Paris Agreement personally related to me how surprised they were by the constructive role the U.S. delegation was continuing to play (in putting meat on the bones of the Paris Agreement). However, such continued bureaucratic involvement cannot make up for the fact that the U.S. is disengaged at political levels, which must be attributed – at least in part – to Secretary Tillerson’s ineffectiveness in tilting the President toward a more sensible path on climate change policy.

It is beyond the scope of this blog (and my expertise) to comment more broadly on Mr. Tillerson’s general leadership of the State Department or on the many key areas of international relations outside of the climate policy realm. But, I will note that my Harvard Kennedy School colleague (and former ambassador), Nicholas Burns, together with another former ambassador, Ryan Crocker, described in a scathing New York Times Op-Ed a few days ago how the Foreign Service is being virtually dismantled under Tillerson.

In another harsh New York Times Op-Ed, Antony Blinken recently assessed “How Rex Tillerson Did So Much Damage in So Little Time.” But, as Blinken points out, the great irony is that Tillerson has had “good judgment” on many of the critical international issues facing the administration. In addition to (apparently) asking the President to keep the U.S. in the Paris Agreement, Tillerson supported the Trans-Pacific Partnership (TPP), Obama’s nuclear deal with Iran, a calmer approach to North Korea, staying firm against Russian aggression (such as in Ukraine), and calming the Qatar-Saudi Arabia controversy, which was instigated, in part, by Trump himself. But on all of these issues, Tillerson’s sensible, if inexperienced, diplomatic advice failed to win the day.

Out with the Bad, In with the Worse?

Enter Mike Pompeo. What would his presence as Secretary of State mean – both broadly, and in particular, for climate change policy?

In broad terms, Pompeo is apparently smart (as is Tillerson), highly ideological (which Tillerson, a moderate, is not), and very partisan (which, again, Tillerson is not). This does not sound like good news for the leadership of the U.S. Department of State.

On the other hand, Pompeo might be expected to slow down, if not reverse, the hollowing out of the State Department’s political leadership and Foreign Service officer corps that has occurred under Tillerson’s enthusiastic down-sizing of the Department.

Antony Blinken’s conclusion is that with Pompeo in the lead, “we can expect a focus on hard-power solutions to every problem, … and an even more aggressive pursuit of ‘America First.’” Whereas Tillerson apparently tried to check Mr. Trump’s worst instincts, “now we may see them fully unleashed.” Good God, what a thought!

The Path Ahead for Global Climate Change Policy

That is a rather frightening prognosis across the board. But what about climate change policy, in particular? Does Mr. Pompeo at least share Mr. Tillerson’s personal understanding of the reality of the problem and the importance of addressing the threat?

Sorry, but the answer does not provide cause for hope. In the House of Representatives, before his move to the CIA, Congressman Pompeo was a consistent, long-term, and vocal skeptic of the science of climate change, and an outspoken critic of the Obama administration’s climate policies, which he characterized in 2015 as a “radical climate change agenda.” Although he may have modified his views since his appointment as CIA Director, at his confirmation hearings last January, he stated that Obama’s view that climate change is a significant issue for national security was “ignorant, dangerous, and absolutely unbelievable.”

Secretary Tillerson’s exit from the State Department and Mr. Pompeo’s entry, if these take place, will constitute yet another sad chapter in the short history of the sorry state of governance under the presidency of Donald Trump. During twenty-eight years of teaching at Harvard, until last year I had remained stubbornly non-partisan, but thirteen months after the election, I still find it difficult to believe that we have elected such an individual to be President of the United States.