Seizing the Opportunity of Green Development in China

Transcription

1 Seizing the Opportunity of Green Development in China Yongsheng Zhang Development Research Center of the State Council, China Growing Green: The Economic Benefits of Environmental Policies international workshop 30 May 2012 Ankara, Turkey 1

2 Structure I. Understanding green growth II. Why green growth in China III. China s advantages and challenges IV. Road towards green growth V. Global context for green development Disclaimer: This presentation is based on, but not limited to the DRC/World Bank joint report China 2030 and does not necessarily represent the official position of the joint team. Seizing the Opportunity of Green Development in China is part of the joint report and can be found at executive-summary. 2

3 I. Understanding green growth What s green growth? Green development is a pattern of development that decouples growth from heavy dependence on (i) resource use, (ii) carbon emissions, and (iii) environmental damage, and promotes growth through the creation of new green product markets, technologies, investments, and changes in consumption and conservation behavior. 3

4 Three concepts in green development (i)economic growth can be decoupled from rising GHG emissions and environmental degradation; (ii) The process of going green can itself be a source of growth; (iii) going green (growth quality) is part of a virtuous circle that is mutually-reinforcing with growth. 4

5 Key message 1: Green development is a profound & comprehensive transformation Green growth is NOT just about energy efficiency. Not just about the story of renewable energy Not just about a few of cutting-edge technologies. but is a profound & comprehensive transformation to a new development model. Embracing the New Industrial Revolution green development represented! 5

6 Key message 2: Mitigation could contribute to growth Conventional wisdom: mitigation is a burden to growth. Since cost is local and benefit is global, each country has incentive to be a free-rider in global mitigation. Nonetheless, some new literatures show green could contribute growth, and the local benefit is much more significant. For instance, Acemoglu, et al (2011); Jaeger, et al (2011); Shi & Zhang (2011), etc. A more competitive economic structure driven by mitigation will probably replace the current one. 6

7 Key message 3: Environmental protection is actually good for growth and welfare Conventional wisdom: growth can only be achieved at the cost of environment, so grow first, clean later. Actually, growth and clean can be achieved side by side, and the two are mutually-reinforcing. Private benefit of the polluting firm is achieved at greater social cost, but the former is visible while the later invisible and tends to be ignored.

8 Private Profits, Public Losses: Shrimp farms in Thailand Source: Sukhdev (2011) 8

9 Evidences from U.S. & Japan U.S. Clean Air Act Amendments of 1990.: the direct benefits significantly exceeds their direct costs in 2020 (USEPA,2011). Japan (KOBAYASHI,2011): Even under stringent environmental policies, macro economy has been expanding more rapidly, compared with a no environmental policy case (back-cast simulation case). Preventive environmental policy is even more economically rewarding.

10 Key message 5: Governmental failure is the key problem for green development Redefine the role of government: to reduce the coordination & social cost on environment(e.g., climate change) through stringent mitigation policies, regulations, and investments. With these government actions, the market will respond to reduce environmental and social costs. 10

11 How will market respond? External environment costs will be efficiently internalized. Cost of non-green products tends to increase. The division of labor for green products & services will evolve. Two illustrating cases: Decreasing price of any new product: Old debate on energy crisis 11

12 Key message 6: Green growth is a self-fulfilling prophecy. If government expects it to happen and takes mitigation action, then green growth will really happen----economy will jump to a new equilibrium (structure). If the government doesn t expect it to happen and not take mitigation action, then green growth will never happen. Therefore, the politicians with vision play essential role in shaping the green future! 12

13 Certainty & Technological innovation. 13

14 Key message 7: Green development is different from Keynesianism and govt. planning The prerequisite for green development: a sound market economy with governmental role being redefined. The external constraints imposed by the government on GHG emissions and environment is a (global or local) public good to reduce co-ordination & social cost. The climate change and environmental degradation is a type of governmental failure, rather than market failure. Massive governmental investment is NOT necessarily needed for green development. For instance, payment for ecosystem service. 14

15 Key message 8: early action is rewarding Green development represents the future. The country taking early action will be the winner in international competition. All countries, including developed and developing, need growing green. The first mover will be the winner in the global green competition. The later mover will likely be the loser. Waiting will waste the opportunity and dramatically increase its transition cost to green economy in the future once it is locked in non-green state. 15

16 II. Why green growth in China 1. Traditional growth model is no longer feasible First, China s development pattern in the past is unsustainable: high emissions, resource consumption, and environmental destruction, external, social, and regional imbalances, etc. Second, China needs to find new sources of growth----china's economic growth will slow down in the coming years, exposing yet more social and political challenges. Third, Global green competition & global crises rooted in the current non-green development model. 16

17 2. New opportunities arise Mounting global evidence that economic growth and carbon emissions and pollution have already begun to decouple. World economy: the carbon intensity of the world economy (CO2 emissions per unit of GDP) has dropped 23% since 1992 (UNEP2011). BRICS countries: Since 1990, economic growth has increased faster than carbon emissions for both the developed countries and developing countries. OECD: The decoupling is much more complete in OECD countries (Figure1.2). 17

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19 Growing green strategy in China Top leader s determination to growing green. 12 th Five Year Plan: transformation of economic development model is the top priority, and specific environment targets are set. Carbon emission mitigation is clearly treated as an opportunity of new industrial revolution in the official document. China is one of the countries taking the strongest mitigation and environmental measures in the world. 19

20 Tough measures on mitigation in China 1)Targets on energy conservation and emissions mitigation are obligated Key Performance Indicator that must be met by local officials. 2) 2020 emissions Pledge: China would contribute over 40% of total abatement by the countries (in the sample), more than the total abatement by all developed countries combined, and more than 2.5 times the amount of abatement undertaken by the United States (Jotzo, 2010). 20

21 Tough environmental measures in China: an example In order to protect the environment and avoid polluting first and cleaning up later, China s State Council launched the Main Functional Area Development Plan in All of China s land area is divided into four major types: (i) relatively affluent, industrial, urbanized areas where development needs to be optimized to solve existing environmental problems; (ii) key areas encouraged to be future development; (iii) areas where development should be limited, (iv) areas where development is prohibited. 21

22 Benefit of growing green in China during the 11 th Five Year Plan ( ) Growth & green can be achieved side by side. Growth: Average annual economic growth 11.2% Green : Energy consumption: +6.6%(about half of economic growth rate) Energy intensity: -19.1% Emissions intensity: -21.2% (estimated) SO2: million Tons (-14.29%) COD: million Tons (-12.45%) 22

23 Three major sources for green growth in China Source 1: Green transformation of traditional sectors. Though seem less dramatic and revolutionary, it is clear that many energy-efficient investments are also cost-effective and yield high economic returns. All together, the potential for direct savings through efficiency gains in China could be as high as US$65 billion per year by 2030, if the full technical and economic potential of these no-regret options can be realized (Mckinsey 2009). 23

24 Many mitigation technologies are cost-saving 24

25 Source 2: Expansion of emerging green industries China is now the largest renewable energy investor, surpassing all other countries. Wind power industry: over US$25 billion investment per year. China s target: emerging green industries to China s GDP will be 15% by the 15% slice will be roughly equal in size to India s entire economy today. Environmental industries (President Hu Jintao, 2011): By 2015, the total value of the industry may exceed RMB 2 trillion (US$313bn) , central government investment RMB 3.1 trillion (US$486bn) in environment, more than double over the previous 5 years. 25

26 Source 3: Expansion of the service sector First, it will give birth to new green service industries, such as ecosystem services, carbon asset management services, carbon trading, and contract energy management. Second, it will support the country s intended economic rebalancing away from heavy manufacturing and towards a larger service sector. 26

27 Services, value added, share in GDP (2010) 27

28 III. China s advantages and challenges Advantages 28

29 Comparative advantages for developing countries in growing green Unlike the developed countries, developing countries has relatively low transition cost to growing green. The incremental can be achieved in a green way that is different from the old way the industrial countries took. green production capacity green infrastructure green technologies green unban design and transport green consumption pattern 29

30 China is at a relatively low development stage 30

31 The overall efficiency of China's coal-fired plants has made a qualitative leap, and overtook the U.S. in

32 Abundant capital (including human capital) to invest in green sectors. 32

33 China s natural endowments, such as wind, solar, biogas, and shale gas energy sources, favor new energy sources China s solar energy resource is at par with that of the United States, and much larger than that of Europe or Japan. 33

34 Potential to avoid the lock-in effects of higher levels of urbanization. 34

35 All of the above advantages, coupled with China's manufacturing capabilities, make China an excellent location for investments in many global green technologies. 35

36 Address the concerns Does green development need---- Huge governmental investment? No! Shock therapy? No! First mover s risk? No! Impact on the poor? More means opportunities. Most of the concerns are either not necessary, or can be addressed by proper policy. 36

37 Jobs in growing green An estimate suggests(cciced, 2011): Government spending of RMB5.8 trillion ($910bn) on energy conservation, environment protection, and upgrading polluting industries would create 10.6m jobs over the next five to ten years. In contrast, eliminating the dirtier sectors of the economy would lead to the loss of 0.95m jobs. Nonetheless, more rigorous analyses are yet to be undertaken! 37

38 China s challenges 38

39 Money is not the biggest problem, institution is. Sound market system is the foundation for growing green. Market system yet to be consolidated or introduced. Distorted prices yet to be corrected, Deep structural reform behind the prices distortion yet to be undertaken. Market-based mitigation implementation yet to be introduced: e.g. command-and-control mitigation. 39

40 A Case: shale gas in China China s shale gas reserves: trillion cubic meters, comparable to the 38 trillion cubic meters in U.S.. The country s richest shale gas reserves overlaps with areas in which state-owned oil companies have registered conventional oil and gas fields, and can only be explored by them. But they have made very limited investments in exploring shale gas resources, while the others cannot enter. 40

41 Distorted factor price: oil, gas, mining, water 41

42 IV. The road towards green development 42

43 Policy Priorities applicable to all countries Reaching global climate agreement is essential. Exploring green opportunities through international collaboration. Consolidating market economic system: deepening the structure reform and correcting distorted resources prices. Taking stringent environment policy and introducing market-based implementation. Minimizing the negative impact. 43

44 V. Global context for Green growth Key message 1: solving global climate change problem and growing green are interdependent. solving global climate problem needs green growth without global climate agreement, green growth lacks incentive and pressure. 44

45 Key message 2: from burden-sharing to opportunities-sharing Global climate change regime: from zero-sum game of burden-sharing among all parties To a win-win game of opportunity-sharing among all parties by putting green growth at the heart of the new climate regime. Each country needs to: International level: Making efforts to reach a fair & effective global agreement. National level: Taking stringent measures to growing green at home 45

46 Thank you very much for your attention! 46