The Promise of China’s Sustainable-Development Path

With many parts of the world suffering from increasingly severe heatwaves and other natural and human calamities, the United Nations reports that only 12% of the targets associated with the Sustainable Development Goals (SDGs) are on track to be met by 2030. More than ever, it behooves us to understand why.

Progress has been hampered by the “polycrisis” of COVID-19, climate change, biodiversity loss and pollution, wars in Ukraine and elsewhere, rising debt distress, and food and energy shortages. The annual SDG financing gap has widened from $2.5 trillion in 2015 to more than $4 trillion in 2023, and developed countries still have not fulfilled their promise, made in 2009, to provide $100 billion in annual climate financing to developing countries starting in 2020.

Worse, the most recent assessment by the Intergovernmental Panel on Climate Change warns that we are poised to overshoot the 1.5° Celsius global-warming target enshrined in the 2015 Paris climate agreement. That means climate-related damages will likely increase even further.

But disappointing progress toward the SDGs and a net-zero economy is not universal. Between 2016 to 2023, China rose in the SDG Index rankings from 15th to 13th among G20 countries. Out of all 166 countries measured, it now ranks 63rd. Similarly, in September 2020, China announced that its annual carbon dioxide emissions would peak by 2030, and that it would aim to achieve carbon neutrality by 2060. As of this year, it has already passed the halfway mark in its emissions-reduction efforts, making it one of only four G20 economies to do so (alongside Germany, the United Kingdom, and the United States).

According to a June 2023 report from the World Economic Forum, “China ranks 17 out of 120 countries on the [WEF’s 2023 Energy Transition Index] and is a new entrant in the top 20 countries.” True, the same report also notes that China, “is among the biggest producers and consumers of energy in the world while also being one of its biggest [greenhouse-gas] emitters, currently accounting for one-third of the total global GHG emissions.” But according to the Chinese Ministry of Ecology and Environment, China’s CO₂ emissions per unit of GDP decreased by approximately 48.4% between 2005 and 2020, exceeding its commitment to achieve a 40-45% reduction. Moreover, China’s carbon intensity declined by another 3.8% in 2021, implying a reduction of more than 75% since 1990.

Such advances have been achieved through the aggressive use of alternative energy sources. In 2022, China added 152 million kilowatts of renewable-energy generation, accounting for 76.2% of the country’s new electricity capacity that year. Renewable-energy output reached 2.7 trillion kilowatt-hours, representing 31.6% of total electricity consumption, a 1.7 percentage point increase from 2021.

China owes this progress to its extensive planning and implementation capacities, and to its use of state-owned enterprises (SOEs) and banks to drive change across the economy. After the UN adopted the SDGs in 2015, China established a cross-sectoral coordination mechanism consisting of 45 government agencies whose task was to break down the 2030 agenda and delegate specific targets through national, provincial, and municipal plans.

Similarly, to accelerate the energy transition, China established a “1+N” policy system for pursuing peak emissions and then carbon neutrality. The central government sets carbon-neutrality goals based on recommendations from provincial governments, and determines which sectors and industries will be necessary to achieve it. Local governments then take responsibility for shaping and implementing specific policies. As of this month, China has (since 2017) approved 572 “ecological civilization construction demonstration zones,” each of which sets limits on emissions intensity and energy consumption per unit of GDP.

China’s governance system has proven to be well adapted to public project management, owing to national fiscal transfers and the ability to ensure that staff are trained at all levels of project implementation. Between 2012 and 2020, China invested nearly CN¥1.6 trillion ($219 billion) in poverty reduction (advancing SDG 1) and training 368.8 million people to serve as local officials and technical specialists (SDG 8). Using the same centralized project-management system, the government was able to mobilize a CN¥105 billion budget for health-care infrastructure (SDGs 3 and 9) over the three years of the pandemic.

China also benefits from its dual tools of “implementation plus finance,” which enable it to leverage Sinopec, CNPC, State Grid, LONGi Green Energy, and other relevant SOEs in the service of national goals. Though Sinopec is known as a major oil and gas company, it has pledged to achieve peak carbon by 2030 and carbon neutrality by 2050. Hence, in 2021, it broke ground on the world’s largest photovoltaic green hydrogen project, in Kuqa, Xinjiang. Meanwhile, power companies such as State Grid and Southern Grid have been developing carbon-credit trading and carbon-neutral bonds, as well as investing in clean energy and digitization to improve emissions management.

Different elements in China’s energy and infrastructure transition are being led by different levels of government, corporations, and financial institutions; but all of it is coordinated. For example, the National Development and Reform Commission is responsible for ESG (environmental, social, governance) considerations and the creation of a sustainable-finance policy, while state-owned banks have extended “green” loans to support various corporate initiatives.

From 2017 to 2021, China was the only developing country among the world’s top ten green-bond markets; and since 2021, it has ranked second (after the US) globally, with a CN¥27 trillion green-bond market as of June 2023. In 2022, with support from the central bank’s carbon-reduction finance facility, Chinese financial institutions issued green loans totaling CN¥750 billion, representing an annual reduction of 150 million tons of CO₂ equivalent.

But Chinese firms are facing headwinds when it comes to achieving economies of scale in solar and electric vehicles (EVs). The European Union recently announced a border-adjustment tax on imports of carbon-intensive goods, including cement, iron and steel, aluminum, fertilizers, electricity, and machinery. Many Chinese exports to Europe therefore will face higher levies, even though China has already reached globally beneficial economies of scale in other areas of energy- and carbon-efficient production.

Such policies risk discouraging investments in the energy transition. How major economies address the carbon-origin question in the context of today’s complex global value and production chains will be crucial. The lack of global consensus will almost certainly hamper progress toward the SDGs.

Copyright: Project Syndicate, 2023. www.project-syndicate.org

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