In recognition of its outsized historic and per capita emissions, the US should agree to economy-wide emissions reductions in line with domestic climate legislation currently being considered. China should be excused from consumer-related obligations for the time being, but assume commitments on industrial production based on the recognition that effectively reducing emissions in these sectors requires coordinated international action.
China’s leaders are already eager to rein in energy and pollution-intensive industry for reasons of national security, air and water quality, and simple economic efficiency. The production of steel, cement, chemicals, paper, and aluminum alone account for nearly half of China’s energy needs and generate nearly half of the air pollution that claims more than 300,000 lives and costs the economy close to US$100 billion each year.
Yet these five industries combined employ only 14 million people out of a total labor force of 770 million and fewer people than they did a decade ago. For a country in an employment crisis, investing in energy-intensive industry is a losing strategy. Using climate policy to discipline these industries would help rebalance the economy while taking a bite out of China’s emissions. If China imposes a carbon price for its energy-intensive manufacturing industries, the US won’t need to do so at its border, lowering risks to the international trading system on which both countries rely.
The current crisis is already unwinding some of the imbalances that drive both countries’ energy and environment challenges. US oil demand has fallen 8 percent as consumers tighten their belts, and electricity demand in China is down by 10 percent as energy-intensive industries cut production. A smart response to the crisis can perpetuate these trends.
Future US consumption will be greener and the cost of climate policy reduced, if the US recovery package includes money to weatherize homes, upgrade the electricity grid and help the auto industry improve fuel efficiency.
If China consolidates its energy-intensive manufacturing, thereby freeing up investment capital for lighter manufacturing and services, then it will emerge from the crisis with a growth model that pollutes less and employs more. If the US and China can find agreement on these issues in the midst of crisis, they will pave the way for success when climate negotiators meet again next year in Copenhagen.
Trevor Houser is a visiting fellow at the Peterson Institute for International Economics in Washington.
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