Balancing Progress: Emission Reductions and Economic Growth in China

January 23, 2025
Balancing Progress: Emission Reductions and Economic Growth in China

The global community witnessed a significant milestone at the COP29 climate conference, where discussions underscored the imperative for companies to disclose their climate targets and actively contribute to the energy transition. This was emphasized against the backdrop of the UN’s 2024 Emission Gap Report, which highlighted that by June of the previous year, 107 countries, accounting for approximately 82% of total global greenhouse gas emissions, had adopted net-zero pledges. Moreover, over 9,000 companies committed to reducing global emissions by 2030. However, the question of how achievable these targets are remains pressing, particularly for China, the world’s largest emitter of greenhouse gases.

China’s role in the global climate initiative is indispensable. Despite its ambitious foray into renewable energy, the country’s carbon emissions have yet to reach their zenith. China’s swift renewable expansion is indicative of potentially stabilizing future emissions, a change that could significantly impact global trends. Nevertheless, the country’s economic growth slowdown and increased coal consumption threaten to impede energy intensity improvements and derail national carbon intensity targets. Understanding carbon intensity is essential, as it quantifies the amount of CO2 emitted per unit of GDP. Higher carbon intensity indicates a stronger dependence on emissions for economic growth. The hesitancy among Chinese firms to commit to climate action, as evidenced by the China Europe International Business School’s Lujiazui International Institute of Finance, intensifies this concern.

China’s Role in Global Emission Reduction

China’s status as a major carbon emitter renders it a critical player in the global fight against climate change. Despite its extensive investments in renewable energy projects, the nation’s carbon emissions remain alarmingly high. The growth of renewable energy infrastructure signals an eventual peak in emissions, which, if achieved, could substantially influence worldwide carbon trends. However, a conjunction of slowed economic growth and heightened coal use poses a challenge. These factors have fostered a deceleration in energy intensity progress, veering China’s carbon intensity goals off course, undermining its ability to reach established targets.

Carbon intensity, as a measure correlating CO2 emissions to economic output, is essential to comprehend China’s emission dynamics. Elevated carbon intensity reflects a heightened dependency on emission-producing activities to maintain economic growth. This is particularly concerning in a landscape where many enterprises remain sluggish in making climate commitments. A recent study from the China Europe International Business School’s Lujiazui International Institute of Finance spotlights this issue, revealing that numerous Chinese firms have yet to take meaningful action towards emission reductions. The study suggests that this inertia can be attributed to a combination of market forces and insufficient regulatory pressure to prioritize substantial climate initiatives.

Opportunities for Improvement

Despite these obstacles, opportunities for substantial improvement are on the horizon. China is poised to implement a comprehensive cap on total carbon emissions and refine its international trading regulations, which could hasten progress in emission reductions. These future measures are crucial in shaping a more sustainable industrial landscape.

Chinese businesses, especially publicly listed companies, must promptly align with legal requirements and public policies aimed at achieving net-zero targets. Motivations include mandatory disclosure obligations and the potential impact of public opinion on stock prices. In 2023, publicly listed firms in China reported revenues amounting to CNY 72.7 trillion (USD 9.9 trillion), constituting 57% of the national GDP. Data indicate that in 2019, scope 1 carbon emissions from these firms accounted for 18.3% of national emissions. Including scope 2 and 3 emissions, this figure surged to 43%. Given the accelerating sales revenue of listed firms over recent years, it is plausible that these percentages have only risen further. Thus, reducing emissions across the entire value chain is vital to meeting China’s climate pledges and commitments.

Scope of Emissions and Disclosure Challenges

Comprehensively reducing emissions across the entire value chain is paramount for China to meet its climate goals. Scope 1, 2, and 3 emissions cover direct emissions from a company’s operations, indirect emissions from energy usage, and emissions occurring throughout the product’s value chain, respectively. Addressing these emissions necessitates widespread cooperation and transparency from corporations. However, without mandates for climate-related disclosures, progress has been sluggish.

Most Chinese companies are not currently required to disclose climate-related information, and there is a notable absence of enforced carbon caps. The limited scope of existing carbon markets diminishes the pressure on companies to proactively cut emissions. Consequently, many corporate climate actions are driven by marketing considerations rather than substantive changes along the value chain. Typically, such strategies are implemented only when they coincide with increasing costs, diminishing their overall effectiveness.

Comparative Analysis of Emission Pledges

Analyzing the climate pledges and actions of major emitting companies globally reveals significant disparities. A review of two Bloomberg Terminal ESG business databases shows that 68% of heavily emitting firms have committed to climate pledges. Yet, the proportion is significantly lower for Chinese companies, with only 25% having made similar commitments. Comparatively, 80% of firms in Europe and Latin America, and 60% in North America and the Asia-Pacific region have made such pledges. Internationally, there has been a notable trend of reduced combined scope 1 and 2 emissions and a marked decline in carbon intensity over the past decade. In stark contrast, Chinese firms have experienced a 7.2% rise in median carbon emissions, and carbon intensity has only fallen by 9.7%.

Industry-Specific Emission Trends

Examining emission trends across various industries provides further insight into the challenges and progress of different sectors. The fuel-production and power-generation sectors have witnessed a reduction in carbon intensity due to the growth of renewables. However, the overall emissions have escalated due to rising energy consumption. Conversely, sectors such as metals and chemicals saw a 17% spike in emissions intensity, indicating an urgent need for more robust emission control measures.

In the manufacturing and technology domains, carbon intensity and emissions have seen minimal changes. However, the consumer goods and services sectors, including food, drink, retail, and tourism, demonstrated significant strides with reductions in both carbon intensity and emissions between 2016 and 2023. This progress is attributed to advancements in regulations and a shift towards electric vehicles and decreased reliance on single-use plastics, showcasing the potential for substantial improvement when adequate measures are enacted.

Future Trajectory and Regulatory Shifts

Looking ahead, the trajectory for Chinese firms indicates a future of more stringent emission reduction mandates. Beginning in 2026, China will transition from managing energy consumption to a focus on direct carbon emissions control. Guidelines from the Ministry of Ecology and Environment on measuring and reducing greenhouse gas footprints of products will form the backbone of these efforts. The expansion of China’s carbon markets in 2024, covering pivotal sectors such as cement, steel, and aluminum, is projected to increase national emission coverage from 40% to 60%, with further expansions expected.

Furthermore, carbon disclosure rules for listed firms are becoming increasingly standardized and stringent. In 2024, the People’s Bank of China, alongside other governmental entities, issued new guidelines on financing green and low-carbon development. Major stock exchanges in China have started mandating sustainability reporting for selected companies, including the requirement for greenhouse gas emission disclosures. Enhanced transparency regarding carbon footprints will empower investors to assess carbon risks effectively, fostering internal pressure on firms to mitigate these risks and streamline emissions.

Additionally, Chinese companies will face growing impacts from international carbon tariffs, such as the European Union’s Carbon Border Adjustment Mechanism (CBAM). Initially targeting industries like steel, cement, aluminum, and fertilizers, the CBAM is poised for further expansion. The UK is set to introduce its version of the CBAM in January 2027, and the United States is currently debating a similar carbon border tax, potentially affecting China’s key export sectors.

Conclusion

At the COP29 climate conference, the global community reached a crucial milestone, focusing on the necessity for companies to reveal their climate targets and support the energy transition. This comes in light of the UN’s 2024 Emission Gap Report, which indicated that by June of the previous year, 107 countries, representing around 82% of global greenhouse gas emissions, had committed to net-zero pledges. Additionally, over 9,000 companies have pledged to cut global emissions by 2030. Nevertheless, questions about the feasibility of these goals remain, especially for China, the largest emitter of greenhouse gases.

China’s role in the global climate effort is vital. Despite its significant investments in renewable energy, the country’s carbon emissions have not yet peaked. China’s fast-paced growth in renewable energy points to a potential stabilization of future emissions, which could greatly influence global patterns. However, the slowing of China’s economic growth and increased coal consumption pose risks to improving energy intensity and meeting national carbon intensity targets. Carbon intensity measures the CO2 emissions per unit of GDP, with higher values indicating a greater reliance on emissions for economic growth. This issue is compounded by the hesitancy among Chinese firms to commit to climate action, as highlighted by the China Europe International Business School’s Lujiazui International Institute of Finance, raising further concerns about the country’s ability to meet its climate goals effectively.

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