By Kenneth Rapoza, CPA Industry Analyst
China is increasing its coal capacity at a time when the US and Europe are increasingly worried about climate change.
The Biden administration has come out with at least two major talking points (three, if you count diversity and inclusion) since winning the White House. Both run counter to China.
Two of them were discussed this week. First: the State Department is sticking with the Trump administration’s late call on Xinjiang, China committing genocide against Uyghur Muslims, a human rights tragedy. Two: Biden and his Canadian counterpart Justin Trudeau said they will treat polluting nations differently on trade. What does this mean for China trade policy in the Biden era?
At the very least, these two issues call into question China’s Most Favored Nation (MFN) trading status with the US, something it has had for over 20 years. MFN status allows countries to trade with the United States in ways that non-MNF countries cannot.
On Xinjiang, we have already seen the Department of Homeland Security target certain sectors of the Xinjiang economy – namely cotton, tomatoes, and its derivatives. What’s next? A carbon tariff? If so, what country is riper for one than China? Maybe India, which is becoming a strategic ally in Asia.
A recent report in Reuters provides some insight here.
China connected some 38.4 gigawatts of new coal-fired power into operation in 2020, according to new international research, more than three times the amount built elsewhere around the world. We believe China is doing this, only to unplug them in order to show Washington and Brussels that they are making good on their promises to join them into a post-carbon future.
China’s coal-fired utilities increased their output by a net 29.8 GW in 2020, while the rest of the world made cuts of 17.2 GW, according to the Global Energy Monitor, a US think tank, and the Helsinki-based Center for Research on Energy and Clean Air (CREA).
“The runaway expansion of coal-fired power is driven by electricity companies’ and local governments’ interest in maximizing investment spending, more than a real need for new capacity,” said Lauri Myllyvirta, CREA lead analyst. That makes it easier for them to turn these off to claim climate change success.
While solar and wind are becoming a bigger part of China’s energy matrix, coal accounts for around 60% of energy consumption. It is one of the main reasons why China’s steel, aluminum and automotive manufacturing is much more polluting than it is here, and elsewhere.
China is in a bind. It could install more wind and solar – it already is the world’s leading solar manufacturer –but it needs fast, and cheap power to light up its factories and continue is position as the world’s go-to manufacturing hub.
Since 2011, China has consumed more coal than the rest of the world combined. China’s industrial sector is by far the largest consumer of coal. In 2018, the industrial sector accounted for around two thirds of China’s total energy consumption and consumed more than 95 percent of the country’s coal.
Trudeau told Bloomberg News on Wednesday that his plans to deepen “climate cooperation” with the US includes joint policies that take “into account the emissions profiles of industrial (trade) competitors around the world.” He said that some countries “are producing without having the same kinds of leadership on climate change that the US is bringing into place and that we already have.”
If the US is on board, it begs the question how Washington will confront China on this. And can they do it within the confines of the World Trade Organization. Would a carbon tax on China, but not on India, make any sense?
CPA’s stance is that if a carbon tariff is to be imposed, it is best to impose it on all imports from high carbon countries, rather that sorting this out on a per-product, per country basis. “If they have high pollution in absolute terms or as percent of GDP, then we should tariff them if we are going to use environmental rules to decide trade relations,” says CPA CEO Michael Stumo.
In her Senate hearing on Thursday, future USTR Katherine Tai said, “trade policy has a lot to contribute to the climate effort. Climate is a collective challenge and will require a collective solution. The rest of the world is coming up with their own solutions. That means that as other economies begin regulating this area differently, the environment becomes a part of our competitive landscape.”