It excites us to see China and US setting the largest carbon market. We believe the trading of credits is key to full buy in from large multi-internationals. This will give new life to the global economy while pushing huge investments in efficiency and renewables.
We also love seeing electricity markets get competitive. Too long utilities have enjoyed monopoly status. Many have abused their single domination of a market. They have stood in the way of our flight to a clean energy economy. Let's rein them in with renewed competition. Open up these power-provider markets and let new players come change the playing field.
This is a great agreement. Let's put the pieces in place quickly to meet its lofty goals.
Today’s joint announcement by President Obama and President Xi represents the second time in two years the leaders have met to make significant climate commitments. Last year’s meeting focused on setting aggressive goals that reflect each country’s unique situation. This year’s meeting moved decisively to implementation commitments intended to deliver these results. The message is clear: the time for talking about climate is over. The two largest economies and emitters must lead in action.
The commitments by the countries are sweeping and perhaps the greatest cause for hope yet in international attempts to address global warming—especially looking forward to COP21 in Paris this upcoming December. Among the outcomes are the creation of the world’s largest carbon market, market reforms within China that will help support accelerated renewables development, redoubled support of the Clean Power Plan initiatives to reduce carbon intensity of the U.S. electricity grid, codes and regulations to improve energy efficiency in buildings and transportation in both countries, and a commitment by both countries to control other important greenhouse gases including methane and HFCs.
Importantly, both countries also committed to ongoing research on necessary global warming solutions, as well as the promise of more than $6 billion in financing to support developing countries in their adoption of similar solutions.
China’s strategy for delivery is an audacious combination of top-level reforms and bottom-up implementation. Specific highlights from the announcement include:
- Creation of the world’s largest carbon market: China has committed to use a national cap-and-trade system to efficiently limit and price carbon pollution starting in 2017. The system will cover all the largest emitting sectors in China, including power generation, iron and steel, non-ferrous metals, chemicals, cement, and pulp and paper. This market will build heavily upon the experiences learned from its seven city-level carbon market pilots. Given its expansive scope, this market will likely cover approximately 60 percent of China’s energy-related carbon dioxide emissions, which were roughly 10 billion metric tons last year.
- Moving toward a competitive electricity market: China has announced it will implement an "environmental dispatch" system for its electricity sector. Historically, China has had dispatch quotas on fossil generation, often leading to curtailment of renewables and the running of inefficient coal plants. In the first half of 2015 this has led to curtailment of 15 percent of wind and 10 percent of solar generation. In this announcement, China has committed to embrace competitive power dispatch that prioritizes the emissions-free, near-zero marginal dispatch cost of renewables. Our research suggests making this shift nationally should result in an immediate reduction of 200 million metric tons of carbon emissions per year, but more importantly, supports the economic expansion of renewables over time as investors gain enhanced certainty of the market rules governing their investments.
- Greening new buildings: Half of all new urban buildings in China will meet green building standards by 2020. Buildings-sector energy demand drives roughly one-quarter of the carbon emissions in China, and is a fast-growing segment. Our estimates suggest nearly three-quarters of the economic opportunity to save energy and carbon in buildings through 2050 lies in buildings yet to be constructed. Furthermore, due to construction and material quality issues, the average lifetime of buildings in China is about thirty years, less than half the lifetime typical in Western economies. By improving efficiency and material quality standards for new buildings, China can reduce the emissions of these buildings as well as those from the steel mills and cement kilns proving raw materials. Some of the most-efficient green buildings in China, such as passive multi-family structures in Qinhuangdao, reduce total energy consumption by 65 percent against typical standards. Focusing on ensuring at least half of all new buildings meet green construction standards stands as a strategic and significant lever to reduce Chinese national emissions.
- Accelerating truck efficiency improvements: Two-thirds of China’s transportation energy is consumed by medium- and heavy-duty trucks moving construction materials and commerce within the country and to its ports. China has committed to improve fuel efficiency standards on these vehicles and implement them by 2019. We see economic technologies such as aerodynamics modifications, improved tires and pressure monitoring, engine energy-recovery systems, hybridization, and electrified auxiliaries as key ways that could allow China to reduce fuel consumption by up to 50 percent over time. This new efficiency standard can help dramatically shrink the sector's roughly 600 million metric tons of annual carbon emissions.
- Pioneering cities taking the lead: As front-runners on the pathway to low-carbon development, last week at a U.S.-China Climate Leaders Summit in Los Angeles, China announced its Alliance for Peaking Pioneer Cities as a primary implementation vehicle for its national policy. This group of 11 cities and provinces from China committed to peaking carbon emissions before 2030. The cities assembled represented roughly 1.2 billion metric tons of collective emissions annually (on par with Brazil or Japan), and based on our estimates could contribute 500 million metric tons of annual emissions reductions by 2030 through successfully championing the ideas above in the industry, electricity, buildings, and transportation sectors.
The United States’ commitments are equally ambitious, and highly complementary, including:
- Strengthening the Clean Power Plan: The recently finalized Clean Power Plan will cut U.S. carbon emissions from the power sector by 32 percent below 2005 levels and will reduce particle pollution, nitrogen oxides, and sulfur dioxide by more than 25 percent. The plan will avoid up 6,600 premature deaths, up to 150,000 asthma attacks in children, and up to 490,000 missed work or school days—providing up to $93 billion in climate and public health benefits. It also aims to shrink electricity bills roughly 8 percent by increasing energy efficiency and reducing demand. States that choose not to act on their own implementation plans will be subject to federally determined carbon emissions standards for power plants beginning in 2016.
- Improving fuel efficiency standards of trucks: The U.S. (along with China) has agreed to finalize fuel efficiency standards for new heavy-duty vehicles and to implement them in 2019. According to research from Rocky Mountain Institute and Carbon War Room, the North American trucking industry can cost effectively save $40 billion per year on fuel and reduce CO2 and other pollutants by 20 percent.
- Efficiency standards for appliances and equipment: By the end of 2016 the U.S. will finalize over 20 efficiency standards for appliances and equipment. This step will contribute to the U.S. goal of avoiding 3 billion metric tons of carbon dioxide emissions through efficiency improvements by 2030.
- Controlling methane and HFC emissions: The U.S. announced two new standards to limit methane emissions from landfills. This announcement builds upon a January 2015 commitment to reduce methane emissions from the oil and gas sector by 40 to 45 percent of 2012 levels by 2025. Both standards will be implemented in 2016. These actions are critical, as the effects of methane on climate change are 25 times greater than those of CO2 over a 100-year period. Additionally, the U.S. EPA recently announced that it will prohibit some of the most-damaging forms of HFCs from several end-uses in 2016. China has matched this commitment with plan to reduce HFCs that includes steps to reduce HFC-23 emissions before 2020.
Jointly, the countries have also committed to extending research collaboration efforts on energy and water issues, and strengthening bilateral collaboration at the national and city levels to help accelerate clean energy solutions.
These agreements represent a significant step forward for both countries, and they also simultaneously propel global progress. In support, the two countries have pledged $6 billion in additional funding to support similar low-carbon solutions in the developing world. But beyond that, the collaboration moves the global dialogue beyond national commitments and target setting to practical actions aligned with arresting climate change below the 2 degree Celsius threshold. This results-orientation cannot help but influence the upcoming climate talks in Paris, and the two presidents are clearly aligned on the importance of this event in securing national commitments, strategic delivery plans, and a focus of achieving a complete, low-carbon, global transformation by the end of this century.
Today’s announcement is a sign of great leaders taking great initiative toward a common goal, and should be a cause for inspiration for us all in our progress toward addressing the critical issue of global warming.
Rocky Mountain Institute has been working together with China’s Energy Research Institute (an energy think tank under the National Development and Reform Commission), Lawrence Berkeley National Laboratory, and Energy Foundation China on an extensive research project over the past several years to understand the role of energy efficiency and clean energy in transforming China’s energy economy. Some of this research has been used to inform the above discussion, though all calculations have been independently performed by RMI.
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