Abraham Energy Report

The media’s focus on the atmospherics of President Barack Obama’s recent trip to China overshadowed the actual achievements of the trip—a new spirit of energy and environmental cooperation between the two nations.  The President, Energy Secretary Chu, Ambassador Huntsman and their teams are to be commended for a robust energy cooperation agenda and the significant achievements resulting from the visit.

The “U.S.-China Joint Statement” highlighted a panoply of areas in which bilateral cooperation would be increased:  military, civilian aviation, space, health, agriculture, culture and education, legal, economic, trade and investment, counter-terrorism, nuclear non-proliferation and security.

But an entire section of the Statement was reserved for “Climate Change, Energy and Environment.”  This is hardly surprising, given the leading roles of the U.S. and China in the global climate change debate, particularly since the U.S. never joined the Kyoto Protocol and China, as a developing country, was not obliged to do so.

Yet, China is the world’s largest coal producer and consumer and the U.S. is second; combined, the two countries account for more than 60 percent of worldwide coal production and use.  China recently surpassed the U.S. as the largest source of greenhouse gas emissions.

CLIMATE CHANGE DATA FOR KEY CONTRIBUTORS
	US 2007	US 2020	PRC 2007	PRC 2020	EU 2007	EU 2020	India 2007	India 2020
Population (millions)	306	343	1327	1429	496	508	1123	1319
GDP (US$ trillion PPP)	14.1	18.1	7.6	18.8	15.1	17.9	3.1	7.1
Cumulative CO2 since 1890 (Gt)	333	404	104	208	276	322	31	52
CO2 (tons) emissions per capita	18.7	15.9	4.6	6.7	7.8	7.0	1.2	1.6
Energy demand (Mtoe) per capita	7.6	6.7	1.5	2.2	3.5	3.4	0.5	0.7
Source: International Energy Agency, World Energy Outlook 2009, Paris, October 2009

With so much at stake, the two sides reached agreement on cooperation in seven specific areas:

1. A U.S.-China Clean Energy Research Center.  The two presidents announced the establishment of the center to facilitate joint research and development of clean energy technologies, with public and private funding of at least $150 million over five years.  Initial research priorities will be energy efficiency in buildings, clean vehicles and clean coal technology, including carbon capture and storage.
2. A U.S.-China Electric Vehicles Initiative. The initiative will include demonstration projects in more than a dozen cities, joint standards development, technical road mapping and public education projects.
3. A U.S.-China Energy Efficiency Action Plan. Under the plan, the U.S. and China will work on improving the energy efficiency of buildings, industrial facilities and consumer appliances.  They will develop, with their business sectors, energy efficient building codes and rating systems, benchmark industrial efficiency, train building inspectors and industrial facility energy auditors, harmonize test procedures and performance metrics for consumer products and exchange best practices in energy efficiency labeling systems.  A new U.S.-China Energy Efficiency Forum will be held annually, rotating between the two countries.
4. A U.S.-China Renewable Energy Partnership. They will develop roadmaps for widespread renewable energy deployment in both countries, including support for state and regional efforts.  A new U.S.-China Renewable Energy Forum will be held annually, rotating between the two countries.
5. 21^st Century Coal. In addition to efforts under the Clean Energy Research Center, the two countries are actively engaging industry, academia, and civil society in advancing clean coal and CCS solutions.  The two presidents also welcomed a number of bilateral commercial clean coal technology efforts.
6. A Shale Gas Initiative. Both countries will use experience gained in the U.S. to assess China’s shale gas potential, promote environmentally sustainable development of shale gas, conduct joint technical studies, and promote shale gas investment in China through the U.S.-China Oil and Gas Industry forum and other venues.
7. A U.S.-China Energy Cooperation Program. The program will leverage private sector resources for project development work in China on renewable energy, smart grids, clean transportation, green buildings, clean coal, combined heat and power, and energy efficiency.  More than 20 companies are founding members of the program.

During the Asia-Pacific Economic Cooperation (APEC) Leaders’ Meeting in Singapore,  President Obama joined in a statement that lowered expectations for Copenhagen.  The President expressed support for a proposal from Danish Prime Minister Lars Lokke Rasmussen to pursue a two-step process at the Copenhagen summit:  formulation of a nonbinding, but comprehensive and operational agreement by the 192 nations at the summit for reductions in greenhouse gas emissions and aid for developing nations to adapt to climate change, while also promising to work toward a binding global pact in 2010.  The binding pact would include firm emissions targets, enforcement mechanisms and specific pledges of aid to poorer nations.

A week after his return from Beijing, President Obama announced that he would attend the Copenhagen climate talks and pledge a provisional target for a reduction in U.S. greenhouse gas emissions.  According to Administration officials, the pledge would be to reduce GHG emissions 17 percent below 2005 levels by 2020 and 83 percent by 2050.

The day after the President’s announcement, China’s Foreign Ministry spokesman Qin Gang announced that Chinese Premier Wen Jiabao also would attend the Copenhagen climate summit.  The same day, China’s State Council, its highest policy-making body, stated that China would reduce the intensity of carbon dioxide emissions per unit of GDP in 2020 by 40 to 45 percent compared with the 2005 level.  Since China’s economy is expected to continue its strong growth, the “carbon dioxide intensity” reduction does not imply any actual reduction in carbon dioxide emissions.  Perhaps China learned from the U.S.  Reducing carbon dioxide intensity, rather than carbon dioxide emissions, was an alternative solution that then President George W. Bush unveiled to skepticism in February 2002.  But unlike the Bush plan, the Chinese energy intensity proposal is receiving positive reviews.  The White House reportedly welcomed “China’s intention to cut the growth of their emissions” and noted “the international community will be closely analyzing this proposal.”

Connie Hedegaard, Danish minister for the UN Climate Change Conference in Copenhagen and, until Nov. 24, Danish climate and energy minister, observed that the “U.S. and China have come forward.   This is good news.  However, we must analyze more carefully what the new Chinese announcement translates to” compared to business as usual. On the U.S. targets, she commented that they “might not be what the world has been hoping for, but that the U.S. seems to know that the price for coming late is that the pathway for reductions after 2020 will be extra steep.”  Hedegaard has been named the next EU climate commissioner.

The President had to navigate treacherous waters between China and the U.S. Congress on climate change.  While the U.S. House of Representatives already has passed a climate change bill with cap-and-trade provisions and U.S. emissions targets, consideration of a bill by the U.S. Senate will not occur until next year.  China has made clear that developing nations, including China, should not be asked to take on binding targets before developed countries, including the U.S., who contributed most of the existing greenhouse gas concentrations do.  Congress, especially the Senate, has made it equally clear that the U.S. should not be expected to take on binding emissions targets—and the trade disadvantages that could ensue—without binding targets on the large developing countries—particularly coal-dependent China and India, both of which will account for the bulk of emissions growth.

Whatever the outcome at Copenhagen, both the U.S. and China, in their national stimulus programs and in the joint efforts announced during the President’s visit in Beijing, are committing their countries to lower-carbon futures. Those commitments have come in economic and policy incentives to become more energy efficient, to advance the penetration of renewable and nuclear energy, to foster alternative fueled vehicles, to use coal more cleanly, and to promote domestic production and use of natural gas.

The extensive effort put forward by the Administration on energy and environmental cooperation with China is unprecedented, and it opens up a realm of possibilities going forward for both nations in terms of their economic, energy and environmental futures.

Analysis by Abraham Energy Report Contributing Editor Robert Price