PERS VIEW – Climate Colonialism

PERSONAL VIEW – Climate Colonialism

NOT RESEARCH – PERSONAL VIEWS ONLY

Just my musings where I try to connect the dots of the things that registered with me recently

Any/all comments most welcome

Over the past years I did pick up a thing or two about China. Reading “Red Roulette”, listening to a board member of a large company who was in his career Executive Chairman in China, the Macquarie presentation on the energy consumption/intensity targets and the COP26 reactions on the actions by China (and India) made me realise that “ The West” is missing in danger of seriously misreading what is happening there.

I was in a client meeting with James Rydge, and an off the cuff remark, to nobody paid much attention, was that the UK “CO2 reduction success” was the move from Coal to Gas, but most importantly, was by offshoring carbon intensive industries.

So when “Europe” points its finger at the US and at EMs, telling that Net Zero should be Near Zero, that off-setting should become reducing, they might want to think about the journey their batteries and steel in their EVs made. Scope 3 implementation can’t come soon enough.

We have been here before

Since the late 1990s, the trend of plastic waste shipment from developed to developing countries has been increasing. In 2017, China announced an unprecedented ban on its import of most plastic waste, resulting in a sharp decline in global plastic waste trade flow and changes in the treatment structure of countries

China was the main importing country of plastic waste and the largest plastic producer in the world. Before the ban, Chinese annual imports of plastic waste reached 8.88 million tons, with as much as 70.6% buried or even mismanaged, triggering a series of environmental problems.

To mitigate this situation, on July 27, 2017, China issued a new ban named Prohibition of Foreign Garbage Imports: The Reform Plan on Solid Waste Import Management, banning its import of 24 types of solid waste which included plastic waste. This abrupt ban prompted changes in both the short and long run in global plastic waste trade flow patterns as well as plastic waste treatment systems and mechanisms in many countries.

In 2018, the trade flow of global plastic waste plummeted by 45.5%, and China’s imports plunged by 95.4% compared to Baseline levels. The decreased amount of global trade flow and Chinese import flows had the same number of digits (6,503,977 tons for the world, and 7,596,188 tons for China). As the main alternative destinations, the total imports of Southeast Asia surged to 362% against the Baseline Scenario.

Just one recent example where the chest pumping, self-congratulatory “recycling West” just moved their waste from China to Southeast Asia.

Now I was thinking…

What if China, where the governors of all provinces and the major cities, are all more important in the party hierarchy than the minister of foreign affairs, and the governors performance assessments following the 14th five-year plan, now also includes a reduction of energy consumption, besides economic growth. What if they decide that they no longer want to consume energy for the export?

What if China decides that in stead of a Carbon Border Adjustment Tax, they will impose and Carbon Export tax?

It totally would be logical. China’s Private Consumption accounted for only 37.7 % of its Nominal GDP in Dec 2020 — a lower ratio than in every other major economy in the world by far. The US is at 68.5%, the UK at 60.8, Germany at 49.3.

This is an interesting point – should goods exporting countries not impose a levy to importing countries for they pollution that outsourcing production has caused? If China was to do this, would flows divert, much like with the waste ban, and would the US, UK and EU simply place their polluting production in Africa or Southeast Asia?

Hard not to be cynical. I do believe in a carbon tax system worldwide. There is a cost that needs to reflect the impact of GHG emissions. The question is, should a ETS pay for a “just transition” in the West – where the UK has halted its planned fuel duty rise, where France has banned energy price rises, where Biden points his finger to OPEC and not to efficiency standards – or should it go to assist the Emerging Nations in transforming their efficient production facilities to be the most environment friendly possible. Clearly the West seems unwilling to alter their behaviours.

If the issues of the supporting the EMs with $100bn is anything to go buy, it seems that Environmental Colonialism is here a little while longer. Perhaps time to talk about production and consumption in a more holistic way. Perhaps time to get serious about Scope 3 analysis.

I believe “producing nations” have every right to impose a carbon levy, reflecting the effects of that production. Hopefully it will lead to the best possible capital allocation, one including serious investments in cleaner production. Off-shoring production, off-shoring recycling, should be called out. This is a global problem that needs a global solution.

As a thought experiment, you should run a scenario where China and other exporters do impose a carbon export tax. I’m sure you will find a quite revealing.

China’s 14th five-year plan - details on China’s Carbon Reduction (as per TWTW 43/21)

When you talk about Energy Transition in China you need to see this in the context of the 14th five-year plan.?Following a week-long meeting, the National People’s Congress (NPC) of China in March, formalised the “outline for the 14th five-year plan and long-term targets for 2035”.

In short, the five-year plan’s outline sets a 18% reduction target for “CO2 intensity” and 13.5% reduction target for “energy intensity” from 2021 to 2025. For the first time, it also refers to China’s longer-term climate goals within a five-year plan and introduces the idea of a “CO2 emissions cap”, though it does not go so far as to set one.

This year’s two sessions carry extra significance because they also oversaw the approval of the nation’s next “five-year plan” – the 14th in a series stretching back to 1953. They were also held just months after Chinese leader Xi Jinping announced China’s new ambition to enhance its climate pledge for 2030 – its nationally determined contribution under the Paris Agreement – and to reach “carbon neutrality” by 2060.

This year, Chinese leaders gathered at the Great Hall of the People in Beijing to cast their gaze on the nation’s post-coronavirus economic growth. They have also set key energy and climate targets that will guide the country over the next five years, in addition to setting long-term “prospects” for 2035. This provides policymakers with a “direction of travel” for what they have to deliver over the next 15 years.

Owing to Xi’s pledge last September, “CO2 emission peak” and “carbon neutrality” were two of the most popular topics among the sessions’ participants this year. For example, influential participants from energy companies, heavy-industry manufacturers and technology firms introduced a series of proposals at the two sessions on ways to reduce the nation’s emissions.

So, the cut in production was not just a spat with Australia that left coal stranded at the customs of the several ports. This was a sign that Xi was serious about this painful but necessary Energy Transition.