China, Germany Lead the Race Toward a Low-Carbon Economy

Without National Policies, U.S. Will Lag Behind in a Growing Industry

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As countries around the world set emissions targets and ramp up their national climate policies, the race toward a vibrant low-carbon economy is under way, and there is a growing consensus that the United States will not take the lead.

A report from Deutsche Bank Group’s Climate Change Advisors found that when considering all of the world’s major emissions and climate change policies as a measure of movement toward a low-carbon economy, China and Germany are extremely well positioned. The U.S., meanwhile, lags far behind.

“The countries that move first to a low-carbon economy are definitely going to have a head start in terms of relative growth rates,” said J. Scott Holladay, an economics fellow at New York University School of Law’s Institute for Policy Integrity.

“In the not-too-distant future there is going to be a huge market for green energy, and it feels like the Scandinavian countries and Germany are leading that charge, and China is quickly catching up. In the U.S., it doesn’t seem to be a huge policy priority.”

Gigaton by Gigaton

The Deutsche Bank report identified 154 new policy initiatives announced in countries around the world since October, clearly representing the run-up and then follow-up to the Copenhagen climate summit in December.

The new emissions pledges would result in a reduction of annual emissions of about 2.8 gigatons. Add that to all the emissions policies already in place, and, if implemented successfully, they could reduce emissions by 9 gigatons in 2020. That would still fall 3 to 5 gigatons short of the goal of the “stabilization pathway” — the total needed to keep CO2 levels below 450 parts per million and the global temperature rise less than 2 degrees Celsius.

Notably, the biggest contributors to the additional 2.8 gigatons of emission reductions since October are China and Brazil.

China set a target for emissions intensity reduction, which is a measure of greenhouse gases released per unit of GDP, of 40 to 45 percent below 2005 levels by 2020. Brazil set a hard emissions target of about 20 percent below 2005 levels by 2020. Each would result in almost a gigaton of emissions reduction on its own.

“Based on that, you can assume that there will be a market response,” said Kate Brash, assistant director of the Columbia Climate Center at Columbia University and part of the modeling team that contributed to the Deutsche Bank report. “The ambition is clearly not particularly high [in the U.S.].”

Germany already leads the pack in many ways, having long ago established feed-in tariffs that reward consumers for producing renewable electricity and feeding their excess power into the grid; the Deutsche Bank report calls feed-in tariffs “an integral underpinning of any prosperous green economy.”

China, meanwhile, has installed renewable energy capacity per unit of GDP that exceeds both Germany and the United States. Last year, it became the world’s largest investor in clean energy, putting $34.6 billion into low-carbon technologies, almost twice the U.S. investment, according to a report from Pew Charitable Trusts. As Holladay points out, though, this may position the country well economically, but it does not imply much about its environmental and global warming mitigation potential.

“The rubber meets the road when you look at emissions per GDP data,” he said. “The renewables are a step in the right direction, but when you look at the emissions per person or emissions per GDP data, I think the U.S. and China are both kind of lagging.”

A Chunk of $2.3 trillion

Purely economically, though, the world’s most populous country is embracing a green revolution. According to another report on low-carbon transitions by the Center for American Progress, clean energy will be a $2.3 trillion industry by 2020, and China will be right in the middle of it.

China, along with Germany and Spain, has multiple national policies that position it well for the next decade. All three countries have something resembling a government-run “green bank.” The China Energy Conservation Investment Corporation will have about $15 billion in assets by 2012, consisting of energy efficiency and renewable energy technologies, among other things.

“Each of these countries has a long-term, sustained plan of how to ramp up clean energy industries and also lower carbon emissions,” said Kate Gordon, one of the CAP report’s authors and the organization’s vice president for energy policy. “And the U.S. has 100 percent short-term and state-by-state policies. They’re not comprehensive; they’re scattershot.”

Comparing the U.S. to these countries in any number of environmental or economic measures shows the widening divide. Germany, China and Spain all have feed-in tariff programs, while in the U.S., only a small handful of states have even experimented with the idea. All three countries also have national renewable energy standards, energy efficiency plans and carbon emission reduction plans. The U.S. has none of these on the federal level.

Playing Catch-Up

Holladay thinks that the United States’ slow start won’t necessarily keep it down forever.

“I wouldn’t say it spells economic doom for the United States,” he said. “Energy is a significant fraction of our economy, but so much of the U.S. economy is service-based now that you could imagine us continuing to do relatively well in terms of growth with below-average energy policy, or low-quality energy policy that doesn’t take into account the changing international landscape.”

Furthermore, both the Deutsche Bank and Center for American Progress reports use current policy — which includes state and local initiatives along with federal law — as the context. With Sens. John Kerry (D-Mass.) and Lindsey Graham (R-S.C.) set to unveil a compromise climate and energy bill on Capitol Hill soon, some of those parameters could change. If they do, Holladay thinks lost economic ground can be made up.

“If there was some sort of pricing on carbon, the U.S. economy is uniquely suited to take advantage of those kinds of changes and develop new technology,” he said. “You would imagine that we would have a good chance of catching up to the pack quickly. But that first part is a big ‘if.’”

Gordon agreed that putting a price on carbon would start a radical shift in economic progress, as would setting a national renewable energy portfolio standard.

“Every country we looked at has a renewable energy standard at the national level,” she said. “Having a renewable energy standard sends a message that we’re serious about this, but also sets a goal. So that would change the dynamic as well.”

She pointed out that in spite of the long-standing complaints that the Kyoto Protocol did not work well to start bringing down carbon emissions around the world, there are some measures indicating that signatories to the agreement saw some economic benefit.

Countries that did participate in Kyoto saw an average increase in renewable energy technology patent applications of 33 percent since the time they signed. Over the same period, notable abstainers Australia and the U.S. saw no measurable increase.

Such measures would most likely change, though, if some of the proposed measures on Capitol Hill pass.

“There is no question that a piece of national legislation that made a strong statement about a commitment to a low-carbon future would change the game,” Gordon said.


See also:

China Sets 2020 Emissions Target in Interest of National Security

China Beats US to Offshore Wind Development

World’s Readiness for Low-Carbon Future Continues to Drag