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China's economic development has long been sustained by high levels of environmental destruction and pollution. However, there have been signs of a change in approach in recent years, with it now being the number one renewable energy producer and being one of the leading countries in renewable energy technology.

The environment: an unambitious start, but China is getting greener

EdenTree Investment Management EdenTree Investment Management Responsible Asset Manager
Edentree Insight reports

China on the world stage: What it means for responsible investors

EdenTree Investment Management


Responsible Asset Manager
24 Mar 2021

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Chapter 2

The environment: an unambitious start, but China is getting greener

China’s economic development has long been supported by unsustainable exploitation of natural resources and significant greenhouse gas emissions. A damning report by the US Department of State draws a dirty picture of the country’s environmental problems:

"the world’s largest emitter of greenhouse gases; the largest source of marine debris; the worst perpetrators of illegal, unreported, and unregulated (IUU) fishing; and the world’s largest consumer of trafficked wildlife and timber products1."

Poor environmental practices have an impact not just in China, but on the rest of the world too, and present a challenge for responsible investors.

Today China is responsible for roughly 29% of global GHG emissions; particularly after the turn of the millennium, emissions increased exponentially2.

Annual Fossil CO2 Emissions and 2019 Projections

Chine-Fossil-fuel-CO2-line

China has been the world’s largest emitter of greenhouse gas emissions since 2006 – although arguably, China is not to blame for all of this, as a lot of external production, and thus emissions, are effectively outsourced to the country – as a result of which, its emissions continue to rise. Of course having the largest population of any country in the world, contributes to those emissions, but it is worth noting that emissions per capita are higher in other countries including the US, Canada and Japan.

Another factor to take into account when assessing China’s contribution to global emissions is its dependency on coal; however it is worth remembering that the development of western economies was also powered by coal. In 2019, coal represented 52% of the country’s generating capacity and its coal fleet is significant. Between 2000 and 2019 China’s coal fleet grew five-fold and almost half of the world’s coal capacity is in China. China is also where we are seeing the largest expansion in capacity with many new plants being planned and built3.

China’s polluting and unsustainable environmental record is not limited to greenhouse gas emissions; its manufacturing leadership includes sectors with high environmental impacts including pesticides use, water consumption, energy use or air pollution. China is responsible for 27% of the world’s cotton production, 39% of the world’s paper manufacturing, 48% of the world’s coal, 50% of the world’s steel and 65% of global chemical and synthetic fibres4. A staggering 99% of heavy rare earths – a critical raw material for smartphones, batteries and many other modern technologies - come from China.

Whilst China is often associated with negative environmental impacts, there are encouraging signs that this is changing. Beijing is increasingly aware of its role as a superpower and the need to play its part in combating climate change and demonstrating wider environmental stewardship.

Whilst being the number one carbon emitter, it is also number one in renewable energy production, and a leading manufacturer of renewable energy technology, especially solar panels. Whilst coal represents the majority of the country’s energy mix, renewables are on the rise and represented 28% of the mix at the end of Q1 20204 - the majority comes from hydropower, but solar PV is seeing rapid growth. Three of the world’s 10 largest dams are in China, The Three Gorges Dam being the largest of all, with a capacity of 22,500MW.

Solar PV Global Capacity, by Country and Region, 2008-2018

Solar-PV-capacity-by-country-bar

Other promising signs of progress include the announced ban on imports of foreign waste and its flourishing green bond market. The biggest surprise came when Xi Jinping announced China’s pledge to achieve carbon neutrality before 2060. The announcement also included a commitment to peak emissions before 2030 and raises the bar for other countries ahead of COP26 next year.

Many questions remain about China’s green path though. Whilst the recent announcements and investments in renewables are welcome and much needed, the country’s addiction to coal and the expanding fleet need to be addressed. In addition, abroad, through the ‘Belt and Road’ Initiative, China also exports its low environmental standards and funds major infrastructure projects that are alleged to have significant negative environmental impacts.

Sources

1. U.S Department of State, September 2020, https://www.state.gov/chinas-environmental-abuses-fact-sheet/

2. Global Carbon Project

3. Carbon Brief

4. China Water Risk, https://www.chinawaterrisk.org/the-big-picture/not-in-china-still-exposed/

5. IEA, https://www.iea.org/data-and-statistics/charts/electricity-mix-in-china-q1-2020

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