Increased manufacturing offshoring and industrial activity may prevent China from reaching its commitments, despite a booming renewable energy sector.

By Paul A. Davies, Kimberly Leefatt, and R. Andrew Westgate

China’s carbon emissions increased by 4% in the first quarter of 2018 — marking the biggest hike in carbon emissions in the last seven years, according to an article published by China Economic Review. Increased industrial activity is due in large part to the government’s financial support of furnaces and kilns meant to stimulate the economy. However, industrial growth could prevent China from achieving its Paris Agreement targets, despite the country’s reduction in coal use and commitment to promoting renewable forms of energy.

Increasing Carbon Emissions

China is responsible for approximately 30% of global carbon emissions. In fact, China emits twice the amount of CO2 per dollar of gross domestic product compared with the United States, and more than in the European Union.

The country further contributes to global carbon emissions by exporting its manufacturing to other fossil-fuel intensive economies such as Vietnam and Bangladesh, which may increase their carbon emissions until 2030 under the Paris Agreement. While offshoring was meant to cater to the demands of China’s expanding middle class, companies have also chosen to relocate abroad to save on labor costs, in part as a response to new tax rules that favor service industries as opposed to heavy coal industries. Therefore, while China’s outsourcing may be detrimental to the Paris Agreement’s global target, this activity will also help China meet its individual Nationally Determined Contribution under the Paris Agreement.

The increased use of coal, gas, and oil means that China’s carbon emissions are up by 1.4% compared with last year. Consequently, drastic government action will be required if China is to have any hope of achieving its targets under the Paris Agreement. As part of its commitments under the Paris Agreement, China has pledged to reach peak carbon emissions no later than 2030. However, if China’s carbon emissions continue to climb at the present rate, the country’s emissions could peak well beyond 2030. Climate Action Tracker deems China’s Nationally Determined Contribution under the Paris Agreement to be “highly insufficient,” as China’s current policies do not even align with the 1.5°C goal. China did, however, meet its 2020 carbon intensity target in 2017.

Growing Energy Demand and Consumption

Although China is home to a booming renewable energy sector, it lacks the capacity to keep up with higher growth in energy demand and consumption. In 2017, China invested more than US$85 billion in solar energy, expanding solar capacity from 30 to 53 gigawatts and accounting for 50% of global investment in solar energy. But during the same period, the lack of rainfall has hindered production from the country’s hydroelectric dams, requiring carbon-intensive coal substitutes.

A Challenging Path Forward

Whether China will implement sufficiently stringent measures to counter its increasing emissions and meet its Nationally Determined Contribution remains to be seen. However, policymakers must be mindful that even if China achieves domestic reduction of carbon emissions by outsourcing carbon-intensive production to less developed countries, the overall goals of the Paris Agreement would be undermined.

Latham will continue to monitor China’s progress in meeting its targets under the Paris Agreement.

This post was prepared with the assistance of Olivia Featherstone in the London office of Latham & Watkins.