Original version in Spanish: Acuerdo climático Europa-China: construyendo el éxito de la crucial cumbre de Glasgow.
Governments around the world have reacted to the COVID-19 pandemic by placing 4 billion people in lockdown. The crisis has resulted in the biggest contraction to the global economy since the Great Depression in the run-up to the Second World War. Governments have mobilised US$9 trillion for the economic recovery.1
Yet so far, the response to the climate crisis has not been of the same scale in terms of its seriousness and the mobilisation of resources. Faced with a systemic crisis over the short, medium and long term as a result of the destabilisation of the climate system and the degradation of the biosphere, we are worse prepared. The response to this crisis has been an uphill struggle. It is three decades since the Intergovernmental Panel on Climate Change (IPCC) published its first synthesis report in 1990 and the situation has worsened significantly. We run the risk of losing control of the climate crisis altogether, resulting in an inhospitable planet, a scenario described as ‘Hothouse Earth’.2 Against the backdrop of an unpredictable US presidential election , an ambitious climate agreement between Europe and China will be key to building a renewed response from the international community.
This working paper highlights the importance of such an agreement. Given the current international outlook, it provides a credible lever to activate the rest of the international community to ensure the success of the 26th Conference of Parties (COP26), keeping the Paris Agreement alive and ensuring its credibility. COP26, which will take place in the Scottish city of Glasgow in November 2021, will be the most important since 2015. In the intervening 5+1 years, the messages of the scientific community on climate have taken on an increasingly alarming tone. We are now talking about a climate emergency. In the wake of the dramatic experience of COVID-19, this word has taken on specific connotations.
This paper explicitly acknowledges the many difficulties in key areas of the current relationship between the EU and China. Its message is simple and direct: there is currently nothing more urgent and important on the EU’s international agenda than raising the climate ambitions of the international community, particularly China, which is responsible for a quarter of global greenhouse gas emissions.
In its special report on the 1.5°C scenario, the IPCC argues that global emissions must fall by at least a quarter by 2030.3 This is the ambition that needs to crystallise in Glasgow. The climate emergency we are facing requires us to emerge from the Scottish summit with the hope of being able to bring it under control.
The economic context created by the COVID-19 crisis and the financial risks emerging from the energy system as a consequence of climate change and the energy transition both influence this priority. In terms of the economic context, the fundamental reference is the Sustainable Recovery report by the International Energy Agency (IEA) and the International Monetary Fund (IMF), published in June 2020.4 Describing the pandemic as the biggest economic shock since the 1930s, the agencies calculate that around 300 million people lost their jobs in the first half of 2020 and estimate that GDP will contract by around 6% this year. The expansive waves of this shock have had a systemic effect on the economy as a whole, including the energy sector, where investments in fossil technologies are expected to fall by 20%.
In response to this contraction, the IEA and IMF published their Sustainable Recovery report, setting out a plan for the next three years (2021-23). The plan is based on six priorities: electricity, transport, buildings, industry, fuel and emerging technologies. The IEA estimates it will create or preserve 9 million jobs, requiring an additional US$1 trillion investment each year. However, more importantly in the context of this paper the IEA argues that applying the measures in the plan would mean global CO₂ emissions will peak in 2019 before beginning a structural decline.
First, the plan includes measures to promote mature renewable technologies like solar and wind and accelerate the expansion of electricity transmission and distribution grids. To address the second priority, the plan advocates zero-emissions mobility, using both electric vehicles and rail transport. The third priority is based around systematically improving the efficiency of buildings. Fourthly, there is a call for more efficient manufacturing, textiles and food industries. In fifth place, the report advocates the production and use of cleaner fuels. Finally, it calls for innovation in areas such as hydrogen power, batteries and carbon capture and use.
The risks of the financial system have been comprehensively analysed by Carbon Tracker.5 Its report argues that the energy transition is already having a disruptive impact on the fossil energy system, with far-reaching consequences for the stability of financial markets (and international geopolitics), given the value of the assets involved. Carbon Tracker calculates the value of shares in the fossil sector traded on international financial markets to be US$18 trillion (a quarter of the total), in addition to US$8 trillion of bonds (half the total value).
The risk to the financial system comes from its exposure to a fossil system that is suffering from the market forces created by increasingly competitive and efficient renewable technologies and advances in public policy on climate, particularly in Europe. This means a growing number of subsectors of the fossil system are reaching peak demand, resulting in a structural decline in prices and profits and the appearance of stranded assets.6 The economic consequences of the COVID-19 pandemic, which has severely affected global transport and mobility (oil), have aggravated the underlying trends. For example, following losses of US$7 billion in the second quarter of 2020 and after cutting its dividend by half for the first time in a decade, the multinational BP has announced as part of its strategy to achieve zero net emissions by 2050 that it will reduce oil and gas production by 40% by 2030 and is embarking on a migration towards renewable energy.
Carbon Tracker estimates the difference in the value of the fossil system, as calculated by states with large oil and gas reserves (and to a lesser extent coal), and a scenario in line with the objectives of the Paris Agreement , which will see the majority of these assets (oil, gas and coal) remain in the ground, to be around US$100 trillion (to give a sense of scale, the World Bank estimated global GDP to be US$87.7 trillion in 2019).7 This enormous sum reflects the importance of an ordered and prudent energy transition. There are increasingly urgent demands from the regulatory and supervisory authorities of the financial system for its agents to analyse their exposure and associated risk and gradually prepare for an inevitable transition, avoiding the sudden bursting of the ‘carbon bubble’ and the systemic damage this would cause.
The EU would also like to see the vast sums of money mobilised as part of the recovery from COVID-19 pandemic aligned with the European Green Deal , which means supporting efficiency and renewable energy.8 In specific terms, the EU wants the distribution of resources to support the objectives of decarbonisation by 2030, reaching 50% to 55% of 1990 levels, instead of the current reduction of 40%. This forms part of the long-term strategic objective for the continent to be climate neutral by 2050.
The EU is at a critical juncture at which a number of major trends converge, involving a number of critical aspects. On the one hand, there is the acceleration of the climate crisis and the urgent demands from climate science to bring forward decarbonisation to ensure the objectives of the Paris Agreement remain viable. On the other, there is the need to reduce the exposure of the European and international financial system to risk. This comes against the backdrop of the European Council agreement to inject €1.8 trillion into the economy to modernise the productive and industrial base of the EU.
All this means that the climate agreement between the EU and China will be key to the success of COP26 in Glasgow in November 2021. The mitigation proposals presented at the summit by the various countries must allow the emissions trajectory to be reduced by at least 25% of the current level by 2030.
There will not be another climate summit at this level (involving heads of state and government from the majority of the international community) until 2025. As such, failure to deliver at the summit will endanger the emissions trajectory for the coming decade, since the time lag between decisions being adopted and their practical implementation on the ground leaves little room for manoeuvre at the next summit in 2025. And all the while the time available to bring the climate emergency under control is running out…
This paper begins with a synthesis of the main impacts of the climate crisis on the People’s Republic of China, based on studies by Chinese scientists. It also analyses China’s responsibility for greenhouse gas emissions. With 21.5% of the cumulative total between 1990 and 2019, the Asian country has been the largest emitter of CO₂ since the IPCC issued its first synthesis report. At present (based on data from 2018), it is responsible for 25% of global greenhouse gas emissions.
The paper then reflects on the geopolitical context created by the current US Administration’s strategy of containment towards China. It then analyses the key events and documents that have defined the relationship between the EU and China in recent years. After highlighting the turning point in the climate ambitions of the EU (the goal of a climate-neutral continent by 2050), the paper ends by setting out some minimums the EU must require of China for the mitigation of emissions as part of a broad and comprehensive agreement between the two powers.
This last aspect is especially relevant given the clash of narratives for the ‘green exit’ from the crisis after the pandemic. Some Chinese and European think tanks have argued that the most important aspect at present is not insisting on specific mitigation measures for the 2030 horizon but influencing the economic recovery and the creation of jobs, ensuring a push for renewable technologies.9
However, this approach is not enough to respond to the climate emergency. The EU must avoid adhering to a vague narrative that hides specific commitments: it is not enough to defend the ‘green character’ of the post-COVID economic recovery. The Glasgow summit must deliver specific goals for 2030 and long-term commitments to decarbonisation.
Antxon Olabe Egaña
Environmental economist and writer, author of the book ‘Crisis climática-ambiental. La hora de la responsabilidad’ (Galaxia Gutenberg, 2016) and adviser on climate change and the energy transition to the Cabinet of the Vice-President and Minister for Ecological Transition and Demographic Challenge of the Government of Spain.
2 Will Steffen, Johan Rockström, Katherine Richardson, Timothy M. Lenton, Carl Folke, Diana Liverman et al. (2018), ‘Trajectories of the earth system in the anthropocene’, PNAS, vol. 115, nr 33, p. 8252–8259.
3 IPCC (2018), ‘Summary for policymakers’, in V. Masson-Delmotte et al. (Eds.), Global Warming of 1.5°C. An IPCC Special Report on the impacts of global warming of 1.5°C above pre-industrial levels and related global greenhouse gas emission pathways, in the context of strengthening the global response to the threat of climate change, sustainable development, and efforts to eradicate poverty, World Meteorological Organisation, Geneva.
4 IEA (2020), Sustainable Recovery.
5 Carbon Tracker (2020), Decline and Fall: The Size & Vulnerability of the Fossil Fuel System.
6 Total aggregate demand for fossil fuels in OECD countries peaked in 2005; in Europe, power generation from fossil fuels peaked in 2006; global demand for carbon in 2013; investment in exploration and production in 2014; demand for internal combustion vehicles in 2017; and global power generation from fossil fuels in 2018. Global aggregate demand for fossil fuels may have peaked in 2019.
8 The significance for both the EU and Spain of the historic European Council summit in July 2020 should also be highlighted. The importance of the economic and financial outcomes ranks alongside the approval of the single currency. As of the autumn of 2020, the EU had already allocated €420 billion to the most urgent measures to combat the recession triggered by the COVID-19 pandemic. The summit approved additional funding of €750 billion (€390 billion in grants and €360 billion in loans) funded by bonds issued by the European Commission. The Recovery and Resilience Facility will receive 90% of these funds. In terms of their disbursement, 70% are earmarked for the first two years (2021 and 2022) and 30% for 2023. This sum is supplemented by the EU budget for 2021-27 of €1 trillion, 30% of which will go towards the response to the climate emergency. The measures planned by the European Council for repayment of the funds raised by the joint issue of bonds include taxes on single-use plastics and carbon border adjustments, as well as extending the emissions trading system for international air and sea transport.
9 Rachel Waldholz (2020), ‘Hopes for EU-China climate deal centre on a green recovery’, China Dialogue, 17/VI/2020.