Climate Policy

Double Impact: Why China Needs Coordinated Air Quality and Climate Strategies

Written by Valerie Karplus, an Assistant Professor in the Global Economics and Management Group at the MIT Sloan School of Management and the Director of the MIT-Tsinghua China Energy and Climate Project, this paper examines China’s current approach to tackling air pollution and carbon mitigation nationally and argues that more incentives are needed if China hopes to meet its “peak carbon” goal by 2030.

The urgency with which Beijing is tackling air pollution is certainly positive, and such actions will lead to concomitant benefits in curtailing carbon dioxide (CO₂) emissions, to a certain extent. But Karplus argues that it would be a mistake to view the current initiatives on air pollution, which are primarily aimed at scrubbing coal-related pollutants or reducing coal use, as perfectly aligned with carbon reduction.

This is not the case, according to Karplus. Air pollution reduction is only partly aligned with CO₂ reduction, and vice versa. In addition to air pollution efforts, effective co-control requires a more significant step: a meaningful price on carbon. This is especially so if Beijing is to realize its 2030 pledge. Put another way, air pollution control efforts, while essential, will only take China part of the way toward its stated carbon reduction goals.

One major reason is because while low-cost solutions for air pollution and carbon reduction can overlap, the reality is that co-benefits run out after low-cost opportunities to reduce or displace the fuels responsible for both carbon and air pollution emissions—mostly coal in China’s case—are exhausted. In other words, co-benefits diminish over time as greater reductions are needed, according to Karplus.

This paper originally appeared as part of the Paulson Papers on Energy and Environment series.

Equity and emissions trading in China

China has embarked on an ambitious pathway for establishing a national carbon market in the next 5–10 years. In this study, we analyze the distributional aspects of a Chinese emissions-trading scheme from ethical, economic, and stated-preference perspectives. We focus on the role of emissions permit allocation and first show how specific equity principles can be incorporated into the design of potential allocation schemes. We then assess the economic and distributional impacts of those allocation schemes using a computable general equilibrium model with regional detail for the Chinese economy. Finally, we conduct a survey among Chinese climate-policy experts on the basis of the simulated model impacts. The survey participants indicate a relative preference for allocation schemes that put less emissions-reduction burden on the western provinces, a medium burden on the central provinces, and a high burden on the eastern provinces. Most participants show strong support for allocating emissions permits based on consumption-based emissions responsibilities.

Impacts on Resources and Climate of Projected Economic and Population Growth Patterns

Global economic and population growth are driving energy, land, and water use, and there are complex connections between the use of these resources and the world’s climate and natural environment. A significant engineering challenge is to develop and deploy technologies that reduce human impact on the environment and make better use of resources while remaining robust in the face of unavoidable environmental change. Without significant changes in resource use patterns, projections indicate that fossil fuel use will continue to rise, more land will be converted for crops, and water stress will increase in many areas already subject to water shortages.

Even in the absence of climate and environmental change, these trends would lead to stress on water resources and natural systems as well as temperature increases of 3°C to as much as 8°C depending on the region and climate sensitivity. Higher global temperatures would be associated with an overall increase in global precipitation (because a warmer climate speeds up the hydrological cycle, meaning more evaporation and more precipitation), but water runoff in many already water-stressed areas could be reduced, contributing to further water stress, with consequences for energy and food production.

This short paper presents a review of several key aspects of current global development to quantitatively describe how economic development drives energy, land, and water use and how the use of these resources may affect climate and the availability of resources.

Is Current Irrigation Sustainable in the United States? An Integrated Assessment of Climate Change Impact on Water Resources and Irrigated Crop Yields

While the impact of climate change on crop yields has been extensively studied, the quantification of water shortages on irrigated crop yields has been regarded as more challenging due to the complexity of the water resources management system. To investigate this issue, we integrate a crop yield reduction module and a water resources model into the MIT Integrated Global System Modeling (IGSM) framework, an integrated assessment model that links a model of the global economy to an Earth system model. While accounting for uncertainty in climate change, we assess the effects of climate and socio-economic changes on the competition for water resources between industrial, energy, domestic and irrigation; the implications for water availability for irrigation; and the subsequent impacts on crop yields in the US by 2050. We find that climate and socio-economic changes will increase water shortages and strongly reduce irrigated crop yields in specific regions (mostly in the Southwest), or for specific crops (i.e. cotton and forage). While the most affected regions are usually not major crop growers, the heterogeneous response of crop yield to global change and water stress suggests that some level of adaptation can be expected, such as the relocation of cropland area to regions where irrigation is more sustainable. Finally, GHG mitigation has the potential to alleviate the effect of water stress on irrigated crop yields—enough to offset the reduced CO2 fertilization effect compared to an unconstrained GHG emission scenario.

Launching a New Climate Regime

At the 2015 UN Framework Convention on Climate Change (UNFCCC) meeting in Paris, participants in a new international climate agreement will volunteer Nationally Determined Contributions to emissions reductions. To put the planet on a path to declared temperature goals, the growth of global greenhouse gas emissions must cease, and begin to decline, by 2035 to 2040; however, the expected contributions do not yield results consistent with this timeline. Three achievements in Paris and follow-on activities are then crucial components of the new climate regime: a robust system of review with widely accepted measures of national effort; an established, durable plan of future pledge cycles; and increased financial support for the mitigation efforts of less developed countries. The MIT Economic Projection and Policy Analysis (EPPA) model is applied to assess emissions outcomes of expected pledges and national performances in meeting them, and to elaborate the components of a successful launch.

Limited trading of emissions permits as a climate cooperation mechanism? US–China and EU–China examples

Recent multilateral climate negotiations have underlined the importance of international cooperation and the need for support from developed to developing countries to address climate change. This raises the question of whether carbon market linkages could be used as a cooperation mechanism. Policy discussions surrounding such linkages have indicated that, should they operate, a limit would be set on the amount of carbon permits that could be imported by developed regions from developing countries. This paper analyzes the impact of limited carbon trading between an ETS in the EU or the US and a carbon market covering Chinese electricity and energy intensive sectors using a global economy-wide model. We find that the limit results in different carbon prices between China and Europe or the US. Although the impact on low-carbon technologies in China is moderate, global emission reductions are deeper than in the absence of international trading due to reduced carbon leakage. If China captures the rents associated with limited permit trading, we show that it is possible to find a limit threshold that makes both regions better off relative to carbon markets operating in isolation.

Long-term economic modeling for climate change assessment

A growing concern for using large scale applied general equilibrium models to analyze energy and environmental policies has been whether these models produce reliable projections. Based on the latest MIT Economic Projection and Policy Analysis model we developed, this study aims to tackle this question in several ways, including enriching the representation of consumer preferences to generate changes in consumption pattern consistent to those observed in different stages of economic development, comparing results of historical simulations against actual data, and conducting sensitivity analyses of future projections to key parameters under various policy scenarios. We find that: 1) as the economies grow, the empirically observed income elasticities of demand are better represented by our setting than by a pure Stone–Geary approach, 2) historical simulations in general perform better in developed regions than in developing regions, and 3) simulation results are more sensitive to GDP growth than energy and non-energy substitution elasticities and autonomous energy efficiency improvement.

Modeling Uncertainty in Climate Change: A Multi-Model Comparison

The economics of climate change involves a vast array of uncertainties, complicating both the analysis and development of climate policy. This study presents the results of the first comprehensive study of uncertainty in climate change using multiple integrated assessment models. The study looks at model and parametric uncertainties for population, total factor productivity, and climate sensitivity. It estimates the pdfs of key output variables, including CO₂ concentrations, temperature, damages, and the social cost of carbon (SCC). One key finding is that parametric uncertainty is more important than uncertainty in model structure. Our resulting pdfs also provide insights on tail events.

Pathways to Mexico's climate change mitigation targets: A multi-model analysis

Mexico’s climate policy sets ambitious national greenhouse gas (GHG) emission reduction targets—30% versus a business-as-usual baseline by 2020, 50% versus 2000 by 2050. However, these goals are at odds with recent energy and emission trends in the country. Both energy use and GHG emissions in Mexico have grown substantially over the last two decades. We investigate how Mexico might reverse current trends and reach its mitigation targets by exploring results from energy system and economic models involved in the CLIMACAP-LAMP project. To meet Mexico’s emission reduction targets, all modeling groups agree that decarbonization of electricity is needed, along with changes in the transport sector, either to more efficient vehicles or a combination of more efficient vehicles and lower carbon fuels. These measures reduce GHG emissions as well as emissions of other air pollutants. The models find different energy supply pathways, with some solutions based on renewable energy and others relying on biomass or fossil fuels with carbon capture and storage. The economy-wide costs of deep mitigation could range from 2% to 4% of GDP in 2030, and from 7% to 15% of GDP in 2050. Our results suggest that Mexico has some flexibility in designing deep mitigation strategies, and that technological options could allow Mexico to achieve its emission reduction targets, albeit at a cost to the country.

Protected areas' role in climate-change mitigation

Globally, 15.5 million km² of land are currently identified as protected areas, which provide society with many ecosystem services including climate-change mitigation. Combining a global database of protected areas, a reconstruction of global land-use history, and a global biogeochemistry model, we estimate that protected areas currently sequester 0.5 Pg C annually, which is about one fifth of the carbon sequestered by all land ecosystems annually. Using an integrated earth systems model to generate climate and land-use scenarios for the twenty-first century, we project that rapid climate change, similar to high-end projections in IPCC’s Fifth Assessment Report, would cause the annual carbon sequestration rate in protected areas to drop to about 0.3 Pg C by 2100. For the scenario with both rapid climate change and extensive land-use change driven by population and economic pressures, 5.6 million km² of protected areas would be converted to other uses, and carbon sequestration in the remaining protected areas would drop to near zero by 2100.

MIT Global Change

Climate Policy

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