Bali and the Climate Fight

This week in Bali the curtain rises on another round of United Nations talks to slow global warming. The effort, though noble, is largely irrelevant to the urgent task of cutting greenhouse-gas emissions. The countries that care the most about successful U.N. talks are a small and shrinking part of the problem. Those that matter most—notably China, which in 2007 became the world's largest emitter of warming gases—have exempted themselves from any regulation of their effluent. The Bali agenda offers no route around this impasse and will probably make it harder to solve in the future.

The gorilla in room at all climate talks is China's staggering growth powered by a seemingly unsatiable appetite for energy from coal, a big source of carbon. Fearful that taming coal could hiccup the country's economic growth, China has steadfastly refused to curtail its emissions. Nor is it even clear that Beijing could enforce limits if it actually tried to impose them across the Chinese economy. The European Union and Japan are trying in Bali to set the stage for fresh commitments to control emissions that would update the commitments they adopted a decade ago under the Kyoto Protocol. But these nations account for barely one fifth of the world's emissions of greenhouse gases. Meanwhile, a new study by the International Energy Agency suggests that by 2030, China alone could account for more than one quarter of all the world emissions.

The Bali agenda will probably make it harder to get China on board in the future. That's because a top priority for Bali's enthusiasts is updating a scheme created in Kyoto known as the Clean Development Mechanism (CDM). The CDM, a part of the Kyoto protocol that allows developed countries to invest in clean energy production in developing countries, is the main way that the industrialized countries have "engaged" the developing nations that refuse to cap their emissions. It encourages investment in projects to cut emissions in those countries—in theory a good idea, but in practice it has encouraged investors to get credit for projects that would have occurred anyway. For example, essentially every new wind project in China has applied for credit under the CDM. The CDM's governing body has even adopted new rules that allow China to gain credit for efficient coal-fired power plants already under construction. This double counting has been a problem from the outset, but it is poised to get much worse. New rules under review in Bali will make it even easier to earn and administer CDM projects--in part with the goal of spreading the activity to even more emerging markets, which will create an even larger flood of dubious credits. A new study by the Berlin-based Institute for Applied Ecology shows that the agencies charged with verifying CDM projects are stretched much too thin. This system is based on the idea that developing countries must be paid to control emissions, but it has inadvertently created a multibillion-dollar industry that thrives only because these countries have refused to limit emissions on their own.

So far, this paradox has not much bothered the Chinese government. But China will need to change its tune. A host of new studies reveal that China itself stands to lose handsomely from unchecked changes in climate. Its rivers, already fickle, may run drier; its coastlines, where most of Chinese economic growth occurs, are under further threat from rising sea levels. Avoiding such dangers will require all the world's big emitters to change—including China itself.
China will also need to change because its big trading partners increasingly care about climate. As they cut emissions and worry about the impact on jobs and investment they will wave the weapon of trade sanctions. Indeed, a coalition of power companies and labor unions in the United States are mobilizing around that idea, and the politics of China-bashing in the name of global environmental protection will be irresistible for American politicians. That could upset China's export economy and perhaps the whole Chinese economic miracle. Such economic competition also explains why it is unrealistic for China to expect the rich countries to offer a big subsidy to revamp its energy system—subsidies for economic competitors are political suicide.

Until the Chinese realize their own interest in real efforts to control emissions rather than shell games, global-warming talks won't make much progress. Perhaps this is the signal that China is unequivocally a world power. Without its consent, the world can't deal with one of its pressing problems.