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Beyond Stalemate: Finding Levers in the U.S.-China Relationship to Get to Yes on Climate Action

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"Beyond Stalemate: Finding Levers in the U.S.-China Relationship to Get to Yes on Climate Action"

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This guest post is by Tom Hilde, Research Professor of Public Policy at the University of Maryland, on the ground today in Copenhagen.

The Natural Resources Defense Council this morning posted a perhaps obvious two-point recommendation for agreement between the US and China, and reassurance for the world. Part of the deadlock between the two countries, despite reportedly constant head-to-head negotiations at COP15, remains transparency in measuring, reporting, and verifying (MRV) emissions reductions in China and the US financial commitment to developing countries. China admitted publicly a couple of days ago that it is unlikely to receive adaptation funds from the US. That question has been a confused sticking point leading up to COP15, one regarding which United States Special Envoy for Climate Change Todd Stern said last week, “I don’t envision public funds “” certainly not from the United States “” going to China”¦” to which Chinese Vice Foreign Minister He Yafei responded, “I think [Stern] lacks common sense where he made such a comment vis-a-vis funds for China. Either lack of common sense or extremely irresponsible.” The issue is off the table.

Reporting and financing remain tendentious issues. David Doniger at NRDC and many others maintain that the US must take the leadership role in financing assistance to those most vulnerable to the effects of climate change, while China should take the lead on transparency in reporting and verifying emissions reductions performance. Despite domestic resistance among some quarters in both countries, both have much to gain rather than lose. For the U.S., of course, acting on historical responsibilities would vastly improve the country’s tattered international standing. This comes with its own benefits in terms of trade, jobs, and security.

For China, one obstacle to its move onto the world leadership stage has been limited international transparency. The country has significant good faith trust from Africa and elsewhere, but the large wealthy nations – many significantly indebted to China – remain wary of Chinese claims to improved mitigation measures and enforcement and fair trade issues in general. In the COP15 context, the U.S. has pressed China (and India) to agree to independent verification measures of their emissions reductions. On MRV, the Chinese have put something on the table, “Audit, Supervise and Assess” – used elsewhere in China on financial issues – for unsupported actions (and largely agree to full MRV for supported actions). Wednesday saw additional promise in a possible compromise agreement on reporting that would modify China’s annual “national communications” reports on emissions submitted to the UNFCCC from reporting obligations for developing nations to the stricter guidelines applied to developed nations under the Kyoto Protocol framework. Without exploring the contours of what ASA means or how it differs from MRV,  the NRDC post concludes, however, that:

Some may fear that greater openness will make China more vulnerable to trade measures proposed in U.S. climate legislation.  Actually, it would have the opposite effect.  The better China demonstrates that it is meeting its targets, the less its exposure, because the U.S. bills provide that trade measures will not apply to any country that is doing its part in the fight against global warming.

Yes. But this is a common view. Many insist that finance and MRV are the keys to “unlocking the stalemate.” But aren’t these precisely the causes of the bottleneck?

A Third Way

Not mentioned in the NRDC piece nor apparently elsewhere at COP15 in the context of climate change negotiations is the elephant in the room (among others – it’s a zoo in there), China’s currency value management. An agreement on this especially between the U.S. and China could expedite a larger climate agreement. The claim advanced by some U.S. economists and critics (and the Obama administration) is that by intentionally undervaluing China’s RMB (renminbi) or yuan, the central Chinese government maintains an unfair trade advantage for China over the U.S. and other competitors in the global market. The government has been concerned this year in particular that any revaluation of the RMB could move the country into a severe economic downturn and has thus recently insisted again on the status quo during talks with the EU. China has repeatedly cautioned the U.S. about statements on the issue.

President Barack Obama pushed the issue of currency control during his visit to China last month. Senate Majority Leader Harry Reid raised the issue again last Friday. The U.S. Trade Representative is apparently using strategic timing and releasing its report this week on China’s performance in meeting WTO obligations. The central concern of many is not merely that currency manipulation gives an advantage for Chinese exports, but that it maintains low labor costs in China and thus draws jobs out of North America and Europe. One of the most urgent problems for the United States is, of course, unemployment, a problem that looks to continue to grow over the next few years even with an economic upswing.

The time may be ripe, and may even be in the works, for cutting a deal on Chinese currency controls in the name of a robust climate agreement. It is important to emphasize here that it would be wrong to relax demands on China regarding climate change mitigation efforts. The U.S. and other nations should continue to press for stronger emissions reductions by China. But one overlooked possibility for healing a deep rift and opening a broader agreement on climate change could very well be to acknowledge other complex issues which shape the general U.S.-China relationship, such as the issue of currency revaluation and its relation to jobs in both the U.S. and China.

Jobs are intrinsic to the climate change debate for both countries. U.S. polls show significant American support for substantive climate change regulation but this support is heavily qualified by deep apprehension about jobs. That can’t be ignored. The U.S. has a serious long-term unemployment problem and existing public and congressional support for climate change policy may well be contingent upon convincingly better job prospects. Notwithstanding President Obama’s recent statements on green job growth, the U.S. public seems for the time-being to view green jobs promises with skepticism. .

Apart from concern over losing export advantage by revaluating the RMB, the Chinese government needs to maintain a high employment rate in the face of a rapidly rising domestic income gap. Political stability in China depends on the Party keeping everyone employed. That employment, of course, is tied to China’s rapid economic growth and increasing carbon emissions. Revaluation through the exchange market, and the resulting higher price on Chinese labor, could result in more jobs remaining and being created in the U.S. and Europe. Both parties would need to benefit, of course. If revaluation could be negotiated as part of a broader package of expectations on Chinese moves on emission reductions – say, accepting its carbon intensity targets on a graduated basis contingent on eventual hard actual emissions reductions – there could be broader and more sustainable public support in both countries for a climate deal that does not put jobs at risk. In the end, this public support is vital in both countries contra to the popular view in the U.S. that Chinese leadership can unilaterally do whatever they want to do.

I know this sounds like an absolutely backwards proposal in environmental terms. It is intended as a point for consideration, however, not as some proposed replacement for stronger demands on emissions reductions in either country. The ball game here is about those reductions. But if the result of the current negotiations in Copenhagen is a climate agreement undermined by deep-seated economic disagreements, earning little support from the U.S. Congress and the Chinese Communist Party respectively, then the likely outcome is endless rounds of further negotiations. We can’t afford this any longer. A more politically sustainable agreement that comes with a promise for future job growth even if it undercuts gains in financing, emissions reductions, or transparency in the short term might be offset by the gains in actual emissions reductions over the longer-term view. This agreement could take place bilaterally as a side dish to the climate agreement, but with potential economic and environmental gains for everyone.

The point is that, in environmental and human terms, there is no alternative to a robust and sustainable climate agreement with tough emissions reductions requirements. The question thus remains how to get there. Could the possibility of a strong climate change agreement be improved – at least in regard to Chinese and American disagreements  - by including a frank discussion of job growth and the revaluation of the RMB in the climate negotiations? It’s worth a look.

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