China is the world's third largest exporter; alongside its growth in export-orientated production its energy consumption has nearly doubled. Trade between the EU and China has increased in recent years and China is now the EU's second trading partner behind the USA1.
In 2006, China made its first commitment to improving energy efficiency, aiming to reduce energy consumption by 20 per cent from 2005 to 2010. However, with just one year to go, China is facing a major challenge. By understanding the causes of its growth in emissions, China may be able to manage the key driving forces and the EU can understand its role in terms of imports.
The study used a method called 'structural decomposition analysis' whereby CO2 emissions were 'decomposed' into five driving forces: population, emission intensity or efficiency, economic production structure, consumption patterns and per capita consumption volume. It used data from the Chinese National Bureau of Statistics for the period 2005 to 2007.
The analysis demonstrated that two main factors drive the growth in emissions: an increase in per capita consumption (37 per cent of growth in emissions) and changes in the structure of production (27 per cent of growth in emissions). Population growth and changing lifestyles are relatively weak factors, causing only 2 and 1 per cent of emission increase respectively. Efficiency gain has largely lost its capacity to offset CO2 emissions because electricity generation has remained coal dominated.
Changes in China's production structure are mainly due to its growth in manufacturing, especially for exported products. Half of the emissions increase is due to production of exported goods and services, 60 per cent of which are exported to the West. This means Western consumers are partially responsible for one third of increases in Chinese emissions. These exports tend to be electronic products, metals, chemicals and textile products.
The results raise a number of implications. Firstly, China should focus on energy efficiency in its manufacturing and accelerate its development in low-carbon technologies. It must also review its export structure, perhaps by adding further value to its exports. In addition, international climate agreements such as the Kyoto Protocol could consider ways to address 'carbon leakage', whereby a country reduces emissions in its own territory but causes increases elsewhere through imports. The EU is already taking steps to assess this at a European level2.
The current global financial crisis has temporarily reduced the growth of China's exports and CO2 emissions, but export-related emissions will rise in the long-run and measures need to be introduced. For example, climate policy could be redesigned to be similar to tax policy, i.e. carbon taxes could be introduced on imported products similar to value-added taxation.