Op-Ed Contributors

Carbon intensity a faulty gauge

By Yang Hongliang (China Daily)
Updated: 2010-03-10 07:59

Globally accepted indicator limited in scope and poor in representing an economy's carbon performance

China is the world's second largest energy consumer after the United States, and has one of the world's fastest growing energy sectors. While energy fuels economic growth and poverty reduction, inefficient energy use depletes resources at a faster rate and severely damages the environment. It is hard to reconcile continued growth of energy consumption while protecting the environment.

The Chinese government has made some strides in improving energy efficiency and reducing carbon dioxide (CO2) emissions. The 11th Five-Year Plan (2006-2010) mandates a 20 percent reduction in energy intensity (the amount of energy consumed per unit of GDP) by 2010. The order applies to all provinces and municipalities.

But despite the continuing debate on climate change, little attention has been given to precisely examine the carbon performance of any particular economy. Currently, the most commonly used measure of carbon performance is carbon intensity. Carbon intensity, a simple ratio between carbon emissions and GDP, is easy to understand and use, but it has serious limitations.

Sure, the government has made strong political commitments to develop a low-carbon economy. Ten key industries have also been earmarked as sectors that need to save more energy, and 1,000 enterprises that use energy intensively are now under tight supervision.

In November, the government said it would reduce the carbon intensity of its economy in 2020 by 40-45 percent compared with the 2005 level.

But let's examine the faults of carbon intensity as a performance yardstick. First, it does not incorporate multidimensional features of an economy's carbon performance. As stipulated in the opening paragraph of the Copenhagen Accord, combating climate change needs to be considered "on the basis of equity and in the context of sustainable development". In most countries, most CO2 emissions come from consumption of fossil energy.

Energy alone, however, cannot produce any output and it must be combined with other production factors, such as capital and labor, to produce physical output. Countries are at different development stages and have different natural resources and production factors. They all take different development paths. The many facets of different development paths cannot be explained by a simple ratio of carbon intensity.

The second thing that's wrong with using carbon intensity is that it cannot measure the substitution effects between energy and other factors. Carbon intensity of an economy, for example, may increase solely because energy is substituting for labor, rather than any underlying deterioration in emissions technology.

This can happen in any modernization process for any economy. Other factors, such as a change in energy mix and in the focus shift of sectors in an economy, can also cause movements in carbon intensity but cannot be properly reflected. In some circumstances, the faults with carbon intensity make it meaningless to compare mitigation and adaptive actions across countries.

All of these imply that the traditional carbon intensity indicator is too simple to be a proper indicator closely related to economic development, and there is a need to carefully re-examine the theory and find other indicators for carbon performance across an economy.

An approach that encompasses a wide range of factors could be considered. Besides CO2 emissions, other factors, such as energy and non-energy inputs need to be included in the discussion. We can assume that to produce a certain amount of GDP, a carbon-efficient economy consumes the minimum level of energy and non-energy inputs, and emits the minimum level of CO2. Based on this idea, a new carbon performance model is built using the provincial level data of China in 2005.

Results show that, first, a region's carbon performance can be significantly different from what traditional carbon intensity indicator suggests, and is heavily affected by its resource endowments, such as capital stock, energy supply and its mix, and labor force.

Second, many regions had great carbon reduction potentials in 2005. As all regions in China are benchmarked on best practices, this means that China can achieve this carbon reduction using domestically available technologies. This implies the importance of spreading carbon efficient technologies and modern approaches to management on economic operations across regions.

Third, as a region's carbon performance is closely linked to its economic development, so the issue of carbon reduction is in essence still an issue of economic development. When talking about an economy's carbon performance, we cannot just talk about this as if we were discussing a technical issue without putting it in a broader context of economic development.

Fourth, the carbon intensity indicator exaggerates China's carbon reduction potential. Our results show that if the national average of carbon performance in 2020 could be as efficient as the leading regions in 2005 (such as Shanghai and Beijing), then only about one-third of our carbon intensity can be reduced. Considering the huge development gap between the eastern and western regions in China, where there is a wide gap in GDP per capita, realizing this one-third reduction will be very difficult. Apparently, a 40-45 percent reduction target needs even more extra investments in hardware and software involving carbon reduction.

In the newly published World Energy Outlook 2009, the International Energy Agency foresees a 55 percent carbon intensity reduction for China for the period. This leads to an argument that China only commits to business-as-usual, and does not entertain any measures beyond those considered as baselines. But results from a total factor production model are totally different from what carbon intensity tells.

Combating climate change requires the international community to work together to reduce CO2 emissions globally, stabilize its atmospheric concentration to a safe level and prevent nations, cities and people from further damaging the environment. Achieving this requires greatly improving the carbon performance of all economies.

An economy's carbon efficiency is not only closely related to its economic development but also linked to its international competitiveness and energy security. For policymakers, a sound CO2 reduction target cannot be reached if regional resource endowments are not taken into consideration. This is something worth stressing here.

The author is an energy expert with the Asian Development Bank.

(China Daily 03/10/2010 page9)