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China is in the midst of a historic transformation, and the surprising progress the country has made at energy efficiency has raised hopes that the world may get a grip on global greenhouse gas emissions much sooner than expected.
As a result of the progress China is making in cleaning up its industrial sector, global greenhouse gas emissions hit the pause button in 2014, the first time that has happened in four decades (absent a major economic contraction). The International Energy Agency said on March 13 that global greenhouse gas emissions hit 32.3 billion tons in 2014, the same level as the year before.
The shocking revelation that carbon emissions flat lined in 2014 was largely possible because of China's ability to meet its growth target of 7.5 percent while keeping its greenhouse gas emissions flat.
The Chinese government has targeted pollution reduction as a top priority. It has set a ceiling on its coal consumption at 4.2 billion tons per year by 2020. Only a few short years ago that seemed laughably implausible, but China surprised the world when it reported that it actually saw coal consumption dip in 2014.
Cutting coal consumption fits neatly into the Chinese government's apparent goal of shifting its economy from export-driven heavy industry, to a consumer economy. In practice, that means forcing the closure of dirty factories.
Steel has become a top target. China has too much steel capacity to begin with – 1.2 billion tons per year for a country that only produced 823 million tons in 2014. China accounts for 43 percent of the world's steelmaking capacity, and one-quarter of that is located in Hebei province. Such a concentration of industry has resulted in serious environmental fallout. Seven out of the top ten most polluted Chinese cities are located in Hebei. And because of all the pollution from the province that wafts into Beijing, the central government has decided to crack down on steel companies.
Hebei saw 15 million metric tons of steelmaking capacity shuttered in 2014. The central government plans on closing 60 out of the 250 million metric tons of steelmaking capacity in the province over the next five years, according to the Wall Street Journal.
The shift to prioritize air quality has paid dividends – both China's coal consumption and its overall greenhouse gas emissions have declined for the first time in years. "This gives me even more hope that humankind will be able to work together to combat climate change, the most important threat facing us today," the IEA's Chief Economist Fatih Birol said in a March 13 statement.
Still, attacking the oversupply of industrial capacity in China raises an important question about leakage. China may succeed in cleaning up the air in and around its major cities by closing industries, and thereby reduce its carbon footprint, but what happens if that pollution simply moves overseas?
Hebei Iron and Steel Group, a Chinese steelmaking giant, plans on building a factory in South Africa with the capacity to produce 5 million tons. There are more plants in the works in South Africa and Thailand as well. Pushed out of the country by tighter policies emanating from Beijing, China's major industries are simply picking up and moving somewhere else. That may be good for China, but it does very little for global emissions.
Even if cuts to industrial activity do in fact lead to global environmental benefit, there are questions about how far the Chinese government is willing to go. Another challenge for the country is potential economic disruption from a drastic cutback in industrial activity. Hebei could see job losses approaching 200,000 if the central government's plans are carried out in full. Much of the steel capacity closed down in the past year included factories that were already idle, meaning that further cuts will likely hit jobs worse than they have up until now. In 2009, a steel manager was killed by workers when he threatened to lay off workers.
For years, the Chinese government sought economic growth at all costs as an answer to political stability. Suddenly, heavily polluted air has become a top concern. Somehow the government will need to navigate these twin threats. Meanwhile, the ability of the world to tackle global climate change hangs in the balance.
By Nick Cunningham of Oilprice.com. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.