Fate of China’s CO2 Sealed with its Currency Regime

Everyone wants to blame the undervalued Yuan for global problems. Economists have claimed it will prolong the global recession. Pundits link the export-driven economy to lax environmental regulations and low labor standards. US Treasury Secretary Timothy Geithner called it a contributing factor in a round of capital controls and currency-market interventions by emerging economies.

For as much heat as the Yuan is getting, you’d think it was responsible for global warming.

Well, in fact, it partly is. An analysis of the latest data on CO2 emissions from the Energy Information Agency (EIA), released in Jan 2011, shows definitively what some policy analysts have long suspected: that China’s macro-economic policies have made its micro-economy a magnet for energy intensive and greenhouse-unfriendly industries (Hofman and Kuijs 2008; Bergsten et al. 2009).

China’s CO2 emissions increased by 906 million tons in 2009 – the second largest annual increase for any country in recorded history. This emissions explosion is partly attributable to standard economic growth, but there is more going on. In national rankings, six of the ten largest single year increases in CO2 emissions are attributed to China. All these record-breaking CO2 spews occurred in the past decade—the period when China’s exchange rate was most closely regulated to boost exports. The export industries and their extensive supply chains are energy intensive and powered by coal, and their growth has surged during the last decade (Kahrl and Roland-Holst 2008).

Authors:

Shakeb Afsah and Kendyl Salcito