Photograph by Win McNamee, Getty
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U.S. President Barack Obama shakes hands with Chinese President Xi Jinping during a state arrival ceremony on the south lawn of the White House on September 25, 2015 in Washington, DC.

Photograph by Win McNamee, Getty

Why New U.S.-China Climate Steps Matter: Three Things to Know

The world’s two largest polluters cap a mammoth week for climate change with a joint statement. Are they really doing anything new?


New U.S.-China efforts to rein in global warming, including China’s launch of a national cap-and-trade plan, hardly come as a surprise but signal leadership two months ahead of historic climate talks.

In a joint statement issued Friday at the White House, Presidents Barack Obama and Xi Jinping announced initiatives that build on the climate deal reached last year between the world’s two largest emitters of greenhouse gases.

The United States said it would, in addition to limiting emissions from its power plants, finalize standards to boost efficiency for appliances and reduce methane emissions from landfills. China pledged $3.1 billion—similar to a prior U.S. amount—to help developing countries combat climate change.

China committed to launch in 2017 a national emission trading program that would cap total emissions but allow companies to trade pollution credits. It announced a “green dispatch” system to accelerate its shift toward clean energy. As part of that shift, a Chinese company agreed this week in Seattle to build an advanced nuclear reactor with U.S.-based TerraPower, a startup backed by Microsot co-founder Bill Gates.

These announcements capped a dramatic week for climate change. At a summit in New York, some of the world’s largest companies—including Walmart— set targets for getting all their power from renewable energy. Also, Pope Francis, after lauding Obama’s climate efforts, told a gridlocked Congress that the U.S. has an obligation to lead: “Now is the time for courageous actions and strategies.”

What does all of this mean? While some initiatives were expected, analysts say they create momentum for a sweeping climate accord later this year at the United Nations summit in Paris, slated to begin November 30.

“The prospects for a global climate agreement have brightened,” says Andrew Steer, president of the World Resources Institute, a research group. Here are key takeaways from this week’s announcements:

They underscore existing efforts. The U.S. and China are already moving to curb carbon emissions. The Obama administration had previously announced almost all the steps cited in the joint statement, notably its Clean Power Plan to cut emissions from power plants 32 percent—from 2005 levels—by 2030.

China’s pledge to finance climate projects is a “watershed moment,” Steer says, adding it should reassure developing countries that money will be available from “a broader pool of contributors.”

Its “green dispatch” system could speed adoption of zero-emitting power sources such as nuclear, wind, and solar. China still depends heavily on coal for electricity, although its production and consumption of coal fell last year for the first time in at least a decade, according to U.S. government data.

“The commitment is very real,” says Tom Werner, CEO of California-based SunPower, who spoke shortly before attending a White House luncheon for Xi. His company is building solar farms in China to power Apple’s operations there. He says China’s solar appetite is huge, and it could add three times as much solar capacity this year as the U.S.

At the same time, Werner says there’s an ambiguity in tracking China’s progress because of its continued coal use. He’s seen lines of coal trucks pass by his solar farms, which he plans to finish within six months.

“They’re very serious. In some ways, they’re more serious than we are,” says John Gilleland, chief technology officer of Washington-based TerraPower, noting China’s rapid push for new infrastructure. He says China believes in climate change and wants to reduce the smog that’s choking its cities.

“They’re building nuclear plants like crazy,” says Gilleland, who attended the signing of the agreement Tuesday between his company and the China National Nuclear Corporation. He expects the new commercial “traveling wave” reactors, which burn fuel made from depleted uranium, will be built within 10 years.

China’s embracing a global carbon pricing trend. China had previously indicated it would roll out a national cap-and-trade system, but it hadn’t given details. On Friday, it said the system would cover its electricity, steel, cement, and other industries.

It’s already been experimenting with carbon pricing. Since 2013, China launched seven regional pilots, which now comprise the world’s second-largest cap-and-trade system—after the European Union’s. Those pilots raise questions.

“It’s not transparent how the caps are set or adjusted” and very few trades have occurred so far, says Clayton Munnings, who’s studied China’s carbon trading as a research associate for Resources for the Future, a think tank. He says it’s too early to tell what impact they’ll have, especially since China is taking other steps to reduce air pollution.

Worldwide, the number of carbon pricing schemes has nearly doubled since 2012 and they now cover 23 cities and 40 countries, according to a September report by the World Bank. They include 17 cap-and-trade programs, including one begun this year in South Korea, as well as taxes on carbon emissions, which South Africa plans to impose next year.

Who Has an Emissions Trading System?
Ten years after the European Union set up its pioneering emissions trading systems (ETS), many more countries, states, and cities have set up, or are considering setting up, their own.
Australia and Oceania
North America
South America
Larger organization
Administrative division
Being considered
The U.S. states with an ETS already in place are part of the Regional Greenhouse Gas Initiative (RGGI)
SOURCE: International Carbon Action Partnership (ICAP), 2015

U.S. is also pushing cap-and-trade. The new joint climate statement doesn’t say it, but Obama’s power plant rule—finalized in August—offers a backdoor approach for carbon trading. Five years ago, Obama failed to get a controversial cap-and-trade bill passed in Congress. Now, he's using his executive authority, sure to be challenged in court, to promote cap-and-trade.

Many economists back carbon pricing as a cost-effective way to curb emissions. Here’s why: Polluters get tradeable allowances to emit a certain amount. If they can make cuts cheaply, they can sell unneeded permits (for a profit) to those that would find cuts costlier.

Under the Clean Power Plan, the cornerstone of Obama's climate agenda, states can opt to launch a market or join the two existing ones in California and the Northeast. “States can enter into markets the EPA can manage and keep track of,” Gina McCarthy, administrator of the Environmental Protection Agency, said at a Washington, D.C. forum.

In fact, trading becomes the default federal option for states that don’t submit plans for cutting emissions. The rule even says: “It is reasonable to anticipate that a virtually nationwide emissions trading market for compliance will emerge.”