The right way to neutralize China’s unfair economic advantage on climate

There’s a big push in Congress to eliminate any competitive edge handed to China as a result of domestic and international climate change policies. The best idea — short of jettisoning this ill-advised climate agenda altogether — is to undo China’s favorable status as a “developing nation” under the relevant United Nations treaties. This would be much preferable to trying to impose carbon taxes, which proponents claim would help to go after China by branding its goods as insufficiently climate friendly.

It’s strange but true — China, despite having grown into the world’s second largest economy and largest exporter, is still classified by the United Nations as a developing nation under several important environmental treaties. As a result, China gets relatively lenient treatment compared to the U.S. and other developed nation signatories. This includes the 1987 Montreal Protocol on Substances That Deplete the Ozone Layer (known simply as the Montreal Protocol), and the 1992 United Nations Framework Convention on Climate Change (UNFCCC). The initial classification as a developing nation made sense given China’s economy back then, but the U.N. has never updated it.

The advantages of developing-nation status are substantial. For example, the Montreal Protocol targeted a class of refrigerants called chlorofluorocarbons (CFCs) on the grounds that they deplete the earth’s ozone layer, but China and other developing nations were granted an additional 10 years to comply. Also, these nations have been and continue to be eligible for financial assistance from a U.N. multilateral fund paid for by wealthy nations, to which the U.S. is the single largest contributor.

At a 2016 Montreal Protocol meeting in Kigali, Rwanda, the treaty was expanded to include many of the chemical substitutes for CFCs on the grounds that they are greenhouse gases. Known as the Kigali Amendment to the Montreal Protocol, it gives China and other designated developing nations an extra 10 years beyond the timelines imposed on developed nations.

These newly-restricted chemicals, called hydrofluorocarbons (HFCs), have many industrial uses; thus, China’s manufacturers will have the benefit of relying on them long after their American counterparts will have had to undergo a costly transition to new compounds. In addition, China is still eligible for U.N. funds to help developing nations comply, paid for in part by American taxpayers.

During the September 2022 deliberations over the constitutionally required ratification vote on the Kigali Amendment, the Senate finally awoke to the ridiculousness of China’s favorable treatment. The Senate ratified the Kigali Amendment overall, but it added an important and unprecedented requirement that the State Department request the U.N. to reclassify China as a developed nation.

After the Kigali Amendment vote, the House and Senate passed bills extending the China reclassification provisions to all treaties, and a version was included in the last National Defense Authorization Act for Fiscal Year 2024. Perhaps most significantly, this would include the UNFCCC.

China’s kid-gloves treatment under the Kigali Amendment is bad enough, but the unfairness under the UNFCCC is far worse. While HFCs are a class of specialty chemicals with many important applications, the UNFCCC targets the fossil fuels that provide 80 percent of the world’s energy. China can thus take advantage of its developing-nation status under the UNFCCC and enjoy relatively unrestricted access to low-cost energy — especially coal — while the U.S. under the Biden administration is committed to an economically damaging transition to expensive alternative energy sources.

Therein lies the shortcoming with the recently enacted legislation, which only requires the State Department to ask the U.N. to change China’s treaty status. Chinese officials have already expressed vehement opposition to any such change, which is no surprise given the tremendous comparative advantage conferred upon its manufacturers and overall economy.

What is needed now are measures with teeth, ones that disrupt the continued implementation of such treaties until China is reclassified. For example, the Ending China’s Unfair Advantage Act would defund the Montreal Protocol and UNFCCC until the change is made. Such measures deserve serious consideration.

Unfortunately, this bill has not advanced as far as another piece of legislation that takes the wrong approach to China on climate matters.

The Providing Reliable, Objective, Verifiable Emissions Intensity and Transparency (PROVE IT) Act creates a Department of Energy program that could put into motion a carbon tax not only on imported goods, but a domestic carbon tax as well. Under the bill, the Energy Department would create the required administrative framework necessary to impose carbon taxes by tracking the carbon intensity of domestic and foreign goods. The bill has passed the Senate Environmental and Public Works Committee and could be considered before the full Senate.

The bill would be a dream come true for Democrats, but it has also inexplicably gotten a handful of Republican supporters. Bill proponents assert that it is just an information gathering bill and won’t lead to carbon taxes. Yet, at the same time, they claim that the bill will help to hold foreign countries, including China, accountable for their greenhouse gas emissions.

But merely providing information can’t hold any country accountable; this is therefore a tacit admission by supporters that the legislation would mean carbon taxes. After all, China and other countries would be held accountable through taxes on the carbon intensity of their goods.

In reality, this China argument is just an after-the-fact justification that proponents think will help to gain support for carbon taxes. Regardless, it is the most indirect and harmful way imaginable to address greenhouse gas emission concerns with China. If legislators are concerned about China’s carbon dioxide emissions, then it doesn’t require crushing the American economy in the process by imposing massive taxes, driving up prices, punishing energy use and reducing our standard of living.

That leads us back to a genuine and helpful solution: Ensuring that China is no longer considered a developing nation under environmental treaties. Unlike the PROVE It Act, there is no self-inflicted economic downside to requiring China to play by the same rules as the U.S. on climate-related treaties. Now is the time for Congress to insist on it.

Ben Lieberman is a senior fellow with the Competitive Enterprise Institute in Washington, D.C., and author of “Forcing the UN’s Hand on China.”