The US, China and India must lead to reverse the climate trend

The historic flooding in Southwest China, the deadly forest fires in California and the heat waves in Delhi this year are grim reminders of the existential threats calling for global leadership in climate change mitigation.  

It is in the interest of China, the United States and India, which we call the “G-3” of the top carbon emitters, to lead a market oriented, emission abatement — unilaterally or in coalition with others — since their national security is tied to climate change. This is one area where the G-3 can set aside differences and cooperate on a common problem. Being dominant importers of goods and services, these three countries, as well as the European Union, Japan and Russia, can influence low carbon activities worldwide. 

The national security impact lies in the melting of glaciers in the Qinghai-Tibetan plateau threatening the Yangtze and Yellow River basins, which sustain two-thirds of the economy and the livelihoods of 600 million. The fires in the American West Coast and hurricanes in the East are cataclysmic. Between 1998 and 2017, countries reported $2.9 trillion in economic losses, 77 percent of which was from climate change. The United States had the greatest losses; China, Japan, India and Puerto Rico followed. Indian cities are among the most endangered globally by air pollution, with acute threat to water, food and energy. The Global Climate Risk Index 2020 ranks India the fifth (with the most climate-related fatalities), while Japan is number one.

The three top carbon emitters account for one half of emissions. China saw a 2.6 percent increase and India had a 1.8 percent rise from 2018 to 2019, while the United States and the European Union had 1.7 percent drop. China’s carbon pollution tripled and India’s increased by 157 percent from 2000 to 2018. The United States administration has been busy dismantling emission standards on power plants and vehicles while relaxing restrictions on using carbon-intensive coal and oil for energy. Despite lower emission worldwide after COVID-19, carbon dioxide, the chief culprit in global warming, was a record 414.4 parts per million in July 2020 (after an even higher monthly record of 417.1 ppm in May 2020) because of past accumulation.

The principal suggestion is to call on the G-3 to roll out market oriented domestic carbon trading and taxes coupled with action on international trade and coordination. The pilot projects on carbon trading in China have shown success. So has carbon trading in some of the American states, for example the regional greenhouse gas initiative in the Northeast. Now is the time to scale these initiatives nationwide. The three nations should use their global monopsony power (power of a large buyer in international trade) to impose a transnational carbon tariff.  

The reason for a focus on trade is that even as a country improves the domestic carbon content of production, its imports from others not doing the same would have a huge negative impact. The leading emitters should use their powers — monopsony, diplomacy and financial — to build a climate coalition with trading partners to adopt carbon prices and apply carbon tariffs to encourage others to join. 

Climate smart growth will encourage more efficient production, promote energy efficiency, create millions of jobs in a post COVID-19 world, generate new revenues and bring health benefits. In the last 15 years, China has made efficiency improvements of state-owned enterprises, agriculture, industry and digital transformation. The United States is a world leader in renewable energy technology and states from California to Texas have made striking progress. The G-3 has increased solar and wind production and has ambitious plans. But the daunting distance still left to go calls for a new direction of taxes and tariffs.  

In support of this approach, multilateral development banks, especially the World Bank, Asian Infrastructure Investment Bank, Asian Development Bank and Global Climate Fund, could promote climate resilient infrastructure, stop carbon projects, promote carbon capture and energy efficiency. The International Monetary Fund must link crisis financing to green investments. 

The fiscal gains for the three nations could be enormous. Based on the recommended base price of carbon at $40 per metric ton, China could generate 14 percent additional revenues to help local governments finance this shift. Overall, the benefits of implementing the Paris climate change agreement far outweigh its costs. Capital investments to replace fossil fuels by renewables to keep global temperature rise below the dangerous threshold of 1.5 degrees centigrade is $ 2.4 trillion a year through 2035. By one estimate, averted global indemnities could be $150-792 trillion by 2100, or upwards of 4 times the investment.

China, the United States and India are being hit harder than ever by climate impacts. There is growing public support for climate action, but there needs to be resolute country leadership. A market oriented drive to tax and trade carbon domestically and to induce similar action by the others through international trade and diplomacy offer a promising way forward.   

Ed Araral is associate professor and director at the Lee Kuan Yew School of Public Policy at the National University of Singapore. Vinod Thomas is a visiting professor at the Lee Kuan Yew School of Public Policy at the National University of Singapore. He is a former senior vice president of the World Bank.