The Green Team Speaks to Zhang Junjie

Dr. Zhang Junjie is Associate Professor of Environmental Economics in the Nicholas School of the Environment at Duke University and Director of the Environment Program at Duke Kunshan University. He founded Duke Kunshan's Environmental Research Center and International Master of Environmental Policy Program. He is a co-editor of China Economic Review. He also serves as a vice chair for the Chapter of Environmental Economics in the Chinese Academy of Environmental Science, an advisory board member for the Nicholas Institute for Environmental Policy Solutions, and a board member for the Professional Association for China’s Environment.

Prior to his current position, he was an associate professor in the School of Global Policy and Strategy at the University of California, San Diego. His research centers on empirical issues in environmental and resource economics, with topics covering air pollution, energy transition, and climate change. His research projects have been funded by the US National Science Foundation, US National Oceanic and Atmospheric Administration, China National Natural Science Foundation, China’s Ministry of Ecology and Environment, China Council for International Cooperation on Environment and Development, Energy Foundation, World Bank, and Asian Development Bank.

He holds a BS from Renmin University of China, a BS and an MS from Tsinghua University, and a PhD from Duke University.

Achieving carbon neutrality to combat climate change has become an important global priority. As a scholar of environmental economics, what do you think are the biggest challenges and opportunities that China faces in balancing economic growth and its carbon neutrality goal?

JUNJIE: China’s first challenge in addressing climate change is that local governments overpromise and underdeliver. At the central government level, the signals and targets for achieving the vision of carbon neutrality are quite firm and strong; however, at the local government level, carbon peak and carbon neutrality goals are rarely prioritized. In July, the Politburo criticized “campaign-style carbon emission reduction,” but this "campaign" is more about chanting slogans and claiming credits than cutting emissions. The most typical example is the “dual control” of energy intensity and energy consumption. In the first half of this year, the energy intensity in nine provinces (regions) actually increased. This shows that the local government significantly underdelivered in terms of addressing climate change.

The second challenge is that the window of opportunity for a low carbon transition is slowly closing. Due to its success in controlling COVID-19, China’s industrial production and exports have outperformed any other country in the world. And this period of economic expansion was viewed as an ideal time for a low carbon transition when China could take advantage of the critical opportunity to advocate for a green and low carbon recovery leading to President Xi’s international commitment to carbon neutrality in 2020. As the global pandemic situation gradually improves and the international supply chain gradually adjusts, the pressure on China's economic growth increases, and there will be more resistance to a low carbon transition.

The third challenge is that China's climate policy has yet to develop effective market incentives. The launch of the regional carbon markets in 2013 and the national carbon market in 2021 signifies that carbon emissions trading has become a core climate policy tool. However, the current carbon market is still a "thin market." Since the national carbon market became operational, the minimum trading volume of emission allowances has been 10 tons per day, and the carbon price has been in a downward spiral. A carbon market with a low carbon price and low trading volume is hardly an effective incentive for market players to reduce emissions.

We found that China has become a leader instead of a follower in low carbon innovation.

China has significant opportunities in achieving carbon neutrality. First, China's policy signals are very clear. The central government has made strong statements that mean China's climate goals will not easily change. Stable policies provide a long-term signal for market players to carry out energy conservation and low carbon innovation. Second, China's large market and industrial manufacturing capability provide a good foundation for developing renewable energy and low carbon industries. China is not only the largest manufacturer of wind turbines and solar panels but also the largest installer of wind and solar energy. Third, China's low carbon innovation capabilities are developing at a rapid pace. We reviewed global patents in four low carbon areas, including green innovation, energy efficiency, alternative energy production, and transportation. We found that China has become a leader instead of a follower in low carbon innovation, which is one of the underpinnings of China's commitment to carbon neutrality.

Both carbon markets and carbon taxes are important market mechanisms to promote carbon emission reduction. China's national carbon market officially started trading in July this year, but scholars have also been focusing on the study of carbon taxes. Do you expect China to develop a carbon tax mechanism to accelerate the achievement of carbon neutrality targets, given it already has a carbon market? In your opinion, if China does introduce a carbon tax, in which areas should it be applied to better utilize its advantages?

JUNJIE: A carbon tax is more suitable than a carbon market for China in terms of promoting carbon emission reduction. There are four reasons for this claim.

1. The price signal of a carbon tax is stable, while the carbon market creates a highly volatile carbon price. Companies usually prefer a stable price signal because it reduces the uncertainty in their investment and operation decisions.
2. A carbon tax is simpler to implement than a carbon market. A carbon tax only needs to be imposed on the production and import of coal, oil, and natural gas to control carbon emissions associated with fossil fuel use on the production side. In contrast, the regulation in the carbon market is placed on the demand side of fossil fuels with a larger number of market players.
3. China already passed the Environmental Protection Tax Law in 2016. The inclusion of carbon tax into the environmental protection tax would provide a solid legal mandate. In contrast, the legal basis of the carbon market is very weak. The mandate is in the form of ministerial regulations. This prevents carbon emissions trading from playing a leading role in carbon emission reduction.
4. China's fiscal tax collection system is relatively well established, while the carbon market must build a whole new trading system, so there is also a very large gap between the maturity of these two systems, which leads to a corresponding difference in administrative costs.

As China’s carbon market expands to cover other high emission sectors such as petrochemicals, chemicals, building materials, steel, non-ferrous metal, paper, and domestic aviation, a carbon tax can play an important role in industries not covered by the carbon market. Examples include transportation and construction. A carbon tax and carbon market can coexist as long as they can avoid duplicate regulations on the same emitter.

In addition to climate change, biodiversity loss is another great challenge facing humanity. The main reason for this decline in biodiversity is that human societies have not fully integrated natural capital into their economic policies and decision-making processes. How do you think this fundamental problem should be addressed? What challenges does China face in addressing this issue? What are some of the innovative solutions?

JUNJIE: Compared to climate change, biodiversity loss is less recognized both globally and in China. But there are two favorable factors for addressing this issue. Biodiversity is not challenged by as many skeptics as climate change, and the policy options for addressing biodiversity loss are relatively simple in that threats to biodiversity can be reduced by decreasing economic activities.

The first challenge for China to address biodiversity loss is the severe lack of investment. Depending on various scenarios of greater conservation efforts in the next decade from our study, China's biodiversity conservation investment should reach RMB 10.96-18.84 trillion. This compares to only RMB 4.86 trillion in the past decade. Therefore, there is a funding gap of RMB 6.10-13.98 trillion for biodiversity conservation in China, or approximately 0.84-1.45% of the total projected GDP in the next decade.

The second challenge is the single source of conservation funding, which is highly dependent on the fiscal support of the central government. This dependence is growing because biodiversity conservation hotspots are usually also economically underdeveloped areas that cannot rely on local fiscal revenue. For example, they can’t pay rangers or fund high-tech monitoring and assessment. The central government accounts for more than 80% of the core funding for biodiversity conservation in 2020, 90% of which is achieved through transfer payments. In order to bridge the funding gap for biodiversity conservation in the future, higher demands will be placed on the fiscal spending of the central government.

The third challenge is in quantifying and distilling biodiversity conservation targets. If the effectiveness of conservation is measured only by the protected area of land or sea, there is a risk of ignoring the spatial differences and the quality of conservation. The difficulty in quantifying and distilling conservation targets for local governments makes it hard to motivate local governments to achieve a better balance between development and conservation.

China has created a series of effective governance tools in the area of biodiversity conservation.

• Adherence to ecological red lines lays a good foundation for biodiversity conservation. The central government has sent a clear signal to local governments that the principle of putting conservation first has become a political priority, which can be seen in crackdowns on illegal exploitation of mineral resources in the Qilian Mountain Nature Reserve and illegal construction of villas in the Qinling Mountains.
• Economic incentives are promoted as effective means of conservation. The mechanism for realizing the value of ecological products is a long-term economic guarantee for biodiversity conservation. Only through the market mechanism can lucid waters and lush mountains be continuously turned into invaluable assets, and protected areas become a boost rather than a hurdle for local economic development.
• Private capital has been prioritized as an important supplement to the funding of biodiversity conservation. Although the share of private capital in conservation funding is still small, some NGOs—especially those set up by entrepreneurs focusing on biodiversity conservation—have played a leading role and made a great social impact.

The Chinese government has introduced a series of regulations and policies in the past few years to promote the establishment of a diversified and market-oriented ecological compensation mechanism. What do you think has been the progress in this area so far? What are the main challenges and obstacles to the establishment of an effective market-based ecological compensation mechanism? What are your recommendations for addressing these challenges and obstacles?

JUNJIE: To build a diversified and market-oriented ecological compensation mechanism, there are three important elements.

1. Defining the property rights of ecological resources: Whether they are carbon emission rights, energy use rights, forestry rights, water rights, or fishing rights, only when property rights are clearly defined can compensation issues be effectively discussed.
2. Identifying the causes of changes in the state of the ecological environment: Scientific methods are used to discern the changes in the ecosystem brought about by the increase or decrease of specific economic activities.
3. Pricing physical and biological quantities of ecological changes into monetary quantities: This allows the costs and benefits of conservation to be quantified. China's land and natural resources are state-owned, making it impossible for China to copy the experience of countries based on private ownership. China needs to explore designing its own ecological compensation mechanism.

How do you practice green or sustainable behavior in your daily life?

JUNJIE: As a scholar of environmental economics, it is not only important to reduce one's own ecological footprint by changing one's lifestyle and consumption patterns, but also to contribute to the achievement of ecological conservation goals for all of society through one's research.