Advancing sustainable growth in the United States and China

Introduction and Executive Summary

As short-term air quality and long-term climate risks come into focus for China, there is a clear need for an economic transition that allows the country to shift to a more diverse, low-carbon, and innovative economy—in other words, a more economically and environmentally sustainable economic growth model. And because China is the world’s second largest economy and largest emitter of carbon dioxide, its development decisions have far-reaching implications.

With this paper, we outline a vision for a sustainable economic transition in the Jing- Jin-Ji region, which we hope will ultimately inspire a similar transition across China.

The Paulson Institute defines sustainable economic transition as an economic and industrial move away from polluting, heavy industry to development that is low-carbon, resource efficient, diversified to include service-based industries, and supported by a talented workforce to drive new innovation. Such a transition is closely in line with both China’s economic and environmental goals, and consistent with national air quality targets and evolving national efforts to combat climate change. For example, the 12th Five-Year Plan (2011- 2015) called for a more strategic approach to development, efficient use of resources and prioritization of low-carbon growth—a theme that will likely be reemphasized in the upcoming 13th Five-Year Plan (2016-2020).

Similarly, China’s 2013 Action Plan on Air Pollution Control and Prevention established a framework for addressing air pollution, with a particularly detailed series of steps and objectives for three important regions, including the Beijing-Tianjin-Hebei region, or Jing-Jin-Ji. The nation’s 2014 climate change plan detailed China’s commitment to low-carbon development by spelling out a new national program for reducing carbon intensity and capping CO2 by 2030—a plan that was formalized through China’s Intended Nationally Determined Contribution (INDC) to the United Nations Convention on Climate Change, released in June 2015. As China faces increased pollution, rapid urbanization, and economic pressure to diversify its industries away from a heavy manufacturing base, the country is prioritizing an economic transition that can address all these issues and serve as a model for other nations.

China’s Jing-Jin-Ji region presents a compelling opportunity to highlight the opportunities—and the challenges—in transitioning to a more sustainable economic growth model. Located in Northern China, the Jing-Jin-Ji region is a rapidly developing economic cluster with a population of 130 million that accounted for roughly 10% of China’s annual GDP in 2014. More recently, the Chinese government has prioritized Jing-Jin-Ji regional economic integration to spur development. The region is diverse, including areas of intense industrial activity, modern urban centers, and edge districts trying to resist urban sprawl and maintain a rural character. Jing-Jin-Ji’s Hebei province, home to some of China’s largest steel and iron manufacturers, and to some of the most polluted cities in the world, is a key focus of the Chinese government’s industrial efficiency improvements and air quality control.

Given its diverse economic mix, strong policy and regulatory environment, and central location in China, the Jing-Jin-Ji region has the potential to dramatically reduce emissions and set the tone for China’s nationwide transformation toward a more sustainable growth model. Changes already taking place in the Jing-Jin-Ji region are just a microcosm of what will soon begin happening nationwide if on- the-ground implementation matches up to government aspirations.

With this paper, we outline a vision for a sustainable economic transition in the Jing-Jin-Ji region, which we hope will ultimately inspire a similar transition across China. The paper presents brief illustrations of cases in the U.S. and China where such transitions are already underway and have created new jobs and industries, and lays the groundwork for future in-depth analysis from the Paulson Institute of how a similar transition might occur in the Jing-Jin-Ji region. Through such illustrations, the report underlines a broad theme: a strong policy framework can inspire private sector innovation and investment, and together they create a foundation for a sustainable, productive, and prosperous economy.

Section 2 of the paper reviews macro-level factors that show how economic transition and environmental quality can go hand-in-hand for China at its present state of development. Decades of experience in other countries suggest that intelligent policies can enable higher-quality growth that is consistent with both environmental and economic goals. (In our earlier paper Climate Change, Air Quality and the Economy, we outlined ways in which national policy and enforcement could be improved to achieve this result.)

JINg-JIN-JI IN RELATION TO CHINA

Hebei should increase attention to policies that promote renewable energy and energy efficiency, since these two industries have strong growth and job creation potential.

A detailed analysis of emissions, air quality and energy efficiency data in section 3 concludes that industrial transition is key to cleaner air and lower CO2 emissions—and that this transition can be accomplished in part through industrial upgrades and energy efficiency. Section 3 goes on to summarize the steps that cities and businesses in Jing-Jin-Ji are already taking to transition to more sustainable growth models. Many cities in Jing-Jin-Ji are face-to-face with the harsh economic consequences of shifting away from overdependence on polluting, heavy industry like steel following long-term over dependence on this industry. Others in the region are at a relative advantage since they began diversifying their economies early by pursuing new and lower-carbon industries like solar and wind power development. The section contains the following policy suggestions:

  • Based on the relative impact on ambient air quality and carbon emissions, environmental and economic officials should prioritize reducing emissions and increasing efficiency in Jing-Jin-Ji’s industrial and public heating sectors.
  • The government should prioritize energy efficiency improvements within the iron and steel sector, such as through deepening the Top 10,000 Enterprises program. While economic transition away from fixed- asset investment and the elimination of overcapacity in steel will naturally help reduce emissions, energy efficiency measures still have a large scope for reducing PM2.5 and carbon emissions from the iron and steel sector.
  • Hebei should increase attention to policies that promote renewable energy and energy efficiency, since these two industries have strong growth and job creation potential.

Section 4 highlights case studies from the United States, where once-industrial cities and states have found a way to pursue economic growth while also addressing environmental and climate concerns. We focus on California and the U.S. Rust Belt cities of Pittsburgh, Cleveland, and Toledo. The section contains the following policy prescriptions:

  • City officials must make early efforts to identify new industries for growth, rather than seek to revitalize declining industries and fuel sources. Rust Belt cities that recognized the need to diversify their economies early got a head start on those that concentrated on protecting jobs in legacy industries undergoing automation or downsizing.
  • Strategic investments in R&D, tied through local institutions of higher education, can be an effective method for fostering new clusters of industry or services. In particular, cities should focus on identifying a strategic R&D focus, based on existing assets and infrastructure, as opposed to funding higher education overall or merely upgrading existing legacy manufacturing centers.
  • Integration of policy goals at the national, regional and local level is key to ensuring that environmental and economic prosperity go hand in hand. By taking a leadership role in setting and enforcing strict environmental standards and energy policy goals, regions can encourage innovation and foster new industries.

While the cases in the U.S. occurred in contexts very different from China, all have important lessons for policymakers considering how to minimize the potentially negative short-term after effects of economic transition.