Why China will not Constrain it’s CO2 Emissions

There is an interesting and simple explanation of why it is not possible for the West to emulate China’s growth rates at the ASI Blog. This is basically Robert Solow’s exogenous growth model – that is explained graphically at Wikipedia. China is increasing it’s output per capita by increasing it’s capital per worker on by moving up the current technological production frontier. They are still on the lower part of the curve, so the returns to substituting capital goods for labour are quite large. The western countries are at the top end, so returns can only come from moving to a higher technological boundary.

This does not explain all of the phenomenally high growth rates of China against the West. A clue is that it is not the traditional manufacturing industries that China is entering, such as steel, shipbuilding and textiles. It is also the production of the latest high-tech gadgets invented in the West. The reason is that the time taken in turning prototype to mass production is much quicker in China, due to a lack of regulations and statutory planning consents. Yet most of the profits from the last innovations come before anyone can replicate them. A saving of a few months or weeks for the latest mobile phone or digital camera can mean the difference between millions sold at very high margin and tens of thousands sold at a much lower margin.

China’s high growth rates are also accompanied by a rapid increase in energy production. Much of this comes from coal and oil. The advantage of fossil fuel over clean energy is primarily one of cost, but there is time and convenience as well. Coal is based on well-established technologies and China has large reserves of its own, as well as cheap and reliable supplies from elsewhere. Oil-fired power stations are easy to turn on and off. Against this nuclear power stations take a long time to build (and longer to de-commission), along with higher unit costs. Wind power and solar power are highly expensive, and have an extreme mismatch between the timing of the power supply and power demand. Hydro is limited in availability, takes a long time to build, and (like the Three Gorges or the Itaipu dams) cause environmental damage and the displacement of large numbers of people. To constrain China’s growth in energy will create a slowing down in the ability of China’s entrepreneurs to create new output, and therefore constrain a major advantage of manufacturing in China. The Chinese officials will attend the Climate Summits, smile politely and undermine any binding global commission agreements. It is not out of obstinacy that they do it. Rather they understand that the potential costs of constraint far outweigh any benefits.

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