Mr Wang’s chemical factory

Climate change presents a new challenge to business orthodoxy, writes Tim Clissold. Kyoto may be imperfect, but it’s helping to bring real opportunities for sustainable development, not least to China.

In a remote part of Zhejiang province in eastern China, at the foot of the Jiangshan mountains many miles inland from the sea, one of China’s largest refrigerant plants silently pumps out gases up into the morning sky. The first rays of the sun glint off the huge columns of twisted metal pipework in a reactor tower in the distance; there are smoke stacks and towers with great hoops of rusted tubing poking out at odd angles. Clouds of steam, all pink and rosy in the early morning sun, billow out of cooling towers; each side of the road, bundles of pipes with tattered lagging droop between collapsing supports. Rainwater sits in potholes reflecting the sky whilst deep inside the old chemical factory, the refrigerant plant relentlessly pumps out greenhouse gases up into the morning air. We can’t see them or smell them but they’ll kill us all just the same. Day by day and all through the night, these odourless, invisible gases rise up to the heavens, where they will sit for centuries and make the world bake.

The gases that come out of that plant are 14,000 times more greenhouse intensive than carbon dioxide. Each year, the equivalent of nearly 7 million tonnes of carbon dioxide spews out from the chimney. Last time I visited, the average worker wages at the factory were about US$50 (around 377 yuan) a month. Living standards have improved since the government cut the plant free, but for most of the locals the prospect of buying a car is light-years away. “A holiday abroad? You must be joking,” says Mr Wang as we walk through the plant. “It takes all of a worker’s wages to fill his stomach, pay college fees for the kid and foot the medical bills for the old ones.” Wang has little money for capital investment; the plant already struggles to support the 45,000 workers on its payroll; wages are low and will remain so for years. But they all know how we live in the west; images of unimaginable affluence and waste come onto the TV screens every night, beaming in from the global networks. “You think we should we worry about greenhouse gases?” asked Wang. “We’re only just making a living. You lot caused the mess, so you should sort it out.”

Guilty consciences

Recognition of climate change as a global emergency outside of a tiny group of experts is only a few months old, and yet the effects will last for centuries. Climate change is inextricably linked to development; the entire cascading mess of collapsing glaciers, dried up river beds and extreme weather events has been sparked off by a tiny proportion of the world’s population. They live in parts of western Europe and North America, locked into a huge interrelated structure of personal consumption and road transportation nurtured by giant capitalistic firms whose interests are served almost exclusively by stimulating ever increasing personal spending. And we dread what would happen if China reached the same stage of development. China is building power stations at a rate such that every 13 months, it adds the equivalent of Britain’s entire installed capacity. At the same time, we are buying plasma screens, home entertainment and communication systems that by 2020, just in the UK, will consume the output of 14 power stations. China is still a poor country dependent on coal, the most polluting of the energy sources, but can we seek to restrict its development? Is it morally acceptable (or practical) for us to think that countries like China should not develop? Can the rich nations work with developing countries to help them find a more sustainable development path? If we are willing to make that effort, how do we achieve practical results?

Catch-up race

Climate change presents deep challenges to laissez-faire capitalist orthodoxy. The failure to price in the cost of carbon to individual business decisions has resulted in a situation where internationally coordinated government intervention is essential for survival. It also raises difficult questions about some core ideals of western society where individual consumer rights dominate, and freedom itself has become associated with freedom of movement and the right to consume. Finally, climate change is the first time where coordinated efforts between rich and poor nations are essential for the survival of the rich.

And yet, despite these deep challenges and the necessarily international dimension to any solution, mention a “carbon offset” down at the local pub (or even a north London bistro) and you risk howls of derision. “Just makes you feel less guilty,” they sneer.


The global business revolution has benefited millions of people in some of the world’s most backward countries. It has sparked a chain of events where economic development is now the primary goal of countries that are home to the majority of the world’s population. The world’s population is expected to rise from 6.5 billion today to 9 billion by 2050, with most of that growth in the developing world. If developing countries follow the same path as the western democracies did in the past century, the consequences for the planet are dire indeed. Finding an alternative requires a massive transfer of capital, technology and knowledge from the developed world. The only way to achieve that is to provide an economic incentive to do so. That is where offsetting comes in.

So what is an offset and how can it help? The Kyoto Protocol was signed in 1998 and requires developed nations in Europe, plus Canada and Japan, to reduce their overall annual greenhouse gas emissions during 2008-2012 to 8% below the level of emissions that actually occurred in 1990. Achieving that carbon reduction entails enormous cost. The idea is that by imposing this cost on businesses, it will incentivise them to seek immediate ways to reduce emissions and to develop new strategies and technologies for carbon abatement over the longer term. Carbon offsetting reduces the cost of meeting emission reduction targets so that they are not so high that an international consensus would be impossible to reach, but not so low that they really don’t provide any incentive to reduce emissions.

The basic principle of “offsetting” is that it doesn’t matter where greenhouse gases are emitted, they still have the same effect. Since the cost of reducing emissions is much lower in developing countries than the west, the carbon offset market allows emitters in the west to meet their reduction targets more cheaply by paying for emission reductions in places like China through buying a “carbon credit.” This keeps the costs down so governments can set much tighter caps.

So there are two parts to Kyoto: a cap that is imposed by international agreement between governments, plus a carbon offsetting and trading mechanism that makes the cost of meeting the cap as low as possible. The Kyoto Protocol also put in place a strict set of rules that require independent verification how much carbon abatement has actually happened before the credit is issued. The system is intended to maintain integrity and is administrated by an Executive Board in Bonn.

Mr Wang’s chemical factory

Mr Wang runs the refrigerant plant in Zhejiang. Pugnacious and smart, he pays attention to developments reported in the world press, so when he heard about Kyoto, rather than being bamboozled by the complexity, he set up a team to study it. Just 18 months later, Mr Wang has installed an incinerator that burns out the greenhouse gases from his plant. The money that Wang earns from selling carbon credits for reducing emissions earns him a handsome profit on the investment in the incinerator and it stops 7 million tonnes of carbon emissions a year. So we should all be happy, shouldn’t we? Not so simple, goes the counterargument. The fact that Wang has stopped his carbon emissions in China means that someone in Europe can buy the credit and emit the same amount, so as far as the world is concerned there is no progress. This argument surely has a point. Kyoto is an imperfect system; the issue could have been solved at a stroke by requiring two tonnes of reduction in China for every tonne of offset in Europe. Then there would have been a real reduction; but with the US outside the treaty, the rich nations couldn’t even agree on Kyoto let alone anything more costly.

Knowledge transfer

Short-term carbon reduction is only part of the story. Climate change can only be addressed longer term by the massive transfer of technology and knowledge to the developing world, and this is being facilitated by the offset market. Wang brought technology into China that can be used to destroy all sorts of polluting gases. As incinerators become more widely used, they become cheaper. Start making them in China and they will become cheaper still. And Kyoto is mobilising resources from outside the country to invest in many types of new green businesses. China’s coalmines emit millions of tonnes of methane every year that can be captured and used to generate electricity. Carbon offset trading has enabled foreign investors to finance projects in China to transfer in methane collection and power equipment that otherwise would not have been viable. Wind farms are being built in Inner Mongolia, small scale run-of-river hydro electric plants are being installed in remote areas and thousands of bio-digesters that produce gas for heating and cooking from fermenting animal waste are being brought to country villages across China in projects that could not have happened without the carbon element. These small hydro projects and bio-digesters bring health benefits locally as villagers no longer need to burn coal and breathe sulphur from the air or chop down trees for firewood. So Kyoto can bring enormous benefits for long term capacity building in developing countries to help find a more sustainable path to development.  

As with any new system, it’s not perfect. There’s been a lot of justifiable criticism in the press; fraudulent claiming of credits where no real emission reduction had been achieved, and investors making egregious profits from arbitrage trades on carbon offsets without adding any real value has damaged the credibility of the system. These problems are compounded by the growth in the “voluntary” market, which is not policed by Kyoto but often gets confused with it. Generation of “voluntary” offsets are not subject to any independent check or government regulation, and there have been instances of unscrupulous intermediaries selling “voluntary” offsets where there was no real carbon saving at source. But voluntary offsets are only a tiny proportion of the market and the Kyoto regulated carbon markets are still in their infancy; carbon offsetting is a short term measure to deal with a crisis and it will mature as it gains credibility and the markets become stable. Crucially, offset trading is stimulating the transfer of technology and resources to places that desperately need help to achieve sustainable development. So don’t mock Kyoto; recognise its imperfections and support its core purpose, but above all, switch off your lights and bicycle to work.


Tim Clissold has been living in Beijing for 20 years. After a few false starts he is now investing in greenhouse gas emission reduction projects across China. He is the author of "Mr China."

Homepage photo by sinosplice via Flickr

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