The Right Way for America and China to Cooperate on Climate

After the U.S. climate envoy John Kerry traveled to Beijing last month for three days of talks with Chinese leaders, he expressed cautious optimism. The trip yielded no new agreements, but the mere fact that it took place, Kerry argued, was a step forward. His verdict underscored just how much the space for cooperation between the United States and China has shrunk, even on a matter as urgent as climate change.

Recent times have not been kind to those hoping for more U.S.-Chinese climate action. As heat, floods, drought, and rising sea levels wallop the globe, the leaders of the world’s two largest economies are barely talking to each other. Yet Kerry’s trip has opened a path that, if maintained, could lead both countries back to cooperation against an existential threat.

One area in particular holds some promise: Washington and Beijing could combine—or at least coordinate—the financial assistance they provide to poor countries in the fight against climate change. Both the United States and China already offer such assistance on their own; joining forces would allow them to maximize its impact and lay a more solid foundation for low-carbon economic development, reduced poverty, and enhanced resilience to climate change. Helping rapidly growing but highly indebted developing countries achieve those objectives is in both the United States’ and China’s self-interest, and partnering in pursuit of shared climate goals in third-party countries is inherently less politically fraught than trying to cooperate on a bilateral basis on contentious issues such as technology. A shared U.S.-Chinese climate finance platform—an informal mechanism to coordinate, bundle, and channel public and private resources into green development—would build on the momentum that Kerry’s visit created and offer a pragmatic way forward.

BETTER DAYS

U.S.-Chinese cooperation on shared climate goals reached its high-water mark in 2014. U.S. President Barack Obama, then in his second term, was determined to reach a global climate agreement and found a small patch of common ground with Chinese President Xi Jinping, whose vision of great-power relations at the time included cooperation on global public goods. In November 2014, the two leaders jointly declared a set of ambitious emission targets for their respective economies during a presidential summit. Their announcement set the tone for negotiations on the Paris agreement on climate change, which enshrined equally ambitious goals on a global scale the following year. The accord could not have come into existence had Washington and Beijing not managed to look past serious disagreements—over technological competition, human rights, and cybersecurity, to name just a few domains—and commit to collaborative problem solving.

But the United States withdrew from the Paris agreement in 2017. (China, to its credit, stayed the course and is on track to achieve the targets it set for itself under the treaty.) Thereafter, the Trump administration’s trade war against China and the escalation of geopolitical tensions during and after the pandemic buried what little trust remained, including in the realm of climate policy. An initial climate dialogue breakthrough engineered by Kerry in 2021 proved short lived. In August 2022, immediately after House Speaker Nancy Pelosi’s trip to Taiwan, the Chinese again suspended talks and did not resume them until Kerry’s trip last month.

THE FOSSIL FUEL DEBT TRAP

China is currently the world’s leading emitter of greenhouse gases, and the largest quantity of cumulative emissions since the dawn of the industrial age has come from the United States. But it is likely that global emission rankings will see a dramatic reshuffling in the decades ahead. The low-income developing countries that make up much of Africa and Southeast Asia, for instance, do not currently add much to the global carbon footprint—they are too poor and their economies too underdeveloped to make a serious difference. Yet they are determined to grow, and since they cannot by themselves afford long-term investments in a low-carbon, environmentally resilient development model, most of them are continuing to bet on fossil fuels. If necessity keeps pushing them down this path, these countries could, as a bloc, lead the world in emissions by 2050.

Even if low-income countries fall short of that grim milestone, they will likely emit more greenhouse gases, not less, by midcentury—at the very moment when the world needs to reach net zero emissions to avert even more catastrophic levels of warming. Along the way, poor countries will need to contend with the costly damage inflicted by worsening climate conditions, and wealthier countries will need to keep coming to the rescue to help with climate disaster recovery. Sixty percent of low-income developing countries already suffer from unsustainable debt burdens today. The need to heap on even more debt to recover from repeated climate disasters will trap many of them in the very cycle of poverty and indebtedness they have sought to escape for decades.

Aggressive and strategic financing from wealthier countries could help them break out of this vicious cycle. The United States and China, as the two largest economies in the world, are uniquely positioned to help. First, however, they must achieve a modicum of cooperation on the financing of green development. The UN’s existing climate regime already offers a potential forum for such cooperation in the form of the Green Climate Fund, established in 2010 to support developing countries’ mitigation and adaptation efforts in the face of climate change. Yet it is bureaucratic and politicized because of its many stakeholders, and China refuses to contribute to the fund because it fears that doing so would jeopardize its own classification as a developing country under the climate convention. The United States, meanwhile, has delivered only $2 billion to the fund since 2015 because of congressional opposition.

Global emission rankings will see a dramatic reshuffling in the decades ahead.

Instead, each country is going it alone, with mixed and at times unclear results given the opaque accounting practices involved. China’s Ministry of Ecology and Environment claims to have offered developing countries $10 billion in climate finance, but it neither specifies a clear time period nor explains what is included in that figure, and there is no way to independently verify its accuracy. And although Xi promised in 2015 that China would establish its own $3 billion climate fund for developing countries, by the Chinese government’s own admission, it had provided only $310 million as of last year. Other channels include China’s Belt and Road Initiative, which has financed many infrastructure projects in developing countries, but it is unclear how much of it could be legitimately categorized as climate finance. Until 2021, China routinely financed overseas coal-fired power plants as part of the BRI.  

The United States, meanwhile, is struggling to mobilize and deliver climate finance at scale. U.S. President Joe Biden pledged in 2021 to increase U.S. support for developing countries’ efforts to build their resilience to climate change so that it would total more than $11 billion per year by 2024. But Congress has refused to appropriate the funds, in part because it would like to see more generous contributions from China (and in part because of generalized Republican opposition to funding “the UN” and spending more money overseas when there are urgent needs at home). Current government estimates put U.S. bilateral and multilateral climate finance at just under $1 billion per year, a far cry from the $11 billion that Biden envisioned. As is the case with China, the United States’ failure to deliver has the potential to cause the country significant reputational damage internationally.

In addition to their inadequate volume, these parallel climate financing efforts sometimes fail to reach the right recipients. Both Washington and Beijing are competing geopolitically for a shrinking pool of borrowers and aid recipients among developing countries that they deem financially viable, meaning that there are few low-risk investment opportunities left. As a result, very little climate finance is reaching those low-income countries that need it most.

The United States is struggling to mobilize and deliver climate finance at scale.

To better support green development in less developed countries, Washington and Beijing could build a joint financial platform in which public and private actors from both countries could hash out solutions in a depoliticized and pragmatic context. This need not entail a full-fledged institution with a complex bureaucracy and governance structure. Instead, an informal cooperative forum, operating nimbly on a country-by-country or project-by-project basis, could suffice. Each participating institution would partner only with the others—in working groups or at individual financing conferences, for example—if it was in its own interest to do so. As the various public and private actors from both countries get used to working together and learning from these experiences, they may wish to establish more consistent or regular approaches to co-financing arrangements.  

The necessary components are already in place. Both countries have aid agencies and the relevant public and commercial banking infrastructure. Both already work together as members of multilateral development banks such as the Asian Development Bank and the Inter-American Development Bank. Both have strong domestic industries capable of providing clean technologies and services, along with world-class universities that can provide technical assistance. All that is missing is the political blessing for them to work together to support green development.

Short of true cooperation, the two countries should, at a minimum, coordinate their climate finance work. When active in the same developing country, they could carry out projects that complement each other to collectively achieve more impact in the country: China might finance and build an ultrahigh-voltage transmission line, for example, which could then easily be linked to a wind farm funded and built by the United States.

A PRAGMATIC WAY FORWARD

Cooperating on climate finance would bring a host of advantages to the donors. Each party would achieve more with limited public resources. Financial risk would be spread across a wider array of actors and countries. In the United States, members of Congress would have less reason to resist grants or concessional loans if they knew that China had skin in the game, too. Co-financing would also enable donors and lenders from both countries to better understand and trust each other’s preferences and approaches to blending public and private finance. Meanwhile, competitive bidding processes that include both U.S. and Chinese companies could ensure that neither country’s private sector benefits unfairly.

The climate finance platform need not to be wholly bilateral. In fact, inviting in a small number of additional partners—a Middle Eastern sovereign wealth fund, for instance—could make the platform more politically palatable to skeptics by introducing some neutral actors and bringing even more funding to the table.

The United States and China, perhaps alongside other partners, have the chance to pioneer a new approach to financing green development in the global South. They would be setting an example for the world, much as they did back in 2014, when they pioneered a new approach to setting emission targets. A joint financing platform is pragmatic and badly needed, and it would get the two countries working together again.