Climate impacts of China trade deal uncertain

Source: By Scott Waldman, E&E News reporter • Posted: Thursday, January 16, 2020

The Trump administration’s new trade deal with China will generate billions of dollars in energy exports, but its climate effects remain uncertain.

“Time will tell,” said Amy Myers Jaffe, director of energy security and climate change at the Council on Foreign Relations. “It could be beneficial.”

As part of the deal, China has agreed to spend billions of dollars more on energy, including liquefied natural gas, crude oil and coal. And while an increase in fossil fuels might at first blush seem like a net negative, the deal has the potential to shift China’s appetite away from coal-fired power and push it toward cleaner natural gas, while also giving U.S. producers an incentive to reduce flaring, she noted.

“The Chinese have agreed to a minimum purchase of a targeted level of LNG, and to the extent that more gas leaves the U.S. and isn’t flared or vented, that’s a good thing, especially if it’s going to replace coal,” she said.

Myers Jaffe said it’s too early to determine if the increased LNG imports will cause a notable shift toward gas and away from coal in the Chinese energy market because new U.S. imports may just replace other sources of LNG, including from Russia.

China is already the world’s leading LNG consumer and the second-largest consumer of petroleum products, according to the American Petroleum Institute. China was increasing its imports of American LNG from June 2016 to early 2018 when President Trump first imposed tariffs. After that, the imports fell to zero by August 2018. The trade deal will reinvigorate that relationship.

As part of the deal, China has committed to purchasing an additional $200 billion in American exports above current levels. The deal includes an additional $52 billion spent on energy above 2017 levels, with $18.5 billion spent in the first year and $33.9 billion in the second year. That includes U.S. LNG, crude oil, refined products as well as metallurgical coal used in steel manufacturing.

Yesterday, Trump hailed the deal as a key first step in bringing the countries together, saying it was a phase one deal, likely to be followed by a phase two agreement.

“It just doesn’t get any bigger than this, not only in terms of a deal but keeping these two giants in harmony,” Trump said.

Notably, the agreement leaves $380 billion in U.S. tariffs in place. The trade war initially started two years ago when the Trump administration slapped a 30% tariff on solar panels. Solar panels made in China make up a significant share of the U.S. market, and the solar industry estimated that tens of thousands of clean energy jobs were lost as a result.

In December, the Solar Energy Industries Association estimated that Trump’s tariffs have cost 62,000 jobs and $19 billion. That’s enough to power about 1.8 million homes, according to the group.

Trump imposed the solar tariffs in early 2018 for four years. They started at 30% and dropped by 5% every year.

One bright spot in the deal for the solar industry is the inclusion of polysilicon, said John Smirnow, general counsel at the solar trade group. Polysilicon is the raw material used to make solar cells, and China consumes roughly 90% of the world’s polysilicon. U.S. manufacturers who have been excluded from that market will now be able to sell there again.

The industry has not slowed dramatically, said David Livingston, deputy director of climate and advanced energy at the nonpartisan Atlantic Council think tank.

He said solar companies priced in the increase and ate the costs, figuring that absorbing the temporary price spike would be better than trying to source panels and establish manufacturing elsewhere. There have also been a number of ways to work around the system, including reexporting the panels to the United States after first selling them to Thailand or Vietnam.

The trade agreement will reinvigorate the energy market looking to sell into China and has the potential to advance some energy infrastructure projects in the United States, including LNG export facilities, Livingston said. The deal provides a high-level political signal from Beijing that will encourage more LNG contracts, he said. That could lead to more signed contracts, which in turn could spur development for more U.S. energy sources, but ultimately it won’t yield any fundamental changes to carbon emissions, he said.

“Tariffs are not coming off, so you’ll have this commitment to energy purchases, but the tariffs will still remain on crude oil and LNG,” he said. “I don’t see how it’s going to be structurally or systematically impactful from an energy or climate perspective.”

API hailed the deal as a win for the oil industry, but it also pushed for the Trump administration to enter a second phase of the deal to remove tariffs. The group noted that total U.S. crude exports dropped from over 20% in the first half of 2018 before the trade war to nearly 5% in the first half of 2019.

“De-escalation of trade tensions is welcome news to a wide range of industries, but there’s more work to be done,” API President and CEO Mike Sommers said in a statement. “We encourage the administration to stay at the negotiating table until the U.S.-China marketplace for energy trade is fully restored and all remaining tariffs are lifted — including U.S. tariffs on imports of industrial components used in our industry and Chinese retaliatory tariffs on U.S. energy exports.”