March 3 (Bloomberg) -- China’s undervalued yuan is subsidizing energy-intensive export industries that have led to record carbon dioxide emissions, negating the nation’s conservation efforts, a study said.
China’s “depressed exchange rate” has protected coal-powered export industries, such as iron, steel and cement factories and the supply chains producing laptops, electronics and plastics, according to a report by CO2 Scorecard Group, a Winter Park, Florida-based environmental research group whose executives include a former World Bank economist and former energy specialist at the U.S. White House’s budget office.
“China’s macro-economic policies have made its economy a magnet for energy intensive and greenhouse-unfriendly industries,” it said. “The country is actually reversing the gains it made in energy and emissions efficiency.”
The yuan has fallen 18 percent since China scrapped its dollar peg in July 2005 and is only allowed to trade up to 0.5 percent on either side of the official rate. The currency is “substantially undervalued” and puts other countries at a competitive disadvantage, U.S. Treasury Secretary Timothy F. Geithner said on Jan. 12.
China has been responsible for 10 of the largest single-year increases in emissions, the report said. Its record 2004 increase put an additional 1 billion tons into the atmosphere, roughly equal to what Japan vented in all of 2009, according to Bloomberg data.
Those increase in emissions have coincided with China’s entry into the World Trade Organization in 2001, which began a period of export-led economic growth as the yuan declined from over 8 per dollar to under 7 by 2008, the report said.
“The incentives for industrial growth and energy generation created by the weak currency policy have contributed to defeating the efforts to meet (environmental) targets,” said the report, whose co-authors are Shakeb Afsah, a former World Bank environmental economist, and Kendyl Salcito, an executive director at Nomogaia, a Denver-based human rights and corporate policy research group.
China plans to cut carbon dioxide intensity, or emissions per unit of gross domestic product, by 45 percent by 2020. The country’s energy audits, shuttering of old factories, and imposed blackouts to meet that intensity target are insufficient to tackle the rate at which is emissions are rising, the report said.
“Almost singlehandedly, China negated global emissions reductions last year,” the report said. That trajectory “won’t stop until the monetary policy changes and Chinese companies compete with other industrializing nations on an even playing field.”
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