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Nov. 1, 2021, 8:45 a.m. EDT

U.S. vs. China on climate change — what investors need to know

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Rachel Koning Beals

Investors should monitor whether ongoing competition between the world’s two largest economies and its two greatest polluters — China and the U.S. — will be constructive or destructive in their efforts to slow global warming, as well as the health of portfolios tied to the environmental efforts of these giants.

That tension is only likely to intensify as they and other economic powerhouses submit to firmer climate-change goals — if all goes to plan for the U.N. — as part of the ambitious global summit in Glasgow running Oct. 31-Nov. 12, known as the U.N.’s Conference of Parties , or COP26.

Related: What is COP26 and when does this ‘ambitious’ global climate change event begin?

“A healthy competitive dialogue [between the U.S. and China] will lead to a ramp up in clean energy investments and advances in nascent technologies, for example, green steel . A negative outcome would inhibit capital flows for low-carbon solutions /zigman2/quotes/225927364/composite LCTU -1.80% ,” said Jeffries analysts led by Aniket Shah, global head of ESG research.

“Investors should monitor any new commitments signaling renewed cooperation or, at a minimum, any shifts in sentiment,” the team said in a research note. “Both countries enter COP26 with difficult positions from a domestic political economy perspective.”

Read: ‘A leadership gap’: U.N. says U.S. and major nations’ emissions pledges backload much of the effort

Awaiting details

China, the world’s top emitter of carbon dioxide and other greenhouse gasses that cause global warming, formally submitted its goals to the Glasgow conference this past week. But, said analysts, that report offered no significant new goals for reducing climate-changing emissions, especially over the short run. The announcement  included targets previously delivered in speeches by President Xi Jinping, who will not attend the Glasgow summit in person but will deliver remarks by video.

China says it aims to reach peak emissions of carbon dioxide, produced mainly through burning coal, oil and natural gas /zigman2/quotes/210189548/delayed NG00 -1.72% for transportation, electric power and manufacturing, “before 2030.” The country shoots for net-zero emissions of CO2 before 2060, a decade beyond the U.S., the U.K., and the European Union’s net-zero pledges.

Climate experts say key questions about China’s plans remain unanswered.

“The document gives no answers on the major open questions about the country’s emissions,” Lauri Myllyvirta, lead analyst at the Centre for Research on Energy and Clean Air in Helsinki, told the Associated Press. “At what level will emissions peak and how fast should they fall after the peak?”

China’s seriousness in cutting emissions much ahead of the 2060 self-imposed net-zero deadline marks a significant unknown, but an important piece of its overall policy.

“For China to get on a pathway to reach its 2060 carbon neutrality goal it is critical for the country to further strengthen its new near-term targets and put in place measures to reach them,” said Helen Mountford, vice president, climate and economics, with the World Resources Institute.

Proving it can hit such goals would mark a position of strength for the country, and its investors.

“China has strong economic and social incentives to adopt ambitious climate policies,” Mountford said. “ WRI research  shows that bold climate action by China could generate savings of $530 billion in fuel, operation, and maintenance costs over 30 years. Ambitious climate action would also save China nearly 1.9 million lives and generate roughly $1 trillion in net economic and social benefits in 2050.”

China is expected to face pushback from its economic rivals as it ramps up coal production , one of the “dirtiest” contributors to global warming.

China is currently swept up in an energy crisis hitting Asia and Europe that has choked off natural gas distribution. With winter approaching, a tight natural gas market has resulted in Beijing calling for an expansion in coal production, an already significant portion of their energy mix. This is a headwind for the country’s goal of eventual carbon neutrality.

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