China’s international role in navigating the climate–trade nexus Lei Bian and Lucie Qian Xia Policy insight October 2022 The Grantham Research Institute on Climate Change and the Environment was established in 2008 at the London School of Economics and Political Science. The Institute brings together international expertise on economics, as well as finance, geography, the environment, international development and political economy to establish a world-leading centre for policy-relevant research, teaching and training in climate change and the environment. It is funded by the Grantham Foundation for the Protection of the Environment, which also funds the Grantham Institute – Climate Change and Environment at Imperial College London. www.lse.ac.uk/granthaminstitute Energy Foundation China is a professional grant-making charitable organisation registered in California, United States. It started working in China in 1999 and is dedicated to China’s sustainable energy development. The foundation’s China representative office is registered with the Beijing Municipal Public Security Bureau and supervised by the National Development and Reform Commission of China. Its vision is to achieve prosperity and a safe climate through sustainable energy. http://www.efchina.org/Front-Page-eAbout the authors About the authors Lei (Alice) Bian is a Policy Fellow (Belt and Road Initiative) at the Grantham Research Institute on Climate Change and the Environment. Lucie Qian Xia is a China Policy Fellow at the Grantham Research Institute on Climate Change and the Environment. Acknowledgements The authors would like to thank Chunping Xie, Danae Kyriakopoulou, Roberta Pierfederici, Robert Hamwey, James Roaf and Elizabeth Robinson for their helpful comments on this paper, and Bob Ward and Nicholas Stern for their insightful input into the project. The report has also benefited from the fruitful discussions from the LSE GRI China Series, and the authors would especially like to thank the speakers and participants of the China Series High-Level launch event ‘The Climate-Trade Nexus and China’s Climate Action’. Natalie Pearson and Georgina Kyriacou copy-edited the report. The authors have no relevant financial or non-financial interests to disclose. The authors declare financial support from the Energy Foundation China, the UK Department for Business, Energy and Industrial Strategy, the Grantham Foundation for the Protection of the Environment and the London School of Economics and Political Science for the submitted work. The views expressed in this report represent those of the authors and do not necessarily represent those of the reviewers, host institutions or funders. This paper was first published in October 2022 by the Grantham Research Institute on Climate Change and the Environment. © The authors, 2022 Permissions requests should be directed to the Grantham Research Institute. Suggested citation: Bian L, Xia L Q (2022) China’s international role in navigating the climate–trade nexus. London: Grantham Research Institute on Climate Change and the Environment, London School of Economics and Political Science. Contents List of abbreviations 1 Summary 3 1. 7 Introduction 2. Negotiating the climate–trade nexus and China’s diplomacy 9 3. Moving forward with the international carbon pricing agenda 17 4. Fostering a just energy transition through the Belt and Road Initiative 29 5. Formulating an international Climate Club through G20–G7 cooperation 39 6. Conclusion and policy recommendations 49 References 50 0 List of abbreviations ADB - Asian Development Bank AfCFTA – African Continental Free Trade Area AfDB - African Development Bank AIIB – Asian Infrastructure Investment Bank ASEAN – Association of Southeast Asian Nations BRI – Belt and Road Initiative CAI – EU-China Comprehensive Agreement on Investment CBAM – Carbon Border Adjustment Mechanism CBDR – Common but differentiated responsibilities CCER – China Certified Emissions Reductions CCUS – Carbon capture usage and storage CDM – Clean Development Mechanism CIDCA – China International Development Agency CPs – Country Platforms COFM – Coalition of Finance Ministers for Climate Action COP15 – 15th meeting of the Conference of the Parties to the Convention on Biological Diversity CTE – Committee on Trade and Environment DFI – Development finance institution EDMEs – Emerging markets and developing economies EFC – Energy Foundation China EGA – Environmental Goods A