A Carbonizing Dragon: China's Fast Growing CO2 Emissions Revisited

China's annual CO2 emissions grew by around 4 billion tonnes between 1992 and 2007. More than 70% of this increase occurred between 2002 and 2007. While growing export demand contributed more than 50% to the CO2 emission growth between 2002 and 2005, capital investments have been responsible for 61% of emission growth in China between 2005 and 2007. We use structural decomposition analysis to identify the drivers for China's emission growth between 1992 and 2007, with special focus on the period 2002 to 2007 when growth was most rapid. In contrast to previous analysis, we find that efficiency improvements have largely offset additional CO2 emissions from increased final consumption between 2002 and 2007. The strong increases in emissions growth between 2002 and 2007 are instead explained by structural change in China's economy, which has newly emerged as the third major emission driver. This structural change is mainly the result of capital investments, in particular, the growing prominence of construction services and their carbon intensive supply chain. By closing the model for capital investment, we can now show that the majority of emissions embodied in capital investment are utilized for domestic household and government consumption (35-49% and 19-36%, respectively) with smaller amounts for the production of exports (21-31%). Urbanization and the associated changes in lifestyle are shown to be more important than other socio-demographic drivers like the decreasing household size or growing population. We argue that mitigation efforts will depend on the future development of these key drivers, particularly capital investments which dictate future mitigation costs.