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First Meeting of the Track II Dialogue on Energy, Climate, and Sustainable Development

Enhancing Bilateral Collaboration between China and the U.S.

DIALOGUE SUMMARY September 2015

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First Meeting of the Track II Dialogue on Energy, Climate, and Sustainable Development

Enhancing Bilateral Collaboration between China and the U.S.

SUMMARY REPORT Executive Summary 2 Introduction 4 Session 1 – Status of Actions and Commitments 4 Session 2 – Paris Agreement: Commonalities, Differences and Solutions 6 Session 3 – Climate Policy, International Trade and Investments 10 Session 4 – Technology Cooperation 11 Session 5 – Low-Carbon Financing 13 Session 6 – Conversation with China’s Special Representative on Climate Change 14 Next Steps 15 Appendices 17

Appendix I: Memo to the U.S. Special Envoy for Climate Change Appendix II: U.S.-China Track II Delegation (Dialogue Participants) Appendix III: Dialogue Agenda Appendix IV: Dialogue Readings & Resources Appendix V: Acronyms

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First Meeting of the Track II Dialogue on Energy, Climate, and Sustainable Development

Enhancing Bilateral Collaboration between China and the U.S.

SUMMARY REPORT Executive Summary On September 10-11, the Track II Dialogue on Energy, Climate, and Sustainable Development held its first meeting in Beijing, China with U.S. and Chinese experts. The present moment offers a unique opportunity to strengthen U.S.-China collaboration on energy, climate change and sustainable development. The dialogue on climate and energy issues between the two governments has considerable positive momentum and has opened up new possibilities. As a Track II Dialogue, this is an informal process designed to help the two countries further increase mutual understanding and agreement on key issues, informing and strengthening the official engagement between the two countries and constructive bilateral impact on the multilateral process. The Dialogue emphasizes the importance of U.S.-China collaboration and continuity for the short and longer term. Since it aims to inform the ongoing policy dialogues and think through longer-term issues for exploration, this Track II is designed to ensure strong follow through for the new phase of transformational climate action that must follow the December climate change conference in Paris. In close consultation with the two governments, these efforts will go deep into important analytical questions, putting forward ideas and solutions for the months and years to come. The results should be robust for China government and future U.S. Administrations. Given the November 2014 U.S.-China Joint Announcement on Climate Change, participants viewed the current timing as ideal for further cooperation on climate change between the U.S. and China. More broadly, participants highlighted the ability of this Track II dialogue to help strengthen and sustain the U.S.-China relationship in a period of transition as the new U.S. administration is elected and China moves forward with economic restructuring. The Beijing dialogue discussions included topics for the imminent Xi-Obama summit and the COP21 Paris negotiations, as well as for the longer term. The Paris issues included discussion of Measurement, Reporting and Verification; long-term low carbon and adaptation goals; common but differentiated elements on mitigation, adaptation, and support; and global assessment or stocktake of progress on commitments. Participants discussed the importance of helping to assure that Paris is seen as a success in establishing common ground both for agreement and future cooperation. The discussions were animated by an effort to clarify perspectives, identify areas of agreement and disagreement, and build toward understanding and consensus. Other topics, such as innovation, technology sharing, cooperative research, and finance were also discussed, both for their relevance for Paris and for the longer term. A highlight of the Beijing meeting was an extended session exploring these issues with Minister Xie Zhenhua, who indicated his interest and support for the dialogue and suggested possibilities for consensus on important issues for Paris and beyond.

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Dialogue participants noted this to be a critical political moment in the U.S.-China relationship in which climate resilience and clean energy development can serve as a bright spot. Participants saw the dialogue platform as providing value in overcoming specific policy-related issues that the two countries are facing, and working on concrete issues and projects of mutual interest. Participants noted that if China and the U.S.—among the biggest developing and developed countries—can work together on this issue to promote both domestic developments and the multilateral process, that this would set a strong example for the rest of the world. Following the dialogue, the U.S. participants prepared informal input for U.S. Special Envoy for Climate Change Todd Stern regarding the upcoming COP21 in Paris (see Appendix I for the complete memo). After Paris, the Dialogue will work to help maintain momentum in the bilateral relationship for implementation of the Paris agreement and broader activities in support of the shift to low-carbon, sustainable development. As both countries undergo transitions in politics, economics, and society, the Dialogue will work strategically to ensure continuity, maintain and build relationships, and provide analysis and recommendations on critical issues, using a wide variety of tools, from public discussions to written analysis, such as a “white paper” for the new U.S. administration. Future dialogues will prioritize the implementation of the Paris agreement, further identify and prioritize the issues, challenges and benefits of bilateral cooperation, explore broader activities in support of the shift to low-carbon sustainable development, and identify opportunities for policymakers to understand and pursue. Topics suggested for future discussion include potential areas for breakthrough improvements in implementation and achieving established targets, including examining what a nationally-determined process enhancing adaptation action could look like, how best to link climate policy with trade and investment cooperation, low carbon standards (or criteria), and better defining low-carbon development in the context of finance, trade and technology. Participants also thought it important that future dialogues address how best to engage and interact with various audiences and key decision makers on the dialogue’s recommendations. The Track II Dialogue on Energy, Climate, and Sustainable Development consists of four 1-2-day, in-person meetings in both China and the U.S., with a second dialogue planned for winter 2016 in the United States. Participants in the Dialogue include U.S. and Chinese experts ranging from technical and policy experts, to opinion leaders to other knowledgeable individuals from think tanks, academic institutions, the private and non-profit sectors, and government. Note: The National Center for Climate Change Strategy and International Cooperation (NCSC) and the World Resources Institute (WRI) are pleased to partner on this Track II initiative, in collaboration with the Aspen Institute’s Energy & Environment Program. This initiative is made possible by the generous support of the Blue Moon Fund and the Rockefeller Brothers Fund.

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Introduction On September 10-11, the Track II Dialogue on Energy, Climate, and Sustainable Development held its first meeting in Beijing, China with U.S. and Chinese experts. The present moment offers a unique opportunity to strengthen U.S.-China collaboration on energy, climate change and sustainable development. The dialogue on climate and energy issues between the two governments has considerable positive momentum and has opened up new possibilities. As a Track II Dialogue, this is an informal process designed to help the two countries further increase mutual understanding and agreement on key issues, informing and strengthening the official engagement between the two countries and constructive bilateral impact on the multilateral process. The Dialogue emphasizes the importance of U.S.-China collaboration and continuity for the short and longer term. Since it aims to inform the ongoing policy dialogues and think through longer-term issues for exploration, this Track II is designed to ensure strong follow through for the new phase of transformational climate action that must follow the December climate change conference in Paris. In close consultation with the two governments, these efforts will go deep into important analytical questions, putting forward ideas and solutions for the months and years to come. The results should be robust for China government and future U.S. Administrations. The following report details discussions between the U.S. and Chinese delegations regarding various aspects of U.S.-China relations and climate change planning, including areas highlighted as next steps for future dialogues (to be held in 2016). This summary captures the ideas and thoughts expressed during the initial dialogue, however, not all views were unanimous nor were unanimity and consensus sought on the expressed findings contained in the summary. The members of the Track II dialogue listed below participated in their individual, not organizational, capacities. Session 1 - Status of Actions and Commitments In this opening session of the dialogue, participants discussed the current timing of the COP21 in Paris as ideal for furthering cooperation between the U.S. and China on climate change. The November 2014 U.S.-China Joint Announcement on Climate Change—a commitment from both leaders to move forward on this issue—was contrasted with the less promising contexts of both the 1992 Rio de Janeiro Framework Convention on Climate Change and the 2009 Climate Change Conference in Copenhagen. Strong signals for successful cooperation have been established, including breakthrough language in the joint announcement on CBDR. More broadly, participants highlighted the ability of this Track II dialogue to help strengthen and sustain the U.S.-China relationship in a period of transition as the new U.S. administration is elected and China moves forward with its economic restructuring. While parts of the international climate agreement have taken longer to develop than experts had hoped, there has been significant traction in the interim between the U.S. and China on R&D, infrastructure, new technology development, and the Track I relationship. The U.S.-China Clean Energy Research Center (CERC) and low-carbon city development have been noteworthy, and the two countries are seeking new areas for cooperation around research, knowledge and

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policy progress that can help to move the multilateral process forward. Participants expect that, with means of implementation clarified with more detail in advance of Paris, greater success can be expected post-Paris around transparency. Looking back historically during a presentation on the U.S.-China relationship, the relationship was described as founded on both historical cooperation and competition, with some recent tensions. Tensions include concerns regarding both China’s actions in the East and South China Seas and coast of Alaska, and the U.S.’s naval surveillance on China’s East coast. Additionally, economic tensions cited include U.S. concerns about China’s exchange rate, subsidies benefiting SOEs, barriers to U.S. corporations, and cybersecurity. From the Chinese perspective, there are concerns about irresponsible U.S. fiscal management, maltreatment of Chinese trying to invest in America, and export controls. However, there is increasing awareness among the general public of the close connections between the U.S. and Chinese economies. Specific reforms in both countries can help to bolster job growth and economic resilience, particularly as China moves from an export-based economy to a services economy. Given this context, China is pursuing models that allow for sustainable economic growth and the U.S. has much to offer in this regard, including incredible innovation—from energy technologies, software and big data to bioengineering and robotics. As Barak Obama approaches the end of his administration, he has made clear that climate change is a priority in his agenda. However, building on previous Track II meetings in 2008 and 2012, Chinese experts are concerned about consistency in the U.S. approach over the change in administrations. U.S. participants highlighted that, since Copenhagen, U.S. and Chinese climate envoys Todd Stern and Xie Zhenhua have developed a strong relationship and continued to move the process forward, including through the establishment of CERC and other cooperative initiatives. Participants noted that many difficult issues remain to be tackled, including China’s investment in coal-fired power plants and creative solutions for China to continue its support of developing countries while shifting toward a low-carbon economy. Dialogue participants emphasized that there is also need for coherence across the various enterprises, think tanks, and media messaging around climate change planning and building political willingness, while establishing common and accurate information. A second presentation during this session detailed the status of various actions and commitments, including the U.S. and Chinese INDC’s and other policy measures. On the U.S. side, logistical implementation of the U.S. INDC was described as based primarily on issuing standards and regulations under existing U.S. laws. The principle relevant U.S. law for implementation is the Clean Air Act, as well as a number of efficiency laws. Focusing specifically on the August 3 Clean Power Plan, it was emphasized that this plan is both legally and politically durable, with three Supreme Court decisions confirming the U.S. government’s ability to control carbon pollution under the Clean Air Act. The Clean Power Plan, an EPA law under the Clean Air Act, has enforceable limits on power plants’ carbon pollution starting in 2022, with a 30% reduction nationally targeted for 2030.

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U.S. participants emphasized that there is good reason to expect that the Clean Power Plan and the other measures in the U.S. INDC will be durable after the end of the president’s term. Experts explained that it is unlikely that Congress or state governments can block this plan, given the House and Senate two thirds majority required (which can be overridden by an executive veto if established). For those states refusing to implement the plan, the EPA would then directly regulate the power plants in those geographies. Experts noted that the courts are unlikely to block the Clean Power Plan for various reasons (see “What to Expect in Clean Power Litigation” in Appendix IV). In a subsequent presentation on China’s INDC, Chinese experts highlighted that a low-carbon future has been recognized as critical for prosperity, in order for China to overcome the middle income development trap. China’s INDC is believed to be a milestone guiding China in a positive direction towards its 2030 targets. To tackle predicted carbon emissions from rising incomes, China’s non-fossil fuel based economy will need to be expanded alongside a restructuring of the economy. China will rely significantly on efficiency improvements and increasing generation of non-fossil fuels, especially renewables (including nuclear). It is believed by Chinese experts that their peak emissions can be lower and earlier than other major economies if China’s INDC is implemented, and their goal is to focus on strategies for moving that trajectory downward and accelerating the process. Chinese experts believe with cautious optimism that China’s INDC can meet the requirements for 2⁰C. China’s priorities for mitigation include adjusting economic structures (e.g. limiting high-carbon industries), optimizing the energy structure (both adjusting the fossil energy structure and developing non-fossil fuels), improving energy conservation, and advocating for low-carbon living and travelling. On adaptation, several key priorities were described: 1) fully considering climate change in infrastructure and construction planning, 2) completing the relevant laws and regulations, adjusting construction standards, strengthening monitoring and early warning systems, and enhancing major sector adaptations to climate change, and 3) enhancing the research and evaluation of the impact of climate change on public health, etc. Current low carbon policies and measures were outlined, and pilots described for low-carbon provinces and cities and carbon emissions trading (See “Briefing of climate change policies and measures in China” in Appendix IV). China’s low carbon development strategy was described as requiring an economic transition, an energy transition, and a consumption transition in parallel. Enhancing control of carbon emissions by sector and region, and controlling high-energy consumption, were emphasized as necessary for China to achieve its carbon emission peak by 2030 and allow for low-carbon energy to become dominant in the next 30-40 years. U.S. participants acknowledged that coal is a dominant and complicated issue in the U.S. too, as with China, with eastern provinces in China mirroring the faster pace of some U.S. states over others in adopting the Clean Power Plan. Looking ahead, participants highlighted U.S.-China cooperation on non-CO2 greenhouse gases, including HFCs, and low carbon cities as key areas for cooperation. Cooperation between cities and local governments in China and the U.S. was also identified as an opportunity to reduce emissions through non-state stakeholder cooperation.

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Session 2 – Paris Agreement: Commonalities, Differences and Solutions Dialogue participants expressed a joint hope that through collaboration between the U.S. and China, the development of the multilateral process in Paris can be furthered. However, the participants agreed that COP21 will likely be described as a disappointment or failure by the media, and that this group’s efforts should aim to highlight areas of hope and success coming out of the Paris meeting. Experts noted that the goal of Paris is to establish intermediate targets from which future policy ambition can be established, rather than guaranteeing a stabilized 2⁰C.This group aims to address the media’s focus on this 2⁰C goal, and think outside the box about how Chinese and U.S. leaders can best frame the Paris meeting and agreement. COP21 was described as an important potential symbol of success, a milestone in joint climate-related undertakings, signaling to all countries—both developing and developed—that anti-climate change measures can be integrated into economic progress and social development. Participants agreed that it would be important for both the U.S. and China to make clear that gaps in the process do exists—i.e. that the current targets are not enough—and that the bilateral and multilateral negotiations are aiming to fill those gaps. In the run-up to Paris and through post-Paris implementation, this dialogue group seeks to provide support for addressing disagreements on climate change solutions between the U.S. and China, focused on specific issues and solutions. These areas of agreement were discussed by the group, as well as topics requiring further clarification, explored in detailed below. One of the most critical opportunities for the Paris agreement identified by participants is for developed countries to make external financial commitments to developing countries (e.g. the mitigation partnerships concept), based on pledges aimed at specific outcomes rather than financial levels. This financing could be provided through policies that encourage foundations, the private sector and states to deliver support. Finance is a critical issue and hope spot for Paris that can enhance action and cooperation, particularly around pre-2020 finance and CBDR in finance. Participants suggested that the Paris discussions should include government approaches like tax breaks or other incentives to encourage multinational corporations and large foundations to support the financial commitments needed, and called for clarification of details around implementation of the $100B commitment. Investing in building resilience to shift from high to low carbon is an important opportunity for U.S.-China collaboration. Participants agreed that all parties have a commitment to cooperate to mobilize finance, including private finance, public funding and public finance and other sources. Paris was recognized as an important opportunity—either within or outside of the agreement – to discuss how national financial institutions or international development banks can shift financing to resilient, low-carbon development. On expanding the donor pool, one expert pointed out that while developing countries have the right to (rather than the obligation to provide) support under the convention, China is willing to provide some of that support given its status relative to other developing countries. In this case, legal rights vs. political desire should be differentiated. Participants believed that the Paris agreement should aim to address the divergence in developing and developed countries’ understanding of post-2020 responsibility of developed countries, to provide the technological support needed for implementation of the Convention.

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The dialogue group emphasized the need for clarity on CBDR between the U.S. and Chinese perspectives, as well as a review process for the Paris parties’ submissions, to ensure that China and the U.S. meet their INDC targets and that parties’ mitigation commitments are enhanced over time. It was suggested that this dialogue group examine both common and differentiated elements of the Chinese and U.S. perspectives on the mitigation, adaptation and support cycles, including cycle frequency, the assessment process, the reporting process, etc. It was recommended that the group work on each of these to understand what is needed to improve implementation in a common way. Importantly, continuous improvement should be prioritized for all of these individual pieces.

Some participants suggested that the INDC process be used to engage with individual assessments on their share of the global emissions reduction burden and adequacy of detailed strategies, and that adaptation and risk management should be built into the review process (in addition to mitigation). Others noted that individual reviews are difficult in finding common agreed-upon frameworks, but that aggregate reviews could identify emissions gaps to then inform consideration of individual INDCs and address emissions gap issues. Chinese experts described the two most difficult issues for Paris as cycles (and updating targets based on review) and CBDR. Regarding cycles or processes, participants recommended that the cycles discussion be focused separately around mitigation, adaptation and support, as combining these cycles into one conversation could complicate matters. Some parties—including the U.S. and China—are concerned that the cycles are not only focused on mitigation and can look like complicated agreement packages when longer term goals, transparency, reviews, and other items are all included. Cycles allow for both stocktaking and CTU (collaborative transparency and understanding), and as cycles and reviews are completed, it was recommended that countries be required to change or adjust their targets. On CBDR, while there is general agreement, the U.S. and Chinese understandings differ on the meaning around requirements for mitigation and for mobilizing the $100B committed to developing countries. Participants further noted the need for clarity on the frequency and form of stocktaking, and suggested that mitigation could be a good starting point for developing these concepts. Participants thought it critical to understand how stocktaking outcomes would be translated into the domestic processes to increase the individual ambition. (The U.S.’s INDC has its target at 2025, with five year targets for successive commitments that could tie in to the idea of a global stock take every 5 years; China’s targets are set to 2030, with 10 year targets.) Regarding adaptation, participants agreed that ambition for cooperation on adaptation and designing the adaptation cycle or (package) should be increased, and a political process established for it. Adaptation is urgent and immediate for developing countries, and key elements in discussion for Paris are setting a global adaptation goal or vision, commitments or action at the country level, support for adaptation, institutional arrangements, monitoring and evaluation, and covering loss and damage. Areas of convergence for Paris include that the Paris agreement should enhance adaptation actions, build adaptive capacity and build resilience, that

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the institutions related to adaptation—particularly the Adaptation Committee—need to be enhanced and coordinated, and that the Agreement should also address loss and damage. (See “Paris Agreement: Adaptation” in Appendix IV.) From the Chinese perspective, adaptation is seen as a country-driven process requiring CBDR, and support to developing countries for enhancing their adaptation capacity is needed. Others called for systematic observation of impacts on climate sensitive sectors and ecosystems, vulnerability assessments, and identification of adaptation needs and availability (including technology assessment to help identify best practices in technology to enhance adaptive capacity in agriculture, water, etc.). Chinese experts emphasized that 1) all countries need to improve early warning systems to adapt to climate change and know when events will occur; 2) when a natural disaster has occurred, disaster alleviation and relief efforts must be conducted, and those abilities need to be developed through infrastructure, etc.; and 3) the issue of recovery from damage must be raised. The question remains: What might a nationally-determined process for enhancing adaptation action look like? Some experts emphasized that each country should set their own adaptation targets, giving each country a degree of flexibility (in contrast to the need to set specific mitigation targets). U.S. participants noted that adaptation is not only a developing country issue, and that it is a subject of debate now in the U.S. given the predicted impacts of climate change on the U.S. resources and the economy. The U.S. is looking to raise the profile of adaptation globally, with the aim of getting more actions (i.e. non-binding initiatives) from developing countries, rather than commitments to adaptation. While divergence between developing and developed countries exists on this topic, there is significant common ground between China and the U.S. and more time will be dedicated to these opportunities in the next dialogue, including a review of bilateral cooperation on agriculture, water, urbanization and infrastructure that might fall under the chapeau of building adaptive capacity. Participants also noted opportunities for bilateral cooperation on enhancing mitigation and adaptation strategies (and partnering on overall climate resilience), including through energy efficiency and infrastructure, non-CO2 greenhouse gas emissions, and low-carbon / climate smart cities. This session also included discussion around transparency, particularly the debate around having a single system vs. two (for developed vs. developing countries). Some described this debate as being the largest divergence between the U.S. and Chinese perspectives. From the Chinese perspective, the two-track system established under the Convention should be maintained, with different requirements for frequency and for international review. Chinese experts believe that enhancing transparency among developing country parties requires further capacity building among developing country parties (i.e. reforming knowledge and statistical systems, etc. to improve data quality over time). In particular, the global climate finance picture is unclear, and transparency of support (including a definition of climate finance) should be established.

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The U.S. perspective was described as also recognizing the need for capacity building, although to a lesser extent. From the perspective of the U.S., MRV (Measurement, Reporting and Verification) systems need to be differentiated by type of commitment and capacity, but a single system should be established for bringing the two tracks together across cycles. Questions remain as to when a single system would start, who would implement the system, and in what order countries would be required to engage. Participants asked whether CBDR should be applied to the transparency system, and other suggested that this group’s contribution could be on creating unified or common terms around transparency. A suggested potential next step for finding common ground on this issue was identifying a shared framework that would provide more flexibility for developing country parties, given their weaker capacities. Simplifying terms used for transparency was viewed as a helpful exercise. Finally, legal form and compliance was recognized as one of the top issues requiring common understanding in this discussion. Dialogue experts described compliance as the most important part of legal form, and suggested that this group focus on understanding where the U.S. vs. Chinese perspectives differ. From the Chinese perspective, the Kyoto Protocol is a successful international treaty, but its failure is in the compliance system relative to the Western developed nations. Experts noted that if legal form is too stringent, parties withdraw, but an alternative, bottom-up approach could be used. One option would be for a robust, transparency- and incentives-based system to be established that encourages parties to stay on track to make their contributions for Paris, rather than depending upon a punishment approach. From the U.S. perspective, a hybrid international legal agreement is needed with some binding provisions and others non-binding, and a legal obligation to account and report according to the MRV rules and to update the INDC. This type of agreement could be made possible through an executive agreement in the U.S. (rather than Senate approval), if it is aligned with existing U.S. laws. Given that Congress has to approve all appropriations, any significant financial commitments would be a condition affecting U.S. implementation of the Paris agreement. Given that the U.S. Senate has already unanimously signed onto and approved the framework Convention, U.S. experts noted that such an executive agreement would be consistent with existing laws. Session 3 – Climate Policy, International Trade and Investments The third dialogue session opened with a Chinese expert presentation on several topics pertaining to climate policy, international trade and investment. Regarding trades issues under the UNFCCC, it was explained that these topics are discussed within the platform of the WTO, with carbon tariffs highlighted as the most discussed point and a sensitive issue between China and the U.S. Most developing countries, including China, prefer to negotiate this issue under the UNFCCC, under which there is a mandate to discuss trade issues. Regarding the U.S.-China trade profile, China is America’s second major trade partner, the third largest market for U.S. exports and America’s largest source of imports. Export volumes have increased significantly annually in the last 20 years, with the U.S. accounting for almost 13% of China’s trade volume, described as mostly comprised of high-value or service products. In the

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1980’s, rubber, textiles, minerals etc. were 44% of exports to the US; by 2000, machinery and transport equipment had replaced textile and rubber, with export of primary products declining in that time. Regarding solar energy, solar exports to the U.S. comprise 10% of Chinese exports, with 70%

going to the EU. Export volumes of solar products to the U.S. have declined 46%, and anti-

dumping and anti-subsidies were brought up as concerns, both for loss of jobs on the Chinese

side and overall decline in China’s exports of solar panels to the U.S. At the same time, U.S.

participants pointed out that the U.S. saw incredible growth in the solar industries over the past

couple of years, and that China has seen the biggest solar deployment in the world.

Trade barriers were described during the presentation as detrimental to both countries, and it

was suggested that trade opportunities be increased, including through reductions in tariffs for

IT products. Chinese experts noted that this would provide jobs, decrease prices for computers,

CPU chips and mobile phones in China and the U.S., improve GDP, and promote environmentally

friendly IT products in both countries. Disguised carbon tariffs were mentioned as having

negative impacts which could exceed the downsides of a real carbon tariff, including in cases

where international production standards have imposed carbon labelling on other practices with

specific interests.

Regarding governance of unilateral measures, it was noted that UNFCCC Principles need to be

elaborated and interpreted by other international bodies regarding carbon governance, and that

the UNFCCC should lead in settling climate change related issues, improving rules for green

subsidies under the WTO within OECD countries, and improving IPR rules under the WTO.

Participants commented that climate policy is rarely linked with trade and investment

cooperation, but that this discussion is emerging (particularly for post-Paris implementation)

and should be investigated further in the next dialogue. Some believed it would be useful to

examine how climate policy influences bilateral trade, and thereby establish visions for the

countries’ economic transitions and low carbon future.

One idea raised in this session was that China use foreign exchange to purchase clean technology to install Chinese equipment or services to improve efficiency (within China), knowledge and intellectual property, and investment in the U.S. to build high speed railways, solar and wind production, etc. This could help to restructure economic ties, rebalance trade, improve Chinese air quality and reduce carbon emissions, and improve efficiency—thereby upgrading the Chinese economy. Session 4 – Technology Cooperation In this session on technology cooperation, dialogue participants highlighted the need for

bilateral cooperation on trade opportunities and facilitating technology development. Building

on the call for better understanding how climate policy influences bilateral trade, it was

suggested that policy cooperation be linked with investment cooperation, to be consistent with

low carbon transition goals.

Participants noted an ongoing need for innovation and sharing of both technology and research to help meet targets and reduce timelines, improve efficiency and introduce new,

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renewable energy types, in particular so that China can reach its peak emission point as early as possible. Additionally, it was recommended that practices and domestic policies be shared and communicated between the U.S. and China to a greater degree. In a presentation during this session, obstacles to Chinese investing in innovative pre-commercial or commercial technologies were described, including, on the U.S. side, limited market access, poor access to low cost finance, unfair tax benefits, and IP risks. From the Chinese perspective, concerns included political barriers to investment, export controls on high tech items, a complicated legal system, and lack of access to the right technology. Both nations were described as having a low risk appetite for new technology in China (so that technologies are employed elsewhere first), and both Chinese bureaucratic slowdowns (particularly obstacles to individual travel to work on deals) and cultural preference for slow development of business relationships were noted to delay progress. Historically, U.S.-Chinese collaboration on technology began with the U.S.-China Agreement on

Cooperation in Science and Technology (the S&T Agreement) signed by Deng Xiaoping and

Jimmy Carter in 1979. A key aspect of this bilateral cooperation has been energy technology

cooperation, and participants were encouraged that climate change and environmental

protection are gaining more attention. There are also multiple multilateral processes established

within the UNFCCC process that have helped to establish technologies, including the Technology

Executive Committee, Expert Group for Technology Transfer, Poznan Strategic Program on

Technology Transfer, etc. However, experts pointed out that there are challenges to

cooperation within the multilateral process, including the need for different levels of

cooperation and indigenous capacity, resources challenges, and confusion IPR.

Looking ahead at opportunities to expand U.S-China technological cooperation, participants

recommended that the U.S.-China Clean Energy Research Center (CERC) be further scaled.

CERC, established by Steven Chu (U.S. Secretary of Energy), Liu Yandong (PRC State Counselor),

Gary Locke (U.S. Secretary of Commerce) and Wan Gang, (PRC Minister of S&T -MOST), has been

embraced by Presidents Xi Jinping and Barak Obama. 1,000 researchers support CERC in the U.S.

and China, focused on advanced coal, clean vehicles, energy efficiency, and water. Participants

highlighted the substantial technical work being developed by CERC and laudable cooperation

between both countries.

Participants also highlighted the need for Chinese cooperation on technologies applicable in

developing countries and bilateral cooperation on advancing technologies (i.e. “south-north-

south cooperation”), including public finance from both countries for investing in premature

technologies. It was further suggested that R&D, demonstration, diffusion of technology, and

commercialization of technology could be put into a cycle, with government maintaining the

market and investing at early stages, and the market providing innovation. Some participants

recommended that policy barriers to deployment be removed, and that financing be better

connected with technology (including via private sector money, high net worth individuals, and

foundations).

Participants highlighted three points for negotiation around technology: objectives, linking with

mitigation and adaptation, and transparency. This includes questions from the developing

country perspective around the role of developed countries in providing technological support

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under the Convention. Participants noted a need for transparency around technology

provisions, and raised how more financing than national government commitments could be

brought in for technology transfer or financing and capacity building, and how multilateral

development banks could play on this front.

Experts recommended that the trade impasse around IPR be directly addressed in the COP, to

allow for further technology development and cooperation (looking to CERC as an example of

success on IPR negotiations). Project finance and multilateral processes for trade were

highlighted for further discussion, as well as strategies for reducing the risks of

commercialization.

Session 5 – Low-Carbon Financing Mobilization of finance is required across the public and private entities, in order to move from a high- to a low-carbon economy. Given that, it was noted in this session on low-carbon financing that incentives for new forms of finance should be established across the spectrum of infrastructure financing, including overseas development financing. The World Bank, African Investment Bank, regional banks, the New Development Bank (formerly the BRICS Development Bank), national development banks in the U.S., China, Japan, the EU, and private banks should all be engaged in financing low-carbon economies. Discussion focused on the environmental and social standards of the multilateral development banks, beginning with coal. U.S. participants recommended that new standards be established for moving financial resources away from coal and removing incentives to continue coal-fired energy expansion. Clear pathways should be determined for where and when new coal-fired development should take place, to move away from unrestrained financing of coal-fired electricity. Chinese participants noted that specific contexts where coal-fired development happens is important, and that there could be an important role in China developing larger scale, more efficient coal-fired plants (i.e. prioritizing coal-fired power plants based on efficiency). Common guidelines were highlighted as important here, including adding carbon to major guidelines being adopted by banks globally (such as the Equator Principles) as international standards by sector. Others observed that these questions should have multilateral political agreement like the UNFCCC, to have a legal basis for carbon standards, although others hoped that this process would not be slowed by waiting for UNFCCC action. While multilateral development banks play an important role, some participants suggested that climate finance be mainstreamed into development finance. As part of this, experts recommended more attention be placed on the Green Climate Fund (GCF) of the UNFCCC. From the Chinese perspective, it is important that the World Bank customize its approach to individual country circumstances, rather than discriminating solely around different energy sources (such as nuclear and clean coal). Finding agreement around standards was recognized as a difficult task, potentially more difficult than carbon reductions. The debate around whether carbon should have separate institutional

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standards, be included in existing principles, or be established as criteria rather than standards, could be hosted within the bilateral discussion. Finally, experts suggested that, given that the public sector cannot play the sole role in financing low-carbon technologies, carbon markets could be an important additional tool for the private sector to use. Session 6 – Conversation with China’s Special Representative on Climate Change To conclude the Track II discussions, Xie Zhenhua, China’s Special Representative on Climate Change, joined the participants for a special session. Xie Zhenhua’s opening remarks on China-U.S. bilateral cooperation, the pre-Paris negotiations and beyond were followed by a question and answer discussion among the participants reviewing topics raised during the previous dialogue sessions. Next Steps Building on this dialogue, participants were eager to pursue opportunities for continuing the discussion in early 2016 following Paris. Future dialogues will prioritize the implementation of the Paris agreement, further identify and prioritize issues, challenges, and benefits of bilateral cooperation, explore broader activities in support of the shift to low-carbon sustainable development, and identify opportunities for policymakers to understand and pursue. Topics suggested for future discussion include potential areas for breakthrough improvements in implementation and achieving established targets, whether technologies or market mechanisms. Experts suggested that the next dialogue examine what a nationally-determined process enhancing adaptation action could look like, how best to link climate policy with trade and investment cooperation, low-carbon standards (or criteria), and better defining low-carbon development in the context of finance, trade and technology. Given the growing interest in financing and the role of multilateral development banks, it was recommended that subsequent dialogues include additional finance experts. Participants also thought it important that future dialogues address how best to engage and interact with key decision makers—particularly policymakers—on the dialogue’s recommendations. The question of audience, whether politicians, industry, academic, the media, or the general public, will be taken up in subsequent discussions. Importantly, it was emphasized that these discussions and final output from this dialogue highlight the significant value of cooperation between the U.S. and China on climate change for both countries, including the potential for bilateral climate cooperation to strengthen the countries’ Track I relationship.

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Appendix I: Memo to the U.S. Special Envoy for Climate Change Following the dialogue, the U.S. participants prepared the following informal input for U.S. Special Envoy for Climate Change Todd Stern, regarding the upcoming COP21 in Paris in December 2015 (sent September 25, 2015):

September 25, 2015

Attn: Todd D. Stern Special Envoy for Climate Change U.S. Department of State Dear Mr. Stern, On September 10-11, 2015 the China-U.S. Track II Dialogue on Energy, Climate, and Sustainable Development held its first meeting in Beijing, China. The dialogue’s goal, in part, is to better understand both the U.S. and Chinese governments’ perspectives in advance of the COP21 in Paris and to identify opportunities for collaboration and new approaches for consideration. Following the U.S.-China Joint Announcement on Climate Change and Clean Energy Cooperation in November 2014, the bilateral dialogue on climate and energy issues has gained considerable positive momentum. This moment offers a unique opportunity to strengthen U.S.-China collaboration on energy, climate change and sustainable development, and build our joint understanding and plan for action on shorter term priorities, as well as build a longer-term basis for dialogue and implementation. The purpose of the China-U.S. Track II Dialogue is to maintain the momentum in China-U.S. climate and energy cooperation for the coming years and foster constructive bilateral impact on the multilateral process. This Track II dialogue is designed to further foster open discussion around the international climate negotiations, including a successful Paris outcome and exploration of how to create balance in the final agreement as well as action in the UNFCCC beyond Paris. The National Center for Climate Change Strategy and International Cooperation (NCSC) and the World Resources Institute (WRI) serve as the two main partners on this Track II initiative, in collaboration with the Aspen Institute’s Energy & Environment Program. The Dialogue consists of four 1-2-day in-person meetings in both Beijing and Washington, DC (the first having been conducted earlier this month in Beijing). Participants include U.S. and Chinese experts ranging from technical and policy experts, to opinion leaders to other knowledgeable individuals from think tanks, academic institutions, the private and non-profit sectors, and government. Minister Xie Zhenhua actively participated in the Track II meeting in Beijing earlier this month, and the ideas laid out in the enclosed document were discussed in detail with his team. We would like to share this summary with you as an informal note for your information. The Chinese team is transmitting a translated version of this note to Minister Xie today as well.

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We would welcome your thoughts on this process and are willing and ready to support your efforts in the coming months. Sincerely,

Manish Bapna Executive Vice President and Managing Director World Resources Institute

Enclosed: An Informal Note

First Meeting of the Track II Dialogue on Energy, Climate, and Sustainable Development Enhancing Bilateral Collaboration between China and the U.S.

On September 10-11, the First Meeting of the Track II Dialogue on Energy, Climate, and Sustainable Development held its first meeting in Beijing, China with U.S. and Chinese experts. In advance of COP21 in Paris, this initial dialogue was aimed in part at better understanding the perspectives and understandings of both the U.S. and Chinese government, and potential solutions that could be useful in supporting the two governments’ considerations. In preparation for COP21 in Paris this December, and in an effort to build on the November 2014 U.S.-China Joint Announcement on Climate Change and Clean Energy Cooperation, this document serves to highlight important issues raised by the dialogue group. This document is not a comprehensive treatment of the topics under discussion nor does it reflect a prioritization of the issues. Following the initial dialogue, several critical issues remain where both time and ideas were not adequate to provide solutions (including finance), which will addressed further in a subsequent dialogue. The Dialogue participants wish to share the following informal note for the two governments’ information: Measurement, Reporting and Verification The issue of Measurement, Reporting and Verification is complex and essential for the Paris Agreement and is relevant for mitigation, adaptation and support. On the issue of MRV of mitigation, ideas emerged regarding how to bring Parties into a step-by-step process, with adequate support for developing countries, into a global common framework. Developing countries could be provided a transition time period and additional capacity building to be part of a global common framework. That framework would begin in 2020 and all developed country Parties would begin implementing that framework in 2020. Developing countries would have the flexibility to start implementation later e.g. five years. Capacity building would be delivered during the transition phase and thereafter in a systematic manner to enable developing countries to implement the new common framework.

Zou Ji Deputy Director General National Center for Climate Change Strategy And International Cooperation

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Some participants proposed that a process be launched in Paris to strengthen the metrics and methodologies for MRV of support and for an M&E process for adaptation. On the latter, capacity building is also required. Long-term Goals that Build on Existing 2⁰C goals The dialogue group had some discussion in plenary and informally about the long-term goals for the Paris agreement. There was a sense that qualitative goals for mitigation and adaptation are an important part of the Agreement, noting that this is a major priority for many other Parties, but a challenge for others. On mitigation, some participants noted the recent Brazil-Germany bi-lateral text on this matter, which combined the recent G7 statement on the long-term goal with language on equity and support:

“They emphasize that both countries share the long-term vision of holding the increase in global average temperature below 2°C above preindustrial levels, which entails a transition towards energy systems based on renewable energies and the decarbonization of the global economy in in the course of the century, bearing in mind needs in terms of adaptation, access to finance, technology and capacity-building as necessary elements to undergo such transition, mindful of the specific needs of developing countries.”

- Brazilian-German Joint Statement on Climate Change, August 2015 Experts noted that countries could, in a decision, decide to work on roadmaps that could focus on how to increase efficiency, renewables and other clean technologies in order to meet the long-term goal. This could be enhanced through a work program that includes workshops and exchanges of approaches and information. On adaptation, a qualitative approach for a long-term vision or goal with a focus on enhancing resilience with identified measures, including supports in deployment of early warning system in developing countries, was discussed but further time is required to consider more detailed text. Common but Different Elements: Mitigation, Adaptation, Support The group engaged in an active debate on the various ‘processes’ or ‘cycles’ of the Agreement—i.e. Mitigation, Adaptation and Support—and discussed how those elements relate to each other, including whether there are three separate processes or a single process. The group found that there were both commonalities across each of these processes—such as the need for enhanced MRV and capacity building for each—and also differences. For example, the way a mitigation contribution/commitment is presented will need to be different than what gets put forward for adaptation due to the different nature of mitigation and adaptation. Participants suggested that the treatment of these three issues in a global stocktake would also need to be different due to the different nature of each. Some experts proposed that that a deep dive be conducted into areas of commonality and difference across these rounds.

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Global Assessment or Stocktake On the question of a global assessment or stocktake, the dialogue group discussed how to make stocktake meaningful across key issues in the Agreement in a manner that provides important insights for both future national contributions/commitments, adaptation efforts/actions and means of implementation. For example, experts proposed that there could be three different sections of the Stocktake, covering the following issue areas:

Mitigation o The aggregation of the national contributions. o The difference between that aggregation and what would be needed to stay

below 2 degrees C.

Adaptation o The adaptation efforts underway, looking at lessons learned, gaps. o The possible impacts that could occur taking into account the aggregate affect

of the national contributions. o The cost of those impacts, if possible broken down regionally and nationally.

Support/enabling conditions o Assessment of the shifts of finance from high carbon to low carbon climate

resilient investments in the public and private sectors o Assessment of the climate finance provisions of the Paris Agreement o Stock take on global technology cooperation to identify gaps o Further action on the domestic level on enabling conditions

In order to connect this information with national decision-making, participants suggested that Parties could respond to the Stocktake in their reports for the IAR/ICA process (or whatever form that takes in the future). This group stands ready to assist both of the Chinese and U.S. governments in this process in any way possible.

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Appendix II: U.S.-China Track II Delegation

The summary above captures the ideas and thoughts expressed during the initial dialogue. Not all views were unanimous nor were unanimity and consensus sought on the expressed findings contained in the summary. The members of the Track II dialogue listed below participated in their individual, not organizational, capacities. U.S. Participants Sam Adams, Director, US Climate Initiative, World Resources Institute Bruce Babbitt, Fellow, Blue Moon Fund Manish Bapna, Executive Vice President and Managing Director, World Resources Institute Catherine Chen Jing, Director of Market Development - China, Jupiter Oxygen David Doniger, Director, Climate & Clean Air Program, Natural Resources Defense Council Paul Joffe, Senior Foreign Policy Counsel, World Resources Institute Lailai Li, China Country Director, World Resources Institute Andrew Light, University Distinguished Professor of Public Policy, George Mason University (Former U.S. Department of State) Alvin Lin, Director, China Climate and Energy Policy, Natural Resources Defense Council David Monsma, Executive Director, Energy & Environment Program, The Aspen Institute Jennifer Morgan, Global Director, Climate Program, World Resources Institute Randal Newton, VP, Enterprise Engineering, Ingersoll Rand David Sandalow, Inaugural Fellow, Center on Global Energy Policy and Senior Research Scholar, Columbia University Taiya Smith, Founder, the Green Trust and Managing Partner, Garnet Strategies Chinese Participants CHEN Ji, Assistant Professor, International Cooperation Department, National Center for Climate Change Strategy and International Cooperation CHEN Minpeng, Researcher, Institute of Environmental and Sustainable Development in Agriculture, Chinese Academy of Agricultural Sciences DUAN Maosheng, Professor, Tsinghua University GAO Xiang, Associate Professor, Energy Research Institute LIU Qiang, Director of Strategy and Planning Department, National Center for Climate Change Strategy and International Cooperation QI Yue, Assistant Professor, International Cooperation Department, National Center for Climate Change Strategy and International Cooperation TENG Fei, Associate Professor, Tsinghua University WANG Mou, Senior Fellow, Chinese Academy of Social Sciences YE Yu, Associate researcher, Shanghai Institutes for International Studies ZHANG Zhiqiang, Deputy Director of Information and Training Department, National Center for Climate Change and International Cooperation ZHOU Dadi, Researcher, Energy Research Institute ZOU Ji, Deputy Director General, National Center for Climate Change Strategy and International Cooperation

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Appendix III: Dialogue Agenda

TRACK II DIALOGUE ON ENERGY, CLIMATE, AND SUSTAINABLE DEVELOPMENT ENHANCING BILATERAL COLLABORATION BETWEEN CHINA AND THE U.S.

September 10-11, 2015 - Tangla Hotel Beijing (Beijing, China)

Day 1 – Thursday, September 10, 2015

Opening

co-Chairs: ZHOU Dadi (Energy Research Institute); Bruce Babbitt (Blue Moon Fund)

9.00 – 9.20 Welcome

Zou Ji (NCSC); Manish Bapna (WRI)

9.20 – 9.30 Organizing matters

David Monsma (the Aspen Institute)

9.30 – 10.00 Review the status of Track I deliberations

Andrew Light (George Mason University);

Session 1: Status of Actions and Commitments

co-Chairs: ZHOU Dadi (ERI); Bruce Babbitt (Blue Moon Fund)

10 min presentation for each speaker followed by Q&A

10.00 – 11.00 The U.S. INDC, CPP, and other policy measures

David Doniger (National Resources Defense Council);

Relationship between U.S. and China

Taiya Smith (Garnet Strategies)

Understanding China’s INDC

Zou Ji (NCSC)

China’s climate change policy and measures

Liu Qiang (NCSC)

Session 2: Paris Agreement – Commonalities, differences and solutions

co-Chairs: Zou Ji (NCSC); Manish Banpa (WRI)

5 min brief presentation for each speaker followed by discussions

11.15 – 12.00

12.00 – 12.30

Mitigation

Teng Fei (Tsinghua University); Jennifer Morgan (WRI)

Adaptation

Chen Minpeng (Chinese Academy of Agriculture Sciences); Jennifer Morgan

(WRI)

12.30 – 13.30 Lunch

13.30 – 13.55

13.55 – 14.20

14.20 – 14.45

Means of implementation

Qi Yue (NCSC); Chen Ji (NCSC); Jennifer Morgan (WRI)

Transparency

Teng Fei (Tsinghua University); Gao Xiang (ERI); Jennifer Morgan (WRI)

Legal form

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Gao Xiang (Energy Research Institute); Jennifer Morgan (WRI)

Session 3: Climate policy and International Trade and investments

co-Chairs: Zou Ji (NCSC); Bruce Babbitt (Blue Moon Fund)

20 min presentation followed by Q&A

15.00 -16.00 Climate policy and international trade

Wang Mou (Chinese Academy of Social Science)

Session 4: Technology cooperation

co-Chairs: ZHOU Dadi (Energy Research Institute); Bruce Babbitt (Blue Moon Fund)

10~15 min presentation for each speaker followed by Q&A

16.00 – 17.30 Technology commercialization

Taiya Smith (Garnet Strategies)

Facilitating China-US cooperation on technology development and transfer

David Sandalow (Columbia University); Catherine Chen Jing (Jupiter Oxygen)

Chen Ji (NCSC)

18.00 – 20.00 Dinner

Day 2 – Friday, September 11, 2015

Session 5: Low-Carbon Financing

co-Chairs: ZHOU Dadi (Energy Research Institute); Manish Banpa (WRI)

10~15 min presentation for each speaker followed by Q&A

9.00 – 9.50 Environmental and social standards of MDBs

Bruce Babbitt (Blue Moon Fund)

Green investment- BRICs new development bank

Ye Yu (Shanghai Institute of International Studies)

Carbon markets

Duan Maosheng (Tsinghua University)

10.00 – 12.00 Dialogue with Mr. XIE Zhenhua, China’s Special Representative of Climate

Change

* This session will be open to the media

Closing

co-Chairs: ZHOU Dadi (Energy Research Institute); Bruce Babbitt (Blue Moon Fund)

12.00 – 12.30 Wrap-up and next steps

Zou Ji (NCSC); Manish Bapna (WRI)

12.30 – 13.00 Closing remarks

Su Wei (National Development and Reform Commission)

13.00 – 14.00 Lunch

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Appendix IV: Dialogue Readings & Resources Session 1: Status of Actions and Commitments Understanding the EPA's Clean Power Plan What to Expect in Clean Power Plan Litigation China's INDC Analysis of China's INDC U.S. INDC China is Raising It's Climate Ambitions, Experts Say Renewable Energy in China: A Graphical Overview of 2014 The Challenges of the Post-COP21 Regime The mitigation framework in the 2015 climate change agreement: from targets to pathways Regular Review and Rounds of Collective Action and National Contributions to the 2015 Climate Agreement: A Proposal Session 2: Paris Agreement - Commonalities, Differences and Solutions Legally binding versus non legally binding Getting Specific on the 2015 Climate Change Agreement Regular Review and Round of Collective Action Vision for Paris: Building an Effective Climate Agreement Session 4: Low Carbon Financing Consultation Draft on safeguards for the AIIB Asia's Investment Bank: New Chapter in Sustainable Development Establishing China's Green Financial System, Final Report (see pp 18-20) Establishing China's Green Financial System (Green the Development Banks) Session 5: Technology Cooperation Fact Sheet: U.S.-China Clean Energy Research Center U.S.- China Clean Energy Research Center Annual Report 2013-2014 DOE press release: "Department of Energy Selects U.C. Berkeley to Lead Consortium for U.S.-China Clean Energy Research Center's Energy-Water Track The U.S. and China, Working Together to Speed the Benefits of Electric Vehicles U.S.-China Renewable Energy Partnership (USCREP)

PowerPoint Presentations Chen Mingpeng – The Paris Agreement: Adaptation David Sandalow – China-US Clean Energy Resource Center Gao Xiang – Issues Related to Transparency and Compliance of the 2015 Climate Agreement Jennifer Morgan – The Paris Agreement Liu Qiang – Briefing of Climate Change Policies and Measures in China Wang Mou – Trade and Climate Policy Zou Ji – China’s INDC: Perspective of a Chinese Expert Chen Ji - China-US Technology Cooperation for Addressing Climate Change

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Appendix V: Acronyms AIIB – Asian Infrastructure Investment Bank CBDR+RC – Common but Differentiated Responsibilities + Respective Capabilities CERC - U.S.-China Clean Energy Research Center COP – Conference of the Parties CTU - Collaborative Transparency and Understanding EPA – U.S. Environmental Protection Agency GCF – Green Climate Fund of the UNFCCC HFCs - Hydrofluorocarbons INDC - Intended Nationally Determined Contributions IPR – Intellectual Property Rights MDB – Multilateral Development Bank MRV - Measurement, Reporting and Verification NDB – New Development Bank SOE – State Owned Enterprise UNFCCC - U.N. Framework Convention on Climate Change (“The Convention”) WTO – World Trade Organization