Carbon caps: Economic concerns lead to caution

Michael Richardson, Straits Times 8 Sep 08;

CHINA'S top legislature has just approved a new law designed to put production in what is now one of the world's four biggest economies on a more sustainable foundation. When the law comes into force in January, it will add weight to government efforts to get industry to use energy and other resources less wastefully and curb emissions that harm human health and the environment.

Dubbed the 'circular' economy by officials, this is China's latest effort to go green by raising efficiency and harnessing alternative energy to reduce reliance on coal, oil and gas - all of which when burned release carbon dioxide, the main greenhouse gas blamed for global warming and climate change.

China pays a heavy price for waste and inefficiency in its economy. Mr Ma Kai, head of the National Development and Reform Commission, said last year that in 2006, China used 15 per cent of the world's energy to produce just 5.5 per cent of global GDP. He added: 'The overall growth of the Chinese economy is inspiring, but one of the worries is that we have paid too dear an environmental and resources price for such growth.'

Enacting the new law intended to improve this situation is the easy part. Enforcing it at all levels of the Chinese bureaucracy will be much more difficult. Provincial and local governments across the vast country compete to attract and retain industries (and the employment and wages they bring), even if they are dirty or only semi-clean.

China, like the Bush administration in the United States, is wary of committing to a binding national cap on its greenhouse gas emissions because it knows that doing so could undermine its competitive advantage. This will happen unless there are agreed global rules, universally and equitably applied to all sectors of all major economies. Otherwise, energy-intensive industries and sectors in some countries will be hit harder than others elsewhere by emission controls and taxes.

To see the buffeting facing governments and economies in the brave new world of environmental correctness, Beijing need look no further than Australia, one of China's leading resource suppliers. Australia is the fourth largest greenhouse gas emitter in the world on a per capita basis, mainly because, like China, it relies heavily on coal to generate electricity. However, Australia emits five times more per person than China.

The Australian Labor government under Prime Minister Kevin Rudd plans to launch a national cap-and-trade scheme by 2010 that will put a price on emissions and oblige companies to buy permits to cover them.

The plan, which is still under negotiation with industry, has triggered a raging debate over how costs are to be apportioned among companies, consumers and government. Mr Rudd said last week that the scheme would 'help drive our long-term transformation to a low carbon economy'. But industry has warned it could drive large emitters offshore or out of business, while sharply raising prices of electricity and other products for consumers.

The government has promised compensation for consumers and help for businesses facing higher energy costs. But that would distort the 'polluter pays' principle so as to ease the burden on firms most likely to lose their competitive edge at home or abroad. Energy-intensive industries with more than 2,000 metric tonnes of emissions per A$1,000 (S$1,170) in revenue would pay for only 10 per cent of their emissions, while cleaner companies producing 1,500 to 2,000 tonnes would pay for 40 per cent of their emissions.

Wherever emissions trading schemes have been mooted, they are proving controversial. As part of its drive to lead the world in fighting climate change, the European Union has promised to cut emissions by 20 per cent by 2020, compared to 1990 levels. It has said it would deepen the cut to 30 per cent if other big economies like China and the US join the global reduction effort.

However, some members of the European Parliament are now having second thoughts in the face of industry protests. They are calling for a full impact assessment before cutting beyond 20 per cent. No wonder, then, that China is cautious. It does not want to cut its emissions to spite its economy.

The writer is an energy and security specialist at the Institute of Southeast Asian Studies.