This has opened up the possibility of large-scale Chinese involvement in getting hold of those minerals. Beijing’s thirst for such resources is well known, and it has become very interested in what lies beneath the melting icecaps of the Arctic region. 

That headline has been so compelling that a top level EU negotiator even told the French AFP news agency that 2000 Chinese workers were on the ground in Greenland. A former top American diplomat, Thomas Pickering, wrote in the New York Times about Chinese ambitions of reaching up into the Arctic through Greenland and Iceland, threatening US interests. 

This fitted into the 21^st century geopolitical narrative of jousting between a US that maintains military dominance, including a base in Northern Greenland, and a China that concentrates on expanding its resource empire. Chinese cash would allow it to gain an advantage in getting access to Greenland’s mineral wealth, followed swiftly by thousands of Chinese workers (like those that have fanned out over Africa, but with warmer clothing). 

But on my visit I saw little to believe a quick Chinese scramble for the Arctic. I did not spot any Chinese on my own visit to Greenland, so instead I discussed their possible presence with the territory’s decision makers. The newly elected head of government, Aleqa Hammond said that she hoped there would be many Chinese workers there in the future, depending on the projects. Herman Bertelsen, the mayor of Sisimiut, home to a possible aluminium-smelting project, was equally welcoming to Chinese guest workers. 

The appearance of Chinese workers serves as a rough yardstick for determining whether international mining interest materialises. This in turn is seen as crucial if Greenland is to continue its drive towards economic and then de facto independence from Denmark. The local dream scenario is to transform into the mineral Saudis of the far North. 

They may be waiting for some time before that dream materialises. Actually, the public face of Chinese involvement, Xiaogang Hu of London Mining, who was spearheading a high profile investment in an iron ore project, left his position in April. Locals explained this as a result of new Greenlandic leader Hammond’s intention to revise the Large Scale Act, which was enacted under the previous government and allows scores of foreign workers on mining projects. Xiaogang was also the link to Chinese investors like Sichuan Xinye Mining Investment or the China Development Bank. 

The Western media buzz on China’s scramble into Greenland even led to a formal rebuke from the spokeswoman of the Chinese ministry of Foreign Affairs, who pointed out that no licence on Greenland so far has gone to a Chinese company. Her conclusion was that the media hype was “way beyond the truth.” With the uncertainty over the Large Scale Act, it looks like Chinese investors – and their workers – are waiting and watching, rather than invading. 

Yet the real challenge for Greenland isn’t merely handling Chinese interest but how to transform into a successful resource economy. 

I visited Greenland’s brand new mining school, which is an effort to satisfy some of the demand for expertise with local labour. Greenland’s own labour force is, however, only 30,000 strong, and needs substantial contributions from overseas given the massive size of the island and the remarkable lack of infrastructure that is all too visible from the air. 

The new government, aware that its minerals are the opportunity that can underpin independence, has just introduced royalties to prevent profits disappearing offshore. With its tiny population there are question marks over the ability of Greenland’s small negotiation teams of officials to secure sufficiently stringent criteria to ensure that investments are sustainable and environmentally acceptable. If unsuccessful, Greenland might simply become just another country that thought it had hit the resource jackpot, only to find out that it was really a curse. 

Jonas Parello-Plesner is a Senior Policy Fellow at the European Council on Foreign Relations.

Mr. Moniz, a professor of physics and engineering systems and the director of M.I.T.’s Energy Initiative, sailed through a confirmation hearing Tuesday before the Senate Energy and Natural Resources Committee. 

But some environmentalists are skeptical of Mr. Moniz. He is known for advocating natural gas and nuclear power as cleaner sources of energy than coal and for his support of hydraulic fracturing to extract natural gas from shale deposits. The environmental group Food and Water Watch has warned that as energy secretary, he “could set renewable energy development back years.” 

The criticism is misplaced. Instead of fighting hydraulic fracturing, environmental activists should recognize that the technique is vital to the broader effort to contain climate change and should be pushing for stronger standards and controls over the process. 

Nowhere is this challenge and opportunity more pressing than in China. Exploiting its vast resources of shale gas is the only short-term way for China, the world’s second-largest economy, to avoid huge increases in greenhouse gas emissions from burning coal. 

China’s greenhouse gas emissions are twice those of the United States and growing at 8 percent to 10 percent per year. Last year, China increased its coal-fired generating capacity by 50 gigawatts, enough to power a city that uses seven times the energy of New York City. By 2020, an analysis by Berkeley Earth shows, China will emit greenhouse gases at four times the rate of the United States, and even if American emissions were to suddenly disappear tomorrow, world emissions would be back at the same level within four years as a result of China’s growth alone. 

The only way to offset such an enormous increase in energy use is to help China switch from coal to natural gas. A modern natural gas plant emits between one-third and one-half of the carbon dioxide released by coal for the same amount of electric energy produced. China has the potential to unearth large amounts of shale gas through hydraulic fracturing. In 2011, the United States Energy Information Administration estimated that China had “technically recoverable” reserves of 1.3 quadrillion cubic feet, nearly 50 percent more than the United States. 

The risk is that what is now a nascent Chinese shale gas industry may take off in a way that leads to ecological disaster. Many of the purchasers of drilling rights in recent Chinese auctions are inexperienced. 

Opponents of this drilling method point to cases in which gas wells have polluted groundwater or released “fugitive” methane gas emissions. The groundwater issue is worrisome, of course, and weight for weight, methane has a global warming potential 25 to 70 times higher than carbon dioxide, the principal greenhouse gas that results from the burning of coal. 

Moving away from fossil fuels entirely may make sense in the United States, where we can potentially afford to pay for more expensive renewable sources of energy. But developing countries have other priorities, like improving the education and health of their people. Given the dangers that hydraulic fracturing poses for groundwater pollution and gas leaks, we must help China develop an approach that is environmentally sound. 

Mr. Moniz has warned of the need to curb environmental damage from the process. But he has also stressed the value of natural gas as a “bridging” source of energy as we strive to move from largely dirty energy to clean energy. Extracting shale gas in an environmentally responsible way is technically achievable, according to engineering experts. Accomplishing that goal is primarily a matter of engineering and regulation. 

That is where we need the engagement of environmental activists. At home, they can push the United States to set verifiable standards for clean hydraulic fracturing and enforce those standards through careful monitoring. Internationally, American industry can lead by showing that clean production can be profitable. 

We need a solution for energy production that can displace the rapid growth of coal use today. Switching from coal to natural gas could reduce the growth of China’s emissions by more than 50 percent and give the world more time to bring down the cost of solar and wind energy to levels that are affordable for poorer countries. 

Elizabeth Muller is the co-founder and executive director of Berkeley Earth, a nonprofit research organization focused on climate change. 

© 2013 The New York Times

With 1.3 billion people (one-fifth of the planet’s population), most building projects are done on a grand scale–everything from skyscrapers to factories and bullet trains, sea and airports. 

Tom Watkins

Considering China as one big construction site, it has often been said that the Chinese national bird is the building crane! 

Over the next two decades, nearly 300 million people, roughly the current population of the United States will move from the rural countryside into Chinese urban cities – many of which have yet to be built. Depending on coal as its main energy source, the environmental damage taking place across China today is not going to improve anytime soon. 

Every time I eat seafood in China I think – “I have yet to see a body of water I would want to eat anything from”. The air quality is notoriously poor. 

In 2011, for the first time in Chinese history, more people lived in cities and towns than in the countryside. It is estimated nearly 700 million urban dwellers now account for 51.3 percent of China’s total population. This rural/urban transition will be a main force shaping the world in the 21st century according to Nobel Laureate (economics) Joseph Stiglitz. 

Furthermore, Brookings Institution analyst Homi Kharas has forecast that China’s middle class will surge from about 150 million in 2010 to about 670 million in 2021, a leap of about 520 million in a span of slightly more than a decade. 

Anna Stupnytska, macroeconomist and Executive Director at Goldman Sachs Asset Management captured the essence of the issue this way, “The rise of the Chinese consumer will be the most important trend in the coming decade.”

These days China is in the center of any conversation about sustainable development and environmental degradation. 

The country has much work to do in order to balance economic growth with environmental sustainability, which has made cancer the leading cause of death in the People’s Republic of China. Anyone who has traveled to or read about China knows that the air and water quality is poor. 

A report from the Chinese Ministry of Water Resources found that the number of rivers in China with catchment areas of over 100 square kilometers has halved compared to 60 years ago. More than 28,000 waterways have vanished from China’s maps, as a result of the nation’s breakneck economic development. 

China’s Dirt Creates Opportunity To Collaborate 

In China social stability is paramount. 

A year ago, in Dalian, local authorities backed down when mostly middle-class protesters had a stand off with security police forcing the closing of a petrochemical plant. 

The paramount worry of Chinese officials is maintaining control and stability. There is a constant struggle to balance economic growth with rising public outcry and loathing over environmental threats to their way of life and their families’ health. 

This debate will continue as China seeks growth and development to accommodate its 1.3 billion citizens. This will create opportunities for those that can use creativity, innovation, knowledge and technology to create jobs without destroying the environment and people’s sense of harmony. 

Earlier this year, Mr. Ma Jun, China’s leading environmental activist and a recipient of last year’s prestigious Goldman Environmental Prize, known as the “Nobel Prize” for grassroots environmentalists, organized a meeting in Beijing of nearly one hundred people – including city, provincial and central government officials, business leaders and NGO representatives – to discuss their efforts to promote environmental transparency and public disclosure of pollution data. This is a major step – admitting you have a problem is the first step in solving it. 

The National Resources Defense Council (NRDC) staff has been working with Ma Jun and his team for four years to rank the performance of 113 major Chinese cities in complying with environmental disclosure requirements. 

America fouled the environment during our industrial revolution and we have spent decades attempting to clean up our mess. 

Moving forward, China will face many difficulties and obstacles. American knowledge and technology can help not only our country, but also China meet sensible sustainable and environmental goals. 

CNBC reports “China is also opening up to creative investments that tackle the demand for energy as well as its supply. Consider the recent announcement by Beijing’s Vantone Real Estate, which is planning a greenfield high-density, car-free “satellite city” for 80,000 people in a rural location close to Chengdu.”

Putting Our Knowledge And Technology to Work 

Last year I spoke at the 4th China Entrepreneur Forum, Tianfu New District International Forum in Chengdu, China where local government and Southwest Jiaotong University leaders were seeking expertise to “take the green leap” to create innovative development models in building a sustainable new city. The desire to build healthy, sustainable and green cities was quite evident. 

Xiaojian You, Chair of the China Social Innovative Foundation, the China Entrepreneur Network and the China Social Innovation Foundation and Senior Manager of the Center for Sustainable Global Enterprise at Cornell University organized the conference. 

Professor You and Stuart L. Hart, the SC Johnson Chair in Sustainable Global Enterprise and Professor of Management, Cornell University and President Enterprise for a Sustainable World, both formerly with the University of Michigan see opportunities galore for America to capitalize on and to assist China with sustainable development. 

Professor Hart pointed out, “We need to devise a way to grow the innovations of the future organically, right here in the U.S., drawing upon our world class universities and corporations for the technologies of tomorrow. We do not lack for clean technology; what we lack is the imagination and capability to design the strategies and business models of tomorrow.” 

“There is a huge global market for our knowledge,” Hart added. 

America put the world on wheels in the last century – with imagination and leadership we can drive sustainable development in the 21st century. We have massive experience in cleaning up the environmental mess our industrial revolution wrought. 

It is a big world and neither China nor America is an island. What happens in one country impacts the other – and all humanity.  With forward thinking and leadership from government, university and business leaders in America, China’s rise need not come at our demise. 

America can literally make green off of China’s growth. 

Tom Watkins serves on the University of Michigan Confucius Institute board of advisors and the Michigan Economic Development Corporation international advisory board.  He is the former Michigan state superintendent of schools, president and CEO of the economic council of Palm Beach County, FL. and is currently a U.S./China business and educational consultant.

In a US Secretary of State memo in 2009, released by Wikileaks, embassies in Beijing, New Dehli, and Canberra, amongst others, were asked, “that posts assess the state of shale gas development and/or potential for development in their host country and report their findings to Washington.” The stage was set for shale gas to take pride and place in US foreign policy. 

In the US, improvements in extraction techniques of shale gas and other “unconventional” resources have allowed the new energies over the past ten years to become a credible and profitable source of energy. Unlike China, the US has the know-how to negotiate the difficulties of shale gas extraction. In fact, it was US companies Mitchell Energy and Devon Energy that began the practice of hydraulic fracking for shale gas. After Devon Energy witnessed the pioneering success of Mitchell Energy in shale gas, it acquired the company in 2002. Last year, after more than a decade of progress, China’s Sinopec bought into Devon Energy too with a joint venture in a shale gas play in Mississippi. 

Such a move helps speed up China’s acquisition of expertise. Devon Energy hasn’t been the only company China has picked up a stake in. Chinese National Oil Companies (NOCs) have invested in foreign companies and their knowledge, particularly in the US and Canada. A 2011 IAE report highlights partnerships that took place in 2010 between Chinese NOCs and Canadian companies with specific shale gas expertise. China National Petroleum Company/PetroChina purchased a 60 percent stake of an oil sand project in Alberta, and also formed a joint venture with Canadian Encana to develop shale gas plays in British Columbia. Meanwhile, more recent buy-ins by China National Offshore Oil Corporation (CNOOC) have included a Chesapeake subsidiary and the take-over of Canadian firm Nexen, which is currently exploiting shale gas in British Columbia and expanding operations to Poland. 

The hunt for such expertise through joint ventures and partnerships is on the rise across Asia. According to an Ernst and Young report, “Asian NOCs spent $37 billion acquiring assets outside their home markets” in the first nine months of 2012. And the game isn’t over yet. NOCs continue to explore further partnerships in North America and anywhere they can glean the expertise they need. In the brave new world of unconventional energy extraction, knowledge is power – the US has it and China wants it. 

As well as this foreign absorption of expertise, Beijing is also pouring money into domestic research and development under the “National Key Technologies Research and Development Program” (1983) and other recent initiatives. But it can’t move quickly enough. R&D, just like technological know-how, takes time. 

The geopolitical changes such a shale revolution could bring may also shift the epicenter of global manufacturing. The US shale boom is seeing plans drafted for new chemical production plants that will use ethane to make ethylene, which can then be converted into a host of products including plastics, detergents and clothing. Current prices of ethane in the US make it cheaper to produce there than in Asia where production depends primarily on more expensive, often imported, oil. According to a Price Waterhouse Coopers (PWC) report, shale gas could lead to a manufacturing boom as raw material and energy prices drop. This coupled with technological revolutions that decrease labor costs, could see a dramatic shift of some manufacturing away from Asia, and China, and back to the US. 

Foreign company expertise, particularly that of US companies, may provide significant improvements to the security, and environmental safety, of the growing Chinese economy – a good thing for the world economy and the US. It could more importantly, slow the pace, and need, for potentially devastating energy from hydro-dams along key watercourses in Southeast and South Asia that originate in southern China, such as the Brahmaputra, Salween and Mekong river systems. In turn it may also, in the short-term, decrease regional resource conflicts, acting, in effect, as a conflict prevention mechanism. The shale gas revolution could provide the energy that China’s growing middle class is so hungry for. 

But this is a two way street. For the US the shale gas boom provides jobs and lower energy prices. According to an IHS study, lower gas prices could mean more disposable income, on annual average $926 per household between 2013–2015, which could stimulate growth in the US. The US is also using the shale boom as leverage for greater Sino-American interaction. It has opened dialogues on frameworks in the sector, during the US-China Strategic and Economic Dialogue in May 2012. Other initiatives and workshops have also been organized by the US Department of Energy and the US Department of State, such as the US-China Shale Gas Resource Initiative, 2010. 

“Chimerica,” as Niall Ferguson termed the growing interdependency of the US-China relationship, could still be the answer to greater stability and growth. As unpalatable as it will be to both populations on paper, it is, regardless of public opinion, likely to be propelled by multi-national companies and business on both sides of the Pacific. Indeed, for the US government, this may be a far cheaper alternative than the expensive naval pivot to Asia. Shale gas could be the ace-up-the-sleeve, the juggernaught in the US pivot to Asia. 

Elliot Brennan is Editor and Project Coordinator of research in resource security at the Institute for Security and Development Policy, Stockholm, Sweden. www.isdp.eu

This piece was originally published as a Policy Brief for the Institute for Security and Development Policy, Stockholm.

The US has led the rest of the world in the development of shale gas technology. Last April, the Federal Energy Regulatory Commission (FERC) approved a proposal by an American liquefied natural gas (LNG) energy company to export LNG abroad. The approval, the first of its kind in 40 years, was a landmark for the United State’s shale gas revolution, signaling that the country had turned itself from an importer of energy to a major exporter.

A clean and less expensive form of energy, shale gas is expected to become a major energy source for the world. A review of history indicates that a major change in energy structure often triggers a new round of economic development. For the United States, shale gas exploration will help pull its manufacturing industry out of recession and give a strong boost to the economic recovery.

While watching how the US economy will recover, this writer, as a diplomat who has over 40 years of experience in the Middle East, believes that the US-initiated shale gas revolution will not only change the global landscape of energy distribution but will also change the world’s geopolitical layout. The United States will take a more dominant position in the global energy distribution. With that in mind, observers will certainly watch how the US will adjust its global strategy, especially its Middle East policy, and ponder what kind of a situation other energy-consuming nations will face in terms of energy safety.

In 2012, the Middle East witnessed complicated changes: regimes changed and chaos spread from country to country. While controversial issues kept heating up, some religious forces took the opportunity to extend their influence. The region’s political landscape changed as tussles between major powers intensified. The Arab Spring that originated in Tunis and Egypt is influencing and changing the Middle East. The unrest has fundamentally changed the region’s political eco-system and brought drastic impact to the international patterns.

Through my experience, I believe the region will enter a period of continuous unrest. Seeking changes amidst unrest and hoping for stability will be the main characteristics of this period. With the influence of the Arab Spring spreading wider, regional unrest has been intensified by power struggles on deeper levels. Various forces in and outside the region are influencing power struggles in the region. Bringing a balance to the region’s internal conflicts and enhancing the local people’s ability to handle regional affairs on their own are the most pressing matters for the Middle East, if countries want to stabilize and promote the healthy development of their politics and economy.

In particular, the Gulf area deserves attention, which remains insulated from unrest in the Middle East and changes in the Arab world. Since revolutions began in the Middle East, the Cooperation Council for the Arab States of the Gulf (GCC) has paid close attention to the regional issues that matter greatly to GCC countries and worked to stabilize the region. These efforts greatly promoted the Gulf countries’ position in the Arab world in terms of politics, foreign diplomacy, security and economy.

Like Central Asia, Russia and Africa, the Gulf region is an important supplier of the world’s traditional source of energy – oil. During the beginning of the Arab Spring, Gulf countries maintained a high level of petroleum production, playing a vital role in keeping a balanced, global supply of energy while stabilizing the price of oil.

However, as unrest in the Middle East continues and US shale gas technologies become commercialized, the global landscape of energy resources will change and the United States will become less and less reliant on Middle Eastern oil, until this reliance finally ends. The development of this technology will have an insurmountable impact on the Middle East, the global economy and the world’s geopolitical map.

In the future, global energy supply will become multi-sourced. With the exploration of shale gas and other new sources of energy, the balance of energy resources will definitely shift. This change will matter most to China and the United States, the world’s number one and number two energy consumers respectively. China is working to establish a new type of power relationship with other major powers based upon the idea of cooperation and mutual trust.

Fostering cooperation while exploring shale gas and other energy resources is of vital importance to the United States and China. Maintaining peace and stability in the Middle East is also a common interest of both countries. There is a great deal both countries can achieve through cooperation, which will help bring about the balanced development of the world economy and global geopolitical stability.

Wu Sike is a member on the Foreign Affairs Committee of the Chinese People’s Political Consultative Conference and member on the Foreign Policy Consulting Committee of the Ministry of Foreign Affair.

Feng Zhaokui

Apparently the changing world energy map favors the US as a significant shot in the arm for the American economy. The shale gas industry is a massive and complex undertaking in system engineering of which most of the technological breakthroughs and applications took place first in the US. The achievements helped silence critics of shale gas exploration and production over environmental and water consumption and gave birth to a new industrial value chain characterized by innovation and technology-driven growth that also boosts employment and tax revenue beside returns from exports of technology as well as finished product. As the rising output of shale gas pushes oil price downward, it could bring about the “re-industrialization” of the USA that will not only benefit the country’s manufacturing industry but also likely attract manufacturers from around the world to invest. For example, Airbus now outsources the production of some aircraft parts to America and so do many other international conglomerates because of the relatively low energy cost. Then there is the potential to boost individual consumption by bringing gasoline price down with growing shale gas output. Some experts estimated that increased shale gas production may help US economic growth rise by 2.0 percent to 2.3 percent in 2020.

Energy is an important part of the material basis for human society. In today’s world, wind and solar power is still a long way from becoming a major component of energy structure of most countries in terms of electricity generation and heating, hence the so-called power in energy resources (ERP) still means power in traditional energy resources such as oil and natural gas, including control of energy resources and transport channels, and markets of energy resources. ERP is now a game-changing weapon in international politics to protect national interests, seize geopolitical power, maintain a say in international affairs and build up influence.

Currently the US is the sole country in the world with complete ERP — control on energy resources as well as their transport channels and markets. And the all-out development of shale gas production will no doubt strengthen its ERP and consequently its hegemonic status.

The racing development of unconventional oil/gas exploration and production in the US, or North America for that matter, will likely play a significant role in strengthening cooperative relations between the US and energy consuming Asian nations such as Japan, China, the republic of Korea, some Southeastern Asian countries and even India.

Japan, in particular, was forced to reduce energy consumption significantly after the massive earthquake on March 11, 2012 shut down 43 of the 54 nuclear reactors in operation, putting tremendous pressure on thermal power plants to increase electricity generation as much as possible and raising demand for oil, natural gas and coal imports dramatically. Natural gas was the most sought after for its superior environment-friendly and cost-effective quality compared with other traditional energy resources. Even though natural gas exports to Japan are profitable, the US still refuses to supply Japan with liquefied natural gas (LNG) because the two countries have yet to sign a free trade agreement. As a result Japanese energy companies have turned their eyes on unconventional fossil fuel resources such as shale gas in North America, which is regarded as a possible” energy treasure trove”, and are increasing investment in related development projects in the hope of forming a shale gas production in the US to export shale gas to Japan. That means Japan’s dependence on the US will expand from the current security alone to energy resources and probably food, too. Odds are that shale oil/gas will become an extremely important “political resource” and, given its expected impact on geopolitics, a “Pacific Rim energy supply chain stretching from Alaska, Canada, mainland USA, Australia to Japan will overtake the southern oil shipping route from the Middle East to Japan through the Malacca Strait and South China Sea in terms of strategic significance.

Feng Zhaokui is an honorary academician of the Chinese Academy of Social Sciences.

Zhang Monan

As a matter of fact, while enduring an economic crisis, the world also suffers increasingly frequent ecological and environmental crises. Global energy consumption has been increasing at an annual rate of 3% on average in the past nearly hundred years. The consumption of large-quantity carbon-based energy has caused greenhouse effect, environmental degradation and continued degeneration of the global ecological system, which in turn leads to more severe energy and environmental crises. In light of this, China has to transform its mode of growth by creating a sustainable economic and energy system and introducing a 3E model characterized by coordinated development of the economy, energy and environment.

The so-called 3E model was first put forward in Japan to deal with the trilemma of energy, environment and economic growth. As the world’s second largest economy and leading energy consumer, Japan is endowed with limited natural resources. The self-sufficiency rate of major energies including oil, coal and natural gas is only about 4%. Of the oil, coal and gas needed in Japan, 99.7%, 97.7% and 96.6% respectively depend on import. The Japanese economy was badly hurt by the two oil crises. On the basis of the 3E principles of “energy security, economic growth and environmental protection”, Japan has sped up efforts to readjust its energy mix and published enterprise sustainability report under the Kyoto Protocol. It has implemented a strategy of energy diversification and adopted the New National Energy Strategy, pushing for a shift from excessive use of depletable high-carbon energy to mass development and use of clean low-carbon energy and from the development and use of traditional and conventional energies to technical innovations for new energies and setting a strategic target of increasing overal energy efficiency by over 30% by 2030. In short, a strategic transformation based on 3E is key to a new economic pattern in Japan 

Now that low-carbon economy has become a major battlefield of global competition and interest structure in the post financial crisis era. China must speed up readjustment of its economic structure and energy mix and also realize a strategic transformation on the 3E basis. However, the reality in China is that between energy, economy and environment, overall systemic alignment is poor and contradiction is prominent.

Take the contradiction between energy system and environment system as an example. China’s energy utilization efficiency is only 33%, 10 percentage points lower than that of developed countries. Its energy intensity more than doubles that of the world average. Energy intensity for leading products on average is 40% higher than advanced foreign countries. With the traditional coal-based energy mix, large amount of pollutants including waste gas, sewage and solid waste are discharged in the process of energy production and consumption, leading to drastic deterioration of environment. On the other hand, as energy consumption increases faster than GDP growth, shortages of power or coal frequently occur.

Generally speaking, the industrial development remains inefficient and highly energy-intensive. Meanwhile, energy price hikes incentivize investments in energy-intensive or inefficient industries, equipments and technogies, quite detrimental to the betterment of the industrial structure. Economic losses caused by serious environmental pollution as a result of the current structure and ways of energy consumption already account for 2-3% of the Chinese GDP.

Since the proportions of heavy and light industries started to reverse in 1991, the Chinese industrial structure is very much focused on carbon-based heavy industries, with low energy production and utilization efficiency, high resource intensity and low share of low-carbon industries in the economic aggregates. Services, the industry most needed in a low-carbon structure, account for less than 40%. The task of adjusting the industrial structure will be arduous.

The public nature of energy, resource and environment and unclear ownerships lead to extensive external diseconomies. The faulty market and price mechanisms make it hard to measure the returns of resource factor inputs in order to achieve external balance. Furthermore, main consumers of energy and resources failing to undertake due responsibility is also an important reason behind heavy pollution and high energy consumption.

By 2020, China plans to reduce its CO2 emission per unit GDP by 40-45% compared with 2005. It is imperative to create an economic and policy system in which energy, economy and environment develops in a coordinated manner. The priorities are to ensure energy security, enhance energy efficiency, actively explore new energies and renewables including solar, tidal, wave, current, wind, geothermal, biomass, hydrogen and nuclear fusion energies, create a sustainable energy system and promote overall balance, structural optimization and efficiency improvements. Efforts should also be made to improve the system of compensation for resources use and the ecological compensation mechanism, set up a sound energy- and resource-pricing mechanism, compensate ecological losses caused by energy and resource development with environment tax and resource tax, and push for a green national accounts system covering energy consumption, ecological environment and economic growth, thereby accelerating a 3E model of sustainable development in China.

Zhang Monan is Associate Researcher, Economic Forecast Department, State Information Centre.

Dr. Christine Boyle

Such climate developments, their implications, and the resulting potential impacts—some very likely, others characterized by great uncertainty—are, of course, relevant for the population giant China. Similar to challenges faced by nations the world over, China is scrambling to understand the potential impacts of future climate scenarios. Given its dense population, extensive coastline, and large area, China remains vulnerable to both gradual climate shifts and increasing climate extremes. In the next sections, I review two particularly vulnerable sectors—water and agriculture—and describe how the nation is gearing up to strengthen its climate resilience in these areas.

Climate-Induced Impacts on Water and Agriculture

Assessments of China’s vulnerability to climate change suggest that due to extremes in temperature and precipitation, the nation’s agricultural sector faces significant impacts, mainly from water-related events of flood and drought, accompanied by a very low level of preparedness. This combination spells trouble for China’s 240 million farming households and the future of food security in the nation.

How will this happen? Climate change threatens to cause more water stress and increase frequencies of severe droughts and floods. Due to China’s expansive and varied topography, it is feared that this will translate into significant socioeconomic losses in the twenty-first century. In the past 20 years, for example, droughts in China resulted in average annual grain production loss of more than 16 million metric tons (MMT), with a record level of 60 MMT loss in 2000. According to the Ministry of Water Resources’ “2010 Statistic Bulletin on China Water Activities,” over the same period, droughts also diminished drinking water supplies for nearly 28 million people and 22 million livestock annually. One strategy to help the nation avoid risks of grain shortages is China’s foreign farming policy, which is essentially a strategy of land purchases or leases abroad to guarantee its food security. This policy, known as outward investment, is part of a larger set of policy initiatives set out clearly in the Outward Investment Sector Direction Policy of 2006. 

China is a global player in terms of overall food production, so as they say, “A sneeze in China’s agricultural production can give the whole world a cold.” In a globalized world with complex interconnections from trade, grain production decreases and resulting reliance on imports have the potential to extend far beyond national boundaries and discussions about China’s domestic food self-sufficiency. For example, if in coming years, China’s wheat production decreases by even 10 percent, this implies a reduction of 11.5 MMT, an amount of wheat equivalent to 20 percent of U.S. wheat production in the same year. This would send a shock through global commodity markets and drive up prices. The following graph (see Figure 1) depicts China’s dominance in global wheat production; trends are similar for maize and rice. Such production quantities indicate the magnitude of China’s crop production, yet China’s demand for basic grains is still increasing.           

Figure 1: Country-level wheat production in 2010. Source: FAO STAT at faostat.fao.org

Government Action

As a result of increasing concern over how best to mitigate climate change impacts, China’s central government has escalated climate change adaptation to the top of the nation’s policy agenda. To push the adaptation agenda, it released the China National Plan for Coping with Climate Changein 2008 and the action plan China’s Policies and Actions for Addressing Climate Change in 2012. Since 2010, the Ministry of Water Resources has also taken a number of measures to introduce strict water resources control by improving policies related to the development, utilization, conservation, and protection of water resources.

China has formulated several programs that focus on the water and agricultural sectors, including the following:

• National Integrated Water Resources Plan (2010–2030)
• 2011’s Document Number 1
• Seven Major River Basins’ Flood Control Plan
• National Plan to Guarantee the Safe Supply of Drinking Water to Urban Dwellers

These planning documents aim to enhance the adaptive capacity of the water sector and its associated domains. Most notably, on January 12, 2012, China’s State Council published a guideline to implement water resources management in China under the strictest water resource management criteria. The guideline sets management criteria based on three red lines outlined in the approved National Integrated Water Resources Plan (2010–2030) from the Ministry of Water Resources. The three red lines define the upper limits in terms of total amount, water-use efficiency, and water quality to guarantee the nation’s sustainable development. The red lines have not yet been publicly released.

Although the measures described above signal a political resolve to minimize climate-related risks, China’s policy makers and China watchers alike recognize that putting this agenda into action will take more than political resolve. It will be expensive and require high degrees of governance coordination, both through the vertical bureaucracy and across regions and communities. Based on China’s proven capacity to deal with the litany of obstacles faced in the past 30 years of economic reform, I believe that the nation has the capacity and resources not only to meet its climate change challenges, but to lead the world by example.

Dr. Christine E. Boyle has over 15 years of experience navigating China’s business and environmental landscapes. Receiving her PhD in environmental planning from the University of North Carolina at Chapel Hill in 2011, Dr. Boyle is currently serving as CEO of Blue Horizon Insight, an analytics firm supporting governments and organizations’ ability to mitigate water-related risks in China and the US.

Chinese citizens will be looking to these leaders to guide their nation into a new era. China is now facing a major transition point, and the policy approaches that worked for the past thirty years will not work for the next thirty, or even for the next five. Until now, China’s economic growth has depended primarily on exports and state-funded fixed asset investments in infrastructure and real estate. That model is now running out of steam. Domestic wages are rising, which is eroding China’s cost advantages as a low-value-added manufacturer. Fixed-asset investments are consuming too much energy and concentrating too much wealth among state-owned enterprises.

China has also depended too much on a growth-at-all-costs approach that often ignores competing policy goals such as protecting the environment. Many Chinese officials and citizens have long considered industrial pollution a price they were willing to pay to get access to jobs (for the citizens) and tax revenue (for the officials). Now that balance is changing. China is now an upper-middle income country, and as Chinese citizens move up the development ladder they are increasingly deciding that a better quality of life requires not only steady paychecks but also clean air and water. Chinese citizens still want their leaders to keep the economy growing, but in a more sustainable way that also takes other needs into account.

To keep the country growing and provide the lifestyle benefits their citizens are asking for, China’s new leaders must do two things.

First, they must shift the economy toward a new growth model that will depend less on exports and fixed asset investments and more on domestic consumption and higher-end technology innovation. Consumption and innovation are connected and both benefit China’s growing middle class.

If Chinese companies can move up the value chain from lower-end to higher-end manufacturing, they can pay their employees more, which will expand job and wage opportunities for average Chinese citizens. Once Chinese citizens have better jobs and higher wages, they can then buy more, allowing Chinese companies to sell more of their goods domestically instead of depending primarily on export markets, which can be unpredictable. Higher wages for Chinese workers would also address one of the biggest complaints about the current system—that wealth is too concentrated in the hands of a well-connected few at the expense of ordinary Chinese.

To do this, Beijing must get innovation policy right. Chinese leaders have already demonstrated their willingness to direct massive financial resources toward developing the technologies of the future. Financial resources cannot solve everything, however. Business incentives are also important. What we have learned in the United States is that the biggest innovations sometimes come from the smallest companies. To create an environment for innovation, countries must create an environment where anyone can succeed, even small private companies with good ideas but few political connections.

That environment does not yet exist in China, and that is holding the country back. Instead of a level playing field where anyone can succeed, most of the support in China (both political and financial) goes to state-owned enterprises, and new ideas generated by the private sector are left to die on the vine. That must change. Going forward, China must shift from allowing government officials to support their favorite state-owned enterprises to allowing banks to choose projects based on profitability rather than political connections. That is the only way China can climb up the value chain to become a major global innovator.

Second, in parallel with these big economic changes, Beijing must get also serious about cracking down on pollution. To be sure, Chinese leaders have made great strides on the environmental front in recent years. Environmental standards have tightened considerably, and China now has a growing community of NGOs, journalists, and citizen watchdogs working to monitor environmental conditions and expose illegal polluters. The problem is enforcement.  Local officials are not always interested to follow up on citizen complaints, and when local officials ignore them, there is not much the local citizens can do. In some cases, frustrated citizens are staging mass protests to call attention to these problems. Environmental protests have increased in number and scope over the past few years, and that creates a stability problem for Beijing. 

Chinese leaders are already responding to these citizen complaints. Hu Jintao’s work report to the 18^th Party Congress dedicated an entire section to China’s growing environmental problems—a first for these reports and a clear signal that the environment is gaining political importance. No matter how serious China’s top leaders are, however, they cannot clean up pollution until they get local officials on board, and that will require an administrative shake-up. At a minimum, Chinese leaders must increase the priority given to environmental factors in local officials’ performance evaluations. Those evaluations still place too much emphasis on economic growth. Environmental conditions are also assessed, but those assessments are given a much lower priority in the overall ratings. To ensure environmental assessments are accurate, Chinese leaders should also give the country’s environmental protection bureaus more independence and higher administrative status vis-à-vis the local officials they are supposed to be overseeing. Those are the types of actions that would convince local officials that Chinese leaders mean business.    

Addressing these economic and environmental challenges will not be easy. All of these reforms will require China’s new leaders to overcome vested political interests, and that is difficult to pull off in any country. If they want to move their country forward, however, they will have to deliver. The Chinese citizens are certainly hoping they will succeed. As the big party congress comes to a close, observers in China and around the world will be watching to see what these new leaders can do. 

Melanie Hart is a Policy Analyst for Chinese Energy and Climate Policy at the Center for American Progress.

The action by Obama is the first presidential rejection of a foreign acquisition on security grounds since President George H.W. Bush blocked a Chinese aerospace company from acquiring Mamco, a Seattle maker of aerospace components. While many other potential transactions not involving Chinese companies have been withdrawn as a result of U.S. government security concerns, the formal decision by President Obama will reinforce Chinese fears that their acquisitions in the United States face an unfairly high level of scrutiny.

As David Marchick of the Carlyle Group wrote in a Renewing America Policy Innovation Memorandum earlier this year, “many Chinese executives believe the United States is unwelcoming of Chinese investment, even though the vast majority of Chinese investments in the United States have either been approved or have not required any approval.” The president's decision will be yet another case to add to the political firestorm that ended the Chinese National Offshore Oil Corporation's (CNOOC) effort to acquire Unocal Oil Company in 2005, or the brick wall that has greeted telecom giant Huawei’s U.S. acquisition bids.

The timing could hardly be worse, coming just as Chinese reluctance to enter the U.S. market seemed to have ended. Indeed, the Obama administration has tried hard to lay out the welcome mat, aware of the potential economic benefits of expanded Chinese investment. According to the Rhodium Group, Chinese investment in the United States has surged in the past three years, though from a very small base. Over the past two years, there have been roughly 100 deals worth some $5 billion, compared with an annual average of just 30 deals worth $500 million prior to 2009. In the first six month of 2012, another $3.6 billion in deals were closed, including several large acquisitions such as Sinopec’s purchase of shale gas producer Devon Energy and more recently the purchase of AMC Entertainment by Dalian Wanda, the Chinese media conglomerate.

According to Rhodium, U.S. affiliates of Chinese-owned companies had 27,000 employees in 2011, up from just 10,000 five years ago. If the current pace continues, Chinese investment would likely create 200,000 to 400,000 U.S. jobs by 2020.

The particulars of the president’s decision will probably not matter in how it is perceived. It will certainly be hard to explain just exactly how Chinese ownership of a tiny Oregon wind farm poses any national security threat. Based on claims made through a rare lawsuit, the Treasury-led, inter-agency group that reviews foreign investment on security grounds – known as the Committee on Foreign Investment in the U.S. (CFIUS) – appears to have behaved in a particularly heavy-handed way.

The land that was acquired by Ralls, the Chinese buyer, is near a U.S. Navy base that is used as a training site for low-level military aircraft and weapons. According to the court papers filed by Ralls, the company had already agreed at the Navy’s request earlier this year to move part of the wind farm to a new location. But then CFIUS in July abruptly ordered the company to halt all construction on the property and barred Ralls from any further access to the site. It also effectively blocked the company from selling the property to another buyer more to CFIUS's liking.

More details may emerge that help explain the president’s action (or may not given the secretive nature of CFIUS). But it's clear that the whole business has been handled abysmally. If the location of the wind farm did indeed pose real security concerns, the U.S. government should have worked quietly with the company to help it find a reasonable way to divest. The transaction was far too small and inconsequential to have risen to the level it did.

Instead, by forcing a presidential action, it becomes a big, public slapdown to another Chinese company. That is not in the economic interests of a country – the United States – that needs all the foreign investment it can get.

Edward Alden is the Bernard L. Schwartz senior fellow at the Council on Foreign Relations (CFR), specializing in U.S. economic competitiveness.

From CFR.org. Reprinted with permission. For more analysis and blog posts on international trade and foreign policy, visit CFR.org.