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2014 APEC: Catalyst for Global Climate Change Action?

Oct 14 , 2014

In hosting the Asia Pacific Economic Community (APEC) this year, China can push for precedent-setting climate change policies that could lead to more aggressive global action.

How? By taking ideas already proposed by the Communist Party leadership and bundling them into a regional economic development blueprint.

Implemented together, these existing ideas could increase economic growth, reduce territorial tension and limit destructive climate change.

APEC is an economic forum comprised of 21 countries bordering the Pacific Ocean. Together, they account for more than half of global Gross Domestic Product. Host duties rotate through the membership. This year it’s China’s turn.

China’s theme is “Shaping the Future through Asia-Pacific Partnership.”

In leading APEC, China plans to push for deeper Asian economic integration through increased cross-border interconnections and reduced tariff barriers. China also could push for more climate change-friendly infrastructure investment funded through carbon taxes recycled through an Asian Infrastructure Bank.

These infrastructure investments could include more cross-border power lines and natural gas pipelines. They could include infrastructure to serve new oil and gas supplies in the South China Sea and East China Sea unlocked through Joint Development Areas.

China has already proposed all of the ideas above, ranging from carbon taxes to new regional infrastructure to suggestions of Joint Development Areas.

In hosting APEC, China can bundle them into a whole greater than the sum of the parts.

For instance, China now has six operating carbon markets. A seventh is planned. These could become the carbon trading center of Asia. Each year, ‘Asia’ (China, Japan, South Korea, the ASEAN states, East Timor Papua-New Guinea and Australia) emits roughly 13 billion metric tonnes of carbon from the consumption of energy.

Valued at US$20 per tonne, that’s $260 billion per year.

These could then be recycled through existing or proposed multilateral institutions like the Asian Development Bank, China’s proposed Asian Infrastructure Investment Bank or even the Green Climate Fund.

Building out regional infrastructure funded by carbon levies achieves several goals simultaneously.

These include:

1. Changing economic behaviour. Higher carbon prices discourage carbon-intensive activities, encouraging conservation.

2. Creating jobs and economic growth. This generates wealth.

3. Finding more productive uses for accumulated Chinese trade surpluses than parking the money in low-yielding US Treasury debt.

4. Creating opportunities for China’s state infrastructure champions such as State Grid and CNOOC. In recent years, these state champions have developed world-beating expertise building out China’s internal infrastructure. As China’s domestic infrastructure needs are met, these state infrastructure champions are being encouraged to invest overseas.

Among other things, Asia needs deeper interconnection of electricity grids, natural gas pipelines and telecommunications networks.

The template here could be the Association of Southeast Asian Nation’s (ASEAN’s) Trans-ASEAN Electricity Grid (TAEG) and the Trans-ASEAN Gas Pipeline (TAGP). These two projects are aimed at creating deeper interconnection between ASEAN’s 10 members’s domestic power line and natural infrastructures.

What Asia needs in the future are more interconnected markets with common standards that raise efficiency, allow price signals to work their magic and that erases local distortions in economic decision-making.

Pan-Asian carbon prices recycled through an Asian Infrastructure Bank that invests in multilateral infrastructure linking (among other things) Joint Development Areas in the South China Sea and East China Sea offers a blueprint for peaceful development in Asia.

As host of APEC this year, China can promote these ideas — most of which (we repeat) China already has proposed.

China can then encourage Australia to follow up the ideas when it hosts the upcoming Group of 20 (G20) meeting of the world’s large economies in Brisbane, Australia in November. Australia’s already indicated it wants to make infrastructure a key topic for discussion.

In December 2015, world leaders will gather in Paris under the United Nations Framework Convention in Climate Change (UNFCC). During the meeting (known as COP21), they must agree to binding global targets for reducing carbon emissions after 2020.

Hammering out a long-term roadmap for a Pan-Asian Energy Infrastructure puts Asia in the intellectual driver’s seat.

The stars are aligned for large-scale, business friendly solutions to climate change that can create multigenerational prosperity — both in Asia and the world.

As APEC host this year, China’s intellectual leadership on climate change and infrastructure can provide the spark.

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