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China, energy and the environment

A Note by the Director (Ditchley 2008/11)

13-15 November 2008

In Snoqualmie, Washington, Ditchley and The National Bureau of Asian Research (NBR) teamed up to organise our 2008 North American conference on an issue with huge global implications, China’s mix of energy and environmental requirements and the impact of China’s policy choices on the rest of the world.  We were fortunate in being able to gather around the table participants with direct and up-to-date experience of the subject, including familiarity with the ongoing US-China Strategic Economic Dialogue.
China’s internal development
The conference took a close look at current political and economic trends in China.  We were presented with a positive picture of China’s preference for a peaceful, non-competitive route to the continuing development of China’s economy and society.  This was how the great majority of Chinese saw their future within the global context, as opposed to the confrontational approaches of the past.  “Peaceful development” meant the rejection of any concept of Chinese expansion or hegemony.  It also meant that China would refuse to enter into alliances:  to do that would imply a different sort of China altogether.  On international issues China would not seek unilateral benefits, but would work cooperatively and with respect for the interests of others, so long as others reciprocated.  Given the continuing need to create jobs, satisfy rising expectations and manage the population leaving the countryside, China had no choice but to cooperate internationally, in the full knowledge that this would entail changes in China’s habits of energy consumption and industrial practice.
We were told that China held no pre-set view of the right development model to follow.  Significant economic growth had been generated, but the challenges of pollution and climate change were huge  and growing.  300 million peasants had no access to clean water.  Pollution bred disease.  Technological solutions were needed, including through the transfer of technology from abroad.  China’s economy was increasingly open to market forces, but markets did not address the problems of environmental damage.  Governments had to do that.  It was claimed that democracy and observance of human rights standards would spread, but we were reminded that China would do things in its own way.  The rest of the world would need to accept that China was different and that cultural diversity was good.  Internally, the Chinese people were learning to work together;  internationally, China and the rest of the world should work harder at doing the same.  Over the past 30 years China had shown what it could achieve but that had meant that Chinese leadership had opened China to the world. 
In discussion, participants clearly found this constructive presentation interesting, but had some questions to ask.  The internal difficulties faced by China were huge.  Industrial and living habits would have to change.  Innovation and capacity-building needed to be stimulated.  Improvements in the legal structure and in law enforcement would be crucial, with a stronger programme of training for lawyers and judges. Outside observers expected that the effort to create a cleaner environment would be intensified, but it remained to be seen how great a priority this would be given when economic growth, employment, social stability and the infrastructure also required massive attention. Water in particular was a sector where the scale of the problem had yet to be fully addressed. 
In short, we all thought that Chinese economic growth looked unstoppable, probably in the region of an average 7-8% over a sustained period.  But the list of problems suggested a marked fragility in Chinese development, to which outsiders perhaps gave a stronger emphasis.  China had to move from mitigation of its problems to a more fundamental form of adaptation.  This might be possible for a strongly centralised system;  and China had already shown how effectively the centre could coordinate massive projects.  But some elements of decentralisation were beginning to appear alongside economic and social change.  As this mix developed further, China might experience some unexpected shifts of direction.  As one Chinese insider put it, we should not expect a consistent development model.  There would be revolutions in energy, industrial and lifestyle patterns.  But China had the capacity to weather them. 
China’s use of energy
There is no need for this record to go into the detail of our discussion on Chinese energy policy and use.  It was made quite clear that coal would play the most prominent part in China’s electricity generation and heavy industry requirements well into the future, probably at a level of around 80%.  By then, China’s coal  demand would have quadrupled over 2006 levels and would approximately equal the rest of the world put together.  Although nuclear, gas, hydro and renewables programmes would continue, they were unlikely to dent coal’s dominance unless a radical shift in demand was generated.
The carbon emission implications of this were manifest.  Tons per capita would double between now and 2030.  Even so, and despite China’s already overtaking the US as the largest emitter of carbon nationally, the US per capita figure would still be close to double China’s by 2030.  The political force of this argument would be felt.  International pressure on China would intensify for clean coal processing or demand reduction, while China would point to the richer world’s obligation to act either first or reciprocally.  Whatever the political arguments, we agreed that the current trend was unsustainable. 
If the political will could be found to address these problems constructively and cooperatively, participants believed that efforts would best be channelled into certain priority areas.  First, there had to be much greater understanding, between developed and emerging economies in particular, of the true nature of the problems visible in current projections, and of the degree to which they were shared between regions.  Second, it was essential to harmonise internationally the provisions on energy use and carbon reduction necessary to deal with climate change.  It was felt by the majority at this conference that China would be a willing contributor to this effort, if fully involved in the discussions.  Third, a greater emphasis should be placed on electricity generation as the most efficient form of energy use, extending as far as possible into transportation – especially in the new generation of automobiles, not least within China itself – as well as into industrial and household requirements.  Fourthly, there was strong support for the idea of a new trade round post-Doha centred on low-carbon energy consumption.  For all of these and similar propositions, more intensive education and expertise in energy and environmental matters should be promoted, as there was a shortage of highly trained practitioners within industrial and developing societies equally.
Environmental damage
Detailed discussion of China’s pollution and climate change problems dovetailed with these concerns.  The Chinese were fully aware of the scale of the challenges, but delivering solutions was a different matter.  Improvements in efficiency, particularly in the newest cities, were beginning to arrive.  But performance varied in different provinces;  the introduction of new technology was not yet urgent enough;  social security and healthcare systems were not capable of underpinning the less advantaged areas;  and popular dissatisfaction was sowing itself.  Questions were asked about transparency, and about where the true accountability lay in a single-party system for energy and environmental policies.  With these kinds of governance issues to settle, the outcome remained uncertain.  Specifically, incentives to conserve water, programmes to share best practice, measuring and monitoring standards and capacity-building, especially of local officials, all had to be improved.  New pricing policies would help.  Even incremental progress in all these areas might not be enough.  A quantum leap forward was required;  and its preparation was not yet in sight.
Climate change politics
This need for a new paradigm for China connected in our debate with the global concern about energy consumption and climate change, the strength of which was vigorously presented at the table.  China needed international cooperation to help solve its own problems, but the world also needed China on board to change the global picture.  China was in one sense in a leadership position on climate change issues, because its situation was moving so fast.  It could not wait.  Even if the newer technologies could be introduced and implemented, they were still not comprehensive enough.  A whole range of diverse solutions was needed, covering conservation, efficient use, nuclear, solar, wind, carbon capture and storage (CCS) and other clean development mechanisms.  There were no compelling practical reasons why concerted international progress could not be made in these areas, beyond finding the necessary investment.  But the political picture, in the view of virtually all participants, was disappointing.  The developed and developing worlds seemed preoccupied with blaming each other for the current state of affairs.  China was at least expressing heightened concern, but in Europe, and elsewhere in the West, some participants thought, there was a deep political malaise about the big, long-term issues.  Neither leaders nor societies were demanding sufficient change in practice.  Young people, perhaps the most concerned about long-term trends, were disconnected from their political systems.  How could the will to act on a large enough scale be generated?  Even then, could trust be promoted between different national and regional cultures to enable cooperative programmes to be developed on a global level?
We examined in more detail Chinese perspectives of Western performance on these issues.  The prevailing view from there seemed to be that Western economies had committed unjustifiable excesses in energy consumption and other areas.  They saw the present financial crisis as indicating that this had spread to banking and other forms of debt-laden financing.  The transfer of technology to countries like China had been less than generous.  Many Chinese believed that the West was deliberately attempting to hold back Chinese growth.  These views intensified the lack of trust in government-to-government and people-to-people contacts.  Yet China had no choice but to confront its immediate problems, on its own if necessary;  and its tendency to favour self-sufficiency wherever possible in essential commodities – whether through domestic production or dedicated import channels – was itself a sign of China’s lack of faith in the world trade system.
The conference made an effort to plot a course out of this apparent downward spiral and focus on remedies.  Perceptions of mutual competition or hostility did not seem to fit the logic of the facts or the requirements of the global situation.  Something had gone wrong in the messages being communicated, suggesting that national interests could best be protected by efforts focussed on national preference.  Yet it was the strong view of this group that solutions could not be found within the cultural and national contexts of each society, nor within the workings of the global market on its own.  Determined, detailed international cooperation was absolutely essential.
It was encouraging, therefore, to deduce from this exchange that the Chinese government had already, in effect, come to this conclusion, while generating a strong can-do attitude whether they received outside cooperation or not.  It meant that the new Administration in Washington, for instance – supported, we hoped, by a strong collective approach in the EU – would be pushing at an open door in Beijing if they decided to address climate change and the energy market in a global consultative manner.
Conclusions
In reviewing the underlying spirit of the discussion, as well as its separate components, anyone present at this rather remarkable debate would draw a number of interesting conclusions:
  • the need to change approaches and practices, in order to prevent the disasters of aggressive nationalistic energy competition and unacceptable environmental degradation, can be understood as a mutual interest of China and the rest of the world;
  • there are strong forces in China for the acceptance of a paradigm shift in economic behaviour, not least to reduce the gaps between the urban and rural areas, and for environmental protection throughout the country;
  • a diverse set of instruments is potentially available for China to upgrade environmental protection, with uncertainty over the relative affordability of the costs, and international cooperation will continue to be critical;
  • internationally, non-governmental circles may be more prepared to make the effort than political circles, which are lagging behind because the requirement is a systemic shift, not a set of operational points;
  • building achievable carbon reduction into the new approaches generated by the global financial and economic crunch may be an opportunity we cannot afford to miss;
China is constrained in its options, but is prepared to play its part so long as its need for economic growth and reduction of health problems is addressed.  It recognises the global mutuality.  But Western, ideally US, leadership is also necessary because the facts of (a) per capita energy consumption and (b) capacity to influence a global effort carry that implication.
What would the component parts of such a strategy be, if the political will could be generated to attempt it?  Action would have to take place across a wide spectrum:
  • The use of coal everywhere, but especially in China, must be taken forward cleanly into a programme based on CCS and/or on any other clean development mechanisms that may prove effective;
  • At the same time, international cooperation on energy prices and, perhaps, on a comprehensive carbon-pricing system would be valuable;
  • A mix of alternative methods of generating electricity – nuclear, wind, solar especially – should be developed in parallel;
  • R & D investment in improving and extending the range of alternatives should be stepped up;
  • Electricity should be seen as the most efficient form of energy use, including for transportation, and systems developed accordingly (eg a Chinese focus on battery-driven automobiles);
  • New forums should be established for discussion and development of these ideas in both the global energy and the global environmental fields, preferably within the UN system;
  • The sharing of useful technology and practice – through the global market, within these forums and through other bilateral/multilateral channels – should be continued and maximised;
  • This programme should be accompanied by politically-driven exchanges, contacts and dialogue in which China and other emerging and energy-intensive economies should play a full role.
None of these recommendations go far beyond what is already in discussion in international circles or can be dismissed as unaffordable, although the global recession and falls in energy prices complicate the challenge and there will be a cost for all participating governments.  Taken together, however, if driven by a new focus from political leaders, they could represent a quantum leap towards a world of peaceful and sustainable development.  It was the general view of this group that China would be willing to play a proportionate part in such an effort.
Ditchley and NBR were pleased to have played a part in taking forward this essential theme alongside the Strategic Economic Dialogue and remain deeply grateful to the participants for gathering such a wealth of expertise and positive thinking at this event.  Our two co-chairmen guided the debate with pragmatism and wise judgement.  We can only hope that the real opportunity we identified for imparting new momentum to climate change negotiations will be spotted at the highest level of decision-making.
This Note reflects the Director’s personal impressions of the conference.  No participant is in any way committed to its content or expression.
 PARTICIPANTS
 
Co-Chairmen       :      
Admiral (Retd) Dennis Blair
John M Shalikashvili Chair in National Security Studies, National Bureau of Asian Research.  Formerly:  President, Institute for Defense Analyses (2003-06);  Commander-in-Chief, US Pacific Command (1999-2002).
Mr Nick Butler
Chairman, Cambridge Centre for Energy Studies, Judge Business School, University of Cambridge (2007-);  Non-Executive Chairman, Agni Inc;  Chairman, Centre for European Reform;  Member, International Advisory Board, Yale;  Member, Executive Committee, Centre for China in the World Economy, Tsinghua University, Beijing;  Faculty Member, World Economic Forum;  Vice President, Hay-on-Wye Literary Festival, Contributor, Financial Times.  Author.
CANADA
Professor Wendy Dobson
Professor and Director, Institute for International Business, Rotman School of Management, University of Toronto (1993-);  Research Fellow, CD Howe Institute (2004).  Author.  Director, The Canadian Ditchley Foundation.
Dr Wenran Jiang
Mactaggart Research Cair and Former Director, China Institute, University of Alberta;  Special Advisor on China to US and Canada-based Energy Council;  Senior Fellow, Asia Pacific Foundation of Canada;  Leader, Energy and Resources Research Group, Canada’s Emerging Dynamic Global Economies (EDGE) Network.
CANADA/ UNITED KINGDOM
Dr Michael Raymont
Partner and Group President, LACC Group.  Formerly:  Chief Executive Officer, EnergyINet.
CHINA
Dr Yifan Ding
Deputy Director, Institute of World Development, Development Research Center of the State Council of the People’s Republic of China (2000-);  Professor, Graduate School, Chinese Academy of Social Sciences (2000-).
Dr Jiang Kejun
Director of Energy System Analysis and Market Analysis Research Center, Energy Research Institute, National Development and Reform Commission.
Dr Shi Yinhong
Director, Center for American Studies and Professor of International Relations, Renmin University, Beijing (2002-).  Author.
Ambassador Wu Jianmin
Honorary President, International Bureau of Exhibitions.  President, China Foreign Affairs University, Beijing (2003-);  Spokesman, Chinese People’s Political Consultative Conference;  Executive Vice-President, China National Association for International Studies;  Ambassador of China to France (1998‑2003).
Mr Xu (Steven) Xiaojie
Independent Energy Consultant.  Formerly:  Director, Institute of Overseas Investment, CNPC Research Academy of Economics and Technology, Beijing.
Professor Zha Daojiong
Professor, School of International Studies, Beijing University.  Formerly:  Chairman, Department of International Political Economy, School of International Studies;  Director, Center for International Energy Security and Associate Professor, School of International Studies, Renmin University.
CHINA/ UNITED STATES OF AMERICA
Dr Gary Dirks
Group Vice President, BP Grop;  President, BP Asia Pacific Region; Bard Member, China-US Center for Sustainable Development;  Board Member, China Business Council for Sustainable Development.
INDIA
Mr Sandeep Sengupta
DPhil candidate, International Relations, Merton College, Oxford (2006-).  Formerly:  Projects Officer, International Union for the Conservation of Nature, Geneva (2003-06).
 
UNITED KINGDOM
Mr John Ashton
Foreign Secretary’s Special Representative for Climate Change, UK Foreign and Commonwealth Office (2006-).  Formerly:  Co-Founder (2002) and Chief Executive (2002-06), E3G;  HM Diplomatic Service (1978-2002).
Dr Kerry Brown
Senior Fellow, Asia Programme, Chatham House (2005-);  Associate, China Policy Institute, Nottingham (2005-);  Committee Member, British Association of Chinese Studies and Great Britain China Centre;  Executive Director, Liverpool Shanghai Partnership.
Mr Tom Burke
Founding Director, E3G;  Environmental Policy Adviser, Rio Tinto plc;  Visiting Professor, Imperial and University Colleges, London.
Sir Jeremy Greenstock GCMG
Director, The Ditchley Foundation (2004-);  Special Adviser, BP plc (2004-).  Formerly:  HM Diplomatic Service (1969-2004).  Board of Directors, The American Ditchley Foundation.  Board of Directors, The Canadian Ditchley Foundation.
Ms Isabel Hilton
Editor, ChinaDialogue.net;  Presenter, BBC Radio 3 (2001-).  Formerly:  Staff Writer, The New Yorker;  Presenter, The World Tonight, BBC;  Columnist, The Guardian and The Independent.  Author.
Mr James Kynge
Editor, China Research, Financial Times.  Formerly:  Chief Representative, China, Pearson plc;  China Bureau Chief, Financial Times (1998-2005).  Author.
Ms Christine Macqueen
HM Diplomatic Service (1982-);  Counsellor, Foreign and Commonwealth Office, London.
Sir Crispin Tickell GCMG KCVO
Director, Policy Foresight Programme, James Martin Institute for Science and Civilization, University of Oxford (2006-).  Formerly:  Chairman, Climate Institute of Washington DC (1990‑2002);  HM Diplomatic Service (1954-90).  Author.  A Governor and Member of the Council of Management, The Ditchley Foundation.
Dr Catherine Wills
Art Historian.  A Governor and Member of the Council of Management and Programme Committee, The Ditchley Foundation.  Board of Directors, The American Ditchley Foundation.
UNITED KINGDOM/GERMANY
Ms Nina Richardson
Deputy Director, The Ditchley Foundation.
Professor Christof Ruehl
BP plc (2005-);  Group Chief Economist (2007-) and Vice-President, BP plc;  Chairman, British Institute for Energy Economics;  Independent Director, Board of Halyk Bank, Kazakhstan.
UNITED STATES OF AMERICA
Honorable Douglas Bereuter
President, Asia Foundation. Formerly:  Member, US House of Representatives (1974-2004).
Mr Joseph Borich
Executive Director, Washington State China Relations Council.  Formerly:  US Foreign Service Officer (1972-97).
Mr Edward Chow
Senior Fellow, Energy and National Security Program, Center for Strategic and International Studies (2006‑);  Independent International Petroleum Consultant (1999-).
Dr Richard Ellings
President, The National Bureau of Asian Research;  Affiliate Professor International Studies, University of Washington.
Mr Thomas Fisher
Chairman, Steering Committee, National Bureau of Asian Research Pacific Energy Summit.  Formerly:  Vice-President, Unocal.
Mr Mikkal Herberg
Research Director, Energy Security Program, National Bureau of Asian Research;  Visiting Lecturer, University of California San Diego School of International Relations and Pacific Studies.
Ms Roberta Luxbacher
General Manager, Corporate Planning, Exxon/Mobil.
Mr Neal Schmale
President, COO and Board Member, Sempra Energy.
Ms Lisa Weiss
Project Director, Energy and the Environment, The National Bureau of Asian Research.
Ms Susan Wickwire
Head, Energy Supply and Industry Branch, US Environmental Protection Agency (USEPA) (2008‑).  Formerly:  Head, International Climate Change Capacity Building Branch, USEPA (2001‑08). 
Dr Daniel Wright
Managing Director for China and the Strategic Economic Dialogue, US Department of the Treasury.