China Update 2008

Confronting Global Challenges: Growth, the Environment and Rebalancing World Power

14 July 2008

It is a pleasure to be here today to launch China Update 2008. These Updates have developed into a valuable forum for discussing and analyzing developments in China and its relationship with the rest of the world, as is shown by the quality of the speakers and the audience here today.

The topic of the 2008 Update, Confronting Global Challenges: Growth, the Environment and Rebalancing World Power, is timely, both given international developments and the current stage of Australia’s own policy dialogue.

For that reason, I would like to pose two sets of questions. In the broad, these have application to many of the items on today’s agenda, but I want to couch them specifically within the context of developing a globally effective response to climate change.

First, how do we best build domestic constituencies for hard reforms of the sort needed to avoid dangerous climate change and adapt to the climate change we cannot avoid?

Second, are our institutional frameworks well suited to allow us to tackle a challenge with global externalities of the sort we face with climate change?

Let me start with domestic constituencies for reform.

This issue is particularly germane for Australia with the release a little over a week ago of the draft report of the Garnaut Climate Change Review and the release this Wednesday of the Government’s green paper on emissions trading.

The Government has adopted a 3 pillar approach to climate change:

• Contributing to a global response;
• Reducing Australia’s own emissions; and
• Adapting to climate change we cannot avoid

Discussions and policy debate on emissions trading as a key means to reduce Australia’s emissions is in its infancy, notwithstanding the pioneering work of Warwick McKibbin, the work of the state and territories National Emissions Trading Taskforce and the previous Government’s Task Group on Emissions Trading.

Yet relative to the state of domestic debate in the US and China, the debate underway in Australia is richer and more comprehensive.

Why?

First, Australia is more vulnerable than any other developed country to both the impacts of climate change and to poorly designed policy responses elsewhere. This reflects our arid climate, fragile ecosystems and the distribution of our communities and infrastructure in the first instance. In the second, it’s because our industrial structure has been built upon access to abundant and cheap minerals and fossil fuels.

Perhaps more importantly, though, it is because Australians can see first-hand today the impacts of climate change and drought.

For our international visitors, some context:

• As the Garnaut Review has noted, global emissions are already tracking at the high-end of the IPCC scenarios. On this basis, Australia could face an average temperature increase of 5 degrees Celsius by 2070 – temperatures have already risen by 1.2 degrees in Queensland over the last century
• Perth, our fourth largest city, has seen annual dam inflows over this decade fall to half of what they were over the previous quarter century, which were in turn only half of the average between 1911 and 1976 – most of our major state capitals are either investing in desalination or exploring its use.
• Our food basket, the Murray-Darling Basin is under traumatic stress, with inflows in June this year of 95 Gigalitres, down from 106 Gl last year and compared to a long-term June average of 680 Gl. The draft Garnaut report suggests a 90 percent decline in irrigated agriculture in the Basin by 2100 in the face of unmitigated climate change.

Turning to China, it is clear that China’s national leadership recognize the climate change problem. I do not believe they are under any illusions about the impact of climate change on Chinese agricultural productivity, the implications of loss of snow melt and the challenge to provide clean and plentiful drinking water, or the threat posed by increasingly frequent and more severe weather events. But the even greater imperative is how to lift people from poverty – and visible pollution is more an issue for the Chinese people than CO2 emissions.

The Chinese Government has made considerable efforts to restrain the energy intensity of GDP, and hence emissions, for energy security reasons – while incidental, the climate change benefits are obvious. But how does the Chinese Government weigh up the imperative to develop against the global need to restrain emissions? At the moment, the weight still seems to be toward develop now and clean-up later. But this may well be a false choice – excessive damage to the environment may ultimately impair the capacity to develop, and be irreversible. It is also unclear whether the world will ultimately be prepared to give China the space to treat the two issues as separate.

In the US the situation is different again. Public concern about climate change is more muted than in Australia, being more focused on the perceived loss of US jobs, competitiveness and leadership. However, irrespective of who wins the election, the rhetoric on climate change is almost certain to change. What is unclear, given the nature of the US political process, is how long before the change in rhetoric translates to real action.

This is not a Republican vs Democrat issue – the fault lines run through both parties – but it raises two big issues.

First, whether climate change rhetoric is exploited to dress up anti-Chinese protectionist measures as responsible climate change policy. Second, whether that, in turn, fuels Chinese concern and rhetoric that action on climate change is simply a ruse to restrain their legitimate development aspirations.

The latter could be defused by unambiguous evidence that the developed countries are willing to move first to reduce emissions, but the prisoner’s dilemma shows itself here with the demand of the developed economies that the other major emitters then pre-commit to take their own, albeit less onerous, actions.

Let me turn to the second of my original questions – whether we possess the institutions internationally to develop quickly a sustainable long-term response to climate change.

At the moment there is a disconnect between the domestic and international approaches in many countries. Domestically, both mitigation and adaptation are economic reform issues where finance ministries and treasuries will need to play a key role. Internationally, though, the discussion of climate change is often led by foreign ministries, assisted by environment ministries.

What strikes me about much of the international negotiation is that it is sterile: divorced from domestic actions and with rhetoric reminiscent of the 1970s North-South debates. Ultimately, though, these historically-based entrenched positions will have to change because this is a problem unlike any the international community has seen before.

Continuing to see this issue through a prism of developed versus developing countries is a recipe for maintaining the status quo. Yet going forward the story of Chinese economic development and strategic weight will be one of convergence.

 

So what might catalyse change?

At the moment we’re hoping that the Copenhagen deadline will do the trick. Realistically, success in Copenhagen will likely deliver important but evolutionary progress, with a new agreement that edges us closer to the sort of long-term outcome that is needed.

Is there anything that might get the world to act more quickly?

While no sensible person wants to contemplate the consequences, a raft of climate-related natural disasters could trigger a demand for action from domestic polities across the globe.

Perhaps a more realistic, but difficult to forecast, trigger would be a sharp shift in position in the US that quickly translated into hard action domestically to restrain emissions.

At the moment China has the “luxury” of the US being painted as “pariah #1” on climate change in the eyes of some – witness the last day of the Bali meeting.

But if the US moves and China became “pariah #1”, what then?

Other major developing country emitters would still have someone to hide behind, but China would need to consider how best to respond to much greater external pressure to restrain emissions while nothing had changed internally – pressure would continue domestically to sacrifice the environment in the pursuit of growth.

This would pose an incredible dilemma for the Chinese leadership – and were it to occur in the next year or two, would likely occur against the backdrop of a complex set of international economic challenges with consequences for both the US and China.

So, perhaps the biggest challenge for both the next US administration and the Chinese leadership will be to operationalise what it means to be a “responsible stakeholder”.  

Shared leadership by the G-2 will require growing confidence by each in the reliability of the other as a partner. New, and more comprehensive forms of bilateral dialogue, that build on recent initiatives such as, for example, the US-China Strategic Economic Dialogue, provide an opportunity for the sort of quiet confidence-building needed if the two are to be able to work together on climate change – and this is an issue where each has as large a stake as the other.

Ultimately, though, if the world is to accelerate its response to climate change it will require vision on the part of the leadership of both countries.

There is an excellent set of sessions ahead of you over the rest of the day and I wish you all the best in your discussions.

Thank you.

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