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Europe’s World: An EU-China pact is key to a global climate deal, Nick Mabey
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The following article has been recommended to you. You can find the original article together with any associated downloads at http://www.e3g.org/programmes/europe-articles/europes-world-an-eu-china-pact-is-key-to-a-global-climate-deal/ ********************************************************************************* Europe and China have much more in common on both energy security and the climate change issue than is generally realised, say Bernice Lee and Nick Mabey. They set out the elements of a close new partnership. The EU’s progress toward a low-carbon economy is being watched in US, China and India, whose genuine commitment to decarbonisation in these three key countries will only materialise if Europe delivers. In other words, the future cannot afford to see Europe – the only credible standard-bearer – fail to meet its own climate objectives and it is clearly vital that Europe should stay in the driving seat to steer global changes in politics and markets for climate change. This will be a risky, expensive and time-consuming task, but that is the price of real global leadership. As negotiations on the “global deal” slowly move forward, a parallel process of building trust, confidence and expectations between the major parties must also accelerate. Formal negotiations can only be one part of the climate process, which in the end requires a belief that countries can decarbonise without threatening domestic well-being or stability, and that all countries are playing their fair part in solving this shared dilemma. The measure of agreement at Copenhagen will be whether it generates a transformational shift in finance moving over $50 trillion of energy investment by 2050 from high-carbon to low-carbon technologies Global climate security demands global agreement if mankind is to minimise the probability of a 20C rise over pre-industrial levels. Going beyond this level presents unacceptable risks of passing “climatic tipping points” beyond which catastrophic damage is irreversible, and our ability to control the extent of further temperature rises will be lost. To give a 50:50 chance of staying within the 2°C limit, global CO2 emissions will need to peak in the next two decades and fall by over 50% by 2050. For the European Union and other developed countries this implies moving to an essentially zero-carbon economy by around 2050, with major developing countries following suit well before the end of the century. All major emitting countries will need to begin radical decarbonisation in the next 20 years, whatever their level of development. Delivering these ambitious goals will require far more realistic and focused efforts to secure an effective global climate change agreement by the end of next year, in Copenhagen. The measure of this agreement will not be just whether it gains acceptance by all major polluting countries, but whether it generates a transformational shift in international energy finance flows – moving the $21 trillion of energy investment being forecast by 2030 from high-carbon to low-carbon technologies. The global political conditions to deliver such an agreement do not yet exist. Clear and powerful leadership is needed to build the politics for a meaningful global climate change consensus. While the US presidential hopefuls jostle for position, Europe must maintain the global momentum for change by revitalising its climate leadership in this critical year. Europe is the first major emitter to commit to an early shift to decarbonisation. European commitments have been crucial in forming expectations in global business that action on climate change will happen and will create real markets. EU Commission President José Manuel Barroso has spoken of Europe leading the world into a “post-industrial revolution”. No task will be more important in this effort than strengthening Europe’s relationship with China on energy and climate security. The combined economic might of the EU as the world’s largest market place and China as its fastest-growing economy can yield unprecedented opportunities to generate benefits of scale and to drive innovation. This will help lower the costs of climate-friendly goods and services, not just for China and Europe but globally. The two can become the de facto engine of global low-carbon transformation, and they can benefit economically from this leadership. China and the EU are already economically entwined. The EU has been the largest source of foreign direct investment into China, and China has become the EU’s largest trading partner. The EU is also the largest supplier of technologies and services to China. The two powers face common challenges in energy and climate security, and the International Energy Agency (IEA) estimates that both will be importing 80% of their oil needs by 2030. Ensuring security of supply – and stability in resource-rich regions – is thus of paramount importance to both. China and the EU have remarkably similar, and ambitious, energy policies to improve security of supply through much greater energy efficiency and the increased use of renewable energy. Both need to manage the impacts of climate change, including water stress, shifting agricultural zones and extreme weather. Much is made of China’s opening of one major coal power station every week, and the $3.7 trillion of energy investment it will make by 2030. The closure of ageing European power stations coupled with fairly modest increases in demand will mean that the EU also has to invest in a similar level of new generating capacity. Both Europe and China therefore need to make decisions today if they are to avoid locking in carbon-intensive investments in the coming decades. The new housing that will be built in China between now and 2020 is equal to all the existing housing stock in the EU-15; European housing will help drive emissions growth in the next 15 years. Acting together now to improve efficiency standards would help avoid locking in inefficient housing with high CO2 emissions for the next half-century. China and Europe will dramatically improve their chances of achieving energy and climate security by finding concrete ways to work more closely together. Their cooperation must be concerted and transformational if it is to affect global economic and political conditions, going beyond the confused plethora of small, nationally driven projects that currently dominate EU–China energy cooperation. Building “low-carbon economic zones” (LCEZs) in China was one of the initiatives proposed in the Changing Climates report of November last year by Chatham House and E3G. These LCEZs would be formed at prefecture level (30-40m people) and would provide testing grounds for new technologies. LCEZs would be magnets for attracting investment in research and high-end manufacturing, which is consistent with the Chinese leadership’s desire to move into higher added-value industries. The LCEZs could be to China’s next industrial revolution what Shenzhen was to the current one – and they would be a powerful demonstration of the viability of a low-carbon economy. The EU could focus its energy and climate cooperation around these zones so as to demonstrate to other countries the reality of large-scale transformations. China uses coal to generate around 80% of its energy needs – a uniquely high percentage, coal use is likely to increase in China and also in the EU as both seek to reduce fuel imports. Europe and China should therefore radically upgrade their existing cooperative programme on carbon-neutral coal power though the development of carbon capture and storage technology, and should have a full-scale demonstration plant in operation by 2012 with a further programme of technology development beyond that. Because China now manufactures such a vast array of goods for Europe and elsewhere, adopting world-class standards for energy-efficient goods would bring clear benefits to all. Under its Eco-Design Directive, the EU will be setting increasingly tight energy efficiency standards, and China and the EU could drive progress in both their markets by setting up a consultative committee to define challenging standards for energy-efficient, low-carbon goods. This could be coupled with the introduction of an EU–China ultra-efficiency building research platform to drive new technical and development opportunities in this fast-growing sector. Other opportunities for EU–China cooperation include developing a low-carbon free trade and investment agreement. Fulfilling this vision of a truly transformational approach to EU–China collaboration clearly implies moving away from today’s endless jostling over trade issues, and an end to the kind of political rhetoric that feeds exaggerated fear in Europe of Chinese competition. To win political support for removing barriers to trade and investment in climate-friendly goods, services and technologies, we need to focus much more on the potential benefits rather than on the costs of low-carbon transition. As economies integrate, the competing needs of producers are commonly set in the public mind against those of importers and consumers. A good example of this dilemma is the way concerns over carbon leakage and loss of competitiveness (when high emitting industries are re-located to developing countries) have spurred discussion in the EU and the US on imposing tariffs on carbon-intensive imports. Many of the claims over company relocations are overstated. Research suggests that pricing carbon is a major factor in only a small number of industries, accounting for a few percentage points of European GDP. These projections also fail to recognise the reality of global supply chains, or the potential for new technology to change the economics of energy-using sectors. As EU Trade Commissioner Peter Mandelson has asked, how do we define what is a European company in a world of global supply chains and multinational assembly lines? Whatever the true economics, the politics of carbon leakage are nevertheless important. Unilateral action to impose border tax adjustments outside any global climate agreement would be likely to prompt retaliatory action, posing further threats to the already fragile multilateral trading system. It would also dampen trust and weaken present efforts to conclude a global climate deal in Copenhagen. Yet politicians in Europe and the US are now discussing legislation that would impose unilateral border sanctions, even if a global climate deal is in place. This undermines the very idea of the global climate negotiations; for if the “deal” turns out not to be a deal, then how are developing countries meant to accept that the industrialised nations are negotiating in good faith? The relocation of some energy intensive industries may be the price Europe has to pay to secure a global climate deal, and we cannot renege on the agreement if that is part of the outcome. Two divergent paths lie ahead. One is the road of old-styled mercantilism and the obsessive cultivation of national champions. The other would take advantage of globalisation’s opportunities for win-win solutions that bring not only economic benefits but also energy and climate security. Ensuring that China and other developing countries gain a sizeable economic share of the low carbon future is critical to the viability of the second path. Early movers are better able to maintain their competitive edge in a world of volatile energy prices. These potential gains may also persuade China to play a larger role in climate negotiations. But winning public support for closer cooperation between the EU and China will not be easy, not least because of the present political tensions over Tibet. Europe’s political and business leaders must therefore begin shaping this debate on future foreign policy choices. If they fail, efforts to construct a low-carbon and secure energy future will be frustrated by the narrow concerns of special interest groups. And if we fail to secure climate security for Europe, or China, the result will be far higher economic costs than any marginal gains by energy-intensive sectors. Bernice Lee is the Head of the Energy, Environment and Development Programme at Chatham House, the UK’s Royal Institute of International Affairs, and Nick Mabey is the Founding Director and CEO of E3G – Third Generation Environmentalism. This article has been published in the autumn issue of Europe’s World, available here.
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