September 17, 2007 (People.com.cn) – An international workshop, sponsored by China’s top think tank and the UN Environment Program, recently in Beijing highlighted the significance in the participation of businesses in dealing with climate change. This is one of the first high-profile events for Chinese enterprises on the issue of climate change.
There is a large gap of awareness between Chinese enterprises and their international peers on the importance of integrating a program on climate change into their operational strategies and daily agendas. Experts and officials agree that it is not a question of whether or when, but how companies should face the risks and opportunities brought about by climate change.
For China, the issue of climate change is both a challenge and an opportunity; however, the challenges outweigh the opportunities, according to Lv Xuedu, an official with the Ministry of Science and Technology and member of the Chinese delegation for UN climate negotiation. He urged Chinese enterprises to develop long-term goals for a low carbon economy; and to invest more into the R&D and use of low carbon technologies.
However, low carbon technology normally means high costs — both of money and time. Pan Jiahua, a research fellow with the Research Centre for Sustainable Development, Chinese Academy of Social Sciences, took the energy-efficient building in Tsinghua University as an example. The Italy-funded project is a perfect demonstration of how efficient a building can be. However, it is extremely expensive.
Pan said at the workshop that there was both coherence and conflict between global greenhouse gas reduction ambitions and China’s efforts in energy-savings and emission cuts. They have the same objectives of reducing emissions; increasing the use of renewable energy; improving energy efficiency; and upgrading technology.
However, there are dilemmas in all those objectives. Renewable energy, due to its high cost, is at a disadvantage in market competition. The lock-in effect – which refers to the high cost to upgrade existing infrastructure with more advanced technologies – will be another big problem. Intellectual property rights will make transfers of technology very difficult. In addition, an emerging economy has to be aware of the possible economic slowdown if consumption is constrained in the name of curbing emissions.
The market can play a very important role. The Clean Development Mechanism (CDM) was designed by the Kyoto Protocol as an arrangement which encourages developed countries to invest in emission reduction projects in developing countries. Reduced carbon emissions are traded on the carbon market. This makes it financially feasible and rewarding for businesses to participate in emission reduction efforts.
If carbon is traded at 10 USD per ton on the international market, the CDM market will be worth tens of billions of USD by 2012, according to Xiao Xuezhi, an official with the State Environmental Protection Administration, who participated at the seminar.
According to his data, China had approved 684 CDM projects by July 31; and the CDM Executive Board had issued some 20 million tons of Certified Emission Reductions (CERs) by August 31. China lags behind India in terms of the number of registered projects, the expected average annual CERs from registered projects, and the CERs issued.
Risks in this market cannot be played down. Uncertainties on the sides of supply and demand and price fluctuation are what parties have to consider on any market. The biggest uncertainty, however; is the possible policy changes after 2012, when the Kyoto Protocol expires.
The market cannot fix everything when it comes to technology transfers. Technology is crucial in dealing with climate change. However, in most cases, it is expensive. Pan suggests that small, yet appropriate technologies be used; joint research be conducted; and subsidies be arranged.
Professor Zou Ji from Renmin University, also a Chinese representative of the UN climate talks, said there was a “market failure” in tech transfers. He proposed that the government support R&D through public funding to share the risks and expenses that businesses have to burden. In this case, a special Public-Private Partnership (PPP) system needs to be installed.
An international mechanism is also necessary to boost the synergy among all stakeholders – including governments, tech owners, and potential receivers – to facilitate the research, deployment and transfer of advanced technologies. Professor Zou is working on that roadmap.
Despite all difficulties and pending issues, the consensus reached at the seminar is that it is time for businesses to consider opportunities in climate change domestically and globally. How quickly and effectively they act will depend on whether they make money or lose it.