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China's Botoxed image

By Arthur Thomas - posted Wednesday, 16 December 2009


ETS or carbon tax

Governments around the world are finding it embarrassingly difficult to explain emission-trading schemes to their voters. Even parliamentarians fail to comprehend how carbon-trading schemes work or how they motivate polluters to reduce carbon, or how much it will cost the consumer.

Australia's shift and understanding the ETS

Rejection of government policy demonstrated how the lack of comprehension destroyed Kevin Rudd's grand lesson to the international community on how to implement "innovative" and successful legislation.

While politicians regurgitate prepared text on the benefits of this new economic miracle involving the trading in trillions of dollars of carbon credits, they only succeed in convincing the voting public that emission trading schemes appear more like a new stock exchange for speculators with spare cash to capitalise on government subsidised schemes.

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Trusting the finance sector in climate change?

If we consider the rhetoric and anticipated trillions of dollars involved, this market will redirect investment from within national economies. The ETS is a new vehicle for the finance industry, and after the global financial crisis, confidence in their role to manage the scheme designed to preserve the welfare of the planet for future generations is shaky.

This concern increases with the knowledge that the finance sector is the most powerful global lobby group motivated by self-interest. Just think of the massive fees to flow from the ETS's trillions.

China wind

Carbon traders, and the new breed of wind power operators (including JPMorgan's EcoSecurities), have their eyes on quick profits from carbon offsets and are supported by provincial governments pursuing massive foreign direct investment. The result is a massive CDM (Clean Development Mechanism) supported investment in wind farms remote from grids, or connected to grids incapable of handling the variable wind power.

Seventy per cent of wind-generated electricity is unusable and offsets no carbon emissions. The blind investment plunge has resulted in massive overcapacity and a mad scramble for markets. China's credibility in promoting renewable energy is questionable following its withdrawal of government subsidies for renewable energy generation and rejection of new applications. The move is primarily to ensure operator profitability falls below that required to qualify for CDM status, and projects that failed to comply with CDM requirements.

The wind industry now blames the UN Climate Panel for endangering the future of the industry. Roughly translated, "endangering quick profits", and nothing to do with climate change. The subsidy withdrawal and project cancellations appears more like a crude form of blackmail to pressure the UN Climate Panel.

Corporate responsibilities

ETSs are more about investor profits, and less about making a real impact on reducing carbon emissions. There is no legislation specifically requiring company directors to sacrifice legal profits for any unenforceable concept. Directors are legally obliged to protect the interests of the shareholders.

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Feel good green comments are appearing regularly in annual reports, but that is where it stops. Don't blame the directors, they follow government guidelines.

A poorly managed scheme

While much is made of CDMs assisting developing nations to grow while reducing growth related emissions, the opposite appears the case.

China, India, Brazil and Mexico are the major beneficiaries of CDMs. China received 59 per cent of total global CDM investment. Just how much have the remaining smaller developing nations benefited?

Indonesia and Brazil see large-scale investment in reafforestation with palm oil and commercial forests, a strategy requiring clear felling and burning of existing carbon absorbing forests as well as destruction of vast peat reserves and produce massive carbon emissions. The practice leaves a substantial gap in carbon reduction before the "new" forests begin to develop the equivalent carbon absorbing capabilities. It is in fact a step backwards.

China ignores the purpose of CDMs to "reduce carbon emissions below normal trends". China's CDM projects included a range of Chinese wind, hydro and other energy projects that are "self sufficient" with no need to reduce emissions below normal trends. CDM's are driving an investment hungry industry for the world's fastest growing developer of wind power with minimal carbon reduction.

The situation becomes laughable as wind farm operators seek approval to construct coal-fired plants as backup generation the equivalent to 66 per cent to 75 per cent total wind capacity yet still intend to claim credits for total wind generating capacity.

CDMs appear more prioritised towards foreign direct investment in growing state owned enterprises.

Combined, the US and Europe are major emitters in terms of total emissions. China however, is the world's biggest emitter and its increasing carbon input is primarily due to aggressive, unsustainable industrial and urbanisation policies that form the basis of Beijing's proclaimed intention to raise China's standard of living with that of the West.

Green industry jobs

Government, opposition, environmentalists, and academics alike trumpet the untapped potential for climate-change to drive new green industries.

Australia's recent stimulus package successfully invigorated growth of green related industries in building insulation, photovoltaic power generation and solar hot water systems, all of which were heavily subsidised. Insulation and solar hot water systems contributed to local manufacture and employment.

Scrutiny of the photovoltaic contribution however, reveals that the cheap prices driving the "incentives" were a direct result of massive inventories of silicon wafers, cells and panels piling up in Chinese factories and "unloaded" at what could be argued at "below cost".

There is no doubt that Australia benefited and achieved some reduction in individual household energy demand but where are the thousands of green jobs in the wind and solar power industries in the future? The answer lies in China.

The global major producers of wind generation equipment are now producing in China under joint venture agreements with major Chinese SOEs.

The same applies to photovoltaics. China has created a massive overcapacity in silicon wafer, solar cell and panel production. To reduce costs, major US and European manufacturers relocated cell production and panel assembly to China at the cost of thousands of jobs at home.

This raises a crucial question for Australia. Can Australia's wind and solar power generation companies compete against China on domestic or international markets without substantial government subsidies? The prospect of manufacturing wind tower casings to carry imported turbines and blades is questionable.

While Australia has the energy, enthusiasm, innovation, skills and ability to produce world quality technology and equipment, the low cost of imports limits Australian workers’ prospects for sales and installation of imported products.

Restraining this potential is a competitor that reduces the cost of its export products with government subsidies, currency constraints, lack of environmental management and safe work places. This is in an environment of increasing carbon emissions and liquid, air and solid pollutants, greater than any other single country on earth to 2020 and beyond.

Is China a developing nation?

China jealously protects its developing nation status, claiming urgent need to improve the income, health, aged care and overcome poverty.

While proclaiming developing nation status, China amassed the largest foreign exchange reserves in the global economy; hosted the most extravagant Olympic Games in history, and continues with massive expenditure on military and space. China flaunts its wealth but fails to invest in the welfare of its most vulnerable by temporarily foregoing rapid and unsustainable development.

Unfortunately, Beijing wants it all now and sees any reduction in growth as loss of face and a threat to its image and future in government.

Back to basics

From the individual to the global perspective, it comes down to what is best for plant earth, which in turn translates to survival for all nations. What key issues are fair and necessary to reduce emissions for all of planet earth's inhabitants?

The developing nations demand developed nations pay for climate change reversal. If the economies of the developed world are constrained by the cost of global warming, who will fund the IMF, World Bank and individual country foreign aid programs?

Developed nations need to maintain economic energy with domestic policies and foreign trade to meet the needs of the developing nations.

Measuring carbon emissions

There are two basic options. One relates to emissions produced by manufacturing in one country and transport to export countries.

The second is emissions produced within a consumer nation from manufacturing, energy generation, transport, product's energy consumption, and final disposal within that country.

Other penalties or taxes?

Safeguarding planet earth and its populations requires strategies beyond carbon and GHGs (greenhouse gases) alone.

Pollution exported from neighbouring and nearby countries have a devastating socio-economic impact on receiving countries. These include air, rain and surface water contaminated by industrial and municipal pollutants as well as dust from degraded farmlands laden with industrial toxins.

Any meaningful solution designed to maintain a planet capable of supporting future generations requires broader terms of reference with GHGs the number one target in a hit list of others.

China's carbon tax options

China is aware of the possibility of a carbon tax. The world's major polluter sees any carbon tariff as an attack on its economy and right to growth. The WTO rejected China's claim that carbon tariffs breached WTO rules.

The Waxman-Markey bill reflected growing US and global sentiment on carbon reduction. "Border adjustments" would apply to goods produced in countries under conditions that ignored effective emissions reduction in order to gain a cost advantage for exports. Current and future US administrations now have this authority.

China is considering introducing a carbon tax of its own and is aware that if it has a carbon tax, under WTO, other countries cannot impose additional tariffs. Beijing claims US$1.47/tonne of carbon is realistic for China. Given China's lack of transparency and dodgy numbers, there is serious concern about China's methodology in calculating any realistic carbon tax. Beijing's recent announcement that it would accept no outside monitoring, of any domestic carbon reduction scheme that it may consider under any global agreement, only reinforced that concern.

China's US$6.6 billion Botox job

Beijing is fully aware of the effect that pollution and carbon emissions are having on China's international image and is pouring billions into reversing that image, especially in time for and during Copenhagen.

The capabilities of Xinhua, CCTV and People's Daily are being merged into an “influential and reliable” 24/7 global media giant, China's equivalent of CNN or an Al-Jazeera, and is seeking foreign expert reporting staff under the direction of the Organisation Department. The objective is to run multi lingual channels, websites and print media to present a "balanced" view of an "open, free and environmental responsible" China.

This will be a big ask for a sceptical global audience, especially when the operation will still be effectively controlled by the Central Propaganda Department.

Consumer tax

Be it a carbon tax or an ETS, the cost of consumer goods will rise affecting overall economic growth.

Business-as-usual will not be an option and personal priorities and lifestyle change will be part of the future.

A carbon tax will produce a bigger revenue stream than the GST and could fund projects determined by national guidelines and linked to a global scheme.

There are numerous possibilities ranging from direct funding, to loans and grants for carbon reduction schemes or compensation.

Consumer tax benefits?

A consumer carbon tax could motivate the return of companies that relocated manufacturing offshore. Companies currently manufacturing offshore may find a return to a "carbon friendly" environment could create an "edge" against competing products manufactured offshore exploiting lax environmental legislation and carbon emitted during manufacturing and long sea routes.

Options

Regardless of the perceived academic transgressions in hacked e-mails, serious consideration is a priority for climate change. The 192 countries in Copenhagen have their own priorities, agendas and liaisons, and consensus on a firm agreement is a bridge too far.

The prospect of global warming does not provide too many "suck it and see scenarios".

ETS shortfalls

ETS is an easy route for politicians, supported by industry and the finance sector lobby. Being market driven however, carbon prices will rise and fall. This was evident in China, the EU and more recently here in Australia.

There are alternatives and these will start with individual nations and co-operative effort to make the first step.

The reality is more likely to be carbon prices varying from country to country as opportunities rise and fall for an ETS industry geared for continual increases.

What single solution will receive the support of a range of 192 nations with varying priorities, policies, economies, and levels of perceived urgency given the time-frame?

What comes first - political expediency, individual egos, the planet or the wallet?

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About the Author

Arthur Thomas is retired. He has extensive experience in the old Soviet, the new Russia, China, Central Asia and South East Asia.

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