Some ideas to alleviate China's environmental nightmare
Christine Loh
Commentary
The Daily Star
Monday, September 03, 2007

Two countries - the United States and China - remain aloof from global efforts to create a new post-Kyoto framework on climate change. Fifty years ago, the rest of the world might have carried on with remedying the problem of conventional and greenhouse gas emissions and let China and the US stew in their own waste. But the world is now so interdependent that what happens in one place affects all others.

For example, visitors and residents alike have long thought of Hong Kong as a beautiful city clinging to the South China coast. But, for at least five years, Hong Kong's citizens have found themselves starting to cough and wheeze from the city's increasingly degraded air. Corporate employers are even complaining about not being able to attract overseas talent. Pollution from Hong Kong's own power generation plants, growing number of vehicles, and burgeoning shipping industry can certainly be reduced. But the lion's share of this industrial haze - like the growing pollution of its coastal waters - is a direct result of the rapid industrialization of the Pearl River Delta across the border in China's Guangdong Province. China is exporting not only more and more goods, but also its environmental degradation.

The inescapable truth is that the futures of Hong Kong and China are integrally linked. There are roughly 58,000 factories in the Pearl River Delta with Hong Kong connections, and together they employ more than 10 million workers. Guangdong accounts for about 30 percent of China's total foreign trade, while Hong Kong is China's international finance center. Officials in both Hong Kong and Guangdong are powerless to clean up their environmental problems on their own. In fact, development plans in China may be heading in the opposite direction.

Political heavyweights in Guangdong still favor a form of development that relies on speed and quantity while ignoring overall environmental quality. And Hong Kong's economic blueprint also focuses on accelerating large infrastructure projects whose environmental impact has not been rigorously examined. It will not be easy for leaders on either side of the border to reverse gears, but there is still chance that people and companies can make a difference.

Increasingly loud complaints about deteriorating air quality have goaded Hong Kong and Guangdong into embarking on a joint program in which a series of monitoring stations now provides emissions data. Hong Kong's data have been released regularly, and in 2006 Guangdong's data were made publicly available for the first time. There is now also talk about monitoring water quality. These are laudable steps for China, given its poor record on transparency.

Indeed, the joint air-monitoring network provides a foundation for the region to develop a sophisticated regional air management program. Furthermore, new coal-fired power plants may no longer be allowed on either side of the border, necessitating greater use of natural gas and renewable energy sources.

The first challenge for authorities is to regulate power generation very differently. People are used to paying for the electricity that they actually use. But, to optimize efficiency, utilities need to be rewarded for what they help consumers save. In other words, utilities must be given incentives to help consumers use less power.

This idea is clearly feasible. Amory Lovins of the Rocky Mountain Institute has proposed what he calls the "negawatt," or energy that is never used. All that is needed are the right financial incentives to induce utility companies to produce less electricity (and still be more profitable) and consumers to reduce their use (and gain savings without sacrificing comfort). This can be done by refitting households with high-efficiency light bulbs and other technological improvements, and by retrofitting industrial plants with energy-saving technologies.

Another innovative idea that Hong Kong and Guangdong are exploring is the "P2E2" scheme. To help industries in the region upgrade environmentally, firms can now obtain special loans for which the Asian Development Bank assumes the risk - a program made possible by Hong Kong's sound banking practices. Another initiative worth watching is the Hong Kong stock exchange's exploratory project to offer a trading platform for emissions derivatives, which will most likely include conventional pollutants as well as carbon. The exchange will undertake a study this summer, with trading to begin as early as 2008.

If these reforms are not trumped by efforts to maintain high growth at all costs, the region could not only clean itself up while continuing to prosper, but could also establish a model for all of China. Nothing is more necessary in a country that, according to the United Nations Development Program, contains 16 of the world's 20 most polluted cities. Hong Kong's leaders to do not want to end up on that infamous list. By saving themselves, they may also be able to play an instrumental role in saving China.

Christine Loh is CEO of Civic Exchange, a public-policy think tank based in Hong Kong. THE DAILY STAR publishes this commentary in collaboration with Project Syndicate (c) (www.project-syndicate.org).

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