It pays China to block global deals on climate and trade

More than US$1 trillion a year is at stake if an emission deal is struck, whereas a no-deal situation will cost just US$360 billion a year

PUBLISHED : Tuesday, 17 December, 2013, 3:19am
UPDATED : Tuesday, 17 December, 2013, 3:19am

It's been a hectic couple of months for government negotiators and the myriad do-gooders, lobbyists and other hangers-on that habitually flock to international summit meetings.

In November, thousands descended on Warsaw for almost two weeks of talks at the 19th United Nations conference on climate change.

Then earlier this month, thousands more winged their way to Bali for the ninth ministerial meeting of the World Trade Organisation.

But all those days and nights spent in talks haven't been terribly productive.

In Warsaw, government environment officials spent much of their time trading accusations and recriminations amid a mood of mutual mistrust and suspicion. So bitter were the disagreements that China led a walkout of developing economies, and the meeting ended with only a vague commitment to agree in 2015 to limit carbon emissions.

It makes a trade pact impossible unless the world first reaches a global deal on emissions

Bali wasn't much better. The assembled trade negotiators did agree to cut red tape. But their deal wasn't much to show for 12 years of talks. A comprehensive agreement on dismantling trade barriers remains as elusive as ever.

Perhaps the failure of these international negotiations shouldn't be too surprising. Treated separately, the complexity of both climate and trade talks is stunning.

But in reality, trade and climate cannot be treated separately. Unless countries see eye to eye on trade, a climate deal won't work. And without a global agreement on carbon emissions, a comprehensive treaty on trade is impossible.

The problem is carbon leakage.

European countries have worked hard over recent years to reduce their carbon dioxide output, launching a cap and trade system and introducing clean-energy subsidies.

Britain, for example, has subsidised expensive wind power by imposing a levy on energy bills.

That's pushed up energy prices for industry, helping to push manufacturing offshore.

Much of the business has switched to China, where coal-fired energy is cheap. According to one study by Oxford University, if you were to factor in the greenhouse gases emitted during the manufacture of Britain's imports from China, Britain's total output of carbon dioxide would rise by 20 per cent.

In short, attempting to limit carbon emissions has helped undermine the competitiveness of much of British, and European, industry.

To restore their competitiveness, European countries would like to impose offsetting carbon duties on imports from countries like China that have not undertaken to make emissions reductions of their own.

However, such selective "border tax adjustments" would break WTO rules that outlaw the imposition of import duties to protect domestic industries from competition and forbid members from discriminating against imports from some countries but not others.

The phenomenon of carbon leakage has bedevilled both climate and trade talks. Negotiators say it makes a comprehensive free-trade pact impossible unless the world first reaches a global deal on emissions, which can then be written into the WTO rules.

That, however, is extremely unlikely. Quite simply, as the world's largest polluter China stands to lose too much from a global treaty to reduce carbon emissions; very likely more than it stands to lose from climate change in the absence of a deal.

According to a study published last year by the University of Sydney's Faculty of Agriculture, Food and Natural Resources, the cost to China of unabated climate change will be modest, at just US$360 billion a year by the end of the century.

In contrast, a treaty that cut emissions enough to limit the global temperature increase to less than 3 degrees Celsius by 2100 would cost China more than US$1 trillion a year.

In other words, it's worth China's while to block any climate deal, which in turn makes a successful conclusion of the Doha round of WTO trade negotiations next to impossible.

Expect more walkouts and failures in the years to come.

I was intrigued to read yesterday that Ouyang Ziyuan, chief scientist to China's lunar exploration programme, believes the moon is a perfect source of helium-3 to power nuclear fusion reactors on earth.

The concentration in the moon's soil of 15 parts per billion discovered by Apollo 11 hardly sounds like a viable source.

But there is another problem. The experimental fusion reactor currently under construction in France will use heavy isotopes of hydrogen for fuel, and to work it will have to operate at temperatures of more than 100 million degrees Celsius. That's proving quite a technological challenge.

To generate energy, a helium-3 fusion reactor would have to be 10 times as hot - 60 times the temperature of the sun's core.

Ouyang is howling at the moon.