Monday, July 03, 2017

Global Consensus on Carbon Pricing Will be Vital
By Li Qiaoyi
Global Times
2017/7/3 20:13:39
Illustration: Peter C. Espina/GT

China is stepping up to the plate in terms of global leadership. This has been obvious for some time from the economic perspective, and it's increasingly the case the country is moving beyond that. With China ratifying the Paris Agreement and also having measures in place for carbon trading, the world's second-largest economy is leading the world toward more sustainable and inclusive growth.

Still, the country also needs to tackle some challenges amid its transition toward a green economy.

Despite the move toward green energy, China still depends on the coal industry to a significant extent. While wind and solar power are being fully employed in China, the US and Western European economies seem hesitant about these options. It's fair to say that these countries go step by step, whereas China has moved more quickly.

The solar panel industry is a good example. Out of all the alternative energies, it is still solar that has the most potential to improve. Additionally, it has the biggest potential to grow fast and scale up. It therefore creates innovation, new jobs and investment, which basically reflects the new global leadership role China, the world's major solar power producer, has in the world.

Nevertheless, two key challenges are standing in the way of China's rise to global prominence in forging green growth. The first is the need for perseverance. This is not a sprint but a marathon. So the country needs to gradually build its green efforts year after year. The second challenge is how to find a balance between people, the planet and business profits. This requires efforts to reconcile economics with what is good for the planet.

For instance, in today's world, things can be thrown out as waste goods for free, although this is changing slightly. But the world needs to bring these goods back via recycling. So, the challenge is to apply new regulations about this, even if that could come at the cost of some competitiveness. But it's a very delicate balance, because you want to have a level global playing field, and that's difficult if you unilaterally implement a carbon price. That's why there is a carbon price leadership coalition to make sure it is a unified global effort.

What China is doing is establishing a model for carbon pricing and trade. While the carbon price is still relatively low, it's a step forward. On the one hand, you don't want to disadvantage your own industry, and on the other, you want to create a sustainable economy going forward.

What's more, the world needs to follow China's lead. Therefore, the UN-World Bank initiative to establish a global carbon price is so important. It would be disastrous if countries that shouldered their responsibilities in creating a cleaner world then paid a price because of lower economic growth.

There are concerns that the carbon price in China will be too low and that for it to really lead to green growth, the price should be higher, for example, $50 per ton. If it's $5, nobody cares even though a nice system has been put in place. The country surely needs to have a significant carbon price to have an impact on its green energy transition. Otherwise, it won't have any impact on how people think, where they put their money, where they allocate innovation and how they develop new products. A carbon price of $50 could accelerate that transition.

Having said all that, it is likely that companies and countries who take on their responsibilities in creating a more sustainable future will see more innovation and therefore, over time, they will be more competitive than countries that back out. Companies that develop products with a low carbon footprint will have better margins and grow more quickly, which means that innovation in sustainability will pay off. That could also be valid for countries. Hopefully, over time there will be a third trend, which we've still not seen yet: that consumers basically refuse to buy products that have higher carbon footprints. Can you imagine if a customer says "Hey, I am not buying this product because it creates a problem for the world?" Then we would get to acceleration mode and there would be a huge transition. Companies that are already innovating in sustainability will benefit when that happens, much more than companies that are lagging behind.

The article was compiled by Global Times reporter Li Qiaoyi based on an exclusive interview with Dimitri de Vreeze, a member of the managing board of directors of Dutch ingredients and chemicals giant Royal DSM, last week during the World Economic Forum "Summer Davos" in Dalian.

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