The Environment in U.S.-China Relations:

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The Environment in U.S.-China Relations:Themes and Ideas from Working Group Discussion on Energy Issues
Aaron Frank

??原载China Environment Series 1

　　The People's Republic of China (PRC)is becoming an increasingly important player in international affairs,given its staggering 1.2billion population,growing military and economic power,and ability to affect regional stability in Asia and important global issues.The United States recognizes that it needs Beijing's cooperation to achieve key regional and international objectives.Yet,U.S.-China relations continue to be strained.Similarly,America's approach to China on environmental issues has lacked a guiding framework that fits appropriately into an overall approach to China.Such an overall approach has been difficult to achieve —especially given the considerable constraints associated with Beijing's dedication to rapid industrial growth,its stances on climate change and nuclear nonproliferation,and the country's relative absence of non-governmental environmental organizations.


　　The United States has important interests in developing a more cooperative relationship with the PRC on environmental issues,for these problems will increasingly affect the global environment and could affect China's internal stability.Rapid industrialization combined with population growth is putting enormous strains on China's domestic natural resources while harming the global environment.China is already the second largest contributor to greenhouse gas emissions (the United States is the leader1),and its emissions are growing;if the global community is to negotiate successfully for binding limits on greenhouse gases to address climate change,China's cooperation will be pivotal.Meanwhile,the health of the Chinese economy and the welfare of Chinese citizens are increasingly being affected by a plethora of domestic environmental problems.These include scarcities of water and arable land,air and water pollution,overcrowding,flooding and other issues —all of which contribute to population movements,health problems,food security problems and rising disparities in income.Beyond the humanitarian concerns involved,the United States cannot ignore these problems since they have the potential to affect China's stability.The U.S.government,however,will have to approach China on these issues in a way that enhances,not hinders,the overall U.S.-PRC relationship.

　　To address these important concerns and develop strategies for engaging the Chinese on environmental issues,the Environmental Change and Security Project created the Working Group on Environment in U.S.-China Relations.In an effort to concentrate on the Chinese environmental issue of utmost concern to the United States —climate change —the working group focused on energy issues during its first six monthly meetings.The themes of these meetings included multilateral cooperation,domestic Chinese environmental issues which have ancillary impacts of importance to the United States,and the impediments to cooperation on U.S.led projects within China.In addition,working group members identified specific areas on which U.S.efforts in the Chinese energy sector should concentrate (most notably energy efficiency,pricing reforms,and technology transfer)and areas of debate (such as whether U.S.efforts in China should focus on technology or policy changes).Working group meetings also provided numerous engagement strategies for U.S.policy-makers,and highlighted the context in which these strategies could be implemented.

　　The themes,lessons,and engagement strategies which emerged from working group discussions on energy can be applied to other environmental concerns with China and to overall U.S.-China relations,including water issues,biodiversity,food security —and even economic development;the overriding sentiment from working group members was that the United States should continue to engage the Chinese in a constructive manner,providing assistance for environmental projects and policy reforms in China,and opening markets for U.S.environmental technologies.Such a policy would provide the framework under which engagement on environmental issues —at the governmental,non-governmental organization (NGO)and private business levels —could take place.

　　I.The Working Group on Environment in U.S.-China Relations

　　The Woodrow Wilson Center's Working Group on Environment in U.S.-China Relations,coordinated by the Environmental Change and Security Project in partnership with the Center's Asia Program,is an ongoing multidisciplinary forum for discussion on environmental and foreign policy concerns with regard to China.The aims of the working group are to1)identify the most important environmental and sustainable development issues in China and discern how those issues relate to U.S.and Chinese interests;(2)develop creative ideas and opportunities for government and non-government cooperation on environmental projects between the United States and China;and,(3)discuss promising government and non-government strategies for engaging China on these issues.

　　The working group has had particular success in drawing upon the expertise of its over forty members,which include government,NGO,academic and private business representatives.Working group speakers also have represented a broad mix of backgrounds.[For a list of working group speakers,please refer to page 39.]Working group meetings are co-chaired by Elizabeth Economy of the Council on Foreign Relations,and P.J.Simmons of the Carnegie Endowment for International Peace,and are held on a not-for-attribution basis.

　　Small group sessions of the working group concentrate on more specific topics of interest and have included visits by Qu Geping,Chairman,Committee on Environmental Protection and Natural Resources Conservation,National People's Congress;and the Citizen Involvement in Environmental Protection Delegation from the People's Republic of China.

　　II.Main Themes of Working Group Discussion

　　The themes of the first six monthly meetings have wide applications for environmental issues and overall U.S.-PRC relations.From trade issues to human rights,the lessons learned from working group discussion underscore the basis for overall engagement strategies.Working group members agreed that a useful engagement strategy in the area of environmental protection should include1)a clearly defined and articulated overall China policy;(2)constructive engagement with the Chinese;(3)financing mechanisms for environmental projects;(4)multilateral cooperation;(5)a focus on local problems with secondary global impacts;and,(6)close examination of U.S.and Chinese domestic impediments to cooperation on environmental issues.

　　A Clearly Defined and Articulated Overall

　　China Policy

　　The relationship between the United States and China is complex and multifaceted;while progress has been achieved on many issues in recent years,others still raise considerable tension.In addition,recent changes in both U.S.and Chinese policy (such as the linking and then delinking of human rights to trade on the United States side,and differing actions towards Taiwan on the Chinese side),have created corresponding shifts in the warmth of U.S.-PRC relations.It is not unreasonable for the Chinese to view U.S.policy as a see-saw which balances itself according to pressures from Congress,the public or the media.To combat this Chinese perception and to enhance domestic credibility on relations with the Chinese,many working group members felt that the primary U.S.government action to enhance U.S.-PRC relations on the environment should be a clearly articulated,coherent China policy with explicit objectives and guidelines by which progress on a variety of issues could be measured.Such a policy was considered to be a means to avoid the public perception that policy changes are the result of economic incentives or 'pandering'to Chinese interests.

　　The lack of a clearly defined and articulated overall China policy was regarded by many working group members as the major U.S.domestic impediment to cooperation between the two countries on environmental issues.Changes in the status of U.S.-PRC relations not only impact government sponsored and managed programs,but can also cause dramatic shifts in Chinese governmental cooperation with NGOs and U.S.businesses.As one working group member remarked,increased tension between the countries can either slow down or completely halt a proposed U.S.business venture in China.Vacillations in U.S.-PRC relations can also affect NGOs working in China:a stable environment provides the framework within which businesses and NGOs can independently operate in the PRC.Even though the U.S.government may not be able to fund extensive environmental projects in China,its outspoken support for them can be equally as valuable,as can sharing its experiences —good and bad —in formulating and implementing regulatory and market approaches to environmental protection in the United States.

　　Constructive Engagement with the Chinese

　　Working group members emphasized the importance of offering technological and policy assistance to the Chinese rather than lecturing them about their missteps.This approach was considered imperative when engaging the Chinese on environmental issues:the Chinese are still very suspicious of U.S.assistance on environmental matters and fear that the United States is pushing sustainable development as a means of keeping Chinese economic growth in check.It should be noted that a non-didactic approach is also important for NGOs when working in China;while the role of a U.S.NGO may be to precipitate policy or attitudinal change,its mission in China should be sensitive to cultural constraints.As one working group member commented,in order for U.S.environmental assistance to succeed in China,the United States must first convince the Chinese that it has a strong interest in China's continued economic growth and that economic growth does not necessarily equate to environmental degradation.

　　The United States should also be wary of criticizing Chinese development plans to the point that the Chinese are left with no options.One working group member commented that the United States cannot decry China's abundant use of coal,ban all United States involvement in the massive Three Gorges Dam Project,and prohibit U.S.investment and trade in civilian nuclear technology,yet still expect the Chinese to take U.S.offers of assistance on energy matters seriously.

　　Financing Mechanisms for Environmental Projects

　　According to working group members,the Chinese are frequently critical of U.S.government offers of assistance because the United States lacks the funding mechanisms to back up its promises.American businesses with environmental technologies hoping to invest in rapidly expanding Chinese markets express similar discontent:they feel as though they are at a disadvantage to Japanese and European competitors who receive more financial assistance from their governments to invest in China.The impact of this lack of financial assistance on Chinese environmental problems is large;U.S.businesses possess the environmental technology and financial capability to significantly improve China's environment,but are deterred by a lack of financing and insufficient government attention.

　　The solution to this problem,however,is not necessarily increased U.S.federal funding for investment in,or transfer of,environmental technologies to China.Indeed,such a scenario is unrealistic.Instead,working group members suggested a number of approaches to address this issue:

　　•Establish agreed upon and accepted international environmental guidelines and minimum specifications for projects funded by OECD countries,development agencies or banks.These guidelines would not only halt large,environmentally unsound projects,but would also provide a level playing field for international businesses proposing projects in developing countries;&#8226rovide high level governmental support for environmental projects and business ventures in China to show the Chinese that these projects are considered a priority by the United States government;•Explore the possibilities for multilateral or trilateral joint commercialization projects.For example,a project could capitalize on U.S.technological innovation,Taiwanese or Japanese financing,and Chinese labor to create a demonstration project in China;and,•Develop a 'green'bank within the Export-Import Bank specifically to help finance environmental projects in developing countries,including China.2

　　Multilateral Cooperation

　　Working group discussion placed a great deal of emphasis on bilateral approaches and solutions to China's energy problems,but also stressed the importance of multilateral cooperation on energy issues.Multilateral fora and conventions were seen as appropriate venues for discussion of the regional and global impacts of China's increased energy consumption.One mechanism for encouraging international cooperation can be seen through the example of trilateral joint commercialization described above.Multilateral fora were also considered to be a non-threatening,positive way to engage the Chinese on environmental issues and to display international support for sustainable development principles.

　　Many working group members supported the idea of a multilateral forum to address energy and environmental issues throughout all of Asia.As proposed,this forum would include government representatives from interested countries,non-governmental organizations,and private business representatives.Specialized working groups could operate under the forum and focus on specific areas of interest.Suggested umbrella organizations for such a forum included the World Bank,the Global Environmental Facility,and a combination of multilateral development banks and private foundations.

　　A Focus on Local Problems with Secondary Global Impacts

　　While the Chinese are clearly concerned about the environment,it is equally evident that they are much more concerned about domestic environmental problems (such as urban air pollution and water shortages)than global ones (climate change).This prioritization of environmental issues presents a conundrum for the United States,which places its priority on the global impacts of China's environmental problems,most notably CO2emissions and global warming.Working group members agreed,however,that ignoring local problems at the expense of global ones would be a lasting mistake for the United States;the U.S.government and NGOs should therefore concentrate on local environmental problems which have secondary global impacts.

　　For example,the Chinese will be much more receptive to assistance on reducing urban levels of suspended particulates after studies demonstrate the connection between these pollutants and high rates of urban lung cancer.Once the connection is made,assistance —and investment in the technology to reduce emissions —will be more openly accepted by the Chinese.The secondary impact of such emissions reductions would be ancillary reductions in sulfur and CO2emissions,thereby reducing greenhouse gases and the prevalence of acid rain.Such an approach was viewed as critical when engaging the Chinese:linking domestic health concerns to economic impacts was thought to be a practical alternative method for reducing greenhouse gas emissions.

　　Close Examination of U.S.and Chinese Domestic Impediments to Cooperation on Environmental Issues

　　Recognizing that the U.S.government is unwilling to devote substantial financial resources —and political capital —to support extensive environmental projects or initiatives in China,working group discussion often analyzed ways of addressing non-economic impediments to U.S.-PRC cooperation.Examples of these impediments include a lack of market pricing mechanisms in the Chinese energy sector and the absence of international contract standards for natural gas exploration.One suggestion was to create two bilateral groups,each composed of members from public agencies,private industry and NGOs,to specifically address these impediments.The first of these groups would focus on the structural reforms necessary to make private sector investment in China more viable for U.S.companies and to reverse the trend of decreased international investment in China's energy sector.The second group would focus on impediments in the United States to increased cooperation with the Chinese on energy and environmental issues.This group,as envisioned by some working group members,would discuss strategies for encouraging more vocal public and Congressional support for cooperation on environmental issues and attempt to tackle other related topics such as trade in civilian nuclear technology and Export-Import Bank restrictions on loans to China.The group would also explore the means by which efforts on Chinese environmental issues could facilitate dialogue between the Clinton Administration and Congress on China policy.At a low cost,these groups could help establish trust in U.S.-PRC relations,and address the issue most important to U.S.investment in the Chinese energy market:legal and financial reforms.3

　　Discussion on this topic also centered on the impediments U.S.companies face when looking to invest in Chinese energy markets.Some notable impediments included:

　　&#8226olicy and enforcement inconsistencies among provinces create high transaction costs for firms doing business in more than one Chinese province;and,•The lack of transparency in the Chinese governmental and business structure makes it difficult for U.S.firms to determine the appropriate individual to speak with during negotiations.

　　III.Key Chinese Energy Issues

　　In addition to the themes listed above,working group members identified key Chinese energy issues and offered a variety of approaches to assist the Chinese in developing a sustainable energy network.Discussion also explored Chinese energy alternatives and the environmental impacts of China's reliance on coal as an energy source [For background information on Chinese energy production and its environmental impacts,please see the working group summaries located on pages 40-66in this volume].

　　Working group discussion on energy issues centered on a singular debate:policy reforms versus technological fixes to Chinese energy problems.While both approaches were deemed necessary for sustainable energy growth in China,disagreement focused on which approach the United States should prioritize when working with the Chinese.In the opinion of one working group member,policy will be the driver of environmental change in China and not technology;the Chinese need to make political,legal and institutional changes before technology can have an impact on their energy needs.Other working group members agreed,citing weak environmental enforcement,artificial pricing of environmental goods,and a lack of environmental awareness among Chinese citizens as problems that must be addressed before technology can help lower Chinese energy-related emissions.Other working group members,however,felt that China's first priorities should be technological changes,including limiting current energy-related emissions and exploring alternative energy sources to coal combustion.

　　Technological Fixes

　　Technological fixes were seen by many as the best way to assist the Chinese with their energy development.Coal currently accounts for approximately 75%of Chinese energy production,leading to high levels of urban air pollution,acid rain,and transportation bottlenecks due to the rail transport of coal from the north to the economically booming south.Because of the abundance of coal in China,most working group members concurred that the Chinese will continue to rely on coal for the majority of its energy production over the next fifty years.With this in mind,many believed that the United States could best assist China through transfers of coal technology,such as coal scrubbers,more efficient boilers,or developing technologies such as integrated gasification combined cycle technology (IGCC)power plants.These technologies would help reduce carbon and sulfur dioxide emissions,would increase supply-side energy efficiency and would conform to China's continued reliance on coal.

　　Other working group members remarked that the United States should place emphasis on alternative energy sources and technologies —especially those for which U.S.companies could create a market in China.Natural gas was thought to be the best alternative energy source,although the extent of China's natural gas resources are largely unknown and often far from areas of high demand.Still,natural gas presents a cleaner and more efficient fuel for China and is an area in which U.S.companies have expertise;U.S.industry is among the world's leaders in natural gas exploration and the construction of natural gas pipelines.

　　Fuel cells,wind power,IGCC,and small hydropower projects were all seen as new technologies that could have wide applications for Chinese energy production.These new technologies all have the benefit of low emissions,high rates of efficiency,and high potential as future markets for U.S.firms.They could also serve as a model for Chinese energy efficiency efforts or as the basis for joint commercialization projects.

　　Technology transfer projects,however,encompass concerns over a lack of trained Chinese personnel to properly maintain and run new equipment,intellectual property rights (IPR)issues,and a lack of U.S.government incentives for private firms to trade and invest capital in energy related activities in China.Joint commercialization projects were suggested as the best way to overcome these concerns while still assisting sustainable Chinese energy growth and obtaining profits for United States companies.Financing mechanisms,such as those described earlier in this paper,were also seen as critical to promoting technology transfers.Multilateral joint commercialization projects were seen as another alternative.Such an agreement,in conjunction with demonstration projects and proper training for Chinese personnel,could open markets for U.S.technologies while also enhancing China's environmental protection efforts.If implemented in a rural Chinese area,it would have the additional benefit of showing the Chinese that the United States is concerned with the development of all of China and not just the booming southeast.

　　Biomass,hydropower,and nuclear energy were also regarded as areas in which U.S.expertise and technology could assist the Chinese.Although it now seems probable that President Clinton will make the necessary certifications to approve civilian nuclear trade with China,during Working Group sessions U.S.companies were still restricted from trade in this area.United States cooperation on the hydroelectric power project which will have the largest impact on Chinese electricity generation,the Three Gorges Dam,is also currently restricted.Biomass is the main source of fuel in the Chinese countryside,and assistance in increasing its efficiency would greatly improve its current use.

　　Policy Reforms

　　While technological fixes are clearly necessary to assisting the Chinese in their energy development —and while the Chinese are more willing to implement and accept new technologies than new policies —some working group members argued that policy changes were a critical first step in meeting future Chinese energy development goals.Discussion focused on two issues:proper pricing of environmental goods,and demand-side energy efficiency measures.

　　Without market pricing of environmental goods (including electricity and water),many working group members could not foresee any significant efficiency increases in Chinese energy use.Pricing mechanisms were viewed as the key to increasing transmission efficiency,lowering energy use,and creating a shift away from inefficient coal boilers.Many believed such indirect market mechanisms would create an incentive for the use of new technologies and allow these new technologies to be effective.

　　Demand-side efficiency and education were also considered important Chinese policy measures.More efficient consumer use of electricity would greatly decrease demand,especially as China begins a shift towards heavy industrial production.Education on energy issues is a crucial factor in the implementation of end-use efficiency policies and can raise awareness of the impacts of inefficient energy use and production.

　　IV.Conclusion

　　China's environment is important to the United States not only because of China's increasing greenhouse gas emissions and its growing role as a major player in the global environment,but also because Chinese energy and development choices have the potential to directly impact U.S.interests.A stable,economically healthy China increases the likelihood of a stable Asia and is therefore in the best interest of the United States.Such stability and continued economic growth,however,will only be accomplished if done in an environmentally sustainable manner.Without assistance,the Chinese will be unable to meet this goal:China needs support and advanced technology from developed countries to achieve its economic,development and environmental objectives.Multilateral cooperation and a focus on domestic Chinese environmental issues with secondary global impacts will demonstrate to the Chinese the international concern about their environmental problems while also addressing Chinese environmental priorities.Continued bilateral engagement and cooperation with China on environmental issues will facilitate the transfer of American environmental technologies to China and will further support the work of environmental NGOs establishing partnerships and programs in the PRC.

　　The meetings of the Working Group on Environment in U.S.-China Relations identified these key themes while also exploring Chinese energy sector choices.Taking into consideration that businesses are best equipped to promote and create environmental change in the Chinese energy sector,Working Group members believed that support for U.S.businesses and technologies should be a priority for the U.S.government.The United States government is currently unwilling to significantly increase its financial commitments to support environmental protection measures or technology transfers to China.It can,however,open doors for those who can —namely private firms.In doing so,the United States will help bring environmental remediation technologies and alternative fuel sources to the Chinese while opening markets for U.S.firms and products.

　　At the same time,the U.S.government and NGOs should support and assist China in developing policy changes in the energy sector,especially through multilateral mechanisms and bilateral fora on the environment.Working in tandem with private businesses,NGOs and foundations offer the best hope for encouraging Chinese sustainable development.

　　Through continued engagement and explicit support for environmental projects,the United States can provide a framework within which businesses,NGOs and foundations can successfully promote Chinese environmental improvements.Such cooperation is vital if the United States aims to effectively assist the Chinese in their economic and energy development.Only under such a scenario can the United States hope to have a positive influence on future Chinese energy choices and on a Chinese development pattern that is environmentally sensitive for China and the world.

　　Endnotes

　　1It should be noted that U.S.interest in China's greenhouse gas emissions is largely a result of developed countries'energy production and contributions to global climate change.If the United States harbors any hope of successfully reversing global climate change patterns,it must reduce its own emissions in addition to assisting China in the development of a sustainable energy sector.2The Export-Import Bank has recently established a $50million window for energy efficiency and renewable energy loans to China,although China's State Planning Commission (SPC)has yet to identify a corresponding Chinese bank.3The SPC agreed in May,1997to the creation of a U.S.-China Oil and Gas Forum.The forum held its first organizational meeting in Beijing during October,1997in conjunction with the convening of the World Petroleum Congress.

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