Remarks by Treasury Under Secretary David H. McCormickon China’s Journey to Environmentally Sustainable Growth at the West Coast Leadership Dialogue, Jan. 2008

La Jolla, Calif. - Thank you Phil for that warm introduction, and thank you to the Australian American Leadership Dialogue and the School of International Relations and Pacific Studies at UC San Diego for inviting me to speak with you today.  Both the Leadership Dialogue and the School of International Relations arose over the final two decades of the 20th Century to meet the compelling need to engage the best business, scientific and, yes, even government minds, to think though the major economic issues facing the United States, Australia, and the Pacific Rim.

The 2008 West Coast Leadership Dialogue is perfectly timed to fulfill this mission.  The United States and Australia together face an Asia in transition.  Economic dynamism has created unprecedented opportunities, but at a high cost in energy demand and related environmental damage.  The challenge is especially great with respect to China.  As we have in the past, we must work together to capture these opportunities and meet these challenges.  Under the leadership of President George Bush and Prime Minister Kevin Rudd, we are doing so. 

The Importance of Multilateral Engagement

No one can doubt the seriousness of the dual challenges of energy-driven development and climate change.  Last November's report by the United Nation's Intergovernmental Panel on Climate Change – the Fourth Assessment report – concluded, and I quote, that:  (1) "warming of the climate system is unequivocal, as is now evident from observations of increases in global average air and ocean temperatures, widespread melting of snow and ice, and rising global average sea level"; that (2) "most of the observed warming over the last 50 years is likely to have been due to the increase in greenhouse gas concentrations"; and, that (3) "global greenhouse gas emissions due to human activities have … [increased] 70% between 1970 and 2004".

Climate change is a global challenge that requires global solutions, and President Bush's strategy reflects this reality.  Thus, at the December meeting of the United Nations Conference on Climate Change in Bali, the United States focused on practical steps to set the stage for a global, comprehensive and effective post-2012 climate change agreement.

In Bali, the U.S. had three main objectives:

First, to reach consensus on launching negotiations for the development of a post-2012 climate change agreement.

Second, to agree on a comprehensive negotiating roadmap that would include the prospect of meaningful actions by both developed and developing countries to tackle the climate change challenge.

And, third, to agree on a schedule for the negotiations, with the goal of reaching an agreement by the end of 2009.

I am pleased that we and our Bali partners met these objectives in the Bali Roadmap, a document adopted by 192 countries, developed and developing alike, accounting for almost all of the human sources of climate change.  It was not easy, as you know.  But the process proved its value, as over the course of twelve days we were all able to air our perspectives, debate our approaches, and move to a hard won and deeply rooted consensus. Now, as we move forward with future negotiations, there can be no question that the United States is committed to working with other countries to achieve a global approach that is both environmentally effective and economically sustainable.

President Bush is already taking a number of practical steps to achieve this goal.  A cornerstone of this effort is the "Major Economies Process," in which the United States convenes the world's major economies – including Australia and China -- to contribute to a new global arrangement under the United Nations' process. The U.S. hosted the first of these Major Economies Meetings last September, and it included 17 major economies responsible for more than 80% of the world's economic output, energy use, and greenhouse gas emissions to discuss the development of a work program that can contribute to what became key elements of the Bali Roadmap.  Additional meetings to sustain this momentum are scheduled for Honolulu in late January followed by a meeting later this Spring in France.

One of the critical insights fueling this process is the central role of technology in achieving what are often perceived to be the competing priorities of energy-driven economic development and environmental sustainability.

Developed countries have access to state of the art technology that drives economic growth while reducing emissions that contribute to climate change and other sources of pollution.  I am not referring to esoteric alternative energy technologies that are five, ten, even twenty years or more from deployment, but rather to existing commercially-available technologies that are being deployed today in the United States, Australia, Europe, and elsewhere to mitigate the environmental impact of economic growth.

However, despite the viability and availability of these technologies, they are not being widely adopted in many emerging economies.  The reason is simple – advanced technology is expensive.  When viewing the full range of demands on fragile budgets, leaders in developing countries have to consider pressing demands such as education or health care as well as energy.  There is a premium on reducing costs to the lowest-cost alternatives to stretch funds to cover as many needs as possible. At this point in their development, many believe they don't have the luxury of investing in environmental sustainability.

The growing global demand for energy will require enormous investments in technology and infrastructure.  The International Energy Agency, for example, estimates that some $22 trillion will be invested in energy-supply infrastructure alone between 2006 and 2030, with $10 trillion of that sum being invested in the developing world.  Estimates of the incremental cost necessary to ensure that these investments are made in lower carbon infrastructure vary, but among developing nations, it could be $30 billion or more per year.  That's $30 billion these countries need for technologies that are available today to fuel growth in an environmentally friendly way.  

To put a dent in this funding gap – and catalyze private sector investment -- President Bush has proposed the creation of an international Clean Technology Fund.  The United States will be one of the lead donors in what is expected to be a multi-billion dollar fund to help finance the cost of cleaner technology investment in developing countries. The objectives of this fund are to:

(1) Reduce emissions growth in major developing countries through the accelerated deployment of clean technologies;

(2) Stimulate private sector capital by making challenging, high impact clean energy projects more attractive investments; and,

(3) Encourage major emerging economies to participate in a new global climate framework and adopt environmentally-friendly policies and investments.

We have already held discussions with potential donors for this fund, and we look forward to establishing it later this year.

The Key to the Challenge: China

The widespread adoption of clean technology is one component of a durable solution to the challenge posed by climate change and energy-driven development.  But the overall success of this effort hinges upon the question of how cooperation between the developed and developing world will unfold.  It is no secret to any in this room that no developing country looms larger in this equation than China.

China's economic development is a signature event of the past three decades.  Averaging more than 8 percent per year over this time, China's growth has lifted hundreds of millions of people out of poverty and reshaped the international economy.  But it has been fueled by a rapid increase in energy consumption.  Today, China is the world's second largest consumer of oil with its oil consumption growing by half a million barrels a day in 2006 -- 38% of the total growth in global demand. 

The impact of China's energy demands has not been limited to oil.  China is also the world's largest producer and consumer of coal.  Although China contains only 13% of the world's proven coal reserves, over the last decade it has been responsible for nearly 40% of total global consumption, generally used to expand China's electrical generating capacity.  In 2007, China added 95 gigawatts of electrical generating capacity – that's the equivalent of three new 500-megawatt coal-fired power plants every week, or roughly half of California's total electrical consumption last year.

China's rapid economic growth has come at a terrible cost to its air, water, and soil.  Sixteen of the world's 20 most polluted cities are in China. Water quality in China has deteriorated significantly, with 26% of surface water being totally unusable, 62% of water being unsuitable for fish, and over 90% of all rivers running through cities suffering significant pollution. And by its own account, China is overtaking the United States as the world's largest source of greenhouse gases even though its economy is only one sixth in size.

I was able to see an example of China's environmental challenges first hand last summer when I accompanied Treasury Secretary Hank Paulson to Qinghai Lake of China's Western Plateau.  Located in the northwest of China, seven of the world's great rivers originate on the Plateau which serves as a primary water source for much of Asia.  However, China's Western Plateau and the Qinghai Lake area are in trouble.  Over the last thirty years, the lake has started to shrink dramatically, the desert has started to encroach on the surrounding lands, and glaciers situated in the Plateau have been melting at an accelerated pace. The economic and environmental implications of this phenomenon are staggering.

Even some efforts to find cleaner sources of energy have had an environmental boomerang.  Take the Three Gorges Dam project. The dam is a remarkable piece of engineering, standing out as the world's largest man-made source of electricity generation from renewable energy.  Yet the dam has created extensive environmental problems such as water pollution and landslides, and has come at a tremendous human cost, with the displacement and relocation of over one million people. The dam demonstrates how solving one problem may result in other problems just as significant.

Fostering Bilateral Cooperation between the United States and China

The challenge facing China is quite clear. But make no mistake, this challenge is ours as well – extending to the United States, Australia, and other Pacific Rim nations.  The actions we take together are crucial for finding sustainable solutions to global energy demand, global energy security, and global warming.

The United States is stepping up to the challenge.  Since 2006, Secretary Paulson has led the United States in senior-level discussions with the Chinese government in the U.S.-China Strategic Economic Dialogue, or the SED. This dialogue has allowed the United States and China to address long-term strategic issues, ranging from financial sector reform to food and product safety to energy and the environment. 

Due to the thirst for energy and natural resources in both of our countries, the United States and China have common objectives in advancing technology development and deployment, best practices regarding energy security and efficiency, and environmental stewardship.   Our goal in discussions with the Chinese has been to seize this opportunity, and we have made progress. 

Agreements have included:

A commitment by the Chinese, with technical support provided by the United States, to develop and implement a nationwide program on sulfur dioxide emissions trading in the power sector, aimed at reducing one of the key contributors to acid rain and fine particle pollution;
A joint five-year agreement to promote the large scale deployment of alternative fuel technologies for vehicles, including electric, hybrid-electric and fuel cell technologies;
Strengthened cooperation on strategic oil reserves, including cooperation with the International Energy Agency; and, 
 A memorandum of understanding to combat illegal logging and to promote sustainable forest management.
As this list demonstrates, China also recognizes that it needs to act and act now on its environmental and energy agenda.  Indeed, late last year the Chinese government made public its comprehensive plan for addressing many of its environmental challenges.

It is in America's national interest to help China turn its plan into effective and timely action.  It is for this reason that at the SED last December, we agreed to launch a ten-year plan for cooperation on energy and environment issues. 

This plan provides a path for advancing technological innovation, facilitating the adoption of clean energy technology, developing technology to address climate change, and promoting the sustainability of natural resources.  It will build on current efforts underway in both countries by implementing practical steps in areas such as conservation, pollution abatement, technology and R&D, and the development of sound market-oriented environmental and energy policies and regulations.  Thus, with this plan, the United States can help the Chinese to make their environmental efforts as effective as possible, as quickly as possible. 

Each of these areas holds promise.  In conservation, this could lead to further progress on combating illegal logging and sharing expertise on protected lands. In pollution abatement, this could result in market-oriented policies to combat pollutants and improve China's water quality. In research and development, we would hope to see increased academic exchanges between our two countries and the commercialization of alternative energy sources. And in the development of sound market-oriented energy and environmental policies and regulation, we aspire to, among other things, the elimination of barriers to the trade in environmental goods and services.

We are in the process of setting up a joint U.S.-China working group, with Cabinet-level leadership, to get our ten-year plan off to a strong start. Ultimately, the success of this effort will be judged by effective environmental protection and increased energy security while ensuring continued economic growth.

Conclusion

When future scholars write the history of the twenty-first century, they will judge how we in the United States, Australia and the rest of the developed world cooperated with China and other major emerging economies to solve the enormous challenges posed by climate change and energy-driven economic development.  The Bali Roadmap, the Major Economies process, the Clean Technology Fund, and the U.S.-China ten-year plan collectively represent an important starting point for how the United States and the international community can address these challenges.

The Chinese often say that the journey of a thousand miles begins with a single step.  Well, we have now taken more than a single step, although there are thousands yet to go.  The time is now for leadership to ensure we reach our final destination of a clean and prosperous world.