INSIGHT: China’s actions on CO2 and environment will drive growth

01 October 2013 17:00  [Source: ICIS news]

By John Richardson

PERTH  (ICIS news)--The debate will no doubt continue for many years between those who are sceptical over the man-made impact on climate change and bodies such as the Intergovernmental Panel on Climate Change (IPCC). Last week, the IPCC released a new report which claimed that it is now 95% certain that we are responsible for global warming.

But in China, the world’s biggest emitter of carbon dioxide (CO2), policymakers are already acting on the assumption that organisations such as the IPCC could be right.

For example, according to Barbara Finamore, Senior Attorney and Asia Director, Beijing, for the National Resources Defence Council, the US-headquartered environmental group: 

  • China’s own 710-page Second National Assessment Report on Climate Change, which was released last year, says that China itself faces serious ecological and environmental damage from global warming. The country is at risk of more droughts and floods, which country threaten China’s already vulnerable food and water supplies. Rising sea levels might also affect millions of people in Shanghai and other highly populated coastal cities, the study adds.
  • China is closing heavily polluting factories (including chemicals plants, according to anecdotal evidence from industry contacts that have spoken to ICIS), prohibiting new coal-fired power plants in major industrial regions, and investing more in renewable energy than any other country in the world.
  • It is experimenting with CO2 cap and trade programmes, debating a carbon tax and drafting a climate change law.
  • The National Development and Reform Commission, China’s top administrative body, is also working with China’s top energy experts to develop a comprehensive, enforceable programme that will put a nationwide cap on coal consumption.

And earlier this year, China published a national “water census” showing that as many as 28,000 rivers logged in a government database had disappeared since the 1990s, leaving just under 23,000, said a 23 September Reuters article. No reason was given by the government for the disappearance of the rivers.

"We have witnessed major fluctuations in precipitation in different parts of China," Ma Jun, a water expert and director of the Institute of Public and Environmental Affairs, which monitors China's rivers, told Reuters.

"One thing in the mind of policymakers and researchers is that climate change will add to uncertainties - in some areas, the water supply situation is already quite tense."

India, China, Indonesia, South Africa and Brazil were the most vulnerable countries within the G20 to risks from climate change, added an 18 September HSBC report.

On a relative ranking basis, China’s position had worsened to second-most vulnerable G20 country to climate change risk from third in 2011, said the report, drawing on HSBC research.

The possibility that human activity was causing climate change was not the only reason for China’s legislative push, said several senior chemical industry executives. Other reasons included China’s chronically bad air quality, widespread water pollution as well as water shortages, and land pollution, they added.

One of the executives said that he had detected a major sea change in China’s approach over the past 12 months.

“China’s new leaders really mean business on the environment. The issue of global warming aside, air pollution is a huge problem for them because it is causing a great deal of social unrest,” he said.

“In the future, I think that whilst it might be possible to further develop existing chemicals complexes in China, a tougher approvals process will make it harder to create new sites.”

Coal-to-olefins projects (CTO) could be the most vulnerable to this tougher approvals process, as large amounts of water are used in the CTO process. Many of these projects are also located in western China, where water is already scarce.

The final shape of legislation, both in China and elsewhere, might well hinge on who finally wins the climate change debate.

Organisations such as the Chicago-based Nongovernmental International Panel on Climate Change (NIPCC), for example, while not disputing that climate change is a reality, argue that human behaviour is of far less importance than nature – for example, the heating and cooling cycles of the sun.

The NIPCC, in a report issued a week before the IPCC published its climate change review, said that future policy initiatives should therefore focus on better civil defence against changes in weather patterns that are beyond our control.

They cited inadequate government responses to Hurricane Katrina in 2005 and the Australian bushfires in 2009 as examples of policy failures.

But so far at least the people that matter the most – the legislators – seem to have lined up on the IPCC side of the debate.

Chemicals companies must, therefore, plan for the strong possibility that they will face an increasingly difficult legislative environment.    

But the upside in China could be greater than the downside, according to a source with a global oil, gas and chemicals producer.

“China is building whole cities from scratch and it can, thus, build cities that are extremely energy efficient. This will provide lots of opportunities for chemicals and polymer producers that provide raw materials for these cities,” he said.

“Yes, there will be lots of vested interests who might want to resist China’s new legislative programme on the environment. But equally, there could also be a great deal of government money available for research and development.”

And Nicholas Stern, the climate change economist, writing in the 30 September issue of the Financial Times, added:  “Everywhere evidence is emerging of opportunities afforded by new energy sources that are more efficient and less polluting.

“Trillions of dollars of investment will be needed, but this will unleash decades of growth at a time when there is slack in many economies and interest rates are low.”

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By: John Richardson
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