Two sea-changes from China

China’s climate change ambassador, Yu Qingtai, is visiting right now. Two weeks back Climate Change Negotiations Minister Tim Groser was in Beijing, personally invited to a select meeting of a handful of large developing-economy countries. What’s going on?

What’s going are two sea-changes. In that context Thursday’s budget will be mainly a pre-sea-change affair.

One sea-change is climate change — its policy dimension and the relationship of that to policy on resources, food, water and energy issues.

The other sea-change is the theoretical and ideological basis on which the world’s main emerging economic players make decisions.

Groser was invited to Beijing for three reasons.

One is this country’s alleged select place in China’s worldview as a small country with an independent foreign policy — the first and only developed-economy country with a free trade agreement with China.

The second reason is that over the past few years New Zealand has been a bridge in global climate change talks between developed-economy nations, which focus on energy, transport and industry, and less-rich nations where agriculture generates a large share of greenhouse gas emissions.

The third reason is Groser’s multitudinous international acquaintances and friends. Personal connections count up to a point in international affairs. They help a small country get noticed. Helen Clark had plenty and now has a big United Nations job.

Ambassador Yu went to Victoria University with Maarten Wevers, head of the Department of Prime Minister and Cabinet. He knows New Zealand’s retiring climate change ambassador, Adrian Macey, who is in the running for Kyoto Protocol chair.

In Wellington Yu is giving a seminar and, along with three others with direct knowledge of China and climate change, contributing to a roundtable of academics, policy analysts and businesspeople.

But didn’t China, with India, block a deal at Copenhagen in December? Yes, they blocked a binding legal treaty. But both have since signed up to the non-binding “accord”, including a target of limiting warming to 2 degrees.

This bottom-up process might ultimately be the way progress is made. If so, it might herald a sea-change in the way complex global issues are addressed.

Under the Copenhagen accord developing economies are to measure, report and verify steps to reduce intensity of emissions (though emissions will grow as they gun for economic parity with the rich world), with “international consultations and analysis” of their actions, though not independent verification.

China has three reasons for signing up. First, it says it takes climate change seriously. Second, it faces serious pollution problems, water is scarce and there are huge challenges finding enough energy and other resources to fuel its hungry economy. Without changes in energy production and use, China figures catching the west will be much harder.

The third reason is commercial. If China can develop clean technology, it might score big in what is set to be a growing market whatever the future for climate change science and policy.

While numbers from China must be viewed with caution and scepticism, western articles documenting its clean-tech enterprise make a rising tide. A New York Times article on May 7 calculated China has 84 per cent of Kyoto Protocol clean development mechanisms (CDMs) which are sold to rich countries to offset emissions, its $US35 billion investment in clean energy in 2009 was almost double that of the United States and in 2008 it was exporting $US15 billion of solar panels for a 32% world market share.

China does seem to be serious about research into and investment in energy saving and clean energy.

Or rather, the Chinese government seems to be serious. It has not left clean-tech to market forces (though CDMs put a price on carbon which incentivises investment). It intervenes, regulates, subsidises, nudges and bullies.

If as a result China corners some clean-tech markets, this will challenge some western economic orthodoxies of the past 30 years — orthodoxies which largely underpin Thursday’s budget. Early in its life the Key government dumped a number of Clark-government measures to force energy efficiency and emissions cuts. The budget centrepiece is tax reform, centred on a market-forces belief that beneficiaries of cuts will channel some of the loot into productive investment.

In China the government can and does direct banks to finance specified activities. East Asian states generally are active in their economies. Here, where there is little state push, profitable cost savings through clean technology and energy efficiency are not taken up for want of a strong enough market signal.

It’s enough to make ministers think twice. One or two are. If this catches on and infliltrates the sputtering programme to identify how sectors can grow, which John Key refers to in passing in some speeches, who knows where it might lead.

For now though, in this budget, tax is king.