Liberalization means new challenges to firms from emerging economies

An employee refuels a vehicle at a gas station in Qingdao, Shandong province on Oct 31. Yu Fangping / For China Daily

China is sending "encouraging" messages on climate change issues, and the country has "a huge amount" to teach the world in this area, said Andrew Steer, president and chief executive officer of the World Resources Institute.

Commenting on China's decision to push forward the liberalization of water, petroleum, natural gas and electricity prices after the Third Plenum of the 18th Central Committee of the Communist Party of China, the head of the renowned environmental think tank and former special envoy for climate change issues at the World Bank said that he believes it's a good move.

"It's a good thing because it will promote better efficiency in the use of resources. That's good for the economy, and generally good for the environment too," Steer said.

But he added that market forces alone will not solve the problem.

"When you move to a market economy, you can't assume that market prices will necessarily point to the right direction for the environment because environmental issues are outside the market," he added.

"So you must put other mechanisms in place. For example, regulation, or pollution taxes that add to the costs of polluters, or subsidize energy from sources that don't cause pollution."

A batch of reform plans for the environmental arena was unveiled on Friday in the full statement following the Third Plenum.

Energy- and pollution-intensive products will be subjected to a consumption tax. The current environment protection fee will be converted into an environment tax. Audits on local natural resources are also expected to take place after local officials finish their terms, and the officials will be held accountable during and after their terms.

Steer said that it's very important for local officials to be held accountable for the quality of life they create in their regions.

"It's exceedingly important that governments of countries everywhere are not only interested in how many goods they produce, because the evidence is overwhelming that more goods do not make you happier" he said.

He noted that following a 1.7 trillion yuan ($278.7 billion) program to fight air pollution, China has banned new coal-fired plant projects in three major metropolitan areas. These areas consume 28 percent of the country's coal and the banned projects represent 5 percent of the nation's newly built coal-fired plant capacity.

The Chinese government invested 50 billion yuan this year in subsidizing renewable energy power generation.

"Because of China, the cost of renewable energy became much, much lower than it was before. It's a great gift that China gave to the world. Look at the curve of renewable prices, it's so encouraging," he said.

The World Resources Institute launched a project named ChinaFAQs to provide insight into critical questions about Chinese policy and action on energy and climate change for US media, Congress and administration to raise their awareness of China's environmental endeavors, which is comprised of US-based experts and partner organizations.

Asked what prompted them to do so, Steer said that it was "because we believe that China has a huge amount to teach the world".

China's efforts have not been "adequately recognized" by the international community but the situation is improving, he said.

Still, China relies — for more than 70 percent of its energy consumption — on coal, and the country consumes almost half of the world's coal, a material that causes significant pollution and contributes to global warming due to carbon dioxide emissions.

In the future, Steer believes that it's necessary to reduce the share of coal in the energy mix, and this could start from ending subsidies on coal.

He said that some experts argue that a cleaner use of coal, rather than expanding renewable energy projects, is the solution.

"Climate change negotiations are going on in Warsaw, Poland. At the same time, the World Coal Association is having its annual meeting there, and they're putting out all their material saying the solution to climate change is clean coal. I just wrote an op-ed saying ‘no, that is not the case'. And I'm not alone."

Steer believes it's "not impossible" to get a much more rapid transition toward a different energy mix.

He pointed to a review by the International Monetary Fund, which found that global direct subsidies for fossil fuels amount to $523 billion every year, while there's only $88 billion a year to subsidize renewable energy projects.

"So what China needs to ask is: Are our policies helping to steer things toward renewables? The transition can't happen overnight, but you have to gradually move in that direction," he said.

Meanwhile, he expressed his concerns that China's huge environmental commitment could lose steam if the country's economic growth slows.

Steer added that the concern is legitimate: When you grow fast, you tend to have quite a bit of money, and you can spend it on really good things like subsidies for renewable energy, but what happens when growth falters?

There's no shortage of precedents: Spain — a world leader in renewable energy projects when its economy was booming — cut back all its subsidies for the sector when it entered a recession.

"So, the interesting question is: will you be able to be as aggressive in addressing environmental issues when growth slows? So far, all the messages from top leaders are yes," he said.