How Green geopolitics and geo-economics will change China and the World

Tension is growing in the Caucasus. Everyday oil prices are affecting the heartbeats of the world’s financial markets as well as prices of food on the table. Energy independence featured as much in President Bush’s last State of the Union address as in the current historic race to the White House. Right after the Beijing Olympics, President Hu Jiantao signed into law China’s first-ever Circular Economy legislation, to take effect on 1 January, 2009. There are increasing premonitions about Climate Change, stoked by threats from drying rivers, hurricanes in the Gulf of Mexico to the floods and snow storms in China. Climate Change and environmental conservation no longer sound as sentimentalist as before. A sense of distant if looming global risk is giving way to a foreboding of clear and present national danger.

A paradigm shift is taking place in the geopolitics and geo-economics of Climate Change. The geological realities are such that energy-rich countries are on the ascendancy. Their muscles are felt as much in Georgia as in Wall Street. Energy and resources have become even more the name of the game in the Middle East, Central Asia, Africa, Latin America and Australia.

As the world’s largest population and driver of global energy consumption growth, China’s response is instructive, not least because her challenges are perhaps the most critical. These are highlighted in her National Assessment Report on Climate Chaos, a 400-page multi-departmental research released on 26 December 2006. At the press conference of the Fifth Session of the 10th National People's Congress on 16th March, 2007, Premier Wen Jiabao categorically stated that notwithstanding China's impressive growth, he remained deeply concerned about the risks that China's current development was becoming 'unstable, unbalanced, uncoordinated, and unsustainable'.

China needs to industrialize rather rapidly to create some 20 million jobs a year for the masses and to build up a consumption-oriented middle-class for a more balanced and less export-dependent economy. She has to take advantage of the current period of relative internal stability to lay a solid foundation to meet the looming challenges of an ageing population in the coming decades. Hence China is expected to put another 350 million people in cities by 2025 (Preparing for China’s Urban Billion, Mckinsey Global Institute, March 2008).

Under-pinning all this fast urban growth is energy security. However, at the same time, there are billions in the world’s newly industrializing countries, all embracing market economy with a vengeance (Clyde Prestowitz, Three Billion New Capitalists:The Great Shift of Wealth and Power to the East, 2005, Basic Books). It is no surprise that global competition for energy and resources has become intense. 

China’s global quest for energy is proving to be as increasingly expensive as geopolitically uncomfortable. Some of the world’s major oil producers are regarded as ‘rouge states’ while much of China’s energy has to pass through sensitive choke points such as Hormuz and the Malacca Strait. Added to this are increasing concerns about food security and food price inflation. No wonder China desperately wants to go Green.

China is redoubling her efforts in creating a conservationist ‘circular economy’. The adoption of hydro, nuclear, coal-seam gas, biomass, wind, solar, terrestrial heat, wave and other renewable energies is being actively encouraged across the provinces, embracing a variety of sectors and innovations. The IEA estimates that China will be investing $200 billion for renewable energy until 2020, when China hopes to achieve 15% of total needs from renewables.

GM, which has invested more than $1 billion in the development of hydrogen fuel-cell electric cars, has recently signed a collaboration agreement with Shanghai to develop a prototype and supporting infrastructure. With the future development of advanced micropower, energy-storage and distribution grids, the stage is set for these innovations to spawn a whole new generation of Cars of the Future. These are likely to revolutionize the world’s car industries as well as help extricate the world from over-dependence on Oil. (Iain Carson & Vijay V Vaitheeswaran, Zoom: The Global Race to Fuel the Car of the Future, 2007, Twelve, Hachette Book Group, USA).

China is building the world’s first Eco-City at Dongtan on Chiongming Island, 15 km north of Shanghai, with the help of Ove Arup and Partners. With a planned population of half a million, it is on schedule for the initial intake of citizens by 2010, to coincide with the opening of the World Expo. More of these eco-cities, towns and villages are on the cards in China, where many new urban and rural communities will be created from scratch in mankind’s largest and fastest urbanization drive in the coming decades.

China's green energy investments form part of a surge in green investments worldwide. These totalled $63 billion in 2006, up from $49 billion in 2005 and $30 billion in 2004.  The growth has been 20-30% per annum and is slated to provide the biggest job and wealth creation opportunity in the 21st Century (Economist, 18 November 2006).

In his New York Times column, Thomas Friedman recently highlighted the growing impetus for green energies from an emerging alliance between environmentalism and concerns about Energy Security. In the same vein, the Pentagon has helped fund a major study on how greater fuel efficiency, lightweight car materials, advanced biofuels, and other technological breakthroughs can help achieve Winnng the Oil Endgame (Amory Lovins, Rocky Mountain Institute, 2004).

In the long term, the end game could well take on unpredictable dimensions. A recent study by Trausti Valsson (How the world will change with Global Warming, University of Iceland Press, 2006) shows how the momentum of global warming may tilt the balance of the world’s economic gravity towards the Artic in the long run. There are already active interests in staking territorial claims on the Artic’s cornucopia of oil, gas and mineral deposits. Over the next few decades, the melting of Artic ice is set to open up much shorter shipping lanes connecting the North Pacific with the North Atlantic through the Bering Straits and the Canadian archipelago.

All these exciting possibilities cry out for international cooperation and investment in the field of Energy, Food and Climate Security. Apart from goodwill, they will require ready and long-term capital. Amidst the global credit crunch, there may well be a larger role for the world’s rising Sovereign Wealth Funds (SWFs), including those from the Middle East, China, and the rest of Asia, subject to greater transparency, accountability and judicious monitoring.  Merrill Lynch expects SWF investments to quadruple to US$7.9 trillion by 2011 and to reach US$12 trillion by 2015. Investments by SWFs in Energy, Food and Climate Security will open up vast areas of cooperation with countries possessing relevant leading technologies, including the US, the EU, and Japan. They could also involve China and the Middle East as responsible global stakeholders and provide a powerful chemistry in mitigating such socio-economic tensions of Globalization as those outlined by Joseph Stiglitz (Globalisation and Its Discontents, 2002, and Making Globalisation Work, 2006, W.W. Norton & Company, New York and London).

China’s quiet Green Revolution is instructive in the context of shifting global geopolitics and geo-economics against the background of Energy, Food and Climate Security. The world is only just beginning to grasp their many new challenges and opportunities.

www.andrewleunginternationalconsultants.com 

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