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The Times: China’s drive for wealth means end of our low-carbon dreams

October 17, 2007
Carl Mortished: World business briefing

Hu Jintao wants to make every Chinese twice as rich by 2020. He has done it once – in just five years, income per capita doubled to $2,000 (£983) – and the only obstacle in the Chinese President’s path is the fuel needed to stoke the boiler in China’s locomotive.

The president needs more copper, iron ore, zinc and natural gas. Above all, he needs more coal to keep the power stations humming nicely and more oil for Chinese cars and lorries. China accounts for more than a third of world demand for coal and the price in Australia soared this year as the People’s Republic switched from being an exporter to being an importer. If Mr Hu had a message for the world in his address to the Communist Party National Congress, it was this: we will burn our coal and, if we have to, we will burn yours, too.

What does this mean? Put bluntly, it means that the Kyoto treaty on greenhouse gas emissions is dead and so is any prospect of persuading Beijing to bind itself to other curbs on carbon emissions. We can stop kidding ourselves that China will sign up to any green thingy that hinders his party’s ten-year plan to get rich quick. Instead, the ravenous demand for minerals and metals will continue and the desperate land grab by Chinese state companies in their pursuit of resources in Central Asia, Africa and Canada will become more politically embarrassing.

Until now, we in the West have been able to sit back and watch the global energy game passively on our Chinese-made flatscreen television sets. We could pretend that wind farms and wave machines could really make substantial contributions, that carbon trading could somehow make the cost of green energy disappear. We did not understand that the real cost of our affluent, energy-intensive lifestyles was being defrayed by sweated labour in a Chinese factory. While the price of clothes, fridges, TVs and toys was plummeting, we could ignore that petrol, transport and even bread and milk were in the grip of an inflationary spiral.

That is about to change because China’s rate of consumption is beginning to have internal consequences for the People’s Republic. Skilled labour is becoming a more scarce commodity for Chinese businesses and the cost of living is bearing down on Chinese consumers with increases in fuel and food prices. Inexorably, Chinese inflation will feed through into the cost of goods that China sells to the world.

That means that competition for resources will ratchet up in intensity. In Europe, we have not even begun to consider the consequences for our half-hearted strategy of pursuing a low-carbon economy. In an effort to rein in the cost of electricity, British power generators have been switching from natural gas to coal, traditionally a cheaper fuel. However, it is rapidly losing its lower-cost allure, the European price having doubled to $100 per tonne. Even so, analysts at Société Générale calculate that the cost of carbon permits is still so low that, on the basis of current gas and coal prices, it remains cheaper to burn coal than to switch to cleaner natural gas.

For Mr Hu, this is a race for prosperity. Of course, he said a lot of other things about “the excessively high cost in resources and the environment” and about a restructuring of the economy away from heavy industry to services and high technology. That may be a sensible objective in Shanghai, where inflation in manufacturing wages is already causing problems, but a doubling of the incomes of peasants in western China will not be achieved by turning them into estate agents. Industrialisation will move west and that has been the Communist Party’s objective for more than a decade. Mr Hu knows that disparities in wealth between east and west are a huge political risk. The party needs growth if it is to survive for another decade and that means it must build homes, factories, hospitals and sewage plants.

Removing huge disparities in wealth means a massive acceleration in the burning of hydrocarbons. The four great energy companies of the West – ExxonMobil, Shell, BP and Total – have quietly turned their backs on the low-carbon option.

Alternative technologies simply do not deliver the power required to achieve the economic growth targets of China and India. These companies are investing tiny sums in alternative energy. They know full well that the nations of the West depend heavily on the profits, taxes and dividends that accrue from an efficient hydrocarbon economy. A failure to invest in oil and gas extraction will leave Europe and America poor, technologically disabled and unequipped financially to cope with climate change.

The feeble intellectual response of Europe and America to this energy challenge is becoming a matter not of concern but alarm. The use of food crops for biofuels, the hobbling of energy companies with the obligation to use unreliable and expensive alternatives and the lack of investment in nuclear power is frightening.

Those whom the gods wish to destroy, they first make mad. It is not in our power to stop the Chinese locomotive; we should leave our fantasies behind, acknowledge that carbon emissions will continue to grow and plan accordingly.

http://business.timesonline.co.uk/tol/business/columnists/article2673579.ece

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