We can regret, but cannot recover the time we have lost in responding to the prospects of climate change, which we now realize constitutes one of the principal threats to the human future.


Notes for Keynote Speech of Maurice F. Strong, at Carbon Expo Asia - Beijing, China, 26 October, 2006

I am greatly impressed at the extent and quality of participation in this Carbon Expo Asia, its exhibitors, its programs, its other speakers, and its attendees. It is a tribute to the organizers and sponsors, as well as to the importance and timeliness of the issue it is addressing and to the leadership of China as host. The need to respond to the risks of climate change is finally moving to the center of the global agenda, despite the resistance and reluctance of some. What an encouraging change this is from the earlier days in which a small number of scientists and experts attempted to call the attention of the world to the risks arising from the growing accumulation of greenhouse gases in the Earth’s atmosphere and its potential impacts on the global climate.

I recall that in 1973, in the first year of the establishment of the United Nations Environment Program, I convened a meeting of experts that later evolved into the Intergovernmental Panel on Climate Change to examine this emerging issue. They pointed to the need for the early action by governments and industry needed to reduce the emissions producing this accumulation if its longer term risks and their consequences were to be prevented. The response was, unfortunately, minimal and reluctant. Those whose interests might be affected mounted increasing resistance, even as the evidence of the accelerated rate of accumulation and the imminence of the dramatic changes likely to arise from climate change became more compelling.

My own association with this process continued in a number of incarnations, including the Earth Summit in 1992, at which the Climate Change Convention was agreed, the Kyoto Protocol and the initiative of the Earth Council in establishing the International Emissions Trading Association, a key sponsor of this Expo. It has done a fine job under the leadership of my colleague Andrei Marcu to advance the cause of emissions trading. At the commercial level, I continue to be involved as Vice Chairman of the Chicago Climate Exchange, which under the pioneering leadership of Professor Richard Sandor, has become the prime mover in of development of trading of emissions credits.

A principal threat


We can regret, but cannot recover the time we have lost in responding to the prospects of climate change, which we now realize constitutes one of the principal threats to the human future. But we can be encouraged by the evidence we see today of the rapidly growing constituency of those responding to the carbon challenge in a variety of ways – in the development of new technologies and products that reduce or eliminate greenhouse gas emissions, improved techniques for more efficient use of fossil fuels, absorbing and sequestering carbon. At the political level, there has also been some encouraging movement, notably in China, in the Great Britain under its embattled Prime Minister Tony Blair and the European Union. Even in the United States, which has withdrawn from the Kyoto Protocol, some states and cities, as well as many corporations, are taking their own steps to reduce emissions. As a Canadian, I am sorry to have to state that our government is stepping backwards, while the majority of Canadians continue to support the need for Canada to do everything possible to meet its Kyoto target, however difficult this may be.

Other speakers will be addressing the more technical and practical dimensions of this challenge. I will concentrate these remarks on the broader context in which they must be viewed, particularly in respect of the energy dimensions of this.

Despite progress and many good examples, globally the condition of our “Only One Earth” and its prospects continues to deteriorate. What happens in China will be decisive to the future habitability of our Earth. Indeed no country will benefit more than China from the successful transition to global sustainability and no country will suffer more from its failure.

My remarks today will concentrate primarily on the energy dimensions of the challenge China faces in the 21st century and the great new opportunities it and other Asian countries now have to meet this challenge in ways that will give them a new generation of opportunity and comparative advantage. Energy – its production, transportation, and use is at the very heart of this challenge, affecting virtually every sector of the economy. Although China's energy consumption on a per capita basis has declined significantly, it continues to consume some 10 times as much per unit of GDP as Japan and 3 times that of the United States. This imposes a burden on both the economy and the environment, which is simply not sustainable, quite apart from its immense costs in terms of human health. It is a gap that China must bridge.

China is becoming the world’s most rapidly expanding market for motor vehicles, and potentially the largest manufacturer and exporter. It also is building on a scale without precedent in the experience of others factories, offices, housing, commercial centers and energy-dependent industries. The Chinese people cannot be denied the benefits of such growth, which will still leave China on a per capita basis well behind the peoples of the more traditional developed countries in standards of living as measured by GDP, and its contribution to global environmental deterioration, notably the risks of climate change. But it is in China’s interest to ensure that it make all possible efforts to reduce the environmental impacts of this growth and move onto a pathway that is sustainable. Its own experts have cautioned that its present mode of development, which largely follows the example of the more developed countries, is not sustainable. The future prospects for a sustainable way of life on Earth will be influenced, perhaps decisively by what China does, or fails to do. We can therefore draw encouragement from the commitment of China’s leaders to a people-centered harmonious sustainable development pathway guided by science.

As one who has had the privilege of being closely associated with the development of the environment and sustainable development movement in China for more than 30 years, I am convinced that this is not merely an option for China, but an imperative. China’s rapid growth and its dependence on fossil fuels for most of its energy supplies have made it one of the principal sources of greenhouse gas emissions. And while they will remain at a relatively modest level in per capita terms, overall, China is expected soon to succeed the United States in the dubious honor of becoming their principal source. China’s scientists caution that it is also one of the countries that will suffer most from climate change. Shanghai and other major population centers will be endangered by rising sea levels. China’s agriculture and its water supplies are also highly vulnerable to changes in weather and rainfall patterns on which they are so dependent.


Constructive participant


China is expected to account for 26% of new global emissions by 2030, more than the increase in emissions by all OECD countries combined. While China has not been required to accept targets for reducing its emissions, it has been a very constructive participant in the Climate Change Convention and in implementing its Kyoto Protocol despite its repudiation by the United States. One of the provisions of this protocol establishes a Clean Development Mechanism (CDM) with which you will all be familiar. Although China has yet to establish the conditions under which this can be allocated or emission credits traded, an informal market has already developed. I believe China is likely to become the principal source of such credits and one of its main beneficiaries.

There is now a movement to establish a carbon trading program in China. The government of China is in the process of considering how it will regulate emissions credits, including the prospect of establishing a China Climate Exchange. Its decisions will have a profound effect on the direction which China takes to reduce emissions of carbon dioxide and other greenhouse gases. China’s transition to a socialist market economy makes it likely that it will use market mechanisms to achieve its goals, including emissions trading. In the meantime, some extremely important transactions are already occurring which enable China’s agricultural sector to benefit from its capacities to prevent and absorb emissions. The Ministry of Science and Technology, in cooperation with the United Nations Development Program, has made significant progress towards development of a program in which CDM credits can provide resources for the relief of poverty and the achievement of the UN’s Millennium Development Goals.

Of course, emissions trading is only one of the measures that can contribute to reducing emissions of greenhouse gases on a cost-effective basis. Critics contend that it provides an incentive to pollute and will enable polluters in the more developed countries to buy their way out of their obligations by transferring their emissions to developing countries. Or that it can enable speculators to benefit disproportionately at the expense of those who actually effect the reductions. Advocates, on the other hand, rapidly growing in number, point to evidence that, with proper establishment and enforcement of overall emission caps, it can produce substantial reductions in emissions and in the cost of making such reductions. The best example is the actual experience in the trading of sulfur dioxide (SO2) emissions in the United States. Initially there was much discussion that reducing sulfur dioxide would be too costly to the economy. What happened in fact was that SO2 emissions were reduced from 17.3 million tons in 1980 to 10.3 million tons in 2004, and it is estimated that the cost of the U.S. acid rain program in 2010 will be 3 billion dollars to produce an annual benefit of 122 billion dollars.

Already, China's SO2 emissions are more than double those of the United States, and an effective sulphur trading program here in China is probably also desirable.

The carbon market globally, and in China, dwarfs the US sulphur dioxide example. The immense potential of the carbon market can be appreciated by the knowledge that in the United States, the potential carbon “crop” will exceed the total value of its corn, wheat, and soybean production. In 2005, the carbon “crop” in the European Union had already surpassed the value of these U.S. grain crops.

The Chicago Climate Exchange (CCX) was founded in 2003 by Professor Richard Sandor, who pioneered establishment of the SO2 emissions market. With over 200 multi-sector members and many other associates, it is the only carbon market in the world handling all six greenhouse gases. It is the world leader in the field, now well on the way to being the center of a global network, while also being able to design trading programs that are compatible with differing national regulatory frameworks and objectives. It founded the European Climate Exchange that now handles 80 to 90 percent of all exchange-based trading volume in the European Union Kyoto Protocol Trading System, making it the largest exchange in the European Union trading system. It co-founded the Montreal Climate Exchange with the Montreal Exchange in Canada, to design a Canada-specific system, and has established links with the Multi-Commodities Exchange in India. It is now reaching out to others that are rapidly developing throughout the world, notably Asia, to address specifically Asian considerations.

Impressive measures


The impressive measures China has already taken have positioned it well to take the lead in Asia. Now is the time to make this move. China's carbon trading program must, of course, meet the distinctive needs and character of China, and be controlled and run by Chinese. I am pleased to say that the Chicago Climate Exchange has offered to cooperate in developing its Chinese counterpart and to help customize a trading solution for Chinese requirements. Such an entity would be a key center of the network of exchanges now being developed by CCX throughout the world.

The North American architecture of CCX requires members to make a legally binding commitment to reduce or trade their emissions by one percent a year from 2003 to 2006, below a baseline average of 1998 to 2001. In the next phase, its original members must reduce their emissions by an additional 2 percent and new members by 6 percent by 2010. This means that all members will have achieved a 6 percent reduction by 2010. Of special importance in China is the fact that the CCX structure also includes verified offsets projects involving agricultural soil sequestration, reforestation, landfill and agricultural methane destruction, and renewable energy projects earn credits. Under certain conditions, Chinese offset projects could enter the CCX market as well. All CCX projects are subject to rigorous independent verification, and CCX’s strong governance system has also contributed to the confidence it has earned as the leader in this rapidly growing new market.

As this is a relatively new market, and there have been many uncertainties as to how it will evolve, the price history of credits traded on CCX has followed an upward trend. Trading volume has also been growing significantly. In May of this year, trading on CCX reached 3,150,500 metric tonnes of CO2 equivalent, more than double the total for the entire year 2005.

China's stunning economic growth, moving it to the front ranks of the world economies, has been accompanied by a high sense of responsibility to the developing countries of Asia, Africa, Latin America, and particularly the poorest of these which look to China as a role model. The CDM offers developing countries the prospect of obtaining substantial new resource flows, though care must be taken both by them and the international community not to allow this to make them pollution havens that more developed countries can use to buy their way out of their own emissions problems.

Although the process of reducing our dependence on fossil fuels has already begun, the fossil fuels era is far from over. Indeed, oil is expected to retain its dominant, though gradually reducing role, in the energy mix for at least the next two decades, accompanied by the development of new and alternative sources and efforts to improve efficiency and reduce the environmental impacts of fossil fuels.

Natural gas, as the least damaging of fossil fuels, will gain a greater share of the market in China. It has significant domestic resources, and prospects are good for their further development. At the same time, establishment of new natural gas (LNG) terminals soon to be completed, will make China a major importer of natural gas. This huge expansion in its availability will lead to much greater use of natural gas, particularly in the transportations sector. Beijing has joined Phoenix, Arizona and Los Angeles in the United States in the growing number of cities effecting significant reductions in air pollution by using natural gas for fuel. I am pleased to say that a Canadian company with which I am associated, Westport Innovations, has developed the technology which enables this to be done on an economic basis, including a new means of combining natural gas with hydrogen. Cities throughout China have the opportunity to reduce air pollution by adopting this new technology, and contributing to reducing the global risks of climate change.

In past times, changes occurred over much longer periods of time which enabled societies to adjust to them. Their impacts were largely confined to their own localities and regions. But today, the changes which are determining the conditions of life and the future prospects of people everywhere are occurring within a global framework in which human activities, wherever they occur, are inextricably linked to a system of cause and effect in which their sources are often widely separated both in place and in time. These phenomena know no boundaries. Thus, climate change which threatens the habitability of the entire Earth has its main source in the ways in which people meet their energy needs. It is in this larger context that Expo Asia is taking place and is providing new impetus to resolving this unprecedented challenge to the human future.