An Economist’s Perspective on EU-China Climate Cooperation



Speech by Alicia García Herrero at the Second Dialogue of the China-Europe-America Net-Zero Transition Platform

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About the Speaker

Alicia García Herrero is the Chief Economist for Asia Pacific at Natixis. She also serves as Senior Fellow at the Brussels-based European think-tank BRUEGEL, a non-resident Senior Follow at the East Asian Institute of the National University Singapore and a Member of the Board of the Center for Asia-Pacific Resilience and Innovation. Alicia is also Adjunct Professor at the Hong Kong University of Science and Technology. Finally, Alicia is a Member of the Council of Advisors on Economic Affairs to the Spanish Government and an advisor to the Hong Kong Monetary Authority’s research arm among other advisory and teaching positions.

Full Text

Hello, this is Alicia Garcia Herrero. I'm chief economist for Asia Pacific Natixis, and I'm here today to talk about climate change and in particular the European Union and China's approach to this very important topic for humankind.

The thing to note is that both the European Union and China are actually driving this important transformation not only of the global economy, certainly this is an economic issue, but also a transformation of our societies.

For centuries, we've been utilizing carbon for energy, and the point is, what can we do to produce energy differently, to live differently and what kind of business opportunities may appear thanks to this transformation.

The industrial revolution, as an example, which is where the carbon emissions really started big time, was perceived as a very risky, uncertain transformation. Probably the same is true for the measures we will need to take to mitigate, not even stop, certainly climate change.

So, on that note, the EU and China are pioneers, as I mentioned, in this endeavor, for two reasons. The European Union has a very clear mindset, in terms of its values, that climate is essential for European citizens. In fact, any survey you can look into will show that European citizens' first worry is climate change. And this hasn't changed since the Ukraine war started, which says it all about how serious a problem climate change is perceived to be.

At the same time the European Union has started long ago, I would argue, the longest globally, to take measures to support the transformation into green energy, including the creation of an ETS market - Emissions Trading System.

And so has China, slightly later, but given China's development path, certainly much earlier than many others, including the US. So, in that regard, there is a kind of a commonality of not only objectives but also tools. Carbon pricing is clearly a European and more recently Chinese path for climate change decisions.

This is not the case of the US. This is not the case of Australia. This is not the case of many other places in the world. And we know, and this is one of the IMF's key messages on climate that without pricing carbon it's very hard to indeed change the direction of course.

So, there we go. The EU and China are pushing jointly for similar objectives. The price of carbon is different, the liquidity of the market is different, but that's not the key. The key is the direction.

The second thing I think to note is that China also has a very aggressive ESG financing. So basically, the idea is that without financing, we can't embark on this humongous project because states are no longer able, in terms of balance sheets, to finance climate changes. This is too expensive and too large. So, the fact that both the EU and China and both, by the way, capital exporters in the sense that they have entrenched current account surpluses, the fact that they are exporting capital and they believe that capital should go to projects that are green or aimed to be greener is a very important issue, because finance, and we know that from history, tends to eventually determine which projects become successful.

We desperately need a success on this front, on mitigating, as I said, if not stopping climate change.

So, on these two things we're aligned, Europe and China: Carbon pricing and green finance.

I think we should clearly join forces even further. We have done that already with basically a taxonomy to determine what is green, what is not green, and that's very important. We have aligned our taxonomies there, obviously not the same, but we have like a sub-taxonomy, which is valid both in the EU and China.

So, we are also, and this is my last point, getting together in terms of standards, which are crucial. Now the question is where do we get from here? And the key warning, to end with that warning, is that we should not let geopolitical tensions detract our attention from something as important as climate change. So, cooperation is a must. I've given 3 examples of why the EU and China not only should cooperate but are cooperating, and I hope this will continue to be the case in the future.

I thank you all for your attention. Thank you.


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