FRANKFURT, Germany, Nov. 28 (UPI) -- With the United States still dragging its heels over climate change, the European Union and China should cooperate to become the engine of global low-carbon transformation, says a new report backed by the British Foreign Office.
The report comes as EU and Chinese officials prepare to hold their latest regular summit, opening Wednesday, which looks to be marked by European complaints that the Chinese are manipulating their currency, and forcing the euro to untenable heights.
"The maturity of the EU's aspirations to global leadership will perhaps be measured in part by its willingness to strengthen engagement with China on energy and climate security," says the report, issued Tuesday by Britain's Royal Institute of International Affairs. Better known from its grand and historic premises as Chatham House, the Institute is close to the U.K. Foreign Office and the report was commissioned with the office's backing.
"The combined strength of the Chinese and EU economies could help substantially bring down the cost of low-carbon technologies and adaptation tools and make them available to less industrialized countries," the Chatham House reports says.
At the same time, Gunther Verheugen, vice president of the EU Commission, has this week signaled the EU is dropping a French plan to impose a carbon tax, an environmental tariff on imports from countries that are not observing the Kyoto Protocol.
The British report proposes that the EU and China establish common "world-class standards for energy efficiency goods" and a "low-carbon free-trade zone." It also proposes jointly built special low-carbon zones for Chinese industry, like tax-free zones, except for the strict limits on carbon emissions.
"We are on the cusp of a new industrial revolution, one driven by energy and climate security concerns," the report says, and lays out a blueprint for Europe and China to take the lead, leaving less carbon-conscious economies behind.
The report stresses that China and the EU are already economically entwined. China is the EU's largest trading partner. The EU is China's second largest. The EU is also China's largest supplier of technologies, foreign direct investment and services. It goes on to estimate that the EU could be purchasing 77 percent of carbon credits generated in China by 2012 to help meet its compliance with the Kyoto Protocol.
"It is imperative for China and the EU to take advantage of the opportunities offered by their interdependence to achieve win-win solutions that not only bring national economic benefits but also generate shared public goods of energy and climate security. This cooperation should be driven by mutual opportunities and recognition of the shared carbon responsibilities associated with bilateral trade," the report says.
On the one hand, this can be interpreted as the EU trying to steal a march on the United States by forging a distinctive relationship with China based on shared concern over climate change. On the other hand, it can be seen as a defensive move that reflects the sharply growing EU trade deficit with China, which was almost $200 billion last year and looks set to exceed $250 billion this year. At that rate, Europe's deficit with China is growing at more than $420 million each hour.
Moreover, public perceptions of China in opinion polls have dropped by 20 to 30 percentage points, driven by human-rights issues, particularly in Africa. Complaints by EU companies of Chinese abuse of intellectual-property rights have coincided with reports of Chinese industrial spying and allegations of "hacking" into the offices of German Chancellor Angela Merkel.
More recently, officials from the European Central Bank and from national governments have been echoing U.S. complaints about Beijing's manipulation of its currency to keep its exports cheap, which has meant that the rising euro has taken most of the strain of the dollar's fall. French President Nicholas Sarkozy, currently in China on a friendly visit that was marked by China's purchase of 160 Airbus airliners and a new deal to buy two French nuclear reactors, pointedly raised the issue of China's undervalued currency.
China's immediate goal in its relations with Europe, for a lifting of the European arms embargo that has been in force since the Tiananmen Square massacre of 1989, looks very far from being achieved.
"This changed environment leaves China's Europe watchers flummoxed. They had grown accustomed to the EU playing the role of ardent suitor, but now find the change in Europe's attitude hard to explain to higher-level officials in Beijing," argues David Shambaugh, director of the China Policy Program at George Washington University.
The point is that the Europeans are themselves at odds over how to respond to the powerful new China. Some want to cooperate and forge a special economic and environmental bond, like the authors of the Chatham House report (which was written and researched in collaboration with several leading Chinese think tanks). Others want a much tougher approach, using Europe's importance as a market for Chinese goods to extract policy concessions.
Such policy disputes are commonplace, in the United States as well as in Europe. In the case of China, however, there is the new factor of climate change and China's emergence as the world's leading culprit in carbon emissions, and the country that is intensifying climate change by building two new coal-fired power stations a week. This is the issue the Chatham House report seeks to address, as positively as possible, while European public opinion becomes ever more strident over climate change.
