Latest Articles by Peter Bosshard

The road to sustainability for Chinese investors

Peter Bosshard — Fri, 16 May 2008 08:16:00 +0000

Trade and investment flows between developing countries are rapidly increasing. Peter Bosshard introduces a new report, which explains how Chinese financiers can incorporate environmental best practices.

The world has entered a new era of cooperation between countries in the developing world. Trade and investment have grown substantially between Asia, Africa and Latin America in recent years. Companies from China, South Korea, Brazil and South Africa have taken a lead role in building textile plants, mobile phone networks, roads and power plants in the developing world. According to the UN’s 2006 World Investment Report, investments flows between developing countries increased from US$2 billion to US$60 billion between 1985 and 2004.

Trade in sectors ranging from oil to textiles, turbines and timber has grown just as fast as investments flows between developing countries. State-owned export credit agencies play a key role in underwriting these trade and investment flows. China Exim Bank is now the world’s largest export credit agency; it approved US$36 billion in loans in 2007 and has even outgrown the World Bank.

This expanding cooperation has many positive aspects. Developing countries are in great need of infrastructure investment. Companies from the developing world offer consumer goods that are more affordable and often better suited to the needs of poor societies than the products of their rich-world competitors. Loans from developing-world governments have also reined in the power of international financial institutions to meddle in the economic policies of their borrowers.

Yet decades of experience demonstrate that overseas investments can create serious problems if they are not part of a sound economic, social and environmental development strategy. Projects which are motivated by political prestige rather than long-term development can create unsustainable debt burdens. Investments that concentrate revenues in a few hands are likely to exacerbate corruption, social tension and conflict. Projects which do not respect the interests of local communities and the environment can turn into social, environmental and economic disasters.

The Chinese government has developed a host of domestic environmental laws since the 1980s. More recently, it has recognised that Chinese investors and financiers also need environmental policies to guide their overseas operations. China Exim Bank adopted environmental guidelines in 2004 and strengthened them in September 2007. In October 2006, the State Council issued principles urging Chinese investors to “pay attention to environmental resource protection” and “support the local community and people’s livelihood” abroad.

Transnational corporations like Asia Pulp & Paper, Michelin and PepsiCo have been criticised for cutting down forests, polluting the air and poisoning the water in China. Likewise, some Chinese mining, oil and hydropower companies have been criticised for disregarding the interests of workers, host communities and the environment in their overseas operations. In order to avoid further conflicts in the host countries, the Ministry of Commerce, China Exim Bank and other institutions will need to strengthen the policies guiding the environmental performance of Chinese companies abroad.

Chinese government agencies, financiers and investors can benefit from a large body of experience with international environmental standards. In a new report published by International Rivers, experts from civil society, academia and financial institutions discuss this experience and how it can be useful for emerging financiers from China and other countries.

Based on the policies of financial institutions around the world, Aaron Goldzimer (see “Financing development: a civil society perspective”) summarises the strengths and weaknesses of current best practice for environmental policies from a civil-society perspective. He argues that new financiers could leapfrog some of the less effective current policies and move toward new, more effective institutional structures.

As the Association of Development Financing Institutions in Asia & the Pacific (see “Why development banks in Asia are going green”) demonstrates, developing-world financial institutions have taken innovative steps to “green” their business activities. In a separate paper, Guo Peiyuan (see “Socially responsible investment emerges in China”) introduces measures that Chinese banks and other institutions have taken to promote the concept of socially responsible investment. He argues that in the early stages, financiers focus on implementing the concept at home, but that this may change as more and more investors venture abroad.

The proof of the pudding will be in the eating, and the best environmental standards are only as good as their implementation. Goldzimer, Guo and others stress that an open dialogue between financial institutions and civil society is an essential element of environmentally sound lending and investment decisions. The Chinese government recently strengthened citizens’ access to information at home. We hope Chinese investors and financiers will also strengthen transparency in their overseas operations as an important step towards environmental sustainability.

Peter Bosshard is the policy director of International Rivers. Based in Berkeley, California, International Rivers aims to protect rivers and the communities which depend on them.

NEXT WEEK: Reports from Peiyuan Guo, Aaron Goldzimer and the Association of Development Financing Institutions in Asia & the
Pacific

Homepage photo by china-puwa

A watershed moment

Peter Bosshard — Thu, 19 Nov 2009 11:21:00 +0000

The world’s largest hydropower project will soon reach its final dimensions. Peter Bosshard draws a number of conclusions from the experience of the Three Gorges.

Later this year, the water level of the Three Gorges reservoir is scheduled to reach its final height of 175 metres. After 27 million cubic metres of cement have been poured, 39 cubic kilometres of water have been stored and 1.3 million people have been resettled, it is time to take stock.

I have monitored the Three Gorges project ever since the Swiss government approved export credits for it in the mid-1990s. I have discussed the project with Chinese government officials, affected people and environmental experts, and had the chance to visit the dam site this summer. I would like to offer the following conclusions from this experience for discussion:

* China completed the highly complex, challenging construction project ahead of schedule, which is rare in the international hydropower sector. Technically, the Three Gorges Dam is a masterpiece of Chinese engineering. The government insists that with a cost of US$27.2 billion, the project was built within budget. Others claim that many costs do not appear in the official calculations, and that the project may cost up to $88 billion.

* The hydropower project on the Yangtze River substitutes the burning of at least 30 million tonnes of coal every year, which is more than 1% of China’s total coal consumption. However, the Three Gorges Dam was not the only option for replacing coal. During the period from 2001 to 2005, the energy efficiency of the Chinese economy dropped overall. According to Douglas Ogden of the Energy Foundation, it would have been “cheaper, cleaner and more productive for China to have invested in energy efficiency” rather than in new power plants.

* The dam has displaced more than 1.24 million people, and more people will need to be displaced to avoid an environmental disaster in the reservoir area. When I visited the Yangtze Valley this summer, many people complained that compensation payments had been diverted into the pockets of local officials, and were not sufficient to pay for the new apartments. Citizens who protested against such corruption were frequently beaten up. The government was not able to fulfill its original promise to provide jobs and replacement land to most resettlers. Now that the project is complete, some areas have overcome the trauma of displacement, while others seem to be caught in a cycle of poverty and desperation.

* The Three Gorges Dam is a massive intervention into the Yangtze’s ecosystem. Now that it has been converted into a stagnant water body, the river has lost the ability to clean itself. Pollution from the submerged areas and the dirty industries along the shores are causing frequent toxic algae blooms. Important fish species are threatened with extinction, and commercial fisheries in the Yangtze and off the river’s mouth have plummeted. In September 2007, senior government officials warned that the project could turn into an environmental “catastrophe” if drastic measures were not taken.

* The water level of the Three Gorges reservoir fluctuates between 145 and 175 metres every year. This has already destabilised the slopes of the Yangtze Valley, and has created serious risks of erosion and landslides. According to Caijing magazine, erosion affects slightly more than half the reservoir area, and 178 kilometres of riverbanks are at risk of collapsing. The project authorities had not predicted such a serious threat to the region.

* Since most of the silt load from the Yangtze’s upper and middle reaches is now deposited in the reservoir, the downstream regions are being starved of sediment. Up to four square kilometres of coastal wetlands are eroded every year, and seawater is intruding up the Yangtze. Some scientists even suggest that changes in the Yangtze’s nutrient load are responsible for the sudden explosion of giant jellyfish populations which hamper fisheries off the coast of Japan. While there are no in-depth studies on this phenomenon, the discussion illustrates that the ecological impacts of large dams are often too wide-ranging and complex to be predicted or controlled.

* Periodic floods have taken the lives of hundred thousands of people in the Yangtze Valley. The Three Gorges reservoir has created a buffer which mitigates these flood risks. On the other hand, the river’s silt-free water is now scouring the banks downstream of the dam, which undermines these benefits. The dam also increases the exposure of Shanghai to typhoons by eroding the coastline, and creates seismic risks in the Yangtze Valley. It is difficult to balance these risks with the increased flood protection which the dam may offer in the lower Yangtze Valley.

* Earlier this month, the project authorities could not raise the water level in the reservoir to 175 metres as planned. They were surprised by the drought in the lower Yangtze Valley and, some observers say, needed to protect the banks of the reservoir from further landslides. The incident suggests that the interests of electricity generation, flood protection and environmental mitigation will continue to collide in the operation of the reservoir.

In recent years, the Chinese government has strengthened the laws and regulations pertaining to dam construction, and has expanded the powers of the new Ministry of Environmental Protection. The government has set very ambitious goals for the promotion of energy efficiency and renewable energy, and is on track to reach them. The State Council has also decided to retroactively compensate the 18 million people who have been displaced by dams in China with a yearly sum of US$75 for 20 years. Many other countries could learn from these efforts of environmental reform and social justice.

At the same time, important gaps remain. Most resettlers in the Yangtze Valley have still not been adequately compensated. The Ministry of Environmental Protection often receives the environmental impact assessments of dam projects too late in the process, and does not have sufficient resources to review all of them thoroughly. Fines for the violation of environmental laws and regulations are too low to ensure effective compliance. Now that the Three Gorges Project has been completed, the government should commission a thorough independent evaluation of its costs and benefits. If we acknowledge that large dams create irreversible social and environmental damage, low-impact alternatives such as energy efficiency and renewable energy technologies become even more attractive.

Peter Bosshard is policy director of International Rivers, an environmental organization with staff in four continents. He has a PhD from Zurich University and has worked to strengthen international environmental standards for more than 20 years.

Homepage image by ianwhitfield1978