AIR POLLUTION: HURTING HONG KONG'S ECONOMIC

UNCLAS SECTION 01 OF 03 HONG KONG 003633

SIPDIS

SENSITIVE
SIPDIS

STATE FOR EAP/CM AND OES/E
STATE PASS USDOE FOR SKELLY, INTERNATIONAL/PUMPHREY/PRICE
STATE PASS HQEPA FOR INTERNATIONAL/THOMPSON

E.O. 12958: N/A
TAGS: ECON ENRG SENV CH HK
SUBJECT: AIR POLLUTION: HURTING HONG KONG'S ECONOMIC
COMPETITIVENESS

REF: HONG KONG 3601

(U) THIS DOCUMENT IS SENSITIVE BUT UNCLASSIFIED. PLEASE
PROTECT ACCORDINGLY. NOT FOR RELEASE OUTSIDE U.S. GOVERNMENT
CHANNELS. NOT FOR INTERNET PUBLICATION.

1.(SBU) Summary: In an American Chamber of Commerce survey
of 140 top executives in Hong Kong, 95% expressed concern
over the long term health effects of breathing Hong Kong,s
polluted air. The study indicates that Hong Kong businesses
experience difficulties in recruiting and retaining top
talent due to a perceived deterioration in air quality. 59%
of respondents said that the lack of concrete government
attention to the environment might cause them to invest
elsewhere. The Hong Kong government (HKG) reacted by
reiterating its commitment to improving air quality through
two programs it rolled out this summer, &Action Blue Sky8
and an emissions trading scheme. While the public has
welcomed signs of government action, current initiatives
appear designed more for political impact than environmental
results. AmCham officials hope their survey will help build
momentum for more substantive proposals by the government.
End Summary.

The Economic Consequences of Bad Air
--------------


2. (U) The American Chamber of Commerce in Hong Kong (AmCham)
published its 2006 Environmental Survey on August 28, 2006.
The AC Nielsen survey encompassed 140 top executives from
AmCham member companies with collective employment figures of
approximately 250,000 Hong Kong residents. The survey
quantifies anecdotal evidence that foreign companies find
Hong Kong a less attractive place to do business due to
deteriorating air quality. 95% of respondents were &very
worried8 or &somewhat worried8 on the long-term impact of
Hong Kong,s air quality on their health or the health of
their children. 79% felt that Hong Kong,s attractiveness to
foreign investors will decrease over time if current air
quality trends continue; 59% said that current trends may
cause them to invest their money outside of Hong Kong. 39%
experienced difficulties in recruiting employees into Hong
Kong, while 55% reported having colleagues who refused to
come to Hong Kong because of recent environmental trends.
This study underscores the points made by James Connaughton,
Chairman of the White House Council on Environmental Quality,
that investing in environmental protection has long-term
economic benefits. (See Reftel)


3. (SBU) Alan Siegrist, AmCham Environmental Committee
Chairman, told EconOff the study provides concrete data that
the environmental degradation ) particularly air pollution
) is having economic consequences. He noted that the HKG
had not responded seriously to previous calls to develop
concrete programs to address air quality. Siegrist
characterized current efforts as largely public relations
campaigns in preparation for the upcoming elections.
Siegrist echoed criticisms by NGO leaders, energy executives,
and legislators that recent HKG initiatives fail to address
the root causes of deteriorating air quality: maritime/port
pollution, outdated transportation systems, and unprecedented
industrial growth in the Pearl River Delta (PRD).


4. (U) The Hong Kong government has responded to the widely
publicized survey by reaffirming its determination to fight
air pollution. It stated that Hong Kong would meet its
emission reduction targets for 2010, but did not propose new
initiatives. Some, however, have acknowledged the extent of
the problem. Victor Fung, Chairman of the government-backed
Greater Pearl River Delta Business Council, publicly stated
that pollution &up to a year ago really hadn,t hit our
pocketbook, now people are not coming to Hong Kong.8

&Clean Air for a Cool Hong Kong8
--------------


5. (U) Prior to the publication of the AmCham survey, the
Hong Kong government initiated two environmental programs in

2006. Chief Executive Donald Tsang announced the first,
&Action Blue Sky,8 in July by requesting Hong Kong
citizens, businesses, and schools help the government combat
air pollution. He urged the public to raise air-conditioner
settings in homes and offices to 25.5 degrees Celsius, take
public transportation, and shed their jackets and ties in
summer. In this public awareness campaign, he and Sarah
Liao, Secretary for the Environment, Transport and Works,
reiterate continually that the public must bear the price of

HONG KONG 00003633 002 OF 003


cleaning up the air by changing daily activities and must not
depend on the government alone for action.


6. (U) &Action Blue Sky8 has received much publicity, but
old habits die hard. Surveys by the local media reveal that
the majority of Hong Kong office buildings and hotels have
yet to raise air temperatures, while the outer doors of many
Hong Kong shopping centers and restaurants remain open
despite air-conditioning use. Furthermore, &Lights Out,8
an event sponsored by local environmental groups to urge Hong
Kong residents to turn off their lights in a symbolic protest
against worsening air pollution, received lack-luster
response from the public with participation from only 15 to
20 percent of residents and businesses in Central Hong Kong.
The government also refused to cancel the Hong Kong harbor
light show that evening, claiming that the cancellation would
negatively impact tourism. Organizers stated that the
government,s failure to participate ran contrary to its own
calls for action.


7. (SBU) A local air quality expert told us that &Action
Blue Sky8 was repackaged old news. He argued that the
government simply finesses the problem, but continually fails
to address broader issues behind worsening air quality, such
as marine emissions, factory pollution in Guangdong, poor
urban planning and continued use of low-grade automobile
fuels from the PRC. Representatives from local NGO,s all
concurred that &Action Blue Sky8 did not constitute a
viable, long-term energy and environmental policy.

Emissions Trading: Lofty Words with No Specifics
-------------- --------------


8. (U) As part of the Hong Kong/Guangdong Cooperation Joint
Conference, Donald Tsang announced the second
environmental/energy program, the &Emission Trading Pilot
Scheme for Thermal Power Plants.8 The HKG and Guangdong
government will present the plan to power producers later
this year, but initial reports indicate that it will allow
polluters in the energy sector to buy and sell emissions
rights for three types of pollutants: sulfur dioxide,
nitrogen dioxide and particulates. Emissions levels and
other details remain unclear. The government argues that the
plan will provide Hong Kong power companies with a
cost-effective mechanism to meet emissions requirements. All
reports indicate that this scheme will apply only to
electricity producers, not to polluters in other industries.


9. (SBU) The trading scheme proposal currently lacks
substance. Hong Kong energy companies remain concerned over
the sole focus on the energy sector and the failure to
include PRD manufacturers, who rely on diesel power to keep
production running. They criticize the plan for failing to
address 1) how legal issues would be resolved between the two
jurisdictions; 2) how quotas and costs would be decided; 3)
how transparency can be assured in Guangdong, particularly
given the low salaries of inspectors, the lack of rule of
law, and ample opportunities for corruption. As a Civic
Exchange representative put it, the power companies fear they
) and by default the Hong Kong consumer ) will be forced to
&dump money into the black hole of the Mainland8 without
any guarantee of results. The power producers appear to be
easy targets because the government has political leverage
over this sector with the upcoming decisions over the
soon-to-expire Scheme of Control agreement between the HKG
and Hong Kong power firms.


10. (SBU) The media and public have questioned the ability of
both Hong Kong and Guangdong to set up an effective emissions
trading program due to differences in their regulatory and
legal systems. Success clearly depends on a willingness of
localities in the mainland and Hong Kong to give up some
short-term economic interests for longer-term environmental
benefits.


11. (SBU) Roy Tang of the Hong Kong Environmental Protection
Department told EconOff that the HKG has a comprehensive
package of programs to address environmental quality that
includes cross-border agreements, emissions trading, and
public awareness campaigns. He stated that the government
will roll out further details on the proposal by the end of
the year. He noted that the scheme, which is not mandatory,
is just one tool to assist power producers to reduce
emissions. He reiterated Hong Kong,s willingness to address
the pollution issue and its ability to meet its 2010
reduction targets.


HONG KONG 00003633 003 OF 003



12. (SBU) Nonetheless, pressure is mounting on the
government. The Chief Executive,s office announced that the
environment will be the focus of his annual policy address in
October, and a recent address by the CE to Hong Kong's
consular corps led off with a long recitation of all the
effort the HKG is mounting to combat pollution. Air quality
continues to be a common topic in private discussions across
Hong Kong, particularly since air quality has deteriorated so
rapidly in the past ten years. In fact, during a Consulate
meeting on a different topic, a senior executive of an
American firm commented on the AmCham study, saying air
pollution was a deciding factor in his decision to move their
regional office from Hong Kong to Singapore. Civic groups,
academics and opposition party members also have stepped up
political pressure to act. With Hong Kong natives and the
international business community in the HKSAR beginning to
raise their voices, the HKG remains under the gun to come up
with comprehensive and viable proposals to address air
quality issues, particularly cross-border environmental
problems.

Cunningham