SED SESSION V: MERGING ECONOMIC GROWTH AND

UNCLAS SECTION 01 OF 04 BEIJING 007581

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STATE FOR OES, OES/EGC, OES/ENV, EAP/CM and EB
STATE PASS CEQ FOR CONNAUGHTON/VAN DYKE
STATE PASS USTR FOR STRATFORD/WINTERS/MAIN/CELICO
STATE PASS EX-IM BANK FOR LAMBRIGHT/MYROW
USDOC FOR MCQUEEN
USDOE FOR FREDRIKSEN/MIZROCH/GEBERT
EPA FOR INTERNATIONAL/DTHOMPSON
NSC FOR HUNTER/SHRIER/TONG
TREASURY FOR OASIA/ISA/DOHNER/HAARSAGER

E.O. 12958: N/A
TAGS: ECON ENRG ETRD SENV KGHG TBIO CH
SUBJECT: SED SESSION V: MERGING ECONOMIC GROWTH AND
ENVIRONMENTAL SUSTAINABILITY, DECEMBER 13, 2007

REF: A. STATE 168294

B. BEIJING 7557

C. BEIJING 7579

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HANDLE ACCORDINGLY. NOT FOR DISTRIBUTION OUTSIDE USG
CHANNELS.

Summary
--------------


1. (SBU) Summary: Session V of the U.S.-China Strategic Economic
Dialogue (SED) focused on the environmental protection
achievements of both countries and sustainable development
recommendations for the future. Several successful
collaborative efforts on environmental protection were
highlighted during the session, and both sides made
constructive suggestions for increasing future cooperation
in these areas. The discussions were positive and
demonstrated that both sides have converging interests in
the areas of environmental protection and sustainable
development. End Summary.

China: Committed to Environmental Protection
--------------


2. (SBU) During a December 13 discussion on economic growth
and environmental sustainability, Vice Premier Wu Yi
emphasized China's commitment to environmental protection
and building a conservation culture. China's State
Environmental Protection Administration (SEPA) Minister
Zhou Shengxian echoed Wu's comments and noted China's
progress in environmental protection since the last meeting
of the SED in May 2007. He said that environmental
protection was highlighted at the 17th National Party
Congress in October, where China agreed to determine the
cost of economic growth on the environment, use
environmental protection to achieve fast and sound economic
growth, set environmental benchmarks, and make
environmental protection a major part of China's foreign
policy.


3. (SBU) Zhou stated China has three "musts" and six
"measures" for protecting the environment. China must:
improve policy and laws and use more legal means to protect
the environment; grasp the main environmental problems; and
earnestly implement its environmental protection plan. The
six "measures" include: getting rid of old facilities;
establishing many pollution control projects; clean the
rivers, lakes and seas; protect the environment in rural
areas; promote the development of a "circular economy"
focused on recycling, minimal waste and energy efficiency;
and maintain good statistics. Zhou said that China had
seen a turning point this past year with reduction in both
sulfur dioxide emissions (SO2) and water pollution or
chemical oxygen demand (COD). Zhou said that China is
building more water treatment plants for cities with 60
percent of urban sewage now treated.

Fewer Coal-Fired Power Plants?
--------------


4. (SBU) Zhou said that media reports that China is adding
a coal-fired power plant every few days are inaccurate,
because China is also closing down old, inefficient power
plants at the same time. He said China has already closed
down 10 gigawatts of small, coal-fired power plants. Zhou
further highlighted Chinese policies to encourage
environmental protection such as a lowering the VAT refund
rate for high polluting industries in 2,800 product
categories and charging more to power plants without FGD
(flu gas desulfurization) pollution control equipment.
Zhou said he looked forward to the Joint Committee on

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Environmental Cooperation (JCEC) meeting to be held
December 14, which EPA and SEPA hold every two years. He
said the SED, JCEC and other fora are useful for
strengthening environmental cooperation and to improve
overall bilateral relations.

China's Energy Goals
--------------


5. (SBU) National Development and Reform Commission (SDRC)
Chairman Ma Kai said that China will speed up the
restructuring of industry in order to achieve its 11th Five-
Year Plan targets of 10 percent reduction in overall
pollutants and 20 percent reduction in energy intensity.
He said that China will develop the service sector and the
high tech industry sector and reduce energy intensive
industries in order to reduce energy intensity. As an
example, he said that 50 percent of all cement in China is
now produced with new more efficient technology. Ma said
that China will improve policy mechanisms such as fees and
pricing for resources which must reflect the demand on the
resources and the environmental costs. He said that a fund
would be set up for environmental protection and that China
would increase public awareness of energy conservation and
accelerate cooperation under the September 2007 MOU signed
by the U.S. Department of Energy and the NDRC on Industrial
Energy Efficiency Cooperation.

Emissions Trading and China's Power Sector
--------------


6. (SBU) U.S. Environmental Protection Agency (EPA)
Administrator Stephen Johnson highlighted the completed
U.S.-China Joint Economic Study (JES),which offers
recommendations for energy savings and pollution abatement
policies for the electric power sector in China, including
emissions trading programs. Johnson highlighted the
success that the U.S. has had in using emissions trading
programs to reduce pollution and outlined China's potential
in this field. In addition, the JES estimates that a
national SO2 emissions trading system in China's power
sector would reduce costs by more than 16 percent. SEPA
Minister Zhou praised the JES and the cost effectiveness of
emissions trading programs.


7. (SBU) Administrator Johnson attributed the success of
the United States at protecting the environment to the
following principles:

- Strong, precise, and workable laws with clear and
specific national standards and compliance
requirements;

- Comprehensive, accurate, and timely information
about emissions;

- Self-reporting of compliance information;

- Strong enforcement with penalties higher than the
money saved through non-compliance;

- Strong national agency with appropriate legal
authority and resources;

- Public reporting of corporate environmental
performance; and

- National system for citizen reporting of non-
compliance and initiation of legal actions.

Joint Efforts on Global Climate Change
--------------


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8. (SBU) NDRC Chairman Ma praised the recent efforts of
China and the United States to develop a joint statement on
climate change and said it was a useful conversation to
agree on the UNFCCC as the basis of these discussions.
However, he criticized the U.S. for failing to reach
agreement on the language China wanted in the joint
statement including that the United States should take the
lead on climate change based on historical responsibilities.
He said China will make its own contributions to address
global climate change.


9. (SBU) Treasury Secretary Henry Paulson agreed with Ma
that progress was made during discussions on the joint
statement on climate change. Paulson emphasized that the
purpose of the joint statement was to highlight the ten-
year plan on energy and environmental cooperation agreed to
in the SED outcomes document.

Reducing Tariffs on Environmental Goods and Services
-------------- --------------


10. (SBU) U.S. Trade Representative Susan Schwab commented
on the joint EU-US proposal on elimination of tariff and
non-tariff barriers on environmental goods and services.
She requested China engage on this issue at the next round
of the SED scheduled for June in Washington. Vice Premier
Wu Yi said that the Chinese side could not discuss this
issue at this time.

Illegal Logging and Associated Trade
--------------


11. (SBU) State Department Under Secretary Reuben Jeffery
announced the signing of the U.S.-China MOU on combating
illegal logging and associated trade which would promote
sustainable forest management. Administrator Johnson said
cooperation on combating illegal logging provides a useful
example of how we can work together to promote economic
growth and environmental sustainability.


12. (SBU) China's State Forestry Administration Vice
Minister Zhu Lieke said that forests are the main body for
environmental protection and are major carbon sinks. He
said that China attaches great importance to the protection
and development of forests. China has made a major
contribution to the world's forests because as the
percentage of world forest cover has decreased, China's
forest cover has increased. Zhu said that majority of
deforestation comes from turning forest into farmland and
wildfires, not the timber trade. He said that China
opposes illegal logging and supports sustainable management
of forests such as China's APEC proposal on sustainable
forest management.

China Seeks U.S. Help on Water and Occupational Health
-------------- --------------


13. (SBU) Minister of Health Chen Zhu discussed the
relationship between environment and health and said that
disease is the result of interaction between human beings
and the environment. Chen said that the Ministry of Health
was part of 18 departments that developed an action plan on
the National Environment and Health. He said that China
wants to increase cooperation in two areas: sanitation of
drinking water in rural areas and occupational health. He
said that the top priority for drinking water was to
improve the standards on drinking water, establish a
nationwide monitoring network, survey the quality of the
water and improve the examination and supervision of
drinkable water. Regarding occupational health, Chen said
that China has a large population and a large labor force
which work long hours. He said that the most frequent
occupational diseases in China are lung-related diseases.

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Chen said that China wants to increase cooperation with the
U.S. on improving occupational health laws and improving
the competence of doctors and medical staff. He also wants
to increase joint research on environmentally related
diseases.

Randt