Why The Games are Good for the Environment

"China has an even dumber energy policy than we do," said the U.S. Ambassador to both China and Saudi Arabia, Chas Freeman, at a recent talk in D.C. But the Olympics are changing that for the better. The Games will have a lasting impact on how China consumes energy.

Don't be fooled by The Great Makeover of Beijing, though. Taking a million cars off the road and closing down factories are steps in the right direction, since heavy industry in China emits more carbon than the transportation sector.

But as Beijing is adding 1,000 new cars a month to the road, and as China is building the equivalent of a new city for 1.3 million people a month, we can hardly expect these temporary measures to have a lasting impact on China's carbon footprint.

Cosmetics aside, China is reforming its energy policies in ways that will have broad and lasting consequences beyond the Games. Take energy subsidies, for example. Like many Asian countries, China subsidizes its energy sector, keeping prices on fuel artificially low. Aside from distorting the world's oil markets, this policy has also caused massive energy shortages in China and has encouraged highly wasteful energy consumption as China grows its economy.

We've been bellyaching to China about their energy subsidies for years. But in the run-up to the Olympics -- and amidst all the media scrutiny -- the authorities recently jacked up prices 16-18% on gasoline and diesel. They're finally cuting back energy subsidies.

That's a very good start. It's a concession we've been seeking for many years. But it's not nearly enough. Energy intensity is the key. How much energy it takes China to produce one unit of GDP. China has been colossally wasteful in this area, especially in the past few years.

We can be sure that China will keep building and modernizing to keep apace with its massive population growth -- they're going to keep consuming massive amounts of energy. So getting China to abide by a cap and trade system will be next to impossible. However, we can demand better fuel efficiency. Curbing subsidies is important because rational pricing on energy induces China to be more efficient in growing GDP.

The Chinese authorities have made energy efficiency a top priority. And U.S. and Chinese officials recently agreed to work together to help lower China's energy intensity (at the Strategic Economic Dialog in Annapolis).

Helping the Chinese become more fuel efficient is good for the planet -- and it's a giant new market for American goods and services. which helps create jobs here at home.

We can thank the Olympics for focusing the world's attention on China and the environment. Time will tell how lasting -- and positive -- the outcome will be.