Monday is wrong

Pollution may be dark side of globalization

Rich nations aren't used to the dark side of globalization. For them, the phenomenon tends to reduce costs, boosting corporate profits, securities markets and living standards. Recently, wealthy economies have gotten a taste of globalization's other side. High-paying jobs are migrating to cheaper locales, while demand from developing nations is driving up commodity prices. Nowadays, the Group of Seven nations have little control over global trends. Things may be about to get worse, and Chinese pollution could be a catalyst, putting more upward pressure on prices than many investors anticipate. "China has kept the global cost of production artificially low by not paying for pollution and labour benefits," said Andy Xie, Hong Kong-based chief economist at Morgan Stanley. "It's often thought that cheap labour is what draws executives to China. Yet, Xie argued, the mainland's "lax environmental rules and their enforcement are not well understood and may have become more important than labour costs in attracting production relocation in the past three years." Since the early 2000s, multinational companies have contributed to China's pollution to the detriment of its long-term outlook. Xie points out that China's pollution is 12 times the world average per unit of gross domestic product. "The thing is, it's just not possible for developing countries like China and India to pollute the way the West did when its economies rose," said William Barron, an environmental economist and a visiting scholar at Hong Kong University of Science and Technology. "As politically incorrect as that sounds, I'm not sure our planet could handle it."

China is waking up to the need to normalize pollution costs. On May 15, the South China Morning Post reported that about 2,000 Hong Kong-owned factories operating in Southern China's Pearl River Delta face closure or relocation because of pollution or the environmental hazards they pose. The paper also said about 300 manufacturers of dangerous goods were notified earlier this year their operating licences would be renewed on a monthly basis until they agree to move to designated areas. Part of China's push to promote sustainable development and cleaner production, the move -- and others likely to follow -- would be a major step toward accounting for production costs. If China's factories followed the environmental standards of Organization for Economic Cooperation and Development countries, producing goods would be far more expensive. At the same time, China's efforts to spread the benefits of 10% growth could result in higher wages nationally, increasing mainland export costs substantially. (National Post 060529)

Are we in, or out?

Canada's ambiguous stance over the Kyoto protocol is creating a climate of uncertainty for corporations looking to reduce greenhouse gas emissions, say business leaders. "As a business we are always looking for greater certainty so we can plan ahead," said Gordon Lambert, vp of sustainable development for Suncor Energy. "At the moment we are trying to focus on what we have control over, and that's our own actions." While Prime Minister Stephen Harper has not declared whether his government will withdraw from the international treaty, there is strong speculation he may do so, or water down the restrictions. Federal environment minister Rona Ambrose has said the government cannot meet the targets of the Kyoto accord. Last week the government signaled the possibility of renegotiating the accord to make targets voluntary. "This is something very much on our radar screen," said Florence Murphy, spokesperson for Encana. "Not being able to predict the total impact of regulations going forward is an issue." "Some of these companies have spent years negotiating agreements to get it in some palatable form," said Steve Young, head of greenhousegasmeasurement.com. "They've invested heavily and it just makes sense to know your risk and manage it rather than have uncertainty." Suncor, which has been a leader in sustainable development for energy companies, is actively pursuing a multi-pronged energy strategy that includes looking at renewable sources of energy such as windmills and fuels such as ethanol, while investing heavily in new technology, said Lambert.
(Toronto Star 060529)

Oil could exceed US$105, expert says

A Goldman Sachs Group projection that oil prices could top US$100 a barrel in the event of a major supply disruption could be conservative in the current tight market, says a senior executive with the US investment bank. Other energy experts told a weekend energy forum in Kuwait that global oil market fundamentals point to generally higher energy prices as demand growth outstrips new supply. “We thought that maybe somewhere within $50 to $70 [a barrel] we might get the economic damage and that it would take a major, not a minor, disruption to get to the $105 number,” said Arjun Murti, managing director at Goldman Sachs. “If we truly did have a major outage in a major exporting country, then $105 will prove conservative,” Murti added at the National Bank of Kuwait energy forum. Katherine Spector, head of energy research for JP Morgan Securities, said market fundamentals point to petroleum prices reverting to a higher mean in coming years. “The world is running out of easy barrels of crude production,” she said, adding that marginal costs of production are rising. Both Spector and Murti said one factor that the oil markets will remain focused on for the rest of this year would be the US hurricane season after Katrina caused big disruptions last year to refining capacity on the US Gulf Coast.
(Globe and Mail 060529)