Hank Paulson Targets Climate Change Via China’s Building Codes

Former U.S. Treasury Secretary Focuses on Making New Construction More Energy-Efficient

The former U.S. Treasury secretary may end up helping rescue U.S.-China ties. The WSJ’s Andrew Browne explains how.

By Andrew Browne

Nov. 12, 2014 2:14 a.m. ET

BEIJING—As U.S. and Chinese officials worked on the details of a breakthrough summit announcement on climate change, Hank Paulson was huddled with top executives from both countries to discuss how to save the planet via Chinese building codes.

The former U.S. Treasury secretary has worked on the front lines of environmental protection in China for years and has the ear of the top Chinese leadership: He has been calling on President Xi Jinping ever since Mr. Xi was a provincial official and Mr. Paulson was running Goldman Sachs.

Mr. Paulson is now focused on China’s massive program of urbanization, perhaps the world’s greatest environmental challenge.

More than half of all the new buildings in the world are going up in China, Mr. Paulson says, and buildings account for 40% of global greenhouse-gas emissions, of which China is the biggest producer. Make them more energy-efficient and you help to fix a megaproblem. Some 100 million rural workers will move to cities before 2020.

The executives Mr. Paulson hosted this week at Beijing’s swanky Park Hyatt Hotel included the big guns of General MotorsHoneywell and IBM, as well as leaders of State Grid Corp., a gigantic monopoly power distributor, and China State Construction Engineering Corp., an infrastructure behemoth. Together, they have more than one billion customers, making them key players in the environmental battle.

Just by tweaking building codes, Mr. Paulson says, the results would be dramatic. “There’s nothing else I could do in the U.S. and have that kind of impact.”

“It’s the biggest lever the Chinese can pull,” he says.

He’s certain that Chinese leaders will put muscle behind the environmental effort. “They care about what their own citizens think and what the world thinks,” he says.

Moreover, by working together to save the global environment, Mr. Paulson believes that the U.S. and China can rescue their relationship that is bedeviled by mutual suspicions and strategic rivalries. As a cabinet member in the George W. Bush administration, he was a leading proponent of the idea that if China and the U.S. could cooperate on solving some of the world’s most intractable problems they would avoid conflict.

He’s battling the odds. A Harvard University study looked at 15 cases in history when an ascending power crossed paths with an established one: 10 resulted in war. The cycle goes all the way back to the ancient Athenians and Spartans.

Climate change could potentially bring the world’s two largest economies together in a colossal endeavor. Neither can solve the problem alone. The climate-change announcement Wednesday by Presidents Barack Obama and Xi Jinping will put pressure on other countries to accelerate their commitments to limiting emissions at next year’s United Nations climate change meeting in Paris.

“There is no silver bullet,” Mr. Paulson says. “Tackling the emissions problem will be a cumulative thing.”

Mr. Paulson’s long history of environmental involvement in China includes helping to draw up plans for national parks in southern Yunnan province as the head of The Nature Conservancy between 2004 and 2006.

Earlier this year, he and his wife Wendy spent three hours trudging through wetlands in driving rain in eastern Jiangsu province in search of the highly endangered spoon-billed sandpiper. They spotted two, surrounded by chemical factories.

Climate change will be the biggest test of his skills as an environmental advocate. His days running Goldman Sachs, and then putting out fires as Treasury secretary following the collapse of Lehman Brothers, taught him how to both sweet-talk and strong-arm business leaders.

At Monday’s inaugural meeting of a “CEO Council” he has established under his Paulson Institute, David Cote of Honeywell proposed changing U.S. utility pricing models. Chinese business leaders stressed the need for education on sustainability.

“It’s important to get the CEOs on board, because they are good at getting things done,” says Mr. Paulson. He points out that the U.S. is a fount of clean-technology innovation; China is where it can be rolled out on a massive scale. “We’re not hammering out big global deals. We are trying to move the needle in tangible ways,” he says.

He’s counting on Vice Premier Wang Yang, a reformist former Communist Party secretary of Guangdong province, to give momentum to his CEO Council. On Tuesday, Mr. Paulson took the executives to meet with Mr. Wang at Beijing’s government leadership compound of Zhongnanhai. Mr. Wang “talked about the fact that Chinese traditionally focused on buildings in harmony with nature, but had lost sight of that during the period of rapid economic growth,” says one participant.

There’s reason to be skeptical of China’s ability to deliver on its environmental commitment. Despite promises to clean up Beijing for the 2008 Olympics, the city’s air quality has deteriorated. The spread of cancers linked to worsening air and water pollution has become serious enough to threaten social stability.

In the past, China has been reluctant to take on global problems, including the environment, fearing it will become entangled in more responsibilities than it’s ready to handle. In his latest book “World Order,” Henry Kissinger describes the challenge. “Americans hold that every problem has a solution; Chinese think that each solution is an admission ticket to a new set of problems,” he writes.

China was cast as the spoiler of the 2009 global climate conference in Copenhagen that fell apart in recriminations, delivering only weak promises.

Derek Scissors, a fellow at the Heritage Foundation, argues that the Copenhagen meeting collapsed because Chinese coal consumption was still rising. It’s now stagnating because China’s economy is slowing, making an agreement possible, but if the economy recovered coal use could jump again.

“Beijing has an unmatched ability to sidestep global commitments that interfere with its plans,” he says.

Mr. Paulson, though, points out that the credibility of the Communist Party is now at stake–and that will spur action.

“When China wants to move to change something they can move as fast as anybody else,” he says.

Original text: http://online.wsj.com/articles/hank-paulson-targets-climate-change-via-chinas-building-codes-1415776456