Washington -- The rapid industrialization that is lifting millions out of poverty in Hong Kong and mainland China is producing air pollution that endangers regional residents and people across the globe, says U.S. Consul General James Cunningham.

Cunningham spoke June 6 before the Hong Kong General Chamber of Commerce and the American Chamber of Commerce in Hong Kong. His presentation was part of a series of events connected with "World Environment Day" June 5.

Cunningham said that air pollution along the Pearl River Delta has increased to "alarming proportions" in the last decade. "Hong Kong’s air pollution is increasingly the topic of international, as well as local, comment," he said. He also said CNN recently reported that pollution from coal-burning plants in China is now reaching the West Coast of the United States.

"Just as the economy is globalizing, so are quality of life issues like pollution, affecting ever-greater portions of the globe," Cunningham observed. "The environment," he added, "is not ‘someone else's problem.’"

But Cunningham cautioned: "The air pollution problem is complex. Solutions will not come quickly or easily. But Hong Kong and neighboring industrial centers can achieve progress if individuals, businesses and governments resist finger-pointing and instead take responsibility for action."

Studies estimate 80 percent of the air pollution is created by power generation, factories and motor vehicles in the Pearl River Delta, with factories the "core of the problem," Cunningham said.

Many of these factories, he acknowledged, support the global business strategies of U.S. firms, and the goods they produce largely are destined for major global markets. "So action is called for on several fronts," he said.

"My message is simple," Cunningham said. "First, while we can’t clean up pollution overnight, it can be dealt with. Secondly, while there are many government-based initiatives underway on both sides of the border, business should -- and must -- take the lead. … Thirdly, and very importantly for this audience, promoting pollution prevention and energy efficiency will not necessarily reduce your cash flow. Dealing with pollution can be a win-win proposition, encouraging corporate responsibility while strengthening your businesses."

He lauded the Hong Kong General Chamber of Commerce for signing the "Clean Air Charter" along with other international business chambers. The American Chamber of Commerce will be initiating an environmental study in the near future to assess the effect of pollution on Hong Kong’s outlook for investment and human resources. The Hong Kong Business Coalition on the Environment is promoting environmental awareness and responsibility in the business community. The Business Coalition also is engaging Chinese organizations and business across the border in Guangdong.

TYING CREDIT FOR BUSINESSES TO ENVIRONMENTAL IMPACTS

Cunningham said some banks are looking at the environmental impact when considering credit applications.

Setting strong standards for business behavior is crucial, Cunningham said. "These standards must be adopted by a large enough group to make a difference. And they must be acted upon," he said.

Although pollution in Hong Kong and mainland China is a very serious problem, it is not "a life sentence," he said. "Around the world, many polluted regions have been cleaned through long-term, sustained environmental policies," Cunningham said.

The United States, for example, is introducing environmentally friendly building materials, including those made from industrial waste, as well as water conservation systems and highly efficient cooling and energy conservation systems. Many highly polluted industrial American cities such as Los Angeles, Cleveland and Pittsburgh significantly have reduced air pollution in the past decades, Cunningham said.

Cunningham cited the political commitment to clean up the environment on the part of Hong Kong Chief Executive Donald Tsang, who recently publicly declared: "As Asia’s world city, Hong Kong cannot tolerate foul air and a poor environment."

"Cross border cooperation between governments is essential," Cunningham said. But he added: "Ultimately, though, it is not government, but business that can contribute most effectively and rapidly."

"I have heard repeatedly," Cunningham said, "that businesses can’t afford to upgrade if doing so undercuts their competitiveness. If necessary, government regulation and enforcement can and will eventually compel industry and region-wide behavior. But businesses can take the initiative. They can also adopt environmentally friendly technologies now without affecting their bottom line. Experience indicates that one of the most effective ways to tackle the pollution problem is to motivate people to act in their own self-interest. "

THE P2E2 MODEL

Cunningham described an innovative, market-based financing model that encourages investment in pollution-reducing improvements to manufacturing and energy production. Called "P2E2," which stands for "pollution prevention" and "energy efficiency," this promising model emerged from the U.S.-China Joint Commission on Commerce and Trade.

The P2E2 initiative uses loan guarantees from the Asian Development Bank (ADB) or International Finance Corporation, as well as credits from the U.S. Export-Import Bank, to facilitate loans by Hong Kong commercial banks for environmentally friendly equipment, Cunningham said.

According to Cunningham, the introduction of cost-saving P2E2 technologies under a performance contract between the Hong Kong service company and the mainland business would not reduce that business's cash flow. Payment would be made only out of new cost savings generated under the performance contract -- that is, with the upgraded equipment.

Initial estimates indicated that the payback period would range from one year to three years. After that, ongoing savings accrue to the mainland business.

"This is a creative model where everyone wins," Cunningham said.

The United States, he said, believes the P2E2 model has "tremendous potential" to improve performance in such sectors as power generation, aluminum, brick-making, cement, ceramics, chemicals, electronics, iron and steel, food processing, paper and pulp, plastics and metalworking.

So far, nine Hong Kong commercial banks and two investment funds are interested in participating, Cunningham said. Approximately 20 Hong Kong environment and energy service companies are pursuing opportunities on the mainland, and at least eight firms are interested in measuring and verifying the cost savings achieved.

Initial indications on fledgling P2E2 projects suggest that this model will produce significant cost savings, Cunningham said.

"The need for progress is urgent. The pollution crisis in my country developed over many years, not one decade. And it took several generations to deal with it," Cunningham said. "Hong Kong doesn’t have that time."

The business communities in Hong Kong and mainland China must work with government and with each other, he said.

The full text of Cunningham’s speech, as prepared for delivery, is available on the U.S. Consulate in Hong Kong’s Web site. http://hongkong.usconsulate.gov/cg/2006/060601.htm

Source: http://usinfo.state.gov/xarchives/display.html?p=washfile-english&y=2006&m=June&x=20060606162733ajesrom0.1589624&t=livefeeds/wf-latest.html