VZCZCXRO2798
RR RUEHCN RUEHGH RUEHVC
DE RUEHBJ #0001/01 0020024
ZNR UUUUU ZZH
R 020024Z JAN 08
FM AMEMBASSY BEIJING
TO RUEHC/SECSTATE WASHDC 4267
INFO RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/USDOC WASHDC
RHMFIUU/DEPT OF ENERGY WASHINGTON DC
RUEAUSA/DEPT OF HHS WASHINGTON DC
RUEHRC/DEPT OF AGRICULTURE WASHDC
RHEHNSC/NSC WASHDC
RUEAEPA/HQ EPA WASHDC
RUEHOO/CHINA POSTS COLLECTIVE

UNCLAS SECTION 01 OF 03 BEIJING 000001 
 
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SENSITIVE 
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STATE FOR EAP/CM SECOR/YAMAMOTO 
STATE PASS USTR FOR STRATFORD/WINTER/MAIN 
STATE PASS EX-IM BANK FOR LAMBRIGHT/MYROW 
 
E.O. 12958: N/A 
TAGS: ECON ENRG ETRD SENV CH
SUBJECT: SED SESSION IV: MANAGING THE ECONOMIC IMPACT OF ENERGY 
CHOICES, DECEMBER 12, 2007 
 
REF: A. 07 STATE 168294 
  ¶B. 07 BEIJING 7557 
  ¶C. 07 BEIJING 7579 
  ¶D. 07 BEIJING 7581 
  ¶E. 07 BEIJING 7593 
  ¶F. 07 BEIJING 7590 
  ¶G. 07 BEIJING 7595 
  ¶H. 07 BEIJING 7596 
  ¶I. 07 BEIJING 7600 
 
(U) THIS MESSAGE IS SENSITIVE BUT UNCLASSIFIED.  PLEASE HANDLE 
ACCORDINGLY.  NOT FOR DISTRIBUTION OUTSIDE USG CHANNELS. 
 
Summary 
------- 
 
¶1. (SBU) Summary: During a discussion focused on managing the 
economic impact of energy choices, Treasury Secretary Henry Paulson 
said both the United States and China are affected by high oil 
prices and are vulnerable to potential supply disruptions.  National 
Development and Reform Commission Chairman Ma Kai said that China 
recognizes it must better optimize its energy mix and noted the many 
areas for bilateral cooperation.  Department of Energy Deputy 
Secretary Clay Sell said the United States and China as 
 
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indispensable players in the world market must jointly address the 
twin issues of global energy security and global climate change. 
Minister of Agriculture Sun Zhongcai stated that China must pursue 
its own path towards biomass development focusing on non-food 
sources.  Ministry of Science and Technology Vice-Minister Shang 
Yong stated that it is the responsibility of developed countries to 
provide advanced energy efficiency and environmental protection 
technology to the developing world without preconditions.  Chinese 
Vice Premier Wu Yi and Secretary Paulson closed by noting the common 
ground China and the United States share in pursuing energy and 
environmental cooperation.  End Summary. 
 
Paulson: Open Markets Key to 
Meeting Energy Challenges 
---------------------------- 
 
¶2. (SBU) Treasury Secretary Henry Paulson opened the session by 
stating the importance of China and the United States working 
together to meet common energy challenges.  Both countries are 
affected by high oil prices and are vulnerable to supply 
disruptions.  There is a common need to pursue development of clean 
fuel and alternative energy technology.  Secretary Paulson 
emphasized that energy markets benefit from transparency and 
openness rather than opaqueness. 
 
NDRC: China Must 
Diversify Energy Mix 
-------------------- 
 
¶3. (SBU) National Development and Reform Commission (NDRC) Chairman 
Ma Kai highlighted China's need to better optimize its energy mix 
and structure.  China's coal usage is 41 percent higher than the 
world average.  Beijing recognizes that there are environmental 
consequences from the country's heavy reliance on coal.  Ma 
highlighted several specific areas for energy optimization including 
developing clean coal technology, expanding the use of non-fossil 
fuels, and broadening ongoing bilateral energy cooperation in the 
areas of energy efficiency and biomass.  Future cooperation should 
focus on power generation, coal, oil and natural gas, renewables and 
environmental protection, according to Ma. He distributed a "Guide 
to China-United States Cooperation on Energy and Envionment 
Proection," which outlines key areas and projects for cooperation 
in five parts: ower, Coal, Oil and Gas, Renewable Energy, and 
Energy Conservation and Environmental Protection. 
 
Sell: Opportunity for 
Enhanced Strategic Cooperation 
------------------------------ 
 
¶4. (SBU) Department of Energy (DOE) Deputy Secretary Clay Sell 
emphasized the need for a strategic approach to future energy 
challenges.  China and the United States together represent 25 
percent of the world's population and produce 33 percent of global 
economic output.  The countries also account for one-third of the 
world's daily oil consumption and generate 40 percent of global 
carbon emissions.  Washington and Beijing in the coming years will 
 
BEIJING 00000001  002 OF 003 
 
 
have to address the threat of resource nationalism and climate 
change in a carbon-constrained environment.  Sell noted that there 
are four broad areas of future bilateral energy cooperation: energy 
efficiency, clean coal, nuclear power, and renewable energy.   Sell 
urged China and the United States to work together to address the 
tariff and non-tariff barriers to energy and environmental goods and 
services. He further charged both delegations to pursue energy 
cooperation strategically to move forward with real solutions, as 
opposed to relying on tactical agreements. 
 
Jeffery, Johnson: Energy 
Talks Modalities Changing 
------------------------- 
 
¶5. (SBU) State Department Under Secretary Reuben Jeffery said that 
increasingly energy security and diversification issues have a 
diplomatic context.  For example, topics such as oil shipping routes 
and strategic petroleum reserve (SPR) accumulation must be addressed 
in an international setting.  Environmental Protection Agency 
Administrator (EPA) Stephen Johnson stated that artificially created 
bureaucratic lines have divided cross-cutting energy and 
environmental discussions.  The SED is a positive step in removing 
this impediment in both countries.  Administrator Johnson said that 
environmental and energy discussions between Washington and Beijing 
should be interrelated, holistic, comprehensive, and collaborative. 
 
 
Sun: Food Grain Will Not 
Be China's Biofuel Source 
------------------------- 
 
¶6. (SBU) Chinese Minister of Agriculture Sun Zhongcai stated that 
Beijing is pursuing biomass development with Chinese 
characteristics.  China has limited arable land and must strictly 
control grain use in biomass production.  Grain use is an important 
food security concern for the country.  Sun noted that China must 
make full use of agricultural waste products, such as straw stalk 
for biofuel production.  China, on a limited basis, is developing 
solar and wind power projects in rural areas to replace fossil 
fuels.  NDRC Chairman Ma added that the Brazilian model of using 
sugar cane to produce biofuel will not work in China.  Washington 
and Beijing should pursue a joint energy roadmap addressing the 
technical aspects of non-grain biofuels, such as straw and cassava, 
while also working to verify the ethanol production cycle is 
actually positive, closed Ma. (Note: The U.S.-China Biofuels 
Development Cooperation Memorandum of Understanding signed December 
11 creates a roadmap for cooperation in biofuels development, 
production, and use.) 
 
MOST: No Need to Reduce 
Tariffs on Energy Tech 
----------------------- 
 
¶7. (SBU) Ministry of Science and Technology (MOST) Vice-Minister 
Shang Yong stated that developed countries should provide advanced 
energy efficiency and environmental protection technology to the 
developing world.  Developed countries must think of this issue in 
other than commercial terms.  Sun said there is little need to 
reduce tariffs on energy efficiency and environmental protection 
related products.  Efforts to do so are intended to promote market 
access for companies in developed countries rather than aid 
developing countries.  Sun also claimed that developed countries 
should no longer use intellectual property rights (IPR) as an excuse 
to limit the transfer of technology or research and development 
know-how. 
 
Paulson: That Is a Really Bad Idea 
---------------------------------- 
 
¶8. (SBU) Secretary Paulson responded to Vice-Minister Shang's 
comments by stating that it is economically foolish and immoral to 
maintain tariffs on these goods.  It is fair for developing 
countries to seek economic development similar to that the United 
States has experienced.  Developing countries must recognize, 
however, that today's environmental protection technology was 
unavailable to the United States when it was a heavy polluter, said 
Secretary Paulson. 
 
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Both Sides Agree, Session 
Shows Cooperation Potential 
 
BEIJING 00000001  003 OF 003 
 
 
--------------------------- 
 
¶9. (SBU) Secretary Paulson closed by emphasizing that both the 
United States and China have many common energy interests.  This was 
evident during the session and although there are clearly some 
disagreements, the energy discussions went very well.  Chinese 
Vice-Premier Wu Yi agreed on the positive tenor of the session and 
recalled her observation during SED I that the greatest potential 
for Sino-United States economic cooperation is in the energy and 
environment arena.  Both sides agreed to form a working group to 
begin formulation of a ten-year plan on energy and environmental 
cooperation.  Madame Wu said this work should be launched as soon as 
possible. 
 
¶10. Department of Energy has cleared this cable. 
 
RANDT