Rex Regnant Sed Non Gubernat

Other than being among the most contentious issues of the day, China's currency and global warming have little in common — unless you are George W. Bush.

The U.S. president has been slow to realize that if he wants China to allow the yuan to strengthen, he must offer something. In return for a rising currency, for example, China wants the U.S. to fix its current-account and budget deficits.

Now that Bush seems to be taking a green turn — he's speaking more about climate change than ever — there's an expectation that the onus will shift to developing nations such as China and India. Yet it's not that simple.

Yes, hugely populated emerging economies need to get serious about controlling emissions. In a perfect world, Chinese, Indians and other Asians should be allowed to pollute as much as the West did, and still does.
It's just unlikely the planet could withstand almost 3 billion Asians doing the same thing.

China, for example, is already home to six of the world's 10 most-polluted cities. Visiting Shanghai or Beijing, you can barely see across the street from your office building or hotel. Imagine how things might look when 400 million Chinese own cars.

It would be helpful if the U.S., the biggest producer of greenhouse gases, led by example. Even after Bush's State of the Union proposal to cut gasoline consumption by 20 percent during the next 10 years, the U.S. is failing to provide leadership. Bush's push is far more about energy independence from the Middle East than about reversing global warming.

Yuan connection

Asians have every right to view Bush's plans with skepticism. In recent years, the president talked about the need for conservation and alternative fuels, yet he didn't follow through. The White House would be wise to apply some of the lessons it has learned from China's reluctance to boost the yuan.

The biggest barrier to the U.S. getting serious about climate change is money. Politicians facing election every few years don't often see it in their interest to risk economic growth for something that will pay off years later. It's the same logic officials in Beijing apply to their currency.

While China technically depegged the yuan in July 2005, it's still effectively tied to the U.S. dollar. Exports are the key source of growth for the Chinese economy, which advanced almost 11 percent in 2006.

Inconvenient truths

China is hoping for the best as it lets growth barrel forward. It hopes the crises that some observers predict don't come to fruition. While it's not a perfect comparison, the strategy is not unlike how the U.S. has treated climate change.

In 2001, the Bush administration rejected the Kyoto Protocol, which limits emissions from burning oil, coal and natural gas that damage the earth's climate. Since then, Bush has treated global warming as more of a theory than a genuine risk.

Environmentalists and scientists such as James Hansen, the U.S. government's top climate researcher, say action must be taken before climate change causes irreversible damage to ecosystems and economies around the globe. It's an argument Al Gore made convincingly in his film "An Inconvenient Truth."

In Tokyo earlier this month, the former vice president said many U.S. businesses and state governments are now embracing the aims of the Kyoto Protocol, which may force Bush to alter his opposition to addressing global warming. So may the Democrats who now control Congress.

Getting Asia on board

That would help get Asians on board with any global effort to reduce greenhouse gases. Options might include some kind of successor agreement to Kyoto, creating a World Trade Organization-like entity focused on environmental issues or popularizing emissions-trading markets. Or why not create tax-free debt markets akin to municipal markets in the U.S. to finance efforts to address climate change?

All this is no longer a debate, but a necessity, and the effort must be global. The U.S. may not budge until developing nations such as China and India do, and vice versa. The cost of delay will amount to between 5 percent and 20 percent of the world's gross domestic product over time, according to Nicholas Stern, the U.K. government's chief economist.

The real key is getting Asia to limit emissions, and the earlier the better. There are increasing signs many parts of the region are reaching their environmental limits. Once upon a time, the blind pursuit of GDP was possible. Not anymore.

Global risks

Risks emanating from China alone are enough to keep one awake at night. That certainly was my experience after reading Jared Diamond's 2005 book "Collapse.""Marring the superlatives and achievements, China's environmental problems are among the most severe in any major country and are getting worse," Diamond wrote.

The bigger problem is that "China's large population, economy and area also guarantee that its environmental problems will not remain a domestic issue but will spill over to the rest of the world," he wrote.

Let's hope the Bush administration has more luck working with Asia on the environment than it has had on currencies. Achieving both goals may have more in common than the White House realizes.

-WILLIAM PESEK IS A BLOOMBERG NEWS COLUMNIST.