INSIGHT: China moves fast in green revolution

22 August 2008 15:19  [Source: ICIS news]

By John Richardson

SINGAPORE (ICIS news)--China and the environment might not only be about rivers changing colour several times a day and factories belching out air pollution that kills hundreds of thousands of people prematurely every year.

In what could turn out to be the ultimate irony of ironies, the very economic system which has caused the crisis in the first place could end up resulting in China becoming the world’s leader in clean technologies.

Ample evidence already exists that this already the case, according to the Climate Group - a London-based non-profit organisation whose members include BP and Dow Chemical.

The group’s latest report - China’s Clean Revolution - claims that China’s transition to a low-carbon economy is already well under way.

This is the result of government policies which are encouraging innovation in low-carbon technologies resulting in billions of dollars being spent on energy efficiency and renewable technologies.

The huge energy that was once poured into industrialisation - once Deng Xiaoping declared that getting rich was glorious - seems to have now been turned to a coordinated nationwide renewable energy policy.

As was the case with industrialisation, state backing might overcome that nasty burden of capitalism - the need to return short-term profits, or even any kind of profits at all.

Lending from China’s big banks is still largely directed by the government and the banking system is awash with liquidity - a drastic contrast with the Western credit blight.

Incentives are in place to boost wind power. China, as a result, is fifth behind Germany, the US, Spain and India with 6 gigawatts of wind turbine capacity, says the Climate Group. This could climb to 100GW by 2020.

But even though China lacks incentives for solar power, it is second only to Japan in the global solar photovaltaic market. Its six largest solar manufacturers had a market value of more than $15bn (€10bn) in July 2008.

The market for solar water heaters is worth more than $2bn a year and is growing at 20%, while the electric bicycles (e-bikes) sector is around $6bn, the report adds.

Research is taking place in to carbon capture and storage (CCS) and integrated gasification combined cycle technology.

Energy companies are pursuing viable CCS technologies with considerable zeal.

China might have virtually unlimited cash to throw at the problem and if it succeeds in clearing the big viability hurdle it could mean: millions, possibly billions, of dollars made from licensing technologies and selling carbon credits if a global cap-and-trade system evolves.

The country could become an excellent CCS testing ground for companies such as Shell if, as seems likely, the right incentives are put in place.

China could also take maximum advantage of its big coal reserves through coal gasification without having to worry about emission problems.

If credits can be earned from capturing and storing carbon, this could result in very competitive methanol and methanol-to-olefins production.

The wider possibility of effective CCS could enable China to move much closer to energy independence - reducing the need to depend on refineries for transport fuels. This could in turn lead to coal becoming the country’s main route to petrochemicals.

China is also introducing fuel efficiency standards for cars which are 40% higher than those in the US. About 21m electric bicycles and 1.64m energy efficient compact cars were sold in 2007, the report adds.

The country has targeted a 20% reduction in energy intensity by 2010 compared with 2005 levels.

Using high efficiency, super critical technologies to replace small, inefficient coal plants, it has avoided CO2 emissions of approximately 37.6m tonnes/year, the report adds.

Energy efficiency standards have also been set for 1,000 of the largest energy consuming companies.

A comprehensive set of complementary regulations have been developed to cover almost every sector of China’s economy.

These include fuel economy regulations, mandatory efficiency and labelling standards for home appliances, green car taxes, strict building-efficiency design codes and renewable subsidies, says the report.

“Chinese entrepreneurs are riding a low carbon wave of investment,” adds the Climate Group. "A low carbon wave has swept up tens of thousands of Chinese companies and created some of China’s most successful business leaders."

“Returns on energy efficiency improvements often exceed 50% a year, equivalent to a pay-back period of only two years.”

China is the second largest recipient of sustainable energy investment ($12bn) behind Germany, the study adds.

“Taking advantage of international markets, China has already become the largest supplier of clean development mechanism (CDM) credits in the world which is now funding billions of dollars worth of carbon reductions,” it adds.

“It is estimated that China will require a further $398bn ($33bn per year) to meet its 2020 renewable energy goals. “

This all sounds fantastic, but the old story about China is that what works at a central government level might not necessarily be implemented evenly across the country.

Arthur Kroeber of the China Economic Quarterly, however, believes that this old tale about China is total nonsense when the central government decides to take something seriously.

The environment is one problem that Beijing is taking exceptionally seriously as it tries to build a more “harmonious society”, he says.

But the task remains huge. According to fellow RBI title the New Scientist, if China’s emissions continue to increase at 8% year, its per capita CO2 output will be double those of the EU by 2020.

While China’s emissions keep on rising, EU member countries are making big reductions. For example, Germany reduced its greenhouse gas output (GHG) by more than 19% between 1990 and 2003.

The problem for China is that it still has to create lots of new jobs because of a rapidly urbanising society, whereas many of the rich people in the EU are desperate to return to the countryside.

But the European rural idyll is hardly carbon-neutral.

Instead it can often be about four-wheel drive gas guzzlers, oil-fired centrally-heated and poorly insulated converted barns and conveniently located supermarkets stocked with food and drink from the four corners of the world.

China on the other hand faces a population desperate for things that Westerners take for granted. You can’t start car pooling until you own a car in the first place.

So the dilemma is mitigating the impact of emerging-market consumption growth on the environment.

Maybe the Chinese system is ideally designed to rise to this challenge whereas democracy is not.

Bookmark John Richardson's Asian Chemical Connections and Doris de Guzman's Green Chemicals blogs

By: John Richardson
+65 6780 4359

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