The China Greentech Initiative Team with Al Gore at a private reception hosted by Tina Ju, Managing Director, KPCB China (Kleiner Perkins) in Beijing, November 2008 (MaximsNewsNetwork)  Photo © China Greentech Initiative

 

CaN CHINA GROW GREEN? eXCLUSIVE INTERVIEW WITH eLLEN g. cARBERRY OF THE cHINA GREENTECH INITIATIVE by marisha Wojciechowska-Shibuya: (MaximsNewsNetwork)

UNITED NATIONS - / MaximsNews Network / 02 November 2009 - Although the occasional onlooker does not instinctively think of China as a green player, the first China Greentech Report recently launched by the China Greentech Initiative states that China could be a $500 billion to $1 trillion a year market for environmentally sustainable green technologies. The Initiative is an open source commercial collaboration of over 80 of the world’s leading green technology companies, entrepreneurs, investors, NGOs and policy advisors, of the likes of PricewaterhouseCoopers, the American Chamber of Commerce in Shanghai, Philips, Clean Air Task Force, KPCB China, General Electric, IBM, BP, etc.  The Report itself examines 125 greentech solutions, both existing and emerging, across seven sectors to provide a view of each solution's potential environmental impact as well as commercialization opportunities in China. Considering that massive private sector investment will be required to hold climate to a 2 degrees Celsius increase or for supplying clean freshwater to scores of households for instance, China’s policy environment holds key to unlocking the world’s green market potential. The China Greentech Report 2009 provides the first broad in-depth analysis of this new frontier.

-Ellen G. Carberry is managing director of the China Greentech Initiative.

 

Marisha Wojciechowska-Shibuya: What are the main headline grabbing findings of the China Greentech 2009 report?

Ellen G. Carberry: We analyzed solutions that meet the needs of China and estimate that the total potential addressable market opportunity for green technologies in China could be up to US$ 1 trillion, roughly comparable to 15% of China’s forecasted GDP in the year 2013. Addressable market size estimates the total revenues greentech solutions could potentially achieve if they were attractive to adopters vis-à-vis conventional alternatives. This is not meant to be an annual forecast for solutions, but rather an estimate of what the market could be under specific conditions.

Marisha Wojciechowska-Shibuya: One of the assertions in the report is that ‘China will become environmentally sustainable out of necessity’. What makes you so sure of this?

Ellen G. Carberry: First of all, the continued need for growth in the nation. More and more people out will migrate from rural areas and into the cities and, despite the economic engine running at 8% annual growth in recent years, that is not sufficient for creating jobs at the required pace in the urban areas. So part of it is the necessity to keep employing more and more people. Part of it is that the sheer size of the urbanization is so significant – it is the largest transformation of people from rural to urban ever done – which requires a very significant demand for resources. And part of it is an energy security issue. All of these market forces together create a necessity for China to be environmentally sustainable.

M W-S: What do you mean by energy security?

Ellen G. Carberry: To keep the economic engine producing at this rate, whether or not there is any energy efficiency savings or other sources of energy, the sheer amount of energy required is significant. If you look at charts that graphically show the point at which China entered into the World Trade Organization, somewhere around 2001-2002, the use of energy, the use of petroleum, the use of coal, all these metrics have soared over the last eight years. So coupled with this accelerated growth and urbanization, greater amounts of resources are required. And the government has modeled that if they go along on their current course, in 40 or 50 years the world might run out of energy enough to supply their economic engine.

So the need for alternative energy and the need for greater energy efficiency are things that are required – and in the forecasted macro economic plans, the Chinese Central Government knows that they will have to find other ways to achieve energy security. I think – and I by no means am speaking for anyone here – that there is a desire for the nation to be more independent when in terms of sourcing the energy required. For instance, wind power is in their control, and solar power is in their control. The report shows that in the areas of wind and solar, the natural environmental capacity is actually better in China than in many other places. In the solar area, the most capacity is in Japan and Germany these days, but if you measure it in terms of sun-hours, China has actually a higher capacity for producing solar if they want to. Same story if you look at the amount of wind capacity. I am talking strictly in terms of the natural environment. So if you look at this on a comparison basis, China has vast tracts of land, which are not necessarily used productively to generate solar power and wind power It all becomes quite feasible and doable for China.

Marisha Wojciechowska-Shibuya: Based on your experience, how open are the Chinese policy-makers to the development of green technologies in China?

Ellen G. Carberry: What we found from doing the work in the past nine months is that the government is acting in a very progressive way, and we say this in the report, whereby the government is actually a positive driver. So if you look in the regulatory section of the report, you will see that the sheer number of laws and incentives have all been very steadily building upon each other in a very cohesive system and that the policy mechanisms and drivers are causing a green transformation. China’s stimulus plan is understood to be one of the largest green stimulus plan in the world. So it is not just the size of the stimulus but the number of things that are happening, and all quite quickly.

Press conference for The China Greentech Report 2009, at the World Economic Forum, Dalian, China, Septebmer 10, 2009 Photo © China Greentech Initiative

Marisha Wojciechowska-Shibuya: One of the seven sectors studied in the report is ‘clean water’. The report mentions that China’s water scarcity, due to pollution and depletion of groundwater costs an estimated 47 billion yuan (US$21.8 billion) to their economy. According to your research, what are the most promising clean water technology solutions for China’s massive water scarcity and water pollution problems?  

Ellen G. Carberry: In addressing China’s increasingly pressing water scarcity and pollution issues, based on research and analysis, The China Greentech Initiative prioritized 12 solutions. Evidence suggests that high unit environmental impact potential tends to lead toward high commercialization potential. For example, Primary Treatment and Improved Irrigation solutions have the highest environmental impact and two of the largest estimated addressable markets. This is due to their role in removing the highest percentage of pollution from the water in the treatment process and to their ability to significantly conserve water in irrigation, which presents an area of great improvement potential in China. 

Marisha Wojciechowska-Shibuya: What are the primary challenges facing the clean water industry in China and how can these challenges be overcome?

Ellen G. Carberry: A wide range of challenges exists across market, technology, financing and regulation which have, to various extents, threatened the sustainability of China’s long term water resource. For example, low water tariffs have led to massive waste and less than responsible consumption behaviors. Due to the lack of profit margins, the water markets are not sufficiently developed. Often, although some of the most advanced technologies exist, they are either unsuitable for China’s development profile, or outside the cost range of Chinese buyers, thus unviable. Regulation serves as somewhat the last resort, however, there has appeared poor regulatory planning, coordination and enforcement. Possible solutions are for the government to raise the water tariff, enforce quality benchmarking, and gradually cultivate effective market dynamics to enable the required stakeholders to collaborate and cooperate.

Marisha Wojciechowska-Shibuya: With China’s massive greentech market potential, scores of private foreign investments are probably knocking on China’s doors. What is the current size and share of private foreign investment in China’s greentech market? Are all greentech sectors open to foreign investment in China? Which greentech sectors are private investments most attracted to at this point?

Ellen G. Carberry: We did not measure that exactly. We did not look at all players coming into the China greentech market and measure how much is private foreign versus private local, versus state.

Not all greentech sectors are open to foreign investment in China. If you look in the report at the Solutions chapter, it shows you clearly the solutions that were evaluated for each of the seven sectors. Each solution was evaluated based on four dimensions: environmental impact, size of the addressable market, the readiness of the solution (ie: whether it is commercially ripe), and openness of the market to private investment. All 125 solutions are portrayed graphically and clearly according to these four parameters. So what you see is that some sectors are more open, some less open, which actually would be the case in any country. 

If you look for instance at green building solutions (ie: materials, urban planning to minimize water and energy use), that sector is much more open as is generally the case around the world. The private developers need an enormous amount of solutions that have to be integrated to create a building, such as the construction people, the materials, etc. – in sum it is a sector which is inherently commercial throughout and therefore it is open. Other sectors, such as the production of power or the monitoring and the pricing of the water supply, tend to be closely related to a nation’s national security and thus tend to be less open markets.  

In the energy production sector, conventional energy has typically been quite state-controlled (except for a brief period in the 90s); in the renewable energy area, they opened up the wind power industry to foreigners four years ago through a series of strong local conditions, and foreigners came in under those conditions, adhered to them, however, to some extent, due to the nascent nature of the industry and lack of transparency in the procurement process, for instance, there remains impediments for foreign producers to compete with local Chinese producers, and execute especially at local government level. That is something that has been well documented. And there has been no formal communication as to why this has happened and of course there has been a lot of ‘to do’ about why all of a sudden foreigners cannot participate in this procurement process.  Although one can surmise. It is energy production. It happens to come from wind instead of coal, but it is still energy production and something that they hold close to the nation’s well-being, which the nation wants to hold and control. It is actually the same for many other nations too. It may be that to get the wind business going four years ago that they might have said they could benefit from foreign participation. So it could be that though they had very strict requirements about how much you could participate, now while there is nothing on the books and none of these laws have changed, the practice has changed, which is causing everybody concern.

On the other hand if you look at water, which is also an asset of the nation, the water sector is not controlled. It is more open to foreigners. But there are numerous people who think that may change also not too far from now. So people are concerned about that area, because they can participate now, but once there is a certain amount of knowledge and skill capability transferred through joint ventures and private-public partnerships, there is a worry that they will then say that we know what we need to know so we do not need the foreign components anymore, so why don’t we close this sector. But this is what happens all over the world; it is not specific to China.

So in the report, for each of the 125 solutions, we show specifically on a comparative basis how open and closed each one is.

The other thing that we feel is that in the area of energy efficiency for instance, Japan is eight times more energy efficient and the USA is four times more efficient. So China has not only a poor rate of energy efficiency but also 70% of the energy is used by the industrial base, whereas in other nations it is more balanced with the commercial and residential uses. This is probably reflective of the fact that there are still huge amounts of people living in rural areas and that it is an industrial base which is not an advanced manufacturing technology industrial base, hence more labour intensive than high-tech. So the industrial base is highly energy-intensive, soaking up 70% of the nation’s energy resources. And now, state-run enterprises (ie: textiles, pulp & paper, etc.) have been given the mandate to improve their energy efficiency by 20% in the next five years.

Without any comment on good or bad, we evaluated the markets so that foreign parties can know where the government is saying ‘we want you to be involved’, so that they can go and focus on the right areas.

Marisha Wojciechowska-Shibuya: Does China have the capacity to also become an innovator of green technologies?

Ellen G. Carberry: At the very end of the report we make a comment on this to say that this remains unknown. Nobody knows the answer to that question. Clearly, they are trying to be innovative about green industrial transformation because they are a very strong command and control system that knows how to do macro-economic planning. This whole combination of bodies of laws, policies and principles is all moving the nation through this, much faster perhaps then anywhere else. On the other hand, the labs and the collaboration between universities and venture capital and private enterprise, is that all working as well as in the Silicon Valley to produce new innovative high-tech solutions? Absolutely not. Will they in the future? No one knows. There is a significant intent though. So we remain cautiously optimistic for that to be possible but there is no real proof of that yet.    

Marisha Wojciechowska-Shibuya: Assuming China really has the will and the capacity to leapfrog western industrial development models to build an environmentally-sustainable economy, what will be the implication for national economies worldwide?

Ellen G. Carberry: Here is what I think: I think global competition is a good thing. Open markets lead to competition, lead to better solutions, and lead to better outcomes at the end of the day. State-controlled enterprises do not have to innovate because they are protected from competition. So generally speaking market competition is a good thing. And ultimately the solutions we need do not even exist today; what we will be using for our energy 30 years from now or how our homes and buildings will be designed, all these things will change significantly in our lifetime. And competition fuels this shift. And the size of China’s internal needs is significant. And China needs to supply these things to its massive domestic market (ie: it will need to build 12 New York Cities in the next 20 years). And the problem with buildings is that you lock in that water-energy intensity for about 100 years. So if we consider that there will be that much urbanization, we certainly must hope that it will be built upon a much greener platform. Let’s hope that they convert to a cleaner transportation system. Therefore, for its own needs and its own people, there is a huge amount of solutions that need to be applied. For the global suppliers to bring their solutions into China, they need to be very practical solutions where the cost-differential of a green solution has to be quite small. Otherwise people will not replace. So that is going to force innovation. Many solutions that will come will be better than the old and affordable, so people will start replacing them. A good example of that are the solar water heaters which are most widely purchased and installed on Chinese rooftops. And once you have created a good solution for the Chinese market, you can export it anywhere in the world. So it might not be the most innovative things that come out of China, but it may be the most practical things that come out.

Marisha Wojciechowska-Shibuya: Which promising signs of China’s commitment to environmental sustainability should the world be watching for next?

Ellen G. Carberry: The work they are doing on carbon may well be the most promising and interesting thing to watch. For instance, in this current five-year plan the focus is on energy-efficiency and the State mandated the 20% improvement in energy efficiency which works out to be worth Germany’s total energy production annually. So when they get through this five-year plan, this will indeed be a significant achievement. Now we are reading that they might limit carbon next (ie: how much carbon can be emitted). I do not have any idea what they are thinking about yet, but I can imagine that this is something that would again happen through a top-down command and control of the industrial sector that is state-owned, to cap emissions. In the water sector, SO2 and BOD targets have been implemented and now the NOx targets are coming next.

A copy of the China Greentech Report 2009 can be downloaded at www.china-greentech.com

 

-  Marisha Wojciechowska-Shibuya is Senior International Editor at www.MaximsNews.com

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