A guest post by Lucia Green-Weiskel (pictured right) who describes a groundbreaking initiative in Guangdong to set up a greenhouse gas registry.
For the last 20 years there has been a global effort to quantify and more accurately understand greenhouse gas emissions. China and the United States – which together are responsible for 40 percent of the world’s emissions – have been latecomers to the mostly European-initiated efforts to quantify, standardize, manage and reduce greenhouse gas emissions and energy consumption.
But that is beginning to change as the Chinese government is making clear its own brand of energy-saving strategies. For instance, China’s energy-efficiency targets are one of the most ambitious and environmentally progressive policies in the world. However, to meet those targets, China will need to develop a system to quantify energy use. To the extent that China decides to take action on climate change more directly, it will also have to track greenhouse-gas emissions. If such monitoring system is to be accepted by the international community as a bona fide action in the context of international climate negotiations, it must be transparent, accurate and reliable, in line with international standards and accompanied by a system of third-party verification. An online carbon and energy registry will support China’s drive to meet its own energy targets, facilitate bilateral cooperation between China and the US on climate change and support China’s participation in international agreements on carbon reduction. But questions remain about how to implement such a tool, who should administer it and the methodology to use.
Creating a Registry
In response to this need the Innovation Center for Energy and Transportation (iCET) has developed the Energy and Carbon Registry, the first ever, public, government-supported, online registry for carbon emissions and energy consumption reporting system in China. The ECR is a Read the full story
The following is the complete transcript, modified and supplemented for completeness and readability, of the closing speech that the author of this blog (pictured below) delivered on November 11 at the JUCCCE Clean Energy Forum in Beijing.
We are at war. A world war. But unlike World War I or II, this is not a war about military tanks, but it’s a war about gas tanks. This is not a war about military strength, it’s a war about political strength, and innovation. This is not a war about conquering territories, its about conquering our addiction to fossil fuels. And unlike the first two wars, we are all fighting from the same side. We are engaged in a global energy and climate war. We have essentially, through our reckless consumption of the earth’s natural resources, provoked an unanticipated response in the world’s climatic system. We have essentially pitted Mother Nature against Mother Nature, and we are all caught in the middle.
So what now?
We need a serious restructuring of the way we organize our energy system, implement new rules and policies, and adopt new ways of using energy. We need to, as Rob Watson says, change transform “ego-nomics” into “eco-nomics,” and we do this by appropriate adapting human laws to the immutable laws of nature.
So how do we get there? How do we achieve the innovation to meet the energy-climate challenge? We need an smart and well informed mix of regulatory and market mechanisms. There is no single silver bullet, but I believe that over the past two days of discourse, we have collectively started forming a framework for the array of solutions, a full complement of many green bullets to get the green revolution under way. I see three themes emerging from our discussions: Read the full story
Nuclear is Hot. Big 5 power company China Huaneng Group has signed contracts with suppliers to equip its first nuclear power plant in Shandong province. The plant, planned for 200 MW in its first phase with a 2013 start date, will boast “high temperature, gas-cooled technology” (HTR-PM), which is supposed to be safer and simpler in design compared to conventional nuclear plants. It is the smallest of 21 plants in China’s nuclear pipeline. For the tech geeks our there, Tsinghua University, one of the purported suppliers of nuclear equipment for the project, has put out a paper describing HTR-PM. A review of China’s nuclear sector is really overdue here at The Green Leap Forward. Watch for it.
Solar-Powered Water. The Xinjiang government has invested RMB 160 million ($23.5 million USD) in a drip irrigation system powered by solar panels. [Pictured: a picture of a generic drip irrigator stolen from the interweb]. Elsewhere, China Solar & Clean Energy Solutions has been awarded a US$3.5 million solar water heating project in Shenzhen. Separately, the Beijing government announced it will invest RMB 13 billion (US$1.9 billion) over the next three years in Read the full story
Last week, Singapore International Water Week was held together with two other high profile conferences—the World Cities Summit and the East Asia Summit Conference on Livable Cities—in Singapore. With the focus on Asia and water, China water issues naturally took center stage. The Green Leap Forward takes a look at China’s unique water challenges, and a handful of companies seeking to turn crisis into opportunity.
If you’ve read Elizabeth Economy’s The River Runs Black or The New York Times’ doom-and-gloom Choking on Growth series, you’ll probably have a rather bleak picture of China’s water problems. Here’s a run-down on the unique factors shaping China’s water situation:
1. Demographic Mismatch
There is a two-fold demographic mismatch. First, China has about 20% of the world’s population, but only 7% of its water resources to sustain it. Second, there is a stark regional north-south imbalance. According to the Asia Times,
Only 14.7% of the country’s water is distributed in the vast areas to the north of the Yangtze [River], where the amount of arable land accounts for 59.2% of the national total, and the population makes up 44.4% of the total. The per capita share of water in Tianjin municipality in northern China is only one-10,000th of that in Tibet.
There are ambitious plans to build a south-north water diversion project from the Yangtze River to Beijing. First proposed by Mao Zedong in 1952 but only approved by the State Council in 2001, the project will cost a whopping US$60 billion, twice the cost of building the Three Gorges Dam. In the meantime, Beijing is relying on stop-gap water diversion measures from neighboring Hebei province to ensure sufficient water supply for the upcoming Olympics. A newly released report by Probe International provides a blunt critique of Beijing’s water policies over the past 60 years.
2. Growing Demand
The growing demand for water is underpinned by China’s continued industrialization with per annum GDP growth of 9 to 10%. As The New York Times points out, “[i]ndustry in China uses 3 to 10 times more water, depending on the product, than industries in developed nations.” The Clean Tech Revolution cites a US EPA report that says that it takes 40,000 gallons of water to manufacture a car and 60,000 gallons to manufacture 1 ton of steel; presumably, the water requirements for such processes are even higher in China.
As global food prices soar, policies to encourage grain self-sufficiency will stimulate more grain agriculture, a very water-intensive practice. Increasing proportions of meat in Chinese diets will add additional strains on water; reportedly, some 260 gallons of water are needed to produce 2.2 pounds of wheat and 3,380 gallons of water are needed to produce 2.2 pounds of beef.
As China’s energy demands soar, the construction of new coal, and soon. nuclear plants, both of which require large sources of water, energy consumption must surely become a new performance metric in assessing viable future energy options. The Green Leap Forward will delve more into the water-energy nexus in a future post.
The concentration of heavy industry along water sources means that at least 70% of China’s rivers and lakes are polluted and half of China’s cities have contaminated groundwater. Low sewage treatment rates (STR) are largely to blame, which according to water company, New China Ventures, stand at 42% for the whole country and is as low as 20% in most third-tier cities. Low sewerage treatment fees in Southern China have been blamed for underinvestment in sewerage works in that region. Hopefully, the current five-year plan to up STR to 70% will reverse this trend. For a more detailed study on China’s water pollution woes and some policy recommendations, check out this World Bank report.
A revised water law has been passed that significantly raised penalties for pollution and civil society has ramped up its efforts to improve pollution enforcement. The Institute of Public & Environmental Affairs (IPE), an NGO directed by leading Chinese environmental crusader Ma Jun, has set up the China Water Pollution Map, a publicly-available database on water pollution information aimed at increasing transparency on pollution violators.
4. Management Challenges
There is a lack of cross-province coordination and transparent decision making, making water rights planning difficult in Northern China. Said Christine Boyle, a Beijing-based Fulbright Scholar on China water issues and a project consultant to IPE’s program on building corporate accountability for a green supply chain, in an exclusive interview with The Green Leap Forward:
Despite presence of the Yellow River Conservation Commission to integrate the Yellow River management, provinces remain highly territorial over their rights to river water. However, there is no formal property rights system for water (e.g. “prior appropriation” or “riparian rights”), so the ways water planning works is kind of a black box with no transparent-decision making and no public participation). This makes it very difficult to assess future demands, needs, and supply of water for future projects.
Furthermore, Boyle explained, there is limited oversight of small-scale upstream water withdrawals, making accounting for water volumes very difficult:
There are as many as 10,000 diversions off the Yellow River, mostly by villages and irrigation districts pulling water for irrigation. This contributed to the unexpected drying up of the Yellow River for over 100 days in 1997.
Boyle further points out that in Southern China, the high number of transboundary rivers originating on the Tibetan Plateau (Mekong (Lancang), upper Indus and Brahmaputra rivers) limits the political feasibility of water project development on these large and relatively undeveloped rivers.
A pilot project described by China Dialogue is underway in Chongqing to introduce water rights trading that will surely garner nationwide attention.
5. Complex PPP Operating Structures
Unlike its booming and well-finance renewable energy industries, China’s water infrastructure is more heavily dependent of foreign inputs of capital, technology and management. Yet, such dependence understandably stokes up fears of water privatization and water tariff increases. Water tariffs in China have traditionally been kept below cost on the principle that it is a fundamental resource that should be universally accessible. One might argue, however, that it is precisely this undervaluation of the true cost of water that has caused overdepletion of its water resources. The debate on the privatization of water may not be fully settled, but it is an unambiguous global trend that represents increasing market-orientation of water services.
However, regulatory complexities in China do not make it easy for private investment in this sector. There is a bewildering array of models that public-private partnerships (PPPs, defined as contractual arrangements between a public sector agency and private entity whereby resources and risks are shared to develop public infrastructure or deliver a public service/good) could take. Click here for a detailed primer on PPPs, courtesy of a Canadian government study. At a recent water conference in Beijing, Cleantech Group, observed that:
Speakers detailed the pros and cons of the confusing array of private/public partnership (PPP) models currently experimented with in the water industry in China, including build-own-transfer (BOT), build-own-operate (BOO), build-transfer-operate (BTO) and design-build-operate (DBO) for greenfield projects. Other models include transfer-operate-transfer (TOT) for existing treatment facilities, and a structure called foreign invested venture capital enterprises (FIVCE) when local Chinese ownership was still desired. The more popular arrangement, however, was offshore holding so as to facilitate IPOs on international exchanges.
The article goes on to suggest that experts do not foresee any PPP model standardization anytime soon.
So What Now?
The urgency of China’s water problems is not lost on the Chinese government. Water quality and quantity issues figure prominently in the Ministry of Environment’s five year plan for 2006-2010 (available here). We all hope the government is aggressive about pursuing these objectives as it is with regards to it energy efficiency targets.
On the business side, the water crisis represents a big opportuinity. According to a People’s Daily article:
In its 11th five-year plan, the Chinese government projected that the total investment in its water sector would amount to almost RMB1 trillion from 2006 to 2010. Of this, some RMB300 billion would be for investments in sewage and water reclamation projects, and RMB100 billion for rehabilitation of the water supply network and infrastructure. Projects to divert supplies to cities suffering water shortages will also attract large investments.
For another perspective:
Shen Yen, Deputy Director of the Economic Reference Development Research Center of the State Council, told two hundred delegates the Chinese government believes “trillions of RMB” is needed in water treatment, supply and wastewater infrastructure.
“Between 200 billion and 300 billion RMB will be government investment, all else will need to be private capital,” he acknowledged.
A number of foreign companies are making notable forays into China to help slake China’s thirst. And why wouldn’t they be, since some of the industries under which foreign investment is explicitly “encouraged” per the Catalogue for the Guidance of Foreign Investment Industries include water pollution control and monitoring, and wastewater and sewage treatment. The companies in question can be divided into two general categories:
A. Technological/Product-driven Solutions
Three American companies are bringing their products to China to address different aspects of China’s water woes.
GE sees large opportunities in China. It is helping steel giant Baosteel Group increase its water efficiency and will deploy its membrane bioreactor (MBR) technology at Taihu, China’s third largest lake that has received a lot of recent bad press for its massive algae-blooms.
Technology for desalination—essentially converting seawater to freshwater—will gain increased investor attention with the imminent IPO of California-based Energy Recovery,Inc. (ERI), a maker of energy recovery devices for salt water reverse osmosis (SWRO) desalination systems, which consists of pushing seawater through filtering membranes under high pressure conditions, to produce freshwater. Desalination is not a new technology, but has been slow to catch on due to high capital costs and energy requirements. Advances in cost reductions and energy efficiency is bucking this trend. For instance, the SWRO process is replacing thermal processes (the boiling of sea water and condensation and collection of the resulting steam in the form of freshwater) as a more energy efficient means of desalination. Citing Global Water Intelligence, the company says in its IPO prospectus that China’s desalination capacity is expected to grow approximately 24% per year from approximately 600,000 m3/day in 2005 to over 5.3 million m3/day by 2015. ERI’s PX line of pressure exchangers has only one moving part, a ceramic rotor, that transfers pressure energy from the high pressure concentrate/reject stream to the low pressure seawater stream — allowing it to recycle its own energy and reduce its consumption by 60 percent and achieving a 98 percent energy efficiency (click here for more details on ERI’s PX technology). The company says that over the last five years, its PX device was selected for 14 new SWRO plants in China, which it believes represent a majority of the new SWRO plants commissioned during the same period. One such plant is at the Yuhuan Power Station in Zhejiang province.
Energy Recovery’s PX Technology
Watts Water Technologies, another US company and listed on the New York Stock Exchange addresses the global water issue from different part of the value chain—the pipes and valves that make up the water distribution system. Besides locating a portion of its manufacturing operations in Tianjin, Taizhou and Ningbo, Watts also participates in the China domestic market through its 2006 acquisition of Changsha Valve Works, which at the time of acquisition sold large diameter hydraulic-actuated butterfly valves for thermo-power and hydro-power plants, water distribution projects and water works projects in China. As Watt’s management explained in a recent earnings call, they have had some setbacks in their China operations this year, not least being the ice storms that affected their Changsha facility adversely, but they remain firmly “bullish on the Chinese domestic market.”
B. Facilities Management
A different approach is more service oriented, focusing on operational and management experience rather than cutting-edge technologies or products. The following companies provide utilities services, seeking to finance, build, own and/or operate water treatment, recycling or distribution infrastructure throughout China:
Veolia is a French-based water utility and the largest in the world and is making its presence felt in China as well. In its green issue last year, Vanity Fair provided an interesting account of Veolia’s exploits in Liuzhou, Guanxi Autonomous Region, and Shanghai Pudong. Veolia also entered into a major joint venture in Tianjin last year to provide comprehensive water treatment services.
The next group of companies are from Singapore, which has very quickly established itself as an international water hub.
Sembcorp owns and operates wastewater treatment, water recycling and water treatment facilities, particularly for industrial purposes, in Singapore, China, UK and the United Arab Emirates. In China, it has recently signed agreements to develop water recycling plants and a R&D center in Zhangjiagang, Jiangsu province, expanded wastewater treatment capacity in Nanjing, Jiangsu province, and committed to develop centralized utilities projects in Qingzhou, Guangxi province.
Hyflux, has established a strong presence in China, with 44 different assets covering wastewater treatment and water recycling across the nation, in Anhui, Liaoning and Shandong among other provinces. It is also building China’s largest desalination plant in Tianjin using its proprietary ultra-filtration technology Costing about US$115 million, the plant will have a capacity of 150,000m3 per day. According to Reuters:
Sam Ong, the company’s deputy chief executive, said that he expected annual growth in China of 20 percent to 40 percent and that Hyflux was looking to fund new plants.
“We are in a sweet spot right now targeting second-tier cities in China; the global guys aren’t in this market, and the local players don’t have the technological know-how,” Ong said, referring to cities like Chengdu, Hefei, Xi’an and Xiamen.
Other Singapore based companies active in China include Dayen Environmental, Darco, Ultra-flo and Asian Environmental Holdings. But perhaps what China’s cities can best take from Singapore more than any single investment by a company or deployment of technology are the lessons taught by Singapore’s highly successful systems-level and integrated approach to urban water treatment, catchment, storage, distribution, recycling and recovery, as documented in this paper…or risk becoming another Iraq.
As a sidebar, what does everybody think of the bottled water industry?
Peggy Liu, founder and Chairperson of Joint US-China Cooperation on Clean Energy (JUCCCE) , an innovative bilateral public-private partnership based in Shanghai, speaks to The Green Leap Forward.
Energy cooperation was one of the key issues that underpinned the fourth US-China Strategic Economic Dialogue held last week. Vice-Premier Wang Qishan, the head of the Chinese delegation released a statement calling for increased cooperation between the two sides on several fronts, including R&D, coordinated energy policies and increased bilateral dialogue. The energy discussions culminated in a commitment to negotiate a ten year energy and environment agreement.
Encouragingly, however, a handful of individuals and organizations have not waited for any ink to be spilled in the diplomatic arena before jumping into action. One such individual is Peggy Liu and her organization called Joint-US Cooperation on Clean Energy (JUCCCE).
The Juice on JUCCCE
JUCCCE was founded in April 2007 by Peggy Liu, a former McKinsey management consultant and COO of Mustang Ventures, a Shanghai-based venture capital firm. The organization was launched out of the MIT Forum on the Future of Energy in China held last year in Shanghai, where JUCCCE is also now based.
JUCCCE is a non-profit incubator of cleantech and energy efficiency capacity building institution initiatives seeking to serve, as Liu describes it in the video below, “a single bilingual and bicultural organization that will act as a hub of information exchange and cooperation” on clean energy in China. Based on the observation that China’s rapid development has it compressing 30 years of industrialization in the space of ten, JUCCCE has set itself a ten year mandate to create a legacy of self-sustaining, local capabilities. Tapping into Liu’s vast network of top minds whom she has become acquainted with as a result of her stints at consulting and venture work, JUCCCE conducted a comprehensive study of the Chinese energy industry and identified a dozen key projects designed to create the greatest impact in the shortest amount of time. What I love is the Chinese name for the organization, which is 聚思 (jǘ sì), which is not only a phonetic translation of the acronym, but by itself literally, and appropriately, translates in English to “collective thought” or “coalition of thinkers.”
Underpinning JUCCCE’s philosophy are three fundamental observations (the need to accelerate information flow, need for integrated urban planning and need to strengthen supply chains) which Liu describes in the following video:
Based on these observations, JUCCCE has formulated a three-pronged approach of education (skills building and leadership development at every level through effective channels), collaboration (with international and local institutions, taking advantage of web-based communications) and deployment (of customized green strategies for specific industrial sectors).
On education, Liu elaborated in an exclusive interview with The Green Leap Forward:
China doesn’t have an energy policy problem [GLF note: see, e.g. the various progressive policies that this blog has highlighted in its maiden post], rather, it has an energy workforce problem. We can have all the solar panels we need free of charge and that will not be enough if we don’t have the necessary skilled people to install these systems and maintain them. So, we believe that people matter…Education and skills building are very important.
Liu continued to explain that the ability to implement these progressive energy and environmental policies or programs is most effectively achieved through the strategic targeting of “channels of decision makers” rather than individual decision makers. Because Liu wants to teach the Chinese how to fish rather than catch the fish for them, JUCCCE’s programs are designed to be replicable and scalable. Let’s take a look at two of JUCCCE’s programs that Liu described for The Green Leap Forward, and that targets the decision-making channels of mayors and schools, respectively.
Mayoral Training on Energy Efficiency
One program is the Mayoral Training for City-level Energy Efficiency Programs, which was announced as a one of the commitments under the Clinton Global Initiative in 2007. As the name of the program implies, JUCCE is planning workshops to equip mayors of cities nationwide with energy efficiency solutions to deploy in their home jurisdictions. JUCCCE will partner with international experts and energy efficiency solution providers (many of which are multinational corporations) in order to build a web-based database of best practices and products, sector-by-sector, that can be presented to, and easily deployed by, the workshop participants.
The importance of focusing on cities is obvious. I have previously highlighted a McKinsey report on China’s rapid urbanization to facilitate the largest scale of rural-to-urban migration in history—approximately 350 million by 2025. “In China, city mayors are the kings of their fiefdoms, so it is really important to target them,” explains Liu, referring to the broad authority of city mayors in determining economic and development policy. This acceleration of information flow of best practices/products targeting mayors as key channels of decision making becomes even more effective when coupled with the State Council’s new policy to include environmental and energy efficiency criteria in the promotion evaluation of local and provincial bureaucrats, as well as the national goal of increasing energy consumption per unit of GDP by 20% by 2010 (see here).
Shanghai Lighting Program
Another noteworthy JUCCCE program involves the replacement of 10 million conventional incandescent light bulbs with energy efficient compact fluorescent light (CFL) bulbs in Shanghai. The brilliance of this lighting program is two-fold. First, it targets youth by directly enlisting the help of Shanghai school children for distribution. Each student will receive up to 18 CFL bulbs and will be asked to bring back an incandescent bulb for every CFL bulb they replace it with. Liu conservatively estimates that the program will reduce approximately 2.2 million tons of carbon dioxide emissions over the lifespan of the CFL bulbs. This is environmental education at its best— empowering the young to recognize that little actions can make a difference by coordinating and aggregating individually small efforts into part of a large-scale city wide program with substantive results.
Second, the method of financing the program is highly innovative. The purchase of the CFL bulbs will be made by proceeds from advertising on the packaging of the CFL bulbs and by the clean development mechanism (CDM) under the Kyoto Protocol. JUCCCE and its partners are exploring the possibility of structuring the project as a programmatic CDM, which I have previously described in the context of Xiamen’s ecocity efforts. Although Liu recognizes the legal and technical complexities involved in structuring such a CDM project, she is hopeful that such a program would be approved by the CDM authorities as it would represent of the first energy efficiency lighting programs to ever use the CDM.
Liu expects the program to launch in the next six to seven months, but JUCCCE has in the meantime partnered with Citi and GE to hold a pilot program distributing 10,000 CFL bulbs last November (pictured). The hope is that the success of this larger CFL lighting program can be adopted and replicated in cities across the country.
Why JUCCCE Matters
What makes organizations like JUCCCE so important in tackling the energy and climate challenges of our day is that it effectively bridges the gaps between the public and private realm. In the vocabulary of an economist, it helps correct market failures such as free rider problems and information asymmetry and creates incentives or platforms for businesses and policy makers to undertake clean energy initiatives that they would not normally undertake. This is demonstrated well in the two projects described above. In the case of the mayoral training program, information asymmetry is overcomed by the creation of a web-based database. In the case of the Shanghai lighting program, financial barriers are overcome through the use of innovative financing techniques.
China, and the rest of the world, needs institutions like JUCCCE to “fill in the gaps” because of the limitations to motivations/incentives inherent in political and commercial institutions to take action. The Green Leap Forward looks forward to profiling more innovative organizations like JUCCCE that are breaking silos to redefining how all stakeholders can think about tackling our energy and climate crisis.
Publicly listed Chinese companies will soon be subject to heightened environmental disclosure requirements. It is reported that the State Environmental Protection Administration (SEPA) is developing a set of disclosure rules that may go further than their Western analogues, potentially requiring the reporting of SO2 and CO2 emissions and energy efficiency indices (see, e.g. current efforts in the U.S. for heightened climate change-related disclosures). Click here for a more detailed analysis on corporate environmental disclosure in China.
This is yet another example of the Chinese government deploying gatekeeping mechanisms in the debt and capital markets, building upon its green credit policies. Viewed another way, it is also another addition to regulatory tools employing information strategies to encourage environmental compliance. Earlier, we have seen name-and-shame tactics that form the basis of the China Air Pollution Map and China Water Pollution Map. Other efforts are underway to build environmental technology databases to help companies and governments to adopt greener technologies and practices.
But mandatory self-reporting is different in that the data is self-generated, encouraging self-awareness and increase self-reflection (a “reflexive law” approach as environmental law scholars would term it). Investors and consumers are logical target audiences of such green disclosures. However, recognizing that the jury is still out as to whether superior environmental performance necessarily correlates with superior financial performance and that consumers make choices based purely on the greenness of products, the most important target audience of such data are the reporting companies themselves. In many cases, these enterprises do not fully appreciate the extent of the environmental impact of their activities; requiring such companies to conduct environmental and energy audits will bring such information to bear, and if mandatory environmental reporting regimes in other countries are any indication (case in point, the U.S. Toxics Release Inventory program), the public scrutiny of such disclosures is alone enough to spur the reporting companies to improve their environmental performance voluntarily, without any additional regulation.
While the establishment of a disclosure regime is a promising start, such information strategies are not much use if the information is not effectively disseminated or analyzed. The public availability of such information must be complemented with the analysis and comparison of such information across companies in like industries, and therein lies the opportunity for information aggregators and sustainability consultancies to explain to the public, and the reporting companies themselves, whether the reporting companies have met the grade.