Top Stories: Cash for renewables; China may raise fuel economy standards; Pledges smart grid by 2020; Beijing water price hike
I’m not one for sensationalism, but my gosh, when multiple news sources are reporting that the much anticipated renewable energy stimulus package will is going to be for the massive amount of 3 trillion yuan ($440 billion), its hard to resist. The amount is startling, considering that is is three quarters the size the economy-wide stimulus plan announced last November. No details have been given about the allocation of these funds; the news reports are saying a focus on wind, given the recent tripling of wind energy targets in 2020 to 20 GW installed capacity.
But given the size of the funds, one must really wonder if this is going to be a big handout to the nuclear industry, which itself benefited from a national target boost to 70 GW installed capacity by 2020, or big hydro for that matter. Unlike the November stimulus package, which was meant to be a short term boost for industry, this renewable energy package seems to be more far-sighted money, meant to be deployed over time from now till 2020. $440 billion is still quite a large sum considering that National Energy Bureau division chief Liang Zhiping was recently quoted as saying that a sum of $190 billion was needed to realize China’s 2020 renewable energy targets, but more consistent than the forecast by New Energy Finance last year that $398 billion (or $268 billion excluding big hydro) is needed. Then again, we also don’t to what extent nuclear, big hydro and grid infrastructure figure into the $440 billion on $190 billion numbers (they do not in NEF’s $268 billion forecast), so its all very hard to say.
“This climate change crisis is a game-changer in U.S.-China relations…an opportunity that cannot be missed”
- Nancy Pelosi, U.S. House Speaker, May 26, 2009 in Beijing.
The nomination of Jon Huntsman, currently the governor of the state of Utah, as the U.S. ambassador to China brings back into focus the role of clean energy cooperation in the furthering of U.S.-China relations. The choice of Gov. Huntsman has been lauded for various reasons-his fluency in Chinese, his track record as an Asian diplomat, the bipartisanship on the part of President Obama in nominating a Republican for the position (although some say he did so to take Gov. Huntsman, a likely Republican contender for the 2012 elections, out of contention)-but receiving less attention is the fact that Gov. Huntsman is a vocal advocate of the clean energy economy and the greenest governor that Utah as ever had (see youtube video interview).
The siren calls for US-China collaboration on clean energy and climate change action have been sounding nonstop ever since a new sheriff took over in Washington, D.C. Such exhortations are well grounded in the similarities of the two countries’ energy profiles. China and the U.S. are the two largest emitters of greenhouse gases (GHG) in absolute terms on annual basis, both are heavily reliant coal for power and imported petroleum for transportation fuel and other non-transportation uses and both have had (and continue) to build continental-wide energy infrastructure to support a large population. Various groups, such as Brookings Institution, Asia Society and Pew Center, Natural Rersources Defense Council, and Carnegie Endowment for International Peace have recently published reports providing policy recommendations for clean energy cooperation to form the basis of a momentous new chapter in U.S.-China diplomacy.
But Elizabeth Economy and Adam Segal warn in a recent piece titled “The G2 Mirage” in Foreign Affairs (subscription required) that we are only setting ourselves up for failure we we think that the U.S. and China are the only players in the game: Read the full story
Today’s Green Hops, focusing on energy supply, is a continuation of yesterday’s.
Two important macro-policy documents are in the works. CELB reports that the comprehensive Energy Law may be passed in 2010 (though this Chinese clipping suggests it may be as early as this year), and that the 12th Five-Year Plan for Energy (2011-2015) is in draft mode. Nuclear, wind and hydro seem to bet the alternative energy sources of choice. This alternative energy review by China Daily, in its “Mixed Energy Forecast” seems to similarly suggest the short shrift given to solar. How unimaginative. I’m sure the solar industry would have something to say about that. In fact, it has (see solar section below).
Before turning to the knitty-gritty of the green and brown energy news developments over the past weeks, I would like to highlight a sage piece of advice from CELB, that recognizes that China is still in many ways, but especially economic development, very much a “Rule by Plan” rather than “Rule of Law” society: Read the full story
In the wake of more bad (good if you are for green) news in China’s auto sales trends, GLF is observing an increasingly resonant cacophony of green washing in the auto sector…
Haifei Automobile Group joins the electric vehicle race and sets its sights on launching the Haifei Saibo electric vehicle in the U.S. markets later this year. Lithium-phosphate battery maker China BAK is getting government support for R&D. GreentechMedia debates if the U.S. will move from Arab oil dependence to Asian car battery dependence. Another angle is if both the U.S. and Asia moves towards South American lithium dependence.
Beiqi Foton Motor (SHSE: 600166) established China’s first manufacturing and R&D base for new energy vehicles in Beijing. The base covers an area of 1,000 mu (around 66.67 hectares), with a total investment of Read the full story
Energy Price Reforms
NDRC announced that it would be removing price caps on coal from next year in a move towards a more market-driven price mechanism. This move comes at an opportune time when coal prices have dropped by 30 to 40% since the summer, but GLF points out an earlier post (see finding #4) on a recent MIT coal report that suggests the upstream coal industry has already moved towards a de facto market price system. Although the NDRC move “is a step in the right direction,” Huang Shengchu, president of Beijing-based China Coal Information Institute says in this interview that government macro-control is still needed to protect the rights of various coal stakeholdres in their contractual dealings with each other, accerlarate industry consolidation of the many small and inefficient mines and to set up a coal price index.
Separately, the proposed auto fuel price reform kicked in earlier than expected. So it turns out that the answer to our confusion (see earlier post) of how the government proposed to hike up taxes and keep fuel prices even was that they would adjust the base fuel price downward, predicated on Read the full story
China is not going to solve its energy problem if it does not solve is water problem (see previous post on “China’s Water Torture“). It is as simple as that.
The fact is, the exploitation of just about every energy resource (including renewables, but especially fossil fuel) requires water. Conversely, the purification of water for drinking requires energy, and some purification methods, such as desalination, require a lot of it.
Click to enlarge. Source: “Energy Demands on Water Resources” a December 2006 report by the Sandia National Labs to the U.S. Congress on the interdependency of water and energy that remains the definitive report on the topic.
In energy resource and water scarce China, the energy-water nexus, or watergy, is a twin threat. Power production in China has to compete with agriculture, industries, and environmental flows for an already scarce resource. China relies heavily on coal for electricity, is pushing hydro power and nuclear as major alternative sources of energy. Coal-to-liquids (CTL or coal liquefaction) has also been cited as a way to reduce China’s dependence on oil imports. According to the Pacific Institute, there have been Read the full story
Just how real is China’s renewable energy revolution? It may be manufacturing a lot of cleantech goods, but the extent of domestic uptake leaves more to be desired. At the same time, global supply chains face the increasing strain of sustained high oil prices. What does the end of cheap oil, decades of which has subsidized international trade, mean for China’s new green path?
The Climate Group just released an upbeat report, China’s Clean Revolution, which lauds China for trailing only Germany in 2007 for renewable energy investments (US$12 billion vs. $14 billion), for leading the world in installed generating capacity of renewable energy at 152 GW by the end of 2007, and for being a leading manufacturer across various low carbon technologies. There is no question that China has serious ambitions in the renewable energy sector. A recent announcement that a Jiangsu-based solar company is contemplating a US$1 billion IPO (which as far as I know would be the largest cleantech IPO ever) on the New York Stock Exchange is testament to this.
But all that glistens is not gold, to use Olympic-speak. While much is being made about the $12 billion that China invested in renewables in 2007, the fact that $15.7 billion was spent “greening” the Olympics (see previous post) and that the Beijing games cost $40 billion in total lends a sobering context to this amount. The 152 GW figure mentioned above comprises mostly of hydropower, and much of it or the large-scale and ecologically and socially destructive sort. Only less than 6 GW of that is wind—amounting to 0.6% of China’s electricity production—and even then, a quarter of that remains unconnected to the grid. And solar PV? Only 80 MW (i.e. 0.08 GW) was installed at the end of 2007. Despite being the world’s leading manufacturer of solar PV panels, over 90% of that is exported.
In other words, focusing on China’s dollar amount of investment in clean energy and the volume of its clean energy manufacturing and exports misleadingly conflates the supply of clean renewable power with the adoption and uptake of such technologies, the latter of which should be the true measure of sustainability.
A Central Role in the World Economy
China’s place in the global fight against climate change is a unique one, not only as the fastest growing developing country and the impact of its activities simply because of the sheer scale of its economy in proportion to the world’s, but because of its central position in the supply chains of a vast majority of consumer products worldwide. In fact, it is reported that China will eclipse the US as the largest manufacturing base in the world next year—some four years ahead of schedule—and that some one third of China’s carbon emissions are attributed to exported goods (frankly, I thought this figure would be higher). All roads lead to China, so to speak.
Is China entirely to blame? The Worldwatch Institute notes that China’s share of global emissions has risen sharply since the turn of the decade. This more or less coincides with China’s entry into the World Trade Organization, and reflects the increasing preeminence of heavy industry in its economy as industrialized economies outsource their manufacturing—and emissions—offshore. It is reasonable to conclude that China’s rising carbon footprint is in no small part attributable to the consumer demands of its trading partners and points to the challenge of apportioning blame responsibilities on a geographic basis, as the current international climate negotiations attempt to do. Framing international climate policy in such terms is like trying to fit a square peg into a round hole because it simply sweeps over the fact that supply chains have become, after decades of low energy prices, highly transnational in nature.
But the sustained climb in oil prices over the first half of this year (recent price correction notwithstanding) may start to tilt the balance in reverse, making logistics more expensive and creating challenges for supply chain managers of every transnational business. The New York Times observes:
The cost of shipping a 40-foot container from Shanghai to the United States has risen to $8,000, compared with $3,000 early in the decade, according to a recent study of transportation costs. Big container ships, the pack mules of the 21st-century economy, have shaved their top speed by nearly 20 percent to save on fuel costs, substantially slowing shipping times.
Can we expect a fundamental rearrangement of global production chains in an environment of sustained high oil prices?
One likely outcome if transportation rates stay high, economists said, would be a strengthening of the neighborhood effect. Instead of seeking supplies wherever they can be bought most cheaply, regardless of location, and outsourcing the assembly of products all over the world, manufacturers would instead concentrate on performing those activities as close to home as possible…In a more regionalized trading world, economists say, China would probably end up buying more of the iron ore it needs from Australia and less from Brazil…
It is fair to wonder how the neighborhood effect, if it plays out, would affect China’s ambitions to be the international manufacturing hub of low carbon technologies, as such manufacturer’s seek to locate their operations closer to their markets. The era of cheap energy has subsidized decades of globalization and international trade has come to a conclusive halt.
Stuff vs. Knowledge
Although I may sound like an anti-globalizationist, I assure the reader I am not. I am just more selective in the kinds of things that I feel should be globalized. By making this statement, I am distinguishing between the international flows of stuff from those of knowledge. Generally speaking, unrestricted flow of stuff = bad, but unrestricted flow on knowledge = good. Citing Herman Daly, the father of the field of ecological economics, Brian Milani asserts in his brilliant book Designing the Green Economy (a must-read) that:
…intelligent economic policy today should entail (1) putting more restrictions on the wasteful long-distance flow of material goods and resources, and (2) decreasing restrictions if the flow of information…current trends in capitalist globalization are moving in precisely the opposite direction: toward decreasing restrictions on goods through free trade, and toward growing restrictions on the flow of information through intellectual property rights.
This drive towards dematerialization stems from the basic understanding that the transported manufactured goods contain a high amount of embedded energy, most of which at this stage originates from high carbon fossil fuels. The transfer of knowledge, on the other hand, relies on the transmission of electrons, requiring an infrastructure of transcontinental fiber-optics that is far less carbon intensive that trans-ocean shipping.
The premise of this “intelligent economic policy” is that goods and information are, to a certain extent at least, cross-substitutes. To the extent that knowledge of, say, green technologies (the know-how rather than the physical good) or best practices to lower the carbon footprint of the operations of a particular heavy industry leads to a decrease in resource inputs and resulting waste streams (and hence material flow), this premise holds water, and points to a different, softer path towards trade liberalization.