China’s chaotic leap forward to a green economy
When most people talk of China and its environmental and energy challenges, they tend to paint a very bleak picture. While this view is historically justified, things are changing fast in today’s China.
Criticism of China’s environmental record has been traditionally well-justified. After all, China: 1) displaced the US as the world’s largest energy consumer as of 2009 – doubling its energy consumption between 2000 and 2009; 2) produces the world’s highest pollution levels, with 16 of the top 20 most-polluted cities in the world being in China; and 3) now has total annual vehicle sales higher than that of the US.
Add to this picture the fact that approximately 62% of China’s current electrical power generation is derived from thermal, mainly coal-fired, generating plants and much of China’s industrial pollution emanates from plants with dated technologies.
China invests hundred of billions in green economy
The flip side to this gloomy portrait is that China is actively migrating to a green economy, albeit in sometimes chaotic fashion. Indeed, in 2012, China had the highest level of investments in clean energy, totalling $67.7B – up 20% from 2011 due to a solar sector surge. The US was in a distant second place with $42.4B in clean energy investments in 2012.
With these sharp contradictions, one might be tempted to conclude that China is schizophrenic on environmental issues. However, that would be unfair because the trends are shifting in favour of clean technologies, supported with massive investments by the national government.
In fact, in 2009, China committed a staggering $223B to clean technologies, sustainable development-related R &D, energy efficiency and emissions and pollution control. In August 2012, it announced a new plan for $372B up to the year 2015.
Concurrent with the aforementioned investments, under the 2009 China Renewable Energy Law, China introduced: 1) a Feed-in-Tariff (FIT) for renewables (a fixed price paid above market prices for all renewable energy sources that sell into the grid), and 2) Right-to-Connect obligations that require all grid operators buy all of the renewable energy produced in their respective regions. (Note: the FIT and Right to Connect formula was conceived in Germany and has since been copied by 40 governments around the world, including Ontario, until that province abandoned the model in response to a WTO ruling over provisions requiring the use of locally-built technology to qualify for the program).
China’s renewable energy quota
Complementing the FIT and right to connect programs, in 2012, China began to implement a quota system for provinces and cities for the amount of their energy that must come from renewable sources.
Against this backdrop, China has become the world’s fastest growing wind energy market. With 13.2 gigawatts (GW) of new wind power capacity added in 2012, the total wind installed capacity reached 75.6 GW by the end of 2012. (To put this in a relative perspective, Quebec’s current total installed electricity production capacity, including Churchill Falls, is 44 GW). Projections are for over 16 GW of new installations in 2013 and 17 GW and 18 GW for 2014 and 2015 respectively. China’s unofficial target is 200 GW by 2020, but that may prove an underestimate.
Half million wind sector jobs by 2020
In terms of jobs in the wind energy sector, the projection is that from the 150,000 jobs in China’s wind sector in 2009, the numbers will rise to 500,000 jobs by 2020.
Unfortunately, in its haste to advance its wind and solar energy sectors – from the development of clean energy manufacturing capacity to the construction of wind and solar farms – China “forgot” to invest in corresponding increases in electricity transmission capacity. Consequently, Chinese electrical grids are not in place to handle all of its new renewable energy production capacity, so 20% of wind production capacity was not connected in 2012.
To remedy the situation, China will build 19 new ultra high voltage lines, but the first two lines will not be ready until 2014. One of these lines will be 2,000 km long.
China offers green economy to the world
In the interim, with the help of generous state financing from the Chinese Development Bank and other sources, China began dumping its manufacturing surplus of clean energy technologies on global markets.
The US responded to China’s dumping by imposing steep tariffs on China’s clean technologies – up to 250% on some Chinese solar products and up to 26% on Chinese wind turbine towers.
With respect to tariffs and Europe, following sabre rattling to the tune of an 11.8% introductory tariff on Chinese solar imports, effective June 6, 2013, on August 6, the EU decided not to impose planned provisional tariffs averaging 47%.That is, a preliminary truce was worked out on prices and a maximum export volume. Notwithstanding this preliminary agreement, Europe is keeping its options open for new tariff decisions at a later time.
China captures 50% of global solar market, runs into trade wall
Regrettably, up until the aforementioned trade wars, China’s photovoltaic (PV) solar manufacturing sector was almost entirely dedicated to global markets – with hardly any domestic market to speak of. China went from 1% of the global market in 2004 to 50% by 2012 – that is, up to when US and European tariffs eliminated China’s price advantage.
The US and EU tariffs having brought China back to earth, China is now more focused on internal solutions to its temporary surplus in solar manufacturing capacity.
China looks inward for new solar market
One of these internal solutions comes in the form of PV solar energy targets to install 10 GW/year in the 2013-15 period –quite a sharp increase from the total installed PV solar capacity at the end of 2012 at 5 GW. To encourage the private sector to get into the act – 40% of PV projects are represented by private developers – the Chinese government is offering 50% tax breaks for utility scale projects for that period. As a result, when the figures are in for the year 2013, China will likely be the world’s largest solar market.
What this will mean in terms of job growth in China’s solar sector may not be known for a while, but it is worth noting that prior to the new policies and targets mentioned above, there were 300,000 jobs in the PV solar sector in 2011. Another 800,000 Chinese people were employed in the solar heating and cooling sector in that same year.
But since domestic market growth by itself would still not be sufficient to address the solar manufacturing overcapacity and declining overseas demand, China has introduced tax breaks and other measures to encourage Chinese solar manufacturing sector restructuring. With the cap on exports to Europe – the world’s largest solar market – China has blocked access of its small solar firms to European markets.
Wind, solar to eclipse coal?
Where does all this lead? Well, Bloomberg New Energy Finance (BNEF) projects that 50% of China’s electricity will come from wind and solar energy by 2030 – roughly equal to that of coal. A recent story published in the Common Sense Canadian suggested that coal production in China will peak in 2015. This may suggest that these BNEF projections are too conservative.
One indicator that these clean energy projections may be too conservative or, at least, not tell the whole story, is China’s own recognition that overarching policies are essential to bring all sectors of the economy on side. More precisely, in May 2013, China’s National Development and Reform Commission began a process to explore cap and trade options, aiming to have one in place by 2016.
China exploring cap and trade
The review of this option began in June 2013 with the first of seven pilot carbon trading schemes in Shenzhen. The plan calls for strict emissions, pollution and energy efficiency standards for the industrial sectors by 2016, backed by stiff penalties for non-compliance. To assist industry to achieve compliance, loans would be made available to firms to invest in clean technologies. According to BNEF, if the power sector is faced with a price on carbon, greenhouse gases in China would peak around 2023.
As to why Shenzhen was chosen for China’s first cap and trade pilot, it may well be because that city’s green leadership, particularly in the area of clean transportation alternatives. To this effect, the city of Shenzhen has established a target to have more than 3,000 electric taxis, 5,000 hybrid and 1,000 electric urban transit buses around by 2015. Moreover, by 2015, the city will ban all vehicles that fail to meet in advanced emission standards. Not bad for the city that ranks second to Beijing as having the most vehicles in mainland China.
Warren Buffet joins the party in Shenzen
The audacity of Shenzhen complements that of the Warren Buffet-backed BYD of Shenzhen, which:
- has become a world leader in all electric buses
- will introduce its e-buses to Canada through pilot projects with the Société de transport de l’Outaouais (STO in the Gatineau area) and Société de transport de Montréal (STM)
- has introduced its e-buses in a pilot in Frankfurt Germany
- built an e-bus and electric car manufacturing plant Sofia, Bulgaria, which began operations in February 2013
- is building an e-bus and an Iron-Phosphate energy module (large-scale battery) manufacturing facility in California that will be operational in late 2013.
Canada missing out on green economy
Meanwhile, back in Canada, Stephen Harper continues to present economic development and sustainable development as two opposing policy paths. This is true only as long as all of Canada’s economic eggs are in the old economy and one turns a blind eye as to what’s happening by way of economic paradigm shifts in China, Europe and the US.
Only in Canada – pity!