Latest Articles Changing climates

Strengthening Sino-European cooperation

Angang Hu — Wed, 26 Mar 2008 11:06:00 -0400

A report by a UK think-tank says the world’s largest single market and the fastest growing economy can collaborate effectively on climate and energy security. Chinese economist Hu Angang responds.

Climate change is now a global issue and the Chinese government is already expending great efforts to tackle the problem. The government has gradually taken on the obligations commensurate with its status as a large, responsible nation. But China also has to ensure its energy and climate security; achieve good governance in energy and climate policy, and strengthen international cooperation. Sino-European cooperation is an important aspect of this, and needs to be explored intensively. Advancements can be made in the ways the two sides cooperate, and the sectors in which they work together. The extent to which China and Europe cooperate will be an important factor in determining the success or failure of global attempts to tackle climate change.

Government support

Global warming is now an urgent problem and it is imperative for us to act upon it. Climate change poses a threat to the economic development – and the survival – of the human race, and China is one of the countries that may suffer the most. Government determination to act is the most important factor in finding solutions. Carbon emissions will not fall by themselves. A low-carbon economy will not emerge of its own accord. If we want to achieve these goals and reduce our energy consumption, we need government action. Markets lose their power when faced with externalities, so changes in the system need to be made obligatory. To guarantee energy and climate security, China needs to make a huge transition: the shift from a high-carbon to a low-carbon economy. The highest energy-efficiency standards in the world should be imposed, first in big cities like Beijing and Shanghai, then in smaller cities – and then across the whole country. Among other measures, the government must increase guidance and management of carbon-intensive investments, and extend research in to low-carbon energy sources.

In fact, there is strong political will in China -- from the party and government -- to achieve scientific green development and establish a harmonious society. Tackling climate change and achieving energy and climate security are in themselves key aspects of China’s “scientific outlook on development”. As Changing Climates, a report from UK think-tank Chatham House, states: “China’s strategic aspiration towards an innovation-based economy with science-based development – as enunciated at the 17th Party Congress in October 2007 – is in line with the vision for a low-carbon transition. A focus on developing and deploying advanced climate technologies is also consistent with China’s aspiration to move up the global value chain.” (See the full report here [pdf]).

Decision-making in China since the beginning of the reform era shows that political will can be effective. As long as the party and government give their strong support and the policy is appropriate, a daunting challenge can become a catalyst for domestic reform and socio-economic transition. I am fully confident that in the process of guaranteeing its energy and climate security, China can make the change from a high to a low-carbon economy, and break the chains of carbon-intensive investment.

Combining responsibility with ability

China is a large country and is gradually taking on the responsibilities associated with this status. It is showing that it has both the ability to tackle climate change and the willingness to act.

China’s burden of responsibility stems from a number of factors. First, China is a permanent member of the UN Security Council, and as such is duty- bound to act on global challenges. In willingly taking on its responsibility to act on public affairs, China is active, not passive; the country is cooperative, not resistant. China should take advantage of its participation in international climate negotiations. Through its participation and willingness to follow regulations, China can alter its own model of development, reduce emissions and improve governance on energy conservation and emissions reductions.

The world is looking at China with great anticipation. As the Chatham House report says, “Choices made in China matter. China’s immediate decisions about its infrastructure needs and patterns of consumption will have a decisive impact on global efforts to stabilise greenhouse gas emissions, and the feasible rate of reduction to sustainable levels.” If China does not actively participate to reduce emissions, it will become a target of widespread criticism. China is more than capable of turning the challenge in to an opportunity. The country has the ability to create the world’s largest carbon exchange and green technology market. China could become the world’s largest low-carbon economy and the biggest exporter of low-carbon products.

China also has the capacity to invest in tackling climate change. A report from the IPCC states that if every country contributed just 0.12% of its GDP, we could arrest the trend of global warming from 2015 onwards. A UNDP report estimates that in order to stop carbon emissions reaching critical levels, 1.6% of global GDP would have to be contributed every year until 2030. Developed nations already have the funds to invest in emissions reduction technology, and should immediately reduce their emissions. Developing countries are as yet unable to take on this responsibility. According to China’s plan, the country’s energy consumption per unit of GDP will continue to fall after 2020, and emissions of the main pollutants will fall by 10% to 20%. From 2030, China’s total energy consumption may also begin to decline. Energy consumption per unit produced will be cut by half; national water consumption will remain constant; the proportion of total water consumption used for agriculture will fall; investment in environmental protection will go up from 1.3% of GDP to 2.5%; emissions of main pollutants will be reduced by at least one-third; and forest coverage will be increased by between 23% and 24%.

China has the ability to slow and to control climate change. The country can achieve the target of 20% emissions reductions by 2050, and exceed the target of 1.3% of GDP to be invested in tackling global warming. China can become a leader in promoting climate-change policies, and thereby help to build a harmonious world.

Cooperation on energy and climate security

Strengthening international cooperation on climate change and achieving good governance on energy and climate is an important strategy for China. In my “state of the nation” report from July 2007, entitled “How China Can Handle Global Warming”, I said: “In a globalised world, it is not enough for just one country to tackle global issues. We need international cooperation to solve these problems. This can take the form of political agreements, cooperation on scientific research, technology, markets and development of human resources. China is willing to – and already does – actively participate in global action on climate change.” Cooperation with the European Union (EU) is an important part. “China and the EU are economically entwined,” says the Chatham House report. “China is the EU’s largest trading partner. The EU is China’s second largest. The EU is also China’s largest supplier of technologies, foreign direct investment (FDI) and services.” Close economic integration has laid a solid foundation for Sino-European cooperation on energy and climate security.

There is a wide scope for such cooperation, specifically in the following areas:

• Strengthening cooperation and taking on a common responsibility for dealing with climate change. Communication can be improved in the Security Council and at international conferences. This will help us to understand each other’s positions and push for improvements in climate action and energy consumption structures.

• Strengthening agreements and setting international regulations on the environment and energy consumption. In the area of international trade, energy and climate security can be improved. The development of green industries can be promoted on both sides.

• Sharing environmental and energy conservation technologies and investing in key energy technologies. The EU ought to increase technology transfer to China and help to reduce its energy consumption and emissions.

• Establishing a Low Carbon Special Economic Zone in China. China is in the process of defining specialised functional zones in order to optimise production structures. I believe optimisation of energy consumption is the most crucial factor. The Low Carbon Special Economic Zone should not be limited to attracting investment on research and high-end production. It should also have an optimal energy consumption structure and conserve energy. The Low Carbon Special Economic Zone could be implemented in one of the current functional zones. It would be required to meet strict environmental standards. The zone could become a powerful model for the promotion of energy conservation and emissions reductions across China.

The critical state of energy and climate security poses a formidable challenge to both China and the EU. But at the same time, it provides an opportunity for cooperation. China can learn a lot from the EU in energy conservation, guaranteeing energy supplies, and climate security. But China is also a potential market. China has a strong political will and interest in the energy and climate fields, and there is broad scope for closer Sino-European cooperation. Traditional methods may no longer be effective. Political and business leaders from both sides need to be brave enough to take measures that will tether the horse before it bolts. Close cooperation will put both Europe and China at the forefront of the energy and climate challenges.

Angang Hu is professor of Public Policy & Management at Tsinghua University and director of the influential policy think tank, the Center for China Studies, Chinese Academy of Sciences/Tsinghua University. He did his post-doctoral research at Yale University and was a visiting professor at Harvard University and Keio University, Japan.

Homepage photo by Namtso via Flickr

Energy leapfrogging in China and India

Joanna Lewis — Mon, 10 Mar 2008 07:18:00 -0400

Two firms in the wind power sector illustrate how companies in the developing world can take advantage of increasing access to technological know-how, while staying within the bounds of intellectual property law, says Joanna Lewis.

China and India’s energy development pathways are a frequent focus of international attention. In the climate change arena, the two countries’ current and future energy growth trajectories raise concerns about increasing greenhouse-gas emissions. China recently surpassed the United States as the largest national emitter of greenhouse gases, and India will soon surpass Russia to become the fourth-largest emitter after the European Union. China and India use coal to fuel most of their electricity generation, and both countries have plans to expand their coal power capacity considerably in the coming decade. For these reasons, China and India are perhaps two of the least likely places one might expect to find a burgeoning wind power industry.

While there are many potential benefits to local wind manufacturing, there are also significant barriers to entry into an industry that contains companies which have been manufacturing wind turbines for more than 20 years. In developing countries, limited indigenous technical capacity and quality control makes entry even more difficult. International technology transfers can be a solution, although leading companies in this industry are unlikely to license information to companies that could become competitors.

Nevertheless, India and China are both home to firms among the global top 10 wind turbine manufacturing companies. India currently leads the developing world in manufacturing utility-scale (multi-kilowatt) wind turbines, and China is close behind. Initiatives by domestic firms, supported by national policies to promote renewable energy development, are at the core of wind power innovation in both countries.

Leading firms

Suzlon, an Indian-owned company, emerged on the global scene over the past decade, and is proving itself to be a worthy competitor among more established wind turbine manufacturers. As of 2006, it had captured 8% of market share in global wind turbine sales: a modest share, but one that has been increasing annually. Suzlon is currently the leading manufacturer of wind turbines for the Indian market, holding 52% of the market share in India. Its success has made India the developing country leader in advanced wind turbine technology.

Goldwind recently emerged as the leading Chinese wind turbine manufacturer. The company currently holds 2.8% of market share in global wind turbine sales, reaching the top 10 for the first time in 2006. Within China, it captured 31% of sales in 2006. The company is rapidly expanding production, and has benefited from government policies that promote the utilisation of domestically manufactured wind turbines in Chinese wind farm projects. In 2006, Goldwind installed 442 megawatts, by far its largest annual installation to date.

Suzlon and Goldwind have used similar strategies to access wind power technology from developed-country firms. Although there are several technology transfer models available to a company looking to enter the wind industry, both Suzlon and Goldwind decided to pursue multiple licensing arrangements with established, yet second-tier, companies.

The acquisition of technology from overseas companies is one of the easiest ways for a new wind company to quickly obtain advanced technology and begin manufacturing turbines; however, there is a disincentive for leading wind turbine manufacturers to license proprietary information to companies that could become competitors. This is particularly true for technology transferred from developed to developing countries, where a similar technology potentially could be manufactured in a developing country with less expensive labour and materials, resulting in an identical but cheaper turbine. Consequently, developing country manufacturers often obtain technology from smaller wind power companies that have less to lose in terms of international competition, and more to gain in license fees. The technology obtained from these smaller technology suppliers may not necessarily be inferior to that provided by the larger manufacturing companies, but it may have been used less and will therefore have less operation experience.

Licensing

Suzlon’s licensing arrangements with Sudwind, Aerpac, and Enron Wind provided it with the necessary base of technical knowledge needed to enter the wind turbine manufacturing business. Building on the knowledge gained through these licenses, Suzlon also formed many overseas subsidiaries. Some overseas partnerships were formed with foreign-owned companies, either to manufacturer a specific component, such as its gearbox company in Austria, or to undertake collaborative research-and-development, such as its Netherlands-based blade design centre and its gearbox research centre in Germany. Suzlon also situated its international headquarters in Denmark, which is a major industrial centre for the wind turbine industry.

Goldwind’s licensing arrangements with German wind turbine manufacturer REpower allowed it to jump into the wind turbine industry with little indigenous knowledge. These arrangements provided the transfer of enough technical know-how that Goldwind could innovate upon the transferred technology. It has more recently chosen to also pursue licensing arrangements with Vensys to gain experience related to larger turbine designs.

While Goldwind has relied only on licensed technology to date, Suzlon has expanded beyond the license model, and has purchased majority control of several wind turbine technology and components suppliers. These acquisitions include leading gearbox manufacturer, Hansen, as well as REpower. This combination of licensing arrangements with foreign firms and internationally based research-and-development and other facilities, complemented by the hiring of skilled personnel from around the world, has created a global learning network for Suzlon, customised to fill in the gaps in its technical knowledge base. Suzlon has been able to draw upon this self-designed learning network to take advantage of regional expertise located around the world, such as in the early wind turbine technology development centres of Denmark and the Netherlands. Suzlon differs from Goldwind because it has not restricted its technological learning and innovation networks primarily to India, while Goldwind has remained centred on China.

However, Goldwind’s lack of internationally oriented expansion does not necessarily mean that it has been unable to tap into regional, or even global, learning networks. The company’s origins in northwest China’s Xinjiang autonomous region put it at the centre of wind turbine technology experimentation in China in the early 1990s. As wind development momentum shifted eastward, Goldwind also established manufacturing facilities in east China, including in the new manufacturing hub around Beijing and Tianjin. Popular wind farm sites such as Dabancheng, in Xinjiang, and Huitengxile, in Inner Mongolia, have served as test sites for almost all of the leading global wind turbine manufacturers. Many firms, including Vestas, NEG Micon, Nordex, Bonus, Zond, and Tacke, all installed turbines in China during the 1990s. Consequently, while they tested their designs in China, Goldwind was able to benefit from knowledge that these manufacturers had gained in other wind learning hubs of the world. In addition, Goldwind hired employees trained by foreign-owned firms (often when they were based in China), taking advantage of the small but specialised work force foreign wind power technology firms effectively developed within China.

Since both Suzlon and Goldwind are most successful at home, each company’s outlook for future success is largely focused on its continued ability to thrive in domestic markets. India’s wind power policies, although lacking a clear national direction, are thriving on a regional basis. Goldwind has relied greatly on China’s policies that mandate local content, as well as an unstated preference for Chinese-owned technology. The companies’ continued success will also depend on how their turbine technology stands the test of time in reliability, as well as their ability to continue to design larger and more efficient turbines. If Indian and Chinese manufacturers are able to capture significant cost savings by manufacturing turbines locally, there would be excellent potential for both locations to serve as manufacturing bases for regional export. Suzlon and Goldwind believe that they are able to beat the prices being offered by their foreign competitors by locally sourcing their turbines.

The leapfrog effect

The institutional and other barriers present in large, developing countries such as China and India certainly challenge simplistic notions of energy leapfrogging. But substantial technical advances have been possible in relatively short amounts of time. It took both countries less than 10 years before companies were capable of manufacturing complete wind turbine systems, with almost all components produced locally. This was done within the constraints of national and international intellectual property law, and primarily through the acquisition of technology licenses or purchasing smaller wind technology companies.

Suzlon’s growth model, in particular, highlights an increasingly popular model of innovation for transnational firms, which is based on globally dispersed operations and utilises regional variation in technical expertise and low input costs to its advantage. Expansive international innovation networks allow it to stay abreast of wind technology innovations around the world, which it can then incorporate into its own designs through extensive research-and-development facilities. It has developed this network of global innovation subsidiaries while maintaining control of enough intellectual property rights to remain at the forefront of wind turbine manufacturing and sales around the globe. By contrast, Goldwind has pursued research and manufacturing operations that are primarily China-based, which has limited its interaction with hubs of wind power innovation expertise outside China. However, China is becoming a hub in its own right, with diverse international players actively manufacturing wind turbines, and many in close regional proximity.

These illustrations of energy leapfrogging demonstrate how two developing country firms used a creative blend of strategies to enter new technology markets. A combination of licensing intellectual property, creating strategic technology partnerships, accessing regional and global learning networks and taking advantage of regional advantages like lower labor costs, were all important components of each company’s successful business model. As technology development becomes increasingly global, developing country firms can and should take advantage of their increasing access to technological know-how, which was previously developed primarily by and for the developed world. The lessons of Suzlon and Goldwind’s success in harnessing global technology for local – and potentially global – use illustrate new models of technology development in the developing world.

Dr. Joanna Lewis is a senior international fellow at the Pew Center on Global Climate Change and an adjunct professor at Georgetown University's Walsh School of Foreign Service. Her current research focuses on mechanisms for low-carbon technology transfer in the developing world and options for post-2012 international climate agreements. She has worked extensively in China examining renewable energy technology industry development, and advising the government on renewable energy policy design.

An extended version of this article appeared in Studies in Comparative International Development, Volume 42, Issue 3, December 2007.

Homepage photo by dengski

Strategy for security

Zhiyan Liu, Xiaobo Long, Feng San — Fri, 22 Feb 2008 10:28:00 -0500

chinadialogue’s "Changing climates" forum brought together policy makers from China and Europe to discuss energy and climate security on a warming planet. Here, Liu Zhiyan, Long Xiaobo and Feng San explain China’s responses.

China is currently going through a phase of rapid industrialisation and urbanisation. Demand for energy is rising fast, supply struggles to keep up. As reliance on imported oil increases, so does concern about energy security, which is now seen as one of the most important aspects of Chinese national security. Climate security is also a serious issue: as energy consumption and emissions increase, global warming will intensify and extreme weather events will become increasingly common. The Chinese government has developed a number of strategies aimed at tackling these problems.

Energy security

China’s per capita energy consumption is low, but its absolute energy consumption and its energy consumption per unit of economic output are high. In 2005, China’s per capita energy consumption was a mere 1.18 tonnes of oil – three-quarters of the global average, one-quarter of the Japanese average or one-seventh of the US average. China’s total energy consumption, however, was 2.225 billion tonnes of standard coal in 2005. The next year, this rose to 2.462 billion, making the country the second-largest energy consumer in the world. Demand for power from all sectors continues to rise. Industry accounts for 70% of total energy demand, but the proportion from transport and personal use is also on the rise.

China is fairly rich in energy resources, but the composition of these resources is not ideal. Coal makes up the majority; oil and natural gas are comparatively scarce. The country’s oil and gas resources per capita are only 7.7% and 7.1% of the global average respectively.

Taking these conditions into account, the government has put pressure on its institutions, at all levels, to increase energy performance. Five guiding principles are in place:

• Encouraging energy conservation;

• Ensuring domestic stability;

• Prioritising coal as the main power source;

• Diversifying development;

• Optimising production and consumption.

The government’s objectives are to build a stable, economical, clean and secure system for energy provision. This will be backed with regulation and control of supply and demand to guarantee smooth implementation.

Development zones

Regulation and control of energy supply comprises several key components. The first is to classify land into one of four categories: optimised development zones; key development zones; limited development zones; and zones where development is forbidden. This is based on the load-bearing capacity of local resources and the environment, and on the potential for future development. Population and industry are to be laid out accordingly; zones with particular specialisations are encouraged. Rational distribution should cut both energy consumption and greenhouse-gas emissions.

The second component is to adjust and optimise the structure of industry: efforts should be made to reduce the proportion of GDP accounted for by heavy and chemical industries in China; highly polluting, power-hungry industries such as steel, ferrous metals and concrete should be limited. Development in the services sector and high-tech industries should be accelerated.

Production structures and institutions will also be improved. China’s model of industrial growth needs to be altered to be non-energy-intensive. New, high-tech industries will be encouraged. The government should push forward informatised industries and technological upgrades. It will encourage scaled operations and reduce industrial energy consumption. Eco-industrial parks with circular economies will be developed.

Energy-saving architecture should be actively promoted to reduce the amount of power consumed – and wasted – by buildings.

Everyday power use should be carefully managed. Energy efficiency ratings should be displayed on office equipment, home appliances and cars. Government departments should buy green products and advocate power-saving habits.

Price mechanisms

The Chinese government should establish a rational pricing mechanism for energy that accurately reflects supply and demand. This means developing a modern coal exchange market, rationalising petroleum prices and strengthening price adjustments on natural gas.

Investment in expanding energy production will increase. This will increase the production capacity of large energy corporations and increase the concentration ratio of the industry as a whole. Investment will also allow the government to build large-scale coal production bases; develop large, environmentally friendly thermal power plants; expand nuclear energy; strengthen oil and gas exploration; expand investment channels; improve structural layout; and reduce barriers to entry for renewable energies including wind power, tidal power and micro-hydropower.

The Chinese government will optimise energy structures and gradually increase the proportion of energy consumption that comes from renewables. By 2010, China’s total energy demands will be met by:

Coal	Oil	Gas:	Hydropower	Nuclear	Other renewables
66.1%	20.5%	5.3%	6.8%	0.9%	0.4%

The government aims to encourage research-and-development in renewable energy, such as biomass technology, integrated solar and geothermal technologies, large-scale wind farms and tidal power. The target is for renewables to meet around 15% of energy demand by 2020.

Self-sufficiency rates for energy must be improved. China has always been able to meet at least 90% of its own energy demands. Currently, however, domestic supplies of crude oil only meet 60% of demand; the national strategic oil reserve mechanism is not fully effective. National policies, therefore, clearly state the need for better and expanded exploration of domestic oil and gas reserves. The key areas will be offshore, the existing major oil and gas fields and new continental reserves. Oil and gas resources in the Tarim, Jekun Yar, Ordos, Qaidum and Sichuan basins need to be rapidly developed. Oil pipelines will be built to transport oil from western to eastern China and from north to south. At an appropriate time, a second gas pipeline running west to east will be built.

The strategy also aims to establish diverse supply channels for oil and gas. This means expanding cooperation with other countries on oil and gas resources; building facilities for the import of liquid natural gas in coastal regions; and building oil pipelines for overland imports. Diverse supply bases should also be established in the main oil-producing nations.

Climate security

Along with energy security, climate security has become an important part of China’s thinking about national security. China is a responsible nation, and as such has played an active role in UN-supported international conferences on emissions reductions and climate security. The country has been involved in negotiating agreements and setting effective measures to tackle these issues. China has clearly expressed its policy of “grabbing the issue with both hands,” which means it will take measures to reduce emissions while also strengthening its ability to adapt to climate change.

According to China’s national plan on climate change [pdf] released in June 2007, the country will “stick to its sustainable development strategy and take such measures as energy efficiency improvement, energy conservation, development of renewable energy, ecological preservation and construction… to control its greenhouse gas emissions and make further contribution to the protection of global climate system.”

So how will China improve its capability to deal with climate change?

The government has categorised different parts of the country, which will take different approaches to the problem: agricultural areas; forests and natural areas; water resources; littoral zones; and coastal regions.

In agricultural areas, the priorities are to build infrastructure to improve rain water storage and drainage, improve irrigation and drainage in fields and conserve water on arable land. This will improve yields in less productive areas of the main grain-producing regions.

Agricultural layouts and crop structures should be optimised; the production of grain, animal fodder and cash crops must be coordinated. Cultivation systems will be adjusted and multiple cropping will be developed further. Varieties of crops that are resistant to biological stresses – drought, waterlogging, high temperatures, pests and diseases – will be bred and grown. Finally, pastures need attention. Natural pasture will be allowed to recover, man-made pastures will be built and pasture coverage will be increased. The livestock sector will be developed rationally, and stress on pastures will be reduced to prevent desertification.

In forests and other natural areas, the focus will be on improving the legal system and its implementation for their protection. Forest coverage will be expanded to meet the target of 20% forest coverage by 2010. IT will be used to improve monitoring of natural forests, wetlands and nature reserves, and prevent forest fires, pest infestations and diseases. When planting forests, varieties which are resistant to cold, drought, pests and disease will be chosen. There will be research on expanding wetlands, protecting forests and animals in nature reserves, recovery technologies and protecting endangered species.

River basins will be managed, planned and combined in an integrated way. There will be dredging of lakes and rivers, reclaimed arable land will be turned into lakes and rivers, flood channels created and ecological systems recovered. Large-scale water resources facilities will be built to optimise resource allocation. Imbalances will be reduced between areas with too much water and those without enough. Research will focus on water cycle and conservation technologies, and techniques for the desalinisation of sea water.

In littoral and coastal regions, the priority will be to build a system of laws and regulations that allow for management of these ecosystems. There will be research and development of techniques for recovery of mangrove forests, coral and coastal wetlands aimed at protecting marine biodiversity. IT will also be employed to provide monitoring and early-warning systems to detect changes above and below the surface. Mechanical and biological steps will be taken to tackle the problem of saline intrusion in river systems and lakes. Coastal defences will be heightened and consolidated, with defences around major cities and engineering projects improved. Ports and harbours will be set to increased elevations, extraction of underground water reserves will be controlled and the heights of waste outlets will be adjusted. Defensive forests will be created in coastal regions.

Combatting drought

In line with scientific predictions on climate change, the key for north China is to strengthen construction of irrigation systems and the south-to-north water transfer project in order to combat drought. In central China, rivers in the Yangtze basin will be controlled and dredged, and flood prevention and water resource facilities will be built. In the south, defences against storms and typhoons will be built, mangrove forests will be recovered, and the damage caused by sea-level rises reduced.

The government will improve research into climate science, climate impacts on economies and societies, the costs and benefits of different methods of dealing with climate change and technology choices. Large-scale climate-change monitoring technologies and energy efficient technology will also be explored, as will carbon-capture technologies, biological and otherwise.

It is important to raise public awareness of climate change. The government must motivate and the media should play a supervisory role by reporting problems and pointing the way forward. Civil society and NGOs must be part of this too. Propaganda, education and training must be strengthened to promote sustainable lifestyles characterised by the frugal use of power and water, consumption of green products and recycling. Climate-change policy-making needs to be more transparent to encourage a scientific and democratic approach to dealing with climate change.

The Chinese government also plans to strengthen its leading role in global efforts to tackle climate change. Working groups have been established at the national and local level. The national working group is led by the Chinese premier, Wen Jiabao, and organised by the National Reform and Development Commission. It researches and defines climate change strategy and policy, and attempts to solve key problems. Groups at local level implement decisions made by the central government, as well as handling local issues.

Energy security and climate security are two sides of the same coin. Improving energy structures and tackling climate change go together in promoting sustainable development. Since the Earth Summit of 1992, China has developed strategies, based on its particular national circumstances, which put it on the path towards a new model of industrialisation, characterised by science, efficiency, low pollution and optimised human resources. China will need advanced technologies in this period of large-scale construction in energy, transportation and architectural infrastructure. Without advanced technology to tackle greenhouse-gases and generate power, China’s construction will result in high emissions for decades to come. The country is still a long way behind developed countries in advanced energy technologies like carbon capture and safer nuclear energy technology. Cooperation with developed countries will hopefully pave the way. Together we must take on the responsibility for protecting our planet.

Professor Zhiyan Liu, the main author, and Dr Xiaobo Long and Associate Professor Feng San, the paper’s co-authors, are researchers at the Chinese Academy of Social Sciences (CASS) Research Centre for Urban Development and the Environment.

Homepage photo by pingnews.com

Visit the "Changing climates" forum

Technology transfer: cooperation or competition?

John H Barton — Thu, 10 Jan 2008 08:18:00 -0500

Dealing with climate change will require new technologies, in the developed and developing world. But will industry be helped by incentives or agreements? And what about intellectual property? John H Barton explains.

There is broad agreement that dealing with climate change will require new technologies, and developing and disseminating these technologies will require government intervention. This is firstly because encouraging research often requires government involvement, typically through creating an intellectual property (IP) system or through subsidies. Secondly, it is because the social benefits of reducing greenhouse-gas emissions are not yet generally reflected in cost structures, and firms often do not find it profitable to deploy socially desirable technologies. Governments have responded with a variety of regulations and subsidies to encourage the development and deployment of relevant technology.

Some are concerned that the presence of IP rights will be a barrier to the spread of technology to developing nations. Although this may sometimes be the case, the more serious issue may turn out to be governments trying to ensure subsidies benefit their own national industries. To explore this issue further, it is useful to look at some historical examples.

The US auto industry

In 1955, just as scientists were beginning to understand car pollution, members of the United States auto industry signed an agreement to exchange information on emissions-control devices. Each firm promised to share the information it held on pollution-control technology and permit other firms to use the technology without any need to pay royalties. This parallels what some now suggest to encourage the spread of technology. At the time, however, critics of the industry alleged that the agreement was a way to eliminate incentives to develop new technology. They were proved right. Technology moved slowly, with the only major advance at the time being a device to reduce crankcase emissions, a technology that had long been available. In 1969, the Antitrust Department filed a suit alleging the industry had conspired to eliminate competition in the research of emissions-control equipment. The suit was settled by a 1969 consent decree that ordered withdrawal from the agreement.

Government efforts to force technology development by imposing severe regulations followed. This created a sharp confrontation between the regulatory agency and the industry, but it also succeeded in encouraging conversion technology – and ultimately today’s use of on-board diagnostics.

In this new business environment, provisions from the antitrust consent decree came up for renewal. The government backed renewal, and the industry opposed. In 1981, the matter came to court, and the federal courts in California were effectively allowed to choose between the cooperative research pattern – envisioned by the 1955 agreement – and the competitive model of the 1969 decree. The courts opted for the earlier cooperative pattern, motivated by concerns about the risk and cost of technology development and the possible benefits of an agreement among industry, government, and academia.

Supporting research

The example suggests several principles to be taken into account when thinking about encouraging technological development and spread in an industry. The key question is whether the structure and regulation of the industry creates an adequate incentive to conduct research. There will be essentially no privately sponsored technological progress unless the members of the industry find it economically desirable to support research.

It also raises a question: if several entities are able to support research, should they be allowed to cooperate, or required to compete? The cost of cooperation is that each firm’s incentive to develop new technology is diluted, because there is no competitive advantage derived from a particular firm’s technological advance. The benefit is that the costs and risks of developing technology can be shared, and that the technology developed by any one firm can be used by all. The choice will vary from industry to industry; it will depend on the form of competition and on whether a variety of technologies are available.

There must also be actors with the size and financial ability to conduct research. This may have been easy in the auto industry, but it was not, for instance, in the US electrical utility industry. When that industry realised it could benefit from cooperative research, it set up the Electric Power Research Institute (EPRI) in 1972. This finances research and makes its results available to members. It was economically possible because the industry – unlike the car industry – involved local utilities that were not in direct competition with each other.

Nuclear reactors

Appropriate regulations and subsidies, then, are crucial. If they are in place, new technologies can be spread as needed to help the world comply with environmental demands. There is some risk that IP will be a problem. However, in the wind-turbine sector, where there has been significant IP litigation, explicit royalties have generally been around the low figure of 1%. Other sectors might be different, but all face the need to compete with existing technologies, suggesting a need to keep royalties low.

The political issue is not only whether the technology is available, but also which firms will develop and market new technologies. Any global negotiations on climate change will demand that firms from developing nations such as China participate in relevant advanced industries.

It is useful to consider the early days of civilian nuclear power. Both France and the US subsidised their industries in the hope of creating national champions. Ultimately however, the French ended up licensing US technology for their civilian programme, in part because US companies had a lead due to learning curves. Doubling the number of plants built by a firm was expected to decrease both construction time and capital cost by around 10%, so that the leading firms would be able to underprice entrants who had produced fewer reactors. It was also because of a much broader nuclear safeguard and the political diplomacy of nuclear weapons, reflected in the 1958 agreement between the US government and Euratom.

Economic factors are important in the spread of advanced technology to industries in developing countries. Existing firms (usually in developed countries) have important advantages over others, sometimes derived from IP but more often because they have skilled employees and are further ahead on the learning curve. In some cases, they will willingly license technology to firms in developing countries. However, this will partly depend on whether they are confident they can supply core technologies without losing control over them. They are most likely to transfer technology as part of a deliberate globalisation strategy, normally to reduce production costs. The entry of firms from developing nations into markets for producing new high-tech goods is therefore economically difficult, but certainly not impossible. In the photovoltaic and wind turbine sectors, for instance, companies from developing nations have recently bought firms from the developed world – a new mechanism for technology transfer.

But, as in the nuclear reactor case, politics will be crucial. We will need to negotiate global restrictions on greenhouse-gas producing activities, and do so in ways that maintain trade and economic efficiency. And at the same time, we will have to integrate different national technology encouragement programmes to ensure there are incentives to develop and disseminate new technologies globally. This will not be easy. Regulatory and subsidy programmes will be difficult to design, especially in areas that are already regulated, such as electrical grids and nuclear power. Ultimately, the need for taxpayer support for subsidies will have to be balanced with the political need for developing-nation access to technology.

John H Barton is a professor at Stanford Law School, and has chaired or been a member of more than a dozen academic and international advisory commissions, most recently heading up the International Commission on Intellectual Property Rights.

Homepage photo by Irish Typepad

Is the west to blame for China’s emissions?

Jim Watson, Tao Wang — Thu, 20 Dec 2007 09:46:00 -0500

China’s exports to the west accounted for almost a quarter of the country’s total CO2 emissions in 2004. Rich countries must help the developing world make the switch to a low-carbon economy, write Wang Tao & Jim Watson.

China is now believed to be the world’s largest emitter of carbon dioxide, the most important greenhouse gas, overtaking the United States to take the number one spot. This has led to renewed calls for China to act in reducing the environmental impacts of its phenomenal growth. These calls have been resisted, inside and outside China, on the grounds that industrialised countries are responsible for the majority of emissions to date. Moreover, it has been argued that the steep rise in China’s carbon emissions has been fuelled by exports of cheap goods from its factories to western consumers.

China is rapidly becoming the world’s manufacturing hub. The country is now exporting an increasingly large quantity of labour and energy-intensive goods to developed countries. A high-profile example is the arrival of the world's largest cargo ship – the Emma Maersk – in the UK just before Christmas 2006. It was carrying more than 45,000 tonnes of Christmas goods from Chinese factories for sale to consumers in the European Union.

Trade surplus

China’s trade surplus with the rest of the world has accelerated sharply since its accession to the World Trade Organisation (WTO) in 2001. In 2004, China's exports contributed 34% to the total GDP, and generated a surplus of some US$32 billion. By 2006, China’s trade surplus had reached US$177 billion, and many predict that the figure for 2007 will be at least US$200 billion. The WTO estimated in 2005 that China's exports could overtake the US and Germany by 2010. Only two years later, China has already surpassed Germany as the world’s largest exporter.

The rise of China as a global trading power has led to tensions in the EU and the US over competitiveness and safety issues. Trade conflicts with the US have been a regular occurrence for many years – and have often arisen alongside wider political tensions. In recent times, issues of food safety and steel subsidies have attracted particular attention. Meanwhile, retailers in the EU have had to recall a series of Chinese-made toys amid safety concerns. In addition, the European Commission has recently extended anti-dumping duties on energy saving light-bulbs from China for a further year due to lobbying from German lighting companies. This seems counter-productive given moves within the EU to phase out incandescent lighting and encourage consumers to make the switch to more expensive compact fluorescents.

While the large trade surplus is a major driver of economic growth in China, it has its downsides. According to a recent speech by Bo Xilai, China’s then minister for commerce, 58% of China's exports are from multinational ventures in China. This led some to argue that the Chinese economy is failing to capture enough of the economic wealth generated by such ventures, since much of it is retained by parent companies abroad. Of concern also is the polluting, energy-intensive nature of products such as rolled steel, which are being increasingly manufactured for export as well as domestic markets. While their overall share of exports has been small to date, rapid growth is contributing to China’s local, regional and global environmental impacts. The Chinese government cut the export rebate three times in 2007 alone on these energy intensive goods, and imposed a 10% export tariff on some. However, their efforts have so far been ineffective due to strong international demand.

Exporting emissions

Despite some discussion of the implications of China’s trade surplus on its emissions, there has been little work to quantify this. In a recent Tyndall Centre briefing note [pdf], we set out an initial assessment of the emissions from goods and services that China exports. Our analysis concludes that in 2004 – the most recent year for which comprehensive data is available – net exports accounted for 23% of China’s total CO₂ emissions. This is due to both China’s large trade surplus and the relatively high carbon intensity of the Chinese economy. It is a figure comparable to Japan's total CO₂ emissions, and more than double the UK's emissions in the same year (see figure 1). The equivalent emissions figures for 2005 and 2006 could be larger, since China’s trade surplus has grown.

Figure 1: CO₂ emissions from China’s net exports in 2004 in comparison to other countries’ total emissions

A number of other studies have been conducted, some of which reach similar conclusions. A report in 2005 by Bin Shui, of the US National Centre for Atmospheric Research, indicated that 7% to 14% of China's CO₂ emissions in the period from 1997 to 2003 were due to exports to the US alone. Jiang Kejun of the Energy Research Institute, which is based in the Chinese government’s National Development and Reform Commission, suggests exports account for around 20% of China’s total national energy consumption.

These results are inevitably subject to uncertainties and simplifications, not least because of a lack of data on the carbon intensity of different exported products. However, the implications are clear. The extent of “exported carbon” from China should lead to a re-think by government negotiators working towards a new climate-change agreement beyond 2012.

International footprints

The nation state may be at the heart of most international negotiations and treaties, but global trade means a country’s carbon footprint is international. Should countries only remain concerned with emissions in their borders? Or should they also assume responsibility for pollution from the production of goods and services they consume? The scale of emissions due to exports from countries such as China, not to mention the emissions caused by international air and marine freighting of goods, provide strong arguments for the latter approach.

This analysis also strengthens the case for early action by the developed world in two respects. Firstly, it provides evidence to the international negotiations around climate change that not only are industrialised countries historically responsible for the majority of carbon emissions to date, but industrialised countries may also have significant responsibility for driving the rapid growth in emissions from industrialising countries such as China. Secondly, it supports the expansion of efforts to help developing countries reduce the carbon emissions from economic growth through technical assistance and finance, helping developing countries to transition to a low-carbon economy before too much investment is locked in a carbon-intensive economic model.

Tao Wang and Jim Watson, Sussex Energy Group, University of Sussex and Tyndall Centre for Climate Change Research, UK

Homepage photo by Ian Koh

China: winner in a low-carbon economy

Karl Hallding — Tue, 27 Nov 2007 07:25:00 -0500

China’s model of economic growth is highly energy intensive and a recipe for climate disaster, writes Karl Hallding. Now is the time for a new, competitive infrastructure, which can accommodate social development while minimising energy use.

China’s climate future looks grim. The structure of its economy and current development model rests on high energy intensity in a booming economy driven by low-end production for international consumer markets. This is coupled with investment-driven urban-industrial infrastructural expansion and a surge of investment in heavy industry, which supply the inputs for China’s entire expansion. As a consequence, the country has rapidly risen as the world’s largest greenhouse-gas emitter and, according to a host of authoritative future scenarios, so it will continue for the foreseeable future.

China is already suffering from climate impacts which result mainly from the OECD countries’ industrialisation since the mid-nineteenth century, with the US being the main culprit of the world’s accumulated carbon emissions. With escalating climate change, China is bound to be very exposed to climate impacts.

While the US and Europe have been the world’s dominant carbon emitters since the nineteenth century, China is going to be a leading emitter over the coming century. It is obvious that there can be no solution to climate change without China’s active participation. The question, therefore, is what could motivate China to move towards an active role in global climate mitigation. A growing global focus on the low-carbon economy provides opportunities for China to gain competitiveness, international reputation and environmental benefits. A less active – or reactive – approach to climate change may involve considerable risks, both of reduced growth and further environmental degradation.

Growing awareness

The picture of how China will be affected by a changing climate, detailed in China’s first “National Assessment Report on Climate Change”, is truly disquieting. Over the next 13 years, China’s average temperature is expected to increase by 1.3 to 2.1 degrees Celsius. In reality, this means that many parts of the country will see drastic temperature increases. While precipitation is expected to increase by 2% by 2020 and 7% by 2050, this will not alleviate chronic water shortages in the north, but rather add to flooding problems in the south. It will also add to China’s catastrophic and costly flooding and drought disasters, with significant impacts on the country’s potential for development.

Other consequences include negative agricultural impacts that will dramatically undermine food security, as well as increasing vulnerabilities from flooding, typhoons, salt water intrusion and erosion in China’s densely populated coastal zone, including the economically important regions of the Pearl River and Yangtze River deltas.

Given China’s precarious water situation, the pronounced temperature increase in the Himalayas is particularly worrisome. Large amounts of water will melt from the glaciers, adding to the risk of large-scale flooding until the melt-off peaks between 2030 and 2050, at which point the headflows of China’s largest rivers will diminish, with huge consequences for all human activity along the big rivers.

This litany of climate impacts, many of which will challenge economic development even in the near future, are a strong argument for China to become an active driver of global efforts to come to grips with the climate. The National Report stresses the importance of China’s active contribution to solving global warming, and urges China’s leaders to start seeing current climate change as a conclusive driving force for the development of new energy technologies, energy efficiency and alternative energy sources.
China’s emergence

China’s main priorities are economic development, poverty alleviation and social stability. After three decades of near 10% growth, China is now the world’s fourth-largest economy. But still only a small fraction of the population lives in the same conditions as developed countries. According to the World Bank, 800 million still live on under US$2 a day, and 135 million live on under $1 dollar a day; China’s need for development is immense. Development, however, requires growth, which is fuelled by energy, and while there is no denying China’s need for energy for development, the question is how growth can be generated in a more energy-efficient manner – and increasingly based on renewable energy sources.

Looking at China’s energy intensity in the reform era, it is striking that the economy, for two decades until late 1990s, grew twice as fast as its energy needs. This is partly because of the very low level of energy efficiency in China’s economy to start with. Pre-reform China built a very energy-intensive and economically inefficient structure based on state-owned heavy industry, for which the country was ill-suited given its high population and scarce natural resource base. Reforms created a dramatic increase in agricultural productivity and generated some surplus cash on a household level, which was often invested in labour-intensive light manufacturing in township and village industry. These became the engine of growth through much of the 1980s and ‘90s, and transformed Chinese industrial structure from heavy to light industry, with a higher economic output in relation to energy input.

But at the dawn of the new millennium, something happened that changed the 20-year trend of continuously lower energy intensity. The sheer volume of the Chinese economy started to make increasing impacts on the global economy, its markets and resource flows, and capital accumulated in Chinese state-owned banks. China’s WTO accession in the early 2000s opened the Chinese production base to the cheap production of consumer goods for global markets, which accumulated even more profits in the Chinese system. This all increased the pace of urbanisation; suddenly there was an immense need for steel, cement, aluminium and other goods required for building infrastructure. With lots of cheap capital in the banking system, investment flows turned towards heavy industry. Soon enough, energy demand skyrocketed. Since the turn of the century, China’s energy demands have been growing 50% faster than the economy.

Consequently, every possible energy source is now running full throttle, while new capacity is added as fast as possible, meaning conventional pulverised coal technology, with a much lower coal-to-electricity efficiency than the supercritical technologies used in the west. Half of the world’s nearly 1,000 coal-fired power plants currently in the pipeline for finalisation before 2012 are being built in China, adding carbon dioxide emissions enough to swamp present Kyoto commitments by as much as four times.

Changing perspectives

China’s current development mode is highly energy intensive. Although Chinese industrial sectors have seen energy efficiency improvements as a result of more market prices and less distorting subsidies, the energy intensity of the whole economy is still around 10 times higher than Japan’s, roughly five times higher than the OECD and even almost three times higher than India. In other words, there is a lot of room for improving competitiveness in a future of increasing global energy prices.

China therefore needs to change its development perspective, and find the way back to an industrial structure that is optimal for an economy with a large labour force and scarce resources. This means policies that increase the costs for energy-intensive production, such as carbon and air pollution related taxes. These policies could also improve energy efficiency within Chinese industry, which generally uses up to 50% more energy per unit output than its international competitors.

Per capita energy usage is still low by international standards. But as the country grows richer, more and more of its energy demand will come from consumption. There are still a relatively small number of communities in China’s large eastern cities that reach the roughly US$5,000 GDP per capita where consumption and transportation start to consume larger amounts of energy. This is, however, the real long-term challenge for China’s energy consumption.

What is increasingly important, both in the short- and long-term, is for China to invest now in a society built on an infrastructure that can accommodate social development while minimising energy use. Return on investment in energy-efficient housing and transportation is huge, and here China is still in a position to make the right choices – and build an energy-efficient society.

A study produced last year by Swedish utility Vattenfall in cooperation with McKinsey shows that there are many cost-effective solutions for coming to grips with climate change, and that most of the low-hanging fruit – actions that gives good return on investments – are readily at the disposal of developing countries.

China has every reason to take an active position in combating climate change. By doing so, it can find a way out of the environmental dystopia it is running towards head-on, while at the same time gaining competitiveness and international reputation.

Karl Hallding heads Stockholm Environment Institute’s China Programme and has followed and worked with China’s environment since the mid-1980s. He was the main author of UNDP’s China Human Development Report 2002, “Making Green Development a Choice” and participated in the expert team behind the recent OECD Environmental Performance Review of China, where he was responsible for drafting the chapter on “Environmental – Social Interface”.

Homepage photo by Alex Kirch

China and the EU could lead the low-carbon economy

Bernice Lee — Thu, 22 Nov 2007 11:35:00 -0500

The EU and China’s combined economic power could provide an unprecedented opportunity for leadership in a global low-carbon transformation, says a report from Chatham House. Bernice Lee presents a summary of their findings.

We are on the cusp of a new industrial revolution, one driven by energy and climate security concerns. Policy-makers and business leaders are beginning to calibrate decisions on trade, financing and production planning against this new reality. Central to making this vision work is enlightened thinking around the potential economic and political benefits – rather than the costs – of the transition to a low-carbon future.

China and the European Union (EU) together account for around 30% of global energy consumption and 30% of global emissions. Their common interests provide a foundation for deepening collaborative efforts on energy and climate security over the next quarter-century. The combined economic might of the EU, the world’s largest single market, and China, the fastest- growing economy, can provide unprecedented opportunities to generate benefits of scale that will lower the costs of climate-friendly goods and services globally. By working together, China and Europe could become the de facto engine of global low-carbon transformation.

Business as Usual (BAU) is not an option. The International Energy Agency (IEA) forecasts a global increase in energy consumption of more than 55% by 2030. There is no sign that energy demand and consumption will abate in the near future. Oil prices increased fivefold over the last eight years, in real terms hitting the 1979 high in October 2007. The era of cheap hydrocarbons may now be over. Waiting for world oil production to reach its maximum capacity could leave the world with a significant liquid fuel deficit for at least two decades. Supply concerns are driving investments towards unconventional fossil fuel sources, with large associated energy costs and significant carbon dioxide (CO₂) emissions.

The alarming projected impacts of climate change also point to the range of risks, vulnerabilities and choices confronting policy-makers and citizens. The Stern Review estimated the avoidable costs of inaction would be between 5% and 20% of GDP per year. BAU scenarios project extreme temperature rises of 4 to 7 degrees Celsius by the end of the century. A responsible risk management strategy for policy-makers would be to keep to the low probability range of 2 degree Celsius rise, as climate sensitivities appear higher than previously estimated. Put another way, global CO₂emissions will need to peak in the next two decades and reduce by over 50% by 2050. For developed countries, such as the member states of the EU, this implies moving to an essentially zero-carbon economy by around mid-century, with major developing countries such as China following well before the end of the century.

Choices made in China matter. China’s immediate decisions about its infrastructure needs and patterns of consumption will have a decisive impact on global efforts to stabilise greenhouse-gas emissions, and the feasible rate of reduction to sustainable levels. China currently emits about 19% of global CO₂ emissions and is expected to contribute about 27% by 2030. In preliminary estimates for 2006, China topped the list of CO₂-emitting countries, surpassing the US by an estimated 8%. However, China’s per capita carbon emissions level is over three times less than the EU average and six times less than the US average.

China’s strategic aspiration towards an innovation-based economy with science-based development – as enunciated at the seventeenth Party Congress in October 2007 – is in line with the vision for a low-carbon transition. A focus on developing and deploying advanced climate technologies is also consistent with China’s aspiration to move up the global value chain. A recent study suggested that for every US$1,000 of Chinese exports to the United States in 2002, only US$386 was accrued in China. Ensuring that China gains a sizeable share of the low-carbon economy is critical to managing its domestic emission growth, and would provide incentives for China to play a larger role in the post-2012 global deal on climate change.

Why China and the EU?

China and the EU are economically entwined. China is the EU’s largest trading partner. The EU is China’s second largest. The EU is also China’s largest supplier of technologies, foreign direct investment (FDI) and services. China is increasingly the main source of EU trade deficits. Bilateral trade deficits make news headlines, but obscure the fact that a significant part of the value addition of products ‘made in China’ accrues to European companies. Shoes imported from China return 50% to 80% of their value to the European companies that design and market them. As manufacturing supply chains integrate across borders, components are often made in one country and then shipped to others for final assembly. It means that it has never been harder to know who reaps the economic benefits from a product, and who should bear responsibility for the emissions produced in its manufacture.

Investments in China have helped EU firms stay competitive through access to lower-cost inputs. Cheap Chinese imports have meant lower prices for European consumers. The rate of return from FDI in China is increasing: in 2003 it was 8%, while the average return on EU capital from investments in other countries was 6%. In the longer term, as the European workforce shrinks, the economic relationship with China will become increasingly critical for the European economy. Estimates show that European wages in 30 years could be 16% to 40% lower if China fails to sustain its rapid economic growth.

China and the EU face common challenges in energy and climate security. Both are expected to be importing 80% of their oil supply by 2030. Resource needs have driven investments into politically unstable and fragile regions, changing the geopolitical landscapes in Central Asia, the Middle East and Africa. Ensuring security of supply – and stability in resource-rich regions – is thus a vital interest for both regions. They also need to manage the impacts of climate change, which will increasingly undermine food, water and human security, with implications far beyond national borders including in areas of high shared strategic interest such as Central Asia and East Africa. The two powers will both need to radically improve their adaptive capacity and work with other countries to reduce the risk of resource conflict over access to vital resources and distress migration. China and the EU also have remarkably similar and ambitious energy policies to enhance energy security through greater energy efficiency and use of renewable energy. It is estimated that the EU could be purchasing 77% of carbon credits generated in China by 2012 to help meet its compliance with the Kyoto Protocol.

It is imperative for China and the EU to take advantage of the opportunities offered by their interdependence to achieve win-win solutions that not only bring national economic benefits but also generate shared public goods of energy and climate security. This cooperation should be driven by mutual opportunities and recognition of the shared carbon responsibilities associated with bilateral trade. Estimates suggest that over 40% of China’s CO₂ emissions are produced during the manufacture of goods made for export. For Europe to strengthen its relationship with China, it needs to avoid political rhetoric that feeds anxieties based on exaggerated fears of Chinese competition. Such populism will undermine support among European citizens for the cooperation needed to preserve their energy and climate security in the long term.

The scale of China’s market – and its corresponding clean energy needs – offers one of the quickest routes to bringing new, clean energy technologies to maturity and widespread use. The combined strength of the Chinese and EU economies could help substantially bring down the cost of low-carbon technologies and adaptation tools and make them available to less industrialized countries. The maturity of the EU’s aspirations to global leadership will perhaps be measured in part by its willingness to strengthen engagement with China on energy and climate security.

Avoid locking in carbon-intensive investments

In the next quarter-century, US$22 trillion will be needed for investment in energy supply infrastructure worldwide. China alone requires about US$3.7 trillion. The shape of this investment will help determine the energy use patterns and CO₂ emissions for a generation. In the power sector China’s reliance on coal is well known, as is the rate of expansion. Estimates suggest that 1,260 gigawatts (GW) of new power stations will be built by 2030, 70% of which will be coal-fired. What is less well known is that over the same period Europe will build over 850 GW of new power stations needed to replace old ones and meet growing demand. Both regions share a responsibility in ensuring this planned capacity does not lock the world into a high-carbon future.

Constructing these facilities with conventional technology would both increase emissions immediately and reduce opportunities for switching to less polluting sources in the future. As an alternative, existing technologies, such as energy efficiency and renewables, can be introduced and implemented rapidly. Rapid expansion of renewable energy use is pushing up prices, but Europe and China could work to remove supply chain bottlenecks and create integrated supply chains that support aggressive supply expansion and cost reduction. Even with these programmes, China will still increase its coal use. EU–China cooperation could be strengthened to reduce the sustainability impacts of the whole coal fuel cycle, from mining to efficiency of use for power and heat. Europe should also enhance its collaboration with China on carbon capture and storage technology, building a truly shared partnership to accelerate commercialization in both China and Europe.

The building sector in China is in the midst of a massive boom. New housing stock being built between now and 2020 will equal the total housing stock in the EU-15 countries today. China’s existing building codes, if effectively enforced, would deliver significant energy efficiency gains. Far more could be saved through introducing EU best practice. Similarly in the EU, an immediate move towards implementing best practice will bring measurable improvements, with estimates of well over 20% savings already possible at low or negative costs. More ambitiously, Europe and China could work to mainstream and massively expand the use of existing close-to-zero-energy housing technology, and cooperate to develop better and cheap technologies in this sector.

The growth in fuel use for transport in both China and the EU is accelerating and in the medium term will outstrip emissions growth from all other sources. Increased demand coupled with declining domestic resources adds to the climate incentive for reduced oil use. With 80% of Chinese vehicles manufactured by joint venture companies, many with EU partners, there are opportunities for collaboration on joint roll-out of higher emissions standards across a huge combined market. Similarly, the search for low-carbon and sustainable liquid transport fuels presents opportunities for joint development and deployment – for example, around new-generation biofuels.

Leading the technology race

Both China and the EU have prioritized the development of new efficient and low-carbon technologies, ranging from incremental improvements to buildings and vehicles to potentially disruptive innovations harnessing biotechnology, nanotechnology and advanced materials. However, achieving these advances remains costly, difficult and uncertain. Embracing both aggressive technological innovation and diffusion as policy goals requires creatively balancing the incentives for the innovators or investors, while urgently maximizing access to climate technologies at affordable prices to avoid technology lock-in.

To create the necessary enabling framework, energy and climate policies need to contain incentives for innovation and diffusion. Existing subsidies that favour inefficient technologies to the detriment of low-carbon alternatives need to be reformed. R&D investments need to be complemented by other policies to create or expand markets and to drive large-scale deployment of low-carbon technologies. Market pull from regulation, prices, and public procurement strategies will all be critical. There will be no ‘one size fits all’ solution. Different technologies have varying needs. They will be accelerated down the innovation chain in different ways, often helped by some concrete mechanisms.

There has been only slow progress on developing the practical and effective innovation incentives needed to drive a global low-carbon transition. Despite ongoing initiatives in China and the EU, the question of how best to utilize existing efforts to promote transformative impacts at scale remains. Too often the desire to support national champions or protect local markets stands in the way of productive initiatives to share risks, pool research efforts and combine market incentives for innovation. Many allocated resources for collaborative innovation by both regions remain under-utilized. Today, there are genuine opportunities to embrace new models of technological cooperation to lower costs and accelerate progress for China and Europe. This will require addressing the linkages between technical standards, intellectual property rights and legal enforcement capacity in a clear and balanced manner as part of the incentive framework for low- carbon innovation and diffusion. Europe could potentially implement stronger measures to share publicly supported low-carbon technologies with China, for example, especially if market reforms enabled rapid market expansion for its firms in the energy efficiency and services sectors.

Capturing gains through trade and investment

The Stern Review points to the need for a transformative increase in the scale of international finance flows for a low carbon economy. China and the EU can explore win-win options to capture both carbon and economic gains through creating new market incentives for scaling up low-carbon trade and investment. The sheer size of the two markets means that an EU–China trade agenda will influence the global marketplace and further stimulating trading opportunities, both with each other and elsewhere. This could also help offset competitiveness concerns of EU and Chinese entrepreneurs about moving quickly towards low-carbon alternatives.

This vision, however, requires removing barriers to trade and investment in low-carbon trade in goods and services. Easier to implement and potentially more significant than tariff cuts, enhanced cooperation on defining common and improving performance and technical standards for low- carbon products could influence trade and investment patterns. Increasing trade in services relating to climate change adaptation as well as emissions reduction (e.g. building design, energy efficiency management) could provide real benefits for EU companies and for increasing know-how and management skills in China. As with previous economic reform processes, many of these policy innovations could be tested in designated ‘low-carbon economic zones’ (LCEZs) in China, which would benefit from focused European support.

Mapping the pathways

The report outlines a number of options to assist policymakers and stakeholders in China and Europe in mapping the pathways in the transition to a low carbon future.

1. Building ‘low-carbon economic zones’ in China – one in the more prosperous east and the other less developed west – could be a bold initiative for policy-makers to consider. These LCEZs would be the testing grounds for policies promoting the economic transformation necessary for a low-carbon future. Their focus on attracting investment in research and high-end manufacturing will be consistent with the Chinese leadership’s desire to shift away from simple processing and assembly. The LCEZs could be to China’s next industrial revolution what Shenzhen was to the current one – and a powerful demonstration of the viability of the low-carbon economy. The EU could focus its energy and climate cooperation with China around these zones to demonstrate the real possibility of large-scale transformations to other regions and countries.

2. Setting world-class standards for energy efficiency goods could bring benefits to major producers such as China and the EU; for example under the Eco-Design Directive the EU will soon be setting increasingly tight energy efficiency standards on major energy-using goods. China and the EU could set up a consultative committee to define aggressive standards for energy efficiency and low-carbon goods which could drive progress in both markets.

3. Making coal more sustainable is central as future dependence on coal is expected to increase in China and the EU. Both could enhance existing cooperation to deliver an agreed set of benchmarks and practices for improving efficiency and reducing the sustainability impacts across the coal fuel chain; including enhancing cooperation on development of carbon capture and storage as a potential future energy option.

4. An EU–China Ultra-Efficiency Building Research platform could be developed to capture the joint technical and development opportunities with China in this very fast-growing sector and to avoid energy consumption lock-in.

5. Exploring an EU–China low-carbon free trade agreement. A joint China–EU working group could be established to develop a framework to facilitate trade in high efficiency and low-carbon products. This could be the first step towards defining the scope of a potential China–EU low-carbon free trade agreement. Such an initiative could establish a global precedent for the treatment of climate-friendly technologies which could be extended to other markets.

6. Pioneering sectoral approaches to climate change Competitiveness concerns about climate change policies have generated significant interests in global sectoral standards agreements for energy-intensive sectors. China and Europe could develop a model sectoral agreement, commencing with the cement sector, which would help to drive efficiency and reduce emissions.

7. Tackling global supply constraints on renewable energy could help meet China’s and the EU’s shared targets on renewables and the corresponding cost concerns. The two powers could establish a high-level joint commission to tackle production bottlenecks and facilitate advanced investment.

8. Reducing dependency on imported oil from unstable regions to meet growing transport needs is central for China and the EU in the coming decades. With more than 80% of vehicles manufactured in China through joint venture companies, many with European partners, a unique opportunity exists for China and EU to work together to reduce import dependency through harmonizing energy efficiency and pollution standards.

9. Developing a low-carbon investment regime could help address the twin objectives of rapid diffusion of key technologies and ensuring competitiveness of domestic businesses for China and the EU. This could include relaxing Chinese restrictions on inward investment in return for access to carbon finance and enhanced technology cooperation.

10. Increasing energy efficient and low-carbon technology cooperation for China and EU could start with an agreement on practical steps to address structural issues in low-carbon technology cooperation around intellectual property rights. This could focus on practical mechanisms such as conditional or compulsory licensing, fair use rights, and guidelines for standardization, to enhance technological diffusion. Other joint initiatives could include combining EU and Chinese public R&D budgets in strategic areas; using existing supply chain links to drive the creation and spread of technology; and setting up a China–EU climate technologies prize fund to encourage innovation in the field of energy-efficient and environmental products.

Visit the "Changing climates" forum

Homepage photo by Pseudorlaya

The road to climate resilience

Beverley Darkin — Tue, 13 Nov 2007 07:13:00 -0500

China and Europe face similar potential impacts from climate change, and have much to gain by collaborating on adaptation policies. Beverley Darkin sets out the case for cooperation.

Recognition of the urgent need to reduce greenhouse-gas emissions and build a low-carbon economy is gathering momentum internationally. But there is a new, emerging reality staring us in the face: cutting carbon alone will not solve the climate problem.

The severity of climate change will not be determined solely by our ability to reduce emissions, but by our capacity to respond to the changes to which we are already committed. For this reason, the creation of “climate-resilient communities”, societies able to respond to the effects of global warming, is as important as the establishment of a low-carbon economy. On this, the EU and China are well placed to act as leaders.

Strengthening our capacity to adapt to climate change is not new. But as the science becomes ever more certain, and the observable impacts start to take hold, governments are taking the issue of adaptation more seriously. For example, parties to the United Nations Framework Convention on Climate Change agreed the “Nairobi Work Programme on Impacts, Vulnerability and Adaptation to Climate Change” in November 2006 to help countries improve their understanding and assessment of the impacts. This programme of action was welcomed by the G8 in June 2007 in Heiligendamm, where G8 leaders emphasised their commitment to enhancing co-operation with developing countries in the areas of adaptation and climate research. Critically, it is no longer seen as a “failure” in mitigation policy to want to improve our resilience to climate change.

But why are China and Europe, in particular, positioned to act collaboratively on climate adaptation?

First, although China and the EU are geographically different and distant, they will confront many common issues with the onslaught of global warming. Scientific assessments by the Chinese Ministry of Science and Technology, Chinese Meteorological Association, Chinese Academy of Sciences and European Environment Agency, suggest that both regions will face similar challenges, including drought, flooding, shifting agricultural zones and productivity, sea-level rise, disturbance to natural ecosystems and biodiversity loss. The severity and geographical spread of these impacts might vary and differences in socio-economics will affect their ability to respond at the local level, but both regions will experience increased vulnerability.

Take water as an example. Predictions by the European Environment Agency show that in the period up to 2030, climate change will reduce river flow in southern Europe and exacerbate already acute water shortages in the more arid regions of the south. Droughts may increase the risk of forest fires of the sort seen across Greece this summer. Meanwhile, higher levels of precipitation will increase river flow in northern Europe. Extreme precipitation, particularly in the winter months will lead to increased flooding and may cause a reduction in water quality due to storm water mixing with sewage water. Both drought and flooding could cause significant financial and human loss throughout the continent.

In China, predictions by the government, the Chinese Meteorological Association and Chinese Academy of Sciences show the physical impacts of climate change will be very similar to those in Europe, even though the geographic distribution will be almost the reverse of Europe’s. It is anticipated that climate change will lead to decreased precipitation and river flow in the arid north, increasing drought-stricken areas. In contrast, the south will experience an increase in run-off into rivers, while floods are predicted to become more severe.

Overall, the frequency of droughts and floods are set to increase in China, with an accompanying deterioration in the gap between the demand the supply of water. The glacial areas of western China have already retreated by 21%, according to China’s first national climate change assessment, published in December 2006. The total water available from glacial meltwater will increase in the short-term, with supplies expected to peak between 2030 and 2050 and then fall. According to the Stern Review, 23% of China’s population – around 250 million people – live “in the western region that depends principally on glacial meltwater.” The impact of increasing water scarcity on these communities could have significant consequences for regional stability.

The second answer to the question of why the EU and China are well placed to co-operate, is that they recognise the urgent need to connect the science of impact assessment to the policy-making process, if they are to improve their adaptive capacity in time. The Chinese government’s national climate-change assessment provides a scientific foundation for the development of national strategies and policies to tackle climate change. Meanwhile, the European Commission published its first green paper on climate change and adaptation in June 2007, setting out the case for action and outlining the policy options available. In both publications, China and the EU have identified the need to improve its alliance with partners around the world in co-ordinating action and strengthening co-operation on climate change adaptation.

While the EU and China might be well-placed to work together on adaptation, in what way might they co-operate? All too often adaptation is categorised as a sub-set of “development assistance”, requiring donor countries to commit resources (mostly in the form of funding) to developing countries. Building climate resilience is different. It requires China and Europe to act as equal partners.

This involves exchanging intellectual and technical tools to allow us to predict future impacts and vulnerabilities with greater precision. It will mean collaborating to develop our understanding of how to integrate scientific and socio-economic findings so that appropriate policy options can be identified at regional and local level. Better technology co-operation and investment between nations will also be needed. This can be achieved by removing tariff and non-tariff barriers on monitoring, evaluation and assessment equipment and adaptation technologies. It can also be pursued through conventional trade and investment co-operation, by expanding opportunities for foreign and direct investment, joint ventures and human mobility.

Building resilience may also involve the establishment of joint standards, to improve the capacity of communities to cope with local environmental change and to avert actions (such as the purchase of air conditioning units in response to rising temperatures) that will contribute to further warming. This could involve, for example, establishing joint standards for building efficiency and product design - particularly heating, ventilation and air conditioning – to improve energy conservation. It will also require improved access to finance and insurance, particularly for those vulnerable communities that are most exposed to the extremes of climate change, yet least able to respond.

China and the EU are confronting a choice: we collaborate and manage the challenges we face together, or we can take separate paths, delay our response, and wait to see what the consequences will be. But the longer we wait, the more likely we will be forced into reactive, unplanned adaptation. This could be both costly and destabilising.

Beverley Darkin was a Senior Research Fellow at Chatham House (Royal Institute of International Affairs) from 2005-7. Prior to that she worked for the UK Foreign and Commonwealth Office.

Homepage photo by Madeira

China’s winds of change

Xiao Shu — Thu, 08 Nov 2007 06:36:00 -0500

China’s potential wind power resources could meet the country’s entire electricity demand. How can China harness this clean energy? And how can the EU help? Shu Xiao reports.

China faces a serious challenge as it attempts to meet the rising energy demand that fuels its economic growth, at the same time as it strives to reduce its reliance on coal and imported oil. Developing renewable energy is of particular importance in ensuring security of energy supply by increasing China’s share of domestic energy production. It is also necessary as part of the country’s long-term effort to transition to a low-carbon economy and alleviate climate change effects. Renewable energy resources – especially wind resources – are abundant, but significantly under-utilised at present in China.

The European Union is the biggest importer of Chinese-manufactured goods, at the same time as it hopes to take a position of leadership on crucial climate-change issues. There are obvious mutual interests, which should drive both sides to engage in renewable energy cooperation.

China has a huge potential for wind resources utilisation. According to the China Meteorological Administration, China’s on-shore and off-shore exploitable wind resources represent a potential power generation capacity of 253 gigawatts (GW) and 750 GW respectively – a total estimated wind power potential of about 1,000 GW. Even 60% of this could meet China’s entire current electricity demand. By 2030 it is estimated to be the country’s third-largest power resource after coal and hydroelectric power.

The situation today

It has been 20 years since wind energy first commercialised in China. By the end of 2006, there were over 65 wind farms distributed across 15 provinces in China, particularly in the provinces of Guangdong, Inner Mongolia, Xinjiang and Fujian. The majority of wind turbines were installed with a capacity that ranged from 600 kilowatts (kW) to 1.5 megawatts (MW); the total grid-connected installed capacity of wind power was 2,604 MW in 2006. (The installed capacity increased more than 100% since 2005, when capacity stood at 1,260 MW.)

Apart from large scale grid-connected installations, China also has over 200,000 stand-alone small-scale wind turbines that provide electricity to households in rural areas. Generally speaking, China is now taking substantial measures to promote the commercial development of wind energy use and encourage the establishment of large wind farms. China will have 5,000 MW and 30,000 MW wind power capacity installed by 2010 and 2020 respectively, according to the Renewable Energy Medium-Long Term Development Plan set by China’s top economic planning body, the National Development and Reform Committee (NDRC).

Barriers to development

But despite the rapid growth of wind power in China, there are several constraints associated with further wind power development:

• The technology gap: At present, there are over 20 domestic wind turbine generator manufacturers in China. China currently has the technological capability to manufacture wind turbines with a generating capacity of 750 kW or less, and is in the process of developing megawatt-scale turbines. Several demonstration wind farm projects have been up and running since 2005, with capacities of 1.2 MW and 1.5 MW. However, compared to more advanced technology produced elsewhere, there are still substantial gaps in the design and manufacturing of China’s large wind turbines. Large wind turbine manufacturers from Denmark, the Netherlands, Germany, Belgium, Spain and US still dominate the Chinese market.

• The management gap: China has built up a wind farm operation and management capacity. The nation does have qualified technical personnel in the areas of wind power design and construction, however, the accumulation of skills and capacity in wind farm management has lagged behind the projected future demand for wind power.

• The high cost of developing wind power: The high cost of renewable energy in comparison to coal-fired generation continues to be the most significant barrier. In particular, the high up-front costs of wind power development and its small size and limited capacity are the primary contributory factors. As a result, the average electricity unit price with a coal-fired power plant is 0.3 to 0.6 yuan (US$0.04 to $0.08) per kilowatt-hour where wind farms generate electricity at a cost of 0.7 to 0.95 yuan ($0.09 to $0.13) per kilowatt-hour.

Policy enforcement

Europe has a solid advantage in the wind power sector. Seven of the top 10 wind power countries are EU member states. Currently, the most common mechanisms to promote renewable energy in the EU are feed-in tariff systems (a fixed price per unit of electricity generated from renewables that a utility or supplier has to pay for); quota systems (where a fixed proportion of total electricity has to be generated from renewable sources); and tax incentives (such as tax relief). For the most part, feed-in tariff systems have functioned better in practice than quota systems or tax incentives.

China does not yet have a fully developed financial incentive system for renewable energy, but the government has been providing support for the sector since the 1950s. The major financial incentive applied in China today is a concession programme through tendering and tax-related incentives. For example, wind farms can enjoy about a 50% reduction in VAT and income tax. Although China has a feed-in tariff system regulated similarly to the EU, it is badly enforced. Therefore, if China’s main objective been the fast development of the sector, a more stringent tariff system should be imposed, with the possible introduction of a renewable energy purchase certificate system.

Expanding the investment from the EU

Despite the government’s positive commitment to develop renewable energy, Chinese enterprises have limited incentives to develop renewable energy. But the Clean Development Mechanism (CDM) is bringing considerable financial incentives that drive renewable energy development in China. On one hand, CDM enables EU member states and private companies to meet their Kyoto and EU Emissions Trading Scheme targets at a lower cost. On the other hand, investment from the EU has a dual effect in reducing unit renewable production cost and allowing renewables to compete with the conventional coal-fired electricity sector while avoiding greenhouse-gas emissions. For example, Huitengxile Wind Farm CDM project started bidding at the end of 2001, and become in 2005 the first registered CDM project in China, and the first CDM-registered project for wind energy in the world.

The wind farm, with capacity of 25.8MW, contracted to sell 514,296 Certified Emissions Reductions (CERs) to the Dutch government CERUPT programme at 5.4 Euros per tonne of carbon dioxide equivalent. The money raised from the sale of CERs will total 2.78 million Euros, accounting for 13% of the project’s total investment. This revenue will bring down the cost of power generation by 0.05 yuan per kilowatt hour. CDM investment from the EU provides great assistance to financially unattractive projects in terms of reducing the unit production cost.

China’s total EU-contracted CDM projects as of July 18, 2007, will have a capacity of 3,251 MW by 2020. EU CDM investments therefore have a significant impact helping China reach its renewable energy targets.

New opportunities

To prepare for its ambitious renewable target, China’s government will implement fiscal and tax policies to stimulate the development of renewable energy, including building special funds, feed-in tariffs and quota systems for renewable energy. China will require 2 trillion yuan (around 186 billion Euros or US$267 billion) of investment by 2020 to achieve its renewable targets, according to the NDRC’s deputy director. China's wind energy development therefore represents a significant new business opportunities for the EU. These areas include: the transfer of wind turbine technology; training in management and related services; and direct equity investment in China’s wind power projects.

Xiao Shu holds an MSc in Environmental Technology and a BSc (Hon) in Environmental Management from Imperial College London. His particular area of interest is climate change, particularly with reference to the use of market-based mechanisms such as CDM. He also has a broad knowledge of CDM in China and has worked on the UNIDO-led renewable energy promotion program.

Homepage photo by alau2