CHINA, THE WORLD'S LARGEST ENERGY CONSUMER AND
CLEAN TECHNOLOGY MARKET:
CHINA'S CHAOTIC FAST FORWARD
MIGRATION TO A GREEN ECONOMY
For most, when one
talks of China and its environmental and
energy challenges, one tends to paint a very bleak picture. This perception is well-founded in that China
1) displaced the US as the world's largest energy consumer as of 2009 --
doubling its energy consumption between 2000 and 2009 --- 2) represents the
world's highest pollution levels with 16
of the top 20 most polluted cities in the world being in China and 3) now has
total annual vehicle sales higher than that of the US. Add to the picture considerations to the
effect that approximately 62% of China's current electrical power generation is
derived from thermal, mainly coal-fired, generating plants and much of China's industrial
pollution emanates from plants with dated technologies.
The flip side to this
gloomy portrait, is that China is actively engaged in a chaotic migration to a
green economy. Indeed, in 2012, China
had the highest level of investments in clean energy, totalling $67.7B, up 20%
from 2011 due to a solar sector surge.
The US was in a distant second place with $42.4B in clean energy
investments in 2012.
With these sharp
contradictions, one might be tempted to conclude that China is schizophrenic on
environmental issues. However, that would be unfair because the trends are
shifting in favour of clean technologies supported with massive investments by
the national government.
On massive government
funding for clean technologies, sustainable development related R &D,
energy efficiency and emissions and pollution control, China committed $223B in
2009 to initiatives in these areas and in August 2012, China announced a new
plan for $372B up to the year 2015. http://www.ibtimes.com/china-spend-372-billion-reduce-pollution-encourage-energy-efficiency-759575
Concurrent with the
aforementioned investments, under the 2009 China Renewable Energy Law, China
introduced 1) a Feed-in-Tariff (FIT) for renewables (fixed price paid above
market prices for all renewable energy sources) and 2) Right-to-Connect
obligations that require all grid operators buy all of the renewable energy
produced in their respective regions.
(Note, the FIT and Right to Connect formula was conceived in Germany and
has since been copied by 40 governments around the world, including Ontario,
until that province abandoned the model in response to a WTO ruling over
Ontario content provisions.)
Complementing the FIT
and right to connect programs, in 2012, China began to implement a quota system
for provinces and cities for the amount of their energy that must come from
renewable sources.
Against this backdrop,
China has become the world's fastest growing wind energy market. With 13.2 GW of
new wind power capacity added in 2012,
the total wind installed capacity reached 75.6 GW by the end of
2012. (To put this in a relative perspective,
Quebec's current total installed electricity production capacity, including
Churchill Falls, is 44 GW.) Projections are for over 16 GW of new installations
in 2013 and 17 GW and 18 GW for 2014 and 2015 respectively. China's unofficial target is 200 GW by 2020
but that may be an underestimate.
In terms of jobs in
the wind energy sector, the projection is that from the 150,000 jobs in China's
wind sector in 2009, the numbers will rise to 500,000 jobs by 2020.
Unfortunately, in its haste to advance its wind and solar energy sectors
-- from the development of clean energy manufacturing capacity to the
construction of wind and solar farms -- China had "forgot" to invest
in corresponding increases in electricity transmission capacity. Consequently, Chinese electrical grids are
not in place to handle all of its new renewable energy production capacity -- 20%
of wind production capacity was not connected in 2012. To remedy the situation, China will build 19 new
ultra high voltage lines, but the first two lines will not be ready until
2014. One of these lines will be 2000km
long.
In the interim, with the help of generous state financing from the
Chinese Development Bank and other sources, China dumped its manufacturing surplus
production of clean energy technologies on global markets.
The US has since responded to China's dumping by imposing steep tariffs
on China's clean technologies - up to 250% on some Chinese solar products and
up to 26% on Chinese wind turbine towers.
With respect to tariffs and Europe, following sabre rattling to the tune
of an 11.8% introductory offer solar products tariff on Chinese imports effective
June 6, 2013, on August 6, 2013 the EU decided not to impose provisional
tariffs averaging 47% that were supposed to come into effect that same day, on
Aug 6, 2013. That is, a preliminary truce was worked out on 1) prices and 2) a
maximum export volume. Notwithstanding this preliminary agreement, Europe is
keeping its options open for new tariff decisions at a later time.
Regrettably, up until the aforementioned trade wars, China's PV solar manufacturing
sector was almost entirely dedicated to global markets -- with hardly any
domestic market to speak of -- going from 1% of the global market in 2004 to
50% by 2012, that is, up to when US and European tariffs eliminated China's
price advantage. The US and EU tariffs having brought China back to earth,
China is now more focused on internal solutions to its temporary surplus in
solar manufacturing capacity.
One these internal solutions comes in the form of PV solar energy targets
to install 10 GW/year in the 2013-15 period --quite a sharp increase from the
total installed PV solar capacity at the end of 2012 at 5 GW. To encourage the
private sector to get into the act -- 40% of PV projects are represented by
private developers -- the Chinese government is offering 50% tax breaks for
utility scale projects for that period. As
a result, when the figures are in for the year 2013, China will likely be the world's
largest solar market.
What this will mean in terms of growth jobs in China's solar sector may
not be known for a while, but it is worth noting that prior to new policies and
targets mentioned above, there were 300,000 jobs in the PV solar sector in 2011. As well, there were another 800,000 employed in
China's solar heating and cooling sector in that same year.
But since domestic market growth by itself would still not be sufficient
to address the solar manufacturing overcapacity and declining overseas demand, China
has since introduced tax breaks and other measures to encourage Chinese solar manufacturing
sector restructuring. Further on
restructuring, with the cap on exports to Europe, Europe being the world's largest
solar market, China has blocked access of its small solar firms to European
markets.
Where does all this
lead? Well the projections of BNEF are such that 50% of China's electricity
would come from wind and solar energy by 2030, roughly equal to that of
coal. Further on coal, in the recent
Common Sense Canadian article on the end of coal, it suggested that coal
production in China will peak in 2015. http://commonsensecanadian.ca/end-coal/ This may suggest that the BNEF projections are
too conservative.
An indicator that the clean
energy projections may be too conservative or, at least, not tell the whole
story, is China's recognition that overarching policies are essential to bring
all sectors of the economy on side. More
precisely, in May 2013, China's National Development and Reform Commission
began a process to explore cap and trade options with the objective of having a
scheme come into effect in 2016. The
review of this option began in June 2013 with the first of seven pilot carbon
trading schemes in Shenzhen. In line with
these objectives, the plan call for strict
emissions, pollution and energy efficiency standards for the industrial
sectors by 2016, backed by stiff penalties for non-compliance. To assist industry to achieve compliance,
loans would be made available to firms to invest in clean technologies. According to Bloomberg New Energy Finance
(BNEF), if the power sector is faced with a price of carbon, GHG's in China
would peak around 2023.
As to why Shenzhen was
chosen for China's first cap and trade pilot, it may well be because that
city's green leadership, particularly in the area of clean transportation
alternatives. To this effect, the city
of Shenzhen has established a target to have 1) more than 3000 electric taxis
and 2) 5000 hybrid and 1000 electric urban transit buses around by 2015. In addition, by 2015, the city will ban all
vehicles that fail to meet in advanced emission standards. Not bad for the city that ranks second to
Beijing as having the most vehicles in mainland China.
Moreover the audacity
of city of Shenzhen complements that of the Warren Buffet-backed BYD of
Shenzhen which 1) has become a world leader in all electric buses; 2) will
introduce its e-buses to Canada through pilot projects with the Société de
transport de l'Outaouais (STO in the Gatineau area) and Société de transport de
Montréal (STM); 2) has introduced its e-buses in a pilot in Frankfurt Germany; 3)
built an e-bus and electric car manufacturing plant Sofia, Bulgaria which began
operations in February 2013; and 4) is building an e-bus and an Iron-Phosphate
energy module (large-scale battery) manufacturing facility in California that
will be operational in late 2013. http://www.byd.com/na/
Meanwhile, back in
Canada, Stephen Harper continues to present economic development and
sustainable development as two opposing policy paths. This is true only as long
as all of Canada's economic eggs are in the old economy and one turns a blind
eye as to what's happening by way of economic paradigm shifts in China, Europe
and the US. Only in Canada, pity!
Will Dubitsky, Oct 10,
2013
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