China is embracing a variety of green technologies. The country is investing enthusiastically in all kinds of renewable resources. Firms in developed countries are borrowing Chinese technology to capture carbon from fossil fuel emissions.
In the bucolic countryside of Gansu, a northwestern province of China, hundreds of tall symmetrically aligned windmills go about their business in the most unassuming way. The three giant blades on top of each of these towering structures rotate majestically, producing more electricity than the locals need. A bit deeper into the mainland, in the hotter provinces of China such as Qinghai and Yunnan, where the sun shines much more brightly, solar panels spread over hundreds of acres, housing sophisticated photovoltaic cells. They lay slantingly on the ground facing the sun in their quest to produce some energy. Further into the city, in the industrial suburbs of Shanghai and Beijing, blackened smokestacks of coal power plants are waiting to be equipped with the latest carbon capturing technology.
This is the story of China’s green ambitions.
Long maligned for its lax environmental standards and inadequate response to fossil fuel emissions, China has decided to shed its dirty image. In 2009, the fast-growing China emerged with the unflattering title – the world’s largest emitter of green-house gases. Although countries the world over made China’s emissions an issue, they were secretly envious of the strides the Middle Kingdom was making in the green technology arena.
In 2010, China stole a march from the likes of Denmark, Spain, Germany and the U.S. to become the world’s largest manufacturer of wind turbines. Only the year before, the Asian giant had vaulted past the West to become the world’s largest maker of solar panels. Now the Middle Kingdom is leading the initiative to develop carbon sequestration technology, which aims to trap carbon dioxide emissions from power plants before the gas escapes into the atmosphere. The captured carbon is typically pumped underground into aquifers and pits, such as aging oil fields that have served their purposes.
Global investment in green technologies jumped to $500 billion
in 2009. Almost $300 billion of this investment came from Asia.
China alone accounted for $220 billion of this figure. Little wonder
that the Middle Kingdom has taken the lead in green ventures.
Most of these green technologies contain significant financial risks. Yet China is enthusiastically investing billions into such costly green ventures. For instance, Huaneng Group, China’s state-owned utility that produces 10% of the country’s electricity, almost all of it from coal, is investing nearly $3.6 billion in carbon sequestration technologies. With carbon sequestration technology’s commercial viability still unproven, U.S. or European utilities would think twice before investing such a tidy sum. Even the United Nations Framework Convention on Climate Change is lukewarm about carbon sequestration, due to concerns over underground storage. Nonetheless, China seems unfazed about experimenting.
So what is driving China’s confidence in expensive green technologies?
The country’s domestic market seems to be the answer. China’s government and companies are confident that the economies of scale they expect to build over time should justify their investments in costly green ventures. It appears that China plans to apply the same ingredients that it has successfully used to revolutionize global manufacturing to its efforts to embrace green technology: cheap labor and capital.
What’s more? China’s gamble could pay off handsomely. By some estimates, sequestration technologies that Huaneng is developing could help store carbon underground at about $20 per ton compared to $100 per ton reported by U.S. and European utilities.
The Chinese government is standing firmly behind these company-led experiments with green technology, backing companies with generous subsidies and tax holidays. For instance, when China announced its fiscal stimulus in 2009, in the aftermath of the global financial crisis, almost $220 billion or nearly one-third of the total stimulus went to green energy projects including wind, solar, hydropower and clean-coal technologies. Since then, the Chinese government has subsidized nearly 50-70% of the costs associated with building large solar-power projects.
However, despite these achievements, China’s green technology policy has been met with some disapproval. These criticisms take aim at the central strategy that sustains Chinese green ventures, namely subsidies, which distort the true cost of some of China’s green technologies. Many economists opine that China’s green ventures will fall flat without these subsidies. They pinpoint the country’s solar energy markets. Although the Asian giant accounts for nearly half of the market for solar panel manufacturing, only 1% of what is manufactured in China is installed domestically. Just like everything else, China exports almost all of its solar panels too. But these exports are possible only because Europe and the U.S. subsidize the use of solar equipment by their domestic companies and consumers. Typically the U.S. and European companies outsource the manufacturing of solar panels to China as the Asian giant has certain advantages in mass producing such products. Should subsidies in the U.S. and Europe disappear or that China cuts its own subsidies, the solar industry in China could have an early sunset.
But China is finding ways to tackle such situations. In 2009, when the price of solar panels collapsed and threatened the entire solar panel manufacturing industry, China expanded the domestic solar industry through incentives, absorbing the supply from its domestic manufacturers.
Some problems for China’s green ventures are also homemade. China’s power grid infrastructure is still inadequate. This situation has given birth to an odd problem in which wind turbines across the country produce more power than the country’s grid can accommodate. As a result, at times nearly 40% of the wind turbines remain idle. But China now has said that it will integrate the country’s grids more closely to transport excess power from northern regions to power starved regions in central and eastern parts of the country.
Meanwhile, western utilities that cannot afford to experiment with green capital for lack of cheap capital are piggybacking Chinese firms. U.S.-based Duke Energy has reached an agreement with Huaneng to share information on clean-coal technology. Still, Duke says that it will take nearly eight years to implement clean-coal technologies in the U.S. compared to just three in China. Some Houston-based coal companies have even licensed clean-coal technologies from China, and the inquiries still keep pouring in.
Fueled by inexpensive capital and an abundance of labor, it appears that China’s dominance in green technology could not be more dramatic. Still, the Asian giant seems intent to not only maintain the green technology lead that it has built over the past five years but also is willing to share its ideas. The envy that China’s efforts generated among the West is slowly giving way to collaboration. Western firms dial China frequently in their efforts to acquire technology. And with this, the phones at Huaneng do not stop ringing.