Thomas White Global Investing
Green Reports

September 29, 2010

The Green Report


China’s Tough Emission Challenge

China’s tough emission challenge

Government investment in research and development of green
technologies has crossed $1.47 billion between 2006 and 2010.

 

It seems that China is fast racing ahead to the top of the world. Recently, China overshot Japan as the second largest economy. Last year, it surpassed the U.S. as the world’s biggest automobile market. This month, Forbes ranked China ahead of India for its thriving business climate. But there is a number one slot that China wishes it had not captured. Global emissions. Just ahead of the United States, China leads the list of the top ten emitters of carbon emissions in the world. A dubious distinction that the country is scrambling to shed.

To begin with, the government is attempting to scrub off three decades of industrial waste. The effort is expected to rack up a bill of $101.4 billion or roughly 2% of their GDP per year. That is equivalent to the annual GDP of Vietnam. And if China does not spend this much, “The cleanup can’t catch up with the speed of pollution,” warns He Ping, chairman of the International Fund for China’s Environment based in Washington.

Caught in somewhat of a Hobson’s choice, China has decided not to scrimp. Total expenditure on the environment has doubled up between 2006 and 2010 to $208 billion compared to the previous five-year plan. Spending might double again to $462.3 billion in the next five years, as China tends to its sewage infrastructure, develops alternative energies and increases conservation efforts, according to officials from the Ministry of Environmental Protection in China. Currently, the country is targeting a reduction of 20% in its energy used per unit of output per year. But China’s development at blinding speeds has translated into higher production in heavy industries. And that means even higher production of emissions.


The Chinese government has promised to slash carbon emissions
per unit of economic output by 40% to 45% by 2020. This effort,
which involves improvements to power plants to increase energy
efficiency and reducing oil and coal purchases, is expected to save
the government nearly $30 billion a year.

To meet its energy saving targets and curb emissions, China is now busy identifying its excessive smoke belching factories. In a list published last month, China’s Ministry of Industry and Information Technology has picked out 2,087 aging, energy intensive factories that will be required to shut down by September 30th. Simultaneously, the government’s economic planning agency has compelled 22 provinces to stop providing electricity at discounted rates to offending industries and production plants. With the government imposing power cuts and enforcing blackouts, numerous production units are being rendered inoperative, while thousands of homes are making do without electricity.

These measures, perhaps extreme, have shown double-edged results. On one hand China, whose factories form the backbone of its economic surge, has had to cope with profit reduction and job losses. Prominent steel manufacturer, Baosteel, announced on September 1st that it would suspend production at a blast furnace in Ningbo, in Zhejiang Province, which was churning out two million tons of steel annually. In other instances, factories that manufacture mobile phones and other electronic items have been ordered to shut down for five days every fortnight.

But on the other hand, Chinese companies involved in green technology are expected to boom. Already, some of China’s billionaires are CEOs or founders of firms that make electric car batteries, recycle paper or export solar and wind energy technology.

To be fair, China’s carbon footprint is also a result of e-waste that is exported from developed countries. Known as the e-waste capital of China, the small city of Guiyu in Guangdong Province alone is home to approximately 5,500 businesses that are involved in processing e-waste. While several countries ‘outsource’ a significant proportion of their emissions to countries like China and India, research published last year also shows that a third of all emissions in China are a result of the country’s production of goods for export.

Despite or possibly because of such hurdles, China has raced ahead of the U.S. as the place to launch renewable energy projects, according to a study by Ernst & Young. Reportedly, China attracted $11.5 billion in asset financing for clean technologies in the second quarter of 2010, much more than Europe and the U.S. combined.

Curiously enough, instances of China’s climate fighting efforts can be traced several years back. A project named The Great Green Wall that was started in 1978 continues to be followed. The aim of the project was to make citizens plant as many trees as possible to ward off the encroaching desert, and of course, to combat climate change. Already, government statistics show that average Chinese citizens have succeeded in planting 56 billion trees over the last ten years. By 2050, the resulting forests are expected to cover 42% of China’s landmass. According to Al Gore, former U.S. Vice President, China plants two and half times more trees than the rest of the world.

Evidently, this green effort alone is not enough to resolve China’s mounting climate challenge. For China, this is once again a highly competitive contest. But this time, it is not a race to the top.

 

 

 


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