The giant's goals for renewable energy are so huge they are changing the global economic map. Second in a week-long series.
Ambitious destination: By 2015, China's domestic market for environmental protection and energy savings technology could be worth US$472 billion. China map image from Shutterstock.
A 50-foot tall statue of Shaquille O'Neal marks the southeast entrance to Beijing's Chaoyang Park. The NBA star clutches a basketball close to his chest and gazes towards the horizon. Nearby are three outdoor basketball courts, where I've scheduled an interview with the head of Greenpeace East Asia's Sustainable Finance Program. Calvin Quek is playing a game of four-on-four when I arrive one morning this past August. Smog blocks the sunshine and makes the air feel thick. If the other players notice, they don't show it. Some smoke cigarettes during the water breaks.
"It's hard to say black and white whether [the government] is for or against us," Quek says of Greenpeace, over the sound of bouncing basketballs. Earlier this week, his colleagues had published "Thirsty Coal," a grim critique of China's coal strategy. The government plans to build 16 new coal-fired power bases by 2015 in some of the country's most arid regions. "Left unchecked," reads the English report summary, "these mining projects will only cause more ecological disaster and social unrest in the foreseeable future."
China has some of the planet's tightest restrictions on free speech. Its authoritarian regime was recently ranked 174th worldwide on Reporters Without Borders' annual Press Freedom Index. How was the release of "Thirsty Coal" even possible? It helped that Greenpeace conducted joint research for the report with the Chinese Academy of Sciences, a prestigious organization closely tied to the ruling Communist party. More important still: the report's central message, that coal expansion poses major threats to China’s watersheds, aligns with the government's own official goal of protecting local water resources.
You might say that Greenpeace East Asia's broader vision of a sustainable China is roughly comparable to that of the Chinese leadership. The country's 12th five-year plan, which came into effect in mid-2011, is arguably the strongest political commitment to "sustainable" economic growth in human history. "We have made this a top priority," Zhang Xiaoqiang, one of China's top economic planners, said last June. The plan identifies seven strategic industries -- three of them explicitly "green" -- that could transform China from the world's factory into its leader of high-tech innovation. "That framework gives us a lot of space to work in," Quek says.
China has set ambitious national targets for renewable energy. By 2015, according to one estimate, its domestic market for environmental protection and energy savings technology could be worth US$472 billion.
Yet the success of China's green revolution will require more than just money and targets. The country's ability to generate new ideas and technology is equally important. In the democratic West we tend to associate such progress with creativity and rebellion. Are those conditions possible under an authoritarian regime with little tolerance for free expression? Or has China discovered a new formula for innovation?
China vs. the planet
My first view of Mainland China is out an airplane window: four hulking wind turbines backlit by the setting sun. Such turbines last year generated enough electricity to power roughly 47 million Chinese households. If you assume this correlated with less demand for coal-fired electricity, then wind power may have cut 70 megatons from China's carbon footprint. That's greater than all the greenhouse gases emitted each year by British Columbia. More remarkable still is that virtually all China's wind infrastructure was built up over the past seven years. With the right government policies, predicted a recent report, the country's current installed wind capacity could roughly quintuple by 2020.
Calvin Quek, head of Sustainable Finance Program, Greenpeace East Asia: China's economic 'framework gives us a lot of space to work in.'
Wind power is just one prong of a green revolution whose scope and scale is hard to comprehend. Yet so are the challenges it must overcome. China may have more wind turbines than any other country on Earth, but they only supply 1.5 per cent of the country’s electricity needs. Nearly 70 per cent is generated by coal, the planet's single worst contributor to climate change. The Chinese leadership plans to bring 274 gigawatts worth of coal power onto the grid over the next five years. That's almost equivalent to every coal plant in the United States.
The year 2017 represents a crossroads. If by then the world can cap its carbon emissions at 32.6 gigatons, humankind may have a 50/50 chance of avoiding the worst ravages of an overheated climate. A recent International Energy Agency (IEA) report showed global emissions in 2011 to be just one gigaton below that critical threshold. What happens in China over the next five years will likely determine the fate of the planet. "They are truly the elephant in the room," said University of Richmond law professor Joel Eisen, an expert on China's energy policies.
Recent figures are not promising. China's carbon emissions increased by 0.72 gigatons in 2011 alone, due mostly to its ravenous appetite for coal. Yet the IEA report contained a small piece of hopeful news. Aggressive efforts by China to use energy more efficiently and move towards more renewable sources are having a discernible impact. The country's 2011 carbon emissions would have been 1.5 gigatons greater without them. "What China has done over such a short period of time," concluded IEA chief economist Fatih Birol, "is already paying major dividends to the global environment."
'A new era'
China's green revolution effectively began in 2006. For two decades there had been small and scattered attempts to make the country's economic growth more sustainable. A central Energy Conservation Office gave smalls loans for wind projects starting in the late 1980s. State economic planners set goals for certain renewable technologies in 1995. The country expanded efforts to develop a domestic wind industry in the early 2000s. But China's ratification of its Renewable Energy Law in 2006 was unlike anything that had come before it. "A new era," is how Eisen has described the impact.
The legislation for the first time made development of non-fossil fuel energy a top national priority. Hydro, wind, solar, biomass, geothermal and tidal energy would provide 15 per cent of China's electricity needs by 2020, economic planners decided. The Renewable Energy Law's impact was immediate: China's installed wind turbine capacity doubled every year between 2005 and 2009 -- then more than doubled again by 2012. The country's solar industry accelerated so fast that within two years China was leading the planet in solar cell production. Still, most of the country's renewable energy comes from hydro projects such as the Three Gorges Dam. And China's embrace of renewable energy remains an ongoing policy experiment, often with messy results.
'We have made this a top priority': Zhang Xiaoqiang, one of China's top economic planners. Source: NRDC.
More than one-third of wind projects have difficulty connecting to the country's overloaded power grids (in northeastern China, it may be closer to 50 per cent). New government standards introduced last year might improve the situation. China also plans to invest nearly $250 billion over the next five years to improve its power grid. Yet the broader challenge of meeting the 2020 target is vast. With eight years to go, China still needs to construct more than 300 gigawatts of renewable energy capacity. That's almost like rebuilding every solar panel and wind turbine on the planet. "But even if they get halfway there," Rhodium Group partner Trevor Houser said last year, "this will transform, fundamentally, the global market for clean energy technology."
'Designed in China'?
One clue as to how that target might be achieved is found all over China's capital city. The "Beijing Spirit," claim government signs located in the subway, alongside busy sidewalks and on the freeway leading to the airport, is composed of "Patriotism," "Inclusiveness," "Virtue," and "Innovation." That last concept sounded appropriate to me. It's hard to have a conversation about China's green revolution these days without some mention of "innovation" (though it's often followed by a question mark).
China's 12th five-year plan, which came into effect last year, pins the country's economic future on seven emerging strategic industries. Three of them are explicitly "green": energy savings and environmental protection, alternative energy and clean energy vehicles. The other four -- next generation IT, biotechnology, advanced materials and high-end equipment manufacturing -- support a similar aim: to supply the world with cutting-edge ideas and technology. State planners want to grow these seven industries to eight per cent of China's GDP by 2015, and 15 per cent by 2020. The impact of those targets might be huge. China's energy savings and environmental protection industry alone could be worth more than US$472 billion in three years, predicted a China Merchants Securities report. (The government puts the figure at US$708 billion)
Tsinghua-Brookings Centre director Feng Wang: 'The Chinese bullet train is racing towards a demographic precipice.'
Whether China can truly transition to an economy powered by clean and green solutions is debatable. The country's higher education system, "which focuses on training technicians rather than nurturing individual thinkers," Tsinghua-Brookings Center director Feng Wang wrote this summer, "suffocates creativity." And a 2008 Nature editorial questioned, "Whether a truly vibrant scientific culture is possible without a more widespread societal commitment to free expression."
But China has compelling reasons to try. A 710-page government report made public this year predicted "extremely grim ecological and environmental conditions" if global warming is not somehow abated. Floods and droughts could hurt China's food security. Rising seas might wash up against the major cities and export zones of its coastal regions, the country's industrial heartland. "In China's thousands of years of civilization," wrote Chinese Environment Minister Zhou Shengxian last year, "the conflict between humanity and nature has never been as serious as it is today."
Add to those challenges a rapidly aging population. China will bring only one million new workers into its labour force this decade, compared to 92 million over the previous two decades. "Due in part to this demographic trend," reads the 2012 China Greentech Report, "rising labor costs are starting to end China's term as the low-cost manufacturing center of the world." The Tsinghua-Brookings Center's Wang offers a blunter assessment: "The Chinese bullet train is racing towards a demographic precipice."
China too aggressively 'green'?
Is the world ready though for a "green" China? Some of the country's attempts to supply the planet with clean technology are not being met warmly. The European Union launched a trade investigation against China's solar power industry this September. And U.S. lawmakers decided earlier this spring to impose tariffs on several Chinese manufacturers. Both trade actions are based on a similar fear: that China is selling its solar modules in the West below market value to drive competitors out of business. "The Chinese are violating EU and international trade law," a spokesperson for the Coalition for American Solar Manufacturing has said.
No doubt the last few years have been tough for the global solar industry. Overall revenues were expected to stagnate this year, after more than doubling between 2009 and 2010, according to NPD Solarbuzz research. Many prominent companies have collapsed, including Solyndra, the recipient of a controversial $535 million loan guarantee from the U.S. government. But the way you view China's role in the recent solar downturn may depend on your time horizon -- or how exactly you define innovation.
University of Richmond law professor Joel Eisen calls protectionist government policies against China's green industry 'wrong-headed.'
The global market for solar power exploded in the mid-2000s, due largely to government subsidies in the U.S. and Europe. This presented a rare opportunity for China. "In clean energy," Bloomberg New Energy Finance's Shu Sun explained, "the technology gap between Chinese companies and foreign companies either doesn't exist or it's small." That makes it a lot easier to become a world leader. China by 2007 was producing nearly one-third of the planet's solar modules -- these days, it's closer to two-thirds.
But to produce solar modules you must first purify silicon, grow it into an ingot and then slice the ingot into thin wafers. This requires highly specialized knowledge and advanced equipment that is still largely controlled by firms in Japan and the West. Next you assemble those wafers to create cells, and make solar modules by soldering the cells together. This is a labour-intensive process with lower profit margins. It's also where China controls the largest share of global production. Why? "Technological barriers to entry are relatively low," explain a paper from MINES ParisTech.
Try as they might, Chinese companies have still not been able to develop the technology or expertise needed to control those higher-value solar sectors. The country's total volume of purified silicon imports was 36 per cent larger in 2011 than the year before. It was a clear enough measure of China's continued failure to move up the value chain. But nobody is questioning Chinese dominance on the factory production line. Its ability to profitably make solar modules requires agility and flexibility. Even seemingly small decisions -- like locating materials providers next door to a factory, instead of down the highway -- can have a big impact.
"This is not innovation in the sense of searching in a lab," Matthieu Glachant, co-author of the MINES ParisTech report, said in an interview, "but it generates a lot of small incremental improvements, which leads to the end in a drastic cutting of costs." Those cost improvements ultimately helped shrink profit margins for solar firms in the West, and drove many of them bankrupt. But so too did Europe's financial crisis, faltering government subsidies and the ongoing effects of the U.S. recession. Trade actions in Brussels or Washington against China's solar makers may in effect place the blame squarely on Beijing's shoulders.
The University of Richmond's Eisen is "dismayed" by such efforts. "That's wrong-headed government policy," he said. Solar power needs to get cheaper before it'll ever be competitive with coal-fired electricity, or any other power source. There's some consensus emerging that the cheap modules produced by China may in fact help create a more sustainable industry. The broader question is whether China's green revolution could do the same for our dangerously warming planet.
Tomorrow: Intense focus on Alberta's oil sands masks a different story: the fast growing global customer base for Canada's cleantech industry.