Tuesday, June 17, 2008

Efficiency's New Popularity

Hello all - sorry for falling behind in my posting. I've been very busy of late working on the Senate climate change bill with various groups/Congressional staff that was recently debated and pulled from the floor (more about that in another post). Below is a story from Greenwire that discusses the steps China is taking to try to conserve energy even as it grows its economy.

For all the hundreds of times I've heard "What about China?" from friends of mine who question the U.S. need to reduce our emissions -- this story makes several points I've been trying to make for some time.
  • 1) Energy conservation is going to be the NEW MARKET DRIVER - as energy prices remain high -- those countries and industries who are efficient, smart and utilize the best technology will have a huge ECONOMIC advantage. Set aside the "environmental" reason for creating a low carbon energy economy -- there are increasingly huge ECONOMIC advantages to doing this -- and THAT is why China will deal with their ghg emissions -- because the same things that reduce carbon will also help them develop economically.
  • 2) Need I remind my friends that CHINA IS A DEVELOPING COUNTRY. The U.S. is not. It is ridiculous -- and frankly, defeatist to take the attitude that we will not create a more efficient, renewable, domestic energy economy "because China hasn't gone first" Are you kidding? I feel like the founding fathers would be rolling in their graves to see such whimpy, limited thinking about America's possibilities.
  • 3) Why is China focusing more on energy efficiency than the U.S.? This is crazy!! We have GOT to start seeing the new world market advantages in energy efficiency -- and REWARDING them with a market -- the kind of market that a cap-trade system would provide.

More later . . .

CHINA: Can energy efficiency fuel an industrial evolution? (06/17/2008)

Michael Burnham, Greenwire senior reporter

The second in a series of stories on China.

SHANGHAI -- From sunup to sundown in China Energy Recovery Inc.'s warehouse here, men in hard hats and overalls drill, press and solder steel into cylinders the size of a tractor trailer. And when the day is done, nine more energy-saving boilers are ready for China's industrial evolution.

Many, many more are needed.

Green Games -- Red Dragon

The world's most populous nation built about two coal-fired power plants a week last year. Scores of inefficient steel, paper, cement, chemical and textile factories consumed most of the energy. Business boomed. But after years of double-digit economic growth, China is going on an energy diet.

The Red Dragon is targeting 8 percent gross domestic product growth this year. China's current five-year plan, meanwhile, calls for cutting energy consumption 20 percent per unit of GDP by 2010 while reducing carbon dioxide and other emissions 10 percent.

Old habits must change first.

China is falling short of its economy-wide conservation target, largely because of poor execution at the local level. The worn promotion path for Communist party officials is producing as much energy and goods as possible, explained Wang Minyuan, an environmental law professor at Tsinghua University in Beijing.

"The targets for energy conservation have not been sufficiently clear," Wang said. "Necessary supporting measures are weak, even nonexistent."

But Wang and other experts contend that a recently amended energy law -- which places top priority on conservation -- could be an effective catalyst in China's transition from a planned economy to a market-based economy. International development banks and nongovernmental organizations, meanwhile, are forging new financial and technical tools to help China reduce its massive carbon footprint.

Last year, China emitted almost a quarter of the world's carbon dioxide -- the main heat-trapping gas -- surpassing all other nations, according to a report published last week by the Dutch government (Greenwire, June 16). China accounted for almost two-thirds of the 3.1 percent increase in global CO2 emissions last year.

"China is under increasing pressure to clean up its act," said John Elkington, a London-based corporate sustainability consultant. "The country has long been the low-cost manufacturer, but pressure is coming to bear on polluting factories that export."

'Things are changing'

That pressure is good for the boiler business.

China Energy Recovery (OTCBB: CGYV), whose boilers are helping about 200 industrial manufacturers capture and convert their wastewater and steam into energy, went public April 15.

Welders within the cavernous insides of China Energy Recovery Inc.'s warehouse in Shanghai make boilers that recover industrial waste heat. China is sparking a boilermaking boom as it tries to reduce the energy intensity of its massive economy. Photo by Michael Burnham.

Company officials are using $8.5 million in foreign cash to erase a backlog of orders. They plan to seek additional capital to produce enough boilers to help cement, paper, steel, chemical and petrochemical operations recover up to 5,000 megawatts annually.

"We aim to be the leader in the industrial waste heat-recovery business, not just in China but globally," said Chen Qi, the company's general manager.

The domestic market alone for industrial heat-recovery boilers is worth about $1.4 billion and growing, Chen and his colleagues estimate.

"In the past, factories didn't care about saving energy because it was cheap," Chief Financial Officer Richard Liu said. "Things are changing."

The government's new carrots include $1 billion in subsidies for companies to renovate their manufacturing facilities. Sticks include shutting down polluting enterprises that do not meet tougher efficiency standards.

In the first three-quarters of 2007, China shuttered old-fashioned production facilities that produced 25 million tons of cement, 400,000 tons of calcium carbide, 11 million tons of coke, 9.7 million tons of iron and 8.7 million tons of steel, according to government statistics.

Thousands of fiery furnaces and smokestacks remain, of course, presenting an enormous opportunity and challenge.

'Herculean task'

The central government launched a program in 2006 to improve the efficiency of China's largest 1,000 enterprises, which collectively consume about a third of the country's primary energy and half of its industrial energy.

Each state-owned company has its own conservation target to offset the annual consumption of 100 million metric tons of coal, collectively. The climate savings equate to between 250 million and 300 million metric tons of carbon dioxide -- roughly equal to Poland's annual greenhouse-gas emissions, said Lynn Price, a scientist at the Lawrence Berkeley National Laboratory.

The 1,000 companies are achieving their targets so far, due largely to the government's leverage to promote and demote executives, explained Jiang Lin, who directs the China Sustainable Energy Program, an arm of the Energy Foundation, a grant-making organization.

The "Herculean task," Lin contends, is spurring conservation among the millions of Chinese companies under local or private ownership.

For China to hit the economy-wide conservation target in its five-year plan, provinces must reduce their collective energy consumption about 4 percent per GDP unit annually, compared to 2005.

The provinces achieved savings of 1.3 percent in 2006 and 3.3 percent last year, according to a forthcoming paper by Price and her colleagues at the Berkeley, Calif.-based lab.

Lin attributed the shortcomings to China's rapid transition to a market-based economy.

"China is largely a private economy now," Lin said. "How do you enforce a mandate when you don't have direct ownership of companies?"

The answer could come in the form of an amended energy conservation law that took effect in April, Tsinghua University law professor Wang suggested.

The law includes first-time subsidies for manufacturers and builders to make capital efficiency investments. Perhaps more important, the law requires district, county and provincial governments to report annually on their conservation progress to the central government, Wang said.

As with the "Top 1,000" program, those who conserve get promoted. Those who don't could lose their jobs.

"Compliance is possible because of the party-based system of promotion for those who are loyal," explained Deborah Seligsohn, director of the World Resources Institute's China program. "Clear metrics for promotion are a very effective tool in China."

But as China's economy evolves, market-based tools may prove even more effective, Lin suggested.

Paying up-front costs

The number of Chinese energy service companies, known as ESCOs, has increased from about three a decade ago to about 100 today, according to the World Bank. Such companies typically sign performance contracts with manufacturers to pay for capital efficiency improvements, such as installing boilers that recover waste heat or renovating kiln furnaces.

ESCO investments in Chinese energy performance contracting projects topped $1 billion last year -- more than triple the investment in 2006, said Robert Taylor, an analyst with the bank's East Asia Transport and Energy Sector Unit. The ESCO investment total is likely to be higher this year, he predicted.

The bank's executive board boosted those efforts last month when it approved a $200 million loan to China that will trickle down to ESCOs and industrial enterprises. The Global Environmental Fund will contribute an additional $13.5 million grant as part of the efficiency project.

The Asian Development Bank, meanwhile, expects to extend up to $1.5 billion in loans and $20 million in grants to China through 2010. The money will be targeted at several sectors, with a special focus on strengthening environmental protection.

Nongovernmental organizations working with the banks underscore that such efforts must be replicated widely to shrink China's carbon footprint.

The Natural Resources Defense Council worked with the Asian Development Bank to create a $100 million loan for industrial efficiency in China's southeastern Guangdong Province, which is home to scores of inefficient factories and some 20 million migrant workers.

The province's factories must pay their loan back, plus interest, as they save energy, said Barbara Finamore, who directs NRDC's China clean-energy program.

"Even though energy efficiency pays for itself eventually, people don't want to do it because there's a higher up-front cost," Finamore explained. "The market doesn't work the way it should for energy efficiency."

Targets and quotas

That is where computers are coming into play.

Finamore and her colleagues have developed software that shows industrial enterprises the areas where they could reduce their energy consumption. The software also indicates how much of a capital investment is needed.

NRDC has tested the software in three factories in Jiangsu Province, north of Shanghai, with the hope of creating a national template, Finamore said.

"If you can put enough energy-efficiency projects together, you can avoid the need for new power plants," she added.

The World Resources Institute is also working with the Chinese government to develop software that tracks industrial energy use and emissions. China program director Seligsohn considers the computer tool a starting point for the regulation of carbon dioxide and other heat-trapping gases.

"The fact that China is struggling with how to measure this stuff -- and they should be struggling as a developing country -- means they're nowhere near ready to take a cap on carbon," Seligsohn said. "But this is a crucial first step, because I think the way the Chinese are going to govern CO2 is with targets and quotas.

"That's what people are used to," she added.

Roger Ballentine, who led a Clinton administration climate task force before joining China Energy Recovery's advisory board, echoed Seligsohn's remarks.

"One of the biggest issues in the U.S. and international debate is what we will do with China and India," Ballentine said. "At the end of the day, the answer will come from demonstrating that there are economic paths to significant energy reductions in developing countries."

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