Scaling Green Finance in China and the United States

The World Bank’s World Development Report 2010: Development and Climate Change notes the projected annual needs for mitigation and adaptation finance in developing countries in 2030.  Adaptation investment would range from $28 billion to $100 billion and mitigation costs of $139 billion to $175 billion a year, consistent with limiting warming to 2 degrees Celsius. Low carbon technologies play an important role in adaptation and mitigation of climate change, but where will the financing come from? Since China and the US account for more than 40% of the world’s greenhouse gas emissions, it was timely and relevant for Asia Society Northern California to host a one day conference entitled “Scaling Green Finance in China and the US: A Call to Action.”  Investment bankers, venture capitalists, policy makers and policy analysts from the US and China discussed trends, barriers, and opportunities in green finance.

Peter Darbee, CEO of Pacific Gas & Electric lamented the “US has gone backwards in our understanding of climate change”, despite the fact that the manifestations of climate change are clearer than ever.  “In Russia, there have been fires that go on and on.  In Pakistan, we have seen severe floods.”

Jon, Anda, Vice Chairman and Head of Environmental Markets at UBS Securities and former Vice Chairman at Morgan Stanley, emphasized the importance of predictable government policies and regulations to encourage investment in cleantech.  The result of US’s policy uncertainty has affected the market, leading to a drop of 47% of U.S. clean tech companies in the S&P since 2007.  China, on the other hand, with a National Renewable Energy Law in place, has invested $36 billion a year in cleantech, twice as much as the US. Jon Anda’s key take away point was to price carbon so that clean tech VCs would have the necessary information to make decisions about investment.

In Panel 1: Policy and Politics in the US and China, the panelists discussed the policy drivers and constraints in the US and China for financing clean tech.  Ken DeWoskin, senior adviser with Deloitte China, noted China realizes climate change is a national security issue and the leaders are willing to invest in alternative energy without contemplating the return.  While the US has been paralyzed in developing a national renewable energy plan, and China has been leapfrogging forward, DeWoskin comments that US has the technological innovation over China.

Shi Dinguan, senior adviser with China’s State Council, was the special guest at the Conference, representing China in the green finance conversation.  Mr. Shi emphasized the need to adapt to a low carbon path of development for China to continue its economic growth.  Mr. Shi gave an overview of hydropower, wind, solar, and biomass developments in China.  By 2020, the Chinese government will invest 300 trillion RMB (approximately $45 trillion) in clean tech, with a special focus on hydropower and nuclear energy.  By 2020, hydropower will reach 3,000 GW, wind power will reach 150-200 GW, and solar will reach 20-50 GW.  Mr. Shi encouraged technological cooperation and investment, since financing of clean tech projects will come mostly from private companies and banks.

In Panel II: Bringing Innovation to Utilities, Uday Mathur, Principal Energy Procurement at Pacific Gas & Electric, stated the difficulty of project financing of renewables, especially during the financial crisis.  Building a demonstration project is costly and risky; a project may cost $200 billion, with no certainty it will work.  Mark Wallenrod, Director of Program and Operations at Southern California Edison noted that energy efficiency is the cheapest and best option to reducing emission of greenhouse gases.  Mona Yew from National Resources Defense Council shared that China has recently ordered the “Energy Efficiency Resource Standard” to go into effect nationwide in January, which would require China’s electricity sector, factories, businesses, and home to be more energy efficient.  Since the US has a long history of demand side management, the US can share its best practices with the Chinese, while China can share its technology with the US.

In Panel III: Bringing Financing to Scale in China, Mr. Shi, senior advisor to the State Council, stated that China’s primary focus is energy efficiency, while renewable energy is secondary, since “energy saving is a low-hanging fruit. It pays off economically and reduces emissions.” In the Top 1,000 Enterprises Program, the Chinese government has set a mandate for the top 1,000 energy intensive companies to reduce 3,500 million tons of CO2, the largest reduction program in the world.

In addition to energy efficiency, nuclear energy will play an important role in reaching China’s 2020 emission reduction target.  Unlike wind and hydro, which are built in remote places far from demand sites, nuclear plants can be built close to centers of demand. As of June 2010, official installed nuclear capacity projections were 70-80 GWe by 2020, 200 GWe by 2030 and 400-500 GWe by 2050. In September 2010, the China Daily reported that China National Nuclear Corporation (CNNC) alone plans to invest CNY 800 billion ($120 billion) into nuclear energy projects by 2020.

According to the International Energy Agency 2010 World Energy Outlook, China’s energy demand will rise by 75% between 2008 and 2035.  Currently, coal represents 75% of China’s total power capacity, and will likely remain the dominant power source, though China has set the dual goal of increasing the us e of non-fossil energy to 15% of primary energy consumption by 2020 and to reduce carbon intensity by 40 to 45% in 2020 from the 2005 levels.

 

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