Growing a green economy in China

14:14, April 13, 2010      

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By Justin Ward

Not long ago, the prevailing view among Chinese leaders was that economic growth took priority over environmental protection. The conventional wisdom was that once China was a fully-developed world power, it could use its monumental resources to undo whatever damage was done on its way to the top.

The traditional view, or at least the one put forth by many in the private sector, is that environmentalism and economic development are opposing forces; i.e. the promotion of one is always at the expense of the other. But the old logic is starting to crumble in the face of new evidence that protecting the environment and promoting the economy are not only compatible, they are inextricably linked. More and more leaders in China and worldwide are pinning their hopes on the concept of green stimulus.

Environmental protection strengthens the economy for a variety of reasons. For one, while increased environmental regulations and taxes may be a burden on individual corporations, they benefit the economy as a whole.

According to a report by the World Bank, costs to China's economy incurred due to environmental degradation account for nearly 6 percent of the country's total GDP annually and some estimate GDP loss could actually be as high as 8 to 12 percent. These losses all but nullify the rapid GDP growth China has seen.

Smart environmental policy can be an investment in the future in more ways than one. Aside from the obvious benefits of a cleaner environment, the development of green technology has intrinsic economic value. Renewable energy is set to become in the 21st century what oil was in the 20th. Even people like American oil magnate T. Boone Pickens are jumping on the renewable energy bandwagon. According to a recent report by the Pew Research Center, the world will invest between 1.55 trillion to 2.2 trillion U.S. dollars in renewable energy over the next decade and those who hold the technology will see this money flowing into their hands.

Whereas the oil era was characterized by a struggle for control of geopolitical territory where oil is located, the era of green energy will be defined by the struggle to control and produce proprietary green technology. This is a war fought not on battlefields but in laboratories and factories and China seems to be taking a lead.

With 34.6 billion U.S. dollars invested in renewable energy in 2009, China outspent the United States, its closest rival, by 16 billion U.S. dollars. The country also exceeded the annual amount of investment required to reach its 2020 goals for carbon reduction. These investments can also have a huge pay-off in the form of job-creation because, as the Pew report noted, clean energy creates substantially more jobs than conventional energy. In addition, China has employed its manufacturing might to lead the world in the production of solar panels, with 25 percent of the world's supply coming from China.

Beyond renewable energy, China has invested heavily in updating its infrastructure with the aim of decreasing energy intensity – the amount of energy required to produce each dollar of GDP – by 20 percent in 2010 relative to 2005 levels, which is a goal it seems on track to meet. The country has poured 100 billion U.S. dollars into upgrading and expanding efficient, energy-saving infrastructure, including the electrical grid and railways.

China also recently announced a heavy-handed “sticks-and-carrots” approach to phase out outdated, wasteful industrial infrastructure through subsidies for upgrades and penalties for failure to do so. Furthermore, China has made remarkable strides toward commercializing electric cars with the BYD Auto's electric model now available for private purchase and a nationwide system of recharging stations under construction.

As encouraging as China's new environmental policies may be, there still is some room for improvement. While electric forms of transportation such as electric cars, bikes and railways may make more efficient use of electricity and reduce vehicle emissions, their overall impact on reducing carbon dioxide depends on how clean the source of electricity is.

Although China plans to draw 15 percent of its energy from renewable sources by 2020, it is predicted that at that time, China will still get two-thirds of its power from coal. Fortunately, China is making efforts to build cleaner, more efficient coal plants, but obviously renewable energy is preferable. One statistic that is often repeated in the West by environmentalists is that China builds a new coal plant every month, but those same people usually fail to mention that China requires companies to shut down an outdated plant for every new one built. However, China needs to not only build more efficient, less polluting coal plants, it needs to invest heavily in the development of carbon-capture and storage facilities.

Also, instead of using its industrial capacity to produce renewable technology for export, China should focus on building up its renewable energy capacity at home. More than 95 percent of China's solar panels are produced for export. If those same panels were put to work in solar plants and self-sufficient buildings domestically, one can only imagine the incredible benefits China could reap.

The green elements of China's stimulus have been focused on a lot of capital-intensive and technological aspects, but one thing that it is lacking is a comprehensive plan to increase energy efficiency, and discourage consumption. Making all of China's buildings energy-efficient through weatherization is a colossal task, but also one that must be done and will go a long way to reducing China's energy intensity. Currently, the government has requirements that all new buildings must meet energy efficiency standards, and a recent report found that 20 percent of buildings in Beijing and Shanghai were energy efficient. The same report found that more than 90 percent of new buildings met those standards, but what about old buildings?

It seems these regulations are focused on getting new buildings up to par, but there needs to be more money invested in retrofitting and weatherizing old buildings, which make up the vast majority. This can be done through a system of tax incentives, subsidies and punitive measures much in the same way the government is attempting to phase out aging industrial infrastructure. Also, this type of project is very labor-intensive, which is ideal for a developing economy. Migrant laborers can be retrained to do weatherization and form an army of contractors.

China still has a long way to go to clean up its environment, but with the right policies and strict enforcement, we could very well see the country transform from environmental pariah to a world leader.


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