15 August, 2013

China on the path to become a green technology power

Sérgio Abranches

China is braced to become a green technology powerhouse even before it transitions towards a green economy. Although having to manage a huge carbon stock, after relying mainly in coal and oil to fuel its economy for many decades, China has become the world’s major investor in clean energy.

The country has a huge stockpile of high-carbon, high pollution industries and power plants. But its current and future flows are pointing towards increasingly greener solutions. This strategic vision has led to a formidable increase of investment in clean energy sources and green technology. The green side of the economy, although still a small fraction of the whole is getting most of the tax incentives and subsidies, enabling it to grow at a much faster pace than the high carbon sectors, still representing the larger portion of the country’s economy. It is the priority given to green industries that is generating cleaner, lower-carbon economic activity flows. China is acquiring strong technological capabilities to become a greentech power on the longer-road towards a green economy.

Li Keqiang, China’s new premier, has pledged to fight pollution and carbon emissions with an “iron fist”, on his first news conference, at the closing of the annual legislative session, which completed the once in a decade power transfer. Now China’s rule is fully on the hands of president Xi Jinping, and premier Li Keqiang, and they seem to have a much greener agenda than their predecessors.

The new premier said he was upset by the unprecedented levels of pollution reached in Beijing last week. Li informed that the government’s aim is to “upgrade the country’s economic development model to enable people to enjoy clean air and safe drinking water and food.”

The government will set deadlines linked to quantitative goals to address pollution and reduce emissions. To meet these goals it will implement tougher measures aimed at polluters. “This government will show even greater resolve and take more vigorous efforts to clean up such pollution,” the premier said. It is the first time that a Chinese premier makes such clear statements and puts sustainability at the heart of the country’s strategy to meet the annual target of 7.5% of GDP growth . “We shouldn’t pursue economic growth at the expense of the environment”, he said, “such growth won’t satisfy the people.”

The Chinese State Council has decided to increase support for clean energy through tax breaks and subsidies to stimulate the green industry to grow at twice the path of the economy as a whole, at 15% annually. It is estimated that the green industry will reach a turnover of US$735 billion by 2015, to become a “pillar industry in China”.

To address rising pollution levels, which have long become a threat to public health and  a cause of major social unrest, the State Council has included research and development on low carbon vehicles and technology to control air, water and soil pollution in the new plan. These new incentive mechanisms are a part of  China’s 12th Five-Year Plan specifications. The new Five-Year Plan focuses on energy saving, emission reduction and industrial development.  It has investment targets in line with upcoming major reforms of financial mechanisms and fiscal policies. It aims at creating strong incentives to innovation. China wants to attract capital flows towards green growth.

China is clearly leading the path towards green investment and policy among major emerging markets, and is far ahead India and Brazil. Brazil will open energy auctions to coal fired thermoelectric power plants this August. Coal-based energy has been out of the auctions since the country approved the emissions reduction goals it presented a the Copenhagen climate summit. At the same time solar energy companies complain that the Brazilian government has banned photovoltaics from energy auctions, by setting prices at a range that enables bids from coal, but not from PV companies. The government argues that PV is still too expensive to be admitted into the auctions. China, on the other hand subsidizes clean energy to replace high-carbon sources, correctly expecting that prices will fall with demand-based increased scales of production.

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