Policy and industry analysts warn that if the costs of these new technologies are not commensurate with that of coal, China’s clean tech push may fizzle and fail to attract the private sector investment it needs for long term success.

“The government must gradually lift fossil fuel prices while granting incentives to non-fossil fuels to establish a long-term price signal,” said Wang Yi, deputy head of Policy and Management at the China Academy of Science.  Without changes in tariff structures, there would be little incentive for private firms to invest, analysts warn.

State-run firms would be the only ones able to operate at a loss as “they are the ones who can afford to lose money,” said Lin Boqiang, head of Center of Research on Energy Economics at Xiamen University.  “The private sector can’t afford waiting around for 5 to 10 years operating at a loss.”

China’s low-carbon energy potential is enormous.  The government is aiming for a 45% cut in carbon intensity from 2005 levels by 2020 and a 15% increase in share of renewable vs. primary energy consumption.  Certain estimates say that China is ready to build at a minimum 20 nuclear power plants over the next 5 years, each with a capacity of 2GW.

Coal, however, is the elephant in the room.  Providing 80% of all electricity for its growing economy, China is the world’s #1 coal user.  It constructs, on average, one new coal-fired power plant every week.  Switching away from such a plentiful albeit highly polluting resource will be difficult for the economic giant.

On top of that, China has been making improvements to its coal plants to make the burning process cleaner.  These generators are called supercritical plants, and they produce approximately 15% less CO2 that conventional plants at about $500-$600 per kW less than in developed OECD nations.

China has overtaken the U.S. as the world’s top emitting country, and it faces tremendous pressure from the international community to wean itself off its coal addiction and get serious about reducing its emissions levels.

Foreign firms such as nuclear Areva of France, wind power equipment producers Gamesa of Spain, U.S.-based First Solar and India-based Suzlon are just a few that will be waiting to see how China’s investment plans develop and how it meets this coal-pricing challenge.

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Japan is the world’s fifth-largest emitter of carbon dioxide.  In an effort to reduce emissions and become a leader in the clean energy industry, Japan has increased its focus on clean energy technologies and climate change mitigation measures.

A plan to implement a nation-wide carbon trading program was scrapped by Parliament earlier this year.  In this new proposal, heavy emitting Japanese firms would be held to carbon emissions quotas, and any emissions above the set levels would require purchases of carbon credits from either domestic or overseas reductions projects.

Japan will hold an extraordinary Parliament session on Septmeber 14^th, where a party leadership challenge is expected; the outcome of which could influence the passing of this legislation.  It is in the interest of the Environment Ministry to “have it passed smoothly” so we will be “ready and accountable in international climate talks,” remarked one government official.

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Fossil-fuel related emissions may rise by 3.4%, and emissions from the industrial and electric power sectors may rise by 3.9%, according to the EIA.  Coal-related emissions alone are on track to rise by 6% this year.

Despite these projected increases, total U.S. carbon emissions for 2010 and 2011 will still fall below 2008 levels, (or any year dating back to 1999.)

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One of the few proposals to achieve widespread support at the Copenhagen climate talks, REDD encourages developing nations to preserve their vulnerable forest land by linking conservation measures with carbon offsets which can then be traded on the global market.

REDD uses a complex accounting system to monitor the carbon offsets resulting from various forest projects and ensure standards around the world.  This system recently passed the first of two formal audits required by the Voluntary Carbon Standard (VCS), a Washington-based group charged with ensuring the legitimacy and transparency of REDD projects by imposing strict standards.

“The methodology is expected to be broadly applicable where mosaic patterns of deforestation occur throughout Southeast Asia and Africa,” says Leslie Durschinger, founder and managing director of Terra Global Capital, a finance and advisory firm specializing in REDD projects.  These “mosaic” projects include various plans to protect forests from logging, farmland conversion, fires and collection of fuel wood and thus reduce carbon emissions.

Deforestation is a major contributor to climate change,  which the U.N. says accounts for between 20-25% of total global emissions.  Many developed nations have lent support to help develop REDD, most notably Norway, which has signed a $ billion forest conservation deal with Indonesia.  REDD aims to become part of a broader global climate accord in 2013.

The International Energy Agency reports that China is the world’s largest energy consumer, although the Chinese government has denied these figures and claims it is still #2 behind the United States.  Regardless, Chinese power consumption is expected to continue to grow strongly, as its domestic power production.  By some estimates, Chinese power capacity could double to 1,600GW within the decade.

China has focused its efforts on energy efficiency and reducing the carbon intensity of its economy as it faces international pressure to keep its skyrocketing greenhouse gas emissions under control.  Introducing a carbon price, something the United States has thus far been unable to achieve, would help to increase efficiency without limiting capital flows to the renewable energy and cleantech space.

No firm details have been released yet, but it is expected that a commitment to carbon trading will be incorporated into China’s next 5-Year Plan.

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Over 2,000 steel mill, cement works and other energy-intensive factories have been ordered to close down by the end of September.  This announcement comes on the heels of another made by the powerful National Development and Reform Commission last week, which forced 22 provinces across China to stop providing discounted electricity to energy-intensive industries such as aluminum production.

Energy efficiency has become increasingly important in Chinese economic planning.  The nation’s current five-year plan targets 20% less energy usage per unit of economic output this year compared with 2005.

However, high industry output since last winter has driven China’s energy consumption to sky-high levels, producing the single largest surge ever of greenhouse gases by a single country.  According to the International Energy Agency (IEA), China surpassed the United States last year to become the world’s largest consumer of energy after becoming top global carbon emitter in 2006.  These rankings, combined with continued high expectations for economic growth, lead many to doubt China’s ability to meet its stated energy intensity goals.

Nevertheless, China is forging ahead with plans for major new investment in energy efficiency, including $15 billion into energy efficient vehicles.  $8 billion of this proposed funding would be set aside for development into pure energy efficiency techniques.  The remaining funding will be funneled towards infrastructure construction, potentially including electric vehicle charging station.

China is currently pushing to put 4 million eco-friendly vehicles on its roads by 2012.

Read more about energy efficiency here and proposed vehicle investments here

Renewables

• Total renewable power capacity in China reached 226GW in 2009, representing 1/4 of the nation’s total.  The government is calling for a total of 500GW of renewable power capacity by 2020, or about 1/3 of total power capacity.
• Renewable Portfolio Standards (RPS) for Chinese utilities require 8% of all capacity and 3% of power to be generated from non-hydro renewables by 2020.
• Revisions to the 2005 Renewable Energy Law will require increased cooperation between new renewables and the grid to ensure the generated power is transmitted efficiently.  The revisions also strengthened the Ministry of Finance’s renewable energy fund, which collects a tax on all electric power sales.

Wind

• Chinese wind power in particular grew thirty times over between 2005-2009.   China is now just behind the U.S. in total installed wind capacity.  Its turbine manufacturing industry grew to the world’s largest in 4 years.  The government has amended the wind power Feed-in-Tariff, and aims for 150GW of new installations by 2020.

Solar

• The “Golden Sun” program, introduced in 2009, will provide generous subsidies for solar PV installations.  Currently 300 projects have been proposed, totaling nearly $2.9 billion in investment.

Nuclear

• China has expanded its pledge to achieve 15% of all primary energy from “non-fossil fuel sources” by 2020.  This expanded directive will allow nuclear power to be included in the total accounting.

Carbon

• New carbon intensity targets were announced in Dec 2009, which aim to reduce the carbon intensity of GDP by 40-45% by 2020 relative to 2005 levels.

Energy Efficiency

• The 5 Year Plan for 2006-2010 aims to increase energy efficiency by 20%, including pumps, fans, boilers and the production of materials like steel and cement.

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In order to implement a new round of emissions targets in the existing Kyoto framework, three-quarters of all parties to the Protocol, or 143 countries, must agree.  Before each country ratifies the treaty, extensive domestic negotiations and review commonly take place – “a process that may involve a considerable amount of time,” according to the U.N.  In light of these concerns, the United Nations has released for the first time a Kyoto “Plan B” set of contingency options should a new global climate deal fail to materialize.

A gap in coverage between Kyoto’s 2012 expiration date and when a replacement treaty might take effect could be very costly to the $20.6 billion global carbon trade.  The value of these traded emissions credits rests on stipulations as determined in the Kyoto Protocol.

To avoid this time gap, one facet of the U.N.’s “Plan B” would consider reducing the number of countries required to approve any proposals for new targets or proposals to extend the current caps through to 2013 or 2014, when climate negotiators hope to secure a more comprehensive update to the treaty.

After a disappointing showing in Copenhagen this past December, climate negotiators are looking forward to making progress in their third year of talks.  The next major conference will begin this November in Cancun, Mexico.

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The central trading platform will commence during the 2013 stage of the ETS, but individual nations will also have the freedom to opt-out and hold their own auctions.  The number of permits to be issued and dates of auction have yet to be determined.

During the first phase of the ETS trading scheme, most permits were distributed to industries for free.  However as phase 3 begins, the majority of emissions permits will be sold to companies through auctions.  This includes the aviation sector, which will be required to purchase 15% of their permits at auction when it joins the ETS in 2012.

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Global emissions levels remained relatively unchanged in 2009 largely because of Chinese and Indian contributions, despite predictions from groups such as the International Energy Agency (IEA) which thought the global economic meltdown and decrease in manufacturing would assuredly reduce emissions worldwide.

The Netherlands Environmental Assessment Agency notes that carbon dioxide emissions per person in China are now 6.1 tons, roughly equal to France which clocked in at 6.0 tons in 2009.  This figure represents a major increase for China, which in 1990 emitted only 2.2 tons per capita.    Interestingly, this increase comes Chinese wind and solar energy capacity has doubled for the fifth year in a row.

Because of its use of nuclear energy, French emissions are actually on the lower end of the scale in comparison to other developed nations.  Per capita emissions in other EU member nations were 7.9 tons in 2009, down from 9.1 tons in 1990, while per capita emissions in the United Sates fell to 17.2 tons in 2009, decreasing from 19.5 tons in 1990.

All in all, the Dutch agency now reports that 53% of 2009 global emissions came from developing nations, with 44% coming from the developed world.  International air and sea transportation accounts for the remaining 3%.

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