China releases comprehensive white paper on its climate change policy ahead of key international meetings.
Ahead of the high level technology transfer summit in Beijing next week; next December’s 14th Conference of Parties under the United Nations Framework Convention on Climate Change (UNFCCC) in Poznan, Poland, during which a general framework for a successor treaty to the Kyoto Protocol, which expires at the end of 2012, will be hashed out; and of course, Halloween, the State Council of the central government has released a white paper on climate change policy titled “Comprehensive Plan on Climate Change.” This white paper also comes on the heels of China’s submission of a viewpoint paper to the Ad Hoc Working Group on Long-term Cooperative Action of the UNFCCC on September 28.
While the 11,000 word white paper reads like a kitchen-sink of domestic policies that may seem to ring hollow given the institutional limitations that China observers have come to be so familiar with, the document does provide a good summary of the specific policy programs that China has enacted so far and of future policies that we can expect. Above everything else, the timing of the release of this document is highly strategic, ahead of the above mentioned meetings, as the white paper also states in no uncertain terms various policy positions that seem to have the north and the south heading towards climate deadlock. Read more
This is the 50th post for The Green Leap Forward! To celebrate, we visited the 2008 China (Beijing) International Energy Saving and Environmental Protection Exhibition held at the Beijing Exhibition Center this past weekend (Oct 17 through 20).
The first thing that strikes the visitor is the Cathedral-like grandeur of the Beijing Exhibition Center. It was opened in 1954 “with the late Premier Zhou En-Lai cutting the red ribbon and Chairman Mao Tse-Tung contributing poetic thoughts.” It doesn’t look like it is LEED-certified, but being more than half a century old, visitors could take heart in the fact that the building’s carbon debt has probably been paid off a while ago. Read more
If China’s Green Leap Forward fails for whatever reason, it won’t be because of the lack of cash. Generally speaking, it has never been better to be a clean tech entrepreneur or project developer. Investment dollars are pouring in globally from hedge funds, private equity and venture capital funds, multinational corporations and development banks. Take these recent developments, for example:
- The clean development mechanism (CDM) under the Kyoto Protocol, for example, provides the much needed financial lifeblood to take IRRs of wind farm projects over the “hurdle rate.” There has been some criticism about the use and abuse of CDM by some camps, such as a front page article by The Guardian, but I thought China Environmental Law’s response was spot on. China is by far the world’s biggest market for CDM projects, accounting for a whopping 73% of transactions in 2007. Hong Kong joins the CDM fray as well.
- Sycamore Ventures and the China Association of Resources Comprehensive Utilization (CARCU), which operates under the State-owned Assets Supervision and Administration Commission, are to launch a US$ 1 billion dollar Greenstar fund to invest largely in China’s environmental sector.
- The World Bank will provide additional $440 million in loans for three energy efficiency projects. This will constitute one-third of the bank’s loan portfolio in 2008 to China. The three projects consist of energy efficiency financing, desulfurization in Shandong and infrastructure in medium-sized cities in Liaoning.
All this is not to say that China is reliant on external sources of funding. In fact, according to a Reuters report, Gao Guangsheng of the National Development and Reform Commission expects China to fund 90% of its renewable energy development by domestic sources of funding. Separately, Don Ye, founding partner of Tsing Capital’s China Environment Fund, for seven years, and still, China’s only fund 100% dedicated to clean tech investments told The Green Leap Forward, “There’s a trend to self sufficiency both in terms of talent as well as investments. By the end of this year, we expect to see quite a few RMB-denominated investment funds come to the market.”
Provincial and municipal governments are also investing big in renewable energy. The northeastern municipality of Tianjin has committed to invest RMB 200 million a year into mergers and pre-IPO deals in solar, wind and energy storage businesses. The southwestern province of Sichuan is pushing solar development in a big way, as evidenced by last weekend’s Western China PV Conference held in the province’s biggest city, Chengdu (成都). The governments of Chengdu and adjacent Shuang Liu (双流) county, together constituting the aviation hub of China, have now have established the Chengdu (Shuang Liu) Photovoltaic Industrial Park with the goal of becoming China’s “solar PV valley.” I’ll write more about the Western PV Conference in my next post.
There will be occasional bottlenecks to capital availability. Last month, the central government raised bank reserve ratios yet again to reduce liquidity in the market so as to combat inflation. The series of bank reserve ratio increases has resulted in a tightening in the availability of bank loans for renewable energy projects (although these have tend to affect foreign project developers, which are typically last in line, more than the major state-owned enterprise developers, which get priority access to capital) . But such a phenomenon does not detract from the favorable patchwork of investment policies enacted by the central, provincial and municipal governments for clean energy. If I were a betting man, my money would be on the red (the color of RMB 100 notes) to continue chasing the green (energy).
In the wake of the looming food crisis, biofuels are becoming more and more suspect as a sustainable long term substitute for oil, and in fact, are viewed as one of the chief culprits in the soaring prices of corn, soybean and other agricultural commodities that are feedstock to biofuels production. The diverted demand of such agro commodities to biofuel production has so interfered with agro production for food that the Chinese government enacted a ban on the production of grain-based biofuels.
China Clean Energy or CCC (OTCBB: CCGY), a producer of biodiesel (which is the focus of this post) and specialty chemicals (green chemistry is a ripe topic for a future post!) based in the city of Fuqing in the southeastern province of Fujian, seeks to produce biofuels in a smarter way. Embracing the concepts of “waste-equals-food“, “cradle-to-cradle“, and the “circular economy“, CCC is collecting waste vegetable oil, specifically cottonseed and rapeseed oil and turning them into biodiesel. These feedstock are much more inexpensive than their non-waste versions (i.e. raw cottonseed and rapeseed) because they are not perceived as useful inputs.
Gary Zhao, the CFO of CCC, explained how waste rapeseed oil is used in an exclusive interview with The Green Leap Forward:
Rapeseed oil is typically produced by pressing the fibers of the rapeseed. After the rapeseed has been pressed, there is still some oil left in the residual fibers that are typically discarded In fact some 10% of the oil is still left and it is rich in fatty acid. Through a chemical process, we are able to extract this remaining oil and convert it to biodiesel. As for the leftover fibers, that can further process it to be used as boiler fuel or animal feed.
By using “waste” feedstock instead of raw grains, CCC is able to indirectly continue to use waste grain feedstock which is otherwise prohibited and at much reduced prices as the raw grains (see story on soaring grain prices here), but more importantly, harness a previously untapped source of energy that would otherwise be discarded as waste.
CCC currently has a biodiesel production capacity of 11,000 tons per year, but it has just received US$15 million in financing for a significant expansion that will bring production to 100,000 tons per year by the beginning of 2009. CCC’s biodiesel market is distinctively local in nature. Zhao explained: “Unlike the US or Europe, there is no mandate for biofuel production in China, so the costs of transporting the fuel over long distances do not make [economic] sense.”
Transportation doesn’t make ecological sense either. In fact, one of the biggest criticisms of biodiesel (and other biofuels) is whether the net energy balance of biodiesel is positive or not. In other words, critics have charged that the amount of energy produced by biodiesel is less than, or barely exceeds the amount of energy needed to make biodiesel (including an accounting of the energy needed to harvest the grain through mechanized farm tools and transportation of such grain at various stages of its production cycle).
Biofuel production has also been heavily criticised for diverting away valuable food resources. Such criticisms target the conventional raw grain-based mechanized harvesting biofuel production seen in the US or Europe. The CCC process is distinctive for relying on non-food fuel sources and by focusing on local markets, both in terms of it supply of feedstock and its biodiesel end-customers, thereby substantially reducing energy needs and improving the energy payoff of its products.
Using waste as inputs also contributes to a dramatic improvement in the economics of biofuels production. One of the key insights (see #3 in link) gained by an venture capitalist, Michael Butler of Cascadia Capital, is that:
Waste or waste byproducts are the most sensible alternative-fuel inputs: There’s far less pricing pressure associated with sludge or algae versus corn as long as proven technologies are harnessed. And we’ve also seen that efficiencies soar off the charts if the right waste products are used as feedstock.
Perhaps, then it should come as no surprise that CCC is already operating profitably after only a two years of being in the biodiesel game.
CCC’s medium to long term plans to build biodiesel processing plants in Xinjiang and Hebei are again driven by its business model of “localization”; those two provinces happen to be the top producers of cottonseed in China. Being close to the source of cottonseed leavings will limit transportation and energy needs and also create new markets for its products outside of Fujian.
Zhao thoughtfully addressed concerns of limited availability of feedstock. Taking waste vegetable oil as an example, he explained:
The average Chinese consumes 16 kg/year of vegetable oil. That is roughly 20 million tons/year for all of China. If only 10% of such “ditch” [waste] oil can be recycled, we are looking at an availability of 2 million tons/year. Right now, we only produce 11,000 tons/year of biodiesel.
Zhao pointed out further that CCC entertains the possibility of diversifying further to other waste feedstock, thereby increasing its potential supply base.
“China is already the world’s largest importer of grain based products,” Zhao accounted, “and as the standard of living of China increases, consumption of pork, beef and chicken will increase… all these animals require grain.”
“We will never use food-based feedstock. We don’t believe in it.”
Eugene is the Director of Green Future Solutions and the Founder/Editor of AsiaIsGreen and Green Business Singapore. He has a master’s degree in Civil and Environmental Engineering from the Nanyang Technological University and a bachelor’s degree in Environmental Engineering from the National University of Singapore. He has worked as an adjunct lecturer teaching ecotourism at a local polytechnic and also as a project officer at the National Environment Agency, Resource Conservation Department, managing waste minimisation and recycling issues.
Eugene is a volunteer with the Environmental Challenge Organisation and a Youth Environment Envoy with the National Environment Agency. He was a commendation award winner of the Green Wave Environment Competition 2007. He also writes frequently to the local newspapers and his published letters and articles are listed below:
- ‘Clean’ power plant – “One step forward and two steps backward in our green efforts.” (Straits Times, 4 Oct 08)
- To save ourselves, we must get back to nature (Straits Times, 25 Dec 07)
- Clean power, green power – Electricity suppliers should disclose carbon footprints (Today, 22 Oct 07)
- After Live Earth, Give Up Hope (Today, 7 Jul 07)
- Six things we can do to protect the environment (Straits Times, 6 Jun 07)
- The green spirit (Today, 5 Jun 07)
- Global warming: Four possible scenarios (Straits Times, 15 May 07)
- The real culprit of global warming? Human activities (Straits Times, 5 May 07)
- Data on waste useful (Sunday Times, 6 Aug 06)
- Score a Green Goal for Singapore too (Straits Times, 8 Jul 06)
- Bouquet for SingTel’s efforts to be environmentally friendly (Straits Times, 22 Jun 06)
- It takes time to inculcate recycling culture. Do more to educate people to cut waste (Straits Times, 15 May 06)
Guest Writer – Julian Wong
Julian Wong is the author of The Green Leap Forward, a blog that explores China’s green efforts, policies and technologies, and also the author of The Solar Coaster, a blog on solar energy. He is currently a Fulbright Scholar at Tsinghua University in Beijing researching renewable energy policy and entrepreneurship, and holds a M.A. in Environmental and Energy Policy from Duke Nicholas School of the Environment, and a J.D. from Duke Law School. Julian was a private equity mergers and acquisitions attorney in New York and Hong Kong and a member of the New York City Bar Association Energy Committee.
Guest Writer – Irene V. Rafer
Irene V. Rafer is a private citizen of the Philippines. She is the author of “The Shape of My Life” – a personal blog about her family, background, childhood, education, her hearts desires and conscience, and about the people who taught her the meaning of life. She also write about environmental issues. She is a supporter of Greenpeace Southeast Asia.
Guest Writer – Saad Khan
Saad Khan is the community editor of Social Bridges where they are having active discussions on corporate social responsibility, sustainability and greener options in Pakistan. He is a student of media sciences with an emphasis on sustainability and green living. He does not have any huge academic or practical experience in this field (just 22 right now) but have participated in many local environmental and social campaigns – a green activist – to be more precise.