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www.china-greentech.com THE CHINA GREENTECH REPORT 2011 1

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THE CHINA GREENTECH REPORT 2011 www.china-greentech.com2

COMPOSITETECHNOLOGY

C O R P O R A T I O N

LP AMINA


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JimG

ourley

Managing Directors:

Ellen G. Carberry ()

Randall S. Hancock ()

Alan S. Beebe ()

Founded in 2008, The China Greentech Iniave has grown rapidly

to become the only China-internaonal collaboraon plaorm of over

100 organizaons focused on idenfying, developing and promong green

technology soluons in China. Partnering organizaons include technology

buyers and sellers, service providers, investors and policy makers.

Strategic market research and a network of over 200 industry experts shape the

foundaon of the CGTI Partner Program, allowing it to provide parcipang

organizaons with world-class market insights and partnering opportunies.


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4

The China Greentech Iniave and The China Greentech Report are trademarks

of Greentech Networks Limited, a Hong Kong limited liability company.

While signicant input was received in the creaon of this Report, with the large

number of parcipang organizaons, by necessity this is not a consensus deliverable.

All opinions expressed herein are based on the judgment of the China Greentech

Iniave at the me of distribuon, and are subject to change without noce due

to economic, polical, industry and rm-specic factors.

Greentech Networks Limited and its partners and advisors make no representaon or

warranty, express or implied, concerning the fairness, accuracy or completeness of the

informaon and opinions contained herein. While every eort has been made to ensure

the accuracy of the informaon supplied, Greentech Networks Limited and its partners

and advisors cannot be held responsible for any errors or omissions, and are not liable

for any loss arising from any use of this Report or its contents.

This Report may include case studies of partners, advisors and other organizaons which

the research team believes added value to the analysis. The report does not provide and

should not be construed as making any specic public policy recommendaons.

Comments and suggesons about this report are welcome at [email protected].

This work by Greentech Networks Limited is licensed under the Creave Commons

Aribuon-Noncommercial-Share Alike 3.0 United States License, except as noted and

where specic content has been licensed and used by permission. To view a copy of

this license, visit hp://creavecommons.org/licenses/by-nc-sa/3.0/us/.

This license allows for the copying, distribung, transming and adapng of the work for

non-commercial purposes, provided that new content is distributed using a comparable

license, and this work is aributed as: China Greentech Iniave (Greentech Networks

Limited), The China Greentech Report 2011, April 2011, www.china-greentech.com.

Permissions beyond the scope of this l icense may be available at www.china-greentech.com.

Editors: Alan S. Beebe (), Randall S. Hancock (),

Anders W. Hove (), Caitlin C. Rhodes ()

Lead Writers: Ana Lin T. Chiong, Anders W. Hove (), Claire N. Nelson (),

Giuseppe Parente, Joel Rosen, Ran Tao (), Ivan H. Torres

Project Manager: Qiyong Cao ()

Report Design: Marianne Kaulima (), Wenjun Xie()

Photography: All rights reserved. Steve Bale, Jim Gourley and

Photo & Video White Balance

Printed by: PORO Markeng and Design Soluons

(), Beijing, China

Addional Research Support: Julien Bedin (), Angela Fan (),Stephanie Hung (), Junda Lin (), Sebasan Tang (),

Jackie Wang (), Rachel Xiao () and Lixuan Zhou ()

This publicaon is printed on Magno San, manufactured at Sappi Fine Paper Mills,

which is ISO 9001:2000, ISO 14001-cered and EMAS-registered. The pulp used for

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Researched and Produced by:

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Dear Reader,

We are delighted to provide you with The China Greentech Report 2011, the latest

public deliverable of the China Greentech Iniave. This Report builds upon The

China Greentech Report 2009, which has become widely recognized as the primer

for understanding Chinas greentech markets. The 2011 edion provides an updated

view of the worlds fastest growing greentech markets, explaining how China has

emerged as a global greentech leader over the past several years.When we rst conceptualized the China Greentech Iniave in 2008, we never

expected the tremendous support the Iniave would receive from organizaons and

people in China and the rest of the world. Support for the Iniave has connued to

grow dramacally over the past two years, thanks to over 100 partners and advisors

who, in addion to nancial support, provide me, experse, informaon, valuable

introducons and access to other resources.

As shown on the front and inside covers of the Report, we have been extraordinarily

fortunate in both the number and quality of partners, supporng organizaons and

advisors who have been involved in the creaon of this Report. They represent a

cross secon of the global community, with approximately one-third Chinese, one-

third American and one-third other internaonal organizaons. Indeed, this inspiring

mix of leading organizaons from around the world is in itself a reecon of Chinasemergence as a global greentech leader.

Based on our thousands of interacons with leaders of major Chinese enterprises,

foreign companies, entrepreneurs, investors, government, NGOs and policy advisors,

we see clearly that we stand at a unique moment in me. Greentech soluons are

poised to play a fundamental role in shaping Chinas future and improving the lives

of the Chinese people. The 12th Five-Year Plan underscores Chinas intent to advance

greentech to the forefront of the naons economic and social development agenda,

with far reaching implicaons for China and the world.

This Report is the culminaon of an open source, collaborave research process,

which has involved literally thousands of people in China and around the world. This

process combined a dedicated strategic research team with ongoing insights fromthe Iniaves partners and advisors during the past year. In addion, certain insights

in this report were shaped by our deepening collaboraon with various government

organizaons at the central and local levels.

In 2010, the Iniave hosted 18 sector working sessionsthree sessions for each

of six sectorsinvolving senior execuves and industry experts from our partners

and advisors. These working sessions provided a powerful forum to frame and debate

issues, test preliminary insights, and validate the ndings highlighted in this Report.

Each session generally involved 30-40 senior parcipants, lasted four hours, and

was hosted simultaneously from PwCs Beijing and Shanghai conference facilies,

connected via videoconferencing and simultaneously translated between Chinese

and English.

PREFACE SteveBale


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With over 100 organizaons and hundreds of people involved, we are unable to

name everyone who has parcipated in this eort. However, we would like to menon

a few partners explicitly. Our strategic partner PwC has supported the Iniave for

the past three years in mulple crical ways, including providing guidance, nancial

support, working session facilies, markeng support and much more. Hao Capital

has graciously opened up its Beijing oces, which has become the home for the

Iniaves growing team. APCO Worldwide provided government relaons support

which proved invaluable for the Iniaves government outreach eorts. The ChinaEntrepreneurs Club partnered with the Iniave to launch this Report at the Annual

Summit of Green Companies in Qingdao, Shandong. A complete list of all partners,

supporng organizaons and advisors is included on the inside back cover of the

report, while a list of individuals who supported the creaon of this report is included

in the Acknowledgments chapter.

We hope The China Greentech Report 2011will connue to help a broad group

of stakeholders, including greentech soluon adopters, soluon providers, nancers,

investors, regulators, policy advisors and others, in their quest to uncover, develop

and accelerate greentech opportunies in China. Given the scale, complexity

and dynamic nature of China, we recognize that we have not been able to cover

everything, and that what we do cover will connue to evolve rapidly. For example, in

the days preceding the publicaon of the report the team worked hard to incorporatethe impact of recent developments related to the 12th Five-Year Plan and Japans

unfolding nuclear crisis.

Chinas journey towards a low-carbon, sustainable future presents both enormous

opportunies and daunng challenges. While many government actors will play a

leading role in driving necessary changes, we believe it remains largely up to the

commercial sector to provide the myriad greentech soluons and new innovaons

that China needs to translate its impressive ambions into reality. We hope the China

Greentech Iniave can serve as an example of the collaboraon that will be needed

between diverse stakeholdersboth government and commercialto accelerate our

common goal of an environmentally sustainable future for China and the world.

We look forward to continuing to collaborate with our partners, advisorsand others involved in the China greentech market through our 2011

Partner Program. To that end, please visit the China Greentech Initiative at

www.china-greentech.com to join in the discussion and learn more. We also welcome

your input at [email protected].

Ellen G. Carberry(), Randall S. Hancock()and Alan S. Beebe()

Managing Directors,

The China Greentech Initiative

April 2011

PREFACE


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The China Greentech Report 2011 is the culminaon of an open source,

commercial collaboraon of over 100 of the worlds leading technology

companies, entrepreneurs, investors, NGOs and policy advisors who parcipated

in the China Greentech Iniaves 2010 Partner Program. These organizaons

commit their experse, me and funding to the China Greentech Iniave to

address the many on-going opportunies and challenges facing those seeking to

accelerate Chinas complex, rapidly-changing greentech markets.

This Report builds upon the rst edion of The China Greentech Report, which the

China Greentech Iniave launched at the World Economic Forum in Dalian, China in

2009. With over 50,000 copies downloaded, the 2009 edion is commonly referred

to as the primer by which to understand Chinas greentech markets. This edion

provides an updated view on the worlds fastest growing sector in the worlds fastest

growing market, with a focus on three main themes:

nWhy China is emerging as a global greentech leadernHow each of the six sectors on which the China Greentech Iniave

focused in 2010 are evolvingn

What priorized greentech opportunies exist within each of these sectors

This Report summarizes the detailed proprietary analysis provided to the China

Greentech Iniaves partners and advisors who parcipated in the 2010 Partner

Program. This Report should be viewed as a complement to the 2009 edion. Whereas

the 2009 edion focused on dening the China greentech landscape and soluons,

the 2011 Report provides deeper analysis on some of the most important greentech

opportunies in China today.

Dening Chinas Greentech Markets

The term greentech refers to technologies, products and services that deliver benets to users

of equal or greater value than those of convenonal alternaves, while liming the impact on the natural

environment as well as maximizing the ecient and sustainable use of energy, water and other resources.

In this Report, the China Greentech Iniave focuses on six greentech sectors: Cleaner Convenonal Energy,

Renewable Energy, Electric Power Infrastructure, Green Building, Cleaner Transportaon, and Clean Water.

The China Greentech Report 2011is the culminaon of an open source, commercial collaboraon

of over 100 of the worlds leading technology companies, entrepreneurs, investors, NGOs and

policy advisors who parcipated in the China Greentech Iniaves 2010 Partner Program.

These organizaons commit their experse, me and funding to the China Greentech Iniave

to address the many on-going opportunies and challenges facing those seeking to accelerate

Chinas complex, rapidly-changing greentech markets.

EXECUTIVE SUMMARY


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Chinas Evolving Greentech Markets

Within just a few years, China has emerged as a global greentech leader. As we

predicted in The China Greentech Report 2009, China is now a greentech leader by

a number of indicators, but more importantly, China stands at the center of almost

every greentech market. No greentech investor or company can ignore China. Here

are ve reasons why:

nAstonishing Growth in Chinas Greentech MarketsPropelled by Chinas economic expansion and ambious policies, greentech

markets in China have grown swily, showing no signs of slowing. In the last two

years Chinas greentech markets have advanced across every sector, from wind

and solar power to emissions control and wastewater treatment. For example,

by the end of 2010 China had become the worlds largest investor in clean energy

at RMB 354 billion (US$54.4 billion),1installed 44.7 GW of wind power,2and built

8,358 kilometers of high-speed rail.3 The 12th Five-Year Plan (2011-2015) and

other policies will propel further expansion in coming years.

nUrgent Needs Drive Greentech GrowthGovernment policies respond pragmacally to Chinas urgent needs in energy

security, food and water supply, and polluon. The scale of the countrys energy-

and environmental-related needs is just as immense as everything else in todays

rapidly-growing China. Consider some of the most pressing needs pushing China

ahead on greentech policies and spending: China imports over 50% of its oil, per

capita water supply is only one quarter of the world average and decreasing, and

indoor and outdoor air polluon cause up to 1.3 million deaths per year. 4In each

area, signicant change and implementaon of new soluons are essenal to

prevent major negave consequences for China and its people.

1. Pew Charitable Trusts, Whos Winning the Clean Energy Race? (Washington, D.C.: Pew Charitable Trusts, 2011)

2. China adds 18.9 GW of new wind power capacity in 2010, Global Wind Energy Council, Apr. 6, 2011, www.gwec.net

3. : ,[Bureau of Stascs: Chinas Rail World's Second Longest, High-

Speed Rail Number One] Chinanews, Mar. 4, 2011, www.news.163.com

4. China Energy Data, Stascs, and Analysis, U.S. Energy Informaon Administraon, www.eia.doe.gov, accessed

on Nov. 2010; Wang, J. et al., Climate Change and Chinas Agricultural Sector: An Overview Of Impacts, Adaptaon and

Migaon (Switzerland: Internaonal Centre for Trade and Sustainable Development, 2010); Environment problems pose

health risk for China: Lancet, The Independent, Mar. 26, 2010, www.independent.co.uk

EXECUTIVE SUMMARY

Energy Supply Resource Use Other Markets

Sectors Cleaner

Convenonal

Energy

Renewable

Energy

Electric Power

Infrastructure

Green

Building

Cleaner

Transportaon

Cleaner

Industry

Clean

Water

Waste

Management

Sustainable

Forestry and

Agriculture

Segments

Cleaner Coal Solar Power TransmissionOpmized

DesignCleaner Road

Opmized

Design

Water

Extracon

Waste

Collecon

Sustainable Forest

Management

CleanerOil Wind Power DistribuonSustainable

MaterialsCleaner Rail

Sustainable

Materials

Water

Treatment

Waste

Recycling

Sustainable Land

Management

Cleaner Gas Bioenergy Energy

Storage

Energy

EciencyCleaner Air

Ecient

Processing

Water

Distribuon

Energy

from Waste

Recovery

Sustainable

Farming

Communies

Nuclear

PowerHydropower

Demand

Management

Water

Eciency

Cleaner

Waterway

Water

Use

Waste

TreatmentOpmized Crops

Wave PowerSupply

Flexibility

Wastewater

Treatment

Sustainable

Waste Disposal

Geothermal

Energy Legend

n Sectors coveredin the Report nPrimary focus nSecondary focus nLimited or no focus

Source: China Greentech Iniave analysis

The China Greentech Report 2011Market Map


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EXECUTIVE SUMMARY

nConnuing Urbanizaon and the Growth of Eco-CiesImmense resource demands brought about by Chinas connuing historic

urbanizaon compel policymakers to make exisng cies more sustainable

and establish new eco-city projects.Chinas populaon shi from rural to urban

areas represents the largest migraon in human history. In 1980, a mere 20% of

the populaon was urban, but by 2010 this rate had risen to 47% with no signs

of slowing.5 However, this has occurred without emphasis on sustainability.

Policymakers recognize that achieving naonal goals on energy eciency andcarbon emissions will depend upon the progress made by cies, reected in Chinas

growing number of eco-cies and policies for building and heang eciency. For

example, cung carbon emissions of exisng eco-cies by 20% would equal 32

million tons of carbon annually, equivalent to the emissions of New Zealand.6

nChina Becoming a Player in Internaonal Energy and Environmental IssuesAs Chinas energy demands and greentech policies have expanded, so has its

role on the internaonal stage. Chinas energy demands and environmental

impact are vast and growing, with two disnct forces combining to expand Chinas

internaonal role. First, rising energy demand may triple by 2035, giving China

a greater stake in the world energy and resource economy.7 This has profound

eects on geopolics, world commodity markets and internaonal business.

Second, Chinas greentech market growth has helped change Chinas image fromthat of a laggard on the environment to a posion of leadership in many instances.

nSeeking to Capture Domesc and Global Greentech MarketsChinas industrial policy promotes the domesc greentech industry to ensure

Chinas energy security. Naonal industrial policy is a central driver of Chinas

greentech markets. The countrys booming greentech markets represent a huge

social and technological shi, and have real potenal to solve serious energy

and environmental problems. Because of the scale of Chinas energy needs,

the government has made it a priority to ensure the country and its businesses

capture these new markets. One of the ways they are doing this is by emphasizing

domesc research capabilies: R&D spending rose by 20% annually between

1995 and 2005 and China is now home to some of the worlds largest greentech

manufacturing companies.8

While these ve reasons apply to all of Chinas greentech markets, the specics

dier within each greentech sector. For each of the China Greentech Iniaves six

sectors we reviewed recent major developments and summarized the key ndings of

specic Opportunity Assessments completed during 2010.

5. Goldman Sachs, Hukou Reform: A Mid To Long Term Goal, Picking Up Pace (U.S.: Goldman Sachs, 2011)

6. China Greentech Iniave analysis

7. Internaonal Energy Agency, 2010 World Energy Outlook (Paris, France: Internaonal Energy Agency, 2010)

8. Steinfeld, Edward S., Playing Our Game: Why Chinas Rise Doesnt Threaten the West (U. S.: Oxford University Press,2010)


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EXECUTIVE SUMMARY

Cleaner Conventional Energy

Chinas energy and environmental problems cannot be solved without Cleaner

Convenonal Energy. The government has implemented a range of policies within

the last 18 months to encourage the development of greentech soluons.

Cleaner Convenonal Energyenergy derived from fossil fuels in ways that

minimize their negave impact on the natural environmentis a focal point for

government and industry. Achieving government targets for reducing carbon intensityby 40-45% by 2020 will require dramac increases in natural gas and nuclear power

consumpon as well as an emphasis on cleaner coal. The government established

the Naonal Energy Commission (NEC) in 2010 to overcome compeng interests

and ensure the development of a cohesive energy policy, and connued to push for

the consolidaon of the coal industry to improve eciency, safety and enforcement

of regulaons. On emissions, China is set to adopt policies that would bring the

countrys coal plants in line with other countries. Pricing reforms have fallen behind

expectaons, but are expected to move forward again during the 12 thFive-Year Plan

period.

The China Greentech Iniave developed three in-depth Opportunity Assessments for

the Cleaner Convenonal Energy sector in 2010:

nPotenal for Wide-Scale Adopon of IGCC and CCS TechnologiesIntegrated gasicaon combined cycle (IGCC) and carbon capture and

sequestraon (CCS) have the potenal to revoluonize power generaon in

China, but their potenal remains largely unfullled. IGCC and CCS technologies

are well-suited to Chinas environmental imperaves, geology, and large coal plant

market; both technologies can play a role in reducing the long-term impact of

Chinas power plant construcon boom of the last decade. That said, the country

faces a paradox: high inial costs and technology gaps mire IGCC and CCS in the

demonstraon project phase; however, China is the ideal place for development

given its low cost and rapid infrastructure expansion. For example, IGCC costs

in China could be more than 60% less than in developed countries.9 China will

likely expand slowly from demonstraon projects in the next decade, favoring

incremental gains over large-scale technology adopon.

nStrong Future for De-SOxand De-NO

x, but Fly Ash Recycling and Ulizaon Lags

Aer the rollout of post-combuson desulfurizaon (De-SOx) over the last ve

years, China will promote new regulaons and investments during the 12th

Five-Year Plan period for denitricaon (De-NOx) as well as y ash recycling and

ulizaon. In Chinas push to improve air quality over the last ve years, coal

power plant De-SOx regulaons have been relavely successful, with Chinese

equipment suppliers capturing the market. China is now encouraging De-NOx

technologies with a 10% emissions reducon target and a potenal tari. Lessons

learned from the De-SOxexperience will likely help improve enforcement. Fly ash

recycling connues to lag, but extracon of valuable minerals increases nancial

incenves.nPotenal for Carbon Pricing in China

Pricing carbon connues to aract hot policy debate in China. As its galloping

economy brings skyrockeng energy use and greenhouse gas (GHG) emissions to

the fore, China recognizes the need to address growing energy and environmental

hazards. One carbon pricing opona carbon taxis being carefully considered,

but despite indicaons that China could adopt a tax, perhaps as soon as 2012,

many challenges remain. Such a tax could take years to put into place, and

fundamental implementaon quesons are unresolved, such as tax neutrality,

revenue management, and incenves for greentech soluons.

9. Angell, Christopher, et al., The Role of IGCC in China: Past, Present, and Future, Saistrip, May 2010, www.saistrip2010.webatu.com; IPCC, Carbon Dioxide Capture and Storage (U.K.: Cambridge University Press, 2005, 443)

Reducing carbon intensity

by 40-45% by 2020 will

require dramac increases

in consumpon of natural

gas and cleaner coal.


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EXECUTIVE SUMMARY

Renewable Energy

Government policies and investment have transformed China into one of the

worlds leading adopters and manufacturers of Renewable Energy technology.Ambious renewable energy targets and strategic government investment

have helped China become a world leader in renewable energy manufacturing andpower generaon. In 2010, China surpassed the U.S. to become the worlds largest

wind power producer with 44.7 GW of installed capacity.10

China renewable energymanufacturers produce more solar photovoltaic panels and wind turbines thanany other country. By 2020, installed capacity of wind, solar and biomass power istargeted to more than quadruple, from less than 50 GW in 2010 to more than 200GW in 2020. Given Chinas installaon track record, combined with reassessmentsof nuclear energy in the wake of the disaster in Japan, these targets are probablyconservave.

The China Greentech Iniave developed three in-depth Opportunity Assessmentsfor the Renewable Energy sector in 2010:

nChinas Domesc Solar Market EmergesChina plans to boost solar capacity 20-fold by 2020, from 800 MW in 2010 to morethan 20 GW, including more development in western China, with technologiesbeyond the crystalline silicon (c-Si PV) soluons China has favored so far. Already

the world leader in solar panel manufacturing, China is poised to enter a new phase:developing domesc solar power generaon capacity. In early concession rounds,western regions have been favored for large-scale projects using primarily domescally-produced crystalline silicon PV panels. As technology and power generaon costsdecline, it is likely that China will install a mix of solar technologies to achieve its 2015and 2020 solar power generaon targets. China is reconsidering its energy targets inthe wake of Japans nuclear crisis, which may increase solar power targets further to10 GW by 2015 and 30 GW by 2020.11

nChinas Wind Market Heads to SeaAs a new government priority, Chinas oshore wind market is poised for takeo;however, since oshore wind is more than twice as expensive to develop than Chinassll abundant onshore resources, the market represents a paradox for investors.Chinas oshore wind market only began in 2009 with the construcon of its rst

oshore wind farm near Shanghai, but government targets call for swi growth to 30GW by 2020.12Oshore wind capital costs in China are expected to be at least doubleonshore costs, yet the rst concession round held in 2010 for four projects totaling 1GW resulted in low bid pricesinsucient, it appears, for protable ownership. Theseprojects may be subsequently awarded higher taris by the government to ensureprotable operaon, just as with early onshore wind farms. Given policy and technicaluncertaines, the current market does not suit risk-averse developers. For foreignequipment and service providers, the market may be favorable, but due to pricingconstraints there may be limited opportunies for foreign turbine manufacturers.

nDistributed Renewable Energy (DRE) Leadership and PotenalChina is a leading player in DRE with signicant capacity in small hydropower,household biogas digesters and rooop solar water heang. However, without gridimprovements, more cost-eecve energy storage and subsidies, promising DRE

technologies will not reach their full potenal. Chinas push for rural electricaonin previous decades promoted DRE technologies for the rst me. Chinas smallhydro capacity, at 55 GW, is the largest in the world and supplies 50% of Chinas ruralelectricity. Solar hot water heaters are also prevalent in China, covering more than 145million square meters and accounng for more than 80% of the worlds solar waterheang capacity.13 Most development has been government funded and driven,although private nancing models have been used successfully in wealthier urbanareas for distributed rooop solar.

10. China has highest wind power capacity: report, Reuters, Jan. 13, 2011, www.reuters.com

11. Li Yuchuan, China May Double Photovoltaic Capacity to 10 GW by 2015, China Securies Journal, Mar. 30, 2011,

www.cs.com.cn

12. World Bank, China: Meeng the Challenges of Oshore and Large-Scale Wind Power: Strategic Guidance(Washington, D.C.: Asia Sustainable and Alternave Energy Program, World Bank, 2010, 16)

13. REN21, Renewables 2010 Global Status Report (Paris, France: REN21 Secretariat, 2010)

Installed capacity of

wind, solar and biomass

is targeted to more than

quadruple by 2020.


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EXECUTIVE SUMMARY

Electric Power Infrastructure

State Grids ambious plan to invest RMB 3.45 trillion (US$ 530 billion) to build a

strong and smart grid by 2020 ensures that China will be one of the worlds largest

smart grid markets in the years to come; however, the industrys monopolisc

structure poses challenges for market entrants.

Chinas overstretched electricity grid faces a daunng challenge: eciently powering

the naons staggering economic growth as the energy mix diversies. Ambiousrenewable energy and energy eciency targets, as well as growth projecons for

electricity demand, require a more advanced grid than exists today. State Grid, the

worlds largest ulity and provider of 80% of Chinas electricity, released its Smart Grid

Plan in 2009, which provides a roadmap through 2020 that ensures China remains one

of the worlds largest smart grid markets. Chinas 2010 smart grid market was already the

largest in the world at RMB 47.5 billion (US$ 7.3 billion).14Smart grid soluon providers,

however, must prepare for dicult market condions, where low-cost soluons and

strong relaonships with local grid companies dene success.

The China Greentech Iniave developed three in-depth Opportunity Assessments

for the Electric Power Infrastructure sector in 2010:

nState Grids Smart Grid PlanDistribuon and consumpon are the best opportunies for private soluon

providers in the State Grids Smart Grid Plan. State Grids Smart Grid Plan could

abate 1.65 billion metric tons of carbon emissions per year, the equivalent of

Russias 2009 total carbon emissions. Investments in distribuon are planned at

RMB 119 billion (US$ 18 billion) while consumpon targets RMB 89 billion (US$

14 billion), together over half the smart grid investment total, with these sectors

relavely open to private involvement.15 Private rms seeking to promote their

smart grid products and services must engage deeply with both central and local

levels of State Grid.

nConnecng Intermient Power to the GridState Grid has largely addressed problems with wind farm connecons, but sll

cannot absorb intermient energy in some regions, requiring new soluons such as

UHV construcon to transport power elsewhere. Despite huge growth in new wind

installaons since 2008, nearly 100% of all completed wind farms are now connected to the

grid, compared to only two-thirds in 2008.16The problem has shied to excess intermient

supply, because the windiest regions cannot absorb signicant power uctuaons without

posing problems for grid stability and reliability. New UHV power lines will parally address

the problem by shiing power elsewhere; by 2015 China will invest RMB 500 billion (US$

77 billion) to construct 40,000 kilometers of UHV transmission lines.17Management and

forecasng tools that maintain grid stability are also needed, such as acve and reacve

power ow control and low-voltage ride-through (LVRT) technology.

nTechnology Preferences in Chinas Smart Meter MarketAlthough China will roll out 50 to 60 million Automac Meter Reader (AMR)

meters in 2011, and more sophiscated Advanced Meter Infrastructure (AMI) isyet to come, the meter market is currently only open to a handful of incumbents.

Chinas smart meter roll-out of 500 million meters before 2015 poses a paradox

for soluon providers: implemenng low-cost AMR now means that the country

could require another round of new, more sophiscated AMI meters as early as

2015.18Chinas meter market is restricted to a handful of players already present,

however, and no change seems likely in the near future. Grid companies rely on

suppliers with low prices, a quality track record, local aer-sale customer service,

and relaonships with internal grid company departments.

14. Top 10 Countries for Smart Grid Investment, Zpryme Research and Consulng, Nov. 9, 2010, www.gereports.com

15. ,,State Grid, State Grid Smart Grid Plan Final Report] Feb. 2010

16. Shu Yinbiao, 12th Five-Year Electricity and Energy Sector Transion Development, State Grid (presentaon given at

the 2020 Energy & Economy Development Forum, China, Oct. 31, 2010)

17. Bai, Jim and Aizhu Chen, "China top grid rm says to further develop UHV tech," Reuters, Jan. 28, 2011, www.reuters.com18. Li, Min and Wendy Wang, Electronic Equipment & Services (Hong Kong: Yuanta, 2010); China Greentech Iniave

analysis

At RMB 47.5 billion (US$

7.3 billion), Chinas 2010

smart grid market was the

largest in the world.


17/218


EXECUTIVE SUMMARY

Green Building

Chinas Green Building market has more than doubled every year since 2005, but remains

only a fracon of its potenal size. Numerous challenges impede growth, yet companies with

a nuanced understanding of this complex, rapidly growing market can posion themselves

to become future industry leaders.

Given the pace and scale of urbanizaon, China needs to improve building eciency

to meet energy and environmental goals. Green buildings can play a substanal role:if all of Chinas exisng buildings were green, it would mean energy savings equal to

half of the total electricity generated in China in 2007.19Although the economics of

green building are favorable in China, builders are reluctant to pursue green building

projects due to misaligned incenves between developers, owners and tenants. Though

enforcement may be improving for building energy codes, it lags in other areas. Despite

these and many other challenges there are sll aracve opportunies for foreign and

domesc companies.

The China Greentech Iniave developed three in-depth Opportunity Assessments

for the Green Building sector in 2010:

nExpanding the Building Energy Eciency Retrot Market through ESCOsThe market for building energy eciency retrots is expanding rapidly, as are

government eciency targets for exisng buildings, yet current policies are

insucient, subsidies are sll small, and ESCO soluons vary widely by market

segment. Energy Services Companies (ESCOs) provide energy eciency soluons

to customers on a risk-reward basis over a specied payback period and have great

potenal to improve energy eciency, but their near-term potenal in China is unclear.

Over the last ve years the building energy eciency retrot market has experienced

a 40% compound annual growth rate as government policies support growth.20The

most important policies aecng ESCOs are targets for urban heang in northern

Chinaand energy management of large public buildings; however, progress is uneven

and subsidies for ESCOs are too small to make a meaningful dierence.

nAccelerang Green Building Materials Adopon through Supply Chain PraccesIncomplete industry standards and metrics, poor enforcement of regulaons, and

supply chain pracces that ignore the environment dene Chinas edgling green

building materials supply chain. Despite rising green building demand in China,

green building materials currently represent only 5% of the total market. Building

code enforcement is uneven, giving developers lile incenve to source legimate

green building materials. Building materials suppliers may cerfy materials with

authories without necessarily complying with requirements. Nevertheless,

environmental criteria in sourcing and value-chain partnerships oer opportunies

for stakeholders to move the enre market forward.

nRapidly Improving Market for Sustainable Indoor Environment SoluonsIndoor air quality (IAQ), thermal eciency and energy eciency soluons haveconsiderable potenal in the Sustainable Indoor Environment (SIE) market.SIE, which aects human health and producvity as well as the environment, is

inuenced by a number of factors, including IAQ, thermal eciency and energyeciency. SIE soluons such as air puricaon, oor heang and energy ecientlighng technologies, represent markets that are relavely well-developed or areimproving quickly. Chinas interior t-out market, for example, reached RMB 1.85trillion (US$ 285 billion) in 2009, consisng of 180,000 companies with a total of14 million employees.21A major challenge for SIE is weak enforcement of exisngstandards. Other issues include lack of movaon, design process dicules, lack ofreliable products and services, and low market awareness. Beer enforcement andintegrated soluons are needed for the SIE market to develop further.

19. Total Electricity Net Generaon (Billion Kilowahours) China, U.S. Energy Informaon Administraon, Nov. 2010,

hp://www.eia.doe.gov/, accessed on Mar. 17, 2011

20. Energy Commiee of China Energy Conservaon Associaon, Annual Report on China Energy Service Industry (Beijing,

China: EMCA, 2009)21.Zhang Zhonglin, Development of Chinese Building Decoraon Market, China Building Decoraon Associaon

(presentaon on press release of carpenter exhibion, Beijing, China, 2008)

If all of Chinas exisng

buildings were green,

it would mean energy

savings equal to half of the

total electricity generatedin China in 2007.


18/218


EXECUTIVE SUMMARY

Cleaner Transportation

To address growing problems with trac congeson, energy eciency, emissions and

energy security, China is pursuing diverse Cleaner Transportaon soluons ranging from

alternave fuels to electric vehicles.Rapid growth of Chinas transportaon sector has led to major issues, including

increased vehicle emissions, oil use and road congeson. In 2010, 18 million vehicleswere sold in China, making it the worlds largest automobile market.22Although China

has already far exceeded the high-speed rail accomplishments of many developedcountries, the government has ambious plans to expand the industry further.Government, industry and private investors are making sizable investments in the early-stage development for electric vehicles, baeries and alternave fuels; however, thegovernments aggressive targets may prove unrealisc.

The China Greentech Iniave developed four in-depth Opportunity Assessments forthe Cleaner Transportaon sector in 2010:

nChinas Emerging Electric Vehicle (EV) EcosystemWhile growth prospects for Chinas EV market are substanal, the nascent marketfaces major challenges, including inadequate charging infrastructure and highbaery costs. The government has set ambious growth targets for the EV market,aiming to have 5 million EVs on the road by 2020; however, the industry faces many

hurdles.23 Government-led pilot programs are the main near-term market driver,supported by a new EV development plan and charging standards. Technologyconstraints, high baery costs and the lack of charging infrastructure in pilot ciesall pose major barriers. Unlike in more developed countries, low-speed EVs may

serve as a bridge for the eventual commercializaon of high-speed electric vehicles.

nElectric Vehicle Baery Market EvoluonOver 60 Chinese baery makers have set their sights on EVs, and while technicalchallenges abound, government support and industry opmism remain strong. Even aslithium-ion baery manufacturers vie for a share of Chinas early-stage EV baery market,few orders from automakers and numerous technical challenges await the victors. Majorobstacles include weak R&D capabilies, lack of automated producon methods anddicules in vehicle integraon. Government and investor funds connue to ow into the

sector, suggesng opmism that these barriers can be overcome.

nAlternave Fuels for Road TransportaonEthanol, natural gas and methanol are the three most widely adopted alternavetransportaon fuels in China today; however, breakthroughs are needed in feedstocksupply, technology development, infrastructure rollout and user acceptance to progressfurther. The government connues to promote a full spectrum of alternave fuels, yetthey account for only 3% of the current market. Ethanol, natural gas and methanol havedeveloped rapidly over the past ve years, but sll face major development challenges,including feedstock, technology, infrastructure and user acceptance. Other alternavefuels appear less promising, at least in the near term.

nRapid Growth in Cleaner RailRapid economic development and urbanizaon intensify Chinas need for greater railcapacity, and the government is responding to the challenge.In response to the mounngneed for more long-distance freight and passenger capabilies, China has embarked ona major expansion of its already extensive rail network. Metropolitan systems are alsoundergoing a makeover as subway and light rail coverage expands dramacally. By the endof 2010, Chinas rail network reached 91,000 km, making it the second largest in the world,with plans to grow to 120,000 km by 2020. China is also home to the worlds largest high-speed rail network, with 8,000 kilometers constructed by 2010, and 16,000 kilometersplanned for 2015equivalent to the worlds total to date.24

22. Patti, Waldmeir, China car sales stay in the fast lane, Financial Times, Jan. 4, 2011, www.ft.com; China Greentech Initiative analysis. Note:

Figures discussed here include on-road passenger vehicles such as cars, minivans and SUVs, and commercial vehicles such as buses and trucks.

23. ,[Energy-saving and New Energy Vehicle Industry Plan Dra for

Public Comment Full Text] Netease Auto, Sep. 21, 2010, hp://auto.163.com

24. Note: This gure includes rail lines with operang speeds over 200 km/h. :

,[Bureau of Stascs: Chinas Rail Worlds Second Longest, High-Speed Rail Number One] Chinanews, Mar. 4, 2011, www.

news.163.com

With 18 million vehicles

sold in 2010, China is the

worlds largest automobile

market by volume.


19/218


EXECUTIVE SUMMARY

Clean Water

Given the crical importance of water to China, the government has made CleanWater a major priority, including invesng in wastewater treatment, improvingwater eciency, and ensuring adequate water supply.

Water polluon and scarcity due to weak enforcement, drought and over-use aresome of the biggest problems facing China today. In 2009, 270 million people in rural

China had no access to safe drinking water and more than 4.5 million people wereshort of water in northern China due to the severe drought.25 The government isresponding to these problems with new policies and major investment projects: Chinahas tripled the number of municipal wastewater plants, iniated the controversialSouth-to-North diversion project, and planned desalinaon projects near urbanareas. Between 2010 and 2020, RMB 4 trillion (US$ 615 billion) will be invested inwater infrastructure improvements.26Beer enforcement of exisng water laws andnew regulaons to increase eciency are also government priories, but the scale ofthe problem is so large that even these laudable policies will not suce.

The China Greentech Iniave developed three in-depth OpportunityAssessments for the Clean Water sector in 2010:

nPrivate Sector Opportunies in the Municipal Wastewater Treatment MarketAs China shis investment in wastewater treatment to lower-er cies in theSouth and Southwest, opportunies exist for private parcipaon in build-operate-transfer (BOT) and operaon and maintenance (O&M) models, thoughlow cost soluons and inecient operaon remain the norm. China has rapidlyboosted municipal wastewater treatment rates since 2007. The urban wastewatertreatment rao steadily grew from 34% in 2000 to 70% in 2010.27Pricing is sll setlocally, with no obvious naonal trends.Private parcipaon can bring neededexperse to the sector, which is plagued by inecient public operaon, but mostregions sll focus on low-cost soluons. BOT and O&M models are the mostpromising areas for private sector involvement.

nPrivate Sector Parcipaon in Water UliesDespite market reforms and willingness of private domesc and foreign companiesto parcipate in Chinas water sector, implementaon proves to be a challenge.

The private sector has only contributed 10-20% of recent water infrastructurenancing. Though many private companies have formed partnerships with localwater ulies, just 10% of sector investment in 2008 came from the private sector.Only a few regions support such investment, while others strongly oppose privateinvolvement. Wastewater treatment is the main area of parcipaon, as opposedto water supply. Public-private partnerships (PPPs) have had mixed results, withprivate investors facing mulple problems including limited market knowledge,scarce nancing, intense compeon and demanding municipal customers.

nWastewater Treatment Plant Lifecycle Cost and Prot AnalysisMunicipal wastewater treatment plants have grown rapidly in China, but oen atthe expense of operaonal eciency. Build-operate-transfer (BOT) contracts leadto higher operang eciency and beer long-term performance. BOT municipalwastewater treatment plants appear to have lower operang costs and higher net

prots than alternave investment models. Investors have generally only agreedto BOT contracts where they were able to negoate favorable revenue terms andensure protable long-term operaonal performance versus public-operated plants.Electricity is the largest area with operaons improvement potenal: BOT plantsuse up to 50% less electricity than other types of plants. Other revenue and costimprovement opportunies can also be pursued to improve plant performance.

25. China To Invest CNY90 Billion For Waste Water Treatment, China CSR, Dec. 4, 2009, www.chinacsr.com; Millions at

risk in China drought, BBC, Aug. 23, 2009, www.news.bbc.co.uk

26. , [Central Peoples Government of the Peoples Republic of China,

Decision on accelerang water reform and development] Jan. 31, 2011; Lu, Ting, Chinas Investment Momentum: RMB 4Trillion for Water Projects, Chinastakes, Jan. 31, 2011, www.chinastakes.com

27. China market overview: Waste water treatment (Beijing, China: Yatsen Associates Co., Ltd., 2009, 3)

RMB 4 trillion (US$ 615

billion) will be investedin water infrastructure

improvements between

2010 and 2020.


20/218


Looking Forward

Opportunies to grow Chinas greentech markets abound.Driven by strong government support that addresses urgent naonal needs,

Chinas greentech markets have grown with astonishing speed. Though rapidconnued urbanizaon puts incredible stress on resources, this same force coulddrive the growth of eco-cies when married with sustainable development. As the

ambious targets outlined in the 12th Five-Year Plan reveal, China plans to magnifyprevious growth, catapulng China onto the global energy and environment stage ina leading role. Seeking to capitalize on the experience gained in its sizable greentechmarkets, Chinas industrial policies aim to increase Chinese leadership at home andabroad.

Chinas emergence as a global greentech leader translates into opportunity, butnot always directly. As Chinas greentech markets have grown, they have also becomemore complex, and growth does not always translate directly to opportunity for theprivate sector or foreign parcipants: some of the greatest opportunies are oenthe most surprising ones, protable niches overlooked in the big headlines.

To explore in detail Chinas greentech market developments as well as sector-specic analyses, we invite you to turn to the respecve chapters in this Report.

Some of the greatest

opportunies in Chinas

market are oen the most

surprising ones.

EXECUTIVE SUMMARY


21/218

www.china-greentech.com THE CHINA GREENTECH REPORT 2011 21JimG

ourley


22/218

THE CHINA GREENTECH REPORT 2011 www.china-greentech.com22JimG

ourley

CHINA'S EVOLVING

GREENTECH MARKETS


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Propelled by Chinas economic expansion and ambious policies, greentech markets in China havegrown swily, showing no sign of slowing.

In the last two years Chinas greentech markets have advanced across every sector,

from wind and solar to emissions control and wastewater treatment. Already home

to the worlds largest greentech markets, the 12th Five-Year Plan and other policies

will propel Chinas further expansion in the coming years.

Economic growth is at the heart of Chinas transformaon. From 1989 to 2010Chinas gross domesc product (GDP) grew at an average of 9.3%, and in mid-2010

China surpassed Japan to become the second largest economy in the world.1At 9%

growth, an economy doubles in size every eight years; if the U.S. and China connue

at expected growth rates (3% versus 9%), China will become the largest economy by

2027. Chinas ocial GDP growth gure for 2010 was 10.3%.2

Chinas energy consumpon has grown as rapidly, reaching approximately 950 GW

of installed electric generaon capacity in 2010, up from less than 800 GW in 2008.3

Capacity has doubled in just six years: at this rate, China will surpass the U.S. in two

years with the largest installed electricity generaon capacity in the world.4Chinas

annual addions to installed electricity capacity are comparable to the total installed

capacity in countries like the U.K., Italy, and Spain. In addion, with oil consumpon

doubling between 1998 and 2009, China has become the worlds second largest oil-imporng country.5According to the Internaonal Energy Agency, China overtook the

U.S. as the worlds largest energy consumer in 2009, and also became the worlds

largest emier of carbon dioxide.6

1. China GDP Growth Rate, Trading Economics, Jan. 20, 2011, www.tradingeconomics.com; Barboza, David, China

Passes Japan to Become No. 2 Economy, New York Times, Aug. 15, 2010, www.nymes.com

2. For 2010 GDP, see China 2010 GDP up 10.3 pct, Dec CPI up 4.6 pct media, Reuters, Jan. 19, 2011,

www.in.reuters.com; for other economic indicators, see Hall, Simon, IEA Casts Doubt on Chinas Economic Data, Wall

Street Journal, Feb. 10, 2011, www.online.wsj.com

3. China Energy Data, Stascs, and Analysis Oil, Gas, Electricity and Coal, U.S. Energy Informaon Administraon,

Nov. 2010, www.eia.doe.gov

4. China Greentech Iniave analysis

5. Internaonal Energy Stascs, Petroleum Consumpon, U.S. Energy Informaon Administraon,

hp://www.eia.gov/, accessed on Feb. 24, 2011; data on oil imports from China Energy Data, Stascs,

and Analysis Oil, Gas, Electricity and Coal, U.S. Energy Informaon Administraon, Nov. 2010,

hp://www.eia.doe.gov/, accessed on Feb. 24, 2011

6. Smith, Grant and Chrisan Schmollinger, China Passes U.S. as Worlds Biggest Energy Consumer, IEA Says,

Bloomberg, Jul. 10, 2010, www.bloomberg.com

The Astonishing Growth of

China's Greentech Markets

The wring of this chapter was led by Anders W. Hove(), based upon strategic analysis and

research completed by Alan S. Beebe (), Qiyong Cao (), Randall S. Hancock (),

Stephanie Hung (), Claire N. Nelson () and Jackie Wang () of the China Greentech

Iniave's research team.

JimG

ourley


24/218


China already dominates world consumpon of commodity materials. The

country is the worlds largest steel consumer, ulizing an esmated 45% of world

producon in 2010 (more than twice what the U.S. consumes).7As China expands

its own infrastructure while also serving as the manufacturing center of the world, it

consumes 44% of the worlds cement and 40% of the worlds copper.8China is also the

worlds largest grain and meat consumer.9All of these gures make sense given the

countrys immense sizemany Chinese provinces have larger populaons than major

world economies such as France or Germany.

Chinas Greentech Markets Are Set to Lead the WorldThe China Greentech Report 2009documented the state of Chinas greentech sectors,

including the trends the China Greentech Iniave had idened through collaboraon

with over 100 commercial, not-for-prot and governmental organizaons. In the Report,

the China Greentech Iniave esmated that Chinas addressable greentech market

could be US$ 500 billion to US$ 1 trillion by 2013. Already the worlds largest investor in

the Renewable Energy sector, China has demonstrated its leadership in many greentech

industries during the last 18 months, including wind, smart grid, smart meters, high-speed

rail, subway construcon and water:

nWind: China has become the worlds wind capacity leader, with almost 44.7

GW installed by 2010 (18.9 GW were installed in 2010 alone).10One of every

two turbines installed worldwide in 2010 was in China.11

nSmart meters: To upgrade billing and improve eciency, China will install

50-60 million automac-meter-reading (AMR) smart meters in 2011 alone.12

China may replace the countrys meters again in 2015, if automated meter

infrastructure (AMI) meters are needed.13

7. Brown, Lester, Plan B Updates, Earth Policy Instute, Feb. 16 2005, www.earth-policy.org

8. For copper, see Gallegos, Ignacio, China, second largest copper producer in 2010, ahead of the US and Peru,

MercoPress, Feb. 14, 2011, www.en.mercopress.com; for cement, see China now no. 1 in CO2 emissions; USA in second

posion, Planbureau voor de Leefomgeving, www.pbl.nl, accessed on Mar. 28, 2011

9. Brown, Lester, Plan B Updates, Earth Policy Instute, Feb. 16 2005, www.earth-policy.org

10. China adds 18.9 GW of new wind power capacity in 2010, Global Wind Energy Council, Apr. 6, 2011, www.gwec.net

11. China Invests $10 Billion in Wind Energy Technology, Solar Thermal Magazine, Dec. 5, 2010,

www.solarthermalmagazine.com

12. ,, [CICC, China is about to Build Smart Grid]

www.cicc.com.cn, accessed on Feb. 25, 2010

13. China Greentech Iniave interviews

ASTONISHING GROWTH

Total Energy Consumpon of Select Countries, quadrillion BTUs, 1965-2010

Source: BP, Stascal Review of World Energy (United Kingdom: BP, 2010)

199519901985198019751970

45

30

15

105

20052000

60

90

75

Japan

India

China

U.K.

Russia

Germany

U.S.

1965


25/218


nSmart grid:State Grid announced it will invest RMB 387 billion (US$ 59.5billion) to build a naonal strong and smart grid by 2020, including

thousands of kilometers of new ultra-high voltage (UHV) lines to move

excess intermient power to where it is most needed.14While the plan

does not yet include many of the enhanced technologies envisioned in theU.S. and Europe, it will vastly improve Chinas ability to deliver electricity

eciently to its rapidly growing markets.

n Subways: Beijings new subway now has 155 staons covering 228kilometersin just a decade the system has quadrupled in length and

almost quadrupled in ridership.15If plans are completed on schedule, by

2015 Beijing will far surpass Tokyo, New York, Moscow and Seoul as the

largest subway system in the world in terms of length. Other major Chinese

cies such as Shanghai, Shenyang and Wuhan are building or expanding

similar systems. These massive build-outs may create negave short-

term environmental impact; however, they put in place a transportaon

infrastructure that is far cleaner and more ecient than automobiles and

other forms of urban transportaon.

nHigh-Speed Rail: China introduced its first high-speed rail line in 1998with the 200 kilometer per hour service from Guangzhou to Shenzhen;

in 2004, China opened a magnetic-levitation train in Shanghai that

reaches over 400 kilometers per hour. China has already opened

dozens of new high-speed lines. By the end of 2010, 8,358 kilometers

of high-speed rail were in operation, making China the world leader

in operating distance. If current development plans are realized, the

network will have 16,000 kilometers of high-speed rail by the end of

2015.16 As with subways, high-speed rail reduces demand for airline

and long-haul vehicle traffic within China, and thus is considered by the

China Greentech Initiative as a green technology.

nMunicipal Wastewater Treatment: In recent years, China has made greatstrides in expanding municipal wastewater treatment capacity. By the end

of 2010, China had surpassed its 11th Five-Year Plan treatment goal by 7%

to achieve a 75% treatment rate.17This was made possible by substanal

investment in wastewater treatment plant development By early 2011,

3,000 municipal wastewater treatment plants had been constructed (up

from only 792 plants in 2005), with 18 new plants added every week.18Some

experts suggest that China may invest another RMB 90 billion (US$ 13.8 billion)

in the next two years to have a total of 5,000 plants with a treatment capacity

of 1.6 billion cubic meters of wastewater per day.19

While Chinas greentech achievements are admirable, the targets outlined in the

new 12th Five-Year Plan (2011-2015) are even more impressive:

nRenewable energy: Target 200 GW of renewable capacity by 2020, includingwind, solar, and biomass energy sources.20

14. , [State Grid, State Grid Smart Grid Plan Final Report] Feb. 2010

15. Meng, Sishuo, 20152000,[Investment to Beijing subway to reach 200 billion

yuan in 2015] Sohu News, Oct. 29, 2008, www.news.sohu.com; see also Beijing Subway map plan, Beijing Subway,

www.bjsubway.com, accessed on Feb. 25, 2011

16. :,[Bureau of Stascs: China's Rail World's Second Longest, High-

Speed Rail Number One] Chinanews, Mar. 4, 2011, www.news.163.com

17. Municipal wastewater treatment rate up by 24%, China Daily, Mar. 16, 2011, www.chinadaily.com.cn

18. Ministry of Housing and Urban-Rural Development quoted in: New direcons in Chinese wastewater, Global Water

Intelligence, Oct. 2010, www.globalwaterintel.com; China Stascal Yearbook, 2005-2010 (Beijing, China: Naonal

Bureau of Stascs, 2011)

19. China Greentech Iniave interviews

20. 5, [5 Trillion Yuan For Emerging Energy Within Ten Years] China West Electric Power

Network, Sep. 15, 2010

ASTONISHING GROWTH


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n Wind: Achieve a 2015 total wind capacity of 90 GW, of which 15 GWwould be oshore wind.21 Chinas 44.7 GW of current wind capacity

includes less than 1 GW of oshore wind.22

nSolar: Grow total installed solar capacity to 5 GW by 2016, relying mainlyon ulity-scale solar plants, up from less than 1 GW in 2010.23

n Transportaon fuels and baeries: Expect to lead internaonalproducon of electric vehicles and baeries for EVs, spending RMB 100to 200 billion over the next 10 years to deploy a eet of 5 million new

energy vehicles by 2020.24

nHigh-speed rail: Raise the total length of Chinas high-speed rail systemto 25,000 kilometers (triple its current amount and equal to the worlds

total today) as part of its plan to link all the naons major cies with

high-speed rail. China also plans to be involved in engineering, nancing,

and providing equipment for high-speed rail projects in Turkey, Thailand,

Venezuela, South Africa and other countries.25

nNuclear: Develop 86 GW of nuclear power capacity by 2020, accordingto statements by Naonal Energy Administraon ocials, depending

on the availability of uranium supplies for fuel, skilled labor and other

resources.26 China has almost 11 GW of operang nuclear power plants

and 31 GW under construcon.27 However, following Japans nuclear

crisis in the aermath of the March 11, 2011 earthquake, Chinas State

Council suspended approvals for all new nuclear power projects unl

safety standards have been reassessed. At the me of publicaon,

Chinas nuclear future remains uncertain.28

n Coal: Add 260-270 GW of coal-red capacity during the 12th Five-YearPlan, represenng 37% growth, and dra standards on sulfur, mercury

and oxides of nitrogen (NOX) that would bring China in line with

internaonal standards.29 The Five-Year Plan would reduce coal as a

share of total energy from 70% to 62% by 2015.30

nCarbon intensity: Commit to reduce the carbon intensity of the economyby 40-45% by 2020 versus the 2005 level, relying on hydro, nuclear,

wind and solar energy, increased use of natural gas, improved coal plant

eciency, and improved auto and building eciency.31

nWater intensity: Reduce water consumpon per unit of industrial outputby 30% of 2010 levels (during the 11th Five-Year Plan water intensity was

reduced by 37%). Restrict total water use to 670 billion cubic meters per

year (177 trillion gallons) between 2011 and 2020 (water use in 2010

was 599 billion cubic meters or 158 trillion gallons).32

21. Wind Power Capacity to be Boosted, Global Times, Nov. 11, 2011, www.business.globalmes.cn

22. China Dethrones U.S. as Largest Wind Power Installer, Global Times, Jan. 13, 2011, www.business.globalmes.cn;

China Speeds Up Oshore Wind Power Construcon, Peoples Daily, Mar. 20, 2010,hp://english.peopledaily.com.cn

23. Wind Power Capacity to be Boosted, Global Times, Nov. 11, 2010, www.business.globalmes.cn

24. , , [Energy-saving and New Energy Vehicle Industry Plan, Dra for

Public Comment Full Text] Netease Auto, Sep. 21, 2010, www.auto.163.com

25. Bradsher, Keith, China Oers High Speed Rail to California, New York Times, Apr. 8, 2010, www.nymes.com

26. Liu, Yiyu, Nuclear power sector target too aggressive, says expert, China Daily, Feb. 9, 2011, www.chinadaily.com.cn

27. Ibid.

28. China suspends approvals for new nuclear plants, Xinhua, Mar. 16, 2011, www.xinhuanet.com

29. ,()-GB13223-20xx [Ministry of Environmental Protecon, Call for

Comments (second dra) on Thermal Power Plants Atmospheric Emission Standards-GB13223-200x] 2011

30. : 2.62.7[Zhang Guobao: 260-270 GW of coal-red capacity to

be added during the 12th Five-Year Plan] People, Jan. 6, 2011, hp://energy.people.com.cn; See also

,' 62%, [China Electric Power Construcon Associaon, Coal to be reduced

as a share of total energy to 62% during 12th Five-Year Plan] Nov. 2, 2010

31. China vows to eecvely control emissions in next 5 yrs, Xinhua, Nov. 23, 2010, www.xinhuanet.com

32. Ivanova, Nadya, Focusing on Sustainable GrowthChina Releases Dra of 12th Five-Year Plan, Circle of Blue, Mar.10, 2011, www.circleolue.org

ASTONISHING GROWTH

The 12th Five-Year Plan

commits to reduce the

carbon intensity of the

economy by 40-45% by

2020.


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n Water polluon: Reduce chemical oxygen demand by 8%, ammonianitrate by 10% and nitrogen oxide by 10% versus 2010 levels. Ammonia

nitrate and nitrogen oxide are new water polluon reducon targets, as

the 11th Five-Year Plan only included a COD target.33 These pollutants

both come primarily from agricultural run-o, which is a growing source

of water polluon in China.

The 12th Five-Year Plans Most Important Energy and

Environment Developments

Water is a top priority: The rst ocial government document of 2011 (an

annual signal of central government priorizaon) focused almost enrely on water

infrastructure, which was brought into sharp focus by the northern China drought.34

China will accelerate building of water infrastructure, doubling annual investment

versus 2010: the total investment over the decade is projected as RMB 4 trillion. 35

However, much of this investment is infrastructure designed to move water from one

place to another, which arguably degrades the environment. Clearly, not all water

infrastructure is green.

Ambious goals for cleaner energy, with changes to the fuel mix: The planconnues to promote wind and solar, with goals of 90 GW for wind and 5 GW for solar

in 2015.36 Clean energy targets will be led by nuclear and hydro-electricity, which

have greater potenal to change the total energy mix given their high capacity factors.

Natural gas consumpon should rise by almost 150%, with its share of the energy mix

growing from 4% to 8%.37 In contrast, while coal consumpon will grow in absolute

terms, it will fall from 70% to 62% of the energy mix.38

Policies will improve building energy eciency in several areas: All new buildings

are mandated to achieve 65% energy savings compared to the exisng building stock,

versus 50% under the previous ve-year plan.39In late 2010 the government released

new measures to promote demand-side management.40Policies will also promote the

growth of energy-management contracng and energy-service companies (ESCOs).41

New targets on fuel-eciency and alternave fuels: China has already adopted

strong fuel-eciency measures for vehicles. New targets from the Ministry of

Industry and Informaon Technology (MIIT) and China Automobile Associaon of

Manufacturers (CAAM) call for new vehicles to reduce carbon emissions and oil use

by 30%.42

33. Finamore, Barbara, The Next Five Years of Clean Energy and Climate Protecon in China, Natural Resources

Defense Council, Mar. 23, 2011, www.switchboard.nrdc.org

34. Song, Jingli, No. 1 document may focus on water infrastructure, China Daily, Dec. 23, 2010, www.chinadaily.com.cn.

The rst document of the year is a tradion dang in some form back to the early 1980s. The document is a way for the

central government to signal which topic or issue requires special aenon and resoluon in the coming years.

35. , [Central Peoples Government of the Peoples Republic of China,Decision on accelerang water reform and development] Jan. 31, 2011; Lu, Ting, Chinas Investment Momentum: RMB 4

Trillion for Water Projects, Chinastakes, Jan. 31, 2011, www.chinastakes.com

36. Wind power capacity to be boosted, Global Times, Nov. 11, 2011, www.business.globalmes.cn

37. , [Naonal Energy Administraon introduced the energy

economy in the rst half-year and trend in the second half-year] Jul. 20, 2010

38. ,, 62%, [China Electric Power Construcon Associaon,

Coal to be reduced as a share of total energy to 62% during 12th Five-Year Plan] Nov. 2, 2010

39. Levine, Mark D., et al., Assessment of Chinas Energy-Saving and Emission-Reducon Accomplishments and Opportunies

During the 11th Five-Year Plan, (U.S.: Ernest Orlando Lawrence Berkeley Naonal Laboratory, Apr. 2010, 47)

40. ,,,,,,, , [NDRC, MIIT, MOF, SASAC, SERC and

NEA, Electric Power Demand-Side Management Measures] Nov. 4, 2010

41. ,, [State Council, Accelerang the

Implementaon of Energy Management Contracng and Promong the Development of the Energy Savings Services

Industry] Apr. 2, 2010;,, [Naonal Development and

Reform Commission and Ministry of Finance, Interim Measures on Management of Financial Incenve Funds for Energy

Management Contracng Projects] Jun. 3, 201042. 30%, Sina, Sep. 21, 2010, www.sina.com.cn

ASTONISHING GROWTH

Coal consumpon will fall

from 70% to 62% of the

energy mix.


28/218


More mandatory green targets:The number of green-related mandatory targets

more than doubled. The 11th Five-Year Plan had 22 quantave targets, and four

of the eight mandatory targets were greentech-related: energy intensity, industrial

water use, chemical oxygen demand (COD) water emissions and sulfur dioxide (SO2)

air emissions.43 The 12th Five-Year Plan maintained the exisng four mandatory

greentech targets while adding six new mandatesfor example, on carbon intensity

of GDP, share of energy from non-fossil energy, and emissions of oxides of nitrogen(NO

X) and y ash.44

Tension between provincial and naonal goals: Central government targets for

GDP growth, energy and environmental goals will connue to conict in some cases,

with higher growth targets set at the provincial level than those implied from overall

naonal growth rates.45As in the past, the central government will oen allow the

provinces to decide how to reconcile compeng objecves, somemes leading to

uneven enforcement of energy and environmental goals.

Circular economy goals include a push for resource management: As China

promotes a beer balance between consumpon and producon for export, the

government recognizes the need to manage resources. This includes goals for

recycling, reuse, and waste treatment and managementbroadly known as the

circular economy.46

Policies for innovaon stepped up, including in energy: China recognizes that

previous policies for fostering innovaon have not gone far enough. New targets for the

Strategic Emerging Industries, which China named in 2010 to help advance economic

development, include broad policies for supporng research and development,

including fundamental R&D and commercializaon of domesc technology. Of the

seven designated Strategic Emerging Industries, three are energy related: new energy

vehicles, energy eciency, and new energy (solar, wind, and biomass).47

Energy and environmental taxes are likely: Energy and environmental taxes are

a likely method for addressing energy and emissions goals, though few have been

implemented yet. Taxes (whether direct taxes, aucons or cap-and-trade plans)

manage limited resources more eciently than top-down plant closures or other directorders. Resource taxes have already been introduced in some areas.48

Pricing reform will speed up: Aer lagging somewhat during the 11th Five-Year

Plan period, the government may speed eorts to reform prices for electricity, liquid

fuels, water and other resources.49Such reforms are broadly needed before other

resource management plans can succeed.

43. , [Central Peoples Government of

the Peoples Republic of China, Naonal 11th Five-Year Planfor Economic and Social Development] Mar. 18, 200644. Backgrounder: Review of some major targets during Chinas 11th Five-Year Program, Peoples Daily, Oct. 15, 2010,

www.english.peopledaily.com.cn; China vows to eecvely control emissions in next 5 yrs, Xinhua, Nov. 23, 2010,

www.xinhuanet.com

45. Overheang fears grow as Chinas local governments set GDP targets high, Xinhua, Jan. 25, 2011,

www.xinhuanet.com

46. Development plan for nonferrous metal industry, Global Times, Feb. 11, 2011, www.business.globalmes.cn; China

to achieve 80% urban garbage treatment rate in 2015, Peoples Daily, Feb. 9, 2011,

www.english.peopledaily.com.cn

47. China State Council, State Councils Decision on Accelerang the Culvaon and Development of Strategic Emerging

Industry, Oct. 10, 2010

48. , ,, [Ministry of Finance, State Administraon

of Taxaon, Rules on Several Issues Regarding Xinjiang Oil and Gas Resource Tax Reform] Jun. 1, 2010; Resource Tax

to be Expanded Naonwide, China Daily, Jan. 26, 2011, www.chinadaily.com.cn; China on the Path Towards Pung a

Price on Carbon, Naonal Resources Defense Council, www.switchboard.nrdc.org, accessed on May 16, 2010; Chinas

Environmental Tax Plan Submied to State Council, China Daily, Jan. 26, 2011, www.chinadaily.com.cn

49. China Raises Gasoline, Diesel Prices, Xinhua, Dec. 21, 2010, www.xinhuanet.com; Modest Rise in Electricity PricePlanned, China Daily, Oct. 11, 2010, www.chinadaily.com.cn

ASTONISHING GROWTH

The 12th Five-Year Plan

more than doubled the

number of mandatory

greentech targets.


29/218


What Does Chinas 40-45% Carbon Intensity

Reduction Target for 2020 Mean?

Since China announced its commitment in 2009 to reduce carbon emission intensityby 40-45% by 2020 from the 2005 baseline, observers have debated whether the planamounts to a substanve policy or a business-as-usual forecast. Growing economiesoen see improvements in energy eciency as older equipment and techniques arereplaced. While reducing carbon emissions will be challenging, China already hasmany policies that directly or indirectly promote energy eciency in automobiles, railnetworks, renewable energy, nuclear energy, fossil-fueled industry and power plants.

Several organizaons have examined the 40-45% target to determine how mucheort it will represent for China compared to what otherwise might have beenexpected. Based on three quantave papers from the East-West Center, the NaturalResources Defense Council, and the World Resources Instute, their ndings indicatethat the 45% target is ambious and substanve, whereas the 40% level represents aconservave forecast given policies already adopted.50Specic observaons include

the following:n Targets depend on Chinas energy and environmental stascs, which

have been connually quesoned both inside and outside China. Chinahas yet to publish an ocial emissions baseline gure for the target.

nThe 45% scenario represents more aggressive acon than the status quo,but analysts dier about whether it would meet Chinas necessarycontribuon to achieving a 450 parts-per-million (ppm) atmosphericcarbon concentraon.

n The Internaonal Energy Administraon esmated in 2009 that Chinasnaonal policies under consideraon would reduce emissions by onebillion tons of carbon dioxide (CO

2) by 2020, represenng a 43.6% carbon

intensity change; this implies the low end of Chinas carbon intensity

target is conservave.

n With eorts to connue current policies, such as energy intensityreducons and a 62% coal share of total energy use in 2020, China couldachieve a 48% reducon in carbon intensity of GDP.

n Given more investment in new infrastructure, the higher the economicgrowth, the easier it is to achieve the target. For example, if ChinasGDP were to grow at 6% annually, China could achieve the intensitytarget while growing emissions 30-40%; however, if GDP achieves8% annual growth, emissions can be 75-90% higher and sllachieve that target.

50. Zhang, ZhongXiang, Assessing Chinas Carbon Intensity Pledge for 2020: Stringency and Credibility Issues and Their

Implicaons, East-West Center, Oct. 2010, www.eastwestcenter.org; Cohen-Tanugi, David, Chinas Carbon Intensity

Target in Perspecve, Natural Resources Defense Council, Oct. 2010, www.china.nrdc.org; Seligsohn, Deborah and KellyLevin, Chinas Carbon Intensity Goal: A Guide for the Perplexed, World Resources Instute, April 22, 2010, www.wri.org

Carbon Tax in China: What, When and How?

During the course of its research in 2010 the China Greentech Iniave interviewed ocials at Chinas

Energy Research Instute (ERI), which in addion to a range of other energy policy and research related

roles, is responsible for designing the framework for resource taxes in China.1The Ministry of Finance

(MOF), through its aliated Research Instute of Fiscal Science (RIFS), nished designing a carbon tax

framework in March 2010, which was submied to the Naonal Development and Reform Commission

(NDRC) and other related bodies for review. The NDRC focuses on overall economic goals, while theMOF evaluates how to spend tax revenue and the State Administraon of Taxaon (SAT) determines

collecon methods. These bodies are currently reviewing the design and determining what type of tax

is most appropriate to implement in China: carbon, resource, or energy taxes.

1. China Greentech Iniave interview

ASTONISHING GROWTH

If Chinas GDP achieves 8%

annual growth, emissions

can be 75-90% higher and

sll achieve the carbon

intensity reducon target.


30/218


ASTONISHING GROWTH

Sources: Per Capita and Total Carbon Dioxide Emissions, China Profile, www.china-profile.com, accessed on

Mar. 23, 2010; China Greentech Iniave analysis

Chinas Annual Carbon Emissions Under Three Carbon Intensity Scenarios

billion metric tons CO2, 2005-2020

2005

0

5

10

15

20

25

2010 2015 2020

45% intensity cut by 2020

40% intensity cut by 2020

Constant intensity

Carbon Emissions Growth and Intensity of GDP

Source: Internaonal Energy Stascs, Carbon Emissions, U.S. Energy

Informaon Administraon, www.eia.gov, accessed on Mar. 15, 2011

Chinas Growing Carbon Emissions

billion metric tons CO2, 1980-2009

1980 1984 1988 1992 1996

0

2000 2004 2008

2

1

4

3

6

5

8

7

Source: Internaonal Energy Stascs, Carbon Intensity using Market

Exchange Rates, U.S. Energy Informaon Administraon, www.eia.gov,

accessed on Mar. 15, 2011

Carbon Emissions Intensity of GDP

tons of CO2per US$ 1,000, 2009

China 2.22

Russia 1.79

India 1.41

Indonesia 1.17

Mexico 0.51

Brazil 0.42

Germany 0.27

U.K. 0.23

France 0.18

U.S. 0.42


31/218


The scale of the countrys energy and environmental needs is just as immense

as everything else in todays rapidly-growing China. Consider just three of the most

pressing needs pushing China ahead on greentech policies and spending: energy

security, water, and polluon. In each area, modest change would not suce to prevent

major negave consequences for China and its people.

Energy Security Concerns Compel Action to Manage

Consumption Growth

Energy security is a major concern for every large economy, and volale oil prices

and insecure supplies make oil the most pressing issue. In 2009 China consumed 8

million barrels daily out of a total daily world producon of 84 million barrels. In the

same year the U.S. consumed 19 million barrels per day while the E.U. consumed

14 million barrels per day.51This puts Chinas per capita oil consumpon far below

the average for developed countries, and just over 10% of the U.S. per capita level.

Chinas oil consumpon per unit of nominal GDP is comparable to the U.S. and higherthan that of Europe.

Most future incremental world oil consumpon will come from the developing

world, given expectaons for greater economic growth and higher car ownership.

Despite Chinas ambious fuel eciency regulaons for new vehicles, its oil

consumpon has grown more rapidly than all other developing countries in

percentage terms. The countrys oil consumpon doubled from 1998 to 2009 and

is currently growing at 5-7% per year, whereas developed world consumpon is

stagnant, leading to a convergence in consumpon rates.52Of even greater concern

to policymakers, China must now import over 50% of its oil since Chinas domesc oil

producon cannot keep pace.53China has already become the worlds second largest

oil imporng country aer the U.S., and could pass the U.S. in the next three decades

as the largest oil importereven if the U.S. remains the largest oil-consuming naon.54

51. Internaonal Energy Stascs, U.S. Energy Informaon Administraon, www.eia.gov, accessed on Feb. 24, 2011

52. Ibid.

53. China Energy Data, Stascs, and Analysis, U.S. Energy Informaon Administraon, www.eia.doe.gov, accessed on

Nov. 201054. China Greentech Iniave analysis

Urgent Needs Drive

Greentech Growth

Government policies respond pragmacally to Chinas urgent needs in energy security, food andwater supply, and polluon.


32/218


Whether or not the world may be near or even past peak in total oil producon,

short-term analysis must address how incremental oil demand compares with the

cost of bringing on new supply.55New world oil supplies come from costly deepwater

drilling, oil sands and other unconvenonal sources. As demand rises, more oil must

come from these environmentally risky and (especially in the case of oil sands) energy

and carbon-intensive sources.56

Higher demand also means higher world oil prices. How high could Chinese oil

demand rise? Forecasts from the U.S. Energy Informaon Administraon suggest that

by 2030 China could reach two-thirds the U.S. level of consumpon: 15 million barrels

per day for China compared to 22 million barrels per day for the U.S. 57Even if the

world has enough oil to supply an addional 5-10 million barrels of oil per day to

meet developing demand, the high cost of bringing on that capacity is likely to raise

world oil prices substanally.

As increased demand leads to a ghter world oil market, this raises more

concerns about oil diplomacy. As Chinas oil consumpon rises, it will depend more

on maintaining a steady supply of oil from the worlds hot spots. From a price

perspecve, whether the oil physically ows from Nigeria or Iran is unimportant,

since spikes in world oil prices aect every consuming country. Energy security for

China will no longer be a queson of how to produce more domescally, but rather

how much to import and how involved to get in crises that aict various oil-producing

countries and regions. Although independence from oil imports is unlikely, acng

to manage and limit growth in domesc oil consumpon can only improve Chinas

energy security picture.

55. The Internaonal Energy Agency forecasts that while crude oil producon peaked in 2006, total oil producon

including unconvenonal oil supply will rise through 2035, keeping pace with demand. See World Energy Outlook 2010

Factsheet, Internaonal Energy Agency, www.worldenergyoutlook.org, accessed on Mar. 5, 2011

56. Internaonal Energy Outlook 2010 Highlights, U.S. Energy Informaon Administraon, May 25, 2010,

www.eia.doe.gov57. Internaonal Energy Outlook 2010, U.S. Energy Informaon Administraon, Jul. 2010, www.eia.doe.gov

DRIVEN BY URGENT NEEDS

Oil Consumpon: China Versus Other Countries

Per Capita Oil Consumpon for Major World Countries

barrels per day per thousand people, 1980 and 2009

Source: U.S. Energy Informaon Administraon, Internaonal Energy

Outlook 2010 (Washington, D.C.: EIA, 2010)

ChinaU.S. Japan GermanyIndia South Korea

2009

198074

61

41

34

13

30

40

62

45

14

Source: U.S. Energy Informaon Administraon, Internaonal Energy

Outlook 2010 (Washington, D.C.: EIA, 2010)

Japan IndiaChinaEuropeU.S.

19951990198519800

5

10

15

20

25

20052000

Chinas Oil Consumpon Compared to Other Major

Countries, million barrels per day, 1980-2009


33/218


Rising Consumption and Climate Change Crea

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