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October, 2008:

Urban Jungle – This Week: Recycling

Oct 31st, 2008
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Dr Eric Lai – SCMP | Updated on Oct 31, 2008

Paper exporters are reported to be cutting their intake of recycled paper and drastically reducing the price they pay to collectors. This has spelled trouble for those in the various tiers of the paper recycling sector. From the scavengers to the companies that collect from the scavengers and elsewhere, to the large factories that reprocess the paper, all have been affected by the downturn in the world economy.

Things are also not rosy in plastics recycling, with a fall in demand leading to a drop in the price paid for recovered plastic. And companies that collect unwanted electronic items for reuse and recycling have been closing down due to plummeting prices for metals such as steel and copper. The bleak economic outlook has forced many companies to suspend their recycling operations. Without government subsides many of these recycling companies simply cannot afford to stay in business.

The General Association of Recycling Business plans to stage a slow-drive protest on Monday specifically targeted at the paper-recycling exporters. It is inevitable that in the short- to medium-term, as the world struggles with the financial crisis, many businesses will be badly affected. Exporters of paper probably have no choice but to cut prices, but I think the government should learn from this fiasco and should have an established vision for the growth of green industries such as recycling. These industries only have a small share of the market and therefore are first to be affected by free-market forces.

Some 90 per cent of paper pulp comes from virgin wood sources, with only 16 per cent of this from trees specifically grown for paper production. It is estimated that if the world recycled 50 per cent of its waste paper, we would save an area of forest the size of Greece each year.

Supporters of paper recycling say using one tonne of recycled paper rather than new paper would save up to 4,000 kWh of electricity, which is roughly what an average Hong Kong household would use in a year. Opponents of the industry highlight that, energywise, recycling paper is far from perfect – that the process of recycling paper uses more energy than processing virgin-wood pulp. Most wood-processing plants are located far from urban areas and many use hydroelectric generating plants, saving on long-term costs, whereas recycled-paper plants are usually near urban areas and use the local energy grid, which most likely burn fossil fuels.

The area where recycling paper evens the ecological score is municipal landfills. About 35 per cent of the space in municipal dumps is occupied by waste-paper products. Recycling one tonne of paper saves about three cubic metres of landfill. And much of this waste paper is incinerated to save space and minimise the production, by the natural decomposition process, of methane, a very potent greenhouse gas. So not only does recycling paper save on scarce land but it saves on greenhouse gases. Overall, paper recycling decreases air pollution by 75 per cent and water pollution by 35 per cent compared with paper made from virgin pulp, a big win for the environment.

It is interesting to note that at a recent conference of the Waste & Resources Action Programme, an organisation in Britain aimed at recycling and reducing waste, it was said: “It is going to be the lower-quality end of the spectrum that will be squeezed out in an economic downturn, and the commercial drivers may prove stronger than the legislative ones.”

Highlighting the volatility of the recycling industry, it has been shown that prices for recovered recyclable material are determined by the prices of the virgin material. Companies attempt to buy recovered material to replace virgin material when virgin prices are high. In the case of plastics, it is crude-oil prices which determine how much companies buy.

Recovery of materials being ultimately tied to the cost of raw materials is not how a truly efficient market should operate.

The outlook for the recycling industry is determined by four factors: raw material prices; the global economic impact on demand; the Chinese economy and the growth of its various industries that use recycled products; and regulation. I don’t have much hope that a free-market economy will be driven by anything as sound as ecological considerations: it’s all about profit. The recycling industry is so small and fragile but so important that I think the government needs to continue to spend resources in the area to stimulate its growth. The free market lacks long-term vision for the environment and it is during such times that the government, with a far-sighted vision, can use its authority to rein in the free market when it is self-destructive.

Celebrity vet Eric Lai shares his views on society through the eyes of animals. Give him your feedback at urbanjungle@scmp.com

Brand-name Shops Accused Of Light Pollution

Oct 31st, 2008
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SCMP | Updated on Oct 31, 2008

A green group has accused five brand-name shops of excessive use of lighting on their outlets’ exterior walls and in advertising that has caused electric-light pollution in Central. The five shops are Louis Vuitton in The Landmark, H&M in Queen’s Road Central, the flagship shop of Coach in Central, Miu Miu in The Landmark and Dunhill in the Prince’s Building. The group Friends of the Earth patrolled Central at midnight on Wednesday and found the outlets all “glowing”, the group’s environmental affairs manager Hahn Chu Hon-keung said. “We do not object to reasonable commercial lighting but we are against wasteful lighting and light nuisances,” he said. “We oppose the shops’ overemphasis on profit-making at the expense of the environment.”

Should There Be Laws To Control Light Pollution?

Oct 31st, 2008
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SCMP | Updated on Oct 31, 2008

It seems that people are becoming more aware of the effects of climate change.

We appreciate the threat posed by greenhouse gas emissions.

Yet although people have this awareness, many do little in the form of practical action to curb the effects of global warming.

We must address environmental issues, because the problems we create are damaging Hong Kong’s reputation.

For example, regulations must be introduced to control the problems caused by light pollution. You see brightly lit advertising signboards. They remain switched on throughout the night, which is unnecessary.

We must have laws that ban this waste of energy.

Mandy Chan Man-hang, Lai Chi Kok

Reliance On Coal Hurts Climate Change Fight

Oct 30th, 2008
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Shi Jiangtao – SCMP | Updated on Oct 30, 2008

China’s reliance on coal for economic growth has made it difficult to curb growing greenhouse gas emissions, according to the central government’s first policy statement on climate change.

“Developing the economy and improving people’s lives are imperative tasks currently facing China,” the white paper, issued yesterday, says.

“However, its coal-dominated energy mix cannot be substantially changed in the near future, thus making the control of greenhouse gas emissions rather difficult.”

The paper highlighted the dilemma faced by China, with social ramifications if it curbed economic growth and the grave environmental consequences of fast development, such as frequent natural disasters, ecological degradation and shrinking harvests.

“Climate change has already brought real threats to China’s ecological system and economic and social development,” said Xie Zhenhua , deputy director of the National Development and Reform Commission.

The 44-page paper lists various adverse consequences of climate change on agriculture, river and sea pollution and social and economic sectors.

“Extreme phenomena, such as high temperatures, heavy precipitation and severe droughts, have increased in frequency and intensity,” it says.

If not alleviated, the consequences will reduce grain output, shrink lakes and wetlands, cause desertification of grasslands and livestock epidemics, and accelerate glacial retreat and sea-level rise.

However, it is unlikely that China will break its addiction to coal, the cheapest and most plentiful energy source in the country, any time soon. Coal still fuels about two-thirds of China’s energy needs.

The mainland has set ambitious targets to cut energy waste by 20 per cent and pollution by 10 per cent by 2010. Authorities have closed thousands of small coal mines and coal-fired power plants.

Last year, its use of renewable energy – including wind, solar and hydroelectric power – amounted to about 220 million tonnes of coal equivalent, which equals cutting 500 million tonnes of carbon dioxide emissions.

With the promotion of renewable energy, the proportion of coal in the energy mix has fallen by more than 2 per cent in the past three decades, the paper says.

Pollution-reduction Goals Still Far Away, Admits Official

Oct 29th, 2008
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Agence France-Presse in Beijing | Updated on Oct 29, 2008

Mainland is having trouble meeting energy efficiency and pollution-reduction goals, but the government remains determined to reach the targets, a top official said on Wednesday.

Vice-Minister of Planning Xie Zhenhua also said Beijing will consider controls on the greenhouse gas emissions of its worst polluting industries if the rich world will hand over clean technology to keep poorer nations competitive.

China has a target of reducing the amount of energy it consumes per unit of gross domestic product by 20 per cent over the five years to 2010.

It has also vowed to reduce sulphur dioxide emissions, a key air pollutant, and chemical oxygen demand (COD), a measure of water pollution, by 10 per cent each from 2005 levels.

“Our work over the next three years will be very difficult, but the [government] will not waver in assessing the situation in accordance with these goals,” Mr Xie said.Mr Xie also signalled Beijing’s first nod of approval to the “sectoral approach” to containing industrial emissions at the launch of a policy paper on how the country plans to tackle global warming.

Mainland officials have previously denounced the “sectoral approach” as a scheme for rich, high-tech nations to gain a competitive edge by imposing extra costs on rising challengers in sectors, such as steel, concrete and power.

But Beijing is pushing rich nations to transfer more pollution-cutting technology to poorer nations undergoing emissions-intensive industrialisation, and Mr Xie suggested a focus on polluting industries could satisfy both sides.

“China believes that using a sectoral approach is an important measure for implementing emissions reductions in every country. We can decide this for industries with high emissions levels and then transform the technology that these industries use to cut emissions,” Mr Xie said.

“But in whose hands is this technology? Most of it is in the hands of developed nations. If they take this technology and give it to developing nations, it will without a doubt be able to resolve a large amount of the greenhouse gas emission problem.”

Varying proposals for a sectoral approach to curbing emissions involve setting fixed caps, broader reduction guidelines or incentive systems for firms.

Mr Xie did not delve into such specifics or say which industries could be targeted.

But he stressed that up to a quarter of the country’s emissions bill came from manufacturing goods for export, and urged consumer nations to shoulder some responsibility for this pollution.

“Because we are at the low end of the industrial chain, transferred emissions from goods manufactured from exports stand at between 14.5 per cent and 24 per cent of the total.”

“We are footing other people’s bills,” added Mr Xie, who is vice-chairman of the energy and climate-change policy making National Development and Reform Commission.

Mr Xie said he would like rich nations to spend the equivalent of 0.7 per cent of their economy each year on funding cleaner technology to help poor countries skip the dirtiest phase of industrialisation and urbanisation.

He cited the complicated transformers and bearings used in wind turbines as an example of a key technology that could help mainland rapidly expand an already booming sector that makes a clear contribution to cutting emissions.

Ministers Announce 10-year Smart Meter Roll-out For Households

Oct 29th, 2008
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New Energy Focus – 29-10-08

The government announced yesterday that it will require all households to have smart meters installed over the next decade.

The decision was announced by the energy
minister Lord Hunt of Kings Heath as the House of Lords debated the Energy Bill yesterday afternoon.

The move to introduce smart meters – which will tell householders exactly how much gas and electricity they are using – was seen by peers as integral to the success of a new renewable energy feed-in tariff.

Announcing the mandatory smart meters roll-out, Lord Hunt said: “This is a major step forward; no other country in the world has moved to an electricity and gas smart meter roll-out on this scale.

http://www.newenergyfocus.com/resources/listimg/news/On-site/Metering_sm@body.jpg
The government is looking at a number of options for how to roll out smarter meters for UK households that could tell exactly how much energy is being used – or generated through small-scale renewable systems

“We anticipate a period of around two years to resolve the issues and to design the full detail of a domestic roll-out. Our aim is then to ensure that the subsequent roll-out happens over a period of 10 years. This would see delivery of smart meters by the end of 2020 to align with our renewables targets,” the minister went on to say.

Roll-out

The government plans to present an amendment to the Energy Bill at its third reading in the Lords, scheduled for next Wednesday (November 5), to make clear the legal powers needed to introduce smart meters.

An impact assessment analysis is expected to be completed by the end of 2008 before the full details of a national smart meter roll-out are revealed. This analysis should provide up-to-date figures on costs and benefits, Lord Hunt told fellow peers yesterday.

Ministers are keen for smart meters to be rolled out as soon as possible, although details like how the initiative would fit with European free trade rules will have to be considered.

Consultations will have to be carried out to seek the views of both industry and energy regulator Ofgem before proposals are presented to Parliament, Lord Hunt said, adding that Secretary of State Ed Miliband is “keen to make rapid progress in this area”.

Lord Hunt concluded: “Once the details of a roll-out are drafted into licensed modifications, we must lay them before Parliament so that the complete design of the roll-out can be scrutinised.”

Yesterday’s report stage debate on the Energy Bill saw the government’s deputy chief whip, Lord Davies of Oldham, suggesting there were a number of options available for a national roll-out of smart meters.

It could see a centrally-planned programme carried out by companies awarded certain regional monopolies, with energy suppliers co-operating to allow the smart meters to be fitted. Or, it could take the form of a fully competitive metering market.

Lord Davies said: “The government are working with a range of stakeholders to define and evaluate various market models, and we expect to be in a position to reach final conclusions in due course as part of our broader work looking at the possible implementation of a domestic rollout.”

Feed-in tariff

Conservative peer Baroness Wilcox, who prompted the government announcement on smart meters through a probing amendment to the Bill yesterday, welcomed the decision to bring in smart meters across the country.

She suggested the smart meters would be a step towards feed-in tariffs for small-scale renewable energy, where householders will be able to benefit from long-term contracts to sell excess energy to the grid at above-market rates.

Baroness Wilcox said: “Smart meters are not only critical for energy savings at home but will soon be inextricably linked with the feed-in tariff. The government are as alert as we are to the fact that we in this country are very late in protecting our energy supply and energy usage, but this concession by them is a great step forward.”

True Cost Of Coal To Nation ‘Far Exceeds’ Market Price

Oct 28th, 2008
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Shi Jiangtao in Beijing – SCMP | Updated on Oct 28, 2008

The environmental and social costs of China’s reliance on coal as an energy source have been grossly underestimated, a joint study by environmentalists and economists says.

For each tonne of coal consumed last year, China paid 150 yuan (HK$170) extra in environmental damage, according to “The True Cost of Coal”.

The report, commissioned by Greenpeace, the US-based Energy Foundation and WWF, was written by prominent mainland economists.

The report estimated that the true cost of coal in China last year was about 1.75 trillion yuan, nearly 7.1 per cent of gross domestic product that year.

The figure would be even higher if the impact of climate change were included, according to the report.

“Environmental and social damages are underestimated for using coal in China, as a result of market failures and weakness in government regulations,” said Mao Yushi , lead author of the report and founder of the privately funded Unirule Institute of Economics. “China must count these external costs and make the coal price reflect its true costs.”

The so-called external costs were air and water pollution, ecological degradation, increasing health costs, mining accidents and infrastructure damage.

It also took into account the price distortion caused by government regulations, such as land-ownership policies and poor worker safety and compensation systems, which keep the cost of coal down. Coal accounts for 70 per cent of China’s primary energy consumption and is the biggest single source of air pollution across the country.

It causes 85 per cent of sulfur dioxide emissions, 67 per cent of nitrogen oxide emissions and 70 per cent of airborne particles. Mining has contaminated water, degraded land and caused massive land subsidence.

Coal is also responsible for China’s enormous carbon dioxide emissions, which are believed to have made the nation the world’s largest greenhouse gas emitter.

Quoting the report, Yang Fuqiang , chief representative of the mainland office of the Energy Foundation, urged Beijing to impose energy and environmental taxes.

His view was supported by Professor Mao, whose study showed that the introduction of a coal tax would raise prices by up to 23 per cent and reduce consumption by about 12 per cent.

“But the taxation measures would have little impact on China’s economic growth,” the report said. “On the contrary, it would make China more competitive globally in the long run and increase China’s social wealth by 942 billion yuan.

“The government of China has the opportunity to make a real improvement to the environment by reforming the current coal pricing system.

Yang Ailun , Greenpeace’s climate and energy campaign manager, said recognising the true cost of coal would create incentives to developing cleaner, sustainable energy.

Biofuels “Better” Than Standard Jet Fuel, Says Boeing

Oct 27th, 2008
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NewEnergyFocus – 27-10-08

Aviation experts have said it is now “unequivocally” certain that biofuels could be used to fuel aircraft – and that they could even deliver better performance than standard kerosene.

The government is expected tomorrow (October 28) to include aviation within its proposed tougher climate change emission curbs being added to the Climate Change Bill.

But while airlines would be able to buy surplus carbon emission allowances from other sectors to comply with their new requirements, it now appears that direct emission cuts from greener fuels could be possible.

http://newenergyfocus.com/resources/listimg/news/Bioenergy/Boeing_Virgin_biofuels_test_Feb_2008_sm@body.jpg

Virgin Atlantic flight VS811P preparing for take-off in February this year: the 747-400 aircraft flew from Heathrow to Amsterdam powered by jet fuel that included coconut oil and babassu nut oil

Boeing has revealed that new technology available in the last 12 months has now opened the door to biofuels in aircraft.

Speaking at a conference earlier this month, Boeing Commercial Airplanes’ director of environmental business analysis, Darrin Morgan, said its work with Virgin Atlantic is now spurring the biofuels supply chain to consider the possibilities of aviation demand.

As a result, he predicted that aircraft manufacturers would now get “very involved” in the search for aviation biofuels.

Commenting on the latest tests on biofuels in aircraft, Mr Morgan told the Westminster Energy, Environment and Transport Forum: “Not only do they perform as well, but with some data that you are going to see roll out in the next couple of months from various initiatives and efforts, they actually perform better, just from a technical perspective, in the aeroplanes.”

Boeing’s trial with Virgin Atlantic in February this year saw a 747-400 aircraft flying from London Heathrow to Amsterdam using a blend of babassu nut and coconut oils blended with kerosene jet fuel. The project saw Boeing working with GE Aviation and Imperium Renewables as well as Virgin Atlantic.

The aviation industry had already been working to maximise fuel efficiencies in jet engines, with the greening of the fuel supply itself the next step, with liquid hydrocarbons like biofuels seen as the only option. “We can’t do plug-in hybrids,” said Mr Morgan.

Aviation is only responsible for 5% of global transport fuel demand, according to the Boeing director, but Mr Morgan suggested that a 20% proportion of biofuels within the sector’s jet fuel could be possible – which would represent 1% of global transport fuels switching away from fossil fuels.

Higher proportions of biofuels would be possible, although there are doubts about whether any more biofuels would be available without impacting on oils needed for food supplies.

Standards

Mr Morgan said Boeing was keen to link up with global standards to ensure there were no unwanted impacts from biofuel use.

He said: “We do believe that supply chain can happen in the next three to five years, so bring in the non-governmental organisations and the other public organisations, they are smart about sustainability.”

Groups including Friends of the Earth have been lobbying for aviation to be included within UK climate change targets, although the campaigners do not support biofuel use.

Boeing is now inviting airlines to sign up to a “sustainability pledge” to help further the drive towards renewable fuels, and has already signed up airlines representing 15% of jet fuel demand.

Cinderella Industries Await Their Prince

Oct 27th, 2008
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Potentially Lucrative Projects Devoted To Clean, Renewable Energy Languish For Want Of Financing

Eric Ng – SCMP | Updated on Oct 27, 2008

The United States’ property bust and the subsequent global credit crunch have many investors fretting that the mainland’s economic miracle is coming to an end. Yet, amid the gloom and doom, renewable energy, energy conservation and pollution control are being tipped to become the next wave of high-growth industries.

China, the world’s second-largest energy consumer and one of the most pollution-prone economies, has huge opportunities for projects devoted to energy efficiency improvement and the generation of clean and renewable energy. The question is how they will be financed.

The nation’s energy consumption per unit of economic output amounted to four times the world average, highlighting a dependence on industries that are energy-intensive but low in value addition and inefficient in their use of energy.

With 80 per cent of its electricity generated from air-polluting coal and with power generation capacity rising at alarming rates, the mainland has become the world’s biggest emitter of sulphur dioxide, which causes acid rain, and carbon dioxide, which contributes to the greenhouse effect.

According to the China Energy Conservation Association, electrical machinery on the mainland consume about 40 per cent more energy than their international counterparts, implying a vast market for solutions and products that improve energy efficiency.

The central government has targeted cutting the nation’s energy consumption per unit of economic output by 20 per cent between 2006 and 2010 and principal pollutants by 10 per cent mainly by ordering the phasing out of outdated and inefficient plants.

“This year is a turning point for the mainland economy’s development [given the drastic slowdown in exports], but I think a new growth area is the clean energy sector, which will become a pillar of growth,” said China Energy Investment Network chief executive Zhang Jie, an adviser to the central government on energy policies.

Beijing said last month it had earmarked 41.8 billion yuan (HK$47.4 billion) to fund projects for energy conservation and pollution reduction. Firms with energy-saving and pollution-cutting projects will also be eligible for reductions in profit and value-added taxes, although details are yet to be released.

This is a small drop in the pond. Lily Zhao Ming, secretary general of the conservation association’s committee on energy service companies, says the sector is estimated to require a whopping 1 trillion yuan of investment between 2006 and 2010 to meet government targets.

The committee implements energy conservation programmes on the mainland funded by the World Bank and Global Environment Facility. .

The mainland’s energy consumption per unit of gross domestic product fell 1.79 per cent year on year in 2006, 3.66 per cent last year and 2.88 per cent in the first half of this year. Given the 20 per cent reduction target between 2006 and 2010, it has a lot of catching up to do.

The lacklustre performance, in part, has to do with the tight control on energy prices at levels much lower than international ones to protect consumers and ensure social stability amid inflation that is the highest in a decade.

High prices have proven to be an effective way to drive conservation and efficiency gains, given experience drawn from the oil crises in the 1970s and 1980s in the US, Europe and Japan.

With inflation easing to a 15-month low last month, all eyes are on Beijing to introduce a new round of price increases for fuel and electricity to ease losses at energy producers. The mainland energy conservation industry’s output, measured as the value of contracts to save energy plus the cost of equipment installed, rocketed to 21.6 billion yuan last year from 1.7 billion yuan in 2003.

The industry is expected to see further explosive growth as more people discover its profit potential, Ms Zhao said on the sidelines of the China Power Oil & Gas conference in Guangzhou last month.

On the renewable energy front, the central government has estimated that it will take 2 trillion yuan of investment to realise its targets for generation capacity in 2020.

So far, wind power has seen the biggest growth, with installed generation capacity expected to surpass 10,000 megawatts this year and reach 20,000 MW by 2010, compared with 5,600 MW last year and 2,600 MW in 2006.

Given the mainland’s less developed markets for bonds, private equity and venture capital – and the fact that the equity market is primarily for companies with established track records of profits – bank loans are the main financing channel for energy efficiency and renewable-energy projects.

However, these are considered nascent, non-mainstream and more risky ventures that are not normally inside the comfort zone of bankers.

Daniel Zhu, president of Transpacific Resources China, an investor in renewable energy and energy efficiency projects, says companies are struggling to find enough funds to tap mushrooming market opportunities.

“At the moment, developers are scrambling to grab hold of projects, but their funding demand is far from being met,” he said. “There is a chicken or egg problem.”

Financiers are cautious about funding start-up projects, but if projects do not get funded, the sector cannot reach maturity.

Venture capital funds, a traditional capital source for start-ups, tend not to be keen to energy efficiency improvement projects because they prefer to invest in highly profitable projects that can be scaled up in size rapidly, Mr Zhu said.

Private equity funds and banks have taken greater interest. A multitude of domestic and overseas funds are seeking opportunities to invest in renewable energy and energy efficiency projects.

While some banks are willing to entertain loan requests, industry insiders say commercial bankers have yet to fully appreciate the business model of energy efficiency projects and tend to be cautious.

“Unlike the construction of fixed assets, such as railways and buildings, energy conservation is often intangible, and its risk and return are a new topic for bankers,” Ms Zhao said. Her association has provided seminars and training courses to commercial bankers to familiarise them with the nascent sector, spurring the likes of Beijing Bank, Huaxia Bank, Industrial Bank and Shanghai Pudong Development Bank to set up specialised departments to tap the sector, she said.

Even so, banks, the main supplier of funds to the sector, require guarantees and collateral based on future cash flows from projects.

Despite the general lack of understanding of energy efficiency projects among outsiders, industry practitioners say energy efficiency projects can be extremely lucrative. They say return on investment can reach as high as 200 per cent, although the norm is closer to 30 per cent.

“People say property is a sector with extravagant profits. I’d say profits in the energy conservation industry are even more extravagant,” Ms Zhao said.

Wang Shaohong, director of the Energy Saving Investment Promotion Centre, cited the mainland’s seventh-largest steelmaker, Shougang, as an example. He said the company spent less than 100 million yuan on nine energy-saving programmes but was able to save more than 118 million yuan a year on energy expenses.

Mr Wang said the fundamental problem with a lack of financing for energy efficiency projects lies in their complexity.

“As energy conservation virtually involves all industries, it is very difficult to find financial experts who also know the industries well,” he said.

In other cases, state banks are often constrained by blanket orders from Beijing not to lend to highly pollution-prone, energy-intensive industries and those with over-capacity problems, even though such companies may want to use the money to enhance energy efficiency.

Chan Ka-keung, head of Greater China investment for Climate Change Capital, a financier of clean-energy projects, said: “Mainland bankers may not be sophisticated enough to understand the ins and outs of energy conservation projects. Sometimes they just cut lending to the banned sectors entirely without taking into account energy conservation projects.”

This is partly mitigated by guarantee programmes provided by development agencies such as the International Finance Corp, a unit of the World Bank, and Asian Development Bank. These agencies act as guarantors whose participation supports the business case for commercial banks to lend to project developers.

There are other ways for companies engaging in renewable energy and energy efficiency improvement projects to apply for financial subsidies. One of them is the so-called Clean Development Mechanism (CDM), a United Nations-led scheme that allows polluters in developed nations subject to pollution caps to meet their obligations by providing funding to projects for the reduction of greenhouse gas emissions in developing nations instead of cutting their own emissions.

Project developers in developing nations can sell emission reduction credits to polluters in developed nations but must demonstrate that without the subsidies their projects would not be viable.

The emission rights trading industry is set for big changes. Reduction commitments under the Kyoto Protocol, to which the CDM is linked, are due to expire in 2012, and negotiators want to seal a new pact at a UN conference in Copenhagen in December next year.

James Graham, commercial director of Camco Group, a company based in Britain that finances and develops greenhouse gas emission reduction projects internationally, expressed optimism about progress towards a global deal.

“The US has indicated that it would like to see larger and industrialising developing nations such as China, India and Brazil make some form of commitment to emission reduction. It is still open as to what form the commitment will take, but hard negotiations are going on at the highest level of governments,” he said.

If China agrees to some form of self-imposed emission reduction target, it would be a boon to the growth of the domestic renewable energy and energy efficiency industry. Mr Graham believes the country will bargain for transfers of technology – such as carbon capture and storage know-how – in exchange for binding commitments, beyond voluntary emission cuts via CDM projects.

The driving forces for greater development of renewable energy and energy conservation projects – higher energy prices, increasing pressure to reduce emissions to avert climate change, and greater government incentives – appear to be in confluence. There could well be a silver lining in the dark clouds of the global economic slowdown.

eric.mpng@scmp.com

Companies Look For Short Payback Period When Investing In Green Projects

Oct 27th, 2008
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Eric Ng – SCMP | Updated on Oct 27, 2008

Energy conservation and pollution reduction are industries that have been around for decades, but their fastest growth could well lie ahead given the mainland’s status as the world’s factory and rising pressure for it to get its act together on sustainable development.

Manufacturers can either install the necessary equipment on their own or outsource the job to so-called energy services companies (Escos). Escos typically examine a firm’s energy consumption efficiency and provide solutions to achieve desired targets. They usually share the financial reward from the energy-saving effort with their customers at a pre-agreed formula over multiple years.

Eric Jiang Haibo, South China sales manager of US-based industry major Honeywell, says the company generally does not require its clients to modify their production processes, and its solutions can achieve 15 per cent to 30 per cent of energy savings. “On the mainland, clients tend to be interested if an energy-saving project can pay itself back in two to four years,” he said. “Those with payback periods of more than five years tend to have a hard time moving factory owners into action.”

Honeywell entered the mainland market in 2005. Mr Jiang said its first project was for a brewery in Shenzhen, which contracted Honeywell to save 5.4 million yuan (HK$6.13 million) a year, or 17 per cent of its energy bill.

He said a major obstacle in pushing energy conservation was management’s preoccupation with production or other issues. “I had a customer who kept delaying signing a contract with us as his firm underwent production adjustments, although he knew the payback period was less than two years.”

Focus Energy, a Hong Kong start-up established in 2006, is also pitching projects to help firms save money by revamping their air-conditioning, boiler and water systems.

Managing director Simon Cheung said a new policy in Guangdong requiring all factories to cut sewage discharge by at least half from between 2006 and 2010 and Beijing’s recent rule requiring all cement plants to install waste-heat recovery systems had proved to be a boon.

He said a chrome-plating plant consuming 700 cubic metres of water a day could save some 29 million yuan over 10 years by investing 7 million yuan in a three-year period.

A typical cement plant with daily output of 2,500 tonnes could achieve breakeven in 2.4 years after investing 60 million yuan in equipment that would allow it to capture heat from the production process to generate 25 million yuan worth of electricity, he said.

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