By Glenn Schloss
Regional Director, Corporate Communications, Asia Pacific
Head of Public Affairs, Hong Kong

On the front page of the International Herald Tribune in Asia the other day a bizarre photograph encapsulated China’s energy dilemma: the massive stacks of a new power plant which had never even fired up were shown crashing to the ground. Built to supply the world’s most populous nation’s seemingly insatiable thirst for energy, the coal-fired electricity facility was being demolished due to the failure of its developers to fit properly a pollution-cutting scrubber system.

After nearly 30 years of racing to modernise its economy and improve living standards, China is now at a crossroads in its development. Faced with growing demand for energy, substantial increases in pollution and rising calls from the international community to cut greenhouse gas emissions, Beijing is seeking to steer a middle course in its policy responses. At the heart of China’s dilemma is how to reduce harmful emissions while keeping the economy growing at a moderately rapid pace – though perhaps not the staggering 12% GDP growth recorded last year – in order to maintain social stability. It’s a delicate balancing act. Rather than rapidly shut down polluting industries or companies, the key approach so far has favoured a determined campaign involving the setting of stringent benchmarks to increase energy efficiency which the authorities argue will reduce emissions. The focus on increased energy efficiency is also being deployed by China to avoid agreeing to binding cuts for emissions targets such as those in the Kyoto Protocol and likely to be contained in successor treaties.

It’s a steady as she goes approach involving some surprisingly bold initiatives and which is actually yielding results, though sometimes not as quickly or grandly as some inside the Chinese establishment as well as external critics would like. As a result, there is a growing sense of urgency arising from the intense scrutiny being applied by foreign stakeholders including the International Energy Agency. The Paris-based agency estimates China will overtake the US (which has an economy five times larger) this year as the world’s largest annual emitter of greenhouse gases. Beijing disagrees with the IEA measurement and instead prefers to measure per capita emissions which due to the large population means its emissions are reported as one-fifth of the US.

Internally, the State Environmental Protection Agency has been displaying a steely determination in drawing attention to the need for improvements in energy efficiency and pollution. One of the major directives for addressing the problem is contained in the latest five-year economic plan launched last year which calls for a reduction in energy user per unit of output by 4 per cent a year until 2010 and pollution by 2 per cent. However, SEPA which is far from being a powerful ministry but recently has found a new sense of mission revealed on its website in January that the targets had not been met. “2006 has been the bleakest year for China’s environmental situation,” it declared. At the same time it named and shamed 82 companies on its website for running factories without environmental approvals. These increasingly aggressive steps by the environmental agency indicate further bold measures such as the scrapping of projects such as the coal-burning, polluting power plant can be expected. The tipping point in China is delicately poised between economic growth and environmental protection but it is likely that as expectations rise of a more prosperous populace for their well being and that of future generations poorly-planned projects harming health or the surroundings will be in the firing line. The widespread use of coal, a readily-available resource in China for power generation, is a big contributor to the nation’s emissions. The nation consumed the equivalent of 2.2 bn tonnes of coal last year and some analysts reckon it could reach 4 billion standard coal equivalent tonnes by 2020 without attempts to rein in consumption.

So it was with some fanfare that an action plan outlining China’s response to climate change was unveiled in early June, the first of its kind for a developing nation. It committed China to further improvements in utilising existing energy resources and developing cleaner energy via a three step process: lower emissions, more absorption and more recycling. China does deserve credit for the steps it has taken so far in cleaning up the aftermath of its own phenomenal development and reducing future footprints, partly because the government and particularly business needs further encouragement to intensify efforts. It is embracing clean technology with 383 projects in wind, hydro and biofuel power generation as well as the use of methane gas from coal beds approved by the government. These projects are estimated to cut emissions by 1bn tonnes and another 5.1 bn tonnes was absorbed from 1980 to 2005 through extensive reforestation and better forest management. In terms of targets, per-capita GDP energy intensity will be lowered by 20 per cent between 2005 and 2010, according to the National Development and Reform Commission, China’s chief economic policymaking and planning agency.

The effort to boost energy efficiency has involved extensive economic restructuring as well. The latest move came in late June when tax rebates – some which were as high as 17.5 per cent - for some of China’s largest export categories being produced by energy intensive industries were abolished. Taxation policies are not the only affected, so is industry, credit and investment policies are also being adjusted while the market mechanism of pricing is also being employed. The legal framework is also being overhauled with laws for energy conservation and renewable energy being drafted.

These shifts are positive developments not only for China and the earth, foreign energy companies and clean technology innovators are piling in to take advantage of the opportunities on offer. Numerous companies are bringing clean coal technology to China as well as hydropower, wind and solar power.

However, the Chinese private sector appears to be lagging in response to the increasingly tough line being adopted by the government as well as numerous stakeholders. There are serious implications for operations as well as corporate reputation if companies in China do not support efforts to improve energy efficiency as well as reduce emissions. A recent Hill & Knowlton survey identified the majority of senior executives from China (86 per cent) closely monitor the issue of global warming but most do not have a defined energy strategy to deal with it (77 per cent). Few companies are currently developing measurable action plans to deal with the environment at the very least, let alone focus on the possibilities of gaining a return on environment. As well, few or no executives have been tasked with defining an energy strategy with 82 per cent of respondents in China indicating nobody in their companies has such a role. On the other hand, the high level of interest in monitoring climate change, growing environmental awareness and increasing scarcity of natural resources indicates the ‘green economy’ is on the rise in China. Significant opportunities exist for companies in the clean technology sector which are able to market their innovations and skills more aggressively in this areas into China.

China is at a turning point in its approach to climate change and energy which will require companies to address energy issues. Those that are proactive will benefit from measures such as emissions trading which are getting underway and the financial as well as operational benefits of improved energy efficiency. Companies which fail to heed the warning signs from government, international actors, stakeholders at home and the earth will face significant risk and potential sanction.