April 13, 2016
China’s recently released 13th Five-Year Plan (FYP) includes ambitious economic targets aimed to significantly reducing carbon emissions. These goals include increasing the nationwide use of non-fossil fuels by 15 percent, decreasing energy consumption per unit of GDP by 15 percent, and cutting PM2.5 levels by 18 percent, while continuing to advocate for existing national initiatives such as a new carbon trading platform and green tax. As China strives to address its environmental conditions in the midst of rising energy consumption, US companies have an opportunity to invest in and develop innovative technology within the sector. However, these opportunities are limited by inconsistent market standards and incentives.
US-China bilateral clean energy relations
Since Presidents Barack Obama and Xi Jinping jointly announced in 2014 ambitious plans to halt the growth of carbon emissions by 2030, US-China energy cooperation has remained a consistent item on the bilateral agenda. Speaking at a roundtable of USCBC members during a trip to China in March, US Secretary of Energy Moniz expressed optimism about the potential for the two countries to achieve new energy standards. This included advocacy for the China Clean Energy Research Center (CERC), in which he encouraged US company participation. CERC has received notable support from the Chinese, signifying China’s interest in clean energy diplomacy and development.
During their most recent bilateral meeting at the end of March, Xi and Obama announced plans to sign the Paris Agreement on Earth Day, April 22—a step toward fulfilling commitments made in France this past fall. Further, Obama and Xi have conveyed the importance of supporting strong climate and clean energy outcomes when they meet again this fall for the G20 Summit in Hangzhou, China. Seeking to capitalize on the momentum, the two countries will continue their bilateral cooperation through the US-China Climate Change Working Group later this month and advocate opportunities for industry involvement within clean energy development. The bilateral investment treaty—which is still being negotiated—could also offer new opportunities for US company investment in Chinese clean energy, if it concludes.
Opportunities for industry investment in clean energy
As China races to expand its clean energy sector, policymakers are promoting innovation and investment in advanced technologies, which will involve new pilot and demonstration projects. This expansion will continue to offer joint venture opportunities for US and Chinese partners in energy efficient buildings and electric vehicles, as well as in renewable energy development in the wind, solar, biomass, hydro, and waste-to-energy sectors.
Despite growing clean energy capacity and declining coal consumption, there may be some opportunities in the traditional energy sector as well. The FYP indicated the continued importance of coal, oil, and gas, which make up a significant portion of China’s overall energy supply and will continue to increase with national demands. Striving to accompany clean energy development with better fossil fuel efficiency, China will seek to integrate new technologies that improve energy processing. One USCBC member reports its leading edge coal burning technology has been competitive in the Chinese market. Companies producing innovative clean technologies for the fossil fuel market may also find opportunities in this space.
Current limitations to market entry and investment
While there may be new prospects for future US industry engagement China’s energy sector, there are also structural shortcomings.
Foreign industry has noted inconsistent Chinese government ministry standards for many clean energy technologies. For example, the Ministry of Industry and Information Technology (MIIT) regulates fuel economy for vehicles, while the Ministry of Environmental Protection (MEP) regulates vehicle emissions. These two related areas are often governed by one regulator in other markets, but MIIT and MEP do not always develop or implement policies in tandem.
Several USCBC members have commented that this lack of coordination has presented additional challenges for foreign companies navigating the regulatory environment. Whereas the EPA governs and implements these policies on its own in the US, policies in China are often coordinated by multiple ministries, making it harder for companies to anticipate finalized regulations and have enough lead time to plan accordingly. This uncertainty creates complexity for companies seeking to invest in truly innovative energy efficient technologies. Some would say that inconsistent implementation has brought about significant obstacles for innovation in the Chinese market. These regulatory challenges have also affected companies in a variety of areas, including spare equipment sales, market entry for certain products, technology licensing, and researcher recruitment. Moreover, despite government calls for increased use of clean energy, companies are concerned about declining demand for renewable energy technology and equipment because of limitations in energy grid infrastructure.
What to expect
An emphasis on reduced emissions and increased clean energy development in the FYP may require China to improve regulatory standard consistency. However, as China strives to address climate change and environmental problems through energy efficiency, companies should continue to look for advanced technology investment opportunities in both clean and traditional energy efficiency sectors.