Navigant Research Blog

China Looks to Cap Energy Consumption

— March 1, 2012

In a webinar earlier this year, my colleague Kerry-Ann Adamson forecast that that governments will move toward a more prescriptive approach to energy policy.  In other words, they will not simply set broad efficiency or emissions targets but will specifically identify the clean energy technologies to reach those targets.  Examples are Australia, with its recommendations for distributed generation and solar power to meet energy efficiency goals, and the EU countries, which Kerry-Ann says will adopt increasingly prescriptive policies to achieve the EU’s mind-boggling goal of cutting carbon emissions by over 80% by 2050.

We can add China to that list, if reports are accurate that the country is considering putting a cap on energy consumption.  You read that right: a national cap on energy consumption.

It’s challenging to pin down details of this reported proposal.  From my reading of China’s 12th Five-Year Plan, which covers 2011 to 2015, the country is still focused on energy-intensity targets, not absolute caps.  The highlights from the English translation that I found are that, from 2010 to 2015, energy consumption per unit of GDP is targeted to drop by 16%, while CO2 emissions per unit of GDP will decrease by 17%.  Another major goal over the next five years is energy diversification.  The plan sets a target for non-fossil fuel resources to rise from 8.3% to 11.4% of primary energy consumption between 2010 to 2015.

Reports of the possible national cap seem to have come from public statements by officials at China’s National Energy Administration (NEA).  According to China Daily, in 2011 a National Energy Administration official said that China was considering a limit on energy consumption for localities, with a goal of “cap[ping] its total energy consumption at four billion tons of coal equivalent by 2015.“  Other reports confirm this.  It has also been reported that renewable energy will be excluded from the cap.

As yet, I have not seen an official policy announcement with details as to how the cap would be implemented.  Certainly the five-year plan goals confirm that China is hoping to shift from a pure growth mode to a sustainable growth model: the five-year plan also calls for a much less heated 7% growth rate in GDP to go along with the focus on decreasing energy intensity.  But setting a cap on the total energy consumption would be an extraordinary step, albeit one that seems to fit within China’s form of “communist capitalism.”  But in trying to build a more sustainable economy, China still faces many of the same pressures that capitalist democracies face.  For example, large swathes of the country have not developed to a modern standard of living and are not likely to be willing to slow their efforts to do so.  Moreover, energy consumption in China is dominated by coal, one of its few domestic energy sources, and it will not be easy to wean the country off this plentiful energy source.  The Guardian recently reported that the energy cap is provoking much debate from provincial governments that want to grow faster than the national government target would allow.  This will be a fascinating story to watch this year, and even more fascinating to see how China might implement a national cap should such a policy come to fruition.


U.K. and U.S. Energy Policies Poles Apart

— February 28, 2012

Beverly Simpson, the new consul general at the British Consulate in Denver, hosted a lunch in downtown Denver today featuring special guests Vice Admiral (ret.) Dennis McGinn, now the president of the American Council on Renewable Energy (ACORE); and Rear Admiral Neil Morisetti, the climate and energy security envoy for the United Kingdom.  I had a particular interest in hearing the naval officers speak since Pike Research has published a few reports, including last year’s Renewable Energy for Military Applications, on cleantech and the military.

The admirals’ comments were a strong indicator that the military has moved far beyond civilian elected officials, at least in the United States, in thinking about the future of energy security and innovation.  Morisetti called climate change a “threat multiplier” that will fuel conflicts and promote instability in many parts of the world, particularly Africa and the Middle East.  And he joined McGinn in lamenting the absence of a coherent and forward-looking energy policy in the United States.  “My faith in the U.S. system, quite frankly, had taken a hit over the last two years as I’ve been traveling around with Admiral McGinn,” said Morisetti.  “I had always known the United States as a place where, when there’s a problem, the intellectual and financial resources were harnessed and the problem was taken on directly.  I haven’t seen that in regards to energy security.” (Morisetti did mention that, in the last 36 hours of his visit to Colorado, “my faith has been restored.”)

Interestingly, much of the conversation over lunch centered not on renewables but on natural gas – specifically, the implications of the surge in domestic natural gas supplies that has brought the price down to below $5 per million BTU and is pricing many wind and solar generation projects out of the market.  McGinn, for one, was sanguine about the long-term prospects for renewables competing with natural gas plants.

“We’ve been down this road before, of falling in love with a single energy source,” the former vice admiral said.  “I think there’s a natural synergy between renewables, particularly wind and solar, and using low-cost natural gas generation for firming.” McGinn added that given the environmental challenges the natural gas industry is facing, particularly around fracking, he doesn’t expect the price to stay this low forever.

The other theme of the gathering was the sharp differences between the United Kingdom and the United States around the challenges of climate change and energy security.  “We have a broad political consensus” around the need to face up to climate change and devise sensible and effective policies to limit it, Morisetti said – something that cannot be said about the U.S.  “I’m always amused when I hear a BMW dealer in the U.S. talking about his models that get 25 miles to the gallon.  If you go to Germany, you’ll hear them talking about 70 to 80 kilometers [42 to 48 miles] to the gallon.  And it’s the same company.”

“If I were king of the world for a day,” McGinn stated, “I’d do two things:  Eliminate all subsidies, for fossil fuels, renewables, everything.  And institute a carbon tax that would enable a smooth transition to sustainable sources of energy.”

Strong talk from a former naval officer.  Let’s hope someone in Washington, where ACORE is based, starts listening.


What Cleantech Bust?

— February 17, 2012

This month’s issue of Wired magazine includes a long feature, written by Washington Post national environmental reporter Juliet Eilperin, headlined “Why the Clean Tech Boom Went Bust.” (Disclosure: I’m also a contributor to Wired, and Eilperin is an acquaintance.) The story, which joins a lengthening list of obits for the cleantech industries, has a certain usual-suspects quality to it: John Doerr, Elon Musk, Solyndra, blah blah blah. Beyond that, like most such eulogies, it misses the forest for the trees.

Suffice it to say up front that Pike Research does not see a bust taking down the cleantech industries. Our January 10 webinar, “The Year Ahead in Cleantech,” included a forecast for combined revenue across the industries and technologies covered in our smart energy practice – biopower, energy storage services, distributed solar, wind energy, geothermal, etc. – at nearly $300 billion. By way of comparison, the global automotive industry, which has been in business for about 120 years, generated $1.7 trillion in revenue in 2010 – less than six times the smart energy industries, which are less than 40 years old. Growth rates in 2012 will range from 6.3% for biopower to 116% for stationary fuel cells to 766% for energy storage on the grid. That does not sound like an industry in crisis.

Based in San Francisco, Wired, of course, is the quintessential pinup magazine for Silicon Valley, and Eilperin at first glance confuses a bunch of disappointed venture capitalists for a wider industry downturn. VC funding for cleantech startups, she notes, totaled $4.1 billion in 2008, before the global financial crash. Much of that went down a rat hole. VC firms are temperamentally and structurally unsuited for investment in clean energy technologies: “Venture capitalists tend to work on three- to five-year horizons,” Eilperin acknowledges. “As they were quickly finding out, energy companies don’t operate on those timelines.” VC funding for “the green Google” has almost dried up; that doesn’t mean that large vendors and new startups and angel investors aren’t investing in, and making profits off, nuts-and-bolts clean-energy products like fuel cells, geothermal pumps, smart meters, and so on. Such niche products don’t make headlines like a novel solar panel technology, of the sort developed by Solyndra, does; but they form the core of the real cleantech revolution.

To her credit, Eilperin sheds the narrow, Silicon Valley-centric view late in her article. “And yet, clean tech is far from dead,” she writes, contradicting the headline and premise of her story. “Certain companies and technologies will emerge from the ruins not only to survive but to thrive, just like they did after the bursting of the Internet bubble.” (Among feature writers this is known as the “‘To be sure,…’ paragraph.”)

Among the winners, she predicts, will be electric vehicles – a somewhat surprising conclusion since disappointing EV sales have been in the headlines for weeks – and providers of distributed generation systems. The problem with a story like this one is not that it gets the facts wrong; it’s the six-blind-men-and-an-elephant problem. There is plenty of evidence available that the cleantech revolution is happening at a slower pace than its marketers originally hoped, and in many of the sectors that Pike Research covers, consolidation (including spectacular flameouts like Solyndra) is an inevitable, and healthy, part of the maturation process.

As it happens, the Wired story came out almost simultaneously with former vice president Al Gore’s latest broadside, entitled “A Manifesto for Sustainable Capitalism.” In it, Gore and his partner David Blood (“Blood & Gore” – sounds like a law firm in a Dickens novel) address the very dysfunction that has plagued the cleantech industries. In particular, Gore calls for extending the investor timelines that rule Western capitalism today – abolishing quarterly earnings guidance, for instance, and eliminating short-term performance rewards for investment managers whose liabilities are measured in decades. What we need now, declares Gore, is “a more responsible form of capitalism, what we call sustainable capitalism: a framework that seeks to maximize longterm economic value by reforming markets to address real needs while integrating environmental, social and governance (ESG) metrics throughout the decision-making process.”

This is not warm and fuzzy enviro-correctness; it’s a belated recognition that long-term performance (of corporations, of investment funds, of managers) is inextricably bound up with the notions of sustainability and social costs. That’s exactly the equation that the short-term, IPO-driven models of Silicon Valley VC firms are incapable of solving. To see what’s really happening in cleantech we need to step back, take off the blinders, and see the elephant in full. Unfortunately, gloom and doom stories like the Wired feature don’t help with that.


China’s Cleantech Gap With U.S. Grows

— January 18, 2012

Following the announcement of a major renewables-plus-energy storage project in Hebei Province, the Chinese government has released its “Second National Assessment Report on Climate Change,” which concludes that “global warming fed by greenhouse gases from industry, transport and shifting land-use poses a long-term threat to China’s prosperity, health and food output.”

Among the consequences of climate change in China, the world’s largest emitter of carbon dioxide, will be declines in grain production of 5 to 20 percent by 2050, “severe imbalances in China’s water resources,” with catastrophic flooding in some areas countered with severe drought in other regions, and increased public health problems from air pollution, particularly in the country’s coal-producing regions.

“China faces extremely grim ecological and environmental conditions under the impact of continued global warming and changes to China’s regional environment,” concludes the 710-page report.

The United States released a similar report, Global Climate Change Impacts in the United States, in 2009, with an update scheduled for 2013. That report’s findings are equally grim, but have mostly been muted by a political environment in which a sizable components of the Republican Party, including all of the candidates for president save the front-runner, Mitt Romney, continue to deny that global warming is even real. We live in interesting times, when the leaders of a nominally Communist government that restricts its citizens’ access to the Internet are more candid and realistic on the issue of global climate change than the leaders of one of the two major political parties in the United States.

China’s efforts to slow climate change also contrast starkly with the near-complete inaction of the U.S. government. China’s struggle to limit the disastrous effects of its burgeoning coal power industry was detailed in this Atlantic feature by James Fallows. “In the search for ‘progress on coal,’ like other forms of energy research and development, China is now the Google, the Intel, the General Motors and Ford of their heyday—the place where the doing occurs, and thus the learning by doing as well,” Fallows wrote.

“You can think of China as a huge laboratory for deploying technology,” a U.S. official posted in China told the Atlantic. China has also moved to the forefront in developing new nuclear power reactors, including liquid-fuel reactors that use thorium, rather than uranium, as their primary fuel, as I detailed in this report on

The “cleantech gap” between China and the United States recalls the so-called “missile gap” between the Soviet Union and America in the late 1950s and early 1960s, a scientific and technological divide that was crystallized by the Sputnik launch. The missile gap turned out to be an invention. The cleantech gap becomes more real by the month. The reasons are manifold, and they include the capability of a command economy, which China’s to a large degree still is, to move quickly on major projects like clean coal and advanced nuclear plants. Free markets are, according to theory, more nimble and responsive than centrally planned ones. But when it takes a decade just to get a permit for a new nuclear plant (much less build one) in the U.S., and a couple of years to go from conception to completion in China, economic theory doesn’t hold up.

China’s climate change dilemma, particularly around increasing use of coal, is stark, and it may not be solved without wrenching environmental and social changes that could tear at the fabric of society. But at least they’re trying to do something about it.


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