Some Western analysts still believe a markets-oriented approach works best and will ultimately prevail.
They argue that subsidised inputs will result in a less efficient industry, more focused on volume than cost and quality. “The best solutions come out of a competitive environment,” said the Carbon Trust’s Sykes.
The focus on adding new capacity has also run ahead of grid connections, meaning many Chinese turbines may never actually produce electricity.
“They will look like wind farms, and they may spin like wind farms, but there’s no guarantee that they will actually work like wind farms,” said Michael Liebreich, chief executive of the research firm Bloomberg New Energy Finance.
Moreover, some in the West believe the United States still has an advantage in innovation. The owner of patents, not factories, will likely earn the biggest profits and win the technology race.
In a Reuters poll of 41 U.S. venture capital investors, more than three-quarters of respondents said the United States would be the best market for cleantech over the next five years, and 88 percent believed America was the best place to base this business in the same time period. China ranked as the second best market (with 16 percent of the total). [ID:nLDE60O2AC]
“The world has absolutely no hope of making any substantial impact on global warming without major scientific breakthroughs, almost all which will come from United States’ innovation,” said Robert Nelsen, co-founder and managing director of Arch Venture Partners.
An undeniable edge for China is its huge pile of foreign exchange reserves. The nation’s clean energy industry has recently benefited from Beijing’s aggressive economic stimulus, which included funds for energy-efficient buildings.
Signs of an overheating Chinese economy may turn that tap down for a spell. By contrast, Western economies are expected to spend much of their green recovery cash this year and next.
(Global planned green stimulus funding:
In recession-battered Western nations, and in China, the prime motives for promoting clean technology are jobs, profits and energy security — not climate change. That leaves no guarantee that there will be enough investment to fight global warming.
An estimated $150 billion invested globally last year was only about half what is required annually by 2015 to avoid dangerous climate change, the International Energy Agency estimates.
“There is a big funding gap. I would say we need at least a doubling by 2015,” said Cecilia Tam, citing draft estimates the IEA published in June.
If over the next 20 years the world is to boost renewable power, build greener buildings and roll out more fuel-scrimping cars including hybrid and electric models, it must invest more than an additional $500 billion annually, according to Tam.
Many forms of renewable power are expected to be more expensive than their fossil fuel counterparts for at least another decade.
(Estimated costs of different energy technologies in 2020:
Given the incompatibility of communist-style targets with western democracies, how can free markets mobilise more green technology cash?
Western nations could boost clean investor returns with a tax on fossil fuels or guaranteed higher prices for renewable power. And aside from market levers, governments could adopt standards to make clean tech more attractive — requiring homes to install smart meters, for example — but rapid deployment doesn’t seem politically palatable at the moment.
“It’s worthwhile learning from the Chinese that these big transformations do require some exercise of public power,” said James Cameron, vice-chairman of green investors and advisers Climate Change Capital.
Dutch pension asset manager APG has about 2 billion euros allocated to green investments, by the “broadest definition”, said Rob Lake, head of sustainability. That compares with total assets of 206 billion euros.
“The reality at the moment is that investment in oil and gas is still attractive,” said Lake.
But pension funds and other institutional investors can do more. Even if they don’t put more of their own money into clean tech, they can use their clout to encourage more conventional energy companies to clean up, said Marcel Jeucken, head of responsible investment at the Netherlands-based, 86 billion euro PGGM pension asset manager. [ID:nLDE60J2CM]
Jeucken said his fund is “in constant dialogue” with Royal Dutch Shell, the oil major with a major investment in Canadian oil sands — where oil production entails more carbon emissions than conventional oil fields.
“We used our shareholder rights wherever possible,” he added. “Climate is one of our focus areas, and within that we are working on oil sands. We initiated a trip to the oil sand fields last year.”
A discouraging sign for investors who were hoping environmental markets would soon take off is the cloudy future of cap-and-trade plans. Such schemes force coal plants and other polluters to buy carbon emissions permits. They add to the cost of electricity, and are proving a hard sell in the United States.
Opposition to cap-and-trade among U.S. Republicans and some Democrats could block the roll-out of a federal trading scheme which would limit the further growth of global carbon markets, valued at around $125 billion last year.
Furthermore, last month’s U.N. summit in Copenhagen was expected to unveil an expansion of global trade in carbon offsets between rich and developing nations, but in the end they won no explicit mention in a weak, final declaration.
What all that means for traders is clear: “To tell you the truth I’m starting to look towards other commodities — uranium,” said Laurent Segalen, head of emissions trading at Nomura.
Does all this suggest China is destined to win the clean tech race? Hardly, though it does seem to have a little more forward momentum than do its rivals these days.
But it’s still very early goings, and there’s more at stake than business success. (Additional reporting by Chris Buckley in Beijing and Larry Aragon and Peter Henderson in San Francisco; Editing by Jim Impoco and Sara Ledwith)