Agreeing to keep it clean

The global race to establish the most active and profitable clean technology industry is on, with the US and China seen as the major players set to propel sustainable business to the mainstream. However, despite talk of competition between the countries, the two are increasingly looking to collaborate in the development of the industry.

In a 2010 speech at the American Chamber of Commerce in Shanghai, then-US Commerce Secretary and current Ambassador to China Gary Locke said: “In many areas, and especially in clean energy, the interests of China and the US are tied together.”

Both countries have been keen to talk up their enthusiasm for developing cleaner technologies and promote an industry that could transform many aspects of society. But in order for the industry to prove a success, it needs to solve the issues of energy independence, environmental impact and economic growth.

While energy efficiency has moved up the agenda for many governments, the technology is still nascent and will likely take many years to reach maturity. This presents opportunities to get in early, but also significant risks if one backs the wrong horse.

Perhaps because of China and the US’ individual and distinct strengths, the talk of cooperation between the two countries makes a lot of sense. The US has a rich history of research and development, but is somewhat lacking in capital and ready customers, while China lacks the innovative freedom of the US, but has plenty of finance to put towards solving its economy’s heavy demand.

…the interests of China and the US are tied together

Innovation with investment
Although a country that hungrily consumes fossil fuels, the US is also at the cutting edge of innovative new technologies that could create a far cleaner and more sustainable environment.

President Obama has talked up the country’s need to invest in further R&D as a means to transform both the economy and the environment, announcing a hefty boost to spending in his inauguration speech at the beginning of the year.

Recognising the competitiveness of the market and stating that he wanted the US to lead the way in developing clean technologies, Obama said: “The path towards sustainable energy sources will be long and sometimes difficult.  But America cannot resist this transition; we must lead it. We cannot cede to other nations the technology that will power new jobs and new industries, we must claim its promise.”

US firms, however, are struggling to find the necessary capital to get their projects off the ground. It has been speculated there will be as much as a $4.5bn capital shortfall in the US cleantech industry during the next three years, and many firms are looking east to make up the difference.

Money to spend
Conversely, China has plenty of capital to deploy, and a pressing need to address the environmental concerns of an international community that looks upon the rapidly industrialising nation as both an opportunity and a problem.

Although it has dominated the solar manufacturing industry by mass-exporting low-cost crystalline silicon photovoltaic cells and modules – which resulted in the US authorities imposing heavy tariffs on Chinese imports – China’s top-down, restrictive way of conducting R&D means it is not producing the cleantech innovations the US is capable of.

China is beginning to invest seriously in research and development in the hope it can become a leading player in clean technology. Joanna Lewis, Assistant Professor at Georgetown University and author of the book Green Energy in China said: “China is in fact investing in and succeeding in green innovation… which could play a crucial role in the global transition to a low-carbon economy.”

However, the country’s mounting environmental concerns – most notably severe pollution as a consequence of the rapid industrialisation of its major cities – means there is a pressing need to import cleantech products as soon as possible. The best way for this to be done is through healthy collaboration with China’s greatest economic partner and rival.

$420m Investment by Wanxiang Holdings in GreenPoint Energy

Increased collaboration
Cleantech investor Greg Manuel, a former advisor on energy policy to ex-US Secretary of State Condoleezza Rice, recently told Forbes that, although the two countries were only just beginning to collaborate, the potential for mutual benefit was huge: “This emerging pattern of cooperation is still in its early stages. But there is a tremendous vector of opportunity when you look at the innovation delta, capital gap and severe environmental and energy challenges facing large Chinese enterprises with large pools of cash.”

Research by the Pew Charitable Trust shows the US has been successful in exporting high-end cleantech goods to China, with $1.63bn exported in 2011. Michael Liebreich, CEO of Bloomberg Energy Finance and writer of the report’s foreword, said: “The United States and China are inextricably linked as global trade partners, with more than half a trillion dollars in goods passing between them in 2011, the last year for which complete data are available.

“The two countries are the largest and second largest global electricity markets and greenhouse gas emitters, and the leading recipients of clean energy investment; nearly two of every five dollars invested in clean energy worldwide since 2004 has gone to one country or the other.

“They are the two most significant parties in a vocal (and sometimes strident) debate about future national competitive advantage and about the fairness of each country’s trade practices in supporting its clean technology firms.”

Let’s make lots of money
In April, a significant deal was announced that will see Zhongding Group invest $200m towards a manufacturing facility in China, which will help mass-produce the highly efficient motor technology of US company EcoMotor. Such collaboration shows how the proliferation of Chinese capital can help get exciting US technologies off the ground commercially.

According to Forbes, other deals have shown a similar trend for collaboration. Wanxiang Holdings invested $420m into GreenPoint Energy, while also saving battery firm A123 Systems. IGP Energy has signed a joint venture deal with Yankuang Group to create five plants, and steel firm Baosteel has backed carbon conversion firm LanzaTech.

These are technologies that would otherwise not have received significant funding from capital-starved US investors, and the Chinese backing gives them a much greater chance of being adopted by the mainstream.

Diplomatic relations
There have been examples of collaboration in other areas. The Lawrence Berkeley National Laboratory has been working with Chinese researchers on energy efficient technologies, while the China Sustainable Energy Programme in San Francisco actively supports Chinese R&D.

Also in April, Governor of California Jerry Brown – whose state houses much of the US cleantech innovation – visited China to promote business collaboration between the two countries. The trip resulted in the governor signing an agreement with China’s Environmental Protection Minister that would aim to solve China’s serious pollution issues.

A wider announcement by US Secretary of State John Kerry and Chinese State Councillor Yang Jiechi in Beijing saw the two countries promise to work together to solve climate change. Councillor Yang told reporters after the meeting that he was encouraged “to see Chinese and American business communities and people from various sectors being so enthusiastic about cooperation in this area”.

The result of all these new efforts to work together should be the global cleantech industry receiving the sort of capital boost it needs, while maintaining the creative and innovative approach seen in the US. Certainly, it seems these two countries – as they do with many of the world’s major industries – will dominate the way in which clean technology is developed over the coming decade.