China profits from pollution

On an almost daily basis, fresh photographs appear of the haze enveloping China’s city streets, and the number of premature deaths linked to pollution edge ever higher into the millions. Tens of thousands of rivers have run dry, and there are some scientists who have likened the country’s chronic air pollution to a nuclear winter. It’s well known that China’s economic might has grown at a ferocious rate – far beyond that of its Western counterparts – but the repercussions of this breakneck transition to a modern industrialised economy have only recently been discussed openly by the country’s government.

Last year, a jar of clean air fetched the equivalent of $860 at auction, and while the bid was more to illustrate a point than anything else, it did show how much of a much sought-after commodity clean air has become. “I don’t want to open my mouth because I’m afraid you’ll see that I’m toothless”, said one local Chinese environmental official, who, in Chai Jing’s blockbuster documentary Under the Dome, lifted the veil on the authorities’ powerlessness to act on the issue. Here, in the world’s second largest economy, spiralling energy demand is largely satisfied by coal, and waste from steel production, chemical manufacturing and landfills is routinely tipped into either the atmosphere or shrinking water supplies.

Some scientists have likened China’s chronic air pollution to a
nuclear winter

Anti-pollution opportunity
Elsewhere, Inge Thulin, Chief Executive of the Minnesota-based manufacturer 3M, sees China as a shining opportunity, with sales there set to outstrip total revenue growth threefold, due to demand for its health and pollution-control products. While millions have suffered the adverse health effects of China’s rise, the same issues have brightened the complexion of companies such as 3M, for whom pollution is fuel to their fire. “If you think about it from the big mega-trends, there’s air pollution, water and food safety”, said Thulin, speaking at 3M’s Shanghai offices in March. “There are big opportunities for us in those areas.”

In 1984, 3M became the first wholly owned foreign-invested enterprise in China, and has since invested over $1bn in the country. Sales there now account for a significant share (20 percent) of 3M’s global revenue, and it has fast become a crucially important market. Some analysts have gone so far as to suggest 3M ranks alongside the most powerful brands in the emerging world, and, while a worsening pollution problem has inflicted heavy losses on the population at large, 3M, has happened upon a multimillion-dollar opportunity.

US multinational Honeywell has also seen its sales surge, so much so that China became its largest market outside the homeland in 2013, buoyed by the anti-pollution opportunity. From 2004 to 2012, Honeywell’s sales expanded fivefold and, according to Honeywell China’s President and CEO Stephen Shang, the company “will continue to support the Chinese government’s extensive efforts to improve the environment”.

Noting rapid urbanisation and industrialisation have brought about change, Shang says: “Macro trends, which include sustainable urbanisation, the environment and clean energy, and industrial upgrading, provide Honeywell with unprecedented trend-driven opportunities and a strong tailwind for growth in this dynamic marketplace.”

Chris Buckley, owner of the Beijing-based Torana Clean Air Centre, China’s official distributor of Blueair air purifiers, says a growing awareness of the issues at hand has been “very important” in boosting sales: “When we first began selling, 90 percent of our sales were to foreigners. Now the large majority of our sales are to local customers.”

The benefits go beyond just a handful of companies. Facemasks, in all their iterations, having become a fixture of China’s city streets – so much so that in December 2013 3M exhausted its supply. CKGSB Knowledge reported nationwide sales of facemasks on Taobao and Tmall were up 900 percent on the previous December, despite the complaints standards and oversight were lacking. And, while not necessarily the cheapest, the Chinese population has come to see 3M’s products not as a luxury but a necessity.

Ignorant no more
“The Chinese public are far more aware of the scale of China’s pollution problem now than they were a few years ago”, says Matthew Collins, Project Manager at the Institute of Public and Environmental Affairs. “It is now much easier to access information on things like air and water quality due to government monitoring and reporting initiatives. Technology, in the form of mobile apps, social media and internet tools, has also played a significant role in allowing people greater access to information.”

Buckley adds: “There has been a steady trend towards growing awareness and decreasing tolerance of environmental pollution amongst the Chinese public over the last few years. This isn’t just a matter of air pollution (though this is part of it), it affects all aspects of life, including food safety and awareness of the urban environment generally.” He points to Chinese advertising, which has recently embraced ‘natural’ imagery as a major selling point.

Studies show this awareness has not necessarily translated into progress, and the World Health Organisation’s (WHO) 25 microgram per cubic metre Air Quality Index upper band, introduced so policymakers might more easily detect dangerous levels of pollution, has been repeatedly ignored. In 2010, the then-500 microgram recording was labelled “crazy bad” by Beijing embassy staff, but the figure surpassed 1,000 in 2013 – a year in which 1.2 million people died prematurely as a result of pollution, according to The Lancet.

Not until the death toll strayed into seven-figure territory did the government change tack, and the following year kicked off with Li Keqiang’s now-infamous “war on pollution” speech. The Premier pledged to pay heed to “nature’s red-light warning against inefficient and blind development”, and, in doing so, reduce the population’s exposure to pollution.

China’s emissions could decline within the decade

But the problem is not just one of government inaction. Studies conducted by the China Consumers Association last year showed most facemasks were failing to provide basic protection for wearers. Of the 37 models included, only nine were found to protect against hazardous particles, as defined by WHO, and the higher end models, priced at CNY 199, were no more successful at shutting out pollution than the one yuan disposables. The US Food and Drug Administration also entered the discussion, saying the effectiveness of any one product depended chiefly on the brand and fit in question. The problem is that many of the masks worn in China are surgical masks, designed only to protect against spattering blood and not smaller particles that can easily bypass loose-fitting masks.

The findings are yet to make a measurable impact on China’s facemask sales, though the focus on fighting pollution, both on Chinese and foreign fronts, raises an important question for those in pollution control. Chinese sales have come to constitute a considerable chunk of the overall figures, and, should the government clamp down on the issue to the degree they say they will, sales for a whole host of related technologies could suffer.

Turning point
The news in May that China had slashed emissions by five percent in the first four months of the year hailed the first leg of the country’s historic war with pollution, with the reduction equivalent to that of the UK’s total emissions throughout the same period. The findings, reached by Greenpeace and Energydesk China, followed a decision to shutter over 1,000 coal mines, and underline the country’s real and growing commitment to clamp down on pollution.

China’s successes on this front fall in line with a number of similar steps taken recently to improve its standing in the climate change debate. In May, China and India issued a joint statement acknowledging climate change and that its adverse effects constituted the “greatest global challenges of the 21st century”. They also underlined the importance of international cooperation in arriving at a solution. China also took the opportunity late last year to sign a bilateral agreement with the US, in which it acknowledged the two have a critical role to play in combating climate change, while also stating its intentions to achieve the peaking of CO2 emissions around – and preferably before – 2030.

Another report, this time from the London School of Economics, speculated China’s emissions could decline within the decade, adding the country’s war on pollution could spark momentum in the global market for clean goods and services. Whereas a longstanding dependence on coal has given rise to a chronic pollution problem, a switch to low-carbon alternatives could improve the world’s chances of keeping to the two degrees Celsius goal set by the UN.

“While China has historically been used as an excuse not to act on climate change, now we are beginning to see China as the example of why we should act on climate change”, says John Sauven, Acting UK Executive Director of Greenpeace. “The drop in emissions from coal shows that the progress made on alternative energy and energy efficiency is beginning to kick in. While some of the drop may be caused by slower GDP growth, the majority is clearly government action to curtail coal use and rebalance the economy.”

Too green to be good
By all estimates, the progress made on this front is a positive sign for China, though there are fears that those with a stake in pollution control could suffer greatly as a result. Buckley, for example, admits the war on pollution “could certainly impact at some point”, though goes on to remark, “at the moment, expectations are rising as fast or faster than improvements in the environment”. For air purifiers, facemasks and a number of similar consumer products, the effects of reduced pollution are unlikely to materialise for quite some time, though, once they do, they could conceivably push affected firms to the brink of collapse.

All things considered, the situation is not enough to trouble those outside industry circles. Yet were the same pattern to emerge in China’s energy sector, the fallout would extend far beyond a few million in lost product sales.

The downfall of consumer pollution-control products concerns relatively few, but the situation could be seen as a precursor to the situation soon to grip those in coal. Whereas, on the one hand, less pollution would mean less demand for pollution-control products, it might also mean the coal industry, and its accompanying advanced coal technologies, could come crashing down.

A crackdown on dirty plants has handed technology firms the impetus they so desperately need to think up fresh solutions, and, by some estimates, 90 percent of the country’s coal-fired plants are now equipped with basic pollution controls. As the number-one contributor to climate change, China’s reputation as a gluttonous coal consumer is well deserved. Recent developments have been such, however, that the country’s compliance in regards to conventional pollutants is nearing that of the US and even Europe.

China’s reputation as a gluttonous coal consumer is well deserved

Advanced coal technology and CCS are perhaps the two leading branches of development on this front, and their implementation will no doubt occupy a great deal of China’s focus moving forwards. Alongside measures to shrink coal’s carbon footprint, investors are beginning to shun the black stuff in favour of cleaner alternatives, casting doubts on coal’s place in China’s energy mix. Coal consumption fell in 2014 and fell again in the first quarter of this year. The idea of funnelling billions of dollars into coal is looking, increasingly, like a lost cause, and China’s changed energy policy has done little to extend the resource a lifeline.

Representatives at China’s Energy Research Institute and the National Development and Reform Committee believe China, which is already the largest renewables market on the planet, will commit still further to the cause in the coming years. In a recent report, the two argued renewables could account for 57 percent of the country’s energy mix before 2030 and 86 percent by the midpoint of the century. What’s more, looking at investment in clean energy in 2014, renewables and efficiency improvements clocked in at a record $89.5bn – 32 percent greater than the year previous and over 40 percent greater than in the US.

Pollution control companies have profited as a result of China’s worsening pollution, and technologies to reduce emissions have been well received. However, now the country is cracking down, those same names would do well to worry for their futures. The speed and scale of China’s transformation into a modern industrialised powerhouse has been like no other in world history, but the pollution problems hanging over it mean the age of coal is coming to an end, and swiftly. With this, so too is the anti-pollution opportunity of days past, and, while the most immediate casualties won’t concern many of us, the diminished opportunities in clean coal could bring a halt to opportunities elsewhere.