Industrial And Rural Energy In China: Innovative Private-Sector Initiatives Lead The Way

China's massive industrial sector is an economic juggernaut, helping to drive national gross domestic product (GDP) growth rates of around 10 per cent per year. But while the country's highly productive factories and plants may be boosting national prosperity, their rapid expansion carries with it a serious environmental burden and costly energy inefficiencies that are increasingly becoming a barrier to China's sustainable development, thus contributing to climate change.

As Wang Yanjia, a scholar at Tshingua University, pointed out in his presentation at an Organization for Economic Cooperation and Development (OECD) event in 2006, national industrial expansion has become a mixed blessing for China. On the one hand, industry accounts for nearly half of its GDP, with revenue increasingly being generated by the private sector, which is nurtured by State policies, shifting toward a market-based economy. On the other hand, the industrial sector is responsible for about 70 per cent of national energy consumption and 61 per cent of carbon dioxide emissions, rapidly becoming a major contributor to global warming. It may not be prudent to suggest that China should curb its industrial growth entirely, simply that one adverse by-product of the growth of energy-intensive industries, particularly during the tenth "five-year plan", has not been matched by a necessary improvement in energy efficiency of those industries. While there has been improvement in the past, technology used by China's major industries still lags behind in efficiency standards compared to more advanced technology being used in other countries.

Fortunately, the Government has acknowledged the capital wasted on such inefficiencies and the dubious honour of being the second greatest emitter of energy-related carbon emissions in the world as an issue to be addressed.

Entrepreneurial Vision

China's rising entrepreneurial class is taking up the challenge to meet energy efficiency goals laid out in the most recent five-year plan, such as the target of reducing energy consumption by 20 per cent per unit of GDP. Entrepreneurs in the energy-related sectors, especially in thermal energy, are pushing for groundbreaking and profitable innovations that promise to help control the country's ravenous industrial energy consumption while maintaining, or even increasing, high levels of output.

Beijing Shenwu Thermal Energy Technology Company, founded in 1999 by Wu Dao Hong, is a prominent example of the success entrepreneurs are finding in implementing business models that combine environmental and economic goals. It manufactures equipment that reduces industrial fossil fuel consumption and carbon emissions. In addition, the company generates major energy and cost savings for its clients in the steel, petroleum, chemical and other sectors. Shenwu utilizes a proprietary patented combustion technology that the World Bank has recognized as one of the world's best energy-saving solutions. Its products, based on high temperature air combustion and other technologies, reduce energy consumption by 30 to 60 per cent while increasing output by 10 per cent -- a competitive edge that has generated over $50 million per year in revenues. The technology also reduces carbon emissions by 30 per cent, ensuring the company's long-term viability in a carbon-constrained economy.

The fact that Shenwu was the first Chinese company to be listed on the Chicago Climate Exchange shows the new direction the industrial sector is taking. The success the company is experiencing speaks volumes to the value energy-sector entrepreneurs are finding in an approach that lowers burdensome energy costs, while reducing carbon emissions and contributing to environmental benefits. As the Government wisely pursues sustainable development goals alongside industrial growth, public officials seem intent on increasing support for companies that seek to fulfil the demand for industrial energy efficiency.

Rural Energy

More than 25 years ago, Hao Zheng Yi had the foresight to recognize the formation of a large untapped market for clean-energy services in rural China. Statistics from the World Energy Council show that in 1970, not long before Mr. Hao founded Yunnan Zhenghong Environmental Protection Co., less than half of China's rural population had access to electricity. Since then, electrification projects and sweeping government policies have come quite a distance to fill this daunting gap. Still, the fact that around one fifth of China's rural population still lacks access to electricity is a testament to the inadequacy of public-sector projects and programmes alone in addressing the energy needs of underserved rural households.

The challenges that this unmet need poses in terms of lowered productivity and environmental damage become apparent when one observes the reality of life for families in regions like Yunnan. Insufficient infrastructure has forced the province's 8.7 million agriculture-based households to depend largely on wood and straw burned in conventional ovens for heating and cooking. These resources, while inexpensive and locally available, release harmful pollutants, provide a low level of thermal efficiency and are known to cause serious long-term health problems. Mr. Hao's pioneering design for a sustainable heating and cooking stove, based on cleaner and more effective technology, shows how vital private-sector solutions are in supplementing government efforts to address environmental and social challenges.

The Efficient Gasification Burning system used by Zhenghong ovens is a hybrid design that utilizes traditional fuel and natural gas sources, incorporating five patented technologies that allow the end-user to improve efficiency and reduce capital costs -- ideal for low-income consumers in rural areas. While these cleaner substitutes for conventional ovens are beneficial to communities, entrepreneurs are also attracted to the market for rural clean energy services by the untapped profit potential to be discovered. A World Resources Institute's report, The Next Four Billion, identifies a purchasing power parity of $350 billion in the energy market among "Base of the Pyramid" consumers in Asia. The success of Zhenghong ovens proves the value low-income consumers place on clean energy services; more than 50,000 high-efficiency Zhenghong ranges have been sold in Yunnan Province alone.

The added benefit of private-sector energy initiatives is that, in order to be successful, entrepreneurs must create marketable products by engaging underserved communities in a participatory fashion. Zhenghong has been exemplary in this area as well, working directly with local farmers in the oven design phase to obtain proper feedback and ensure that the final product minimizes energy costs for agriculture-based families. As a result, Zhenghong ovens run for five to eight years on the amount of wood and hay that traditional ovens consume in one year.

As long as there remains a substantial gap in clean energy access for rural families in China, enterprises like Zhenghong will find a compelling market opportunity even among the poorest consumers. By marketing energy-related services that the Government does not have the capacity to provide, businesses will continue to tap into the blended value proposition of market-based solutions, which combine profit-making with poverty relief and environmental protection.