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(originally published by Booz & Company)


China’s Clean Tech Boom

Bruce Usher, the former CEO of EcoSecurities, describes China’s path to leadership in renewable energy.

China is fast becoming a clean technology leader. By 2008, it had become the world’s leading producer of solar panels, and last year it claimed the same title for wind turbines. Investment in clean tech in China in 2009 reached US$34.6 billion, compared with the United States’ investment of $18.6 billion. Bruce Usher, formerly the CEO of EcoSecurities Group PLC, a company that sources, develops, and trades carbon offsets from greenhouse gas emissions reduction projects, and now an adjunct professor of finance and executive in residence at Columbia Business School, has observed China’s growth in this sector firsthand. He grew EcoSecurities (which was acquired by JPMorgan Chase & Company in December 2009) into the world’s largest public carbon credit company. It included a vibrant business in China. Usher spoke with strategy+business in May about what he witnessed, what he learned, and what he sees as the future of clean tech in China and other emerging economies.

S+B: What did you observe on the ground as your business grew in China?
We opened our China office in 2005 with one person, and by 2008 it was our dominant market; in late 2009 — when JPMorgan acquired EcoSecurities — China accounted for more than 60 percent of our business. At that time I had about 40 people based there, in Beijing and Chengdu. They were highly educated, highly motivated employees. Indeed, they were some of the smartest, hardest-working people I have ever employed, and that says a lot; I’ve had offices in 21 countries.

What we found was that the industrial policy established by the Chinese government through the NDRC [National Development and Reform Commission] was very effective at stimulating development within the private sector. In our case, that meant stimulating the construction of clean energy projects, primarily small hydro and wind projects. Once the policies were in place, the private sector moved quickly. The banking sector tended to be quite supportive as well, in terms of availability of capital and attractive rates.

S+B: What are some of the unique benefits and challenges that China presents?
Based on my experience watching the way the clean tech industry has evolved in China, I’m convinced that the challenge of reducing carbon emissions is less about innovation and more about implementation. In other words, hundreds of technologies, such as solar PV and wind, exist that are well proven to reduce emissions. But in the U.S., for example, they are not getting implemented, or they are not getting implemented quickly enough. That’s where I was particularly impressed with my experience in China: There was an ability to get things done fast, and on a massive scale.

Because the Chinese government is more involved in industrial policy, it sets rules that are supportive, but that can also be restrictive. For example, the Chinese government set the price at which the developers were allowed to sell their carbon credits under the Kyoto Protocol. So in China, unlike the rest of the world, it was a fixed and not a floating price. This system may not be sustainable in the long run, because ideally you want market prices, flexible supply and demand, and so on. But having the price set at the top enabled things to happen quickly. Other questions had to be negotiated, but we knew what the price had to be. We encountered some other fairly technical challenges working in China, but those were more than offset by the fact that things tended to get done very quickly as long as we worked within China’s strict regulations.

S+B: What does the future of clean technology in China look like?
: It’s not like everything in the energy sector that’s being done in China is good. In fact, the big picture is they’re building massive numbers of coal-fired power plants as well, which produce an enormous amount of pollution, and that’s simply because they have such voracious demand for energy. They have to build these plants, or at least they believe they have to build them, to meet this demand. But the amount of hydro and wind development in China has also been massive for the last couple of years, and it’s very clear they will continue to grow this area in the years to come. The level of expertise coming out of China is only going to get higher. I see enormous development in the sophistication of the products being made in China, and I see more and more local development there, as well.

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