This past weekend, Secretary of State Hillary Clinton wrapped up her first foreign diplomatic trip with a visit to China. While a number of issues crowded the Secretary’s plate on this trip—including staving off the global financial crisis—Sec. Clinton placed climate change issues in the center of her diplomacy. Joined by her top climate envoy, Todd Stern—profiled by ClimateIntel here—the Secretary reiterated her, and the U.S.’s, commitment to engagement on climate change issues at every stop on her diplomatic tour.

Especially notable was Sec. Clinton’s schedule in China, where she visited a new cogeneration plant using high-efficiency gas turbines built for the Chinese by General Electric, and made a speech promoting sustainable growth and urging the Chinese to not “make the same mistakes [the United States] made, because I don’t think either China or the world can afford that.” Sec. Clinton also stressed that while the United States had long been the world’s largest emitter of heat-trapping gasses, the Chinese had recently taken that position. While China’s per-capita emissions remain significantly lower than the United States’, much of the world continues to express serious concerns on the growth in China’s absolute emissions.

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In the run-up to the fourth session of the Ad Hoc Working Group on Long-Term Cooperative Action (AWG-LCA), China, India and Brazil have sharply reiterated their views that the burden of reducing greenhouse gas (GHG) emissions lies, in the first instance, with developed countries.  The AWG-LCA, convened as part of the U.N. Framework Convention on Climate Change (UNFCCC) Bali Action Plan of December 2007, is charged with facilitating agreement on principles for long-term action to reduce GHG emissions, extending beyond the current Kyoto Protocol obligations, which are set to expire in 2012.  This agreement on principles is, under the Bali Action Plan, expected to be reached in time for the December 2009 UNFCCC Copenhagen summit.  In preparation for the fourth session of the AWG-LCA, scheduled to occur in Poznan, Poland during the first two weeks of December 2008, governmental parties to the UNFCCC are currently staking out their negotiating positions in formal submissions to the AWG-LCA.

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The Agreement for Cooperation between the Government of the United States of America and the Government of India (123 Agreement), which will allow U.S. nuclear suppliers to trade with India for the first time since 1974, passed comfortably in the Senate last Wednesday (86 for, 13 against). The Bush Administration has hailed it as a virtually “done matter.” U.S. Congressional approval removed the last significant barrier to the signing of the 123 Agreement, following the approval of India’s nuclear inspection plan by the International Atomic Energy Agency (IAEA) on August 1, 2008, and the waiver granted to India to participate in global nuclear commerce by the 45-member Nuclear Suppliers Group (NSG) on September 6, 2008. 

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India’s Ministry of New and Renewable Energy recently implemented a Generation Based Incentive (GBI) program for grid-interactive wind power projects, which will be implemented by the Indian Renewable Energy Development Agency (IREDA). The program encourages investments in wind power projects by participants unable to claim accelerated depreciation under the Income Tax Act, including financial institutions, trusts, public/private-sector project developers, and foreign players lacking a balance sheet in India. The GBI scheme also encourages a new brand of investors by excluding from the program all those who self-consume the electricity produced by their wind projects, thereby ruling out applicability of the program to leading domestic power utilities.

The new GBIs provide significant incentives to grid-interactive wind power generation plants of certain minimum capacity that have obtained the requisite certifications/validations, and will be in addition to the tariffs provided by various State Electricity Regulatory Commissions. Estimates predict an increased internal rate of return (IRR) of 1.5-2% on wind power projects in India as a result of the new incentive scheme.

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Last week, the World Bank priced the first bond linked to prices of certified emissions reductions (CERs), known as the World CO2L Bond, with Japanese stock brokerage firm Daiwa Securities Group serving as lead manager. The Uridashi bonds will be offered to individual Japanese investors during the period June 9-24, with June 26 as the issue date, and will mature on September 30, 2013. The total amount of the bond issuance is US$25 million with a minimum denomination of US$100,000. After an initial 15-month period with a fixed coupon of 3%, the interest rate will be linked to the future performance of CER market prices, and specifically to the price of CERs from a hydroelectric power plant project in the Guizhou province in China.

The project has been registered with the United Nations’ Clean Development Mechanism (CDM) Executive Board in April 2008 and is being jointly implemented by China’s Guizhou Sanhe Hydro Power Development Co., Ltd. and Daiwa Securities SMBC Principal Investment Co., the investment arm of Daiwa Securities Group. The project is expected to reduce greenhouse gas emissions by over 23,000 tonnes CO2-equivalent per year.

Daiwa Securities Group expects that sales of the World CO2L Bond will help support demand for greenhouse gas emissions trading because investors will be indirectly participating in the market for greenhouse gas reductions. Trade in CERs more than doubled to $13 billion last year, according to a World Bank report published in May.

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China’s wind power generation rose 95.2% to 5.6 billion kw hours in 2007, from a year ago, reported the Xinhua News Agency. A report released by the government said that China had wind power facilities with a combined installed capacity of 6.05 gigawatts at the end of 2007, up from 2.67 gigawatts in 2006. The country achieved the goal set for the 2010 three years ahead of schedule. Wind power projects under development will make up for a combined installed capacity of 4.2 gigawatts.

According to the Medium and Long-Term Development Plan for Renewable Energy in China published by the National Development and Reform Commission (”National Development Plan”), China will generate 15% of its energy from renewable sources such as wind by 2020. To achieve the goal, the government plans to increase its wind power equipment to a combined installed capacity of 10 gigawatts by 2015, and to 30 gigawatts by 2020. Shanghai Daily reported that the 2020 target is likely to be increased by the government to as much as 100 gigawatts, which, according to WSJ Environment Capital, would be greater than the total global current installed wind capacity.

The rapid increasing utilization of wind power for electricity generation has been driven by the following factors:

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Further demonstrating its leadership on climate change response, California’s Secretary for Environmental Protection signed an agreement with the United Nations Development Programme (UNDP) to support China’s efforts to address climate change. Pursuant to the agreement, California will share valuable information, such as academic research, effective policy initiatives, lessons learned and technological innovations, with the Chinese provincial governments to support their efforts to develop strategies and actions to mitigate global climate change. California is currently developing its own program to cut greenhouse gas emissions by 30% by the year 2020.

Governor Schwarzenegger issued the following statement about the agreement: “California alone cannot solve climate change - this is a global problem that requires a global solution. America has to lead, and we are doing so even with or without Washington. California is not waiting for the federal government to take action but instead we are forming agreements and building relationships with countries like China to fight climate change.”

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China has taken an aggressive posture on technology transfer in its comments on the Bali Action Plan - the “roadmap” for guiding the next round of discussions on a post-Kyoto global climate change regime.

The UNFCCC Secretariat posted comments from 26 countries earlier this week, in advance of the first session of the Ad hoc Working Group on Long-term Cooperative Action under the Convention that will convene in Bangkok from March 31 to April 4, 2008. While most countries’ positions reiterate statements made during the Bali Climate Change Conference, China’s submission is notable for its stance on intellectual property rights (IPR), clean technology financing, and transfer. China made it explicitly clear that it has uniquely high expectations for the United States, noting that special consideration in the negotiations should be given to ensuring “quantified emission reduction targets [25%-40% of 1990 levels by 2020] for the Annex I Parties to the Convention that are not Party to the Kyoto Protocol.”

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Reflecting growing pressure from institutional investors to curb potential environmental and climate policy risks to public companies, China has put into effect a “green securities” plan. The new requirements impose barriers on heavy polluters applying for an initial public offering (IPO) and mandate that listed companies disclose more information about their environmental performance.

According to the regulation issued by China’s Securities Regulatory Commission (CSRC) in January of 2008, companies from energy- and pollution-intensive sectors must undergo inspection by a State Environmental Protection Agency (SEPA) environmental specialist if they wish to launch an IPO.

Specifically, companies in the sectors of thermal power generation, iron and steel, cement, and electrolyte aluminum, and companies with cross-provincial business in any of 13 listed industrial operations that may cause heavy pollution will be required to obtain SEPA approval of their environmental performance. These companies’ IPO application to CSRC shall include recommendations drawn up by the environmental regulator before they may be considered. Read the rest of this entry »

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While U.S. and Chinese participants in the recently concluded second annual U.S. Clean Energy Trade Mission to China have lauded the commercial and environmental benefits of the mission to both countries, the mission also raised the profile of ongoing tensions related to China’s enforcement of the intellectual property (IP) rights of U.S. companies.

U.S. Assistant Secretary of Commerce David Bohigian, who led the mission, warned during a news conference that there have been “negative developments” in China’s IP enforcement efforts over the last year, exacerbated by problems in China’s efforts to enshrine the rule of law. Bohigian further noted that U.S. companies are declining to export their most innovative environmental technologies to China because they are concerned these technologies will not be protected.

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