On July 12, the U.S. Environmental Protection Agency (EPA) announced its proposal for 2011 standards for the four fuels categories under its Renewable Fuel Standard Program (RFS2).  The proposed 2011 standards are:

• Biomass-Based Diesel (0.80 billion gallons; 0.68 percent)
• Advanced Biofuels (1.35 billion gallons; 0.77 percent)
• Cellulosic Biofuels (5-17.1 million gallons; 0.004-0.015 percent)
• Total Renewable Fuels (13.95 billion gallons; 7.95 percent)

These standards derive from the Energy Independence and Security Act of 2007 (EISA), which established annual renewable fuel volume goals designed to ultimately reach an overall level of 36 billion gallons in 2022.  EPA calculated the proposed percentages to achieve the target volume for 2011.  As a result, all those involved in the production of commercial transportation fuel must ensure that such fuel contains the requisite minimum volume of renewable fuel. 

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Both the Senate and the House are making one last effort to pass tailored energy industry reform before the end of the session.  While the new strategy may increase the chance for something to pass, climate legislation will not be part of the package.

After abandoning plans for comprehensive energy and cap-and-trade climate legislation on July 22, 2010, Majority Leader Reid (D-NV) introduced a scaled-down alternative bill the following week, marrying various drilling and oil spill response reforms and a limited package of energy proposals addressing energy efficiency, natural gas vehicle and infrastructure incentives, and conservation.  Though less ambitious than prior iterations, the proposed “Clean Energy Jobs and Oil Company Accountability Act of 2010” still covers considerable ground, including provisions to:

• Remove the liability caps for owners and operators of offshore facilities;
• Establish procedures for processing damage claims;
• Strengthen emergency response planning obligations on regulated industries and establish expedited damage claim procedures;
• Expand and direct funding to oil spill prevention and response research, as well a funding to support land and water conservation projects and programs;
• Reorganize federal oversight of offshore drilling to separate leasing, environmental and safety oversight, and royalty collection efforts;
• Increase criminal penalties for violations of oil spill prevention requirements;
• Override recent case law limiting punitive damages under maritime law; and
• Upgrade federal capabilities to respond to future spills, as well as the ongoing Gulf Spill cleanup;
• Allow states to require, with some limitations, disclosure of substances used in hydraulic fracturing efforts associated with natural gas recovery.

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On April 28, 2010, Secretary of the Interior Ken Salazar approved “Cape Wind,” a $1 billion, 130-turbine wind farm south of Cape Cod.  The announcement came nine years after the developer filed an initial permit application, and Secretary Salazar promised that in the future the “layers of review upon layers of review” responsible for the delay would be streamlined into a more “rational and orderly process.” It also came eight days after the Deepwater Horizon drilling rig accident in the Gulf of Mexico, and as the scale of that spill became apparent, clean energy advocates greeted this first federal approval of offshore wind as a positive, but belated, first step.

Opponents, however, simply vowed to keep fighting. On June 25, 2010 a coalition of six environmental groups and three individuals filed suit alleging that the Secretary’s approval violated the Endangered Species Act, Migratory Bird Treaty Act, National Environmental Policy Act, and Administrative Procedure Act, through various inadequacies in its consideration of project impacts on the roseate tern, piping plover and right whale. Officials have dismissed the suit as groundless, and the project’s developers have attacked the plaintiffs and their motives. Rancor and rhetoric have been abundant enough throughout the saga that Cape Wind has yielded both an acclaimed book and a soon-to-be-released feature film.

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On May 3, 2010, GS CleanTech Corp., a subsidiary of GreenShift Corp., sued multiple defendants in six different U.S. District Courts for patent infringement.  The patent at issue is U.S. Pat. No. 7,601,858 (”858 Patent”), entitled “Method of Processing Ethanol Byproducts and Related Subsystems.”  The patent claims a process by which corn oil may be extracted from the byproducts created during the manufacture of ethyl alcohol.   The process includes evaporating the byproduct to form a concentrate, using a disk stack centrifuge to separate the corn oil from the concentrate and recovering the oil.  GS CleanTech is seeking injunctive relief, along with past and future damages as a result of the alleged infringement.

These filings come a month after GS CleanTech filed two separate lawsuits over the same patent, and confirms the importance intellectual property plays in the alternative energy technology space.  While such a broad attack on ethanol producers appears, at first glance, to be the actions of a non-practicing entity, this is seemingly not the case.  GS CleanTech’s parent, GreenShift, maintains an interesting business model, under which it “grant[s] non-exclusive, site-specific licenses to ethanol producers (each, a “Licensee”) for the use of the [its] extraction technologies in return for the right to purchase the extracted oil for the life of the use of the technology at a rate indexed to diesel fuel.”  It then refines the extracted oil into biofuels and sells this corn oil derived biofuel for use as a substitute to fossil fuels.  Thus, GreenShift’s heavy reliance on licensing its intellectual property helps explain its aggressiveness in pursuing its rights under its patents.

Below is a list of the suits filed by GS CleanTech for patent infringement of the ‘858 patent.

GS CleanTech Corp. v. Cardinal Ethanol, LLC, 1:10cv180, S.D. Ind. (Filed Feb. 11, 2010).

GS CleanTech Corp. v. Big River Resources Galva, LLC et al., 1:10cv00990, N.D. Ill. (Filed Feb. 12, 2010).

GS CleanTech Corp. v. Bushmills Ethanol, Inc, 0:10cv1944, D. Minn. (Filed May 3, 2010).

GS CleanTech Corp. v. Center Ethanol, LLC et al., 1:10cv2727, N.D. Ill. (Filed May 3, 2010).

GS CleanTech Corp. v. Blue Flint Ethanol, LLC, 1:10cv37, D.N.D., (Filed May 3, 2010).

GS CleanTech Corp. v. United Wisconsin Grain Producers, LLC, 3:10cv236, W.D.Wis., (Filed May 3, 2010).

GS CleanTech Corp. v. Iroquois Bio-Energy Co. LLC, 4:10cv38, N.D. Ind. (Filed May 3, 2010).

GS CleanTech Corp. v. Amaizing Energy Atlantic, LLC et al., 5:10cv4036, N.D. Iowa (Filed May 3, 2010).

For further information about this topic, please contact Akin Gump.

To view Part I of “Update on Developments in Russia’s Renewable Energy Sector,” please click here.  

Investment in Renewable Energy

After the 2008 announcements and proposals calling for increased investment in production of solar products in Russia (see earlier ClimateIntel postings), some steps were taken by the government and by industry.  For example, Nano Solar Technology (NST), created in June 2009, undertook a solar module project in the Republic of Chuvashia.  This 49/51 joint venture is owned respectively by Russian state corporation Rusnano and the Renova Group of Companies.  Oerlikon Solar has been chosen to provide a 120 MW end-to-end line for the production of thin film modules.   The equipment is scheduled to be delivered to a new production facility located on the territory of the chemical plant “Khimprom” (city of Novocheboksarsk) in 2010, with production scheduled to start in 2011.  This project will significantly increase the production capacity of the Russian PV market.  Ryazan Metal Ceramics Instrumentation Plant in Ryazan Oblast is already using a 12 MW module manufacturing line supplied by Spire Corporation. Bogoroditsk Plant of Techno-Chemical Products in Tula Oblast also received a solar module manufacturing line from Spire Corporation last year (see previous ClimateIntel postings).  Both Russian plants are daughter companies of the holding company OJSC Russian Electronics, which is controlled by state corporation Rostekh.

Some investments have also been undertaken in the nascent biofuel sector.  OJSC RT-Biotekhprom, a wholly-owned holding company of state corporation Rostekh, announced plans to produce biofuel pellets and butanol in Arkhangelsk Oblast.  The wood pellet facility will have an annual capacity of 150,000 tons and is expected to be completed in Fall 2010.  The head of RT-Biotekhprom also heads an affiliated company — OJSC Biotechnologies Corporation — which is developing plans to produce two million tons of biofuel additives for motor fuels (gasoline and diesel) in the future.

The Ministry of Regional Development in September 2009 discussed a major project to promote energy efficiency in Arkhangelsk Oblast.  This project seeks to convert boilers from coal and diesel to biomass (from readily available wood waste in the region) and to set up production of biofuel pellets.   

As concerns hydropower, the development of small hydro power plants in the country appears to have slowed.  The fund “New Energy” created in early 2007 to implement RusHydro’s 2006 program for building small hydro power (SHP) plants with new capacity of up to 300MW by 2010, has been unable to handle the task, according to a source familiar with the situation.  In 2008, the fund’s portfolio included 383 prospective SHP projects with total capacity of 2.1 GW.

Prospective wind power projects are also in the news.  In 2009, the Russian daughter company of Canada’s Greta Energy Inc announced plans for a 72 MW wind project in the Yeisk district of Krasnodar Krai and began negotiations with manufacturers of wind turbines and related equipment.  The company plans to put three wind power facilities into commercial operations in early 2012.  According to a media report, Greta Energy “plans to invest up to €250 million in its first wind farm” near Russia’s Black Sea coast.  The Russian daughter company of The Netherland’s Windlife Energy is the leading developer of a 200 MW wind farm project (with 100 wind turbines) in Murmansk Oblast. This project is expected to be fully completed by the end of 2013.  Various wind power projects, as well as challenges facing the industry, were discussed during the first national conference held by the Russian Wind Industry Association in mid-November 2009. 

It may not take long before Russian hydrocarbon companies also begin to invest in domestic wind power projects.  For example, LUKOIL, citing the Yeisk project, has publicly expressed interest in a pilot project proposed near the city of Lagan on the Caspian Sea. 

However, it is less certain that the country’s wind-power capacity will reach the goal presented by RusHydro in 2008 to increase wind power capacity tenfold (from an estimated 12 MW in 2005 to a target capacity of 120 MW in 2010).  The federal government’s January 2009 decree did not include specific percentages for each type of RE input (i.e., small hydro, wind, solar) to be used in electricity generation.  Specific targets were in a draft decree, but these were later removed, according to a person familiar with the situation. 

The future development of the renewable energy sector depends on the Ministry of Energy speeding up work on developing and adopting additional RES regulations responsive to the market.  Currently, the number of finalized projects is small and the amount of government support for renewable energy is quite limited - especially when measured against the huge amounts allocated for gas and oil development projects.  It will take not only the passage of new laws and favorable regulations, but also a long-term political and financial commitment to further develop the renewable energy sector before one can speak of “breakthroughs” in this area.

For further information about this topic, please contact Akin Gump.

Additional legislation and executive branch implementing regulations will be required to boost substantial private investment in domestic renewable energy (RE) projects inasmuch as  private investment in this area will follow - not precede - the federal government’s investment in major projects.  Private Russian companies will nevertheless continue to undertake feasibility studies as they await federal legislation, as well as the development of specific regulations as required by certain provisions of the 2007 federal law “On Electric Power.”

Electricity Generation

In April 2008, the Chairman of the State Duma Energy Committee spoke of the need for the federal government to develop and introduce regulations based on the 2007 law “On Electric Power” concerning RE pricing and economic incentives, and to articulate “clear economic rules” for attracting investors.  Subsequently, the federal government issued an important decree on June 3, 2008 (№426) for determining the qualification of generators that use renewable energy sources (RES).  On November 17, 2008, the Ministry of Energy issued a regulation (№187) for the issuance, transfer and redemption of renewable energy certificates (RECs).  This regulation, which came into force on February 27, 2009, is likely to be reworked in 2010.  The executive directive issued on January 8, 2009 outlined the federal policy on the use of renewable energy for electricity generation and tasked the Ministry of Energy with developing regulations and other follow-up actions (see previous ClimateIntel posting). 

According to Anatoly Kopylov, Vice President of the Russian Wind Industry Association (RAWI) and a leading expert on renewable energy policy issues, a series of regulations still need to be developed and adopted detailing RES provisions and the requirements of the 2007 law.   Some concern mark-ups for electricity generated from RES, as well as the volume of electricity to be purchased on the wholesale market.  Other regulations concern “rules, criteria and procedures for providing federal budget subsidies to compensate costs associated with connecting RES generators of up to 25MW” to the grid.

The draft bill “On Heat Supply” (#177427-5), introduced in the State Duma in March 2009, was passed in a first reading on November 11, 2009.  Although “renewable energy sources” (RES) are not specifically mentioned in the text of the proposed legislation, the Ministry of Energy’s website comments that the draft bill envisions “measures for development of RES in the area of heat supply.”  Amendments and comments are to be submitted to the State Duma Energy Committee by February 10, 2010.

It is interesting to note that Russia’s efforts to create a legislative framework and regulations for renewable energy have been paralleled by Kazakhstan.  Legislation adopted earlier by Kazakhstan “On Support for the Use of Renewable Energy  Sources” was signed into law in July 2009.  Work on relevant regulations in Kazakhstan is currently under way.

Alternative Fuels

The draft bill “On the Use of Alternative Motor Fuels” (#130858-4), initially introduced in the State Duma in January 2005, has been revised for a third time by the authors and reviewed by the State Duma Energy Committee, which is overseeing this initiative.  On October 9, 2009, the Energy Committee sent the draft bill to the State Duma Council.  According to the draft ruling posted on the Duma website, the State Duma Council recommended that the draft bill be resent to the State Duma Legal Department, the Presidential Administration, the Cabinet, and various committees of the Russian parliament for comments and suggestions.  One criticism already received by the Energy Committee notes that the draft bill does not address the issue of “mandatory certification of alternative motor fuels” as they relate to current emission requirements.  The text of the draft ruling of the State Duma Council suggested that the Energy Committee receive feedback until November 13, 2009 and that the Committee should then prepare the draft bill for a first reading during the spring (January-July 2010) Duma session.

Although more than two years have passed since a legislative initiative on biofuels was announced, the fate of the draft bill, “On the Bases for the Development of Bioenergy in the Russian Federation,” is not clear.  Presented as a joint effort of both the Ministry of Agriculture and the Federation Council Committee on Economic Policy, the text of the 2007 draft bill has still not been posted on the State Duma website.  The head of the Bioenergy Development Center at the state-owned Russian Research Institute for Mechanization in Agriculture recently announced that the Agriculture Ministry had contracted the Institute to work on the draft.  Thus, it is not clear who is ultimately responsible for the introduction of this draft bill in the Duma.  In an interview with the “Regions of Russia” journal (Issue #9, September 2009), the head of the Center noted that the steps required for “mass production of equipment for bioenergy projects in Russia” have still not been taken and that the country’s “mechanical engineering is not ready to participate in the development of the new industry.”

There is no internal momentum for developing biofuel technologies in Russia and the country must rely on foreign technology in this area (as in many other areas) for launching domestic projects - despite the fact that in late 2007 then-President Vladimir Putin stressed the need to create conditions for private companies to produce biofuel in Russia (see previous ClimateIntel posting).  One of the drags on progress in this area is opposition - possibly from the Ministry of Finance - to lowering the excise tax on biofuel for domestic use.

As in the electricity generation area, Kazakhstan is developing a draft law “On State Regulation of Production and Turnover [Sales] of Biofuel,” which was approved by the lower house of the Kazakh parliament in a first reading in May 2009 (see previous ClimateIntel posting).  A related draft law outlining serious penalties for violations of the law was also approved.

The Russian executive branch continues to voice support for the development of the nascent renewable energy sector.  As concerns biofuel development in Russia, President Dmitry Medvedev said at a September 2009 meeting of the Commission for Modernization and Technological Development of Russia’s Economy that Russia has “made some advances here but [we] have few results to show for it so far,” adding that “this is something that requires very detailed preparation, but it is nevertheless important for our country.”  It is not clear whether the President’s objective assessment of the situation will lead to accelerated work at lower levels in federal ministries and agencies, given the severity of the economic downturn and the many other areas in which the Russian economy is lagging or underperforming.

To view Part II of “Update on Developments in Russia’s Renewable Energy Sector,” please click here.

For further information about this topic, please contact Akin Gump.

In their article “The U.S.-China Clean Tech Opportunity,” co-authors Mario Mancuso and Asma Chandani of Akin Gump describe the opportunity for the United States and China to collaborate on clean energy technologies and assess some of the current challenges to a transparent and level-playing field in clean tech trade and investment between the two countries.  In particular, the authors examine the implications of (i) export controls, (ii) enforcement of intellectual property rights and (iii) regulatory barriers and protectionism.  The authors propose concrete steps that the United States and Chinese governments can take to create the framework and conditions for an open, functioning and competitive clean technology market.  Such an approach would lay the foundation for a clean tech future that the world wants and needs and introduce the next constructive chapter in one of the most important bilateral relationships in the world.

The Hon. Mario Mancuso is a partner at Akin Gump Strauss Hauer & Feld, LLP, an international law firm that opened its Beijing office in 2007.  He previously served as a senior U.S. Defense Department official (2005-07) and as U.S. Under Secretary of Commerce (Industry and Security), U.S. Chair of the U.S.-China High Technology and Strategic Trade Working Group, and member of the Committee on Foreign Investment in the United States (2007-09).

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Algae-based biofuels have been receiving increasing attention from researchers, investors and Congress.  Not previously thought of as a major player within the biofuel community, support from Congress coupled with strong private investment could make algae a very competitive biofuel feedstock.

The renewable fuel mandate established in 2007 requires that twenty-one of the thirty-six billion gallons of annual (BGY) ethanol production by 2022 come from advanced biofuels. Seventeen of the twenty-one BGY must come from cellulosic biofuels or biodiesel.  The legislation, however, contains no specific provision for algae.  A bill recently introduced in the House (H.R. 3640) would change the state of play, adding a specific provision for algae and, perhaps more importantly, extending to algae-based biofuel producers the tax credit given to cellulosic biofuel producers.  Those within the industry hope that this type of congressional support will create parity between the algae-based biofuel industry and others within the Renewable Fuel Standard.

Presaging the increased congressional attention, the algae-based biofuel industry has recently seen some major investments in research.  Some of the more widely publicized investments include:

• ExxonMobil announced plans to invest at least $600 million in a joint venture with Synthetic Genomics, Inc. (SGI). If all goes well, ExxonMobil’s investment could increase into the billions.
• Dow Chemical Co. announced plans to build a $50 million pilot plant in Freeport, Texas, as part of a joint venture that will test the technology developed by Algenol Biofuels. The technology grows algae in plastic tubes containing saltwater, which are then filled with CO₂. The project envisions hundreds of acres of algae farms containing these tubes, using CO₂ that comes from nearby oil refineries and chemical plants to produce ethanol.
• The Woods Hole Oceanographic Institution, the Massachusetts National Guard and Plankton Power are teaming up with the eventual goal to produce five percent of Massachusetts’s diesel and home heating oil, which would require producing 100 million gallons of biodiesel per year. In the meantime, the group plans to build a $20M pilot plant, $16M of which is from DOE funding, which would lead to 1 million gallons of biodiesel per year.

There are many promising aspects of algae-based biofuels that may explain why the industry is gaining so much traction.  The fact that algae can be grown on non-arable land, requiring only sunlight, water and carbon dioxide to grow and produce oil means that its production does not interfere with food supply.  Also, the fuel produced from algae can be chemically identical to that made by petroleum, which would enable a seamless integration into commercial use.  Some advocates also tout algae’s carbon capturing ability, though others doubt its ability to handle large amounts of emissions from neighboring refineries and power plants.

Despite the recent attention and investment algae has been receiving as of late, many question whether the commitment behind developing this technology.  The concern within the industry is that the commitments are for research only and that the investments may not continue after the results come out.  These skeptics cite to BP’s recent abandonment of its joint venture with UK-based D1 Oils to develop jatropha as a biofuel feedstock as an example. 

Though algae-based biofuels are still at least a couple years from being commercially competitive with crude oil at $60 to $80 a barrel, the intrigue in their potential appear legitimate.  If the industry is successful in obtaining more government support, private investment will likely follow.

For further information about this topic, please contact Akin Gump.

A key political compromise addressing the concerns of farm-state Democrats facilitated passage in the House of Representative passage of the American Clean Energy and Security Act, H.R. 2454 (ACES).  The so-called Peterson Amendment would make substantial revisions impacting the Environmental Protection Agency’s (EPA’s) Renewable Fuels Standard (RFS) program. The Energy Policy Act of 2005 established the RFS and the Energy Independence and Security Act of 2007 (EISA) expanded the program.  EISA established new renewable fuel categories and eligibility requirements, including mandatory greenhouse gas reduction thresholds for the various categories of renewable fuels.  EPA issued a notice of proposed rulemaking in May 2009 to implement the legislative changes required by EISA (RFS-2), and is currently soliciting comments on such issues as specifying the volumes of cellulosic biofuel, biomass-based diesel, advanced biofuel and total renewable fuel that must be used in transportation fuel each year.

If enacted into law, ACES would impact the RFS-2 proceeding in two major ways, (1) delaying and potentially eliminating the calculation of emissions related to indirect land use changes resulting from renewable fuels and occurring outside the feedstock’s country of origin (generally, these emissions are considered indirect international land use changes); and (2) exempting certain biomass-based biodiesel plants from compliance with the RFS-2 lifecycle greenhouse gas (GHG) requirement. 

EISA directed the EPA to calculate, for renewable fuel pathway, GHG emissions over the full lifecycle of the renewable fuel, including indirect international land use changes.  Examples of these lifecycle emissions include, for example, the clearing of international forest land to grow crops for food to compensate for the conversion of US-acreage toward the production of renewable fuels.  EPA would then compare the renewable fuel GHG emissions to the lifecycle emissions of 2005 petroleum baseline fuels displaced by the renewable fuel, such as gasoline or diesel. The lifecycle GHG emissions performance reduction thresholds established by EISA range from 20 to 60 percent reduction, compared to the baseline fuel, which varies upon the renewable fuel category.  GHG emissions from international indirect land use changes is a hotly contested issue between the renewable fuels industry and environmentalists and, as even EPA notes in its Notice of Proposed Rulemaking, there is considerable uncertainty in the estimation of emissions resulting from land use changes.

ACES would temporarily prohibit consideration of indirect international land use emissions, defined as land use changes outside of the feedstock’s country of origin. The legislation would establish a period of up to six years to study whether there are valid economic and environmental models to calculate indirect land use changes that are related to production outside of the country of origin in which feedstocks are grown.   The provision directs National Academies of Science to review and report on the issue within three years of enactment.  Based on this report, EPA and USDA would have a three-year period to promulgate a final determination of how to calculate indirect land use changes attributable to the production of renewable fuels.  If EPA and USDA were to conclude that indirect land use changes should not be considered, they would be required to include a statement of the basis for that determination.

EISA exempted a category of “renewable fuels,” largely defined as corn ethanol, from lifecycle GHG emission performance standards if facilities manufacturing the fuel commenced construction before December 17, 2007, the date of EISA’s enactment.  The length and scope of the exemption is among various issues under examination by EPA in the proposed RFS-2 rulemaking. ACES would provide a further exemption from the lifecycle GHG emission performance standards of up to 1 billion gallons of renewable fuel from biomass-based diesel plants that commenced construction before the date of enactment of EISA from the lifecycle greenhouse gas performance standards at issue in RFS-2.

The Senate Energy Bill, S. 1462, the American Clean Energy Leadership Act of 2009, reported to the floor by the Committee on Energy and Natural Resources did not include similar revisions to the RFS.  It appears likely, however, that revisions to the RFS will be a part of comprehensive energy and climate legislation.  In a recent op-ed, Senator Bingaman addressed support for revision of the RFS, as the Senate refines its energy bill, highlighting the definition of renewable biomass, the study of international land use change and the re-evaluation of technology- and feedstock-specific mandates within the program as areas for improvement.  A separate House Proposal, HR 3460, would expand the RFS to specifically include algae-based biofuels.  The Committee on Environment and Public Works Chair, Senator Boxer, has not indicated support of ACES’ revisions to the program, but recently noted that all options are on the table with respect to RFS revisions as her Committee takes up climate legislation.

For further information about this topic, please contact Akin Gump.

While United States and Chinese diplomats are working to forge cooperation between the countries on climate issues, the Chinese government’s huge clean tech investments may help that country pass the U.S. as the worldwide clean technology leader.  Could this “competitiveness crisis,” as one group terms it, have implications for the U.S. economy and the clean tech industry?  The results of this global race for dominance in the cleantech sector could significantly impact not only the national economy, but also the condition of the global environment.

Chinese Energy Investments

The Chinese are investing approximately 3% of their GDP on cleantech and renewable energy, as compared to less than half a percent of GDP in the U.S.  During early summer, the Chinese government floated plans to spend at least $440 billion in another stimulus package-all of that money going toward new cleantech investment.

The Chinese government also set a number of demanding goals for renewable energy and clean tech production and installation, including-

• Increasing renewable energy production from wind to 150GW by 2020, from an earlier goal of 100GW, and solar production from 1.8GW to 20GW by the same year
• Increasing production of plug-in hybrid electric vehicles to 500,000 by the end of 2011, up from 2,100 in 2008
• A raft of transportation spending initiatives and policy reforms, including $1 trillion for increased railway infrastructure, tax programs to incentivize the purchase of fuel-efficient cars and increased fuel economy standards
• Strict energy-efficiency standards in building codes, home appliances and amongst China’s top 1000 energy consuming businesses.

China is also moving full speed ahead in the race to dominate nanotechnology research, a likely source for many of the cleantech industry’s future breakthroughs.  These investments, combined with what some see as a willingness to use border measures and anti-competitive bidding practices to discourage foreign participation in the Chinese cleantech market, position Chinese manufacturers to be a dominant player in the global cleantech market.  Indeed, China’s rise in the cleantech space has prompted some U.S. analysts to question the wisdom of investing in domestic cleantech manufacturing capacity, versus simply ceding manufacturing to China and focusing on domestic installation of less expensive Chinese equipment. 

When Cleantech Doesn’t Mean Cleanup

While China has made significant strides in cleantech investment and implementation, it has continued to resist international calls for binding emissions caps or reductions.  Instead, citing its prerogative as a developing nation, China has focused its pledges on reducing energy intensity-a measure of carbon emissions in relation to GDP.  This poses several challenges for international efforts to stabilize carbon levels.  First, with China becoming the world’s largest net emitter of CO₂, internationals effort to freeze global emissions will be an exercise in futility without China (and other large developing countries) making binding commitments.  Second, even under China’s current emissions-rate based goals, China has yet to meet any of the benchmarks necessary to achieve its efficiency goals of reducing emissions 20% by 2010.

China’s aggressive investment in the cleantech sector, combined with its continued refusal to reduce its net emissions, illustrates a major flaw in the assumption that investment in clean energy infrastructure and manufacturing capacity will automatically lead to both a cleaner environment and more robust national economies.  If, as some critics argue, China has opted for the robust economy while leaving the cleaner environment to others, China could reap disproportionate economic benefits from global cleantech investment, while shifting a disproportionate economic and environmental burden to other counties.  This, in turn, could undermine other countries’ efforts to fund today’s environmental cleanup efforts through long-term economic growth in their domestic cleantech industries. 

American cleantech companies are poised between a radical expansion of their potential markets into China and other cleantech-hungry developing countries and the specter of foreign companies, energized by concerted investment in their home nations, outcompeting them both overseas and at home.  This high-stakes race for cleantech hegemony will be hard fought, with China and the U.S. just two of the countries competing.  The race to be a global leader in actual emissions reductions, however, remains any country’s to win.

For further information about this topic, please contact Akin Gump.