The Greening of Asia

The Business Case for Solving Asia's Environmental Emergency

Mark L. Clifford

• Publisher: Columbia Business School Publishing
• Year: 2015
• eBook ISBN: 9780231539203
• Topic: Economics
• Subtopic: Business General
• Index: Economics

One of Asia's best-respected writers on business and economy, Hong Kong-based author Mark L. Clifford provides a behind-the-scenes look at what companies in China, India, Japan, Korea, the Philippines, Indonesia, Hong Kong, Singapore, and Thailand are doing to build businesses that will lessen the environmental impact of Asia's extraordinary economic growth. Dirty air, foul water, and hellishly overcrowded cities are threatening to choke the region's impressive prosperity. Recognizing a business opportunity in solving social problems, Asian businesses have developed innovative responses to the region's environmental crises.

From solar and wind power technologies to green buildings, electric cars, water services, and sustainable tropical forestry, Asian corporations are upending old business models in their home countries and throughout the world. Companies have the money, the technology, and the people to act—yet, as Clifford emphasizes, support from the government (in the form of more effective, market-friendly policies) and the engagement of civil society are crucial for a region-wide shift to greener business practices. Clifford paints detailed profiles of what some of these companies are doing and includes a unique appendix that encapsulates the environmental business practices of more than fifty companies mentioned in the book.

I

Energy:

Sun, Wind, and the End of Coal

We may well call it black diamonds. Every basket is power and civilization. Coal is a portable climate. It carries the heat of the tropics to Labrador and the polar circle; and it is the means of transporting itself whithersoever it is wanted. Watt and Stephenson whispered in the ear of mankind their secret, that a half-ounce of coal will draw two tons a mile, and coal carries coal, by rail and by boat, to make Canada as warm as Calcutta, and with its comfort brings its industrial power.

—RALPH WALDO EMERSON

If this was a murder mystery, coal would be the villain hidden in plain sight.

A century ago coal powered the trains and ships that ushered in the modern age. Today, it still plays an outsized role in fueling the electricity plants on a continent whose people are literally coming out of the darkness—out of the enforced darkness of poverty, where streets are dim and students study by a kerosene light—into our electricity-driven age.

Coal is plentiful and cheap: coal-fired electricity powers eight of every ten light bulbs in China, a country that burns almost half the coal used worldwide every year.¹ Coal is an ever-ready servant, abundant and easy to use, and a steady and reliable producer of power.

Coal is also dangerous: it is the single largest cause of the air pollution that prematurely kills more than 1.2 million people each year in China alone, in addition to the more than 1,000 coal miners who perish in accidents in a typical year. Coal is also responsible for worsening climate change, accounting for more than 40 percent of greenhouse gas emissions.²

Coal is king in Asia. The continent accounts for almost two thirds of global coal use, up from a quarter in 1980. Coal use in Asia quintupled from 1980 until 2010, even while it fell in the rest of the world; still, coal burning in China is not expected to peak until around 2030. It is just too cheap, too easy, and too efficient at turning its latent caloric energy into the heat that drives the turbines that produce the electricity that Asia so badly needs; coal power is almost irresistible.³

The key to solving Asia’s energy problems and its environmental nightmare lies in using less coal. China is making progress by adopting cleaner coal technologies. Indeed, a good part of China’s attempts to reduce air pollution and slow the growth of carbon emissions will involve more efficient use of coal—building more efficient power stations and eliminating coal in smaller-scale industrial boilers.⁴ But the more quickly China and other large, fast-growing countries like India and Indonesia can end their dependence on fossil fuels, especially coal, the faster air quality will improve and the easier it will be to mitigate the effects of climate change.

The end of the coal era will require a mix of solutions. One fuel that is the focus of a good deal of debate in China is natural gas, both conventional and unconventional (shale gas). Although natural gas is certain to play a larger role in meeting China’s energy needs, it is unlikely to have the sort of transformative impact that it did in the United States. China has an undeveloped gas pipeline network; it spans only 4,500 kilometers, compared with 360,000 kilometers for the United States. Even China’s 2015 target of 56 gigawatts (GW) of gas-fired generating capacity, up from 32 GW at the end of 2013, is substantially less than wind-powered generating capacity was at the end of 2013. China’s energy and electricity prices are highly regulated, unlike in the United States, and China’s gas prices are high relative to electricity prices. That means many gas-powered utilities must rely on financial subsidies from local governments. Although there is a lot of talk about the importance of developing China’s shale gas reserves, these are unlikely to have more than a marginal impact on the country’s energy picture. Even if China built out its natural gas pipeline network and increased electricity prices to make natural gas attractive to power plant operators, the need for vast amounts of water in unlocking shale resources makes it an unpalatable fuel for China. Moreover, the singular success of shale in the United States reflects a fragmented industry where small-scale, local wildcat operations have provided entrepreneurial drive. This industry structure is in direct contrast to China’s extremely concentrated statist industry.⁵

Another important need is more efficient power grids. Here, as in many other areas, China is embarking on an aggressive expansion program. As noted in the introduction, it spent more in 2013 on emerging smart-grid technologies than the United States did. China now has a plan to build ten ultra-high-voltage power lines at a projected cost of $61 billion to bring power—including wind power—from its remote northern and western regions to its central and coastal cities.

Neither the increased use of conventional natural gas or unconventional shale gas nor the construction of a network of ultra-high-voltage power lines will change China’s stark situation: it is a resource-poor, energy-hungry nation that will have to increasingly use energy more efficiently if its economic development is to continue. Even nuclear power, which China plans to grow from 14 to at least 58 GW by 2020, will make up only a small percentage of the country’s electricity-generating capacity. That means China must continue to aggressively adopt renewable-energy sources such as solar and wind.

Solar and wind power, the focus of the next two chapters, are the two most dynamic and fast-changing sources of renewable energy. Although Japan is significant as both a manufacturer and a consumer of solar power and South Korea and Taiwan also manufacture solar panels, the dramatic changes that have roiled the global solar and wind industries in recent years are a China story. The Chinese wind and solar power industries have, since the turn of the century, transformed themselves from marginal players into significant global forces—in the case of solar, the dominant global force. China took advantage of its status as a technological latecomer to import foreign technology, often improving it, and drive costs down. It was able to do this because its land, labor, and capital are all underpriced for its favored industries.

Wind has an even more promising future in China. Wind power already accounts for a significant part of the country’s installed electricity-generating capacity. With a strong political commitment and good policies, researchers at Harvard and Tsinghua believe that wind theoretically could account for all of China’s electricity output by 2030 at a price comparable to that of coal.⁶

Still, despite impressive success in winning sales, both solar and wind show some of the problems of China’s system. Although solar and wind are environmentally benign sources of power, as ongoing businesses many companies operating in this area are not sustainable. Competition among local governments, in concert with broad national policies, sparked extraordinary competition among these companies that led to a rapid decline in prices for solar and wind power. This price discounting was unintended—and completely at odds with China’s notionally planned economy. It was wasteful, creating large losses that will be borne by ordinary Chinese, who as taxpayers ultimately pay most of the bill for the mistakes of their government and banks. This saga, in short, is not a textbook case of success but a tale of state planning—some of it successful and some not—coupled with the extraordinary, even reckless, ambitions of contemporary China’s first generation of entrepreneurs. Unwittingly, however, the China model of a semiplanned industrial policy, buttressed by unnaturally low costs, has succeeded in making renewable energy cost-competitive far more quickly than even the most optimistic analysts would have imagined at the beginning of the 2000s, benefiting not only China but also the world.

1

The Sun Kings

We are like tenant farmers chopping down the fence around our house for fuel when we should be using Nature’s inexhaustible sources of energy—sun, wind and tide. I’d put my money on the sun and solar energy. What a source of power! I hope we don’t have to wait until oil and coal run out before we tackle that.

—THOMAS EDISON

In 1992, Shi Zhengrong completed his doctorate and found himself an expert in a field that wasn’t quite ready for him. He’d studied physics at Australia’s University of New South Wales, focusing on crystalline technology, the basic scientific building block of photovoltaic solar power. This knowledge, however, did not yet have much real-world application. Shi, originally from China, thought setting up a Chinese restaurant in Sydney was his best idea. As he told an audience in Hong Kong in 2008, his wife vetoed the restaurant idea and convinced him to look for work more closely related to his studies. He was able to stay in solar, working first at an academic post in Sydney—but real success followed after he started his own company. Shi returned to China and, with the help of local officials in the city of Wuxi, founded solar panel maker Suntech in 2001.¹

Shi was successful beyond imagination. By 2005, Suntech had sales of $226 million. That year—just four years after it was founded—the company went public on the New York Stock Exchange (NYSE), raising $455 million in the exchange’s biggest Chinese offering of the year. It also became the first private Chinese company to list on the Big Board. The next year, as a sign of the company’s importance, Shi was invited to sit on the exchange’s international advisory board.

Shi Zhengrong, founder and CEO of Suntech Power Co., at the World Economic Forum headquarters in Geneva, Switzerland, in August 2011. Photo credit: © AP/Martial Trezzini

For the next few years, Suntech’s sales soared, and so did its stock market valuation. Encouraged by Suntech’s success, other Chinese companies entered the industry, and the first decade of the 2000s saw Chinese companies sweep aside long-established international competitors. In 2012, PricewaterhouseCoopers released a report that ranked solar makers by their overall importance and gave Chinese companies eight of the ten top slots in the industry.²

Then came the fall. In March of 2013, after a series of missteps and a default on its bonds, Suntech’s major operating unit filed for bankruptcy, bringing normal business operations at the parent to an end.

The story of how and why Suntech rose to such heights and then plummeted to earth holds lessons not only for solar panel makers and many of China’s other green-tech industries but also for China’s policy makers as they pursue their goal of increasing China’s technological sophistication and advancing its hope of becoming one of the world’s most innovative economies. Yet the story of Suntech’s failure hides a more important tale, one in which China’s impressive manufacturers have driven down prices far faster and further than anyone would have guessed a decade ago. Thanks to China’s unique industrial structure, one that prizes growth over profitability, solar power is now broadly cost-competitive with other energy sources throughout much of the world. As solar panel prices plummeted, installations skyrocketed, with the global solar power base growing twenty-five-fold from 2005 through 2013. No company was more important to this transition than the tragically flawed Suntech.³

Suntech’s growth was impressive. Within a decade of its founding, it went from an unknown start-up to the world’s largest producer of photovoltaic solar modules—a corporate success that seemingly underscored China’s newfound dominance of the clean-tech world.

Suntech’s hometown of Wuxi is, by Chinese standards, a midsized city, though its population of more than six million people makes it larger than any U.S. city except New York. It is not far from Shanghai (a high-speed train now makes the journey in forty-five minutes) and lies in the Yangtze River Delta, a region that has proven to be fertile ground for China’s economic growth. It is a particularly entrepreneurial part of the country, and officials there welcomed businesses and encouraged Suntech’s wide-ranging ambitions.

For its first few years of business, Suntech’s ambitions were consistently realized—and exceeded. Shi Zhengrong, rarely bashful, boasted in his 2006 letter to shareholders that the company had increased its manufacturing capacity twenty-seven-fold in the four years since it had started operations. The company shrewdly took advantage of an industry that was growing at a compound annual growth rate of 43 percent, with global solar sales mushrooming from $2 billion in 2000 to $9.8 billion in 2005. It was also outpacing opponents in keeping costs down. In the same shareholders’ letter, Shi boasted that it would cost Suntech only $8 to $10 million to build a production line capable of producing 30 MW of solar panels a year because of cheap land, labor, and buildings. Some of Suntech’s competitors, in higher-cost countries, would have to spend $30 to $75 million for similar capabilities.

The story was plausible. China’s manufacturing companies have a well-deserved reputation for competent management and workers who are intensely, even obsessively, focused on bringing down manufacturing costs. Suntech, thanks in part to the cash raised from its NYSE stock sale, was able to invest and grow faster than its domestic competitors and remain much less expensive than its more established foreign peers. Aided by underpriced capital (a product of a state-run banking system that penalizes savers and pushes a glut of capital to investment) and inexpensive land (provided by local officials intent on bringing businesses to their area), the company had developed a recipe for exponential growth.⁴

Inexpensive products were key to Suntech’s growth. The company had good technology, though it was in no sense on the leading edge of innovation. Indeed, China’s success in solar came from using technology developed beginning in the 1950s at Bell Laboratories in the United States. Bell Labs, which functioned almost as a national laboratory even though it was owned by telephone monopoly AT&T, was at the forefront of the development of semiconductors, and solar power was an offshoot of that effort. Bell Labs’s initial breakthroughs were buttressed by substantial support from the U.S. government, which spent heavily on the development of solar power.

The first practical use of solar power was for satellites. Solar allowed for a longer useful life than batteries alone did, and with cost of secondary importance in the early decades of the space race, scientists were able to use the still-expensive technology. The Vanguard I satellite, covered in solar cells, was launched in 1958. In the late 1960s, scientist Elliot Berman discovered that scrap silicon from semiconductor manufacturing, even with imperfections, could be used for solar power. Exxon’s backing of Berman’s discovery lowered manufacturing costs, and solar garnered significant interest as rising oil prices after the 1973 OPEC oil embargo sparked concerns about energy security. A series of innovations since then has continued to push down prices. The price per watt of electricity produced by solar has fallen almost 99 percent since the 1970s, from $70 a watt to 80 cents in 2012.⁵ By the time Suntech entered the scene, the technology was far enough along that ...

Table of contents

• Cover 
• Title Page
• Copyright
• Contents 
• Preface
• Introduction: Green Shoots Under Soot-Stained Skies
• Part I: Energy: Sun, Wind, and the End of Coal
• Part II: Our Human World: Cities, Buildings, Wheels
• Part III: Nature: Forests, Farms, and Water
• Conclusion: From Black to Green: Asia’s Challenge
• Appendix: Companies to Watch
• Notes
• Bibliography
• Index