Asia’s Clean Tech Transition: Balancing Green Development and New Market Growth

Author: Sung-Young Kim

A profound shift toward a clean energy future has been underway in East Asia over the past decade. The industrial giants of China, Japan, Taiwan, and South Korea (and, importantly, the South Asian giant, India) are the main players in these economy-wide transitions.

Governments of these countries have all made various commitments toward low-carbon-emitting, green growth strategies. They have invested in the building of new green energy technology manufacturing industries such as those related to solar and wind, smart grids, green vehicles, and green buildings. These efforts are inextricably linked to the emergence of global markets for such products; indeed, there is now intense competition for market share in the export of clean technology products. Governments have also sought to accelerate the uptake of renewable energy sources as part of the national energy mix, although with mixed results to date (more below). As a means to create and sustain momentum for greening efforts at home and globally, East Asian states have pioneered the establishment of new institutions at the national, regional, and international levels.

Some experts argue that East Asia’s – and especially China’s – greening initiatives represent a viable pathway (for other countries to emulate) to reconcile future global economic expansion within our planet’s environmental limits, or how Gaia  (a “living Earth”) can be complemented by CERES (“circular economy and renewable energy system”).

It’s about time we move on from the question of whether these greening efforts are real, although free-market environmentalists and greenwashing-skeptics will beg to differ. Instead, we need to focus on the motivations behind the transition, the pace at which the transition will proceed, the obstacles standing in the way, and what is being done in practical terms to overcome, if at all, such odds.

The clean transition in motion: key initiatives and outcomes to date

China

Up until just several years ago, much of the commentary on China viewed the country as being hopelessly committed to coal-fired “black growth” as part of national development priorities. To be fair, this would be the obvious conclusion for visitors to any of the smog-clouded cities along China’s eastern coast. It comes as little surprise, then, that China is the world’s largest user and producer of coal and the largest emitter of greenhouse gases.

China is the architect behind the establishment of the world’s largest renewable energy system – producing one trillion kWh in 2013, which exceeds the total electricity generated in France and Germany combinedHowever, and somewhat surprisingly considering the above, China is the architect behind the establishment of the world’s largest renewable energy system – producing one trillion kWh in 2013, which exceeds the total electricity generated in France and Germany combined. China’s target to include renewable energies in its energy mix has boosted markets for its wind and solar power manufacturers, which experts argue have played a large role in driving down the costs of generating electricity from renewables and thereby accelerating the uptake of renewable energy.

China’s mass manufacture and deployment of renewables has been a state-coordinated affair from the outset. Concerted efforts started under the 11th Five-Year Plan (2006-2010), the 12th Five-Year Plan (2011-2015), and now, as preliminary reports suggest, continue under the 13th Five-Year Plan for Economic and Social Development (2016-2020), which sets out even higher renewable-energy usage goals.

Japan

The Japanese government took an early lead in encouraging greening efforts, especially in the automobile industry in the 1990s – efforts that have now solidified Japanese companies’ lead in electric and fuel cell technologies.

Since 2010, a series of smart grid pilot projects utilizing energy management systems, energy storage systems, electric vehicles, and solar modules have been run by various ministries including the Ministry of Economy, Trade and Industry (via its New Energy and Industrial Technology Development Organization) and by companies including the Japan Wind Development Co., Toyota, Panasonic, and Hitachi.

Beneath the radar, Prime Minister Shinzō Abe’s government is leading heavy investments in smart grids and renewable energy generationThese initiatives would appear to have been blunted by the approval to restart a third nuclear power plant after the 2011 Fukushima disaster. However, this appears to be a political compromise between a full-scale relaunch of nuclear reactors (supported by utilities and some elements of the business community) and a German-style post-nuclear Energiwende or “energy transition” (favoured by public opinion, but constrained by the lack of a well-organized Japanese Green Party).

Beneath the radar, Prime Minister Shinzō Abe’s government is leading heavy investments in smart grids and renewable energy generation (especially hydrogen) through bolstering local government efforts.

Taiwan

The island is home to early movers in the clean technology field who all began production of solar cells in the early to mid-2000s and now rank among the world’s established leaders in this field. Large semiconductor firms and flat panel display companies also began investments in the solar cell industry in the late 2000s (with parallel moves by their competitors in Korea). Despite Taiwan’s success in building a global export platform for solar cell technologies, somewhat paradoxically the installation of these renewable energy devices remains underdeveloped for reasons relating to domestic political partisanship over this issue. However, with a new government in power (since January 2016) that is committed to a new “green energy” strategy and a goal to shut down all nuclear reactors by 2025, the market for renewable energy generation in Taiwan appears promising.

Korea

Compared to regional neighbours such as Japan, South Korea (Korea) joined the renewables race somewhat late. Nationally co-ordinated plans to enshrine green growth as a new growth paradigm only came about in 2008, soon after the country’s First Five-Year Plan for Green Growth (2009-2013) was established as part of a long-term focused “National Strategy for Green Growth” (2009-2050). The country is now well into the Second Five-Year Plan for Green Growth (2014-2018), of which a core objective is to achieve a “creative economy” through the application of new information and communications technologies to the green technology industries. So far, this goal has meant implementing many of the key initiatives, such as commercializing smart grid pilot projects that ran from 2009 to 2013 on Jeju Island (off the Korean peninsula’s southern coast).

Korea has adopted a business-oriented approach to greening through the creation and rapid commercialization of renewable energy technology industriesKorea’s renewable energy uptake, like Japan and Taiwan, has been meagre due in large part to the government’s subsidization of electricity prices and the state-owned Korea Electric Power Corporation’s (KEPCO) virtual monopoly over the power generation industry. However, similarly to its neighbours, Korea has adopted a business-oriented approach to greening through the creation and rapid commercialization of renewable energy technology industries. Korean companies are now world leaders in energy storage systems and smart microgrids, which are critical elements of a system-wide transition toward a renewable energy footing.

Regional plans

These national efforts to drive the clean technology transition cannot be discussed without mentioning parallel moves at the regional level. Among many initiatives to create new green financing and development-funding institutions, the creation of an East Asian electricity market is perhaps the most noteworthy. Large manufacturing states will be able to import renewable energy electricity from developing countries. Japan’s idea of an “Asian Super Grid” and China’s similar concept of a “Global Energy Interconnection” both involve the construction of vast renewable energy (wind and solar) projects in the Mongolian deserts linked via high-voltage power transmission cables (overland and undersea) to the electricity markets of Russia, China, Japan, and Korea. This idea now appears to be gathering more concrete commitments through a memorandum of understanding concluded in September 2016 between the Japan-based Renewable Energy Institute, KEPCO, China’s State Grid Corporation, and Russia’s PJSC Rosseti to construct the Asian Super Grid in Tokyo.

International diffusion

East Asian governments have pioneered green-energy-focused overseas development assistance initiatives. Among various new financing mechanisms, in 2010 the Korean government established the Green Climate Fund under the auspices of the United Nations Framework Convention on Climate Change, which provides finance for dedicated green growth projects in developing countries. Other major initiatives include the Global Green Growth Institute, the Climate Technology Centre & Network, and the Korea Export-Import Bank’s issuance of the world’s first “climate bond” backed by a national government to a value of US$500M.

These programs reflect a desire by these governments to promote a greener model of development for the world and to create new export markets for clean tech products and systemsThrough its 2013 “One Belt, One Road” vision, the Chinese government has also been a major instigator of green-oriented (and simultaneously black-oriented) infrastructure and energy projects. The government was behind the creation of several major international financial institutions to facilitate this vision, including the Silk Road Fund, the Asia Infrastructure Investment Bank, and, with BRICS (Brazil-Russia-India-China-South Africa) countries, the New Development Bank (together amassing US$240B in capital).

These programs reflect a desire by these governments to promote a greener model of development for the world and to create new export markets for clean tech products and systems – to institutionalize a “global green shift,” as one analyst puts it.

What is motivating the clean tech transitions?

The most obvious question arising from these developments is why these countries are so aggressively co-ordinating national clean technology transitions. Mitigating the harmful effects of climate change is a major concern, but this explanation alone tells us little about timing; why did these countries join the race in the mid- to late 2000s, and not earlier like Denmark and Germany (leaders in wind and solar technology, respectively)? More perplexingly, what would drive these countries, which were (and still are) dependent on cheap and plentiful fossil fuels, to become such strong advocates of clean energy technologies?

There is increasing recognition that the production and use of clean energy technologies is not only, or even mainly, about environmental protection. One argument suggests that countries like China manufacture renewables to build energy security. Policy-makers across East Asia recognize that their manufacturing-based economies rely on vast amounts of reliable and affordable electricity. They are well aware of the environmental and economic limits for future growth that a “brown growth” model (based on the exploitation of cheap and plentiful fossil fuels) can deliver, especially given that all these countries are net importers  (not producers) of fossil fuels. Indeed, from the perspective of high-level Korean officials in the former Presidential Committee on Green Growth (now the Prime Ministerial Committee on Green Growth), green growth represents an opportunity to pursue both environmental and economic goals without necessitating a trade-off in the pursuit of one for the other. By investing in and exporting renewable energy technologies, East Asian countries are attempting to secure their energy security (in a world of declining sources of fossil fuels) and techno-economic competitiveness, in addition to environmental protection. In short, green growth represents an extension of the long-held tradition of “developmentalism,” or developmental environmentalism.

Green growth represents an opportunity to pursue both environmental and economic goals without necessitating a trade-off in the pursuit of one for the otherImportantly, for the time being at least, governments based in Seoul, Beijing, Taipei, and Tokyo are the key actors co-ordinating the clean energy transition. State intervention is necessary in order to break the complex of institutional linkages, which contribute to “carbon lock-in” – a situation where vested interests in the public and private sectors favour the continuity of a brown growth, fossil-fuel-based economy. Once a green growth trajectory has been state-mandated, one can expect the private sector to increasingly take the lead in investing resources, creating new financing mechanisms, and leading technological innovation. Rapid advances by Korean companies in the smart microgrid market following pioneering movements by KEPCO would appear to demonstrate this assertion. The advances made by Chinese solar manufacturers provide another example – state-mandated renewable energy targets have arguably given rise to Chinese firms being ranked among the top 10 solar photovoltaic companies in the world.

Opportunities for Canadian companies

Source: https://blog.powerstream.ca/2016/06/powerstreams-utility-scaled-microgrid-operational/

Canadian companies have developed an international reputation for developing cutting-edge technologies in the marketplace – Blackberry being the standout company in this respect. In the green technology field, Canadian Solar, founded by the country’s own Shawn Qu in 2001, is now one of the top three solar photovoltaic module manufacturers globally.

Of course, Canada cannot be at the forefront of every technology, nor can all products be manufactured in Canada competitively. As such, the Canadian government and the private sector should think strategically (and collaboratively) about which technologies should be targeted for development at home, with the aim of rapidly commercializing these new innovations. The public and private sector should simultaneously be rigorously examining which technological products could be manufactured domestically (and exported to meet knowledge gaps in East Asia’s energy technology systems). They should also seriously consider which technologies might be more effectively leveraged via negotiating licence agreements with mass manufacturers hungry to commercialize a promising new innovation themselves.

The recent technological collaboration between Alectra Utilities (formerly PowerStream, a community-owned power company in north Toronto and central Ontario) and KEPCO is a fruitful example of the opportunities available for Canadian firms. The joint development agreement involves the building of a utility-scale microgrid that draws power from renewable energy sources in Penetanguishene (a town in Ontario) to provide emergency power supply for approximately 400 residents and businesses. The system draws on KEPCO’s now-proven energy management system, which automates the supply and use of energy in real time, providing KEPCO with entry into the North American market. The Penetanguishene project undoubtedly provides Alectra Utilities and its local partners involved in the 2013 Ontario-based Microgrid Demonstration Project with the opportunity to accelerate the commercialization of a fully operational smart microgrid.

Canadian companies possess world-leading technologies, which they are leveraging as partners with East Asian firms investing in green technologiesCanadian companies possess world-leading technologies, which they are leveraging as partners with East Asian firms investing in green technologies. A state-coordinated targeting strategy could help Canadian companies reap even more benefits for the long term. While there is no guaranteed recipe for success, the Koreans have demonstrated the utility of a centralized governance approach involving interagency co-operation given the economy-wide challenge of effecting a clean tech transition.

Regardless of the level of bureaucratic centralization, the more important point is the need to formulate a long-term focused strategy in consultation with high-tech businesses. This type of national strategy would set out the key technological goals and their implementation via research and development and commercialization plans, and would be adjusted flexibly according to changing market conditions over the mid to long term. Indeed, this is the approach artfully pursued in East Asian countries repeatedly during their industrial takeoffs, and is now being redeployed for promoting the clean tech industry.

The views expressed here are those of the author, and do not necessarily represent the views of the Asia Pacific Foundation of Canada.

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