Global Green Growth Engine in the Making
China has a unique opportunity to lead global efforts for sustainable growth through an “energy revolution”path the country has embarked on
Jorgen M. Clausen
Jorgen M. Clausen is the chairman of the global group Danfoss, which produces solutions addressing global need for food safety, modern infrastructure, efficient energy consumption and the combating of climate change. He is former chairman of Danish Energy Industries’ Federation,former chairman of The Innovations Fund (Danish government agency funding research projects),bestowed with Verdienstkreuz 1. Klasse in Germany, Tianjin Haihe Friendship Award in 2017 and China Friendship Award in 2018.
The year 2018 marks the 40th anniversary of China’s reform and opening-up. Since Danfoss started to invest and operate in China in 1996 by laying the ground for our first manufacturing base, I have been visiting the country regularly each year. Every time I come, I see a different country. I have been witnessing the dramatic changes from an “outside in” perspective. In the meantime, Danfoss has been experiencing, and benefiting from,the fast growth in China. We are also proud to be part of this exciting process unprecedented in history.
On a trip to west China when I took office as president and CEO of Danfoss A/S in 1996, I was astonished to see incredibly rapid growth and burgeoning opportunities even in the remotest corner of the country. After the trip, I had an in-depth discussion with our management team. We decided to speed up investment in the country by making China not only one of our strategic markets but our “second home market”. The double-digit growth we have enjoyed in many years through our continued steady investment has proven to be right. Today, our vision has come true: China is now our second-largest market. China’s ongoing reform and growth trends are in strong alignment with Danfoss’ four business themes — climate, infrastructure, energy and food. Our significant growth in the past 22 years simply could not have happened without the successful reform and opening-up policy.
China’s reform and opening-up has created comprehensive and far-reaching values for the world. I read from an article that in the 12th Five-Year Plan (2011—2015), China’s economy growth contributed over 25 percent of global growth.
As China continues to push for economic reform, the country has started to focus more on sustainable and quality development, and an increasing amount of investment is being made to promote innovation in environment-related industries. Driven by massive investments in the field of green energy and energy efficiency by the Chinese government to tackle the challenges of climate and energy, the China market has been unleashing significant business opportunities for companies like Danfoss with a full range of offerings meeting the growing needs in China’s sustainable growth and contributed to a third of the group’s overall growth in 2017.
We have strong confidence that China’s economic growth will continue to be an engine for global green growth and generate opportunities for business regardless of their national origin.
In the global arena, China is also playing a proactive and responsible leadership role. Green growth is the global trend, and China is now the “trendsetter”. In the past decades, China has been increasing investment in renewable energies and promoting the development of a green and circular economy. China’s wind and solar industries have grown to be dominant global leaders, not only in installed capacities, but also in terms of innovation and technology. China is now the world’s biggest investor and innovator in renewable industries.
Meanwhile, China is exercising a more and more important role in global governance, especially in the fight against climate change. China was among the first countries to sign the Paris Agreement in 2016, taking leadership in the fight against global warming. Domestically, to fulfill its commitment to the climate pact, China pledged to cut its carbon emissions per unit of GDP by 60-65 percent by 2030 compared with 2005 levels, increase non-fossil fuel sources in primary energy consumption up to about 20 percent, and cap its carbon emissions by 2030.
These targets are reflected in China’s policies, most recently in the 13th Five-Year Plan (2016—2020), which we believe is the greenest five-year plan ever. China now is determined to have GDP growth decoupled from energy and water consumption as well as CO2 emissions. However, these ambitious goals don’t come without a price. It means more investments by government and business and more time before quality solutions are applied and new infrastructure is built.
In 2016, China issued 255-billion-yuan ($36.9 billion)-worth of green bonds, dominating the global market in climate-friendly infrastructure investment. By the end of 2017, China had led global issuance of “green” bonds for two straight years. The continuing top-level sustainable financing push supported by encouraging domestic policy developments will allow China to continue to be a global green growth leader in the future, and also manifest its commitment to implement the Paris climate accord.(https://www.daowen.com)
Internationally, energy efficiency is considered key to ensuring a safe, reliable, cost-effective way for a sustainable future. The International Energy Agency (IEA) believes that “it is the one energy resource that every country possesses in abundance and is the quickest and least costly way of addressing energy security, environmental and economic challenges”. Any energy strategy must start with energy efficiency to ensure cost efficiency. As the IEA estimates, energy efficiency needs to reach 38 percent of total energy demand to keep the planet within the 2-degree scenario of global warming.
Countries where energy efficiency is regarded as the “first fuel”,such as in Europe, especially Denmark, have extensively proven technologies and solutions that have been tested in many renowned successful cases. In the Danish city of Aarhus, the Marselisborg Wastewater Treatment Plant got a state-of-theart upgrade with a Danfoss solution, enabling it to generate 230 percent of its energy needs from sewage.
The Copenhagen district heating system is one of the world’s largest, oldest and most successful, supplying 97 percent of the city with clean, reliable and affordable heating. Set up in 1984,the system has been cutting household bills by 1,400 euros annually and has saved Copenhagen district the equivalent of 203,000 tons of oil every year — that’s 665,000 tons of CO2.
We are pleased to see that as China shoulders more and more responsibility to lead the fight against climate change, the country has made reducing energy intensity one of the top priorities and has embarked on one of the most aggressive energy conservation campaigns in the world. China has pledged to launch an “energy revolution” to make radical changes in the traditional ways of energy production, supply, distribution and consumption.
Under the 13th Five-Year Plan, China plans to reduce energy intensity by 15 percent and make non-fossil energy sources a more important part of the Chinese economy. The carbon target will be mostly achieved by improving energy efficiency and the shift from heavy industry to less energy-intensive sectors.This is a significant increase in the importance of non-fossil fuel sources from previous five-year plan targets.
Recently, China has enacted a series of policies to promote energy efficiency. In building energy efficiency, for example,effective policies have been implemented, such as mandatory building energy codes for residential and commercial buildings in urban areas, voluntary energy codes for rural residential buildings, policies and incentives based on green building ratings, and building retrofit programs. These policies have been contributing significantly to energy saving and reduction of greenhouse gas emissions. The policies have also created a burgeoning market for energy-efficient materials and products such as wall and roof insulation, doors and windows, heating, ventilation, and air conditioning.
Apparently, China has chosen the right track for sustainable growth. In practice, however, there is still much room to improve energy efficiency while striking the right balance between investment in energy efficiency and renewable energy.
Statistics show that the economic growth in China in the past decades has resulted in surging demand for all energy sources,leaving significant potential for efficiency improvement. China consumes almost 32 percent of the world’s energy to produce 13.4 percent of global GDP. The average consumption of energy per 10,000-yuan GDP is 1.7 tce (ton coal equivalent), while China’s 4.1 tce is 2.2 times of that of the US, 2.9 times of Japan and 3.3 times of the EU. The building sector alone takes up onethird of total energy consumption where we see huge potential for savings.
The development of modern and affordable district energy systems in cities is one of the least-costly and most-efficient solutions to improve building energy efficiency. International experience shows that a heat metering policy is essential in ensuring the efficiency of a district heating system. In a modern and sustainable heating system, heat is “pulled” to users according to their actual demand through metering and control products,assuring rational consumer behavior such as using water and electricity. Currently in China, a “push” system still prevails with heating reform still on a bumpy road. Heat continues to be“pushed” to the user’s end by charging for heating areas regardless of their actual demand, resulting in huge waste of energy and pollution. Therefore, the country should make sure that an effective heat metering policy is in place so that efficiency solutions for district heating, such as metering, can be fully implemented, ultimately to improve energy efficiency in all buildings,and reduce cost and pollution while optimizing the comfort level for heat users.
The benefits of such heating reform can be well illustrated by calculating the saving in heating against government subsidies for renewable energy. The government earmarks 13 billion yuan to subsidize new energy per annum while the heating area in China totals roughly 13 billion square meters. In terms of heating costs, each square meter accounts for 15 yuan. If, say, we used our energy efficiency technology in all heating systems across the country, we can save up to 1 yuan for each square meter. It will be a total of 13 billion yuan, which is the equivalent of the annual government subsidy for new energy! In other words, the saving for each square meter will be about 7.5 percent, which can be easily achieved. Our solutions for metering and control system for buildings alone can conservatively save up to 20 percent of the total heating fuel given the current operational level of China’s heating systems. Therefore, sufficient investment in improving China’s heat metering systems alone would not only enable efforts in implementing metering systems in buildings across the country but also create resources to subsidize new energy.
The solutions applied in the system have been tested again and again, and now have been implemented in many cities including New York, and the Chinese city of Benxi. To facilitate the development of district energy systems in the context of achieving global sustainable goals, the United Nations Environment Program and a group of partners, including Danfoss, have launched an initiative on District Energy System in Cities, or DES, as an accelerator of Sustainable Energy for All, or SEforALL. The Benxi project is one of the model cases that the initiative has been promoting globally. We are already working with the Chinese government at all levels and local partners to implement DES across China.
Therefore, we suggest that China make better use of the technologies and solutions that are ready on the shelf, especially the ones that have been successfully tested and proven. We believe that with proper macro policy design and micro regulations equipped with proven solutions, China will continue to be a dynamic engine for global green growth.
In view of China’s successful economic reform in the past four decades and great prospects for future growth in the new century, I would like to conclude by making the following observation: if Great Britain led the world in the 19th century through the Industrial Revolution and the United States became a global leader in the 20th century by teaching the world how to consume, I am confident China has a unique opportunity to lead global efforts for sustainable growth in the 21st century through further reform and the “energy revolution” path the country has embarked on.