Beruflich Dokumente
Kultur Dokumente
Radhika Kapoor
TABLE OF CONTENTS
SUMMARY OF ORIGINAL CONTRIBUTION .......................................................................... 2
LIST OF FIGURES ........................................................................................................................ 3
LIST OF TABLES .......................................................................................................................... 4
I.
INTRODUCTION ................................................................................................................... 5
Deriving a unique list of 15 clean energy technology products on the basis of World
Banks list of 12 Environmental Goods
Developing and analyzing the Revealed Comparative Advantage (RCA) metric for the
selected 15 goods for China, Germany and USA
Analysis of Chinas trade strategy and policies using RCA and tariff data
LIST OF FIGURES
Figure 1 : GHG Emission Abatement Potential In Power Sector
Figure 2: Market Size And Growth For Environmental Goods And Services By Region, 2011
Figure 3: Leading Global Exporters Of Environmental Goods (USD Thousand): Average 20082013 Of Yearly Export Value
17
23
Figure 6: Percentage Share Of China's Export of Solar PV As Compared With World Exports Of
Solar PV
Figure 7 : Average RCA For 15 Environmental Goods For China, Usa And Germany
29
35
Figure 8 : Percentage Share of Exports For China, Usa And Germany For 15 Environmental
Goods
Figure 9: Key Financing Mechanisms For Green Energy Development In China
35
37
LIST OF TABLES
Table 1 : Clean Energy Technology List Of 15 Environmental Goods
12
15
16
20
Table 5: Table of Statistics on Trade In Hydraulic Turbines And Parts, 2010-2012 (US $
Millions)
21
Table 6: Table of Statistics on Exports Of Wind Powered Generating Sets (2004-2012) (US$
Millions)
25
31
32
Table 9: RCA and Tariffs of 15 Environmental Goods Between China, USA And Germany
33
36
I.
INTRODUCTION
China has seen unprecedented growth in its trade in the Environmental Goods (EG) sector, with
a negligible share in world exports of 3.8% at the beginning of the millennium to a 10.7% of the
total environmental goods segment in 2008. It is now only third to Germany and USA (Source:
Intesa Sanpaolo on UNCTAD Comtrade). While exports surged, the imports also saw a dramatic
surge, with China becoming the worlds second-largest importer in 2008, with a 7.6% share of
world imports after USA (Ricerche, 2011). The evolution of Chinas prominence in the
international environmental goods market exemplifies rising Chinese technological leadership
and competence in the sector. What factors may have been behind this resounding success ?
At the center of Chinas success was its two pronged approach entailing- reducing its own
emission intensity by employing cleaner manufacturing technology as well as leading exports in
this emerging high premium environmental goods market. To achieve the said objectives, it had
to align its policies and institutional framework. This direction was provided in Chinas 11th
Five-Year Plan (2006-2010) which set a target to decrease the overall energy intensity of the
economy by 20 percent and subsequently in its 12th Five-Year-Plan targeting16 percent reduction
in energy intensity (energy consumption per unit of GDP) and 11.4% increase in non-fossil
energy. Further, in 2005, China introduced its policy for indigenous innovation' through the
Medium- and Long-term National Plan for Science and Technology Development (2006-20), as
a means to reducing its reliance on low-tech manufacturing exports and moving up the valueadded chain. Through this policy it aimed to boost the creation and commercialization of homegrown proprietary ideas and technologies through fiscal, tax and financial incentives. Some of
these policies were also protectionist in nature such as subsidy funds, local content requirements,
among others. However, it is important to take a step back and assess how all these policies
affected Chinas comparative advantage in environmental goods over the years. It will also be
interesting to understand how Chinas evolving comparative advantage compares with the
developed country leaders in the field such as USA and Germany. This paper aims to ascertain
whether or not China will be able to sustain its comparative advantage by assessing its past RCA
(Revealed Comparative Advantage) trends, policy interventions and tariff structures (trade and
non-trade barriers) to assume future leadership in clean energy technology exports to the world,
overtaking both USA and Germany.
This paper is organized as follows: Section II provides a brief background on environmental
goods and addresses some of the key motivations behind this research, following which Section
III underscores the research methodology and key results of the RCA analysis of the EG
products for China, USA and Germany. Section IV discusses the policy implications and outlines
recommendations for China to sustain and grow its competitiveness in the sector.
II.
By 2030 world GHG emissions are projected to grow by 37% and by 52% to 2050 (compared to
2005 levels), if no new policy action is introduced. Greenhouse gas (GHG) emissions from
OECD (Organization for Economic Co-operation and Development) countries only would be
expected to increase by 23% by 2030 and by 26% to 2050. While the GHG emissions from 4
rapidly industrializing countries (Brazil, Russia, India and China) are expected to grow by 46%
to 2030, and in total would roughly equal emissions from the 30 OECD countries combined by
2030. With no new policies, world GDP is expected to double (grow by nearly 100%) to 2030
and to triple in size to 2050. But it would only cost about 0.5% of that GDP in 2030, and 2.5% in
2050, to achieve the ambitious climate goal of stabilizing GHG concentrations in the atmosphere
at 450ppm (OECD, 2008). According to McKinseys cost curve analysis for global greenhouse
gas reductions, the power sector represented 9.4 Gigatons, or 24 percent, of global greenhouse
gas emissions in 2002. Measures such as demand management, carbon capture and storage,
investing in renewable energy, nuclear power, and improving efficiency of fossil fuel plants
collectively have an abatement potential of 7.2 Gigatons by 2030 and abatement cost of 40 euros
a ton or less (Figure 1). These interventions will be derived from technological innovations in the
environmental goods and services domain. As a result of this global awareness, the market in
environmental goods and services is growing , was estimated to have reached USD 866 billion in
2011, and is expected to rise to USD1.9 trillion by 2020. (International Trade Centre, 2014).
Global exports in environmental goods have risen from roughly 231 billion USD in 2001 to 656
billion in 2012, close to a tripling in trade volumes since 2001. The market size of Unites States
in 2011 was $311.3 billion, growing at 5% per annum, whereas that of Europe was $256 billion,
growing at 2% per annum. While the rest of Asia market was poised at $78 billion, growing at a
high rate of 9% per annum (Figure 2).
Figure 1 : GHG Emission Abatement Potential in Power Sector
The markets in the middle east were also growing at 9% and 10% respectively suggesting a huge
opportunity for market penetration for environmental goods in the developing world. The top
three global leading exporters of environmental goods are Germany, China and United States of
America (Figure 3). Despite the growth of environmental goods and services markets and
increasing acceptance of the need to switch to a green economy, comprehension of potential
opportunities and challenges of trade in environmental goods and services remains inadequate.
This is in part due to the size and complexity of the sector, encompassing goods and services
related to clean-technology, energy and energy-efficiency, pollution control, water and
Figure 3: Leading Global Exporters of Environmental Goods (USD thousand): Average 2008-2013 of yearly export value
Environmental Goods and Services (EGS) figure importantly in international trade policy
discussions, with moves already underway to liberalize the market and reduce both tariff and
non-tariff barriers to environmental goods. For example, the Ministerial Declaration of the WTO
Doha Round in 2001, explicitly mandates negotiations aimed at the reduction, or as appropriate,
elimination of tariff and non-tariff barriers to environmental goods and services, albeit without
specifying which goods and service would fall under this terminology. Lower trade barriers to
EGS can contribute to increased access, which can yield positive environmental, social and
economic benefits (ICTSD, 2007)
For more than a decade, within different settings there have been efforts to define EGs. Defining
and classifying climate-friendly them is the biggest challenge faced by negotiators in favor of
trade liberalization in the sector. The dual-use problem is another important challenge facing EG
negotiators which arises from the fact that most product categories proposed by WTO Members
as EGs include, at the HS-6 digit level, other products that also have non-environmental uses.
Another big challenge for the EG negotiations is the distribution question, which is to ascertain
and include products of export interest to developing countries. The perception so far has been
that EGsbeing capital- and technology-intensiveare of export interest only to developed
countries and a few middle-income developing economies. Further most WTO Members have
not accorded environmental goods status to otherwise like products that have been produced
using methods friendlier to the environment. This is due to the difficulty of distinguishing such
products within the HS system and challenges of harmonizing standards and labelling, as well as
to systemic concerns with regard to other non-product-related standards making their way into
the WTO system as a basis for differentiated treatment. (ICTSD, 2009).
Given these challenges, trade bodies and country associations over the years have made several
attempts at defining lists of EGs. Asia-Pacific Economic Community (APEC) was the first to
single out EGs as a category for trade liberalization in 1997. The OECD list of EGs on the other
hand was based on the definition of the environment and categorized EGs and services under
three broad headings: pollution management, cleaner technologies and products, and resource
management. However, it was the Doha Round that for the first time singled out EGs (and
services) for accelerated trade liberalization at a multilateral level. Friends of Environmental
Goods - Canada, the European Union, Japan, Korea, New-Zealand, Norway, Chinese Taipei,
Switzerland and the United States during the course of the Doha Round also submitted a list of
153 goods for negotiation. (ICTSD, 2013). The World Bank identified a shorter list of 12 goods
for a study on trade and climate change published in 2008 (see Annexure I for details). The list
was identified as being relevant to climate change and was designed to examine the impacts on
trade of removing tariff and non-tariff barriers on environmental goods in general. It includes
goods related to wind power, solar power, energy efficient lighting and clean coal. Some of
these items are covered in the list of 153; others are new.
In July 2014, fourteen WTO members launched plurilateral negotiations for an Environmental
Goods Agreement at the WTO. These members account for over 86 per cent of global
environmental goods trade. The talks built on a list of 54 environmental goods put together by
the APEC countries in 2012 to reduce import tariffs to 5 per cent or less by the end of 2015.
Negotiators are expected to meet regularly to discuss substance and product coverage.
With the world coming closer to liberalizing trade in environmental goods and services, how
would Chinas position be affected in world trade ? Will China continue to build its comparative
advantage over time and lead the trade of environmental goods and services or will its
protected clean energy technology industries fail to compete with USA and Germany over
time ? These are some of the questions this research paper will seek to address.
III.
For the purpose of this research paper, we shall do our analysis on 15 critical clean energy
technology components which have a high GHG mitigation potential. We will build on the
framework provided by the World Bank list of 12 environmental goods and include within its
gambit, components of nuclear energy and hydroelectricity technologies so as to make the list
more representative of prominent clean energy technologies (Table 1).
Table 1 : Clean Energy Technology List of 15 Environmental Goods
Technology
Components Considered
Reactors, boilers and machinery
HS
Code
8401
Nuclear Power
840510
Hydro electricity
Hydraulic turbines
8406
8410
841181
841182
841199
848340
Transmission Shaft
848360
850231
730820
850720
Solar Energy
photovoltaic cells
853931
854140
Wind Power
853710
This paper applies a comprehensive measure of RCA (Revealed Comparative Advantage) based
on Balassa (1965) to the above mentioned set of 15 clean energy technology goods for China,
US and Germany respectively. This is a widely accepted measure of RCA in the literature. It is
expressed as follows:
RCA = (Xij / Xnj ) / (Xit / Xnt)
RCA of all these products has been increasing since 2003. The dynamic analysis of Chinas RCA
(Table 3) over different time periods suggests that over the decade (2003 2013) there has been
an overall increase in the RCA of almost all of the selected products barring that of the wind
energy transmission shaft and solar energy batteries which have decreased by 0.26 and 0.55
respectively.
The key piece of legislation in recent years for advancing renewable electricity in China is the
Renewable Energy Law of 2005. The law was designed to promote the development and
utilization of renewable energy, improve the energy structure, diversify energy supplies,
safeguard energy security, protect the environment, and realize the sustainable development of
the economy and society. Renewable energy is subsidized by a fee charged to all electricity
users in China of about 0.029 cents per kilowatt-hour, and was originally based on the
incremental cost difference between coal and renewable energy power generation. 1 Feed-in
tariff premiums, which consist of the difference between the wholesale price of electricity and
the feed-in tariff, have in the past been paid by the central government to the grid companies at
the end of each fiscal year, after which they were then paid out to operators. The government
raises the funds through a Renewable Surcharge which is paid by all electricity customers. The
premium accounts for more than half of the feed-in tariff, thus having a considerable impact on
the cash flow of project owners and consequently on the entire supply chain. At the end 2013 the
government raised the Renewable Surcharge, which is added on top of each kWh of renewable
electricity produced, up to USD 0.25 cent/kWh, almost doubling the previous level of the tariff
(USD 0.13 cent/kWh). The Chinese government has also set a new ambitious target of 350 GW
of hydropower, 200GW of wind power, and 100GW of solar power and if the past is any
http://fas.org/sgp/crs/row/R41748.pdf
indication, the target will certainly be achieved, and likely exceeded. (Global Wind Energy
Council, 2014)
Table 2: Static RCA Analysis for China
Nuclear
Power
Hydro
electricity
Clean Coal
Technology
Wind Power
Solar Energy
Energy
Efficiency
Technology
RCA
China
2003
RCA
China
2006
RCA
China
2009
RCA
China
2012
RCA
China
2013
Average
RCA
8401
0.01
0.04
0.12
0.08
0.06
0.06
8406
0.16
0.35
1.22
1.20
1.29
0.84
8410
0.21
0.68
1.85
2.10
1.59
1.28
Producer Gas
Generator
Turbo Gas
Turbines < 5000
KW
Turbo Gas
Turbines > 5000
KW
Turbo Gas
Turbines Other
Parts
840510
0.13
0.15
0.21
0.34
0.27
0.22
841181
0.02
0.04
0.02
0.04
0.05
0.03
841182
0.02
0.17
0.03
0.02
0.07
0.06
841199
0.03
0.08
0.12
0.14
0.12
0.10
848340
0.36
0.31
0.43
0.59
0.58
0.46
848360
0.91
0.39
0.42
0.65
0.65
0.60
850231
0.00
0.01
0.24
0.44
0.37
0.21
730820
0.27
1.17
0.73
0.61
0.70
0.69
Batteries for
storing Solar
Power
Device to control
the functioning of
the Photovoltaic
System
photovoltaic cells
850720
2.84
3.96
2.85
2.58
2.29
2.90
853710
0.33
0.40
0.63
0.70
0.69
0.55
854140
1.12
1.82
3.19
3.39
3.29
2.56
Energy Efficient
Lighting
853931
5.08
8.30
8.13
10.17
11.47
8.63
Reactors, boilers
and machinery
Steam Turbines
and other vapour
turbines
Hydraulic turbines
Nuclear Power
Hydro
electricity
Clean Coal
Technology
Wind Power
Solar Energy
Energy
Efficiency
Technology
Product
Dynamic Analysis
RCA
China
(2013 2003)
RCA China
(2013 2006)
RCA
China
(2013 2009)
RCA China
(2013 - 2012)
0.05
0.02
-0.06
-0.02
1.13
0.94
0.07
0.08
1.38
0.91
-0.26
-0.51
0.14
0.12
0.06
-0.07
0.02
0.01
0.02
0.01
0.04
-0.11
0.03
0.04
0.09
0.04
0.00
-0.02
0.22
0.27
0.15
-0.01
Transmission Shaft
-0.26
0.26
0.22
0.00
0.37
0.36
0.13
-0.07
0.43
-0.47
-0.03
0.09
-0.55
-1.67
-0.56
-0.30
0.36
0.29
0.07
0.00
2.17
1.47
0.09
-0.10
6.39
3.17
3.34
1.30
Figure 4 provides a perspective on Chinas RCA trends in the selected commodities over the
decade 2003 -2013, which demonstrate Chinas growing competitiveness in the clean energy
technology domain. The section below identifies the various clean energy technologies and
describes in detail Chinas comparative advantage in the identified commodities within these
clean energy technologies.
5.00
4.00
3.00
2.00
1.00
0.00
RCA China 2003
import of the nuclear energy technology. Given the massive investments in R&D and strong
political will to develop this industry as a potential export market, we could see a gradual
increase in Chinas RCA for nuclear energy technology in the near future.
Steam Engine: Steam engines are a critical component of nuclear power plants. Nuclear plants
create supercritical steam, which has higher temperature efficiencies than more typical types of
steam. General Electric (GE) licensed its steam turbine technology to Chinese companies and
also formed joint venture with state owned firms to produce less sophisticated power turbines in
1980. Other competitors, around the same time, entered into technology transfer agreements
with the Chinese counterparts, the result of which was that China mastered the technology of
manufacturing steam turbines (McFarlin, 2015). In 2009, China was the third largest exporter
and importer of steam turbines and other vapor turbines and accounted for 15 percent of world
exports and 7.6 percent of world imports (UNCOMTRADE). This export prowess is projected in
the RCA of 1.22 for China in 2009 in this segment (Table 2) which only increased to 1.29 in
2013. To maintain its leadership even domestically, China has a prohibitive ad-valorem import
tariff of 14% on the commodity (Table 4).
HYDROPOWER
Hydropower is the largest renewable energy source, and it produces around 16 % of the worlds
electricity and over four-fifths of the worlds renewable electricity. Canada, China and the
United States are the countries which have the largest hydropower generation capacity (IPCC,
2011; REN21, 2011; and IHA, 2011). China has been particularly successful at installing small
hydropower projects to meet rural electrification goals and 160 TWh was produced from 45 000
small hydro projects in China in 2010 (IN-SHP, 2010). (International Renewable Energy
Agency, 2010). ITA (International Trade Administration) believes hydropower will account for
15 percent of renewable energy exports and nearly 20 percent of global investment in renewable
energy through 2015. The industry installed roughly 26 GW of new capacity in 2012 led by
China (14 GW) and is expected to continue to grow into the future. China alone enjoys a
project pipeline of 80 GW including 16 different large hydropower projects. In 2013, China had
the highest installed capacity of 229 GW (ITA Renewable Energy Top Markets Study, 2014).
Table 4 : China's Tariff Analysis for 15 products
China
Commodity Details
Nuclear
Power
Hydro
electricity
Clean Coal
Technology
Wind
Power
Solar
Energy
Energy
Efficiency
Technology
Average
of AV
Duties
Minimum
AV Duty
Maximum
AV Duty
RCA
2013
Average
RCA
1.4
0.06
0.06
14.0
14
14
1.29
0.84
8401
Hydraulic turbines
8406
4.3
1.59
1.28
8410
9.0
10
0.27
0.22
841181
15.0
15
15
0.05
0.03
841182
3.0
0.07
0.06
841199
5.0
0.12
0.10
848340
8.0
0.58
0.46
Transmission Shaft
848360
8.0
0.65
0.60
850231
8.0
0.37
0.21
730820
8.4
8.4
8.4
0.70
0.69
850720
10.0
10
10
2.29
2.90
853710
6.7
8.4
0.69
0.55
Photovoltaic cells
853931
8.0
3.29
2.56
854140
0.0
11.47
8.63
840510
Hydraulic Turbine and Parts: The expansion of the global hydraulic turbine and water wheel
industry is forecast to reach 5.5% p.a. in the coming years. Between 2007 and 2013 the market
increased with an average annual growth of 4.2%. China captured 28% of the world export share
in markets by 2010 and 31% by 2012 (Table 5). This corroborates that China over the years has
developed a comparative advantage in this industry. In 2003, its RCA was 0.21, whereas in 2013
its RCA increased to 1.59, indicating strong export competitiveness (Table 2). China levies
average tariffs of 4.3 % on the imports of these turbines and their parts.
Table 5: Table of Statistics on Trade in Hydraulic Turbines and Parts, 2010-2012 (US $ Millions)
account for over 86% of the total gas and steam turbine market revenues. In terms of market size,
gas turbine manufacturing enterprises achieved sales revenues of more than $6 Billion in 2010,
taking a share of more than 70% of the gross sales revenue across China. However, it is
important to note that China had no comparative advantage in this technology as on 2013. Its
RCA in 2013 for turbo gas turbines <5000KW, >5000KW and turbo gas turbine parts were 0.05,
0.07 and 0.12 respectively. The ad-valorem import tariffs on the other hand were as high as 15%,
3% and 5% respectively. This suggests that the Chinese government is protecting its import
competing industry especially in the segment of turbo gas turbine of less than 5000 KW. It is
also reflective of the intent of Chinese government to grow competitive in this segment by
encouraging its local manufacturers to dominate the Chinese market where demand for gas
turbines in China was speculated to grow by 8.4% annually through 2011 (Chadbourne, 2013).
Government plans to support gas turbine research and development by investing more than
US$17 billion in the coming years (SZW).
WIND POWER TECHNOLOGY
China is the largest market for wind energy in the world. The Chinese wind market more
than doubled its capacity from 44.7 GW in 2010 to reach 91.4 GW by the end of 2013,
cementing Chinas global lead in terms of cumulative installed wind power capacity (Figure
5). In 2011, China was the worlds second-largest wind producer, generating 73 billion kWh,
a level about 64% higher than in 2010. In the 12th Five Year Plan for Renewable Energy, the
Chinese government has set a goal of 100GW wind energy generation capacity by 2015,
including 5GW from offshore.
Drastic increase in Chinas cumulative installed wind power capacity can be attributed to the
various government incentives provided to domestic manufacturers. In 2003, the government
introduced the Tariff Reform Program. The program guaranteed demand and started the
concession system that encouraged investors to bid for projects by guaranteeing at least their
energy production price. The program also included a 50% domestic manufacturing
requirement, which was increased to 70% in 2005 with the introduction of Chinas newest
Renewable Energy Law. This law introduced the target of a minimum of 15% of energy
consumed is to come from renewable energy by 2020 and also required energy companies to
have a minimum of 5% renewable energy output by the same year. With the development of
the wind power market, starting from November 1, 2009, the requirement on 70% domestic
production has been cancelled. From 2003 to 2008, there were 5 rounds of bidding and
roughly 49 projects were approved during that time. Within 5 years, the market share of
foreign firms in China dropped from 73 % to only 13%. In 2008, the Ministry of Finance
promulgated the Interim Measures for the Administration of Special Fund for the Wind
Power Equipment Industry to provide financial support to the wind power equipment
manufacturers to encourage them to do independent research and develop turbines and spare
parts for multi-MW wind power equipment. Wind power companies were also identified as
high-tech companies which could enjoy a 15% income tax rate (the normal tax rate is 25 %).
In 2008, Ministry of Finance and State Taxation Bureau jointly promulgated the notice t o
deduct and refund 50% of the value added tax of companies which sells self-produced
electricity by wind power. Wind power generation projects are regarded as electricit y
infrastructure projects, therefore, they fall under the category of three years exemption and
subsequent three years 50% income tax deduction (Holland, 2014).
Wind Powered Generating Sets: In 2012, international trade in wind powered generating sets
was highly concentrated with European countries accounting for almost 70% of exports while
China contributed to less than 14% of exports (Table 6). Manufacturers from Denmark, Germany
and Spain lead exports in this commodity. This is reflected in Chinas low RCA in this
commodity of 0.37 in 2012. The average RCA of China over 2003-2013 in this commodity is
0.21 suggesting no competence in this commodity (Table 4). However, China has levied high ad
valorem tariffs of 8% to protect its import competing industry in this market. In the past this
protectionist strategy has proven to be hugely successful for China to increase its domestic
competitiveness since its domestic wind power market is growing rapidly.
Towers and Lattice: China was one of the most competitive exporters in the towers and lattice
masts for wind power generation in the year 2006 with RCA of 1.17. However, with time it has
seen a decline in its competitive advantage. The average RCA of this commodity export from
China during 2003-2013 was only 0.69. This suggests that while it was exporting its product to
USA and other European countries, it was not sufficiently competitive in this segment.
Table 6: Table of Statistics on Exports of Wind Powered Generating Sets (2004-2012) (US$ millions)
Adding to the plight, the exports of Chinese wind towers declined furthermore as in December
2011, the Wind Tower Trade Coalition, representing four U.S. manufacturers of steel towers for
wind turbines, filed anti-dumping and Countervailing Duty (CVD) petitions with the U.S.
Department of Commerce (DOC) and the International Trade Commission (ITC), alleging that
Chinese and Vietnamese makers of wind towers have injured U.S. producers by selling their
products in the United States at below-market prices. In May 2012, DOC ruled that Chinese
exporters of utility scale wind towers are being unfairly subsided and announced preliminary
CVD rates ranging from 13.74% to 26%. In July 2012, DOC issued an affirmative preliminary
anti-dumping ruling that could impose additional duties as high as 73% on Chinese towers
imported into the United States (Platzer, 2012). The import tariffs on this commodity are among
the highest at 8.4% to extend support to the growth of domestic Chinese wind power
manufacturing industry as China scales up its installed capacity in the near future.
Gearbox and Transmission Shaft: Comprising roughly 15% of total wind turbine cost, gearbox
manufacturing is critical to China's localization of components and equipment. The gearbox
converts between slowly rotating, high torque power from the wind turbine rotor and high speed,
low torque power used for the generator (Hodum, 2008). China's largest manufacturer of
gearboxes is China High Speed Transmission, which in 2007 captured nearly 80% of domestic
market share. However, China is not export competitive in production of both the gearbox and
transmission shaft and has an average RCA of 0.46 and 0.60 from 2003-2013 (Table 2). At the
same time its ad-valorem import tariffs are as high as 8%. This is because China seeks to protect
this infant industry segment and harbor greater financial and technical strength of domestic
manufacturers. This strategy will pay huge dividends in supporting and expanding its wind
energy capacity in the near future as these commodities are seeing a gradual increase in export
competitiveness over time.
SOLAR ENERGY TECHNOLOGY
Batteries: China has become one of the worlds largest exporters of lead-acid batteries; the
export volume and export amount are increasing at the annual rates of 40% and 35%
respectively. It has an average RCA of 2.9. While this commodity is extremely competitive, it
has seen a relative decrease in its RCA from 2.84 in 2003 to 2.29 in 2013. The relative decrease
in RCA (while its competitiveness is still very high) is primarily due to non-tariff barriers
imposed on Chinese exports of Lead-acid battery by European Union, the United States and
other developed countries in 2012-13, owing to high mercury/lead content in these batteries
which is regarded as hazardous to the environment. Countries have prohibited the imports of this
good under the WTOs Agreement on Sanitary and Phytosanitary measures. Further, technical
barriers to trade such as the CE marking requirement (considered as a certification requirement)
were also been imposed on imported Chinese batteries by the European Union in the past (WITS
data). To counter these effects, in May 2012, the Chinese Ministry of Industry and Information
Technology (MIIT) officially announced the Lead-acid Battery Industry Access Conditions,
which required reorganization and expansion of the industry mandating that capacities of the
new plants be no less than 500,000 kVA, that of existing plants be no less than 200,000 kVA,
while putting forward clear requirements on the production technology and equipment to
improve the industry access threshold. As a result, in 2012, a large number of lead-acid battery
companies that didn't meet national environmental requirements were eliminated, while qualified
enterprises successively increased production capacity and output to seize vacated market share.
In the same year, Chinese lead-acid battery output was 175 million kVA, an increase of 23%
over the same period in 2011. Following the ever-growing market demand for electric bicycle
batteries, automotive starter batteries, electric vehicle batteries and energy storage batteries, leadacid battery output in 2015 is expected to reach 240 million kVA (China Lead-acid Battery
Industry Report, 2012-2015) and China is poised to maintain its comparative advantage. China
maintains high import tariffs of 10% on this commodity (Table 4), which signals its protective
approach towards its home grown industries despite high comparative advantage in the domain.
Solar PV: Chinas share in world exports of Solar PV increased from a mere 10% in 2003 to a
drastic 37% in 2013 (Figure 6), while its RCA also increased from 1.12 to 3.29 over the period,
which signals Chinas strong dominance in the industry (Table 2). China is presently a leader in
the industry. However, a deeper look at the analysis reveals that despite such high comparative
advantage, between 2012 and 2013, China saw a relative decline of 0.1 in its RCA (Table 3) and
during the same time China maintained a high tariff of 8% on the imports of Solar PV.
Interestingly since 2008, through government subsidies, the manufacturing capacity of Chinas
solar-panel industry grew tenfold, leading to a vast global oversupply. A surge in exports of
Chinese panels depressed world prices by 75%. In 2012, Chinas top six solar companies had
debt ratios of over 80%. The Harvard Business Review research (Haley, 2013) demonstrated that
without subsidies, these companies would be bankrupt. This was a case for U.S. manufacturers to
invoke the anti-dumping and anti-subsidy trade barriers to Chinese imports. SolarWorld, a U.S.
producer, filed its first anti-dumping and countervailing duty petition on Oct. 19, 2011, against
$4 billion in solar cells imported from China. This petition resulted in anti-dumping and
countervailing duty orders in December 2012. During the previous few years, China's PV export
demand had plunged on weak economic growth in Europe and the U.S., lower subsidies for
exports to major European and U.S. markets as well as protectionist policies. However, the PV
industry took a favorable turn in 2013 with China shifting its export focus to emerging markets.
China's exports of solar cells and modules to Asia surged 124 % year on year to US $5.5 billion
in 2013, accounting for 44.8 % of the total, while those to Europe fell 62 % to US $3.72 billion.
During that same year, the country exported US $570 million of solar cells and modules to
Africa, up 387 % from the previous year. (Renewable Energy World, 2014). In December 2014
United States Department of Commerce, imposed antidumping duties of 26.71 % to 78.42 % on
imports of most solar panels made in China, and rates of 11.45 % to 27.55 % on imports of solar
cells, a key component, that are made in Taiwan. In addition, the department announced antisubsidy duties of 27.64 % to 49.79 % for Chinese modules. The decision was intended in part to
close a loophole that had allowed Chinese manufacturers to avoid tariffs imposed in an earlier
ruling by using cells made in Taiwan (New York Times, 2014). However, as China ramps up its
PV cell production to meet its solar targets and expands into newer markets in Asia and Africa,
global prices are falling, leading to a shakeout of uncompetitive solar panel manufacturers.
Figure 6: Percentage Share of China's Export of Solar PV as compared with World Exports of Solar PV
40%
35%
30%
25%
20%
15%
10%
5%
0%
2003
2006
2009
2012
2013
Between 2010 and 2013, PV system costs have fallen by over 50 percent, while the number of
suppliers has declined from 250 in 2010 to 150 in 2013. While Germany and the rest of Europe
have scaled back government incentives to install solar, in China, increased targets for solar
power generation have been backed by programs to boost market demand. A feed-in tariff
subsidy of between 14 and 16 U.S. cents per kilowatt hour is provided by the government for
both ground-mounted and rooftop panels. New public buildings, along with public infrastructure
such as railway stations and airport terminals, will be eligible for subsidies under the countrys
goal of installing 8 GW of distributed solar. The Chinese government is also encouraging
financial institutions to offer discounts on loans and is encouraging the formation of PV industry
investment funds among insurance companies and trusts (Topf, 2014). Therefore, there is a clear
indication of Chinas global dominance in this industry despite the backlash by USA and Europe,
given Chinas political will and policy intent for promoting the industry.
ENERGY EFFICIENT LIGHTING TECHNOLOGY
Over the 10 years (2003-13), there have been considerable increases in comparative advantage in
the case of energy efficiency lighting (RCA increased by 6.39) suggesting drastic increase in
market share in this product (Table 3). The average RCA for the commodity was 8.63, while its
RCA in 2013 was 11.47. This result comes as no surprise as Chinese manufacturers are strongest
in the low-wattage LEDs. Chinese companies capture about 30 percent of the global market.
That gives them the biggest share ahead of Japan, South Korea, Germany, Taiwan and the United
States, which share the rest of the market in fairly even proportions. (BRADSHER, 2014) The
tariff in the segment is also nil (Table 4), suggesting Chinas confidence in its comparative
advantage as well as trade openness in this segment.
technology markets. Overall, Germany had a comparative advantage in all selected clean energy
technologies, except that in energy efficient lighting technology (Table 8). It is interesting to note
that while Germany gained comparative advantage in nuclear reactor and boiler technologies in
2013, it lost competitiveness in Solar PV (Photovoltaic) exports. The average tariffs imposed by
USA on the import of these 15 Environmental Goods range between 0% to 4.5%, suggesting
liberalization in the trade of these goods however less so as compared with USA (Table 9).
Table 7: RCA Analysis of USA
Static Analysis
Nuclear
Power
Hydro
electricity
Clean
Coal
Technolog
y
Wind
Power
Solar
Energy
Energy
Efficiency
Technolog
y
Energy Efficient
Lighting
Average RCA
Data Source: UNCOMTRADE
Commo
dity
Code
RCA
USA
2003
RCA
USA
2006
RCA USA
2009
RCA
USA 2012
RCA
USA 2013
8401
0.84
0.74
0.57
0.59
1.02
0.75
8406
1.08
1.16
1.27
1.00
0.86
1.08
8410
0.40
0.51
0.45
0.55
0.49
0.48
840510
1.15
0.98
1.72
1.71
1.81
1.48
841181
4.76
4.65
5.45
2.79
2.10
3.95
841182
5.62
7.30
7.14
6.19
5.77
6.40
841199
3.38
4.30
3.22
3.51
3.35
3.55
848340
848360
0.72
1.24
0.78
1.34
0.79
1.31
0.94
1.47
0.94
1.44
0.83
1.36
850231
0.01
0.28
0.28
0.63
0.62
0.37
730820
0.48
0.75
0.24
0.41
0.40
0.46
850720
0.96
1.18
1.32
1.44
1.65
1.31
853710
854140
0.97
1.14
1.36
0.90
1.21
0.70
1.19
0.47
1.29
0.48
1.20
0.74
853931
0.44
0.35
0.25
0.30
0.33
0.34
1.55
1.77
1.73
1.55
1.50
Average
RCA
Germany
Commodity Details
Static Analysis
Commodity
Code
Nuclear
Power
Hydro
electricity
Clean Coal
Technology
Wind
Power
Solar
Energy
Energy
Efficiency
Technology
RCA
2003
RCA
2006
RCA
2009
RCA
2012
RCA
2013
Average
RCA
8401
0.84
0.74
0.57
0.59
1.02
0.75
8406
1.51
2.03
1.74
2.28
1.72
1.86
8410
1.07
1.63
1.12
1.08
1.16
1.21
840510
0.60
3.35
1.27
1.94
1.40
1.71
841181
3.17
3.71
0.44
0.78
1.11
1.84
841182
0.57
0.89
0.61
1.90
1.20
1.03
841199
1.17
0.95
1.36
1.44
1.64
1.31
848340
2.98
3.40
3.46
2.92
2.77
3.11
Transmission Shaft
848360
3.24
4.03
4.98
3.97
4.02
4.05
850231
0.67
3.36
2.55
5.46
5.52
3.51
730820
0.35
0.29
0.67
0.31
0.61
0.45
850720
1.53
1.41
1.21
1.05
1.07
1.25
853710
2.40
3.02
2.71
2.80
2.85
2.76
photovoltaic cells
854140
0.79
1.16
1.32
1.02
0.84
1.02
Energy Efficient
Lighting
853931
NA
NA
0.95
0.82
0.75
0.50
1.39
2.00
1.66
1.89
1.85
Hydraulic turbines
Producer Gas
Generator
Turbo Gas Turbines
< 5000 KW
Turbo Gas Turbines
> 5000 KW
Turbo Gas Turbines
Other Parts
Wind-powered elec.
generating sets
Towers and lattice
masts
Batteries for storing
Solar Power
Device to control the
functioning of the
Photovoltaic System
Average RCA
Data Source: UNCOMTRADE
Table 9: RCA and Tariffs of 15 Environmental Goods between China, USA and Germany
China
Commodity Details
Nucle
ar
Power
Hydro
electri
city
Clean
Coal
Techn
ology
Wind
Power
Solar
Energ
y
Energ
y
Effici
ency
Techn
ology
Reactors,
boilers and
machinery
Steam
Turbines and
other vapour
turbines
Hydraulic
turbines
Producer Gas
Generator
Turbo Gas
Turbines <
5000 KW
Turbo Gas
Turbines >
5000 KW
Turbo Gas
Turbines
Other Parts
Gearbox for
Wind turbines
Transmission
Shaft
Windpowered elec.
generating
sets
Towers and
Lattice Masts
Batteries for
storing Solar
Power
Device to
control the
functioning of
the
Photovoltaic
System
photovoltaic
cells
Energy
Efficient
Lighting
Germany
Aver
age of
AV
Dutie
s
Min
imu
m
AV
Dut
y
Max
imu
m
AV
Duty
Ave
rage
RC
A
Ave
rage
of
AV
Duti
es
Mini
mu
m
AV
Duty
Max
imu
m
AV
Duty
Aver
age
RCA
Ave
rage
of
AV
Duti
es
Mini
mu
m
AV
Duty
Max
imu
m
AV
Duty
Aver
age
RCA
1.4
0.06
3.1
2.6
3.3
0.75
4.2
3.7
5.7
0.75
14.0
14
14
0.84
0.0
1.08
1.7
1.7
1.7
1.86
8406
4.3
1.28
3.4
6.7
0.48
2.7
2.7
2.7
1.21
8410
9.0
10
0.22
3.8
3.8
3.8
1.48
4.5
4.5
4.5
1.71
841181
15.0
15
15
0.03
0.8
2.5
3.95
2.1
4.1
1.84
841182
3.0
0.06
0.8
2.5
6.40
3.3
4.1
1.03
841199
5.0
0.10
0.8
2.4
3.55
2.1
4.1
1.31
848340
8.0
0.46
0.9
3.8
0.83
3.3
3.7
3.11
848360
8.0
0.60
1.4
2.8
1.36
1.8
2.7
4.05
850231
8.0
0.21
1.3
2.5
0.37
2.7
2.7
2.7
3.51
730820
8.4
8.4
8.4
0.69
0.0
0.46
0.0
0.45
850720
10.0
10
10
2.90
2.3
3.5
1.31
3.0
3.7
1.25
853710
6.7
8.4
0.55
2.7
2.7
2.7
1.20
2.1
2.1
2.1
2.76
853931
8.0
2.56
2.4
2.4
2.4
0.74
2.7
2.7
2.7
1.02
854140
0.0
8.63
0.0
0.34
0.0
0.50
8401
840510
IV.
Over the last decade, China has grown dramatically to become a leading exporter in global
environmental goods markets owing to enhanced export competitiveness, evolution of its
environmental legislation and policy and also due to extensive government support in the form of
subsidy and protection. However, a recent study by Usha C.V. Haley and George T. Haley
published in the Harvard Business Review proves that the trade competitiveness of Chinese
exports stems from extensive government support in the form of subsidies. The research argues
that in industries such as solar, steel, glass, paper, and auto parts, labor was between 2% and
7% of production costs, while imported raw materials and energy accounted for most costs. The
production mostly came from small companies that possessed no scale economies. Yet, Chinese
products routinely sold for 25% to 30% less than those from the U.S. or European Union.
Subsidies, they claim, took the form of free or low-cost loans; artificially cheap raw materials,
components, energy, and land; and support for R&D and technology acquisitions (Haley, 2013).
Figure 7 : Average RCA for 15 Environmental Goods
2.50
20.0%
2.00
15.0%
1.50
10.0%
1.00
5.0%
0.50
0.0%
0.00
2003
2006
China
2009
USA
2012
2013
Germany
2003
China
2006
2009
USA
2012
2013
Germany
Though these subsidies may have distorted the market, they have empowered Chinas growth in
the segment. A closer look at RCA over the last decade for the 15 environmental goods reveals
that Chinas and Germanys comparative advantage increased from 0.77 in 2003 to 1.57 in 2013
and 1.39 in 2003 to 1.85 in 2013 respectively, while that of USA decreased from 1.55 in 2003 to
1.50 in 2013, though they are still competitive (Figure 7). Further, while Chinas percentage
share of exports grew from 4.9% in 2003 to 18.9% by 2013, that of USA and Germany saw a
decline in their share of exports from 15% in 2003 to 11% in 2013 and from 15% in 2003 to 14%
in 2013 respectively (Figure 8). Therefore, it is almost certain that China is poised to lead the
pack of environmental exports in the 15 clean energy technology commodities in the next 5-7
years, ceteris paribus. The following are some of the key reasons why China will continue to
dominate world exports in Environmental Goods in the near future:
a) Financial Incentives and Investments
Chinas Carbon Market: In its 12th Five Year Plan, China put forward a goal to gradually
introduce an emissions trading market. On June 18th 2013, Shenzhen formally launched the
emission trading scheme, followed by Shanghai, Beijing, Guangdong and Tianjin in the next 6
months. The system was based on the cap and trade model with provisions to accept offset
carbon credits generated from the CCER (China Certified Emission Reduction) projects. In 2013,
the approximate scale of Chinas carbon market was 1.08 billion tons (Global Renewable Energy
report , 2014). Benefits of having a carbon market will be two pronged for China - it will lead to
lower emissions as well as provide a greater incentive to corporations to invest in clean energy
technology.
Investment: China is aggressively leading investments in renewable energy financing, ahead of
most developed countries. China topped the world with $61.4 billion overtaking USA, Germany,
Japan and other European countries (Table 10).
Table 10: Renewable Energy Financing by Country, $Billion
Policy Bank Loan: The Chinese Government also offers low-interest loans and large credit lines
through its policy bank, the China Development Bank (CDB), to finance the countrys clean
energy development. The CDB is primarily responsible for raising funds for large infrastructure
projects and serves as the engine that powers the national governments economic development
policies. In 2010, the CDB lent a total of US$36.8 billion in financing for energy-saving and
pollution control projects and provided Chinas major solar panel manufacturers with a
combined total of US$32.2 billion in loans to assist them in increasing production capacity and
expanding overseas operations. This expansion could double global solar cell production
capacity and enable these Chinese companies to gain larger shares in important markets (Price,
Wang, Li, & Zeng, 2012).
b) Policy Incentives and Backing
Renewable Energy Law : This law introduced the target of a minimum of 15% of energy
consumed is to come from renewable energy by 2020 and also required energy companies to
have a minimum of 5% renewable energy output by the same year.
Figure 9: Key financing mechanisms for green energy development in China
Source: Chinas Approaches to Financing Sustainable Development: Policies, Practices, and Issues; June 2012
The amended law also requires the electricity distribution companies to develop and apply smart
grid and energy storage technologies to enable the integration of renewable energy in the
electricity grids and sets up penalties if utilities fail to purchase and accommodate renewable
energy. The law authorizes financial institutions to offer concessional loans with subsidized
interest rates to renewable energy projects.
Renewable Energy Development Fund: This fund includes both direct subsidies and interest
payment to support renewable energy. The subsidies include $214 for producing each ton of fuel
ethanol, $3.17 per watt for building integrated photovoltaic systems, and a fund covering a
maximum of 70 % of the construction cost of an independent photovoltaic system. As of
September 2011, the Chinese central government has provided a total subsidy of $1.6 billion
supporting photovoltaic applications. In addition, the fund also provides interest payment support
that discounts the interest rate for a renewable energy project by up to 3% for one to three years.
Special Fund for Emerging Industries : To enable the country become a leader in vital emerging
market sectors such as energy efficiency, information technology, biotechnology, high-end
equipment manufacturing, new energy, advanced materials, and new energy vehicles, the
Chinese government has created a special fund and allocated $634 million supporting the
development of these emerging sectors in 2011. The Governments allocation can be used as
venture capital investment, subsidies for accelerating commercialization, and incentives for
spurring consumption in these strategic emerging sectors. (Price, Wang, Li, & Zeng, 2012)
Green Credit policy : Issued in July 2007, this policy requires banks to cease lending to
companies who are listed in the MEP (Ministry of Environment Protection) blacklist for
environmental violations and to projects that are out of compliance with relevant regulations.
Green Security policy: Adopted in February 2008 this policy calls for strengthening the
implementation of environmental performance verification for public-listed companies in
polluting industries. It also requires the security regulatory agency to reject or suspend Initial
Public Offering (IPO) or refinancing requests from companies that failed to pass a government
environmental evaluation. In addition, the policy mandates listed companies to disclose their
environmental information to shareholders so that investors can avoid potential financial loss
resulting from possible violations.
Green Insurance policy also issued in February 2008 calls for the use of environmental
liability insurance as an effective leverage to prompt enterprises to take measures to minimize
environmental risks.
Fund of Funds: This fund will invests the public fund to form new venture capital funds or
increase the equity of existing venture capital funds to target start-up companies who pursue
innovation in emerging strategic industries and high-tech of transforming traditional industries
c) Tariff Support
China has maintained high average tariffs with a range of 0%-15% on most clean energy
commodities to support the domestic producers and protect them from international import
competition.
d) Trade Shift to Developing Countries
As developed country markets are getting both saturated and protectionist of Chinese imports,
China is gradually shifting its trade focus to South South trade especially markets in Africa.
According to WTO, trade between China and Africa will likely be upwards of USD 200 billion
in 2012, up 25% year on year. If this trend continues, reports are that Africa could surpass the
EU and the US to become Chinas largest trade partner in three to five years (Lamy, 2012). This
signals Chinas intent of developing new world markets for its products.
e) Domestic Market
As China continues to grow its installed capacity in renewable energy domestically and as the
market consolidates, large clean energy technology manufacturers are likely to never run out of
business and will continue to enjoy a large market share within the country, owing to preferential
government policies and economies of scale.
Conclusion
China sees its transition to a clean energy economy as an imperative for its sustainable growth,
energy security and as a strategic opportunity to become a leader in this vital emerging market
sector with higher premiums. It has undisputed comparative advantage in certain clean energy
technologies like energy efficient lighting, Solar PV and batteries, hydraulic motors and steam
engine technology. However, it is still developing competence under a protected environment in
wind, clean coal and nuclear energy technology. As WTO strengthens trade liberalization efforts
in environmental goods, China will benefit a great deal from a larger export market for products
in solar, hydro power and energy efficient lighting in developing countries. However, lowering
its high tariffs and other non-trade barriers in products where it does not have comparative
advantage will hurt Chinas domestic manufacturers. Therefore in order to reach scale in this
high technology space of environmental goods while it strategizes liberalization, China must
continue to develop its domestic market, invest in research and development , provide financial
and market incentives and strengthen its trade ties with other developing countries. While
Germany leads most of the clean energy technology exports currently, with USA not far behind,
China, backed with a strong policy framework, has an unprecedented opportunity to establish its
leadership in this sector in the near future.
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