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Practical climate financing — Using markets to drive cleaner energy production

Shanghai's brightly lit skyline illustrates China's rapidly growing energy market.

Every day, people in China get sick just from breathing the air. Many die prematurely. In economic terms, pollution costs China eight to ten percent of gross domestic product in lost productivity, according to World Bank estimates. Air pollution accounts for three-quarters of that productivity loss.

Meanwhile, in the United States, productivity loss due to pollution is much less, in part due to U.S. environmental standards and in part due to more efficient energy-producing technologies.

At Pacific Northwest National Laboratory, researchers are working to introduce more energy-efficient technologies to developing countries—particularly those with rapidly growing markets, which often produce large quantities of carbon dioxide and other greenhouse gases.

"Our job is to introduce and help condition the market to accept these technologies," said Bill Chandler, founder of the Advanced International Studies Unit at PNNL's Joint Global Climate Research Institute. "We're focusing on China now because that's where the growth is."

Chandler works with China's leading energy institute, the Energy Research Institute, which is similar to the U.S. Departments of Energy, Commerce and Treasury all wrapped up in one. Together they have set up an energy efficiency center, the goal of which is to introduce technology in China.

But there are many barriers to overcome, including financial, technical and customer risks, and policy or regulatory barriers.

In addition to having the world's fastest growing economy, China has the fastest growing market in the world for energy-using devices, specifically electricity, Chandler said. Currently, the Chinese are using coal-fired power plants to produce energy. As a result, China is number two in greenhouse gas emissions.

"The United States has the experience and the technologies to help solve energy problems, such as the one in China," Chandler said. "Plus, it is in our interest economically to encourage China to develop more efficient energy technologies. Our industry is being made less competitive because we have environmental standards and they don't. It's also an ethical issue. It's killing us economically, and it's killing them literally."

China recently restructured its economy, shifting from crude, energy-intensive industries like coal production to more value-added industries such as high tech and light manufacturing. These types of industries use less energy per dollar of gross national product, making China less carbon-sensitive and more sensitive to price signals.

"China is now more efficient as it moves away from a rural economy to a market economy where prices matter," Chandler said. "Market economics work to conserve resources because industry must be more efficient to make money."

And that's where technology comes in.

"The Chinese realize that they can't afford their development goals if they waste their energy supply," Chandler said. To address this concern, the Chinese introduced blast and electric hearth furnaces for steel production to replace the open-hearth furnaces they were using.

Chandler's approach fits well with China's haste to develop. "We try to provide our clients solutions for reducing emissions in the near term, over the next two or three decades," he said.

Short-term technologies include substituting gas for coal and hybrids for conventional gasoline and using more efficient automobiles and technologies such as low-emissivity glass, which reflects heat, but allows light to pass through. Standard fare in the United States, low-emissivity glass is rarely used in China.

"Technologies like hydrogen, advanced nuclear cycles and fuel cells will take another 20 to 30 years to develop, commercialize and deploy," Chandler said. "In the meantime, we are on this worldwide trajectory of emissions that makes it impossible to avoid serious climate change."



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