Is clean tech China’s moon shot?

Friday, 29 January 2010 11:26

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The global race to develop clean technology is not just about who can build the best solar parks or wind farms. It is also shaping up as a contest between Chinese-style capitalism and the more market-oriented approach fancied by the United States and Europe.

The question comes down to this: will China’s highly capitalized command-and-control economy trump laissez-faire in a low-carbon shift that is widely portrayed as the next industrial revolution?

The failure in Copenhagen to agree to replace the Kyoto Protocol with a new global climate treaty when it expires in 2012 has thrown the focus on national measures. And by almost all accounts, the Chinese are coming on strong.

Beijing’s top leaders have made clear their intention to have their nation dominate this new industry, up and down the value ladder.

And in their quest for the prize, they are not burdened by concerns facing their Western counterparts — such as the impact of wind turbines on landscapes, higher energy prices for consumers, or investor returns.

“Developed markets need to be aware that China is gaining in this space,” said David Russell, co-head of responsible investment at the 28 billion pound ($45 billion) British universities pension fund, the Universities Superannuation Scheme (USS).

The recession has made it tougher for Europe and America to effect meaningful climate policy change. And with most major nations piling on debt to stimulate flagging economies, politicians likely will find it harder to earmark additional voter money for clean technology.

Instead, recession-hit Western economies are hoping the private sector can plug an estimated worldwide $150 billion annual funding gap to avoid more extreme droughts and floods.

But investors almost always follow the returns, and if the performance is not there, they are not likely to risk their capital. For example, Britain’s USS allocates about half a percent of its assets to low-carbon and renewable energy funds, not including its investment in conventional energy companies, which themselves will have some green tinges.

It’s hard to imagine the West filling the clean tech funding gap if pension funds — which are as influential as they are big — don’t pony up more.

Russell says he would like to do more, but like other fund managers he has an obligation to pension holders. He and other fund managers say they won’t allocate more to green because their first duty is to guarantee payouts for their members, and while clean tech stocks can yield decent returns, they are often small and risky.

Since a trough in global equities last March, energy efficiency stocks have risen 126 percent and clean energy and technology by 88 percent, compared with wider global stocks’ 70 percent, a Deutsche report found this month.

But there are limited opportunities for investors. Oil majors, for example, dwarf the asset value of green companies, and cleantech funds can’t move the dial for the big funds whose participation is necessary to close the funding gap.