The Wall Street Journal-20080116-Global Firms Aim to Help China Cut Factory Pollution
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Global Firms Aim to Help China Cut Factory Pollution
Multinational companies are participating in a new U.S.-government program that aims to help factories in China reduce carbon emissions while it generates business for American and other environmental- services companies.
The idea is to arrange for Chinese businesses that have limited knowledge of environmental technologies essentially to outsource their cleaning and greening. The program known as P2E2 -- which stands for pollution prevention and energy efficiency -- aims to connect the factories with capital and expertise to help them upgrade equipment and cut their emissions and energy use.
The multinational companies backing the program, including footwear maker Adidas AG, are looking at ways to encourage their suppliers to participate, while P2E2 approaches other companies.
China is poised to pass the U.S. as the world's largest carbon emitter. Chinese factories, which churn out shoes, electronics and other goods for the world, typically get energy from heavily polluting coal-fired power plants. Curbing emissions from China's factories has become a growing focus of the global battle against climate change and the emission of heat-trapping gases that contribute to it.
The U.S. government essentially plays the role of matchmaker, helping factories connect with money and services. At a recent forum on P2E2 in Hong Kong, U.S. companies met potential partners.
P2E2 is based on an unconventional financing program. Banks and equity investors provide the funding and loans to environmental- and energy-services companies, as they are called, which have the expertise and technology to help factories increase energy efficiency.
The International Finance Corp., part of the World Bank, will provide guarantees to banks that make loans for P2E2 projects in Asia. ABP Investments of the Netherlands, one of the world's largest pension funds, says P2E2 projects will be eligible for funding under a program it has to support investments in innovation.
The environmental-services companies then strike deals with the Chinese factories, offering to upgrade their equipment free of charge. The factories will give back to the environmental-services companies over time by handing them a cut -- to be agreed by the two parties -- of the savings the plants achieve on energy costs. According to the plans, the environmental-services companies will use the money to repay the bank loans and provide a return to investors who provided equity.
"If you're running a plastics plant, your core business is not saving on pollution," said Stewart Ballard, chief commercial consul for the U.S. Commercial Service at the American Consulate General in Hong Kong.
There are questions about whether Chinese factories will be interested in participating, as they would have to hand over the savings from the new technology to an environmental-services company.
"It's going to take quite a bit more time . . . we have to overcome management resistance," says Lyn Ip, Adidas's manager for environmental affairs in Asia. But pressure from multinational companies the factories supply could encourage participation, she said. "Obviously, we don't mandate; we don't say, 'You must follow this particular program.'"
The program's initial focus will be factories in China, but it is open to participants throughout Asia and elsewhere -- though all parties must have a legal presence in Hong Kong. That stipulation helped gain the support of the Chinese government, which bears no cost for the program. Hong Kong is governed separately from China and has more transparent legal and financial systems, which P2E2 will use.
U.S. Commerce Department officials hope the program will help generate markets for U.S. clean-tech companies in Asia. Assistant Commerce Secretary David Bohigian is leading a trade mission of more than a dozen U.S. companies, including Caterpillar Inc. and investment firm Marisco Capital Management, to China and India.
"The opportunities are unparalleled in terms of the amount of money that's going to go into the energy infrastructure over the next 25 years," Mr. Bohigian said. He estimates there will be about $1 trillion in annual spending on energy infrastructure through 2025.
Support for equity investors will be available through the Multilateral Investment Guarantee Agency, also part of the World Bank, and the Overseas Private Investment Corp., a U.S. government body.
"We're hoping that P2E2 will be the spark that's needed to ignite an avalanche of change," said Michael Friedlander, chief operating officer and chief financial officer for ABP's Hong Kong-based subsidiary, ABP Investments Asia Ltd.
Adidas is promoting the P2E2 program throughout its global supply chain of more than 1,000 manufacturers, including 307 factories in China.
"It's very crucial for us to try and illustrate the economic potential for the industry and . . . the tangible benefits for the environment," Ms. Ip said. "If it doesn't make economic sense, then it will be difficult to do any change."
Adidas also is looking to join with other companies, within and outside the sportswear industry, to push awareness of P2E2, she said.
