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Green growing pains

5 June 2015 By Katrina Hamlin

Asian entrepreneurs are searching for smog’s silver lining. “The Greening of Asia” by Mark Clifford sets out to show that local businesses can – and do – profit from efforts to avert an environmental emergency. But his eulogy to green business inadvertently highlights new technologies’ unhealthy dependence on subsidies and debt. It’s a flaw that Asia’s eco-capitalists must confront.

It’s true that environmental emergencies can stimulate entrepreneurs. The author, a former journalist and director of the Asia Business Council, is at his most persuasive when he shows how companies react to pollution and scarcity by making their operations both greener and leaner. One chief executive sums up this commonsense strategy succinctly: “Anything you waste you are paying for.” Such pragmatism can pay off. In Hong Kong, an index of listed companies with a strong record of sustainability is up 20 percent so far this year, trumping the local benchmark. Clifford’s suggestion that Asia could become a crucible for green business sounds credible.

The problem is that his most exciting case studies undermine the book’s hypothesis. The author highlights young technologies like renewable energy and green vehicles that have yet to demonstrate they can be commercially viable. Take the book’s opening chapter, which looks at the solar industry. First up is Suntech, which was briefly the world’s largest solar panel producer but collapsed into bankruptcy in 2013. Clifford goes on to feature Hanergy, which is currently under investigation by Hong Kong regulators for market manipulation; LDK Solar, which narrowly avoided liquidation last year; ReneSola, which has been loss-making since 2011; and Yingli Green Energy, a company which recently admitted there was “substantial doubt” about its future as a going concern.

The emphasis on breakthrough technology inadvertently brings to the fore a persistent clean-tech conundrum – where’s the money? New science is capital-intensive, and the payoff is distant and uncertain. Fickle government policies have made it dangerous to rely on subsidies or support. Infrastructure lags behind, creating overcapacity when new products hit the market. Competition from more established, dirtier industries is entrenched. These problems plague not only solar but also other fledgling clean-tech industries like wind and electric vehicles.

Despite these issues Clifford remains relentlessly optimistic because, as he says, “the technology is here”. However, even he admits that much needs to change in policy and finance if his bullishness is to be justified.

His wish list is long. Government policies will need to go beyond unsustainable subsidies and other artificial props. Instead, authorities should invest in infrastructure to help make clean technology more practical, efficient and affordable. China wastes as much as a fifth of electricity from wind supply because it never reaches the grid, Reuters reported in May. Clifford thinks the figure could be even higher. Fixing that glitch could be more useful than paying feed-in tariffs.

Clifford also suggests that Asian governments could pare down the region’s excessive subsidies and policies that favour dirtier industries. Countries in emerging and developing Asia blew more than $2 trillion – nearly 15 percent of the region’s GDP – on coal and petroleum subsidies in 2013, according to a report from the International Monetary Fund. Turning that down a notch could help to nurture fledgling green tech.

He could go further. For example, corporations could seek out new sources of financing to help wean themselves off subsidies. Asia is only just catching on to the development of new financial instruments which are helping to attract dedicated investors to sustainable projects in Europe and elsewhere. Green bonds, which raise funds for sustainable business projects, are one example – global issuance may reach as much as $100 billion this year, according to the Climate Bond Initiative. India recently issued inaugural green bonds, and China is likely to follow suit this year. Last year, Toyota became the first company to issue corporate green bonds to help fund work on hybrid vehicles.

With so many caveats, Clifford’s argument only half succeeds. Even so, this is a sincere effort to find the business case for solving Asia’s environmental emergency, and that makes it well worth reading. The absence of so-called “greenwashing” is admirable. It’s just that such honesty shows up the flaws as well as the merits of his case.

 

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