SRI English

Questioning Japan's "low-carbon revolution"

By Adam Child

Japan’s fourth stimulus package, announced back in April, offered critical support in key sustainable areas: JPY 2 trillion (USD20 billion) for healthcare, reinforcing over JPY700 billion (USD 7 billion) announced in previous fiscal injections. Crucially, these resources have been heavily weighted towards R&D and increasing the efficiency of the system through investments in IT. Also, we note provisions specifically targeted at the elderly show increasing willingness to tackle the issue of a rapidly aging population head on.

Nonetheless, the low-carbon revolution touted by Prime Minister Aso at the start of the year is not yet in sight. On solar energy – a key component of the package and an area in which Japanese firms have traditionally been dominant - the stimulus will create demand for 80-100 megawatts, which we estimate would only offset around 5% of the projected minimum 2 gigawatt global oversupply for 2009. In addition to the solar package, the stimulus includes funding for green autos, railways and energy efficient household appliances. Nonetheless, this hardly represents a new model for growth – Japanese emissions are among the highest in the G-20. At UN-sponsored talks on climate change held in June, Japan pledged a 15% reduction in carbon emissions by 2020 from 2005 levels. This falls short of measures agreed by Democrats on the US House Energy and Commerce Committee to reduce emissions by 17% over the same time period. Similarly, the EU is taking more ambitious steps in its policy to curtail emissions to 20% below 1990 levels. Far from leading the revolution, Japan was branded a ‘laggard’ by the WWF conservation group.

If Japan’s alarming deficit can finance yet another round of spending, it may be a case of fifth time lucky for the green recovery that analysts have been predicting since late last year. Elections are due at the end of August, and the opposition Democratic Party, ahead in the polls, has proposed increasing investments in clean energy. More importantly, they have pledged to enforce more ambitious emissions targets and set up an emissions trading system in line with similar developments in the EU and the US. Legislative adjustments such as these are an intelligent step. In our opinion they could yield better results for clean tech than another round of stimulus spending that may in any case barely offset the collapse of debt financing for renewables.

China's stimulus: don't let the numbers distract you

By Adam Child

A RMB 4 trillion (USD 586 billion) Chinese stimulus officially announced back in November is reported to contain as much as USD 450 billion in sustainable spending. Details are sketchy, however, and we advise caution.

First, the proportion of the RMB 4 trillion that may be properly termed discretionary stimulus is uncertain. Beijing will not fund the majority of the stimulus directly, but rather through leaning on state owned enterprises and banks to step up spending and lending. It therefore becomes rather difficult to accurately surmise the total cost. Secondly, identifying the sustainable portion of the stimulus is also problematic. The package was announced as a series of initiatives targeting areas including social housing and slum development, healthcare infrastructure, electrification, water, rural infrastructure and biological conservation. The budget for each area is immense, but finding targeted funding for sustainable projects in this haystack isn’t a simple task.

Nonetheless, too much concern over headline sums is unhelpful. We maintain that the Chinese stimulus, perhaps more than that of any other major G-20 nation, marks a radical step change in the assumed model of national economic development. The fact that many of the proposed projects are ‘shovel ready’ does suggest they may have gone ahead in the absence of stimulus. But this is not the best conclusion to draw. More importantly, it confirms that sustainability is just as much a built-in aspect of policy making for the Chinese as for the Americans or the Europeans. Social disquiet following recent toxicity scandals underlines the necessity for sustainability in China, no less than in the developed economies. Air and water pollution, health scares and food shortages, lack of medical provision and access to education all pose serious challenges to the Chinese establishment. The stimulus demonstrates that this fact is not lost on the leadership in Beijing.

Smart grid stimulus: choosing a sustainable future

By Sara Wright

Sustainability requires a structural shift towards a balanced interaction between consumers, producers and resources. This is nowhere more obvious than in our use of energy. Up to now, attempts to find a solution have been numerous and disconnected. Renewable energy supply, energy-efficient appliances and energy-saving publicity campaigns are just a few among a host of innovations. Yet while all the parts are there, the overarching structure has so far eluded us.

It is therefore exciting to see significant levels of stimulus funding in the US, the EU and China going towards the development of a ‘smart grid’. Indeed, the portion of the US package going to smart grid development is estimated at USD 4.5 billion. While the US appears to have the clearest and most robust strategy, China and Europe are allocating significant funds towards this area as well.

Smart grid refers to the digitalisation of electric grid infrastructure and the development of associated technologies and applications. With regards to energy supply, one of its key features is the ability to incorporate all forms of power generation and storage such that renewable energy becomes an integrated element of the grid instead of a bolt-on attachment. With regards to energy demand, smart grid allows consumers to actively monitor their energy use and participate in energy markets: ‘smart’ electric meters in homes and businesses allow real-time monitoring of energy use per application and their cost. By giving consumers direct information on their energy use, market pricing mechanisms will become more efficient, the volatility of demand will be reduced and waste will be minimised.

As always, such a panacea must be handled with care. Smart grid as a concept is still maturing and key issues are being debated that have significant implications. The questions of open or closed architecture, consequences for energy and data security, and a top-down vs. bottom-up approach to industry integration have not yet been answered. Nonetheless, smart grid clearly has the potential to shift the energy paradigm like no other innovation seen to date.

Like the concept of sustainability itself, smart grid is an inherently inclusive idea, inviting information sharing and participation. We glorify personal choice, but forgo it as soon as we flick a switch. Thanks to smart grid, that is about to change.

Green cars and red herrings

By Florian Sommer

Auto manufacturer bailouts have been a major focus of public attention and criticism. The populist cry ‘never again’ for unregulated hedge funds and bumper bonuses in the aftermath of the financial crisis is also loud on tax payer support for failing industries. How governments soothe the overburdened tax payer and prop up ailing automakers without promoting an unsustainable model is posing a difficult challenge.

Crucial to their response is whether governments perceive sustainability to be integral of their policy or whether they are just looking for a quick-fix to the global recession.

Japan and US are ahead of the class in dedicating stimulus packages for the ‘greening’ of the auto sector. Japan has scrapped acquisition taxes on hybrids, while reducing those on small vehicles. The stimulus funding can also accelerate a technological shift. For example, the EU has earmarked EUR 1 billion of research and development funding for green cars. The US is also funding research and development into advanced batteries and green autos to the tune of USD 2 billion.

The scrap credits offered by Italy, Germany, France and the UK leave much to be desired. These stimulus measures offer credits of between EUR 1000 and EUR 2500 for purchasing a new vehicle while offering an older model to be scrapped. In Germany it has been a runaway success. In the run-up to October elections, the government has even increased the funding from 1.5 billion to 5 billion after the scheme sold out in only a few months.

While such policies will remove a large number of inefficient vehicles from the roads, these one-off measures fail to demonstrate a vision for sustainable transport.