VOLUME 11, ISSUE III - JULY 2009

WSCRC Is Improving

As the Washington State China Relations Council enters its 30th year of operations the global economy is facing one of its worst economic downturns in modern times. The Council staff has done a commendable job of managing cash flows and expenses in these straitened times; however, rather than simply respond to the challenges presented by this economic downturn we would prefer to demonstrate to our members and supporters that the Washington State China Relations Council – as the oldest trade organization of its kind in the country – is nimble enough to respond to the changing nature of the globalized economy and specifically the changing nature of trade between the U.S. and China.

The WSCRC has already created a strategic alliance with the former Director of the Washington State Trade Office in Shanghai, Karen Shen. We have been working together since the fall of last year to bring Chinese business opportunities to Washington State with a special emphasis on connecting WSCRC members with Chinese business prospects. These limited efforts have already generated approximately $20,000 in revenue. Several of our members have also directly benefited from this collaboration.

Starting July 15 Scott Heinlein will be directing our China business operations full time and will dividing his time between Seattle and China. Joe Borich will continue to direct the WSCRC’s traditional activities, but will be doing so from a new location: the Regional Business Center, 1301 5th Avenue, Suite 2500, Seattle, WA 98101-2611. We will be co-located at our new site with the Trade Development Alliance of Greater Seattle, enabling us to expand the synergies we have already developed with TDA.

Among our summer activities will be a Members’ Forum with Ron Cai of Davis Wright Tremaine’s Shanghai office on July 16, speaking on the Foreign Corrupt Practices Act. On August 6, Amy Sommers of Squire Saunders Dempsey’s Shanghai office will be speaking on China’s economic stimulus package and on August 20 we will have a luncheon program with Jack Rodman. Also we are making preparations for our annual banquet and 30th anniversary celebration in September. So, both Scott and Joe are looking forward to a busy and productive summer. We’ll keep you posted as we move ahead. Stay tuned.

For the past year, The Clean Energy Forum with the assistance of the WSCRC has brought together working groups composed of American and Chinese experts in energy, finance, law and public policy, to analyze our countries’ common energy challenges and identify opportunities for cooperation. At a Forum meeting in Beijing May 26 this year the following list of priority initiatives was developed and aproved:

1. Establish a Joint Energy Laboratory
   
   Situation: The US and China have the potential to improve energy efficiency and to accelerate the development of renewable energy and advanced coal technologies. Both countries would benefit from joint research and development programs targeted to fill the gaps in both countries’ energy research and development portfolios. Additionally, both countries suffer from a shortage of qualified, certified energy auditors who can identify opportunities for energy savings and build business plans to justify the necessary investment to banks and other lenders.
   • The two governments should establish a jointly funded research fund to conduct prioritized joint governmental research projects or joint research by US and Chinese research universities or entities. Such research should be entitled to the protection of the joint intellectual property insurance program recommended in initiative #7. An entity comprised of appropriate governmental officials of the two nations and with the participation of non-governmental experts should establish the priorities for such research. The work of this entity should be transparent and accountable.
   • Establish additional agreements between universities and technical colleges specializing in energy technologies to jointly create curricula, certifications, and degree programs.
   • Establish a "train the trainers" program to greatly increase qualified (and certified) energy audit experts, who can analyze factories and commercial buildings to identify efficiency improvements.
   • Each nation shall implement economic incentives consistent with its tax and fiscal policies in the form of direct appropriations, rapid depreciation, tax credits, feed-in tariffs or other incentives to encourage the rapid development and implementation of clean technologies and reduce the capital costs of clean energy projects.
   • Establish finance training programs to develop skills in creating business/investment cases and to improve the lending community’s ability to evaluate efficiency investments from ESCOs, factory and commercial building owners.
2. Share knowledge and technologies needed to create Smart Grid (including transmission and distribution networks).
   
   Situation: The smart grid offers the opportunity to improve the efficiency, reliability and flexibility of both countries’ electrical systems by adding intelligence to the network, optimizing transmission and integrating distributed generation and storage technologies.
   • Address urban distribution issues common to, for example, Beijing and New York.
   • Install Smart Meter systems that provide increased information to utilities and to consumers, so each can do a better job of optimizing energy use.
   • Develop and deploy distributed "smart" storage systems to wind, solar and off-peak generation can be utilized during peak periods, instead of building "peaking" plants.
   • Share knowledge and technology necessary to integrate variable and distributed resources, such as wind and solar, into the grid.
   • Deploy "system of systems" software that can provide the necessary intelligence to provide real-time management of complex sub-systems.
   • Share knowledge on ultra high voltage transmission technologies to reduce line loss and provide cost-effective means to bring power generated in remote areas to urban population centers.
   • Develop standards for smart appliances that can be tied to the smart grid.
   • Share knowledge about issues surrounding recharging of electrical vehicles.
   • Share demand side management tools, including technology and behavioral solutions.
3. Coordinate Development of Advanced Coal Projects, including Carbon Capture and Sequestration
   
   Situation: China and the US are the world’s largest consumers of coal, which provides 80% and 50%, respectively, of each country’s electrical generation. By working together to develop and deploy advanced coal technologies on a parallel basis, and sharing information on what components and practices work best, both countries can accelerate the development of cleaner coal plants and drive down their cost.
   • Create coordinated program, involving multiple projects in both countries, to accelerate deployment and refinement of advance coal technologies, at a reduced cost to each country:
     • Design and construct four demonstration scale advanced near-zero pollution/emission coal-fired power plants and two coal power plant retrofit projects. (Each country would build two advanced plants and execute one retrofit project). Utilize multiple combustion technologies, environmental control systems, operating procedures, types of coal to benchmark most promising technologies and operating practices.
   • Conduct joint research & development of advanced coal technologies as well as capture and sequestration of carbon.
   • Test various capture and sequestration technologies, including use of CO2 to create sustainable bio-fuels.
4. Increase efficiency, development and commercialization of Solar Photovoltaic, Solar Thermal, and Concentrated Solar technologies. Set ambitious goals for solar deployment by 2020.
   
   Situation: China and the US are world leaders in solar technology and manufacturing. By combining forces, the two countries can work together to increase efficiency of both photovoltaic and hot water solar technology and lower manufacturing costs so that solar becomes more competitive with thermal generating resources.
   • Set ambitious goals for the adoption of solar (PV, concentrating and hot water) for both countries.
   • Conduct joint research and development aimed at improving efficiency and lowering manufacturing costs.
   • Develop utility-scale (1+MW) PV solar plants in each country.
   • Construct parallel commercial-scale concentrating solar projects to evaluate best technologies and develop optimal operating practices.
   • Develop commercial scale (50+KW) projects in each country and share information on how best to integrate these resources into the grid.
   • Develop programs to increase exports of China’s solar hot water heaters to the US.
   • Share information on the effectiveness of policy initiatives which will accelerate deployment of solar technology:
     • Financing
     • Elimination or reduction of tariffs
     • Exemption from export controls
     • Incentives such as feed-in tariffs, accelerated tax depreciation
   • Conduct joint development of technologies and procedures to facilitate integration of solar and other "variable resources" into the electricity grid.
5. Power the transformation to Electric Vehicles
   
   Situation: The US and China are the world’s largest automobile markets and importers of petroleum. Both countries have the potential to cut dependence on imported petroleum, reduce pollution and CO2 emissions and create jobs by rapidly transforming vehicles so that they are powered primarily by electricity rather than gasoline and diesel.
   • Aggressively roll out infrastructure for several cities in each country to accommodate PHEVs and EVs. Set ambitious goal of at least 100,000 vehicles for each city by 2015.
   • "Coopetition"—recognize that we can both cooperate and compete for market share. Establish common standards to facilitate broad adoption and maximum opportunities for trade.
   • Conduct joint battery technology R&D.
   • Share knowledge of how to utilize smart grid technology to assure that vehicles are recharged when there is spare capacity in the grid so that emissions will be minimized.
   • Establish necessary policies: incentives, local permitting, etc. appropriate for each country. Share knowledge on effectiveness of such policies.
6. Develop Bio-Energy Fuels and Sustainable Transportation Technologies for the Aviation and Maritime industries
   
   Situation: Unlike automobiles, airplanes and ships cannot rely on batteries to power them, so there is a need to develop sustainable biofuels that can reduce net carbon emissions and increase energy efficiency.
   • Focus on commercial aviation and maritime, including port and airport operations.
   • Test and evaluate sustainable bio-fuels feedstocks.
   • Develop sustainable bio-fuels manufacturing and distribution capability.
   • Develop policies which ensure that biofuels will be available on reasonable commercial basis for transportation modes that have no practical alternative to liquid fuel (aviation, maritime).
   • Improve efficiency of both countries’ air traffic control systems.
   • Share best practices.
7. Utilize Policy Tools to Eliminate Barriers and Accelerate Clean Energy Adoption
   
   Situation: Despite our well-recognized common interests in accelerating deployment of clean energy technologies and creating jobs by increasing trade, a number of policy barriers exist that prevent common interests and good intentions from being translated into action. Key actions:
   • Minimize or eliminate tariffs and non-tariff barriers on clean energy goods and services. Both the US and China currently impose import tariffs on a wide variety of clean energy technologies.
   • Eliminate export controls for clean energy technology, software and services. A substantial barrier in perception and practice is the current US system of export controls which substantially delays and deters efforts for joint research and development of new technologies between the US and other nations. The combination of license requirements, dual use analyses, end user requirements and non-eligible trader lists served important national security needs in the past but now deter joint efforts to develop and implement multi-country use of best efforts to reduce carbon emissions.
   • Institute a joint intellectual property protection program with insurance jointly written by US and Chinese entities (for example by the US Overseas Private Investment Corporation or similar government program and by People’s Insurance Company of China), with the full faith and credit of each government standing behind the policies. This would strengthen property rights on both sides and greatly increase confidence when transferring new technology or undertaking joint research. It would also encourage strong enforcement of laws against infringement of intellectual property rights.
   • Institute ongoing and sustainable financing mechanisms for clean energy, including direct financing, loans and loan guarantees that are appropriate for each country’s situation.
   • Share best practices on innovative energy rate structures to help manage demand and on incentives to accelerate clean energy deployment.
8. Create Strategic Energy Zones (SEZs) to facilitate innovation in applying new policies, rate structures, tax incentives, etc. so that it will be easier to implement other priorities in the joint clean energy program.
   
   Situation: China accelerated its economic development by creating Special Economic Zones, which encouraged innovation and concentrated investment. Building on that model, create zones in each country where new ideas, technologies and policies can be pilot tested without having to change national policies, which is usually more complicated and time consuming.
   • Focus investment and activity in geographic or virtual zones.
   • Create "Paired" Special Energy Zones e.g. a San Francisco and Shanghai program on electric vehicles; a Chongqing and Seattle program on utilizing ESCOs to accelerate efficiency programs in industrial and commercial buildings. Build on existing relationships, ecoPartnerships, sister cities and sister states/provinces.
   • Emphasize models for broader deployment of policies and technologies in both countries that are sustainable and replicable.
   • Establish focused and intense exchange programs to build trust, share best practices.
   • Create model sustainable communities, appropriate to the conditions of each country, such as in Dalian and Silicon Valley.

The eight initiatives document above now constitutes the framework for conducting Clean Energy Forum programs and activities. We intend that the ideas contained therein become part of the dialog on energy between our two governments and perhaps a formal agreement. We are currently aiming for another meeting of the Forum in Beijing in September.