CO2

Chinese 12th 5-year plan – New Energy, New Energy Cars

Posted on by S Klamp

Are the days counted for China’s top-down macro economic decisions and for its state-owned monopolies? The next 5-year plan proposed by the Chinese Government focuses its attention on new energy and clean-energy cars. According to China Daily the government intents to ‘speed up new energy development and promote clean and efficient use of traditional energy, develop hydroelectric and nuclear power, and increase strategic oil reserves’.

Alongside new materials, high-end manufacturing, next generation information technology, and biotech,  these industries form part of the “new magic 7” emerging strategic industries. (The old magic 7 consisted of national defence, telecom, electricity, oil, coal, airlines, and marine shipping.) It appears that the new magic 7 are more focused on bottom-up drivers and allow companies to use their ‘innovation’ process to drive capital allocations.

Ahead of the Chinese party conference, HSBC published a report titled ‘China’s next 5 year plan – what it means for equity markets‘ which investigates the new proposal in some detail. Specifically, the overall objective of the 12th five year plan (2011-2015) lies in the pro-rate increase in domestic demand to total demand and secondly, and as importantly, the overall reduction of the carbon footprint (CO2) by 40%-45% by 2020.

Source: HSBC, China's 12th 5-year plan, New Magic 7

Further, the proposal projects that urbanisation will march on. HSBC estimates that a further 200-300m people could be urbanized over the next 20 years. If the hukou or registration simplification process moves in line with this shift, the projection suggests that consumption should increase significantly. The caveat here is that the property market development should ensure that the property bubble itself can be contained and price movements are more gradual going forward.

More importantly, there appears to be a continued drive to allow private capital to compete in what once were state monopolies or controlled industries. This should be great news for China focused private equity funds. From our view, there are still many low hanging fruits to be harvested by the largest funds in the region, including John Zhao’s Hony Capital for example. The investment pace has slowed a little since 2007 but funds are still putting capital to work. We need to wait and see whether some assets were overpriced and IRRs for Investors will be meaningful. Our views is that funds that put money to work throughout business/ macro cycles will do well for the time being.

We also note the drive to reduce high pollution and high energy consuming industries. For one, any energy price subsidies should be reviewed to allow a ‘fairer’ market price. Regrettably we feel that this process will take longer than currently proposed. We see a risk that some local producers/ polluters input cost competitiveness may be at risk on the global stage. In particular, pharmaceutical, the glass and other high water/power consuming sectors could lose some of their appeal. Can the government afford this – yet?

Source: HSBC, China's 12th 5-year plan, Roadmap

Certainly, the governments objective to double or indeed triple per capita income can only be a welcomed target. With that, domestic consumption levels should raise dramatically allowing for more propensity to consume (let’s hope little will be used for gambling!). Overall, the plan is intriguing and we look forward to seeing particulars.

To sum up, the China Council for International Cooperation on Environment and Development (CCICED) suggests four scenarios for a low carbon economy until 2050. Although not that specific yet, it demonstrates the authorities focus on renewable energy and commitment to cleantech. The four scenarios proposed split into four categories: (i) BaU (business-as-usual) under high growth rate (BaU), (ii) Low Carbon Scenario under high growth rate (HCL), (iii) Enhanced Low Carbon Scenario under high growth rate (HELC), (iv) Low Carbon under high growth rate (LLC). See the link above for more details.

China’s Pathway Towards a Low Carbon Economy

China’s Pathway Towards a Low Carbon Economy

Path to Greener Flight – Part 1

Posted on by maxdemaria

An industry notorious for lacking the highly sought after “green badge”, commercial flight has been one of the guilty pleasures of the present required to rely on the questionable effectiveness of carbon credits to maintain face. The typical one-way transatlantic flight generates around 1.2 tonnes of carbon dioxide per passenger, the equivalent to 4,000 miles of driving in a 35 mpg car[i]. Despite this ugly figure, aviation makes up 12%[ii] of CO2 emissions for transport and only 2-3% of the total[iii]. Pressure is building up for a greener image based on greener credentials. There is no one golden ticket to this end, but improvements can be made with a combination of new and upcoming technologies.

In a world with physical limits, the miracle of modern flight is made possible with a delicate balance of capacity vs. mass, pressure vs. friction, speed vs. structural strength, and distance vs. energy storage. If we seek a greener form of air travel, we are in effect tilting the balance in favour of new materials combining greater strength, lower friction and density, with forms of higher energy storage with less waste products (at least while airborne). This combination will result in aircraft that can carry a greater number of passengers further, faster and with fewer pollutants.

Material science has been developing at a staggering rate in the last century and is only getting faster. The most noteworthy of recent discoveries is the fabled carbon nanotube. Nothing more than a rearrangement of the fourth most common element in our universe[iv] and chemically identical to graphite and diamond, this substance can offer much to aviation. The combination of very high electrical conductivity with strength of around 100 times that of steel[v], it offers a lot in weight reduction. If the 135 miles and two tons of copper wiring in a Boeing 747 were replaced by carbon nanotube cables (nanoribbons) an 80% weight reduction could be achieved[vi].

If nanotube composites are used for the structural components, even greater weight savings can be made. Bayer MaterialScience[vii] have developed an aluminium/carbon nanotube composite with tensile strength comparable to steel at less than half the weight. This would considerably lower the 200-300 ton weight[viii] of a Boeing 747, providing huge fuel savings. In seeking to increase the current hull strength of an aircraft we need look no further than MIT. Engineers there have pioneered a process now known as nanostiching[ix]which can create materials 10 times stronger than current aerospace materials with more than one million times their original electrical conductivity, thereby mitigating much of the danger from airborne lightning strikes.

A lighter, stronger hull will definitely improve efficiency of flight. The real problem however lies with how the aircraft is powered, namely the form of propulsion and energy storage. To date only chemical forms of energy storage have a high enough energy density to sustain commercial flight. This comes at the cost of emitting huge amounts of waste gases at cruising altitudes. This is a trend that will not be broken without some impressive breakthroughs in battery technology, nuclear energy generation or wireless energy transmission.

Path to Greener Flight – Part 2

[i] http://www.timesonline.co.uk/tol/travel/holiday_type/green_travel/article673044.ece [ii] Stern Report Annex 7 [iii] Working Group III Report, IPCC May 2007 [iv] http://en.wikipedia.org/wiki/Carbon [v] http://en.wikipedia.org/wiki/Tensile_strength [vi] http://www.xconomy.com/boston/2008/03/26/nanocomp-wins-air-force-grant-to-make-carbon-nanotube-wiring-for-aircraft/ [vii] http://www.bayermaterialsciencenafta.com/news/index.cfm?mode=detail&id=ABE84C28-A44C-DF70-B3CC3344CC3CE224 [viii] http://en.wikipedia.org/wiki/Boeing_747-8 [ix] http://www.eurekalert.org/pub_releases/2009-03/miot-mc030409.php