Emissions Trading

Just the ticket for cleaning up our act

Thomas Tang – SCMP – Updated on Jun 28, 2008

The recent news that Hong Kong has launched a new form of international emissions trading to help the city fulfil its obligations under the Kyoto Protocol comes, literally, as a breath of fresh air for local companies.

In particular, the latitude extended to Hong Kong projects for acceptance under the Clean Development Mechanism, (CDM) through exemptions of government fees and relaxation of ownership conditions on the sale of certified emission reduction credits, should – in theory – make investing in clean energy projects all the more attractive to Hong Kong companies.

But the rush may take a while to materialise. The CDM was originally a proposal for developed economies to find ways of offsetting unavoidable carbon emissions by buying certified emission reduction credits from clean energy projects in developing economies.

Hong Kong is far from being a developing economy. The role of energy policy has much less to do with reducing global warming than ensuring energy security. The benefits of projects like wind, hydro and solar power would be questionable, given the exorbitant costs of such projects in a small environment like Hong Kong.

The city, therefore, needs a much smarter way to capitalise on the CDM and exhibit global responsibility. This mechanism could serve as the long-awaited incentive for property developers to embed energy efficient and energy reduction designs in new and existing buildings, to comply with carbon credit requirements.

This is one obvious route, but the bigger bang for the special administrative region’s buck could lie in using the mechanism to tackle one of its perennial problems – transport.

Clean transport strategies employed in cities throughout the world have paid dividends in terms of reduced congestion, better air quality and much nicer living environments. Places like London, Stockholm and Singapore have adopted traffic measures like road pricing to achieve significant reductions in vehicles on their roads.

The city of Curitiba in Brazil has been a model of how robust transport planning has enabled its inhabitants to enjoy efficient public transport but still maintain the independent advantages of private vehicle ownership, showing that the best of public and private transport systems can co-exist.

Hong Kong’s opportunity surely lies in using its highly efficient public transport system linked to strategic measures like road pricing and converting more streets to pedestrian use that would yield obvious reductions in carbon by removing vehicles from the roads.

With the backing of the National Reform Development Commission in Beijing, whose role is to screen national CDM projects, it is a huge opportunity to use market forces to bring a welcome change to Hong Kong’s environment.

Rail, bus and tram companies would be able to run their businesses and get carbon credits for their investments. Imagine the MTR Corporation being able to partially finance and operate a new line from carbon credit trading. And having to build fewer roads must make sense to the government, as well as taxpayers.

Last year’s stakeholder-engagement exercise on achieving better air quality for Hong Kong, run by the Council for Sustainable Development, showed an overwhelming public response in support of measures such as road pricing to provide cleaner air for Hong Kong, to help resolve our much publicised pollution problems.

With this need to improve the environment, the CDM opportunity must look even more attractive both politically and commercially.

It just needs Hong Kong companies and policymakers to be bold and not just engage in hot-air debates, and to actually start selling the idea.

Dr Thomas Tang is executive director of the Global Institute for Tomorrow

Fanny W. Y. Fung – Updated on Jun 12, 2008 – SCMP

In the mid-1980s, after taking his degree in England, Richard Au Yeung Sei-kwok took the unusual step of working on the mainland. After years of commercial success, the entrepreneur has taken another unorthodox step – pursuing the opportunities thrown up by emissions trading

Businessmen and environmental activists may often be in confrontation, but Richard Au Yeung Sei-kwok has decided to play both roles.

Having worked in the commercial arena for 24 years and run his own business for 12, the 48-year-old has now dedicated himself to the emissions trading project agreed under the Kyoto Protocol to fight climate change.

“Profit and conservation are not mutually exclusive – if there is a mechanism to commercialise environmental protection incentives,” says Mr Au Yeung, chairman and chief executive of carbon credit trading agent Enew, a company he set up in May last year.

He came across the business opportunity by chance, when he learned about the international convention and the idea of carbon trading in a conversation with a Japanese friend in 2003.

“At first I didn’t quite believe this idea. I thought: get cash for making less pollution? Is there really such a free lunch in the world?”

But after researching the topic and studying the protocol, the entrepreneur – who had run various kinds of businesses including property, recreation facilities and advertising – decided the environmental project was profitable.

With his extensive personal network on the mainland, he started lobbying municipal government officials, farm owners and industrialists to engage in the trade.

It was not an easy task. Although the nation had signed the protocol as early as 1998, many provincial and city officials knew nothing about the issue.

“They had never heard of carbon credit trading. When I approached one official in a northeastern province about the matter, he said: buy coal? You should go to Shanxi !” he recalls with a laugh.

He also visited farms and explained to owners how the straw of rice plants and pig faeces could be used for generating power, and he went to factories to teach industrialists how to cut emissions. It took him about 18 months to two years from the beginning of lobbying to the completion of a transaction.

“I didn’t know the production process was so wasteful until I really saw such a large volume of materials could be saved up for alternative uses.”

Even as a boss, Mr Au Yeung has to withstand tough working conditions. “It is very unpleasant. I need to go into all the dirty places with pig faeces, coal burners or, in the case of paper factories, scraps floating in the choking air.” Even though he has six employees, he insists on going to sites himself. “It is worthwhile going and I am used to harsh conditions.”

He says his adaptability to hardship comes from his early training on the mainland. Although educated overseas, in 1985 he opted to develop his career in the then backward mainland after graduating with a degree in mechanical engineering from Newcastle University in England, an unusual decision for graduates at that time.

“I joined a local printing firm after returning home from studying abroad in 1984. One year later I was given two choices: to stay at the company’s Hong Kong headquarters or to go to the mainland and help develop the China market,” he says.

He was sent to work in northeastern provinces and Shandong , and his career subsequently took him to Hubei , Hunan , Guangdong and Jiangxi .

“I visit the mainland frequently and I learn new things from there every year.”

Mr Au Yeung is also a standing committee member of the Democratic Alliance for the Betterment and Progress of Hong Kong and a delegate to the Heilongjiang provincial committee of the Chinese People’s Political Consultative Conference.

He said he hoped measures recently announced by the Hong Kong government to cut emissions under the Kyoto Protocol would help clean the air. The city is included in the protocol as part of China.

China Daily – Updated: 2008-05-26 11:12

Founded in 1886 in Boston, Arthur D Little (ADL), the world’s first management consulting firm, is focusing on advising Chinese enterprises on maximizing the benefits from the international trade in carbon credit under the Kyoto Protocol.

To do so, the company’s China operation, covering Beijing, Shanghai and Hong Kong, is expanding its consultant team from 45 to 100 professionals in 2008. In an interview with China Business Weekly reporter Tuo Yannan, Thomas Schiller, managing director of ADL China, says his single most important goal is to bring ADL’s expertise and experience to the fast growing Chinese market.

Arthur D Little was established by Arthur Dehon Little, a chemist, who was credited for the discovery of acetate, and co-worker Roger Griffin, in Cambridge, Massachusetts. The company was involved in the development of the word processor and synthetic penicillin, and the founding of the NASDAQ trading system. Today the company is one of the world’s leading management consulting firms, providing a broad range of services to enterprises such like GE, IBM and GM.

Q: What kind of carbon advisory services do you provide? And what benefit can your customers get by this service?

A: First of all I must explain that carbon advisory is just a very small piece of advisory we provide. Actually though we are a strategy consulting company, we provide not only strategy but also innovation. We do carbon advisory as a part of strategy, we need to identify the risks and the opportunities, and especially in the western world, carbon margin is a long-term effect. If you identify the strategy, you consider how the carbon makes a “carbon margin”. Use the investment strategy as an example, you can invest in low carbon technology that has a long-term positive affect on your business.

Let’s use energy sourcing for an illustration. For example, for a chemical industry company energy is its most important cost of its business, so the entire carbon margin strategy means investing for 20 years. Especially in the CO2 emissions and the downstream of the products used. We provide our customer’s entire strategy including designing the value chain, investment plan, and so on. It’s not a strategy from which you can make a profit in one night, but a forward-looking plan for the future especially in multinational business.

Q: Could you give some examples to illustrate the cost effectiveness of your solutions when applied in the market?

A: We have three examples from the different industry segments. First one, a Saudi telecom operator. We made a strategy in investment changes that resulted in a 14 percent energy efficiency improvement and 40 percent CO2 emissions reduction.

For a manufacturing group we had $1.5 million in savings. And the “carbon margin” we did for a national oil company had $10 million in revenues from carbon credits.

Because the carbon credits can be traded globally, and based on our strategy using the different investments, we have different services to provide. Take an example from a global oil company. It’s allowed 30 carbon credits globally. If the company not consumed all the carbon pollution, it can sell the rest carbon credits to other companies. So they can get revenues from those trades.

Q: In China, who are your customers in carbon advisory services? The Chinese enterprises or MNCs?

A: Currently multinational companies are our major customers. They all have very strong business in China and have a deep influence in Chinese companies. But I think Chinese companies here in the local market especially in the areas of energy consumption, energy efficiency and low-carbon investment, will invest more than the foreign companies. So the Chinese companies are our important potential and prospective customers.

Q: Can you give some analyses about China’s efforts to save energy and reduce emissions? And what service do you offer to help your customers adapt it?

A: The Chinese Government has an energy consumption reduction target of 20 percent per unit of GDP by end of 2010 and has its own energy saving targets for new projects, coal-fired power plants and outdated production facilities etc. However, businesses themselves can look to reduce their own carbon emissions and find business opportunities in upgrading their existing business strategies. In particular we can assist companies to reduce their own emissions by using more efficient production technologies and improving materials efficiency. They can also use fewer carbon intensive energy sources in production, make use of low carbon technologies and better manage energy demand and better source appropriate energy solutions.

For example, we worked with an international chemicals company to identify approaches to re-organize their new product division to exploit opportunities created by climate change. We developed a number of segments amounting to 30 billion yuan ($4.32 bilion) market size by 2012 by increasing their competencies and potential for partnerships.

Q: Some MNCs have a very good relationship with the Chinese government and local companies. Do you consider cooperating with the government or private Chinese companies?

A: We do have cooperation with other countries’ governments, including in the United States and mainly in Europe and Northern Europe, even Saudi Arabia. And I think most of our business in China should be with Chinese companies. A lot of multinational companies in China use the business models of Europe or America, but many companies failed because the Chinese market is completely different. So I think making a closer relationship and ties to the Chinese local governments and companies are vital for foreign companies.

Q: Compared with their foreigner competitors, what are the most important things you think Chinese companies should improve on?

A: Of cause it’s dissimilar working with Chinese companies, but a similar problem is management expertise – the management confidence. Sometimes the Chinese companies don’t get enough managers to run the business. Their strong point is that they are very familiar with the Chinese local market. The next step includes two things, first is to enhance the product’s quality, making it more competitive in the global market. Second is to have enough long-term success to do multinational business. Here I see a big value in consulting services in China.

Q: What is your goal in a specific period?

A: We now have three offices in China, in Beijing, Shanghai and Hong Kong. Our clerks were sent to every province in China. Last year our sales revenue grew 400 percent over 2006, and because our business in China grows so fast, we made an ambitious layout for 2008 to increase the number of our strategy consulters from 45 to 100.