Unlocking the Deadlock

Promoting Low-Carbon Technology Cooperation between the United States and China after the Paris Agreement

Preface

Over the last three years, the Environment and Natural Resources Program (ENRP) at the Belfer Center for Science and International Affairs has hosted a number of senior Chinese practitioners from government as part of ENRP’s China Environmental Sustainability Fellowship Program, sponsored by the Energy Foundation China. In the course of their fellowship, they often focus on energy or environmental topics—or on other issues of great importance to China—and produce one or more papers, summarizing their insights and conclusions. 

These papers have value, not only in providing officials and scholars in both the United States and China with a greater understanding of the topics, but also providing perspectives on questions of importance that contribute to the ongoing policy debates in both countries. These are not traditional academic papers, but rather overviews of important issues written by practitioners who have on-the ground experience and knowledge and will be part of the policy making process in China.

The Belfer Center feels privileged to host these fellows and to provide this forum for the products of their work at the Center.

Henry Lee
Director, Environment and Natural Resources Program

 

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Introduction

The world has witnessed a new era of cooperation on climate change between the United States and China. This cooperation between the world’s two largest economies and carbon emitters played a fundamental role in the international negotiations leading up to the adoption of the Paris Agreement in December 2015. This includes, in particular, the joint announcement of their respective post-2020 climate actions in November 2014 and the crafting of common visions on key issues related to the Paris Outcome in September 2015. The world has high expectations that the United States and China will enhance their future collaboration on climate change. These expectations will be the cornerstone of translating the Paris vision into action. Furthermore, the Joint Presidential Statement released in March 2016 also stressed that “joint efforts by the United States and China on climate change will serve as an enduring legacy of the partnership between our two countries”.  

Low-carbon technology^[1] innovation and relevant international cooperation will play a key role in unlocking the potential to reduce greenhouse gas (GHG) emissions and build a low-carbon and climate-resilient economy in a cost-effective manner. Low-carbon technology is also one of the most important aspects of U.S.-China cooperation on climate change and will likely be the cornerstone of the work the two countries have ahead of them as they strive to turn the political momentum put in place by their two Presidents into tangible outcomes.

The past decades have seen a number of results and achievements on the technology cooperation between the United States and China since the signing of the Agreement on technology cooperation and relevant Protocols between the two governments. A number of agreements have been signed on low-carbon technology specifically, such as the Protocol for Cooperation in Energy Efficiency and Renewable Energy Technology and its six Annexes in 1995, and Memorandum of Understanding on Cooperation for Developing Bio-fuels in 2007. Many initiatives, programs, and projects are ongoing. The recent two joint statements on climate change between President Barack Obama and President Xi Jinping—the U.S.-China Joint Announcement on Climate Change in November 2014 and the U.S.-China Joint Presidential Statement on Climate Change in September 2014 – provide political momentum to greater low-carbon technology cooperation. The U.S.-China Climate Change Working Group (CCWG), established in 2013, has launched many new initiatives including, inter alia, smart grid, carbon capture and storage (CCS), and heavy-duty vehicles. 

However, there are still a large number of political, legal, and operational barriers to technology cooperation and transfer that hinder progress between the two countries. This paper is a preliminary evaluation of low-carbon technology cooperation between the United States and China. On the basis of this evaluation, the paper identifies the remaining challenges and recommends possible solutions.^[2]

 

The Progress of Low-Carbon Technology Cooperation between the United States and China

A Brief Review of the History

United States and China cooperation in science and technology began in 1979, when the Agreement on Cooperation in Science and Technology was signed by President Jimmy Carter and Chairman Deng Xiaoping. As a milestone in the history of the bilateral relation between the United States and China, this agreement is not only unprecedented in the political area, but also crucial in substantially boosting the development of science and technology in China. Several Protocols and annexes related to fossil fuel energy consumption were signed over the following decades. One of the most important is the Protocol on Cooperation in the Field of Fossil Energy Research and Development, signed in 1985. Nevertheless, very little happened in the area of low-carbon technology cooperation until the Protocol for Cooperation in Energy Efficiency and Renewable Energy Technology was signed in 1995 under the Clinton Administration. Table 1 below is a summary of milestones.

 

Table 1: Historic Milestones in Low-Carbon Technology Cooperation between the US and China

Source: (1) Gallagher, Kelly Sims, “U.S.-China Energy Cooperation: A Review of Joint Activities Related to Chinese Energy Development Since 1980,” BCSIA Discussion Paper, 2001; (2) Asia Society and Pew Center, “A Roadmap for U.S. and China Cooperation on Energy and Climate Change,” Beijing, 2009; (3) CCWG, Report of U.S.-China Climate Change Working Group in 2013, Washington, D.C, July 2013; (4) U.S.-China Joint Announcement on Climate Change, Beijing, 12 November 2014; and (5) U.S.-China Joint Presidential Statement on Climate Change, Washington, D.C, 25 September 2015.

 

Three Areas of Recent Cooperation since 2008

Among all these cooperative initiatives, programs, and projects, there are three recent areas of cooperation, each with a clear series of goals, systematic organization, and a level of progress that make them easy to track and study. These three areas cover most categories of low-carbon technologies, including energy efficiency, renewable energy, clean coal, CCS, non-CO₂ GHG reductions, etc.^[3] They are:

The U.S.-China Climate Change Working Group (CCWG). The CCWG was established in early 2013 when U.S. Secretary of State John Kerry visited China and met with Chinese leaders. It is the first institution ever created specifically for policy dialogues and concrete cooperation on climate change between the United States and China. The CCWG will report its progress annually to the U.S-China Strategic and Economic Dialogue (S&ED). Low-carbon technology is the key working area of the CCWG.

Clean Energy Research Center (CERC). CERC was established in 2009 through the signing of the Cooperation Protocol on the U.S.-China Clean Energy Research Center. The purpose of the CERC is to support joint research and development (R&D) activities on low-carbon technologies by universities, research institutes, and industries in the United States and China in order to promote and accelerate the future deployment of clean energy. The CERC is the first initiative between the United States and China in the area of joint research on low-carbon technology.

The Ten Year Framework on Energy and Environment Cooperation and the Green Partnership. The Ten Year Framework (TYF) was formally launched in 2008 as a broad cooperative initiative on energy, environment, sustainable development, and climate under the guidance of the S&ED. The Green Partnership is a platform under the TYF to engage various non-governmental stakeholders in the two countries to participate in cooperative projects. Low-carbon technology is one of the most important areas of the TYF and its Green Partnership.^[4]

Metrics to Reflect and Evaluate the Progress

This paper utilizes three sets of criteria to illustrate and evaluate the progress made on U.S.-China cooperation on low-carbon technologies. These criteria are as follows:

• Basic information of the relevant statements and agreements, including signing year, lead governmental agencies for implementation, and sub-areas or technologies under relevant statements or agreements
• Stakeholders involved in the cooperation, including governmental agencies, research institutes, and companies
• Type of activities and achievements, including the exchange of information and expertise, personal networks for stakeholders,^[5] joint research on new technology, criteria, model or application, joint demonstration, intellectual property (IP) transfer, and business cooperation on deployment and commercialization

This set of criteria is designed to reflect the different stages of technology innovation and various levels of engagement. These criteria not only assess the tasks to be implemented in the relevant cooperation documents, but also cover the implementation status, in particular the relevant achievements. This means that these criteria could be used to evaluate both the cooperation that has occurred and that which has yet to be done.^[6]

By applying these criteria, this paper develops a metric with three components to evaluate the progress made under each of the three areas of cooperation mentioned above (see Table 2.1, 2.2, and 2.3).

 

Table 2.1:    Metric on the Progress of Existing Low-Carbon Cooperation between the U.S. and China Part I

Table 2.2:    Metric on the Progress of Existing Low-Carbon Cooperation between the U.S. and China Part II

Table 2.3:    Metric on the Progress of Existing Low-Carbon Cooperation between the U.S. and China Part III

 

Preliminary Observations from the Metric

Based on the metrics above, preliminary observations are presented as follows:

• Many cooperative programs and projects (in nearly 17 sub-areas under the three main areas) have been established as a result of several bilateral agreements between (and joint statements of) the two governments. However, most of the cooperative activities are still in the initial stage of dialogue and information exchange. Only a few are targeted to conduct joint research and development (R&D) or demonstrations of new technology. Many of the projects are still in their planning stages or have the status of “to be implemented.”
• Multiple governmental departments and agencies engage in cooperation. NDRC and MOST are the lead agencies for most initiatives, programs, and projects from the Chinese side. DOE and DOS are the lead agencies for most initiatives, programs, and projects from the U.S. side.
• Besides governmental agencies, a large number of stakeholders from academic and business circles are cooperating. Networks for stakeholders are established in most of the cooperative areas and projects.
• There are some overlaps and duplications among the cooperative activities and projects across different areas of cooperation, in particular in energy efficiency and CCS. For example, there are cooperative projects on CCS under both the CCWG and CERC, without huge distinctions on the purpose, themes, and activities.
• There is no commercial cooperation between U.S. and Chinese companies except for phasing down hydrofluorocarbons (HFCs). 
• No IP transfer activities have occurred. Even within cooperation on HFCs, it is unclear whether IP transfer will occur.
• Information about some cooperative activities is not transparent or available. For example, the information on types of activities of the initiatives “Wind Power” and “Top Performing Gas Turbine Combined-Cycle Power Plant” under the Ten Year Framework is not available in the officially published documents. This makes it challenging to compare activities and initiatives across projects and areas of study.

 

Barriers and Challenges in Low-Carbon Technology Cooperation

There are three types of barriers: political, policy, and operational—that hinder the implementation of a wider range of cooperative arrangements between the United States and China.

Political Level: Lack of Mutual Trust between the Two Countries

Although cooperation on climate change is seen as a positive aspect of the U.S.-China relationship, progress on low-carbon technology cooperation is still affected by the political and diplomatic interactions between the two countries.

Concerns on Security and Economic Competitiveness

Technology innovation is fundamental to the military development and economic competitiveness of the United States and China. Usually, low-carbon or environment technologies are not considered to be of high security value. However, some types of low-carbon technologies relate to nuclear engineering and can raise security concerns. Highly advanced low-carbon technologies will also play a key role in future energy innovation, which is crucial to each country’s economic competitiveness. Increasing competition in clean energy technologies is creating some mistrust at the government level. The U.S. side suspects that China will use the information received in the cooperation process to enhance the competitive advantage of its companies. China’s goal in such cooperative agreements is not simply to enhance its action on climate change, but to learn or even replicate highly advanced technologies in order to surpass the United States in the area of energy in the global market. There are also some U.S. officials and legislators who view China as an emerging competitor or even a potential enemy from the perspective of ideology and security, which undermines mutual trust. China also shares similar concerns on security and competitiveness, especially in the areas of coal gasification, supercritical coal plants, and battery storage where some Chinese companies have made breakthroughs.

Doubt on the ‘Real’ Technology Cooperation and Transfer

Some Chinese stakeholders believe that the United States will never be willing to provide its resources to help China promote technology innovation. They doubt that real, concrete, and large-scale technology cooperation between the United States and China will happen, especially when it comes to the IP issue. Due to these domestic constraints in terms of politics and policies, some stakeholders from both sides believe that cooperation will be limited to an exchange of best practices. Such misperception jeopardizes mutual trust between the two countries, preventing the stakeholders from going further to design and embrace activities and projects beyond exchanging information.

Policy Level: Constraints from Public Policies

Besides the lack of mutual trust in the political level, there are policy barriers to greater international technology cooperation.

Constraints on the Public Budget

Both governments confront budget constraints that limit their flexibility. It is almost impossible for the U.S. government to sign a cooperative agreement with China that includes provisions on providing any financial support to Chinese stakeholders. The U.S. government cannot share public financial resources with foreign partners due to legal barriers and domestic U.S. politics. One of the most acceptable modalities is equal financial contribution from both sides. This modality prevails in the establishment and operation of the CERC and CCWG. For example, The CERC is supported by funding of at least $150 million USD—split evenly between the United States and China—in the first five-year implementation cycle (2011-2015).

In addition, the budget on technology innovation is not climate-oriented. There is always competition in the distribution of resources between climate and other areas. The scale of the budget will shrink if the growth of the economy and public revenue slows down. Furthermore, there are also budget constraints on international travel for personnel.

Constraints on the Modality of the Cooperation

It is easier to deploy resources to less sensitive activities, such as workshops about the experience and policies in general, rather than more sophisticated activities, such as joint research, demonstration, and deployment. Even in the few joint demonstration projects, most of the cooperative tasks are still at the level of feasibility study and experience sharing. There is little progress on testing or applying new technology in the demonstration projects because such activities are more difficult and complicated to design and carry out than paying travel and meeting expenses.

Usually, the U.S. side prefers areas of research in which both sides have equal advantages. But the Chinese side advocates the idea of “complementary advantage” and focuses on areas in which the United States holds more advanced technologies. In addition, both sides can only utilize their financial resources to support the activities of their own personnel, which means the funding has not been put together and joint research is not really “joint.” Therefore, it is difficult for the research institutes from both sides to collaborate on developing research proposals and apply for the funding as one team.

Other Public Policy Barriers

There are other policy barriers to IP transfer, deployment, and commercialization of low-carbon technology, such as restrictions on the export of the high technology products, policies against dumping, subsidizing renewable energy products, and regulations on transnational investment. For example, in 2012 and 2014, U.S. public agencies launched investigations twice on the photovoltaic products exported from Chinese companies for the purpose of protecting against dumping and subsidizing.

Operational Level: Difficulties on the Coordination among Different Stakeholders

Coordination among different stakeholders from governmental agencies, companies, and research institutes is crucial to ensure the effectiveness of cooperation. Several barriers and challenges exist in the coordination among different stakeholders.

Coordination among Various Governmental Agencies

Due to the crosscutting nature of climate related issues, there tend to be multiple overlaps in governmental agency mandate when it comes to project design and implementation. In the areas of energy efficiency, renewable, and CCS, in particular, projects with the similar purposes are often designed and carried out under the CCWG, CERC, and Green Partnership without full coordination between those agencies. More inter-agency coordination could help ensure the best use of the resources invested.

Coordination between the Government and the Private Sector

Differing and often competing demands on governmental agencies and private sector companies create a coordination challenge when it comes to cooperation on low-carbon technology. Governments tend to prefer to sign agreements and announce cooperative programs with the hope of enhancing political relationships, sending political signals on reducing emissions, and encouraging other countries to take actions. But companies have a strong focus on the commercial benefits of this kind of cooperation, which is sometimes at odds with the goals of government.

U.S. companies tend to be more interested in participating in domestic innovation than international technology cooperation due to their concerns about IP related issues. On the other hand, some advanced low-carbon technologies needed by China are owned by U.S. companies, not by U.S. government laboratories. The U.S. government finds it very difficult to persuade these companies to transfer their IPs or sell their licenses to Chinese companies.

Chinese state-owned companies tend to be hesitant to participate in low-carbon technology cooperation. On one hand, they are very interested in some U.S. technologies with strong commercial potential. On the other hand, they are reluctant to invest their own financial resources to pay for the licenses of such technologies or conduct other modes of commercial cooperation because of the uncertainty and the length of time needed to capture profits.

Coordination between Basic Research Institutes and Private Companies

In theory, there is great potential for coordination between basic research institutes and private companies from the United States and China. Most of the cooperative programs and projects are currently conducted in the mode of “research institute to research institute” or “company to company.” Ultimately, it is difficult to design a project that could compel the research institutes and companies work together to build an iterative process between basic research and technology application. If such projects could be designed, it would hasten the pace of low-carbon technology cooperation between the United States and China.

Conclusions and Policy Recommendations on Enhancing Low-Carbon Technology Cooperation

The Paris Agreement has sent a clear, precise, and strong political signal on the low-carbon transition of the global economy. Low-carbon technology is the key to building a future with climate resilience and clean energy. The recent Presidential statements from the United States and China designate low-carbon technology cooperation as one of the top priorities of their partnership on climate change. However, based on the analysis above, there are still barriers on political, policy, and operational levels that prevent the United States and China from advancing beyond policy dialogue and information sharing when it comes to low-carbon technology cooperation. Some of these barriers are rooted in domestic politics and the institutional structure of each country, which may not be changed or removed in the short or mid-term. However, these barriers do not mean that the stakeholders from the United States and China can do nothing to unlock the deadlock of low-carbon technology cooperation. More innovative and pragmatic work could and should be done in the future between the governmental agencies, research institutes, and companies from the two countries to achieve more tangible results.

The following recommendations are raised by this paper for consideration by relevant policy makers to enhance cooperation between the United States and China on low-carbon technology advancement and dissemination.

• Build mutual trust through further enhancing the partnership on climate change, based on the political momentum built by the two Presidents. Regardless of the uncertainty surrounding U.S. domestic politics on climate change caused by the pending change in Administrations, the officers in governmental agencies from the two countries should sit together after the new U.S. Administration is established to discuss new approaches beyond the existing domestic political and institutional constraints and barriers. Recognizing that some barriers such as domestic politics, budget constraints, and IPRs cannot be removed in the short- or mid-term, it is crucial for officers from the two governments to find innovative and pragmatic approaches to engaging more participants from business and academia in low-carbon technology cooperation between the United States and China.
• Enhance coordination between the different governmental agencies. One possible option is establishing a joint-committee that will be responsible for coordinating all relevant agreements, programs, and projects on low-carbon technology cooperation. The joint-committee should also evaluate ongoing low-carbon technology cooperation under the CCWG and CERC and identify pragmatic solutions by surveying departments in both countries as program coordinators with relevant expertise. Other stakeholders from the private sector and academia could be invited to provide their suggestions to the joint-committee. Admittedly, it will be difficult to define the working modality, choose the leader, and elaborate the agenda of such joint-committee. An alternative approach could be identifying joint tasks. These would be carried out by the CCWG and CERC together with clear division of labor between the two institutions. The CCWG could deal with the cooperation on demonstrating and deploying low-carbon technology. And the CERC would focus on activities related to the joint research.
• Establish a coalition among different stakeholders ranging from governmental agencies, companies, and research institutes, with a view to building long-term and durable personal and institutional networks among relevant stakeholders. Initiatives similar to initiatives “Mission Innovation” and its parallel partner “Breakthrough Energy Coalition” could be introduced into the bilateral cooperation, in order to gather all the relevant stakeholders from the two countries together. An institute similar to the mode of “the Advanced Research Projects Agency-Energy (ARPA-E)” could be established by the Chinese government, seeking a partnership with its U.S. counterpart. Activities such as sending visiting scholars, producing joint papers in peer-reviewed journals, applying for funding by joint teams, and sharing research facilities should be encouraged, as a further concrete step on joint research. However, there are challenges in inviting top scientists and engineers to establish such joint teams and identifying the themes that both sides feel interested in and have equal advantage in. Usually, the top-level scientists and engineers from both countries have their own priority and schedule of research. It is difficult for them to participate in and focus on joint research on a continuous basis, especially when the topic is not fully consistent with their research interests and priorities. Another problem for the Chinese side is lack of personnel who both know the technologies well and speak English fluently.
• Identify some joint demonstration projects in area of “low-hanging fruit,” which may include shale gas, CCS, HFCs, and energy efficiency in the building sector. A lot of advanced technologies developed by U.S. research institutes have potential for deployment. However, it is difficult to demonstrate and test these new technologies in the United States due to the constraints from regulations, lack of lands and facilities, and limited markets. Chinese stakeholders could provide lands and facilities at a relatively low price and under flexible supervision for testing new technologies developed by the U.S. side or developed jointly. More encouraging policies on land price and tax could be designed by Chinese local governments. For example, some U.S. research institutes have developed technologies that will significantly reduce energy penalty and CO₂ emissions in the process of cement production compared with the existing technologies that have been available for decades. However, the U.S. regulations and criteria on building do not allow the application of the new technologies due to the lack of maturity. Due to large-scale infrastructure building, there is a large market for cement in China, and cement production is one of the most significant sources of GHG emissions. Production technologies are crucial in conserving energy and unlocking the mitigation potential in this area. Therefore, relevant stakeholders from both the U.S. and Chinese sides could work together to build a demonstration project on cement production and other technologies of joint interest, such as carbon capture and utilization. Improving the language skill of Chinese stakeholders, in particular those from local companies, and involving scientists and engineers able and willing to follow the relevant demonstration projects and provide technical support on a continuous basis are both important steps. Finally, more experts from U.S. government laboratories should be invited to participate in these discussions.
• Develop new modalities for green financing and pragmatic business models to facilitate cooperation between companies. The U.S. and Chinese companies could work together on some key technologies with a view to promoting IP transfer, accelerating license trade, and incentivizing the commercialization of key technologies. International trade of clean energy products could be the first step for low-carbon technology cooperation and transfer between U.S. and Chinese companies. The continuous support from the U.S. Trade and Development Agency (USTDA) on feasibility studies is crucial for U.S. companies to get sufficient information on how their proven clean energy technologies and products can be successful in Chinese markets. Chinese state-owned companies, in the areas of energy and electric power, will play an important role if they decide to cooperate on commercialization of the technologies. Some Chinese venture capital funds operated by the state-owned financial institutes, such as China Development Bank, could be invited to invest in new technologies with long-term capital cycle and high risks, but high profit potential. Another option is that U.S. and Chinese companies could co-establish a start-up corporation with the objective of promoting the commercialization of some specific low-carbon technologies in the Chinese markets. Such a corporation could secure loans from Chinese state-owned banks or other investment institutes. While it is difficult to obtain loans or equity investment from U.S. financial institutions, the USTDA can fund companies to promote the export of their clean energy products to China. The business modality for company-to-company cooperation still needs to be further designed and elaborated, taking into account the evolving circumstances and policies of the two countries.

In summary, R&D collaboration, joint demonstration projects, and commercialized cooperation are significant areas with large potential to achieve tangible results on the U.S.-China low-carbon cooperation. It is crucial to build an enabling environment for those non-governmental actors such as research institutes, universities, and companies to participate in future cooperative ventures. At the same time, further coordination between different governmental agencies is of great importance to establish appropriate channels and platforms for proactive engagement by research institutes and companies. With universal participation by multiple stakeholders, the United States and China can work together to unlock the potential on low-carbon technology cooperation and achieve more concrete outcomes, which will make greater contributions to their bilateral relations and global governance on climate change.

 

Acronyms and Abbreviations

 

 

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Notes

^[1]       In this paper, “low-carbon technology” is a general concept with a broad scope, including all categories of technologies that will lead to relatively lower level of GHG emissions than the traditional utilization of fossil fuels, such as energy efficiency technologies, renewable energy, nuclear, clean coal, non-CO₂ reductions, etc.

^[2]        Most information in this paper originates from semi-structured interviews with: (1) former or existing officers from various agencies who are responsible for the operationalization of the cooperative agreements, programs, projects, and initiatives related to low-carbon technology; (2) other stakeholders from research institutes and companies participating in the relevant cooperative initiatives, activities, and projects, most of whom are Chinese; and (3) some Harvard University research fellows, most of whom are based at the Harvard Kennedy School.

^[3]      An unfortunate omission of this paper is U.S.-China cooperation on nuclear technology, which is an important category of low-carbon technologies. The reason for this omission is the difficulty in evaluating nuclear technology cooperation in comparison with other types of technologies in the same paper, given that the nuclear issue is a major and complicated topic in the relationship between the U.S. and China.

^[4]       In 2008-2015, the USTDA, under its East Asia Program, funded three types of projects in China on clean energy. However, most of the projects aim to promote the export of clean energy products, not directly related to technology research, development, demonstration, and deployment. A few projects directly related to clean energy technologies are: (1) trade missions on design and operation of U.S. relevant technologies; (2) workshops for technical assistance to Chinese stakeholders; and (3) feasibility studies for U.S. companies on the application of their technologies in the Chinese markets.

^[5]      A durable and stable personal network for stakeholders is crucial in the promotion of tangible cooperation. From a long-term perspective, it is sometimes the case that the personal relationships established from a cooperative project or program is more important than the project or program itself.

^[6]      The U.S. Government Accountability Office recommends in their July 2016 report that there should be targets for program-level performance in U.S.-China cooperation on clean energy. However, it is difficult for this paper to develop quantitative criteria to evaluate the progress because most of the projects under these three areas are still to be implemented or not finished.