Speeches and Articles by U.S. Consul General James B. Cunningham

Cutting Pollution and Growing the Economy: The American Experience

Remarks by U.S. Consul General James B. Cunningham

Chinese General Chamber of Commerce, Hong Kong
May 11, 2007

(As prepared for delivery)

U.S. Consul General James B. Cunningham speaks at the Chinese General Chamber of Commerce in Hong Kong.

Thank you Dr. Wai, for the kind introduction. Ladies and Gentlemen of the Chinese General Chamber of Commerce, I am grateful for the opportunity to talk with your members about protecting the environment while promoting economic prosperity in the 21st century.

My message to you today: You can cut pollution at the same time as you grow your business. Don't wait for government to force you to do it -- business should take the lead. You can draw on the experience of the United States to promote a cleaner environment and economic growth.

Almost one year ago, I spoke to the American and Hong Kong General Chambers of Commerce about pollution. I outlined a financial model, which we call the Pollution Prevention and Energy Efficiency Initiative or P2E2. This model allows Hong Kong and mainland companies to reduce energy use and improve polluting factories without incurring upfront costs. Today, I want to share with you some things we are doing in the United States that show how environmental protection and economic growth can be complementary. I also want to report on P2E2’s progress, in the hope that the Chinese General Chamber and its members might become part of that progress.

It is no longer necessary today, as it still was last year, to argue that air quality is a serious issue for Hong Kong. A year ago, people were still telling me that only expatriates in Hong Kong cared about pollution and its impact on the city’s health and economic potential. I don’t hear that anymore.

The Governments of Hong Kong and Guangdong have recognized the pressing nature of the problem and established the basis for a regional approach, from cross-border air quality monitoring schemes to proposals for a new emissions trading plan. Acknowledging the reality and impact of pollution is an important step.

But clean air cannot be the responsibility of government alone. Business can lead and act quickly and effectively in mitigating pollution. And, you can do it one step ahead of ever-tighter government regulations and ever-rising energy costs.

We in the United States have learned that government and private industry must work together to address deteriorating air quality. Through these public-private partnerships, we have learned how to make a real impact on public health and encourage increased energy efficiency. These models also promote profit-making. I’ll start today by speaking about some of the ways we address pollution prevention in the U.S. and around the world.

Since the establishment of the Environmental Protection Agency, or EPA, in the 1970’s, the United States has systematically reduced aggregate emissions from the six major air pollutants by over 50%. And 12% of that 50% reduction occurred in the last four years. This reduction is even more remarkable because it occurred during a time of unprecedented economic growth. Since the dawn of the modern environmental movement 30 years ago, the U.S. economy has nearly tripled; U.S. Gross Domestic Product has grown by 195%; Americans are driving more miles than before; energy usage is up; and the U.S. population has increased by 42%.

We still have much to do in the United States. But, by virtually any measure, the air we breathe now in the United States is cleaner than at any time since we started monitoring air quality. The U.S. experience shows that investment in the environment need not be incompatible with economic returns for companies and society, including the enormous cost-savings benefits of improved public health and increased productivity.

Managing air pollution in the U.S. began where it was most visible, in large cities and industrial areas. Over the past 20 years, Los Angeles, for example, has bettered its air quality through strengthening emission standards, constructing green buildings, and increasing tree planting as part of comprehensive urban redevelopment programs. These efforts have reduced energy usage and helped clean up the air. By one measure, the number of days on which the greater Los Angeles area exceeded U.S. health standards for air pollution fell by 47% from 1993 to 2004. But the Los Angeles area aims to do more.

For example, the pollution from marine port operations remains a substantial problem. In 2006, the ports of Long Beach and Los Angeles responded with a Clean Air Action Plan (CAAP) to curb port-related air pollution from trucks, ships, locomotives and other equipment by at least 45 percent in five years. The Ports are taking innovative actions, such as container ships using electrical shore power while at dock instead of running their engines; the use of cleaner distillate fuels in California waters; and the retrofitting of diesel engines on shoreline vehicles. These steps are having positive effects in reducing pollution, particularly the low-altitude pollutants that people breathe on the streets and in their homes. This program is one of the boldest air quality initiatives by any port and there may be lessons here for Hong Kong and other ports around the globe.

In addition, to alleviate pollution and promote technological innovation in the transportation sector in California, Governor Schwarzenegger signed an executive order establishing the world’s first “low carbon” standard for transportation fuels. This will reduce carbon content in transportation fuels by 10 percent -- the equivalent of not burning over 12 billion liters of petrol a year -- and will create opportunities for producers of green vehicles and alternative fuels. Chinese car manufacturers can and should take advantage of this large market.

On the other side of the country, America’s largest city also leads in promoting energy efficiency and pollution reduction. Mayor Bloomberg of New York has taken an active stance on the environment. Business is active there as well. In New York’s Times Square, with all the lights and glitz of Broadway, you will find one of the greenest and most economically efficient skyscrapers in America. The Conde Naste Building, a 48-storey tower at “4 Times Square,” features environmentally efficient gas-fired absorption chillers and heaters to control the temperature of the building. It has state of the art windows and a glass curtain wall lets light in, keeps solar heat out, and decreases heat loss in winter. Two natural gas fuel cells and solar panels help generate power for the building, while energy efficient lighting with automatic sensors reduces energy usage (and costs) for all tenants. These innovative features bring economic savings to residents and businesses alike.

Pollution has no borders, and we in the U.S. suffer from air pollution that crosses state boundaries. The ecology in the North East, where I am from, has for decades been damaged by what we call Acid Rain, which originates in the mid-West, is carried on the wind, and poisons lakes and forests in the East. The Acid Rain program, one of EPA’s earlier initiatives, achieved a dramatic reduction in sulfur dioxide (or SO2) emissions from the power sector at the lowest cost to the public. The program employs an innovative, market-based approach for controlling air pollution with a focus on where the pollutants originate.

Specifically, it limits sulfur dioxide emissions from power plants, authorizes those plants to trade sulfur dioxide allowances, and reduces nitrogen oxide (or NOx) emission rates while encouraging energy efficiency and pollution prevention. Unlike traditional command-and-control methods, which establish inflexible emissions limitations, the Acid Rain Program’s allowance trading system harnesses the incentives of the free market to reduce pollution. Through this initiative, we achieved faster and cheaper results than expected because inexpensive technologies are available to retrofit plants and install energy saving equipment. Phase I of the program reduced SO2 emissions by almost 40% below their required level over a five year period between 1995 and 2000. Phase II, begun in 2000, set a cap at 8.95 tons, representing a 50% reduction in 1980 SO2 levels, with a public health benefit of more than US$50 billion. This program works because it sets realistic emission reduction goals that individual plants can meet, ensures accurate and consistent monitoring, and requires transparent reporting of results. It is flexible and allows state and local authorities to impose stricter limits to address specific local air quality problems. This success shows what can happen when government gives industry the tools to comply and the incentive to make money through becoming more efficient, reducing emissions, and selling emissions credits.

The United States as a whole is also focusing much of its attention on developing renewable energy markets and clean fuels. President Bush recently allocated US$11.5 billion for the development of new clean energy technologies, including research into solar, wind, and geothermal power, clean diesel, and hybrid vehicles. In a bold move which could transform the impact of motor vehicles on the environment, the U.S. government last fall mandated a new standard for ultra low sulfur diesel which has only 15 parts per million of sulfur. This is lower than Hong Kong’s and even the Euro IV standard. This new rule, negotiated between government, environmental groups and the transportation sector, will jumpstart the development of a new generation of diesel engines that will be 90% free of nitrogen oxide emissions. There are costs for the new diesel of course, but in the overall refining process, they are relatively minor. Consumers will pay just a few cents higher per liter. While new generation diesel engines will take time to phase in, most existing vehicles can run on the new diesel with few problems. For new vehicles, the additional costs will be minimal. EPA estimates that the new heavy duty engines required for this regulation cost an additional US$3,000. Given that the average city bus, for example, costs up to US $300,000, the marginal cost is quite small.

Furthermore, the long term benefits to vehicle owners are significant, including decreased maintenance costs, longer engine life, and even a reduction in vehicle washing costs because, with less soot released into the air, the vehicles (and even city sidewalks) are cleaner.

Imagine the potential benefits to Guangdong and Hong Kong if such a standard with advanced diesel engines could be instituted here. The EPA estimates that this new initiative will save U.S. citizens, corporations, and state and federal governments US$12 billion per year from reduced health care costs and increased productivity in the workplace. These solutions can be replicated across the globe.

On the international level, a U.S.-led initiative, the Asia Pacific Partnership on Clean Development and Climate, or APP, brings China, India, Japan, South Korea, Australia and the United States together to produce results where they matter most: in the major emissions-producers of the world and the major energy-consumers of the world. The world clearly needs more energy, but it also needs cleaner energy. APP will accelerate the development of clean and more efficient energy technologies, while growing our economies.

With China, we are working to capture methane, a major contributor to green house gasses, and using it to generate clean electricity. In the U.S., we have already reduced methane emissions to 10% below 1990 levels. We are now collaborating on developing methane-capture projects at coal mines in China. The American company Caterpillar has an approximately US$60 million contract with China’s Shanxi Jinchen Anthracite Coal Mining Group to provide 60 methane-gas-powered generators to capture methane gas and convert it to 120 megawatts of power. This should reduce greenhouse gas emissions in this region by 4.5 million tons over a 20 year period, decrease the potential for mine explosions, and increase the capacity of the Chinese power grid, which will create even more economic opportunity for the region. As you can see, one single project can have multiple beneficiaries.

Now, let me report to you on P2E2. To deal with pollution in Hong Kong, you need to deal with pollution in Guangdong. Hong Kong interests provide some 60% of the foreign investment in Guangdong, and some 80,000 factories are owned or financed by Hong Kong businesses.

Over the past two years, the U.S. Consulate General in Hong Kong has developed and promoted the P2E2 program. This is an innovative, market-based financing model that encourages investment in pollution reducing improvements to manufacturing and energy production. It enables firms to upgrade their facilities in the mainland, with the help of Hong Kong environment and energy service companies and Hong Kong banks.

Our P2E2 model is created for the Hong Kong business environment. It works like this: If you're a factory owner, you enter into a contract with one of these services companies for them to install pollution-reducing and energy-saving equipment in your factory -- at no cost to you, other than what you would pay to run your business anyway. A Hong Kong bank provides the financing to the service company. An independent technical auditor verifies the cost savings. On the basis of your contract with the service company, you repay the service contract a portion of the savings -- money which otherwise would have gone to buy energy and other items -- and keep the rest of the savings yourself.

I am pleased to report to you that P2E2 is starting to yield results in addressing deteriorating air, water and ground quality and in helping companies gain a competitive edge over their rivals through increased efficiency. The P2E2 initiative has already been endorsed by the Hong Kong General Chamber of Commerce and the Federation of Hong Kong Industries.

Right now, there are about 30 projects underway using P2E2 technologies. We are lining up substantial sources of new financing for Hong Kong service companies to install P2E2 technology upgrades on factories, power plants and real estate projects in mainland China and elsewhere in Asia. By this fall, the Asian Development Bank and other international sources plan to make available up to US$ 800 million in new loan guarantees and loans to Hong Kong commercial banks to support this initiative. Once these banks start making loans to the twenty participating Hong Kong service companies, the number of projects will grow. Many arms of the U.S. government – our Overseas Private Investment Corporation, Export-Import Bank and Trade and Development Agency – all support this initiative and plan to provide additional funding.

Like many of our other international initiatives, P2E2 is based on success stories in the United States. A P2E2-style upgrade at a chemical plant in our state of Michigan, the industrial heartland of the United States, achieved US$ 5.3 million in new cost savings after one-time expenses of US$ 3.2 million. This project helped a producer of plastic wrap and industrial chemicals increase its efficiency and reduce its pollution through installing refrigeration equipment, using cleaner reactants, and recycling solvents. This is the kind of concrete "real world" work that can be done here in China. For example, a medium sized steel plant on the mainland budgets US$73 million a year for power. A conservative estimate of savings from P2E2 applications would be 45%, or $33 million. With Hong Kong lease financing, that could allow the service company to lease and install as much as $380 million worth of P2E2 equipment to cut pollution. And remember, with our P2E2 initiative, the Chinese factory owner won’t even have to invest the money for the upgrade.

I’d like to give you a few examples of the energy efficiency and pollution prevention projects already underway here in China. In the energy sector, a Hong Kong-based environmental service company, Focus Energy Limited, has applied P2E2 technologies – namely upgraded pumps and fans – to coal-fired and gas-fired power plants in Jiangsu province. Through these simple solutions, they achieved a total annual electricity savings of 6.1 million kilowatt-hours (KWh) and reduced their client’s operating costs by US$ 375,000. On the pollution prevention side, they also reduced carbon dioxide emissions by 5,528 tons of carbon dioxide per year. The plants now have the option of finding additional revenue from selling carbon credits for about US$ 4 per ton of carbon dioxide reduced.

P2E2 technologies are also applicable to the construction and real estate sectors. Focus Energy has a contract with one of China’s larger cement producers to upgrade a pulverizer, cooler fans and other equipment at just one of its seven production lines. These upgrades are simple and inexpensive, but bring annual operating cost savings of over US $365,000.

The textile sector emits sulfur, nitrogen, particulates and volatile organic compounds, but technologies are available to mitigate these pollutants. A Hong Kong-based service company, Inergi Corporation Limited, simply replaced over 3,300 fluorescent lamps with an innovative reflector system at a Guangdong textile factory and achieved an annual cost savings of over US$57,000. This more than paid for the plant’s improvements. Inergi also helped a toy manufacturer achieve annual cost savings of over US$118,000 at a plant in Shenzhen. These manufacturers were not laden with debt, but reap the benefits of increased efficiency and receive a share of the cost savings.

Finally, even the food and beverages field can take advantage of the P2E2 concept. The Qingdao-Asahi Brewery in Shenzhen thought that the 38% energy efficiency that it had achieved in-house was the best it could do. But, Honeywell, a leader in P2E2 technologies, helped Qingdao-Asahi achieve an additional 17% reduction in energy use through a technological solution that included heat recovery, biogas recovery, and efficiencies relating to motors, refrigeration and the use of compressed air. This energy reduction helps the environment, reduces the costs of production, and helps increase the cash flow into the company.

A number of Hong Kong banks are already engaged in financing P2E2 projects, and the new capital we expect to come available this fall will increase opportunities for Hong Kong manufacturers to play a role in China’s sustainable economic development and contribute to improved air quality for us and our children. If you pick up a copy of this speech, you will find at the back a list of internet sites where you can find more information. If you have further questions on our P2E2 initiative, I encourage you to contact Stewart Ballard, my Senior Commercial Officer.

I hope I have given you an idea today how advances in financing and environmental technology make it possible for companies not only to improve the environment, but retain and grow profit. A number of Hong Kong businesses are already engaged on P2E2 projects in real estate development, hospitals, supermarkets, factories, cement plants and coal-fired power plants. This type of sustainable economic growth will bring near and long-term benefits across China. You, as business leaders in Hong Kong, can make an immediate difference in helping to bring sustainable environmental and economic solutions to the region. This will benefit both Hong Kong and the rest of China.

Thank you for your attention.

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More Information on U.S. Environmental Protection and Energy Saving Programs

U.S. Consulate General
http://hongkong.usconsulate.gov/

U.S. Commercial Service
http://www.buyusa.gov/hongkong/en/

P2E2
http://www.buyusa.gov/hongkong/en/about_p2e2.html

White House Council on Environmental Quality
http://www.whitehouse.gov/ceq/

Energy:
http://www.whitehouse.gov/ceq/clean-energy.html

Environment:
http://www.whitehouse.gov/infocus/environment/

Clean Air:
http://www.whitehouse.gov/ceq/clean-air.html

Asia Pacific Partnership
http://www.asiapacificpartnership.org/

Methane to Markets
http://usinfo.state.gov/journals/itgic/0605/ijge/gunning.htm
http://www.methanetomarkets.org/

Environmental Protection Agency
http://www.epa.gov/

Acid Rain Program
http://www.epa.gov/airmarkets/progsregs/arp/index.html

Department of Energy:
Clean Air/Pollution Controls:
http://www.energy.gov/environment/cleanairesoil.htm
http://www.fossil.energy.gov/programs/powersystems/pollutioncontrols/index.html

Energy Efficiency and Renewable Energy
http://www.eere.energy.gov/

Sustainable Construction/Green Buildings
http://www1.eere.energy.gov/femp/pdfs/buscase_section2.pdf

State and Local Initiatives

California EPA and California Air Resources Board
http://www.calepa.ca.gov/
http://www.arb.ca.gov/homepage.htm

Port of Long Beach/Port of Los Angeles
Clean Air Action Plan:
http://www.polb.com/civica/filebank/blobdload.asp?BlobID=3432
http://www.portoflosangeles.org/environment_air.htm

Port of New York and New Jersey
http://www.panynj.gov/DoingBusinessWith/seaport/pdfs/New_Environ.PDF

New York’s 4 Times Square
http://www.eere.energy.gov/buildings/info/documents/pdfs/29940.pdf
http://www.iea-pvps.org/cases/usa_01.htm

Ohio EPA Office of Compliance Assistance and Pollution Prevention
http://www.epa.state.oh.us/ocapp/ocapp.html