Firms Investing in Greener China

January 15, 2008

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The U.S. government is sponsoring a program that pays American and other environmental-services companies to reduce emissions from China’s factories, according to this WSJ report. The program, known as P2E2 (pollution prevention and energy efficiency) works like this: Banks and equity investors provide loans to environmental and energy service companies who then strike deals with Chinese factories to upgrade their equipment free of charge. The money the factories then save on energy costs over the ensuing years is used to pay back the service companies who then repay the bank loans and provide a return to investors who provided equity. The U.S. government’s role is that of matchmaker, connecting the factories with funding and services.

Some multinational companies, such as Adidas, have lined up to support the program and raise awareness of it throughout its own, and other, industries.

The International Finance Corp, part of the World Bank, will provide guarantees to banks that make loans to P2E2 projects, and ABP Investments of the Netherlands will also provide funding. Multilateral Investment Guarantee Agency, also part of the World Bank, and Overseas Private Investment Corp are providing support for equity investors.

Initially, the program will focus on Chinese factories, but it is open to participants throughout Asia and elsewhere, as long as they have a legal presence in Hong Kong, which has more transparent legal and financial systems than China. U.S. Commerce Department officials hope this program will generate markets for clean-tech companies in Asia. Assistant Commerce Secretary David Bohigan estimates there will be almost $1 trillion dollars in annual spending on energy infrastructure through 2025.

Last summer, China surpassed the U.S. in carbon emissions.

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