#2: Hank Paulson: Cleantech Must Go Through China

Even as China is making huge investments in alternative sources of energy and new leaders have taken over in the National People’s Congress, the country faces resistance from vested interests that will stymie clean technology adoption.

Henry Paulson, the former Treasury Secretary who is largely responsible for bringing the U.S. back from the brink of financial collapse, shared his thoughts on China and sustainable urbanization during the Cleantech Forum in San Francisco two weeks ago. Paulson now chairs the Paulson Institute at the University of Chicago and said he spends most of his time in China because the country is currently on the precipice of change that will result in the biggest economic event of the first half of this century.

An estimated 350 million Chinese citizens will make their way to urban areas from rural lands in the coming years, he said, and the huge inflow of people and the resulting urbanization will be a major factor in developing the clean technology sector. Paulson said he focuses mainly on engaging Chinese leaders on sustainable urbanization.

“If you care about climate, you quickly realize that the only way we’re going to make headway is to have there be real breakthroughs in technologies rolled out in scale in developing countries like China,” he said.

Yet, even though the National People’s Congress in China recently named new leaders, whom Paulson says are “outstanding,” there are huge challenges ahead due to business and political interests that are at odds with making necessary changes to the cities swelling with new inhabitants. Paulson pointed out that the current growth model in China doesn’t work and isn’t sustainable.

“They’re losing a war,” he said. “The air is just incredibly dirty; the water is dirty and they need to do things differently.”

The March bankruptcy of Suntech, a huge Chinese solar panel manufacturer that many said was crippled by the overcapacity in the solar panel manufacturing market and dropping silicon prices, was also due to the fact that the economy in China is so vast and typically ruled by relationships among men that overcapacity goes with the territory.

“I’ve argued for a long time that the economy in China is so big and so complex that it’s increasingly difficult to manage this combination of market forces and top-down planning,” said Paulson. “They said, ‘Let’s invest in solar,’ and all across the country they invested and over-invested.”

But, the advantage for the rest of the world, he said, is “cheap solar.”

Plus, the Chinese are also learning that their economy – huge as it is – is second to the U.S. and Europe and that the country can’t only rely on exports, said Paulson.

He also pointed to the fact that there will likely be significant breakthroughs that will change the way people think about climate change and accordingly about the technologies related to clean tech. Other developments, such as shale gas making up an increasingly large percentage of natural gas in the U.S., for example, will change the way climate change is regarded as well.

One potential way to change the conversation around clean technology is to frame it in terms of hedging, said Paulson. Given how much capital is at stake in the U.S. if theories about climate change come to fruition, investing in clean technology is insurance against loss. Paulson likened it to his time at Goldman Sachs when the company kept $16 billion in Treasuries in a lockbox at The Bank of New York as a way to hedge.

“My generation is the first generation that’s got the [climate change] science, the knowledge and the responsibility to do something about it, but we can’t come together,” said Paulson. “We’re all screwing our kids and grandchildren and so on.”

Tags: Policy

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