International Perspectives on Clean Coal Technology by wzl98471

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									The 3rd Meeting of the 2nd Phase of CCICED




   International Perspectives on Clean Coal Technology
                    Transfer to China
                     First Report to the Working Group
                    on Trade and Environment, CCICED



                                    May 1999




                  Dr. Jim Watson and Professor Geoffrey Oldham
                  SPRU - Science and Technology Policy Research,
                               University of Sussex,
                        Falmer, East Sussex, BN1 9RF, UK.




                 Tel: +44 (0)1273 686758 Fax: +44 (0)1273 685865
                           E-mail: w.j.watson@sussex.ac.uk
                                                        TABLE OF CONTENTS


ACKNOWLEDGEMENTS.............................................................................................................................IV


INTRODUCTION.............................................................................................................................................. 1


COAL AND ENERGY IN CHINA................................................................................................................... 2


CLEAN COAL TECHNOLOGIES IN A CHINESE CONTEXT ................................................................. 3

    TECHNOLOGIES IN WHICH CHINESE FIRMS HAVE A SIGNIFICANT CAPABILITY ....................................................4
    TECHNOLOGIES WHICH CAN BE TRANSFERRED TO CHINA..................................................................................5
    TECHNOLOGIES WHICH ARE STILL BEING DEVELOPED AND DEMONSTRATED .....................................................7

CHINESE POLICIES ON TRADE, INVESTMENT AND ENVIRONMENTAL PROTECTION ........... 8

    TRADE AND INVESTMENT POLICIES ...................................................................................................................8
    ENVIRONMENTAL POLICIES .............................................................................................................................10

THE EXPERIENCE OF TECHNOLOGY TRANSFER TO CHINA......................................................... 11

    CASE STUDY 1: MORE EFFICIENT COAL-FIRED POWER PLANTS ........................................................................14
    CASE STUDY 2: CLEANER COAL GASIFIERS FOR FERTILISER PRODUCTION .......................................................17
    CASE STUDY 3: IMPROVING THE ENVIRONMENTAL PERFORMANCE OF INDUSTRIAL BOILERS...........................18

CONCLUSIONS - THE NEED FOR FURTHER WORK........................................................................... 19


REFERENCES................................................................................................................................................. 21




                                                                             III
Acknowledgements

We would like to thank the following organisations who helped us with our research - UK
Department of Trade and Industry, US Department of Energy, World Bank, Massachusetts
Institute of Technology, ALSTOM, Mitsui Babcock, Mott MacDonald and Shell Coal
Gasification. The views expressed in this report are, however, entirely our own responsibility.




                                              IV
Introduction

Coal plays a central role in the Chinese economy. It has accounted for 75 % of annual energy
use throughout the 1990s1. Whilst it is cheap and plentiful, the environmental and health
effects of coal use are becoming more and more severe as the economy continues to grow at a
rapid rate. There is an increasing need to find ways of limiting pollution of the air and water
through the use of cleaner technologies and more efficient processes. Clean coal technologies
have the potential to reduce emissions of the gases which cause urban smogs and acid rain,
they can limit the effects of coal extraction on rivers and lakes, and they can make a
contribution to global efforts to tackle climate change.

This preliminary report to the Trade and Environment Working Group summarises the work
completed so far on the international inputs to the study of Clean Coal Technology Transfer
to China. The main focus of our work to date has been the extent to which real knowledge
and skills have been transferred from international companies to their Chinese counterparts.
We have focused on the apparent tension between the wish of international firms to forge
closer alliances with Chinese equipment suppliers, and their need to maintain their
technological and commercial position in the world market.

Whilst clean coal technology transfer is often discussed in terms of the export of hardware
(e.g. power station boilers or flue gas desulphurisation units), previous studies have shown
that such exports are not sufficient on their own for successful technology transfer to occur2.
Without access to training, technological knowledge and new management skills (e.g.
through joint ventures or licensing arrangements with foreign firms), Chinese companies will
find it much more difficult to develop their own clean coal capabilities. The development of
such capabilities is essential so that Chinese firms are able to maintain new and existing
hardware, and to make incremental improvements to it.

At the outset, it is important to recognise that this work is of a preliminary nature. It is based
on a review of relevant research work which is being conducted elsewhere, and a small
number of interviews with companies, Government representatives and consultants in the UK
and USA. Since the amount of work carried out so far is small, it is not possible to provide
any definite policy recommendations to the China Council at this stage. Further research will
be required in order to establish how Chinese policies may be modified to maximise
technology transfer in the future.

The report is composed of five different sections. The first three sections provide a context
for the study - the first summarises position of coal in the Chinese energy system, the second
explores China’s capability in cleaner coal technologies, and the third gives a brief overview
of Chinese policies for trade, investment and environmental protection. The fourth section is
more specific. Through a number of short case studies, it looks at the experience of
international companies which are involved in transferring cleaner coal technologies to
China. This experience is then used as the basis of a fifth section which contains some
tentative conclusions and makes the case for further work by the international team.


                                                1
Coal and Energy in China

To set the scene for this study of clean coal technology transfer, it is essential to understand
which end uses are the most important so that the subsequent research can be targeted
appropriately. From an international perspective, the power generation sector is often
regarded as the most important user of coal. In China, the picture is rather different. As one
expert has observed, whilst around 90% of the international effort to clean up coal use in
China is focused on power generation, this sector only accounts for 30% of Chinese coal
demand3. As Table 1 shows, coal is burned by a wide variety of different users which also
include industry, households, coking plants etc. Power generation is only the second most
important market for Chinese coal, the first being industrial sectors such as chemicals,
manufacturing and building materials.

                      Table 1. Coal Consumption in China for 1992 by End Use

                Type of Use             Consumption in Million Tonnes (% of total)

                Industry                                                389.1 (34%)
                Power Generation                                        338.5 (30%)
                Households                                              147.8 (13%)
                Coking Plants*                                          112.8 (10%)
                Other                                                   152.6 (13%)

                Total                                                        1140.8

                * Coking figures may be underreported by up to 50%.
                Source: China Energy Databook, Lawrence Berkeley National Laboratory,
                (September 1996).

As well as being the largest sectoral consumer of coal in China, industry also uses coal more
than any other fuel. As Table 2 shows, coal accounts for 41% of the energy needs of Chinese
industry, with a further 40% provided by secondary energy sources which also depend
heavily on coal (electricity and coke). Unlike in many other countries, gaseous and liquid
fuels do not constitute a comparable share of the industrial energy market. As a result, the
scope for improving the environmental performance of Chinese industry through clean coal
technologies is extremely large.

A similar potential for environmental improvements is present in the Chinese power sector,
its second biggest coal user. As Table 3 shows, around two thirds of China’s power station
capacity is fuelled by coal. Coal is also the dominant fuel for new capacity which is currently
being added at a rate of around 20GW per year4. Whilst a lot of the new plants use relatively
efficient boilers and steam turbines with capacities of at least 300MW, there are a lot of
smaller inefficient units still in service (more details can be found later in this report). The
replacement or upgrade of these units, many of which were installed decades ago, could lead
to significant reductions in emissions.




                                                  2
                        Table 2. Chinese Industrial Energy Use by Fuel in 1992

                Fuel                        Energy Consumption in Million Tonnes
                                            of Coal Equivalent (% of total)

                Coal                                                      277.8 (41%)
                Coke                                                       77.0 (11%)
                Electricity                                               195.5 (29%)
                Oil and Gas Liquids                                        75.8 (11%)
                Natural Gas                                                18.0 (3%)
                Delivered Heat                                             41.8 (6%)

                Total                                                            685.9

                Source: China Energy Databook, Lawrence Berkeley National Laboratory,
                (September 1996).



                Table 3. China’s Installed Capacity of Electric Power Plants in 1996

                   Type of Plant                                   Capacity (MW)

                   Thermal (>90% Coal-fired)                                180,000
                   Hydro                                                     55,600
                   Nuclear                                                      300
                   Wind                                                          57
                   Geothermal                                                    29

                   Total                                                    236,000

                  Source: Zhang Xiaolu, Clean Coal Technology for Future Power
                  Generation in China, Presentation by the State Power Corporation of
                  China to UK trade mission on clean coal technology, (October 1998).



Clean Coal Technologies in a Chinese Context

The definition of clean coal technology not a simple one. As a general rule, coal-use
technologies are regarded as clean if they offer an improvement over those currently in use.
In practice, the UK Government’s preferred description - ‘cleaner coal’ - is perhaps more
accurate than the more commonly used ‘clean coal’. As this refinement implies, the precise
definition of clean coal technology depends on the context in which it is used. Technologies
that are clean in China may not be regarded as clean in other countries such as the UK. One
example is the use of washing/preparation processes to improve the quality of coal before it is
burned, something which is not often carried out in China.

In practice ‘clean coal’ in a Chinese context encompasses a range of technologies which
cover the preparation of coal (e.g. washing and briquetting), its combustion (e.g. fluidised
beds and gasification), and the clean-up of waste gases (e.g. flue gas desulphurisation and
denitrification). It also includes non-hardware measures which can improve the overall


                                                  3
efficiency of coal use, particularly the thermal efficiency of boilers and power plants. These
include better maintenance and management of facilities, and the use of more sophisticated
control and monitoring systems.
It is important to bear in mind that many definitions of clean coal in OECD countries
concentrate on new combustion and clean-up technologies. As mentioned earlier, this is due
to the fact that many of the more incremental ‘management’ improvements which could
benefit China have already been implemented. For the purposes of this study, clean coal
options can be broadly grouped into three categories:

• Commercial technologies in which Chinese firms have a significant capability;
• Commercial technologies which can be transferred to China; and
• Technologies which are still being developed and demonstrated.

These three categories of clean coal technology are examined below.

Technologies in which Chinese firms have a significant capability
Basic coal washing technologies are well established in China. In 1997, there were over 1500
coal preparation plants in operation with enough capacity to wash a third of China’s coal
output5. Their main function is to reduce the amount of ash in the raw coal to facilitate
combustion and increase the energy content per tonne. In many cases, it is also possible to
reduce the sulphur content of the coal to decrease the production of sulphur dioxide when it is
burned. Average Chinese coal has an ash content of just over 25% which is much higher than
the typical figure for many other countries (e.g. most US coals contain 5-10% ash6).
Therefore, the main aim is to increase the ‘washing rate’ to bring it closer to international
levels, which are typically 45%7. In addition, more modern washing processes are being
developed to decrease the amount of water required and to increase the effectiveness of ash
and sulphur removal. It is unclear how much these improvements depend on the use of
foreign technology.

Coal preparation technologies such as coal briquetting are also widely used in China for both
domestic and industrial markets. Like coal washing, the purpose of briquetting is to prepare
coal so that it can be burned more effectively and efficiently. Briquetting converts raw coal
into small processed pellets using a variety of different processes. Some of these processes
include techniques for ‘sulphur capture’ as well as reducing the ash content of the finished
product. The production capacity of household briquettes in China is 50 million tonnes per
year, enough to supply 35% of consumption8. In larger towns and cities, briquettes account
for 60% of coal used for domestic purposes. By contrast, Chinese industrial use of briquettes
is limited. The main applications are gasification plants (22 million tonnes per year) and
combustion in boilers (2 million tonnes per year)9.

In addition to coal preparation, China also has a significant capability in some of the cleaner
coal combustion technologies. One of the most notable examples of this is a long standing
capability in designing and manufacturing fluidised bed boilers. This particular design of
boiler works by burning coal in a ‘bed’ of inert material such as sand. The fuel is fed into the


                                               4
heated bed which is ‘fluidised’ (i.e. made to behave as if it were a liquid) by a constant
stream of air, pumped in from below. As a consequence of this, combustion of the fuel is
much more uniform and occurs at a lower temperature than it would in a conventional boiler.
The typical bed temperature of 900 degrees centigrade is also ideal for the minimisation of
NOx emissions. To reduce sulphur dioxide emissions from the boiler, a sorbent (usually
limestone) is sometimes added to capture the sulphur in the fuel.

Since the 1960s, Chinese engineers have developed their own designs of small fluidised bed
which were entirely independent of early efforts in other countries such as the UK, the USA
and Germany10. For Chinese industry, the main reason stemmed from the need to burn
indigenous low quality coal. Over the years, as many as 3000 of these boilers were installed
in China11. Despite their widespread use, Chinese fluidised bed designs did not incorporate
mechanisms to remove sulphur during combustion, and they have not been scaled up to sizes
suitable for electric utilities. In recent years, these limitations have led to the use of more
advanced designs of fluidised bed boiler from international suppliers (see below).

Technologies which can be transferred to China
Perhaps the most important group of clean coal technologies which can be readily transferred
to China are those which seek to improve the performance of existing power stations,
industrial boilers and other facilities. In many cases, the transfer of skills and techniques for
incremental improvement can lead to a significant reduction in emissions from coal-fired
facilities. For example, Chinese fossil-fuel electric power plants have an average thermal
efficiency which is significantly lower than the typical figure for plants in more
‘industrialised’ countries such as the UK (see Figure 1).

                  Figure 1. Average Net Efficiency of Thermal Power Plants in China
                            40
                            35
                            30
                            25
              Average Net
                            20
             Efficiency (%)
                            15
                            10
                             5
                             0
                             1980              1985                1990                1995
                                        China Average             England/Wales Average



           Source: Energy Efficiency in Electric Power in China, Report from the UNDDSMS
           Mission to People’s Republic of China, 13-26 May 1996, available on the UNDP
           China website; England and Wales figures are from the Electricity Council, Handbook
           of Electricity Supply Statistics, (1987) and Department of Trade and Industry, Digest
           of UK Energy Statistics, (Annual).

Whilst the Chinese average is affected by the large number of small power plants in use, it
also reflects the use of less advanced turbine designs, control systems and a lack of
preventative maintenance12. Outside the electric power industry, other examples of this


                                                    5
‘efficiency gap’ may be found by comparing Chinese industrial facilities with those in OECD
countries. The average industrial boiler in China operates at an efficiency of 65% whilst
boilers in OECD countries have efficiencies of over 80%13. Similarly Chinese cement kilns
consume 70% more coal than their OECD counterparts to produce the same quantity of
output.

It is clear that there is ample scope for inward technology transfer to improve the
performance of China’s existing facilities in the industrial and power generation sectors in a
number of different ways. Examples include the provision of training, the installation of
advanced control systems, the refurbishment of existing steam turbines (e.g. by retrofitting
new turbine blades with advanced profiles) and the implementation of better maintenance
regimes. For older vintages of plant, the scope for such improvements is limited. So, the
preferred course of action may be to replace them completely with modern facilities. There is
some evidence that many of these activities are already being carried out to a limited extent
by international firms and consultants (see the case studies later in this report). However, this
aspect of technology transfer will require much more attention in the future.

One of the more advanced ways in which existing Chinese facilities can be improved
involves the replacement of old coal-fired boilers with new fluidised bed boilers. Fluidised
bed boilers based on imported technology have already been installed at a number of sites in
China. As mentioned previously, the need for imported technology has been driven by the
limited size and poor environmental performance of Chinese fluidised bed designs. A number
of ‘industrial-scale’ fluidised beds have already been built in China as a result of licensing
agreements between Chinese and international suppliers14. Examples include:

• The 100MWe Neijiang power plant was constructed by Ahlstrom (a division of Foster
  Wheeler, USA), with China’s Dongfang Boiler Works being responsible for the
  manufacture of some components. It entered service in 1996.
• A series of Deutsche Babcock (German) design ‘Circofluid’ fluidised bed boilers have
  been constructed by Beijing Boiler Works. At least 14 units went into service between
  1993 and 1996 (approximate sizes vary from 20MWe to 40MWe).
• A 50MWe fluidised bed plant is currently being constructed for the Sichuan Fuling Aixi
  Power Generating Company by Shanghai Boiler Works (a subsidiary of Shanghai Electric
  Corp.). The plant was built under a license agreement with Foster Wheeler of the USA,
  and was due to enter service last year.

Whilst many of these fluidised bed units have not been used to ‘repower’ existing Chinese
facilities, the experience of other countries has shown that this technology is ideally suited to
such applications. In Poland and the Czech Republic, a number of coal-fired power stations
have been ‘re-boilered’ with fluidised bed technology in order to reduce their emissions of
sulphur dioxide15.

Another clean coal combustion technology which also offers an incremental improvement
over China’s existing stock of equipment is the supercritical boiler. The use of higher steam


                                               6
temperatures and pressures to increase the thermal efficiency of coal-fired power plants is
now an established practice in many countries. Whilst the early history of supercritical
technology in the 1960s and 1970s was accompanied by a poor reliability record, many
designs are now regarded as commercially proven. The first supercritical units in China are
now in operation at the Shidongkou No.2 power plant, and a number of other units have been
ordered16. Chinese boiler makers such as the Dongfang boiler works are involved in the
design and manufacture of these units in collaboration with international suppliers.

A final group of incremental technologies which are already being used in China may be
loosely grouped under the heading of ‘end-of-pipe’ technologies. These include electrostatic
precipitators to remove dust from flue gases, flue gas desulphurisation units and low-NOX
burners. Many of the large coal-fired power plants which are being built in China by foreign
developers have electrostatic precipitators and low-NOX burners fitted as standard17. In
addition, flue gas desulphurisation units are now in operation at five Chinese coal-fired
power plants (total capacity 1150MW), and a further seven units are under construction (total
capacity 2100MW)18. Although the impact of these technologies is small so far, there is
scope for the international companies which are supplying them to transfer some technology
to Chinese firms.

Technologies which are still being developed and demonstrated
In addition to these incremental clean coal technologies, a number of more advanced
alternatives have been developed by international suppliers. Despite a considerable amount of
enthusiasm for such advanced technologies both inside and outside China19, it is not realistic
to expect that these options will have a large Chinese market in the short and medium term.
This is largely due to the fact that commercial success has been limited, even in North
America, Europe and Japan. Despite this lack of success, there has been a lot of effort to find
ways of transferring such technologies to China, particularly by academics and officials in the
United States. As many observers have pointed out, this effort largely stems from the US
Government’s desire to see a financial return from its multi-billion dollar clean coal
technology demonstration programme20.

There are two main varieties of advanced clean coal technology, both of which have been
primarily developed for electric power generation - pressurised fluidised beds and integrated
gasification combined cycles (or IGCCs)21. Pressurised fluidised beds are an advanced
version of the standard ‘atmospheric’ fluidised bed boilers which are now installed in many
countries including China. The main differences are the pressurisation of the boiler, and the
addition of a small gas turbine to burn the fuel contained in the boiler exhaust gases. As a
result of these modifications, pressurised fluidised beds can theoretically operate at thermal
efficiencies of over 40%, and achieve further reductions in sulphur dioxide emissions. In
practice, however, experience has been mixed. The existing plants in the USA, Europe and
Japan all have efficiencies of 39% or less. They have also proved to be less reliable and more
expensive than equivalent conventional coal-fired plants. Whilst discussions have taken place
between the dominant supplier of this technology (ABB Carbon of Sweden) and Chinese
officials, there are no firm plans to build a plant in China at this stage.



                                              7
Integrated gasification combined cycle (IGCC) technology offers greater environmental
benefits than most of the other advanced clean coal options. The coal is gasified and then
burned in a large gas turbine. The hot exhaust gases from the turbine are then recycled to
produce steam to drive an additional steam turbine. Overall efficiencies of 45% have been
demonstrated, and further improvements are possible as gas turbine technology develops.
Whilst the main building blocks of IGCC plants are in operation in a large number of
facilities worldwide (as gas-fired ‘combined cycle gas turbines’ or coal gasifiers for the
chemical industry), the number of integrated plants is small. At present five ‘utility-scale’
demonstration plants are burning gasified coal in the USA, the Netherlands and Spain. As
with the pressurised fluidised bed, capital costs are high and reliability is mixed. Therefore, it
is difficult to see how the plans to introduce the technology in China will become a reality
within the next few years22.

An even more distant commercial prospect for both China and other countries are so-called
‘hybrid’ technologies which combine elements of the IGCC and the pressurised fluidised bed.
Projected efficiencies of at least 46-47% have been mentioned. However, a full-scale
demonstration plant has yet to be built. It is likely that such a demonstration plant will be
constructed within the next few years in the USA23 or Europe, but the transfer of this
technology to China will not be possible for a considerable period of time.


Chinese Policies on Trade, Investment and Environmental Protection

Having defined the scope of clean coal technology in the context of China, it is now
important to give a short overview of some of China’s trade, investment and environmental
policies. Although further research is required to establish the details of these policies, this
overview provides some important background to the subsequent analysis of technology
transfer. It also helps to highlight the differences between official Government policies in
China and the perceptions of these policies held by foreign investors.

Trade and investment policies
Policies to facilitate direct investment in the Chinese economy by foreign firms were first
introduced in the late 1970s. There are currently two main types of enterprise which may be
partly or entirely owned by companies from outside China - joint ventures and wholly-owned
foreign enterprises. The key regulations for each type of company have been set out in a
previous briefing paper for the Working Group on Trade and Environment24:

Joint ventures between foreign and Chinese companies have been subject to official
regulations since 1979, and policy has been subject to continuous development since then.
Before such a venture is set up, the Chinese partner must submit a number of proposals and
feasibility studies to the Government. Once the venture is approved, the foreign partner must
hold at least 25% of the registered capital25. Joint venture companies are free to borrow
money and purchase goods both inside and outside China, and they are encouraged to export
their finished products. The ‘implementation rules’ refer specifically to the subject of



                                                8
technology transfer, stating that the foreign partner or another party should provide
internationally competitive technology with ‘outstanding social, economic benefits’.

The second main type of foreign investment - wholly-owned foreign enterprises - was not
permitted outside China’s special economic zones until 1986. The current regulations
stipulate that such enterprises should use advanced technology, and export the majority of
their products. For power projects in which export is not usually possible, the preferred route
is Build Operate Transfer (BOT). BOT rules allow a foreign investor to own 100% of the
equity in a project on the condition that ownership of the plant reverts to the Chinese
Government after a specified number of years. In common with joint ventures, a detailed
procedure must be followed to gain Government approval.

As a result of preliminary contacts with companies which have invested in China, it appears
that the regulatory climate has improved steadily with time. Although there are some
reservations about excessive bureaucracy, the general impression is that trade and investment
policies are more predictable and less problematic than they used to be. However, research
carried out elsewhere reveals a more mixed picture. One example is a recent report by
Resources for the Future which identifies a number of drawbacks associated with Chinese
policies to regulate foreign investment in the electric power industry26. The main areas of
controversy include:

• Ownership. Until recently, foreign companies were restricted to a minority stake or full
  ownership of large power generation facilities. Although the rules have now been relaxed,
  this made it more difficult for inward investors to forge alliances with Chinese firms
  whilst keeping their shareholders happy. If they owned the whole facility, the scope for
  alliances was small whereas a minority stake would often be unpopular with shareholders.
• Rate of Return. Since 1993, the Chinese authorities have stopped approving large
  investment projects with values of over $30m and rates of return of more than 12-15%. As
  a result, many foreign companies lost interest, stating 15% was not sufficient to reflect the
  perceived risks of investing in China. However, the authors of the Resources for the
  Future report fail to point out that the subsequent collapse of many other Asian economies
  has made China more and more attractive in the last two years. In the energy sector at
  least, there appears to be no shortage of companies willing to invest.
• Approval process. The approval process is often regarded as too long and bureaucratic. It
  can last between 18 and 60 months. Since it is more onerous for larger power projects,
  many foreign investors have tended to propose smaller schemes which only require local
  approval.
• Electricity pricing. Many investors have complained that Chinese electricity prices must
  be reformed to become more closely related to the costs of generating power. As with
  many industrialising countries, the problem lies in the ability of many Chinese consumers
  to pay more ‘realistic’ prices. Whilst this may be economically desirable for foreign
  companies, this issue is rather like the controversy over rates of return. There are many
  complaints, but no shortage of companies wishing to build new power plants.



                                              9
Environmental policies
In common with policies for trade and investment, China’s official environmental policies
have developed over a number of years. Regulations to limit air pollution have been steadily
introduced and tightened, particularly in densely populated areas such as Beijing27. In recent
years, overall emissions of key pollutants such as sulphur dioxide, soot and oxides of
nitrogen have increased rapidly. The dominant emitter is the electric power sector which
accounted for almost 50% of total SO2 emissions in 1992 and 199328. To illustrate the
regulation of this key sector, it is interesting to compare recent limits for power stations with
equivalent regulations in OECD countries. Table 4 summarises the ‘Stage III’ environmental
standards which apply to power plants approved in China since January 1997. To put these
figures in context, the Table also shows some recent limits for power plants in the USA.

                Table 4. ‘Stage III’ Environmental Standards for Power Plants in China

    Pollutant            China’s New Stage III Limit               Current US Standards

    Dust                 200mg/Nm3 (Urban Area)                    37mg/Nm3
                         500mg/Nm3 (Suburbs)
                         600mg/Nm3 (Old units with residual
                                     life >10 years)
    Sulphur              1200mg/m3 (Coal with >1% sulphur)         1475mg/ Nm3
    Dioxide (SO2)        2100mg/m3 (Coal with <1% sulphur)


    Oxides of            For boiler outputs of >1000               615-740mg/ Nm3
    Nitrogen (NOX)       tonnes/hour:
                         1000mg/Nm3 (Liquid slag removal)
                          650mg/Nm3 (Solid slag removal)

   Note: Stage III limits apply to plants which were approved or started construction after Jan 1st 1997.
   Source: Zhang Xiaolu, Clean Coal Technology for Future Power Generation in China, Presentation by
   the State Power Corporation of China to UK trade mission on clean coal technology, (October 1998).
   US Standards are taken from G Broadbent, Work of the IEA Clean Coal Centre, Presentation during
   UK trade mission on clean coal technology, (October 1998).

Despite the appearance of tough Chinese regulations which are comparable to those in other
countries, foreign companies and Governments often comment on the lack of enforcement
and monitoring29. The absence of monitoring means that these regulations have little impact,
particularly on the performance of existing coal-fired power plants and industrial
installations. Many of these plants do not even have monitoring equipment fitted, making it
almost impossible for environmental protection officials to enforce regulations properly. In
addition, some of those involved hold the view that officials are sometimes reluctant to carry
out enforcement if it brings them into conflict with other State agencies (e.g. those whose
primary aim is economic development and growth).

For new power plants at least, the story is different and regulations do have an effect on the
type of technology used (see further analysis in the case studies later in this report). If a plant
is sited near population centres or in areas of high pollution, tougher regulations are now


                                                     10
applied by the Chinese Government. The ‘first class’ standards which apply to such areas can
be up to five times tighter than those which are used in less sensitive regions of the country30.


The Experience of Technology Transfer to China

It is now the intention to examine some of the preliminary evidence of technology transfer
from an international perspective. Before discussing some specific examples which relate to
clean coal and China, it is useful to provide a more systematic characterisation of different
technology transfer processes. A particularly relevant characterisation for this study is that
developed by Martin Bell (see Figure 2). He has identified three main types of technology
flow which pass between technology suppliers in ‘industrialised’ countries and importers in
‘developing’ countries. The first of these (flow ‘A’) consists of capital goods, equipment and
product designs. In many definitions of technology transfer, this type of flow is dominant.
However, as Bell has pointed out, the additional flows which transfer knowledge for
operations and maintenance (flow ‘B’) and further technical change (flow ‘C’) are also
extremely important. The transfer of these additional types of knowledge is essential if firms
within ‘industrialising’ countries are to develop their own capabilities.

              Figure 2. The Technological Content of International Technology Transfer

    TECHNOLOGY                             TECHNOLOGY                               TECHNOLOGY
     SUPPLIERS                             TRANSFERRED                               IMPORTERS

 SUPPLIER FIRMS’                             Capital Goods                       CREATION OF NEW
  ENGINEERING,            Flow ‘A’        Engineering Services                     PRODUCTION
 MANAGERIAL AND           >>>>>>          Managerial Services        >>>>>>         CAPACITY
     OTHER                                  Product Designs
 TECHNOLOGICAL
   CAPACITIES
                                       Skills and Know-How for
                          Flow ‘B’
                                             Operation and
                          >>>>>>                                     >>>>>>
                                              Maintenance


                                       Knowledge, Expertise and                   ACCUMULATION
                          Flow ‘C’     Experience for Generating                        OF
                          >>>>>>        and Managing Technical       >>>>>>       TECHNOLOGICAL
                                               Change                                CAPACITY

Source: M Bell, Continuing Industrialisation, Climate Change and International Technology Transfer, SPRU,
(December 1990).

For this particular study of clean coal and China, the need to transfer technologies which fall
into each of these three categories has already been emphasised (see the Introduction to this
report). However, in practice, international efforts have tended to focus on the first category -
capital goods and equipment. Some useful evidence for this has been provided by Peter
Evans, a researcher at the Massachusetts Institute of Technology in the USA. He has gathered
together a comprehensive database of international aid to China’s energy sector by both


                                                   11
multilateral and bilateral sources. Table 5 summarises the amount of support received
between 1988 and 1997:

The data in Table 5 confirm that the majority of international aid to China’s energy industries
since 1988 has funded the construction of new thermal and hydro-electric power plants.
Although many of these plants have been built using some Chinese equipment and design
skills, the primary aim of the aid has been to support the export of equipment supplied by
foreign firms. As Peter Evans has pointed out, the aid figures for energy as a whole illustrate
an important point - the commercial market for the export of clean coal technologies to China
(i.e. those projects which are not included in Table 5) is extremely small31. International
equipment supplied for most power plants and clean coal installations is supported by some
form of grant aid or preferential loan.


                   Table 5. International Aid to China for Energy Projects, 1988-1997

                                                Bilateral Aid     Multilateral Aid                   Total

      Coal-fired Power Plants(1)                     $1,990m               $3,507m                $5,497m
      Hydro Power Plants                               $924m               $1,735m                $2,660m
      Oil & Gas                                        $321m                 $522m                  $843m
      Renewables                                        $59m                      -                  $59m
      Energy Efficiency Projects(2)                    $220m                 $544m                  $764m
      Clean Coal Projects(3)                           $331m                 $203m                  $534m

      Total                                          $3,845m               $6,511m              $10,356m

    (1) In practice, many of these plants may be regarded as clean coal projects since they use
        technology which is significantly better than that used in most Chinese power plants.
    (2) Includes various projects to improve the efficiency of industrial and utility power plants.
    (3) Includes both industrial and utility projects using various technologies such as fluidised beds,
        flue gas desulphurisation etc.
    Source: PC Evans, Cleaner Coal Combustion in China: The Role of International Aid and Export
    Credits for Energy Development and Environmental Protection, 1998-1997, Center for International
    Studies, MIT, (January 1999).

From the point of view of this study, the smaller aid flows to clean coal and energy efficiency
projects are of more interest, since they are more specifically concerned with new cleaner
technologies and skills. Table 6 gives a breakdown of the clean coal component of
international aid to China, with details of the projects supported by individual countries and
international agencies. The figures in Table 6 illustrate two important points. First, the
dominant donors are the Japanese and German Governments, the Asian Development Bank
and the World Bank. Whilst the heavy Japanese commitment may be partly explained by the
direct effect of emissions from China (in the form of acid rain32), Germany’s prominence
relates to its leading position in environmental technologies. A second important point about
the data in Table 6 concerns the types of projects which have been supported. Most of the
projects fall into our second category of clean coal technology (technologies which can be
easily transferred to China), rather than the third category of advanced technology. Despite


                                                      12
the large amount of debate and research about the export of advanced clean coal technologies
to China, most of the practical effort is of a more incremental nature.

The focus of both Governments and multilateral aid agencies on the second category of
incremental clean coal technology forms the basis for the specific research work carried out
to date by the international team. Initial interviews have been conducted with international
companies and institutions with a very specific aim - to explore whether clean coal
technology transfer has led to the acquisition of new technological knowledge and skills by
Chinese firms (i.e. not just the sale of clean coal hardware). Interviewees have been asked
why they are involved in transferring clean coal technologies to China, and whether they
think their efforts have been successful. In addition, they have been asked for their views on
the policy-related barriers to more effective transfer. So far, the evidence that has been
gathered is focused on three main technology areas - cleaner coal-fired power plants, cleaner
coal gasifiers for fertiliser production and more efficient industrial boilers. Some preliminary
results from these case studies are summarised in the following sub-sections.

                 Table 6. Grants and Loans for Clean Coal Projects in China (1991-1997)

   Donor                            Amount ($m, US)                                           Projects Supported

   A. Bilateral Agencies:

   Australia                                       26.9         Coal gasification & industrial boiler manufacture
   Canada                                           8.7                          Fluidised bed boiler programme
   Finland                                          7.7                      FGD and fluidised bed boiler plants
   France                                          19.9                  Coal gasification plant and coke factory
   Germany                                         96.6          Power plant performance, briquetting and FGDs
   Japan                                          197.0         FGDs, fluidised bed boilers and coal preparation
   Norway                                           0.2                                  Pollution control project
   USA                                              1.9              Emissions control, IGCC feasibility studies

   B. Multilateral Agencies:

   Asian Development Bank                         130.2        Coal gasification, IGCC study, fluidised bed boiler
   United Nations                                   1.8            Desulphurisation, general air pollution control
   World Bank                                      74.5         Efficient industrial boilers, emission controls etc.

   Total                                         565.4*

 * It is unclear why this total is larger than the clean coal total given in Table 5.
 Note: Excludes finance for large coal-fired power plants with capacities of over 100MW.
 Source: Extracted from PC Evans, ‘Cleaner Coal Combustion in China: Role of International Aid and
 Export Credits, 1988-1997’, Conference on Innovative Financing for Clean Coal in China, Nautilus
 Institute, Berkeley, CA, USA, (27-28 February 1999).




                                                          13
Case Study 1: More efficient coal-fired power plants
A number of our interviews to date have been with companies whose main focus is the
supply of equipment and services for large coal-fired power plants in China. As stated earlier
in this report, the present stock of power plants in China comprises a wide range of individual
units - from state-of-the-art supercritical units to a large number of very small, inefficient
facilities. The data in Table 7 summarise the position in 1995:

As Table 7 shows, a large number of power plants have already been supplied to China by
international manufacturers. A detailed examination of Chinese coal-fired plants with
capacities of over 100MW shows that European, American and Japanese firms are all active
in this market33. In the area of power station steam turbines, the dominant suppliers are
ALSTOM, Siemens and ABB, companies which are all based in Europe. Manufacturers from
the USA such as General Electric and Westinghouse have also won significant orders in
China, as have Japanese firms like Mitsubishi and Toshiba. For utility coal-fired boilers, a
similar picture emerges, though three of the top four suppliers are based in North America.


                       Table 7. Size and Origin of Chinese Power Plants in 1995

   Capacity Range           No. of Units     Capacity (GW)          Percentage of       Percentage of
                                                                            Total      Units Imported

   300MW-                           147                  51.9                 24%                  38%
   200-299MW                        202                  41.8                 19%                  13%
   100-199MW                        318                  36.8                 17%                  13%
   50-99MW                          402                  22.2                 10%                  22%
   25-49MW                          577                  16.3                  8%                  25%
   12-24MW                          955                  12.5                  6%                  21%
   6-11MW                          1575                  11.5                  5%                  37%
   0-5MW                      not known                  24.2                 11%            not known

   All                             4176                 217.2               100%                      -

  Note: A high proportion of the equipment used in smaller power plants has been imported since many of
  these facilities use diesel engines.
  Source: A Blackman and Xun Wu, Foreign Direct Investment in China’s Power Sector: Trends, Benefits
  and Barriers, Resources for the Future Discussion Paper 98-50, (September 1998).

Many of these international turbine and boiler suppliers have been present in the world power
plant equipment market for many decades. As a result, a number of them have licensing
arrangements with Chinese firms. As the preliminary report by the Chinese team has shown,
companies such as Dongfang Power Station Equipment Corporation, Shanghai Electric
Corporation and Beijing Heavy Electric Motor Factory have licensing or joint venture
agreements with international firms including Foster Wheeler, General Electric,
Westinghouse and ALSTOM34.



                                                   14
The existence of these agreements illustrates the continuing need for international technology
and skills on the part of Chinese companies. However, it is still unclear how effective such
arrangements are in helping Chinese firms to develop their own technological capabilities.
The interviews that have been conducted so far with international equipment suppliers have
focused on the utility boiler industry35. From these initial contacts, it is possible to make
some general comments about the Chinese boiler manufacturers, their skills and their
contacts with international companies.

The Chinese boiler industry comprises a large number of different companies. As a whole,
the industry currently suffers from overcapacity. The majority of the manufacturing work for
standard coal-fired power plants can now be carried out in China by boiler works such as
Dongfang, Harbin, Shanghai and Wuhan. However, international companies still need to do
some activities themselves. These activities include the manufacture and welding of some of
the more exotic materials, the manufacture of distributed control systems and computer-aided
power plant design. In the latter capability, the China is still 10-15 years behind. Coal-fired
boilers in China come in a range of basic sizes:

• 300MW boilers in China are largely manufactured by domestic firms. Even those
  contracts which are won by international suppliers such as Mitsui Babcock are 90%
  manufactured in China. Chinese companies have an established capability in this class of
  boiler which was originally inherited through a license from Combustion Engineering of
  the USA36. Plants of this size are generally subcritical, though they are significantly
  cleaner and more efficient than many of China’s smaller power plants.
• 600MW boilers in China are a mixture of sub- and supercritical designs. For supercritical
  plants, Chinese firms still need foreign help since they lack the appropriate ‘process
  design’ skills. In general, Chinese suppliers also seem to think that they lack the necessary
  manufacturing capability for this size of boiler skills but, in practice, the additional
  capabilities required are not too great.
• 900MW supercritical boilers are now being contemplated for Chinese power plants. They
  will largely use foreign technology and one unit has already been ordered. In general, there
  is little incentive for Chinese power companies to go for such efficient designs since the
  environmental benefits are outweighed by the increased risks associated with unproven
  designs.

From the point of view of international power plant manufacturers, technology transfer
presents a problem - in principle, they are enthusiastic about closer partnerships with Chinese
equipment suppliers but they often feel that licensing will lead to an erosion of their
technological position and a loss of revenue. Whilst some companies such as Combustion
Engineering have licensed their technology in the past, others like Mitsui Babcock prefer to
work with local companies on a case-by-case basis.

The case of Mitsui Babcock is an interesting one since the company has an extensive local
presence, and it has won orders for around 5000MW of coal-fired boilers in China37. The
company already has a lot of links with Chinese companies, including partnerships with local


                                              15
design institutes for the detailed design of their power plant projects. As a result, they
regularly send ‘Western’ engineers to work with their Chinese counterparts to manage the
design process, and to train local engineers so that they can eventually do it themselves.

Mitsui Babcock now have a wholly owned Chinese trading company (Babcock Shanghai
Trading) which has a license to export goods from China and convert local currency into
dollars to generate revenue for the parent company. The trading company also means that
Mitsui Babcock can hire local workers and carry out manufacturing in China. One of the key
advantages of this approach is that Mitsui Babcock can retain its core skills in process design
and take advantage of competitively priced Chinese manufacturing. The presence of a
‘western brand name’ puts the Chinese subsidiary in a much better position than others when
it comes to exporting equipment. Whilst the multilateral aid agencies (e.g. the World Bank)
like this approach since it maximises local content, bilateral agencies (e.g. the Export Credit
Guarantee Department in the UK) want to maximise the content from their own countries.
Paradoxically, many Chinese power companies will sometimes agree with the latter on the
grounds that imported components are likely to be more reliable.

Another area which is becoming increasingly attractive for foreign plant suppliers is
operations and maintenance. Collaborative joint ventures to operate and maintain existing
Chinese power plants have the advantage of transferring important managerial skills whilst
allowing international companies to preserve their technological position. Although some
interviewees said that Chinese engineers had the necessary skills to operate power plants very
well, they have a different approach to that used by utilities in other countries. For example,
Chinese power companies will often run two plants at 50% load instead of shutting one
down. Power plant maintenance practices in China are more problematic. According to one
plant supplier, Chinese operators will often leave a plant to run until it breaks since there is
no culture of preventative maintenance.

From the preliminary interviews, it is clear that Chinese Government policies affect the
activities of coal-fired power plant suppliers in a number of ways. The general opinion of
interviewees is that the trade barriers to joint ventures between international and Chinese
companies are not as great as they used to be. Legal frameworks are better, and there are even
emerging local arbitration procedures. Furthermore, once a deal has been signed the Chinese
Government tends to honour commitments they have made. Despite this general satisfaction,
technology licensing is still regarded as problematic. There is a suspicion that technological
information will be copied without a ‘fair payment’ being made.

The interviews have also tended to confirm the view that Chinese environmental regulations
are beginning to have an effect on the design of new coal-fired power plants. Limits on NOX
(oxides of nitrogen) have a significant impact since they often necessitate the use of low-NOX
burners. The need for these burners is often reinforced by the standards imposed by agencies
such as the World Bank. Similarly, sulphur dioxide (SO2) limits have to be considered by
project developers. At present, there is enough low-sulphur coal in China to avoid the need
for extra equipment (e.g. Flue Gas Desulphurisation). In the future, the need for some form of
abatement technology will increase as supplies of cheap low-sulphur coal run out and


                                              16
emissions regulations tighten. Due to the significant capital cost of FGD and its parasitic
power consumption, Chinese power companies are taking an interest in direct injection
methods of sulphur control (using a sorbent such as limestone). This is much cheaper to fit,
though it requires a lot of limestone and abatement levels of only 40-60% are achievable (in
contrast to 90% for FGD).

In conclusion, the work to date on this particular case study implies that environmental
controls are finally beginning to have an impact on the use of incremental clean coal
technologies in China. However, this does not necessarily mean that Chinese companies are
acquiring capabilities of their own. The technologies which underpin key ‘clean components’
such as low-NOX burners and FGD units are often regarded by foreign companies as strategic
assets. Furthermore, environmental controls will have to tighten much further before more
advanced options such as IGCC plants and pressurised fluidised beds are seriously
considered. A key issue for further research is the extent to which these problems can be
resolved in the future.

Case Study 2: Cleaner coal gasifiers for fertiliser production38
China currently has over 1000 gasification plants which produce synthetic gas (syngas) for
the manufacture of fertilisers. The majority of these plants use coal as a feedstock and the rest
use oil or natural gas. The Chinese Government currently has a programme to convert 54 of
the best oil-fired gasification plants to use coal feedstock. As a result, international suppliers
of gasification equipment are involved in negotiations to sell their gasification technology for
some of these plants. To illustrate some of the technology transfer aspects of these conversion
projects, it is interesting to focus on the case of Shell, the international oil company.

Shell has been involved in the design of coal gasifiers for both chemical industry and electric
power applications for many years. Following the demonstration of a large Shell gasifier in
an IGCC power plant in the Netherlands, Shell are now seeking to commercialise their
technology worldwide. Having surveyed a number of countries, the company has identified
China as its first priority. The attractions of China include the importance of coal as an
energy source and the low cost of manufacturing equipment there. Shell’s aim is to complete
a ‘managed transfer’ of their coal gasification technology to Chinese manufacturers. These
manufacturers already have the capability to make some gasifier components.

Although there are two main applications for Shell’s coal gasification technology in China
(fertiliser manufacture and electric power production in an IGCC plant), the first of these has
the most immediate commercial potential. The main reason for this is economic. Whilst a
coal-fired IGCC plant would require a substantial subsidy to be built in China, the conversion
of existing fertiliser plants with a new gasifier can be carried out on commercial terms. The
viability of these conversions is helped by the fact that China is the world’s largest fertiliser
consumer, and has a desire to avoid import dependence.

Shell’s efforts to date are most advanced at the Dongting fertiliser plant. For this project,
Shell plans to form a joint venture company together with BOC (a UK company specialising
in air separation units) and Dongting, a subsidiary of the China Petrochemical Corporation


                                               17
(Sinopec). Shell also has an arrangement with Steinmuller of Germany which is one of the
most important manufacturers of gasifier equipment. As part of the deal, Steinmuller plan to
make its manufacturing skills available to Chinese boiler makers. Chinese design institutes
will also be involved in the technology transfer process.

The main incentive for Shell to develop these links with joint venture partners and other
Chinese institutions is clearly financial. Shell aim to make money through licensing fees and
the return from joint ventures such as the one with Dongting. Ultimately, Shell hopes to be
able to export gasifiers from China which will be internationally competitive due to low
Chinese manufacturing costs. One of the ways in which Shell maintains its technological
position within the joint venture is to retain the manufacture and design of key components.
Examples include Shell’s long-life burners which can last 3-4 years rather than the 2-3
months typical of competitors’ products, and certain valves which have passed stringent
safety and reliability tests. These components will be exported to China.

As part of the Dongting collaboration, Shell will be involved in the provision of management
and technical training for Chinese people. So far, there has been a lot of direct interaction
between Shell and Chinese engineers. In Shell’s opinion, such direct contact is very
important because of the language barrier. In addition, Shell is in the process of setting up a
coal gasification simulator this year to train foreign operators. This sort of facility is thought
to be particularly important for training Chinese operators because the operators would be
able to make errors without ‘losing face’. On a more general level, Shell intend to try and
improve the general efficiency of Chinese operations that feed into the joint venture through
assistance with management techniques. The incentive is simple - to increase profits.

In general, Shell have found that Chinese policies for trade and the environment have had
small impacts on their business activities. Since the main reason for joint ventures such as
Dongting is economic, Chinese environmental regulations have not affected technology
choice even though the effect will be to reduce the amount of pollution from the plant.
Perhaps the only aspect of Chinese regulations which has been problematic is the feasibility
studies which must be submitted in strict sequence to get the joint venture approved. Whilst
the practice in many other countries is to carry out many of these activities simultaneously,
this is not possible in China and so the whole process takes longer.

Case Study 3: Improving the environmental performance of industrial boilers
Our final specific area of study - the environmental performance of industrial boilers - has
been explored to a lesser extent than the first two case studies. However, given the central
importance of coal consumption relatively small industrial facilities, this a very important
subject for further study in the future. At the end of 1995, there were around 500,000
industrial boilers installed throughout China39. Around 95% of these boilers use coal40. As
mentioned earlier in this report, the average efficiency of Chinese industrial boilers (65%) is
much lower than the equivalent figure for OECD countries (>80%). This gap is largely due to
the use of boiler designs which date back before 1950.




                                               18
As a result of the large potential for environmental improvement through equipment upgrades
and improved maintenance, a some international effort as been concentrated in this area. One
of the most prominent initiatives is the World Bank’s $33m efficient industrial boilers project
which is being funded through the Global Environmental Facility. The main aim of this
initiative is to encourage Chinese manufacturers to acquire modern manufacturing techniques
and designs, and to provide training for Chinese engineers. In practice, the experience so far
has been mixed. Some of the international boiler makers have refused to participate in the
programme since it conflicts with their desire to maintain their technological position in a
competitive industry41. By contrast, others have started to negotiate new licensing agreements
with Chinese suppliers. At present, only one of these agreements has been finalised - a
license from the Combustion Power Company of the US to the Harbin Boiler Factory for
fluidised bed technology42.

Apart from the World Bank programme, there are many other initiatives underway to
mitigate the environmental effects of industrial facilities. Consulting companies such as the
CRE Group in the UK have undertaken a number of studies for agencies such as the
European Commission and the Asian Development Bank43. In addition, the Japanese aid
agency has funded a portfolio of fluidised bed and Flue Gas Desulphurisation projects at
industrial sites44.


Conclusions - The Need for Further Work

This paper has summarised our understanding of the transfer of cleaner coal technology to
China. It is important to stress that the paper has been prepared on the basis of a limited
number of interviews in the United States and the United Kingdom and a perusal of the
literature. The hoped for funding for a more substantial SPRU study has not yet been
forthcoming although we are optimistic that funds will be available in the near future.

It is necessary to be explicit about the limitations of our study since our conclusions are based
on information gathered in a short space of time. They should be regarded more as
hypotheses which require testing rather than firm conclusions. However, with this caveat we
believe that some interesting findings are beginning to emerge:

1. The market for the trade in clean coal technology between China and the rest of the world
   is complex, large, and affected not only by Chinese regulations but by the policies of some
   lending institutions.
2. It seems that there is very little purely private market transactions in the area of utility
   boilers which constitute perhaps 90% of all trade with China in clean coal technology.
   Nearly all of the trade is influenced by bilateral and multilateral donors, each of which
   have their own requirements regarding conditions under which funding is made available
   and export credits guaranteed.
3. There appears to be a real tension between foreign suppliers who see the need for China to
   upgrade the efficiency of its existing coal fired power stations and the wish of some


                                               19
  donors and foreign companies to supply China with advanced technology for ‘greenfield’
  investments. This international tension is matched by a similar Chinese tension between
  those who see the need for improving efficiency with proven technologies and those who
  want to acquire the most up to date modern technologies.
4. Widespread introduction of improved management and training programmes to improve
   the efficiency of existing coal fired power stations have been hampered by the absence of
   even basic monitoring instrumentation in many of the older stations.
5. Chinese trade policy strongly encourages the transfer of the technology in all commercial
   deals. The reactions of foreign companies to this requirement vary. Some recognise the
   inevitable reality of doing business with China requires the transfer of their technology
   and are prepared to do so for most of their technology through joint venture or licensing
   agreements. However, even these companies usually refuse to transfer some of their key
   technologies. Other companies recognise that in an area, like utility boilers, where the
   technology changes slowly, their international competitiveness requires them to hold on to
   their technological assets. These companies are very reluctant to transfer their technology.
6. Most foreign companies are aware of the strict Chinese environmental policy which
   should favour more efficient power plants, and hence encourage foreign investment and
   technology transfer. However, there was a strong view among the companies we met that
   the relatively weak implementation of these policies and low level of fines for breaching
   the regulations were not a sufficient deterrent to the continued use of inefficient power
   stations.
7. The scope for developing and using cleaner coal technologies in the non utility coal
   burning sectors, which represent 70% of coal use in China, seems to be a relatively
   unexplored area from the point of view of foreign trade. It will represent a particularly
   important topic for further exploration.

In the second phase of the SPRU research programme it is proposed to understand further the
multiple factors effecting the international market in clean coal technology and assess its
implications for China. In particular the role and approach of Japan (both government
policies and corporate behaviour) will be explored. Japan is one of the largest suppliers of
clean coal technology to China. A number of UK suppliers of clean coal technology to China
will also be interviewed. The possibility also exists of the US Department of Energy carrying
out comparable interviews with US suppliers. These interviews will help us identify the
perceived obstacles to more effective technology transfer. Interviews will also be carried out
with those foreign consultants who have been involved with improving the management,
operation and maintenance of existing coal-fired facilities in China. The purpose of the
interviews will be to test the hypotheses generated by the project so far.

The view of many of the people we interviewed was that the issues we are raising are
important, complex, and warrant detailed study. The World Bank’s view was that at the end
of the six months detailed study it should be possible to ask the right questions. Others urged
the Working Group to recognise the complexity of the subject and refrain from being too
hasty in drawing conclusions and making recommendations on the basis of an imperfect
understanding of the issues. We share that view.


                                              20
References

1
 Zhang Xiaolu, ‘Clean Coal Technology for Future Power Generation in China’, Presentation by the State
Power Corporation of China to UK trade mission on clean coal technology, (October 1998).
2
 See, for example, M Bell, Continuing Industrialisation, Climate Change and International Technology
Transfer, SPRU , (December 1990).
3
    Interview with Kenneth Oye, Director, Center for International Studies, MIT, USA, (24th February 1999).
4
    Zhang Xiaolu, op. cit.
5
  In practice, these plants are not operated at full capacity - whilst the total washing capacity was 480 million
tonnes in 1997, only 340 million tonnes were processed. Professor Cheng Yuqi, Present Status and Development
Opportunity of Coal Processing Technology in China, Presentation by the Clean Coal Engineering and Research
Center to UK trade mission on clean coal technology, (October 1998).
6
    JG Singer (ed.), Combustion - Fossil Power Systems, Combustion Engineering, (1981), p2-16.
7
 ‘Cleaner Production and Use of Coal’, Briefing for the CCICED Working Group on Scientific Research,
Technological Development and Training, (June 1995).
8
    Cheng Yuqi, op. cit.
9
  This is a small proportion of the 840 million tonnes of coal consumed directly and indirectly by Chinese
industry in 1995. Cheng Yuqi, op. cit.
10
 For a more detailed history, see WJ Watson, Constructing Success in the Electric Power Industry: Combined
Cycle Gas Turbines and Fluidised Beds, DPhil Thesis, SPRU, University of Sussex, UK, (September 1997).
11
     ‘Cleaner Production and Use of Coal’, op.cit.
12
  The latter point was considered to be particularly important by interviewees from one British equipment
supplier.
13
  Yunhui Jin and Xue Liu, The Preliminary Research on China’s Clean Coal Technology Acquisition,
Preliminary report for CCICED Working Group on Trade and Environment, Guanghua School of Management,
Beijing, (November 1998).
14
     Details have been extracted by the author from the reference lists of international boiler suppliers.
15
     See WJ Watson, op. cit.
16
     Details from SPRU Chinese Power Plant Database.
17
     Interviews with power plant equipment suppliers and engineering consultants.
18
     Zhang Xiaolu, op. cit.
19
  See, for example, PC Evans, Cleaner Coal Combustion in China: The Role of International Aid and Export
Credits for Energy Development and Environmental Protection, 1998-1997, Center for International Studies,
MIT, (January 1999).
20
     A number of our interviewees expressed such views on the US Government’s efforts.
21
  The information in this section is based on J Watson, Cleaning Up Coal’s Act: Financing Cleaner Coal-Fired
Power Stations in the UK, SPRU Report No. 20, SPRU, University of Sussex, (December 1998).
22
  The US Department of Energy has tried to get approval to finance a 400MW IGCC plant at Yangtai in China,
but Congress has refused to pass the necessary legislation. PC Evans, op. cit.
23
  The US demonstration has been delayed repeatedly. Details of the proposal can be found on the Department
of Energy Website - http://www.fe.doe.gov/.




                                                           21
24
   For more detail on the regulation of foreign investment, see ‘The Regulatory Regime for Foreign Investment
in China’, Background Information for the Working Group on Trade and Environment, (April 1998).
25
  In the case of power plants however, the rules have been more restrictive. Until recently, foreign investors
were not allowed to hold a majority stake in larger coal-fired facilities. See Allen Blackman and Xun Wu,
Foreign Direct Investment in China’s Power Sector: Trends, Benefits and Barriers, Resources for the Future
Discussion Paper 98-50, Washington, DC, USA, (September 1998).
26
     Allen Blackman and Xun Wu, op. cit.
27
  See, for example, the annual China Environment Yearbook which contains details of recent amendments to
environmental legislation.
28
  Detailed emissions figures can be found in the China Energy Databook, Lawrence Berkeley National
Laboratory, (September 1996)
29
     Evidence from interviews with equipment suppliers and Government officials.
30
     ‘Cleaner Production and Use of Coal’, op. cit.
31
     Telephone Interview with Peter Evans, Center of International Studies, MIT, USA, (11th March 1999).
32
  More detail on the reasons for the Japanese aid programme can be found in PC Evans, Defensive Technology
Transfer: Japan’s Green Aid Plan and Transboundary Externality Management in Asia, Center for International
Studies, MIT, (October 1998).
33
     Analysis is based on data in the SPRU Chinese Power Plant Database.
34
     For further details, see the comprehensive list of licences in Yunhui Jin and Xue Liu, op. cit.
35
  Interviews with John Prosser (Project Executive - China) and Chris Powell (Senior Proposals Manager -
China), Mitsui Babcock Energy Ltd, Crawley, UK, (29th March 1999); Eric Depollas, Mott MacDonald,,
Brighton, UK, (24th March 1999).
36
  For more on Combustion Engineering’s license to Harbin boiler factory, see Yunhui Jin and Xue Liu, The
Acquisition of Clean Coal Technology in Harbin Boiler Factory, Case Study Brief for the CCICED Working
Group on Trade and Environment, Guanghua School of Management, Peking University, (November 1998).
37
     SPRU Chinese Power Plant Database; Interview with John Prosser and Chris Powell, op. cit.
38
  Much of the material for this case study was gathered in an interview with Jan Terning (General Manager) and
Sipke Mennes (Business Development Manager), Shell Coal Gasification, London, (22nd March 1999).
39
     Yunhui Jin and Xue Liu, op. cit.
40
     ‘World Bank Backs China Boiler Upgrade Scheme’, Power in Asia, (10th March 1997).
41
     PC Evans, (January 1999), op. cit.
42
     Yunhui Jin and Xue Liu, op. cit.
43
     Some details can be found on the CRE website at http://www.cregroup.com/.
44
     PC Evans, (January 1999), op. cit.




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