Business opportunities in industrial air pollution reduction shine through the haze
Shanghai, September 16, 2014
Severe pollution-induced haze has brought about the end of the heyday for unchecked industrial growth. Starting in 2013, both the central and local governments gradually issued a clear set of standards and regulations for pollution control, making emissions control an imperative for industrial enterprises. However, the high costs of current emissions-cutting policies, such as transitioning from coal to gas and implementing large-scale factory closures, make such measures unsuitable for broad application. In addition, the unique makeup of each industry has further increased the difficulty of enforcing emissions standards. Indeed, China's initiative to reduce industrial air pollution seems to have encountered turbulence.
A recent Roland Berger report entitled "A comprehensive or piecemeal approach to clearing up air pollution: Coordinated planning is needed," laid out the first steps to ensure that emissions reduction targets are met. According to the report, the exact sources of emissions must be clearly assessed, which has currently only been done in a handful of cities, and a market-oriented approach must be implemented. These steps, coupled with a specialized operational strategy, could create a variety of business opportunities.
Assessments of PM2.5 sources in Beijing and Shanghai conducted in 2013 show that vehicles, heat and power companies and industrial enterprises are responsible for the majority of PM2.5 emissions.
Of these sources, heat and power companies were the first to implement emissions controls. The dominance and high concentration of SOEs in the sector made policy relatively easy to implement. In the transport sector, the first policy aimed at controlling emissions came in 2000 with the ban of leaded gas and more rigorous oversight of the oil industry. Industrial boilers and furnaces are another major contributor to emissions, but the effectiveness of policy is limited by the fragmented nature of the industry, its limited profit margins and the lack of personnel specializing in environmental issues and related technology. As a result, there is currently no solution available for rapid, large-scale deployment of pollution abatement technologies across different industries.
Based on the experiences of Europe and the US in tackling air pollution, solutions that target sources of emissions on a piecemeal basis do not produce ideal results. Therefore, in order to reach the targets for emissions reduction set forward by the government's 12th Five Year Plan, it is necessary to expand the scope and intensity of efforts in the industrial sector.
Roland Berger Managing Partner and President of Greater China Wu Qi contributed his analysis to the report. "Solutions to the challenge of reducing industrial emissions must involve both the government and the private sector," said Wu. "In addition to ensuring efficacy and feasibility, the approach chosen must also create worthwhile business opportunities for enterprises in different sectors."
The report from Roland Berger states that a precise and comprehensive analysis of the emissions sources is a prerequisite to combating PM2.5 air pollution. The state of such analysis is still in a preliminary stage of development, currently lacking a mature system of enforcement and oversight. In the future, such analytical work will become procedural and standardized as a foundation for further emission reduction initiatives. This will create vast business opportunities for the environmental protection industry. Roland Berger Principal Jefferson Wang said, "In the coming five years, there will be a tenfold increase in the number of PM2.5 analysis stations. If equipment suppliers are able to successfully transition into service providers, hosting and maintaining equipment and even introducing data sales into their models, such businesses will enjoy a steady, long-term source of income after the equipment has been installed."
In addition to supplying and servicing equipment and facilities, there is an emerging opportunity for third-party pollution treatment companies to serve as a bridge between private enterprises and the government, especially in the face of intense pressure to meet emissions standards within a limited timeframe and the scattered nature of pollution producers. Such third-party entities would enjoy benefits such as low costs due to their high level of specialization, the ability to offer centralized supervisory services to governmental bodies and the availability of diversified financing solutions, giving them access to tremendous business opportunities. The report goes on to say that, to a large extent, the current commercial models used by traditional third-party pollution treatment enterprises are based on supplying equipment to highly specific industrial sources of emissions. This model will undergo rapid development with the emergence of new market demands. "To better seize the new opportunities, enterprises must increase attention to serving clusters of high-emissions companies and offering comprehensive service solutions. This opportunity will also enable players outside the established environmental protection sector to enter the market and achieve breakthroughs," said Wu.
- Photos iZonda/iStock