U.S., China Sign Pact to Develop Clean Energy

OTTAWA— From Friday’s Globe and Mail
Last updated Monday, Jan. 24, 2011 7:13PM EST

The U.S. and China are in a race to develop clean-energy fuels and technologies, one that could dramatically reduce American dependence on imported oil and slash Canadian crude exports.

While the two giants of global energy consumption are competing to develop new technologies, they are also increasing co-operation on research and development that would reduce demand for fossil fuels and lower greenhouse gas emissions.
That relationship deepened this week with the visit of President Hu Jintao to Washington. Mr. Hu was accompanied by Chinese energy policy makers, executives and researchers who met and signed co-operation deals with American counterparts as part of the China-U.S. Strategic Forum on Clean Energy Co-operation.

Both governments are spending massive amounts of money on research and development in areas such as electric vehicles, battery technology, advanced biofuels, and carbon-capture-and-storage for coal-fired power plants.

Those efforts have major implications for the oil industry, as successful deployment of clean-energy technologies could significantly reduce demand for petroleum products in the United States – leading to the closure of many refiners in Canada’s sole market for crude-oil exports.

“With the rise in fuel efficiency standards, substitution of fossil fuels for biofuels and the advent of other alternative transport fuels, demand destruction [for crude oil] is almost assured,” says a report released this week by Accenture, a global management consulting company.

Faced with a declining demand in their only export market, Canadian producers are pursuing a two-track strategy of attempting to increase their share of the U.S. market and gain access to Asian markets through pipelines to the West Coast. Enbridge Inc. is proposing a 500,000-barrel-per-day pipeline from Edmonton to Kitimat, B.C., to open up Pacific Rim markets for the oil sands producers, while other pipeline and rail proposals are being considered.

Accenture analysts estimated that the new, cleaner technologies could reduce U.S. oil imports by a third from 2009 levels by 2030 – a declining trend that is already evident given that gasoline consumption in the U.S. peaked in 2005 and is growing slowly from recessionary lows.

U.S. oil companies will have to manage the shift in demand away from petroleum by closing smaller refineries and consolidating the industry, Accenture analyst Elaine Horn said in an interview Thursday.

Ms. Horn said that the U.S.’s research effort may be impaired by Washington’s need to reduce its deficit, but she added that both Democrats and Republicans have supported money for electric vehicles and alternatives fuels as part of an effort to enhance energy security and economic competitiveness.

The Accenture report notes that China’s demand for crude will continue to climb, though Beijing is eager to slow the rate of growth through development of straw-based biofuels and electric vehicles. It is challenging America for leadership in electric vehicle technology, with a clear advantage in commercialization of low-weight lithium batteries.

It projects that the number of automobiles on the road in China will soar to 200 million by 2020, from just 76 million in 2009.

Ms. Horn said China and the United States will be competing for leadership in several areas of clean technology, though Beijing is more focused on a few key areas, while Washington is funding a broad array of research and development.
But it is not all competition.

At a U.S.-China clean-energy forum in Washington this week, senior officials focused on the need for co-operation, especially given concerns the world is not cutting greenhouse gas emissions fast enough to avoid devastating impacts from climate change.

“We need a rapid transition to clean – meaning no-carbon and low-carbon – energy sources,” John Holdren, head of the White House Office of Science and Technology Policy, told the meeting in a session that was broadcast over the Internet.
He suggested that China will be a major “test bed” for new technologies, because it is rapidly developing and needs to build a modern energy infrastructure. And the U.S. is eager to participate in that effort.

“Co-operation and competition are increasingly recognized as not incompatible but rather complementary contributors to innovation,” he said.

Montreal-based Enerkem Corp. has received a $80-million (U.S.) loan guarantee from Washington’s Department of Agriculture to build an waste-to-biofuels plant in Mississippi.

The company, which is building a similar plant in Edmonton, was one of three companies to receive a total of $400-million in support for advanced biofuel plants from the U.S. government.

Its bio-refinery operation in Mississippi – a 300 tonne-per-day facility located on the Three Rivers landfill site – will initially produce 36-million litres of ethanol annually from sorted municipal solid waste and will reduce the pressure to landfill. The project is expected to create more than 70 permanent jobs.

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