China's Dirty Job Could Benefit Foreign Firms

TAIPEI (TheStreet) -- Natives of Beijing call it a sunny day when a dull patch of yellow shows through a pasty white sky.

In Taiyuan, center of China's coal belt, people figure the eternal coats of black soot on their cars, doorknobs and hands are part of life. Hong Kong, with basically no industry of its own, complains that greyish air wafts into its territory from mainland China's Pearl River Delta.

China's got filthy air. Efforts to control its innumerable factories and motor vehicles have not taken care of the problem.

As a result, some 70% of the world's incremental carbon dioxide emissions of one gigaton comes from fossil fuel use in China, the International Energy Agency says.

With that staggering statistic in mind, the Asian Development Bank announced on Aug. 14 it would help the industrialized country -- with economic growth of 9% to 10% a year -- lay plans to "capture and store" carbon dioxide.

But the low-interest lender with the job of helping poorer countries can't bag CO2, the chief offending material, on its own, even with buy-in from the haze-harried Chinese government. Contractors will be needed, likely from abroad.

Meaning, firms such as Dow Chemical ( DOW) and General Electric ( GE) stand to capture and store some money.

The 67-member, Manila-based Asian Development Bank (which works something like the World Bank) has allocated $2.2 million to help China develop a plan for use of carbon capture and storage, which the lender calls an "essential set of technologies to prevent climate change."

Ask any native Beijinger about how 15 or 20 summers ago it used to rain for a day or two at a time. Now you just get high heat with the odd thundershower.

Speaking of heat, the Canberra-based Global CCS Institute (CCS stands for Carbon Capture and Storage) says the technology behind capture and storage can hold greenhouse gas concentrations at levels key to stopping projected temperature rises to two degrees Celsius by 2050.

Carbon capture and storage involves building specialized factories at existing ones to siphon off the CO2. Carbon dioxide would then be compressed and moved into underground storage containers. The process can potentially rid 90% of the CO2 from a fossil fuel-based plant.

If enough CO2 emitters -- steel mills, cement processors and power generators, to name the most likely clients -- went for the scheme, pipelines could pool storage by linking up underground tanks.

At least four multinationals now active in China should be in a position to help the country with some element of carbon capture and storage. They include U.S.-based Dow Chemical and General Electric. Those who follow industry in China also point to Air Liquide and Alstom, both from France.

They're established firms with elaborate China resumes, namely local partners (key to getting real work in the country) and projects using technology that's akin to carbon capture or storage.

Dow Chemical, which earned $3.7 billion in sales revenue there in 2009, says it will form a joint venture with China's largest coal producer Shenhua Group to build and operate a coal-to-chemicals complex.

GE opened a factory in China in 2006 to make turbines for the country's largest wind farm. The same firm has developed a system to clean coal, requiring less water and a cleaner fuel with fewer emissions.

Air Liquide boasts 60 China factories as of last year, up from eight in 2004. The company that handles gases for industry and health care says it sees demand growing for environmental protection in China and expects more outsourcing to firms of its type. Engineering firm Alstom, with more than 30 joint ventures in China, works on power generation.

Dow Chemical share prices have fallen 30% over the past five years while GE lost 46%. But Dow's prices have largely kept up with the broad market despite lower demand for commodities because of a slow world economy. It also posted a dividend yield of 4%. GE's yield is 3% and investors consider it a steady bet, although its stocks have not kept up with gains in the broad market since the global economic crisis of 2008 and 2009.

Both will do OK if the world economy allows, argues Wojtek Zarzycki, chief investment officer with Optimal Investing in Toronto. "If the landing in China is verified as a soft landing and the Europeans finally and completely come up with a resolution for their debt problems, then these stocks would definitely benefit," he says.

Alstom shares are down 55% over the past five years, though most of that loss coincided with the financial crisis. Air Liquide stocks are up 4% since 2007 despite a financial crisis plunge.

But hold off on investing in these companies until projects kick off and it's clear who's handling them.China may be open to foreign cooperation only until it can buy its own licenses for the technology. The Asian Development Bank, which has tried to help China control air pollution since 2008, also cites holes in the country's related regulations.

Money poses another problem. One demonstration project at one factory costs $500 million. So governments worldwide had offered $23.5 billion as of last year, often via competitive funding programs.

Globally, just eight large-scale projects are working now, with six more under construction. Canada and the United States are particularly aggressive. Total CO2 storage capacity of all 14 projects will exceed 33 million tons a year, same as "preventing the emissions from more than 6 million cars from entering the atmosphere each year," the Global CCS Institute says in a 2011 report.

If China's willing to go for it, the Asian Development Bank says, other countries might follow. A large-scale demonstration of the bagging-and-burial of carbon dioxide in China would "drive the technology's commercialization globally," the lender's statement says.

Meaning, more cleanup chances for the same contractors.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

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