Green mandate

Sweden is one of the world’s greenest economies. The Swedish government has invested upwards of US$191 million in environmental technologies; as a result, 40% of the country’s energy supply is renewable while only 10% comes from fossil fuels.

Now the Nordic nation hopes to export its clean technology for profit in China. In some ways, it is well-positioned to do so. Politically, Sweden was the first Western state to recognize the People’s Republic of China and it continues to enjoy good diplomatic relations with Beijing to this day. And from a business perspective, it has a strong track record: there are more than 3,600 Swedish companies in the cleantech space, with combined annual revenues of more than US$13 billion.

China, meanwhile, is the world’s most famous cleanup target. According to the Cleantech Group, a sustainable technology investment consultancy, US$360 million in foreign venture capital and private equity investment entered China’s cleantech sector in 2007. This doubled in 2008. In the first quarter of 2009, China logged another US$71.5 million, a 35% increase from the same period in 2008.

"China has a significant amount of agricultural waste, so there’s potential there," said John Romankiewicz, an analyst with New Energy Finance in Beijing.

Making an effort
With the goal of strengthening bilateral cooperation with China on energy efficiency and environmental issues, the Swedish government recently appointed a special coordinator dedicated to facilitating cooperation with Beijing.

Speaking to Chinese state media last year, Ola Altera, Sweden’s deputy minister for enterprise, energy and communication, strongly pitched his country’s sustainability model and its expertise in producing biofuels and installing "district heating grids" that distribute power from biogas over urban areas.

Several partnerships have already sprung up. National Bio Energy, a subsidiary of the China State Grid Corporation, linked up with Chinese firm Dragon Power and Swedish biogas firm Härjedalens Miljöbränsle to invest in producing second-generation cellulose-based biofuels in Härjedalen, Sweden.

Such fuels may have good prospects in China, both in terms of consumption and production. Over 100 biofuel power plants using technologies developed by the joint venture are planned for delivery to the mainland.

Swedish firms are also helping China develop "eco-cities," large urban planning projects intended to maximize energy efficiency and minimize environmental degradation in newly developed urban areas. Stockholm-based engineering consultancy Sweco, for example, has been engaged by developers and the local government in Tangshan, Hebei province to create a sustainability plan for a city currently under construction in the region.

"China is special in that it gives us access to assignments of a different type than we see at home," said Jan Mattsson, president of Sweco’s architecture division.

Water scarcity
Waste management is another area of cooperation. Although less sexy than biofuels, it is nonetheless a critical area for clean technology to play a role.

In Dongsheng, Inner Mongolia rainfall and other forms of fresh water supply are among the lowest in the world; most people in the area live off of "fossil" groundwater, which is thousands of years old and will eventually be depleted. Part of the Dongsheng government’s solution to persistent water shortages was a cooperative effort with the Stockholm Environment Institute (SEI). Supported by US$28.4 million in private financing, plus training from the Swedish government, dry composting toilets developed by SEI were installed in 832 apartments to cut water consumption by one third.

"Dongsheng demonstrated that it needed new solutions and had the financial resources to initiate a full-scale project," said Arno Rosemarin, research and communications manager of SEI’s ecological sanitation research program.

However, awareness of the need for sustainability in general did not translate into sustainable implementation. The major problem concerned the dry toilets and supporting plumbing systems, which were built using the rapid and frequently slapdash methods of construction common to other Chinese industrial projects.

Though the construction issues were eventually overcome and technically functional system was ultimately put in place, the end-users vociferously rejected the result. Their number one complaint? People felt too embarrassed to show guests how to use the new toilets.

The Dongsheng government now plans to replace the dry toilets with conventional flush systems. Residents will continue to use the smaller pipes and decentralized wastewater centers SEI delivered and this will lead to water saving. But SEI’s Rosemarin admits that this compromise solution still feels a bit like a defeat.

"Sustainability is not just about technology transfers," he said in reflection. "It’s about people and behaviors."

Locals on the march
While China certainly needs cleaner technology, Swedish firms might nevertheless question how sustainable their profits will be. Even if the sort of consumer demand problems SEI encountered are overcome, there are plenty of non-market forces at play. China still has local content requirements for foreign investors in many cleantech industries, and this raises the usual concerns regarding intellectual property protection and technology transfer.

For whatever reason, domestic competition seems to develop quickly. For example, Chinese wind power turbine producers are already displacing foreign firms in the local market, said Romankiewicz of New Energy Finance. "They’re offering lower prices, as you’d imagine they would, which is cutting into foreign market share," he said.

Perhaps with this it mind, Sweden’s venture capital and private equity players are expressing a degree of skepticism with their kronor. According to Liu Xiaoyu, senior analyst at the Cleantech Group in China, Swedish venture capital and private equity firms made 88 cleantech deals in the first quarter of 2009.

"Unfortunately, none of them invested in China," he said.