Clean technology – Silver lining to China’s smog

Beijing's "war on pollution" has sparked renewed interest in clean technology, with many start ups vying for a piece of the $800 billion pie.

When they launched their dust control company, Wuvio, with Dutch partners in 2012, Albert van Lawick van Pabst and Rob te Braake arrived at the gates of coal-fueled power plants in China's sooty Hebei Province lugging buckets of their products, giving demos and doing their best to drum up demand.

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Sometimes they hefted water tanks jerry-rigged with nozzles onto their backs and spritzed a special compound at plumes of hard-to-see dust, Ghostbusters-style. Sometimes they applied a biodegradable substance that bonded the upper layers of coal heaps into a rubbery cover, creating a barrier between the coal and winds that otherwise funnel it east into Beijing and the port city of Tianjin.

It wasn't easy. In perhaps one of the dirtiest provinces in one of the most polluted countries on earth, Van Pabst and te Braake were selling products to control dust particles invisible to the eye.

"It felt like we were Marco Polo trying to sell pizza in China during the Ming Dynasty," said van Pabst, who practiced environmental law in Holland and did a four year stint with the Dutch Embassy in Beijing before setting out as an entrepreneur and investor in China's exploding clean technology sector.

Less than two years later, things are different. Agents from across the country approach Wuvio on behalf of some of the grittiest of heavy industries, from construction companies to firms involved in the transport and processing of coal and iron ore.

As is often the case in China, the surge in demand is the result of an edict sent down from on high.

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Last spring, Premier Li Keqiang announced plans to restructure the economy around cleaner, more efficient industries, advocating what he called an "eco-civilization."

A year later, he declared "war on pollution," allocating more than $800 billion to cleaning up air, water and soil over five years. The weapons in this war? Innovative technologies.

Two weeks or so after Premier Li's declaration of war, unusually balmy weather left Beijing sunk in a fog of toxic air. The meteorological office issued a heavy smog warning and the Ministry of Environmental Protection admonished leaders to move more quickly.

"We literally live in the problem – feel it and breath it – this is a huge battle we absolutely need to win," said Changhua Wu, Greater China Director at The Climate Group.

"Technology is the most critical part of the puzzle."

Previous incentives meant to boost renewable energy produced lopsided results – huge surpluses of wind and solar capacity with no way to integrate them into existing power grids, leading some to describe China's green tech sector as a mere bubble.

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But with water shortages threatening industries across the board, contamination of food, air and water posing grave risks to public health and pollution touching off incidents of civil unrest, the destruction of China's environment poses an existential threat. China's command and control economy has been forced to reckon with a vast untapped demand.

By announcing drastic targets for pollution reduction by 2018, the government created a market for whatever technologies will bring these ends about.

The $800 billion in spending will augment $920 million in venture capital that was spent on clean technology startups in 2013, according to the Cleantech Group, and $1.2 billion in private equity, according to Hong Kong's Centre for Asia Private Equity Research. Heavy industries also add to the pot as they hustle to meet new standards.

As the sector expands and demand diversifies, more foreign firms are developing technology specifically for China at a time when Chinese innovators are eyeing the market.

Wu Yang, a former Chinese petroleum engineer, set up his Texas-incorporated battery company, Microvast, with the hilly smog-shrouded central megopolis of Chongqing in mind. Microvast forged a joint venture with a local bus company to pilot its lithium titanate batteries.

The batteries last up to ten times as long as the lithium ion batteries typically used in vehicles and they charge in 10 minutes. While they are too big for passenger cars, they are ideal for the millions of buses that are the primary form of transport in China's rapidly expanding cities.

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The combination of innovation and market savvy won first round support from the International Finance Corporation's Clean Technologies Venture Capital Team.

Today 50 buses in Chongqing run on Microvast batteries, a number that will double once a second charging station is completed. In 2011 the company's revenue hovered around $10 million. Last year it was $100 million. And the company is looking to expand into more Chinese cities as well as Hong Kong and Thailand. An anticipated jump to cars would mean more growth.

"If you are a clean tech company, you are going to think about not whether you will go to the Chinese market, but when," said Peter Cook, senior investment officer with IFC's Cleantech Venture Capital Team.