Greasing the Wheels (China)

China’s economy is powering ahead at an impressive speed as production, trade, and commerce have helped lift millions of
Chinese out of poverty while racking up growth rates of around 10 percent over the last decade.

However, China’s economic rise also poses significant challenges. The country is today one of the world’s largest emitters of heat-trapping greenhouse gases. China’s Ministry of Finance and IFC realized that banks can play a key role in cutting carbon emissions by financing innovative uses of energy: energy-saving production facilities do get built if banks are willing to lend more money to such projects.

Therefore, IFC’s China Utility-based Energy Efficiency Finance program, or CHUEE for short, shoulders some of the financial risk by guaranteeing commercial bank loans for energy efficiency projects and assists in assessing and implementing energy efficiency projects.

For example, DQY Agricultural Technology, a farm of 3 million chickens outside of Beijing, started to explore alternatives to treating hundreds of tons of chicken manure every day. With IFC’s help, DQY designed a biogas power generation plant, which now turns chicken poop into 14 million kilowatt of electricity annually.

The plant, financed with a 5-year loan under IFC’s CHUEE project, is not only profitable – it also reduces greenhouse gas emissions by 84,000 tons per year.

Chinese banks have realized that financing “green” projects such as DQY’s is not only the right thing to do – it makes good business sense, too.

“At the beginning, we saw energy efficiency financing as a constraint, but increasingly we felt that these constraints actually presented a business opportunity to build a competitive advantage for our bank and enhance our brand,” says Li Renjie, President of Industrial Bank, IFC’s first CHUEE partner bank.

Results are impressive. By end-March 2011, the CHUEE partner banks had facilitated around $1.3 billion in energy efficiency and renewable energy investments across China. These investments have reduced greenhouse gas emissions by around 16.5 million CO2 tons per year - roughly the equivalent of annual emissions of 25 medium-sized coal-fired power plants.

IFC aims to help reduce 100 million tons of carbon dioxide in the coming years. And in the future, the successful CHUEE model may also be used to address the severe water challenge in China.