The Copenhagen climate change meeting might actually turn out to be a success over time. China introduced their plan to limit green house gas emissions which was embraced by most of the world with the exception of Europe and the United States, although Barack Obama made some favorable comments about the Chinese plan.

So what is the Chinese plan? Basically it is one of energy displacement without any caps on emissions. They plan on radically increasing the amount of energy that they will produce from renewable resources (wind, solar, and even nuclear) but will not agree to any caps on carbon emissions. The idea is that renewable energy will always be used before a utility will turn to burning fossil fuel to generate electricity. The more renewable energy you build, the less fossil fuel you burn based on a given demand. If you can grow your renewable infrastructure to the point where you are increasing your renewable energy capacity faster than your electric demand then you will start reducing carbon emissions.

China currently receives only a tiny fraction of its electric power from renewable sources (other than hydroelectric). They will try to double their renewable energy production each year for the foreseeable future. It will take many years of doubling to reach an equilibrium point with an economy growing 10% per year. They talk about reducing the carbon output for each unit of production.

Why are the Chinese using this approach? Cap and trade just doesn’t work for them. They can’t put carbon limits on an economy that is growing 10% per year. If the caps really worked, their growth rate would decline substantially. They are not willing to give up the growth which provides jobs for the hundreds of millions of Chinese looking for work to move out of poverty.

To implement this policy of displacement, the Chinese government had decreed that power companies must buy all of the renewable energy produced even if the price of that energy is higher than the price of energy produced from fossil fuels. Note that the price renewable energy producers can charge is regulated by the government but is typically set at a price that provides a decent return for the company. China will also provide fast approval for renewable projects and will work to build out their electric grid to connect new power sources.

The First Solar deal with China to build 20 GigaWatts of solar collectors by the year 2020 is a good example of this policy at work. China guaranteed First Solar a rate tariff on the electricity produced that would make them a profit if they would build a factory in China to produce the panels. China will build the transmission lines to get the power to market for them. In 2020 China will have 20 GigaWatts for solar power which will mean they will product 20 GigaWatts less power from fossil fuels when the sun shines.

The displacement policy means Chinese wind and solar system producers are gearing up to increase production dramatically. This high consistent demand is allowing them to use scale to drive down manufacturing costs. One day renewable may become cost effective as a power source compared to fossil fuels and China won’t have to subsidize their production. In the mean time China creates whole new industries with tremendous export potential and thousands (millions?) of new jobs. They also don’t have to be heavy handed with energy consumers. Consumers will pay a slightly higher price for electricity as the utility companies pass through the higher prices they pay for renewable power.

Read more at Examiner.com:  http://tinyurl.com/y85gcks