Supply Chain Digest: New U.S. Program Aims to Help Chinese Factories Reduce Pollution and Carbon Emissions
By SCDigest Editorial Staff
Through a special arrangement, what follows is an excerpt of a current article from Supply Chain Digest, presented here for discussion.
A relatively new U.S.-backed program aimed at reducing pollution and carbon emissions by factories in China and other parts of the globe has many Western companies looking to help get their offshore suppliers more Green - and others seeing an opportunity to sell products and services to a potentially huge market.
The program is called "P2E2," which stands for Pollution Prevention and Energy Efficiency. It has been around for a couple of years, the result of a cooperative relationship between the U.S. Environmental Protection Agency and the State Environmental Protection Administration of the People's Republic of China. The core of the program is that big global financial institutions, such as an arm of the World Bank, guarantee loans made to environmental related service firms.
In turn, those environmental firms can contract with Chinese manufacturers and offer services and new equipment that will make their factories more environmentally friendly at little or no upfront cost. The service companies are paid based on a portion of the energy or other savings the companies achieve - such as by selling emissions credits - over time. The loans finance the time between when service companies provide services and equipment - often from Western manufacturers - and the time they start to receive cash flow back.
Western companies are increasingly under scrutiny for the environmental friendliness of their offshore suppliers, and Chinese factories are seen as a big problem. China is expected to soon become the world's largest carbon emitter, and thus a big focus by those concerned about global warming and other environmental issues.
The P2PE program "essentially plays the role of matchmaker, helping factories connect with funding and services," notes a recent story in the Wall Street Journal, commenting after a recent conference in Hong Kong attended by both environmental service firms and Chinese manufacturers. While the program is focused on China, it is open to manufacturers and service firms across the globe, though they must have a legal presence in Hong Kong.
Adidas AG has been a big promoter of the P2E2 program. With apparel makers among those most targeted by green and labor rights activists, the company is promoting the P2E2 program across its global supply chain, which includes more than 1,000 suppliers, of which more than 300 have factories in China.
Some fear that Chinese manufacturers may be leery of a deal that sounds complicated and requires them to pay outside firms perhaps significant portions of the savings that they achieve. On the other hand, the allure of free consulting services and new equipment should provide a powerful incentive to improve the "Green" levels of their factories and overall supply chains.
A government web site says P2E2-based projects are active in the aluminum, cement, electronics, food processing, iron and steel, power generation, real estate and textiles industries in China.
Discussion Questions: What's your take on P2E2 program? Is this a win-win that improves the environment while also helping Western equipment manufacturers?