Could China Outpace the US in the Green Race?

Lisa J. Goodman | Photographer's Choice | Getty Images

When President Barack Obama called for the United States to lead energy innovation in his inauguration speech in January, he spoke with a sense of urgency. He put energy at the forefront of the country's industrial competitiveness. And the rival at the forefront of his mind was no doubt China.

It was an acknowledgement of how close the world's two biggest economies could be in the Green Race. While many assume that the United States will retain its lead in innovation, various factors may complicate Obama's dream. Scale, financial resources and the impacts of environmental degradation are perhaps the principal ones. In all three respects, the driving forces behind China's energy revolution are greater.

China and the United States are no different from many other economies in facing the trilemma of resource scarcity, climate change and sustainable economic growth. But the impacts of industrialization and climate change on everyday lives in China are particularly significant.

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Serious smog afflicts many cities, industrial toxic leaks are common and, as recently as last year, a storm and flooding killed 79 people in Beijing. It is estimated that as many as 300 million more people will move to cities in China in the next 15 years in a country that depends on coal as its main energy source. With growth expected to continue, the environmental damage is not going to improve soon.

In response, China is marshaling its massive financial resources. The country's twelfth five year plan has recognized the dangers of environmentally damaging growth and the government has committed $290 billion in clean energy investments. The nature and scale of that funding has its critics. Some renewables companies have faced losses and insolvencies in recent years, though China is not alone on that score. And more work needs to be done to match supply, demand and transmission of energy. But central and local government finance, coupled with the financial power of state owned enterprises (SOEs) suggests that, for all the shortcomings, China is channeling unparalleled funds into technologies and innovation.

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According to the latest statistics from the Global Wind Energy Council, China installed a staggering 18,000 MW of new wind energy capacity in 2011, 44 percent of the total new capacity installed globally that year. China currently holds pole position with a 26.3 percent share of worldwide wind energy capacity. The solar sector has installed solar PV technology approaching 2.5 GW in 2011, a 400 percent uplift on the previous year. It already has the largest manufacturing capacity of PV cells in the world, producing over 60 percent of world output.

But the sheer scale of the challenge and the consequential market need give China a possible advantage in energy technology innovation. The population growth and forthcoming industrialization in a country of such size could result in technology breakthroughs that may elude other markets. State Grid Corporation of China (SGCC) is pioneering the implementation of Ultra High Voltage (UHV) transmission technology in its attempt to bring energy generated in western regions to cities further east. SGCC plans to extend its UHV network to 31,000 kilometers by 2015, with a 500 billion yuan ($80 billion) being set aside for this project.

The UHV technology investment is not without its skeptics. The technology has rarely been implemented before, it is costly and there are debates as to its efficiency and reliability. But China's pressing needs and great distances may be forcing it to make bold choices that will result in leadership in innovations such as these. If China can perfect UHV, for instance, it could offer related services to other large economies such as India, Russia and Brazil. And, at home, UHV could form a foundation for more renewable energy generating capacity.

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China is also opening up to creative investments that tackle the demand for energy as well as its supply. Consider the recent announcement by Beijing's Vantone Real Estate, which is planning a greenfield high-density, car-free "satellite city" for 80,000 people in a rural location close to Chengdu.

It has been designed as a dense vertical city that embraces the surrounding landscape and which the architects claim will create a city that uses 48 percent less energy, 58 percent less water and generating 60 percent less carbon dioxide than conventional developments of this size. The project is similar to others being considered elsewhere. And it is designed by an American company. But the scale of China's urban growth coupled with the intention to replicate the city model elsewhere present the country with a rare opportunity to lead in such urban developments.

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Scale is currently the greatest challenge in sustainable economic development. Many of the technologies already exist - in energy generation, transmission, city development, electric vehicles. But scaling them until they reach critical mass, commercial success and cost effective reliability is proving difficult. China may not currently be known as the laboratory for innovation. That will change. In the meantime, its size and commitments create the largest stage on which to scale innovations in a way that could complicate President Obama's dream for US leadership in sustainable energy.

Peter Lacy leads Accenture's Sustainability Services and Strategy practice for Greater China and the Asia Pacific region. He is based in Shanghai. Peter has advised top executives and boards at Fortune 500 companies and international organizations like the U.N. and the EU Commission.