Asia governments dangle carrots to attract green money

By Leonora Walet - Analysis

HONG KONG (Reuters) - Asian governments are warming to the idea of offering incentives for green investment and could help attract billions of dollars in funding for solar and wind power industries struggling under tight credit conditions.

Major Asia-Pacific markets from Australia to China and Japan to South Korea are at various stages of refining sweeteners to encourage renewable energy projects. Some are raising renewable energy targets to boost large-scale green projects.

Boosted by such incentives, Asia could overtake the Americas and Europe to be the biggest market for renewable projects by 2012, analysts say.

"As governments spend their way out of the financial crisis, part of that cash is being used as incentives for green projects mobilizing increased private investment," said Edgare Kerkwijk, managing director for Asia Green Capital, a renewable energy and commodity-focused investment management firm.

While the credit crunch has discouraged private investment in some industries and markets, Asia's renewable and environmental sectors should benefit from government stimulus packages.

HSBC estimates spending on green-related investments, including railways used as alternatives to carbon-intensive air transport and energy-efficient power grids, to account for 20 percent, or $272 billion, of stimulus spending in Asia -- more than double the amount earmarked for green projects in the Americas and five times bigger than Europe's.

"We believe these commitments are but the first installments of further efforts by governments to use low-carbon growth as a key lever for economic recovery," HSBC analysts Nick Robins and Robert Clover said in a report.

In Australia, analysts expect private and government investments in clean energy projects to reach A$20-A$30 billion ($27.6-$41.4 billion) by 2020.

The country plans to introduce the world's broadest emissions trading scheme, which will be its primary policy tool to drive reductions in greenhouse gas emissions and boost investment in clean energy.

As part of the biggest stimulus package to date, China has also earmarked the most to green-related projects. HSBC estimates green-related investments will account for 34 percent, or $200 billion, of China's total stimulus package of $586 billion.

That will be on top of solar subsidies Beijing announced last month aimed at helping local manufacturers who face sagging international demand.

Japan and South Korea are also ramping up green investment, with Tokyo recently announcing plans to install solar systems in about 37,000 schools and offer subsidies of 100,000-250,000 yen ($1,009-$2,521) for each purchase of energy-efficient cars.

South Korea has set a target for alternative energy to account for 11 percent of total energy demand by 2030, compared with just 2.6 percent now. Investment required to meet that target is estimated at 111.5 trillion won ($88.3 billion).

The country has various policy initiatives, including a price support scheme for electricity from renewable sources similar to Germany's feed-in tariff, benefiting green energy suppliers.

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