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When President Obama and China’s President Xi Jinping meet in California this week, they will be seeking to build trust and chart a course for improved relations. While tensions abound over various issues, clean energy and climate is one area where cooperation can work.

Last month, the United States and China released a statement declaring that joint action on climate change can “set the kind of powerful example that can inspire the world.” These two countries have the opportunity to tackle this global challenge, helping keep the world within 2 degrees Celsius of temperature rise, and embrace clean energy on the path to a low-carbon future.

Given the stakes, business leaders should be paying attention.

Clean energy is one of the most important growth sectors in the global economy. It has been projected that $2.3 trillion will be invested in clean energy by 2020, reaching $269 billion last year. China was the number world’s top clean energy investor in 2012, with a record $68 billion. China’s investments are not only within its borders. China’s total overseas investment in 2011 extended to over 130 countries and topped $60 billion. Many multinational companies are moving quickly to gain access to the Chinese clean energy market. For example, GE signed an agreement with five partners in China, four of which deal with clean energy and transportation. GE expects the deals to yield over $2 billion in revenue, with almost $1 billion in U.S. exports and nearly 4,500 jobs in the United States.

While many people are skeptical that China can break its fossil fuel dependence, Chinese officials have repeatedly affirmed they would grow the country’s share of clean energy and curtail its greenhouse gas emissions. This commitment is reflected by the energy and carbon intensity and clean energy targets under its 12th Five Year Plan. And, there are recent signs of progress. For instance, China is planning to launch its first pilot regional carbon trading system later this month. While this project is not expected to reduce emissions on its own, it offers an important testing ground for how emissions can be reduced cost-effectively.

Furthermore, it’s clear that China has several reasons to embrace clean energy. Beyond its economic goals, China is motivated by its concerns over energy security, a desire to improve local environmental conditions, the impacts of climate change, and the opportunity to display greater leadership on the global stage. (For more, see: ChinaFAQs brief: Why is China Taking Action on Clean Energy and Climate Change?)

With this context in mind, here are four topics that these two world leaders could discuss during this week’s informal summit:

1) Clean Energy Public-Private Partnerships

In recent years, the United States and China have been exploring partnerships around renewable energy and other technologies. In 2009, the two countries launched the U.S.-China Energy Cooperation Program (USECP) which is helping U.S. firms develop clean technology and gain a foothold in the growing Chinese energy market. The USECP includes major multinational companies, including Applied Materials, General Electric, Caterpillar, and Duke Energy. Honeywell, for example, has been working to implement a smart grid demand response system in China. Meanwhile Boeing and PetroChina are testing cleaner fuels for passenger jets.

A similar initiative is the U.S.-China Clean Energy Research Center (CERC), which brings together participants from industry, universities, and research institutions (including WRI), as well as the U.S. Department of Energy and the Chinese Ministry of Science and Technology. Expanding collaboration in these areas can help drive innovation and build increased trust between the two countries.

2) Air Pollution

China’s struggles with air pollution are well-documented, and public awareness has skyrocketed. Facing domestic pressure and international media headlines, China’s leaders have acknowledged that it must deal with the problem. As President Xi recently said, “We should be fully aware of the urgency and difficulty of protecting the environment and reducing pollution.” China can benefit from U.S. policy and technical expertise in this area. For business leaders, the government’s approach will send important signals about the direction the country is headed, including a potential shift toward cleaner energy sources.

3) Natural Gas

The natural gas boom in the U.S. has dramatically shifted the energy landscape. In China, official estimates state that the country’s shale gas reserves are roughly equivalent to U.S. reserves, while the EIA says they could be as much as 50 percent larger. China is already moving to expand its share of natural gas production, with a target to have 8.3 percent of total primary energy consumption from natural gas by 2015.

China, however, faces challenges to reach its full natural gas potential. Currently, China currently lacks some of the technical capacity. Extracting gas through hydraulic fracturing is also a very water-intensive process, which is a serious consideration given the high water stress in many parts of the country.

Underlying the expansion of natural gas is the important question of methane leakage, which carries implications for climate change. Methane is a potent greenhouse gas, and recent analysis from WRI and others confirm that these leaks need to be reduced for natural gas to be a truly low-carbon fuel source.

4) Carbon Capture and Storage (CCS)

China gets nearly 80 percent of its electricity from coal power, while in the U.S. it makes up around 40 percent. While there are some signs that China’s immense coal appetite is not inevitable, both countries will likely be significant coal users for the near future.

CCS, therefore, can potentially play a significant role in reducing carbon dioxide emissions. According to the Global CCS Institute, China already has 11 large scale integrated CCS projects in the planning stages. Successful pilots, like Huaneng’s Shidongkou CO2 capture plant, are being scaled up. China is also working to improve environmental protection around CCS by developing ISO standards. Working together around CCS, through forums like the CERC, offers benefits for mutual technological exchange, along with environmental and jobs benefits.

These topics just scratch the surface of what’s possible for U.S. and China collaboration on clean energy. Working together can help unlock new business opportunities and improve diplomatic ties. Moreover, for the world to raise its game in responding to the climate challenge, cooperation between these countries—and their leaders—is essential.

Jonathan Moch, WRI's ChinaFAQs project specialist, also contributed to this post.