When Charna Chemicals holds sales talks with prospective customers, it treats them to Chinese tea.

But along with the paper cups with the fragrant hot beverage, staff put some bottles containing a dark brown liquid on the massive conference table.

As Zhang Yali, policy manager of the Beijing-based company, pulls the cork out of what looks like an old-fashioned medicine bottle, an intense smell of petroleum wafts through the room.

This is Charna C. Despite the decidedly old-industry smell and appearance, the substance is, according to the chemicals company, an innovative, green product.

Charna C is a coal combustion catalyst – a mixture of different oil substances which, sprayed on coal before it enters a furnace, helps it burn more completely, thus increasing energy efficiency and reducing air pollution.

The substance is the essence of a six-year research and development effort into which the privately-owned firm is putting all its hopes for the future.

“China is the world’s largest coal producer and consumer, but it is inefficient in burning coal,” says Qiu Mingjian, vice-president and chief technology officer of Charna Chemicals. “Seventy per cent of China’s energy comes from coal, and that coal is burned just 70 per cent, on average.”

As the government is stepping up efforts to reduce greenhouse gas emissions and rein in environmental damage, Mr Qiu hopes that utilities, cement factories and steel plants will use his invention to save coal and cut CO2, sulphur and dust emissions.

In the past, Charna has been developing and trading a series of different specialty chemicals and pharmaceutical ingredients. But now, it is placing a big bet on its new product.

Last year, less than Rmb20m ($2.93m) of the company’s Rmb200m in revenues came from Charna C, but now more than half of its staff are concentrating on the new product.

Charna’s executives say they are on a long and difficult road. The company started research in 2004, building a massive development centre specifically.

The same year, it commenced laboratory testing in collaboration with the China Coal Research Institute, a state-run institution, and achieved 6 per cent coal savings.

In 2006, industrial-scale testing started with Chongqing Titanium Industry Co, lifting the coal savings rate to 9 per cent.

In 2008, the company received two patents for the product, and a third has been filed.

Last year, it sold 300,000 litres of the catalyst. “This amount generated Rmb30m in efficiency gains, helped save 72,000 tons of coal and cut 3,000 tons of SO2,” says Mr Qiu. “This year, we expect to sell 900,000 litres.”

So far, the company sells to about 60 customers, mainly heating power producers and cement factories. It plans to approach power stations and steel plants next.

Although Charna is growing fast, the amounts are still tiny compared with China’s potential market.

The country burned 3bn tons of coal last year, according to the National Bureau of Statistics – about 3,300 times the amount treated with Charna’s catalyst.

The main problem is that although China wants to promote “green” technologies and the development of proprietary technology, the country’s incentives are not designed to deliver that, explain company managers.

“The development effort we are making is a huge one and painful for a small, privately owned business like us,” says Wang Xinghua, deputy head of Charna’s environment and energy group. He estimates that the company has already put tens of millions of renminbi into the new product.

The company says that it has received no government incentives or financial help.

“There is no support for research and production companies. They support the end users of energy-efficient and emission-reducing devices, but not companies that develop technology,” complains Mr Qiu. “That’s the wrong logic because in China the cost for developing technology is prohibitive.”

Another problem Charna faces is a psychological preference for large, expensive equipment in fighting pollution.

“In many cases this requires equipment which comes at a cost of several million renminbi, compared with injection equipment for Rmb200,000, at most, for our product,” says Mr Qiu. “In addition, often filters are installed but not used because the cost of operation is too high as well.”

The only support from Beijing has been the decision by the National Development and Research Commission last year to add Charna’s catalyst to its catalogue of officially recognised technologies which enhance energy efficiency and cut emissions. This helps convince potential customers, often also state-owned corporations such as provincial utilities, that the technology is eligible for their projects.

The company says the intellectual property it has developed against all these odds has not been under threat yet, as potential imitators are struggling to replicate Charna’s recipes. However, the existence of imitators is taking its toll on the business already: Customers often argue that they have used a “similar” product before without any visible effect.

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