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Thursday, December 03, 2009

Bloomberg: China topping U.S. in clean energy investment

Cross-posted from LeadEnergy

An article at Bloomberg today, "Copenhagen Failure Defied by $200 Billion in Green Investments," highlights the fact that China is now receiving more clean energy investment than the United States:

China Tops U.S.

Clean-energy development isn’t flowing to all countries equally, according to an October report from Deutsche Bank. Investment risks are lower in countries such as China and France that offer stronger incentives.

Investors spent $16.7 billion on clean energy in China in 2008, excluding stimulus funds, topping the U.S. total of $15.2 billion for the first time, said Jesse Jenkins, director of energy and climate policy at the Breakthrough Institute, an Oakland, California-based consulting firm.

Wind-energy producers in China get a premium for the electricity they supply to help make it competitive with cheaper power from burning coal or natural gas, he said.

Unfortunately, the article doesn't draw clear conclusions about the critical role of government investment in driving these markets, as we explain in "Rising Tigers, Sleeping Giant." Instead the article cites Ralph Izzo, CEO of Public Service Enterprise Group Inc. as saying "U.S. companies are falling behind in clean technology because the country lacks a binding limit on carbon emissions, as would be required under a global treaty." While it is true that a carbon cap would drive some private investment in clean technology, it would still be dwarfed by the direct public investments being made by China, South Korea, and Japan. Carbon capping and pricing is no substitute for a robust clean-tech innovation strategy, as we explain:

"The U.S. government should provide sustained and targeted investments to spur a full suite of promising clean energy technologies, with a particular emphasis on closing the price gap between clean energy and incumbent fossil fuel energy sources. Pricing carbon can play a role here, but raising the costs of carbon-intensive energy sources through an economy-wide carbon price will not by itself provide the targeted support necessary to overcome technology specific price gaps and other key barriers that inhibit the deployment of a full suite of clean energy technologies at scale. Asia’s clean tech tigers are supporting clean energy technology adoption through a variety of targeted public policies, including technology-specific production incentives, government procurement offers and sustained and long-term lines of credit in the form of low-cost "nancing and credit guarantees. The U.S. government should similarly provide sustained financial and policy support for the deployment of clean energy at scale. Such incentives must be considered integral to any U.S. clean technology development and economic competitiveness strategy."

There are a several limitations to a carbon pricing strategy, including (1) political constraints on carbon pricing; (2) the significant price gap between most low-carbon technologies and fossil fuels; (3) carbon pricing helps deploy mature technologies but does less for early-stage and more expensive technologies like solar PV; (4) infrastructure and enabling technology barriers; (5) even high carbon pricing doesn't solve the problem of knowledge spillover and long-term risks:
"Given each of these limitations, there is wide expert consensus around the need for significant, targeted public investment to overcome these key barriers, particularly to boost the performance of current clean energy technologies and decrease the cost of deploying them. Governments can help remove or overcome barriers to clean energy adoption by making investments that private investors are unable or unwilling to make and by shifting the incentive structure faced by private firms in order to encourage greater private investment in clean energy technologies. Public investments in research and development can help fill the innovation gap that results from a private sector constrained by risks of knowledge spillover and other market failures."

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