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Friday, February 12, 2010

It's Not All Good: Why You Should Worry About the Clean Energy Race

Originally posted at the Breakthrough Institute.

By Devon Swezey

In his State of the Union Speech, President Obama issued what is now a familiar refrain: "the nation that leads the clean energy economy will be the nation that leads the global economy." If there were still doubts about which nation has the edge they were put to rest days later by a bluntly titled front-page article in the New York Times, "China is Leading Global Race to Make Clean Energy."

Though the story is not new, the article is the latest indication of the alacrity with which China has emerged as a clean energy powerhouse in the span of just a few years. China now manufactures more solar cells than any nation in the world, and recently surpassed the United States as the largest market for wind turbines in 2009. According to "Rising Tigers, Sleeping Giant," a recent study by the Breakthrough Institute, China is also a world leader in advanced transportation technologies and batteries, is increasingly localizing the production of nuclear power plants, and has developed some of the world's most advanced CCS technology.

Despite the mounting evidence, many have dismissed the idea that the United States is competing in a "clean energy race" with China, or that it matters.

Some critics assert that characterizing the intense competition as a "race" obscures the climate benefits of greater clean energy deployment throughout the world and the "win-win" nature of a global clean energy economy. The New Republic's Brad Plumer embodies this "it's all good" line of reasoning, writing:

If China zooms ahead and figures out how to make really cheap wind turbines, that doesn't hurt anyone--it just makes the enormous task of cutting global carbon emissions that much easier.

Plumer's casual attitude towards the economic consequences of ceding clean tech manufacturing leadership to China is a slap in the face to U.S. Senators Sherrod Brown (D-OH) and Debbie Stabenow (D-MI). The pair has been working hard to secure the new clean energy manufacturing jobs that can help revitalize the industrial heartland.

At Yale e360, environmental journalist Christina Larson similarly suggests that the United States has little to lose if China dominates emerging clean tech industries:

The United States will still gain many new green-collar jobs in installation and maintenance, which can only be locally based, as well as sales teams, conference planners, and other positions already arising to support the growing green-tech field.

Forget about the export-oriented, high-value added, high-wage clean energy manufacturing jobs of the future that Democrats have promised will jumpstart the ailing American economy; the clean energy conference organizing industry is now open for business.

The New America Foundation's Reihan Salam mocks the idea of a "clean technology race," arguing erroneously that the barriers to entry in clean energy are low and that any established competitive advantage will be "ephemeral."

He compares China's clean tech policies to Japan's policies of the 1980s, as if the Japanese government did not succeed in supporting the development of what are still world leading high technology industries in automobiles, electronics, and high value steel manufacturing. While Japan was investing in high-tech industries the United States was simultaneously accelerating the financialization of its economy, creating trillions of dollars of paper wealth that has largely vanished over the last two years.

Indeed, Salam admits that federal investment in technology has spawned entire new industries like aerospace and electronics, but takes pains to paint similar investments that can catalyze the development of new clean technologies as "disastrous."

Apparently our surging clean tech competitors in Asia and the EU didn't get the message.

It's Not All Good

There seem to be three pillars of the "it's all good" argument advanced in various forms by Plumer, Larson, and Salam. The first simply asserts, "Isn't it great that we'll have cheaper clean energy?"

To be sure, more low-carbon power is a good thing for the climate irrespective of who manufactures it. But the desire to reduce carbon emissions is not a justification for American complacency in the race to develop and deploy clean energy. In fact, real competition for clean tech industries could drive many of the innovations that the reduce the costs of clean technologies, and the United States full participation in the clean energy race will accelerate climate objectives.

Ultimately, while climate mitigation is clearly a motivating factor, the clean energy race is also about the development and location of new industries capable of driving economic growth in the 21st century.

The clean tech market will be large enough to accommodate multiple nations. But the burgeoning sector is hotly contested, and the greatest economic returns will accrue to those nations that move with the greatest zeal and commitment to develop their domestic industries.

Nations that gain "first-mover advantages" are sure to see high rates of return on their investment. If the United States remains sidelined while other nations quickly develop domestic clean tech industries, there will be real consequences for long-term economic competitiveness, as well as forgone jobs, tax revenues, and clean tech export opportunities.

Clean Tech Innovation: The Rise of the Rest

The second pillar of the "it's all good" argument is that the United States' capacity for innovation will keep it competitive. In Plumer's words, "China will likely continue to dominate in low-cost manufacturing, while the United States focuses more on the innovation side."

This passive resignation to China's clean tech dominance is one reason the United States is behind in clean energy today. According to a recent study by the office of U.S. Senator Ron Wyden, the U.S. renewable energy trade deficit has increased 1400% in just the last five years. While the United States invented the majority of the clean energy technologies in wide use today, they have largely been commercialized and produced elsewhere. Now, we are buying them back in spades.

The idea that there can be a clear innovation/manufacturing dichotomy between the United States and its economic rivals is complicated by another alarming trend: the United States is steadily losing its innovative edge relative to other nations.

As Fareed Zakaria describes in a recent Newsweek cover story, America emerged as a world leader in innovation after decades of massive government investment in basic science and research at our universities beginning in World War II. But since the early 1980s, federal investment in innovation, particularly in energy technology, has remained stagnant. Today, the innovation gap that for decades was a measure of U.S. economic strength is closing as other nations move quickly to develop their innovative capacity.

Recently, the Information Technology and Innovation Foundation (ITIF) ranked the United States 6th out of 40 countries in innovation capacity and internal competitiveness and dead last in the rate of improvement over the last decade. America's lead in energy innovation is slipping. The U.S. is only slightly ahead of Japan in clean energy patents and government investment in energy R&D. As a percentage of GDP, nations like Japan and South Korea actually outspend the United States on energy innovation two-to-one.

If the greatest future demand for clean energy technologies and the locus of clean energy manufacturing both develop in Asia, it is not clear that the lion's share of energy innovation will remain in the United States. In fact, some companies are already moving their research operations to China. Applied Materials, a U.S. company and the world's largest solar equipment manufacturer, recently built the world's most advanced solar R&D facility in Xian, China. Among the reasons cited by Applied Materials for the relocation to China was that China, not the U.S., "will be the biggest solar market in the world." Applied is not alone. Danish wind giant Vestas just built the world's biggest wind turbine manufacturing facility in China, which will build turbines with the company's state-of-the art technology.

America's underinvestment in energy innovation, and the simultaneous gains made by other nations should be a major wake-up call to U.S. policymakers. At the very least, it should dispel the notion that America's historic reign as a global innovation leader is a substitute for an effective economic competitiveness strategy.

The Primacy of Policy

The last leg of the "it's all good" stool is the idea that China's dominance in clean energy manufacturing is inevitable, thanks to lower labor costs.

"China," writes Christina Larson, "is becoming the wind-turbine factory to the world for much the same reasons it has long been the TV and t-shirt factory to the world: lower wages, lower land prices, fewer regulatory and other requirements."

But the production of clean technologies is a high-tech value-added industry; building solar panels, wind turbines or high-speed trains is more akin to producing semiconductors, automobiles, and airplanes than t-shirts and televisions.

Manufacturing clean tech goods requires a skilled labor force with technical expertise--the kind of labor force that is supposedly America's comparative advantage. It seems foolish to compare China's dominance in low-cost, low-skill textile manufacturing to high-tech products or complex engineering projects like the construction and localization of new nuclear power plants, which China is pursuing aggressively with assistance from foreign partners.

Historic leaders in clean tech manufacturing have all been technologically advanced, high-wage nations like Germany, Denmark, Japan, and the United States. And in spite of China's recent advances, these nations still have large and growing clean energy manufacturing industries.

Cheap labor in China certainly contributes to China's cost advantages in clean energy, as do the lower costs of land, and access to low-cost financing. But perhaps the most important element of China's comparative advantage in clean energy is smart policy.

Until clean energy technologies are as cheap as fossil fuels the clean tech industry will continue to be driven by public policy, and the Chinese government has enacted consistent, generous long-term policies that have turned the nation into the world's clean tech leader. Both the central government and provincial governments have made a long-term commitment to invest in clean energy technologies at each stage of the technology value chain. R&D expenditures have grown 20% per year each year for the past two decades, and energy is a priority R&D sector. Generous manufacturing incentives are luring foreign companies to locate in China. Laws requiring the purchase of renewable energy and technology specific deployment policies such as variable feed-in-tariffs for wind power have succeeded in building world leading clean tech markets. And investments in new infrastructure and science, math and engineering education will help lay the long-term foundation for a clean energy economy.

China's robust, targeted, and consistent public investment in technology, education and infrastructure, not cheap labor, is the primary reason for its successes in clean energy. Instead of bemoaning the higher labor costs here in the United States, clean energy advocates and policymakers should be searching for ways to strengthen our public policies and increase our investments in clean energy technologies.

A Strategy to Compete

There is no reason why the United States should not compete vigorously for the high-tech, high-wage clean energy jobs that will result from the tremendous growth of the global clean energy industry. There are few growth opportunities large enough to serve as a new foundation of economic prosperity in the United States--clean energy is one such opportunity.

But in order to effectively compete with other nations the U.S. must have a national strategy that invests in the critical areas for clean technology competitiveness--research and innovation, manufacturing, domestic markets, infrastructure, and education.

Given the United States' current comparative advantages in clean energy innovation, the United States could also gear its manufacturing sector toward demonstrating and commercializing the next generation of clean energy technologies. Leaping ahead of the competition could help American firms capitalize on new clean technologies that can be manufactured here and exported abroad.

The promise of clean energy economy is real. But without a real clean energy strategy to make the United States competitive, so is the possibility that the large majority of new jobs and industries will be created outside of the United States. No amount of conference organizing jobs will replace the lost opportunity to build a vibrant U.S. clean tech manufacturing sector. The race is on--it's past time that the United States got in the game.

Devon Swezey is Project Director at Breakthrough Institute and co-author of "Rising Tigers, Sleeping Giant," a major report on international clean tech competitiveness. Follow him on twitter @devonswezey.

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