Tuesday, March 09, 2010

Beyond "Buy American": The U.S. Needs a Clean Energy Strategy

By Jesse Jenkins and Devon Swezey, Originally Posted at Breakthrough Institute

The introduction of "Buy American" legislation in the Senate in response to a report that more than three quarters of funds from a clean energy stimulus program went to foreign companies is understandable and probably good politics. Unfortunately it will do nothing to solve the root of the problem, which is that for 30 years Congress has done little to support the development of domestic clean energy industries. Given the decades-long absence of a national clean energy strategy in the United States, the fact that foreign companies are benefiting most from the stimulus grant program should come as no surprise.

The U.S. has always lacked a proactive, consistent clean energy technology strategy that provided support for clean tech companies through each stage of the technology value chain, from R&D and innovation, to manufacturing and commercial deployment at scale.

Instead, U.S. clean energy policy has historically been characterized by a disjointed collection of loosely associated, often inconsistent incentives. One example is the wind energy production tax credit (PTC), a demand incentive that has routinely been at perpetual risk of expiration, and actually lapsed on three separate occasions over the last decade. With the real possibility that the policy-driven demand for wind turbines would dry up in any given year, companies were understandably wary of investing in large manufacturing facilities in the United States.


While the United States was once a pioneer in developing and commercializing clean energy technologies, from solar cells to nuclear power, we now lag behind our competitors in Asia and Europe in the production of virtually all clean technologies.

Other nations have leapt ahead by implementing clean energy strategies that coordinate long-term investment in integrated research and development, low-cost financing for clean tech manufacturers, and stable policies to ensure domestic demand for clean energy.

Germany has become a leader in solar and wind through public-private financing mechanisms to finance energy innovation as well as strong demand side policies, such as the solar feed-in tariff policy adopted by the government in 1991. Likewise, the Chinese government supports the growth of its domestic industry through state funding for R&D, low-cost financing and free land for manufacturers, and targeted deployment incentives for different technologies. China is now the leading producer of solar cells and wind turbines in the world.

It's worth noting what a historical anomaly it is for other nations to lead the world into a new technological revolution with the United States as spectator. We were once leading manufacturers in almost all clean energy technologies, but production has long since shifted overseas. Today U.S. companies can't even supply the domestic market, let alone take full advantage of enormous clean tech export opportunities.

Beyond manufacturing, the United States is also giving away the greatest advantage it has in the clean energy race--innovation. For the United States to build a thriving domestic clean tech industry it will have to stay one step ahead of the competition, quickly developing and commercializing the next generation of clean energy technologies to make them cheaper and more reliable. Unfortunately, new innovative technologies are just as likely to originate in other nations as the United States, due to a chronic underinvestment in energy R&D.

Today, the energy industry invests only three tenths of one percent of revenues in the research and development of new technologies. This pitiful figure is one-hundredth the amount of private sector revenues that flow into R&D in priority industries like IT and pharmaceuticals. Public energy R&D funding is also shamefully low. While the United States government invests $30 billion per year in health research, energy R&D has stagnated for two decades at around $5 billion per year. Other nations have surged ahead in innovation investment--Japan and South Korea invest twice as much in energy R&D as the United States on a per-GDP basis.


How did we get here? As increasing global competition put pressure on the American industry, we became complacent, believing that our historical strengths in innovation would ensure that new clean energy technologies would continue to be invented here. This faith was fueled by a pervasive ideology advanced by both anti-government conservatives and neoliberal Democrats that argued that innovation--our "comparative advantage"-- would carry us once again to economic prosperity. Unfortunately, as manufacturing has moved overseas, innovation has followed. An authoritative report by the Information Technology and Innovation Foundation (ITIF) shows that the United States has fallen to 6th out of 40 developed nations in innovation capacity and last out of the 40 in making the investments necessary to be innovative and competitive in the future.

Other rich nations like Germany and Japan didn't make the same mistake we did--they continued to invest in the creation of high-tech manufacturing industries and their domestic innovative capacity as a foundation for future economic prosperity.

In the context of three decades of neglect and underinvestment in the domestic clean tech industry, there is no reason that we should expect either the short-term stimulus grants or a "buy American" policy to make the United States competitive in the clean tech race. Only a comprehensive clean energy competitiveness strategy built around long-term, coordinated investments in R&D, manufacturing, and markets can forestall further American decline in the global clean tech industry. As other nations bring their own competitiveness strategies to the table, the United States remains noticeably absent.

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