By Jesse Jenkins and Devon Swezey
Accelerating U.S. clean technology innovation, manufacturing, and market creation has become not just an environmental necessity but an economic imperative. A recent Pew study showed that the global clean energy industry has experienced rapid investment growth over the last five years. New clean tech investments in 2009 reached $162 billion, which is expected to grow 25 percent to $200 billion in 2010. With the global clean energy economy emerging as one of the largest economic opportunities of the 21st century, government policy and public investment will be critical determinants of which countries come out on top in the race to attract private sector investment in clean energy technologies.
The United States is currently behind other nations in this race, and lacks an effective national strategy to compete. Climate legislation proposed in Congress to date, with its low price on carbon, ineffective renewable electricity standard, and collection of efficiency regulations, will not be enough for the United States to catch up to countries like China in building the clean energy industries of the future. To regain leadership in the global clean technology industry, the United States must enact a comprehensive clean energy competitiveness strategy that prioritizes major public investments in clean energy innovation, manufacturing, market development, education, and infrastructure.
This was the topic of a presentation we gave at the World Energy Technologies Summit in New York City last month. The theme of the conference, which was sponsored by TIME Magazine, was providing a "Reality Check" on the current state of energy technology and policy. The two of us therefore presented a wake-up call about America's lagging position in the global clean energy race, uncovered the realities behind several common myths about U.S. clean energy competitiveness, and outlined what the United States government must do to truly compete for the clean energy industries and markets of the future. After the video of our presentation below, this post summarizes each of these three key topics.
If you are having trouble viewing this video in your browser, you can head here to watch it (scroll down to the 4:40 pm time slot to find our presentation)
The State of the Clean Energy Race
As we concluded in Rising Tigers, Sleeping Giant, our comprehensive report on the competitive cleantech positions of the United States, China, Japan and South Korea, the United States lags its economic competitors in the production of virtually all clean energy technologies, from solar cells to wind turbines, nuclear reactors to high-speed rail, and advanced vehicles and the batteries that power them. China currently leads the world in the production of solar cells and wind turbines, and China, Japan, and South Korea collectively control over 90% of the advanced battery market.
These Asian nations are also quickly commercializing and deploying clean energy technologies. China has doubled its installed wind capacity each year for the past five years, including in 2009, when it installed 13GW of new turbines, surpassing the United States as the largest wind market in the world. South Korea has recently become a major market for solar PV cells, increasing its new annual installed capacity six-fold to make it the fourth largest PV market in the world.
And while the U.S. has historically been a global leader in energy innovation, other nations are moving quickly to close the gap. The United States government now invests only slightly more than Japan in energy R&D, and as a percentage of GDP Japan and South Korea both invest far more. China is also rapidly developing it's capacity for "indigenous innovation," and recently announced the creation of 16 new energy R&D centers to develop wind, grid, nuclear and other technologies.
Each of these nations employing comprehensive government strategies to build domestic clean energy industries, which include major public investments in R&D, manufacturing, infrastructure, and market deployment. Indeed, the governments of these three nations will out-invest the U.S. government by three to one over the next five years, even if the United States enacts into law the House-passed Waxman-Markey climate bill.
[Caption: Comparing public investments in clean energy, 2009-2013. Source: Rising Tigers, Sleeping Giant.]
One emerging features of the clean tech race is the development of clean energy clusters in countries around the world, and China in particular. Clusters act as regional "innovation ecosystems" that connect research and innovation activities with manufacturing scale-up, commercialization, and policymakers. Research has shown that such clusters can create enduring competitive advantages at both the regional and the national level. One example of an emerging clean energy cluster is the Chinese city of Baoding, which is composed of nearly 200 renewable energy companies and operates as a platform that links China' clean energy manufacturing industry with policy support research institutions, and other social systems.
Myths and Realities About the Clean Energy Race
Since the publication of our report last November and a number of later reports confirming the decline in U.S. competitiveness in the global clean tech industry, a few myths have proliferated about the reasons that the U.S. is behind and what it must do to compete in this critical economic sector.
The first myth is that China has a command and control economy, and their economic system is no match for the liquidity of U.S. private capital markets and the entrepreneurialism of the U.S. economy. The U.S. therefore shouldn't lose too much sleep over mounting cleantech competition from China.
In reality, however, the public policy environment created in China has allowed China to attract more private investment in clean energy than the United States. And while the U.S. still leads in VC funding for clean energy technology, Chinese companies dominated clean tech IPO proceeds in 2009, with 69% of capital raised, and attracted more overall private sector investment in clean energy sectors in both 2008 and 2009.
The second myth is that all the United States needs to do to compete with countries like China is to put a price on carbon. Public figures like New York Times columnist Tom Friedman and venture capitalist John Doerr routinely argues that putting a price, any price, on carbon, is the most important thing to building a clean energy economy.
But the reality is that China, Japan, and South Korea are all out-competing the United States without a price on carbon. Instead they are implementing comprehensive clean technology investment strategies. Even in European cleantech leaders like Germany and Denmark whose power plants and factories fall under the EU Emissions Trading Scheme, it is the much more targeted and substantial feed-in tariff policies and other direct public investments and incentives that are driving clean energy deployment and giving European solar and wind companies a competitive edge. Indeed, the carbon price established by the House-passed Waxman-Markey bill would provide an effective subsidy of just 1.5 cents per KWh, which doesn't even match the production tax credit driving wind power adoption in the U.S. and is a much smaller incentive than any targeted deployment incentives of our competitors, such as China's feed-in-tariff or wind, or Germany's feed-in-tariff for solar.
[Caption: Not All Carrots Are Created Equal: Waxman-Markey's carbon price does less to close the clean tech price gap between clean energy and fossil fuels than more targeted policies in other nations.]
The third myth is that as the United States continues to slip further behind its economic rivals in the production and deployment of clean energy technologies, American will still, as Tom Friedman has written, "specialize in research and innovation."
In reality, other governments are quickly closing the innovation gap with the United States and developing national innovation policies to boost their internal competitiveness. There is also little reason to believe that innovation leadership won't follow market and manufacturing leadership. Private companies are already starting to re-locate clean energy R&D activities near to areas with the most manufacturing and the strongest markets. Case in point is U.S. firm Applied Materials, which built the world's largest solar R&D facility in Xian, China.
A Clean Energy Competitiveness Agenda for the 21st century
In the face of aggressive foreign competition in the clean energy industry, the United States urgently needs a comprehensive competitiveness strategy of its own to accelerate the development of a domestic clean energy industry and take advantage of emerging export opportunities. Such a strategy should prioritize large and sustained public investments in clean energy R&D, advanced clean energy manufacturing, innovative deployment, and clean energy education.
Clean energy technologies today are still too expensive relative to fossil fuels to be widely deployed at scale around the world. In the long term, relying on either high carbon prices or permanent ongoing subsidies to make clean energy competitive will effectively close off export opportunities to developing nation markets that will be unable to impose either high carbon fees or sustain large ongoing subsidies for clean energy sources.
If the United States wants to tap the multi-trillion dollar export opportunity that lies in meeting the rapidly growing demand for energy in the developing world, we much therefore focus on making clean energy technologies cheaper in unsubsidized terms. The overarching goal that should permeate all aspects of a new clean energy competitiveness strategy should be to make clean energy cheap.
In light of this goal, there is strong expert consensus around the need to dramatically boost public investment in energy R&D by at least $15 billion per year in order to invent new breakthrough technologies, and improve existing clean energy technologies and reduce their costs.
The U.S. government must also invest in the creation of a robust clean energy manufacturing industry in the United States, and should adopt an explicit manufacturing agenda. They U.S. government has consistently lacked a set of policies to help U.S. clean energy manufacturers scale up, reduce costs, and stay at the cutting edge. The government must help provide the financing necessary for the creation of expansion of clean energy manufacturing facilities here in the United States.
The government must also rethink the way that it structures its clean energy deployment policies. Currently policies like the wind production tax credit (PTC) are designed simply to drive more wind turbines into the ground. Rather, we need a set of policies that treat deployment as part of the innovation process and rationalize deployment around reducing the real costs of clean energy technologies. One proposed institution, the Clean Energy Deployment Administration (CEDA), would help achieve this goal, and has explicit technology and cost improvement goals as part of its mission.
Lastly, and perhaps most importantly, the United States must inspire and train a new generation of scientists and engineers and equip them with the tools necessary to solve our long-term energy, climate, and economic challenges. U.S. students consistently trail their peers in leading science and math education indicators. Securing long-term economic competitiveness will require major new investments in our energy workforce as clean energy emerges as one of the most promising economic opportunities of our time.
America can still be the world leader in new global clean tech industry. We remain one of the most innovative and entrepreneurial countries in the world. But without a comprehensive clean energy competitiveness strategy that can compete with those implemented around the world, America will lose out on one of the greatest economic opportunities of the 21st century.
Thursday, April 15, 2010
By Jesse Jenkins and Devon Swezey