Wednesday, August 18, 2010

Bucking the Debate: Clean Energy Industrial Policies At Work

wind turbine constructionBy Matthew Stepp, Breakthrough Fellow, originally posted at the Breakthrough Institute

A vigorous debate about whether the U.S. government should invest in and help manage clean energy industries to spur economic growth is unfolding among academics, policy makers and business leaders. Curiously, a handful of federal, state, and local government officials are forging ahead in spite of the national discussion and formulating targeted industrial policies to create vibrant clean energy innovation ecosystems that include manufacturing, material suppliers, customers, and R&D. Cases like Rioglass Solar, a Spanish glass manufacturer expanding operations in Arizona, as well as the considerable growth of the wind industry across the US show how the public and private sector can collaborate and, more importantly, how effective industrial policy can create well-paying, long-term jobs.

This past week Rioglass Solar, which provides curved glass sheets used in solar panels, decided to build a $50 million headquarters and a 130,000 square foot manufacturing plant in Surprise, Arizona. The project will create 100 new jobs at the headquarters alone and many more in the manufacturing plant - a welcome economic boost for the town.

The chief incentive for the American operations expansion? Local, state, and federal officials provided almost $12 million in tax credits and fee reductions to (successfully) lure Rioglass to the area.

Additionally, a recent analysis of the emerging U.S. wind energy industry found that since 2004 over 200 wind turbine component manufacturing facilities have opened and the number of domestic wind energy companies has tripled. The wind industry's installed energy capacity has rapidly grown from 6.7 MW in 2004 to 35,000 MW in 2009 and expansion continues.

In fact, as the report explains, the expansion of the wind industry has been national in scope:

"The U.S.'s wind manufacturing ecosystem extends from coast to coast and border to border. There are online or planned facilities in rust belt states like Michigan and Ohio, Midwest states like Kansas and Iowa, where youthful rural populations now have an alternative to moving to urban centers for opportunity, and in Southern states like Texas and Arkansas, where manual labor now has an alternative to unemployment."
The chief incentive for the expansion of domestic wind manufacturing - the $2.3 billion Advanced Energy Manufacturing Tax Credits (AEMC) funded through the 2009 American Recovery and Reinvestment Act -- provided support for 183 individual projects and led to $5.4 billion in private investment.

Both Rioglass Solar and the U.S. wind energy industry are shining examples of how government industrial policy can work. In both cases, specific public investments are being made, not to pursue a narrow technology goal like some skeptics worry, but to ensure that a host of clean technology companies have the ability to innovate, compete, and grow in the global free market.

Thus, the real debate should not be on whether industrial policy is good or bad, but what shape it should take. Local actions in Arizona and the one-time funded federal energy manufacturing tax credit should be just a start.

It's time to kick these policies into high gear and luckily, clean energy industrial policy may have a key advocate - President Barack Obama.

A recent Businessweek article dubbed the President "Clean Energy's Venture Capitalist-in-Chief," thanks to his plans to channel $69 billion in tax credits, low interest loans, grants, consumer tax credits, and R&D to thousands of clean tech companies across the clean energy spectrum through 2011. But while these incentives are critical, their short-term focus will not create the market stability necessary to advance sustained growth in the clean tech sector.

A spokesperson for the American Wind Energy Association (AWEA) explains:
"...effective manufacturing incentives [like the AEMC] need to be coupled with a stable, long-term market and even strong programs like [AEMC] can't revitalize the sector if we don't create a market."
The next step for the so-called Capitalist-in-Chief is to make these policies explicit U.S. industrial policy, not just one-time stimulus efforts. Investments and incentives need to be expanded in the long term and centered around growing the "clean energy innovation ecosystems" that are emerging across the country. A long-term strategy would provide a clear signal to private investors that a clean energy economy is a priority for the U.S.

Even with Congress's failure to pass comprehensive energy legislation, a clean energy economy is still a very real possibility once the national debate internalizes already effective industrial policy advances -- as exemplified by wind industry growth and Rioglass Solar -- and focuses on how best to implement sound national industrial policy. Limited local and state policies along with short-term federal funds can only go so far given the competition from countries like China, which may dedicate as much as $740 billion over the next ten years toward building a clean energy industry. It's time for the federal government to consistently and fully support the progress local and state governments are making in order to ensure a robust green economy.

See Below For More on the Breakthrough Institute's series on the National Industrial Policy Debate:

A Needed Debate on Industrial Policy

In Defense of Andy Grove: Toward a More Effective Industrial Policy

In Defense of Bill Gates: Investing in Clean, Cheap Energy

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