Global renewable energy – and the clean energy race for technology,manufacturing, sales and implementation – may be one of the definingglobal economic issues of our century.
Where does the U.S. stack up? We know that other countries are ahead of us in development and use of renewable energy. Many countries haveformalized clear energy plans with the supporting policies to ensuresuccess and growth of the energy needs from green sources. To becompetitive in producing, manufacturing, marketing and maintaining suchtechnologies, part of the picture is being innovative and part of thepicture is the ability to be competitive (which includes governmentpolicies.)
A recent report by the Information Technology and InnovationFoundation (ITIF) ranked the United States sixth out of 40 leadingindustrialized nations in innovation competitiveness, but dead last (40th out of 40) in the category of improvement in national innovationcompetitiveness over the last decade. America’s economic competitorsare surging ahead while U.S. innovation capacity stagnates. The reportsays that criteria used to rank nations include 1) regulations and government policies that support, not retard, innovation, 2) incentives in place for firms to innovate within their own borders, and 3) an openness to high-skill immigration.
This report came on the heels of the “World Economic Forum 2010-2011Global Competitiveness Report”, which ranks the U.S. high in innovationbut places it down to 4th (from 1st place in 2008 and 2nd in 2009) for global competitiveness. For its rankings, it uses 12pillars of competitiveness including infrastructure, macroeconomicenvironment, higher education, goods market efficiency, businesssophistication, technological readiness and financial marketdevelopment.
The acclaimed report, “Rising Tigers, Sleeping Giant” from The Breakthrough Institute along with the Information Technology and Innovation Foundation (published November 2009) took a hard look at the green industry. It states that rising clean tech tigers, identified as China, Japan and South Korea, are positioning themselves with“first-mover” advantages to capture and dominate the green markets. The Chinese government spent $34.6 billion last year, more than any nationand double of what the U.S. invested into clean energy. Chinaheadquarters 6 of the largest renewable energy employers (up from 3 in2008), says Clean Tech Job Trends 2009. The report says that China isemploying some of the strategies that Japan and South Korea used toestablish a technological lead in electronics and automobiles.
The important bullet points from the report include:
1) The Rising Tigers have already passed the U.S. in theproduction of virtually all clean energy technologies. Over the next 5years, these nations plan to invest more than the U.S. by three to one.The public investment of these nations attracts private sectorinvestments, which the report says equals trillions of dollars over thenext decade. Asia gets the jobs, the revenues, the markets, the jointventures, and the business. Continued focus and investment from thesegovernments into clean energy (manufacturing, deployment, research & development, infrastructure, etc.) will give the advantage of“economies of scale” and more industry capture, while the U.S.advantages will dwindle because public investment is smaller, lessfocused, less direct and not long-term.
2) The report says that, the U.S. is poised to invest $172billion over the next 5 years, while China alone is investing $397billion. The U.S. numbers include investments in energy R&D,manufacturing and deployment in the U.S. economic recovery packages andenergy bill.
3) If this intended investment gap persists, the report says, the U.S. will import the overwhelming majority of clean energy technologies it will deploy.This could jeopardize long-term competitiveness and long-term domesticeconomic recovery. (China has already long emerged from the recovery,relatively unscathed.)
Unlike the Asian tiger’s policies, current U.S. policies rely onmodest market incentives that are viewed by the private sector as risky, indirect, not proactive, and not helpful in overcoming barriers ofclean energy adoption. If there is any hope for the U.S. to compete, it must close the gap and “provide more robust support for U.S. clean tech research and innovation, manufacturing, and domestic market demand.Small, indirect and uncoordinated incentives are not sufficient toout-compete China, Japan and South Korea.” U.S. energy policies mustchange to include large, direct, coordinated and long-term plans andinvestments.
To clarify, the report states that the United States currently relies on foreign-owned companies to manufacture the majority of its windturbines, it produces less than 10 percent of the world’s solar cells,and it is losing ground on hybrid and electric vehicle technology andmanufacturing. Should this gap persist, the United States risksimporting the majority of the clean energy technologies necessary tomeet growing domestic demand.
What’s worse, the U.S. has traditionally attracted the bulk ofprivate venture capital. Now, these capital flows are making their waytowards Asia, as Asia’s great public investment and focus gives moreconfidence to private capital. Deutsche Bank says “generous andwell-targeted [clean energy] incentives” in China and Japan will create a low-risk environment for investors and stimulate high levels of private investment in clean energy. These nations rely on a “comprehensive andintegrated government plan, supported by strong incentives.”
In fact, it was reported by Reuters that Deutsche Bank is spurningthe U.S. for green energy investment financing. “You just throw yourhands up and say…we’re going to take our money elsewhere,” says KevinParker, global head of Deutsche Asset Management Division, whichoversees $700 billion in funds, of which about $7 billion is devoted toclimate change products. Amid U.S. political uncertainty, Parker saidDeutsche Bank will focus green investment dollars in China and westernEurope, where it sees positive government environments. “They’re asleep at the wheel on climate change, asleep at the wheel on job growth,asleep at the wheel on this industrial revolution that is taking plan in the energy industry, “ said Parker in reference to leadership inWashington. He said the on-again, off-again tax incentives forrenewables contributes to the poor outlook for investment in the U.S. (“Deutsche Bank Spurns U.S. for Investment”, by Richard Cowan. Reuters. August 11, 2010.)
Funding is already falling, as shown in the “Rising Tigers” report.The North American share of venture capital funding fell from 72 percent in 2008 to 62 percent in 2009, a four-year low for the region, withNorth American clean tech startups raising $3.5 billion in VC fundingthat year, down 42 percent from 2008. It was Chinese firms thatdominated initial public offerings (IPOs) in clean tech sectors with 17Chinese companies securing $3.4 billion, or 72 percent of global IPOproceeds in 2009.
The “Rising Tigers” report (link to the full report here) states that between 2000 and 2008, the United States attracted $52billion in private capital for renewable energy technologies, whileChina attracted $41 billion. China surpassed the U.S. for the first time in 2008.
On October 19th of this year, the U.S. announced they will pursue an investigation into China’s clean energy industry underSection 301 of the Trade Act of 1974. This Act empowers the U.S.president to take measures against unfair or discriminatory tradepractices by other countries. Some believe this action was takenbecause of the Chinese postponement on exchange rate policy, or even as a November election salvo. At its base is the issue of China overtakingthe U.S. in the green industry.
China already surpassed Japan this year as the world’s number 2economy. China’s GDP in Q2 of 2010 was $1.337 trillion while Japan’s was $1.288 trillion. It came out of a light recession last year, and itseconomy is 90 times bigger than 1978, says Bloomberg (“China Tops Japanand World’s number 2 Economy” Aug 16, 2010). Four of the top 10companies of the world by market capitalization are from China(PetroChina Co, Industrial & Commercial Bank of China, China MobileLtd. and China Construction BankCorp). And they surge forth inrenewable energy.
China has a long-term and clear energy policy. The policy includesfeed-in tariffs, support for companies and utilities, low-interestfinancing, increase in infrastructure, and a focus that has allowed them to come out of nowhere to be a leader today in this industry. Chinawent from producing 2.89 million KW from wind power in 2006 to 25.58million KW in 2009, and it produces more than 40 percent of the world’ssolar cells. It has just begun construction on the world’s largestoffshore wind farm, and dominates the world in hydropower as well assolar water heaters. U.S. leaders would do well to focus onimplementing a long-term national plan, creating incentives forbusinesses and consumers, overcoming obstacles and have some guts andforesight, before it is too late. Leasers must realize that each actioncan domino to future positive results and each day of inaction sets usback even further.
It has been pointed out that by attacking China with the unfair trade practices (is it misplaced or proper? Is it sour grapes?) may furtherhurt U.S. companies. For instance, General Electric exported 340,000 KWof wind power capacity to China in 2009. There are in fact challengesfor U.S. companies to enter Chinese markets and obstacles for Chinesecompanies to enter U.S. markets. China has recovered from the economiccrisis well before the rest of the world and is showing impressivegrowth each quarter. The country has moved from 3rd to 2nd biggest world economy, overtaking Japan, and this is thanks in part to green energy.
By 2012, China, Japan, and South Korea plan to produce 1.6 millionhybrid gas-electric or electric vehicles annually while North America is projected to produce a paltry 267,000. Japan has unveiled a plan toboost domestic solar power capacity by a factor of 20 by 2020. The three nations also plans to generate at least 20 percent of their electricity from renewable sources by 2020. These objectives are backed up bytargeted R&D investments, technology-specific deployment incentives, and government procurement programs. China is rapidly deploying windand solar power, supported by guaranteed preferential tariff prices and, in many cases, low interest financing. Why is the U.S. not doing thesame or better within its own borders?
The “Rising Tiger” report says large government investments in China, Japan and South Korea are significant because, in contrast to manyother industries, there are large barriers to the widespreadcommercialization of clean energy technologies. We know these barriersinclude:
- high capital costs
- business uncertainty and risk;
- a lack of enabling infrastructure (e.g. transmission lines and storage for solar and wind);
- historically low levels of publicly funded R&D;
- low levels of privately-funded R&D due to intellectual property concerns and perceived risks;
- and issues of competition with entrenched and cheaper fossil fuels.
Public sector investments in new technologies have traditionallyplayed a pivotal role. As an example, price and performance improvements in wind turbines occurred in Denmark, where the government guaranteedits market for wind energy in the 1980s and 1990s, and offered bothtargeted deployment incentives and supportive industrial R&Dprograms. Today, Denmark’s Vestas remains the world’s top wind turbinemanufacturer by capacity and tiny Denmark is in the top 10 countries ofthe world with installed wind capacity (REN21 2010). Denmark enactedfeed-in tariff policies as early as 1993 and by 2008, 29% of itselectricity was generated from renewables.
It is not too late for the U.S. to take action, says the “RisingTigers” report. But at some point, the Asian first-mover advantage(along with established European powers such as Denmark and Germany),and continuing aggressive measures in the clean energy sector, willentrench the leaders in the industry so that it will be far moredifficult to overcome or contend with the competition.
There is no question that the U.S. has some obstacles, not the least, political. Each state and municipality has its own rules, regulations,budgets, and issues, and there is not the kind of coordination orcooperating mindset needed to attain results. Two expensive wars haveput a burden on the coffers. Even more important, there is not a mindset in partisan Congress, where legislation and policy set the stage, towork for the national good and long-term goals. Each politician seems to chip away at whatever makes their own constituency happy in order toget votes and stay in office. Instead of a macro, long-sighted view ofwhat is needed, there seems to be more micro, short-term, “myneighborhood vote” politics and planning, which undercuts long-termgoals.
It must be acknowledged that another obstacle may be a mindset andwill of everyday people. Citizens have to make their desires known, butthey have to understand the issues and get educated, not just listen tosound-bites from those in opposition to renewable energy. There aremyths to overcome, such as those the late Hermann Scheer often spokeabout, and these myths can be overcome. As Jeff Immelt, CEO of GE saidrecently at a talk at the University of South Carolina, it seems that if there is a stronger groundswell from people (voters) about what weneed, that could perhaps not only influence those in office but couldhelp support businesses. Businesses need the support of governmentpolicies and certainty. It is all a vicious circle, and the U.S. seemsto be in a death-spiral at the moment. Will the U.S. compete, playcatch-up and take its place in this new industry?