With the disastrous oil spill in the Gulf, talk has once again turned to clean energy. What few people appreciate is that the demand for everything from solar panels to energy-efficient light bulbs is already booming. Worldwide, $162 billion was spent in new clean-tech investments in 2009 alone.
The United States, with its expertise, capital and entrepreneurial spirit, is well positioned to dominate what could easily be the biggest market of the 21st century. But as the most recent delay over the Senate energy bill shows, the country is missing a key ingredient in shaping an effective clean-tech policy: the political will to encourage the innovation, manufacturing and investment necessary to bring these new technologies to market. And the longer America drags its feet, the more it cedes this enormous potential source of national wealth to the only other country able to capture it — China.
True, China has a long way to go before it can claim the mantle of global market leadership in clean technology. Unlike the United States, however, it has spent the last few years shaping its industrial policy to achieve precisely that goal.
China’s determination to become the global leader in clean tech has little to do with concerns for the environment and everything to do with jobs. For the foreseeable future, the greatest challenge for Beijing is to ensure full employment and rising income levels. The rapidly growing clean-technology sector is one of the few that can provide a sufficient number of new jobs. (Disclosure: I invest in clean energy in America and abroad.)
This wouldn’t be the first time China has taken economic advantage of opportunities resulting from climate change. The Kyoto Protocol, which caps greenhouse-gas emissions in Europe and Japan up to 2012, includes market-based mechanisms to promote the reduction of emissions at the lowest cost. The largest of these is the Clean Development Mechanism, which allows developing countries like China to generate credits from cuts in their greenhouse-gas emissions that are then sold to developed countries.
Beijing was initially slow to establish the domestic regulatory structures and develop the expertise needed to compete in this new market. In a 2004 analysis, the World Bank determined that China accounted for a mere 5 percent of clean-development projects globally. But by 2008, the most recent year for which annual data is available, the bank reported that China’s market share had climbed to an astounding 84 percent.
Beijing is about to do the same with clean technology. In 2009, its investment in clean energy reached nearly $35 billion, almost double America’s $19 billion, primarily due to domestic policies that promote the use of renewable energy. And the strategy is working. In 1999 China made 1 percent of the world’s solar panels; by 2008 it was the world’s leading producer, with a 32 percent market share, and its solar-panel exports were valued at $15 billion. To put that in perspective, in 2009 America’s No. 1 export product by far was civilian aircraft, with exports of $35 billion.
Without fast action to greatly expand our clean-tech industry, the United States will be left behind. As such, the Senate energy bill, at a minimum, needs to take aggressive action on the three following points:
First, institute national feed-in tariffs or a renewable portfolio standard — two ways to require that utilities buy clean energy in a minimum amount or at a certain price. Such standards have been effectively put into practice in several states, most notably in Texas with wind power, but only a federal program will provide the scale necessary to compete with China, which has a national feed-in tariff program of its own.
Second, establish a price on carbon via either a tax or a cap-and-trade program to encourage low-carbon technologies. The Clean Development Mechanism placed a price on carbon in developing countries, initiating thousands of emissions-reduction projects in China. Putting a price on carbon in the United States would provide an incentive for domestic developers to build similar projects here.
Finally, get serious about supporting the research and development of carbon capture and storage, and maintain America’s lead in a field that offers enormous opportunity but is too large for any one company to finance. Coal is the No. 1 source of greenhouse gas emissions, and the first country to develop economically viable capture-and-storage technology will dictate the terms for reducing carbon dioxide emissions from coal-fired utilities globally.
China is busy turning the global challenge of climate change into a national opportunity, but it needs another decade to advance its technology to the point where superior manufacturing and lower costs will secure its dominance of the clean-tech sector. By giving China more time to develop its capacity while neglecting our own, America is not just losing the clean-tech race, it’s forfeiting it.
Bruce Usher, an executive in residence at Columbia Business School and the former chief executive of a company that operates emission reduction projects.