Building the U.S. Cleantech Manufacturing Consensus

The term “industry” is often cast about like a dirty word in discussions on reducing emissions.  Such criticism is not entirely misdirected, as industrial sectors around the world have been almost uniformly slow to begin greening themselves.  Industry also consumes a huge amount of energy: a recent report from Policy Matters Ohio indicates that 33% of Ohio’s energy consumption is industrial, making industry the largest culprit for both consumption and emissions in that state.

However, less often noted are the myriad ways in which achieving national emissions targets hinges upon the maintenance of a robust domestic manufacturing economy.  In truth, those who care about emissions reductions should be highly concerned about the decline of American industry, and should support efforts to boost manufacturing, such as the White House’s National Export Initiative.

The obvious first premise of this interdependency is that we’ll need to manufacture clean energy technologies such as turbines and combined heat and power systems in the very near future.  But the relationship between industry and emissions goes far beyond simply needing somewhere to build things.  It matters greatly that clean energy technologies are manufactured in the U.S. as opposed to elsewhere.  Below, I’ll outline some of the subtle but nonetheless powerful ways in which U.S. manufacturing strength affects both global and domestic emissions targets.

Jobs Breed Legislation

We know this about American democracy.  Whether we chalk it up as a strength or weakness of our legislative institutions, we can expect that a state or federal legislator’s approach to a climate bill or any other legislation will be informed in large part by its expected impact on jobs.  Thus, the geographic structure of clean energy technology supply chains holds incredibly political weight.  When the supply chains for building American-made wind turbines – which, to be clear, exist largely in the hypothetical at present – traverse congressional districts in enough states, those districts will all supply congressmen willing to vote for stronger emissions targets.  By building industrial supply chains, we can shape the political landscape of state and federal climate legislation.

Moreover, in international climate negotiations, the tension between the industrial North and the developing South have dominated.  Given the critical role American decision making behavior plays in the game theory of international standards, an American manufacturing advantage in the clean energy economy would likely produce stronger international standards as well as domestic ones.

High Road Legacy

The U.S. has stronger environmental regulations and subsequent enforcement mechanism than do many of the nations in which industrial goods are otherwise made; Although, China and other nations are implementing environmental regulations at a quickening pace.  Still, at present, the same industrial product can be expected to emit less if produced in the U.S. compared to many alternatives.  And while U.S. regulations may not stack up so well against their European equivalents, it’s important to note that products outsourced from the U.S. are more often outsourced to Asia or Latin America than to Europe.

Shorter Supply Chains

From another strictly emissions-based perspective, shorter supply chains are advantageous.  More specifically, production networks that coalesce around a product’s eventual market will result in huge energy savings.  The obvious savings to transportation are significant, but just as important (and often more important as a cost factor) are the reductions to inventory size that short supply chains render possible.  That is, when a product need not travel great distances between its initial component manufacturing stages to its final assembly, the timing of each production phase can be planned much more meticulously.  High and costly inventory levels, that would otherwise be stored in warehouses to hedge against shipping volatility or tied up in weeks of international transit, can simply be taken out of the equation, freeing up energy and liquid capital.

In short, a robust U.S. manufacturing sector is good for the environment because it means there will be more domestic suppliers from which to choose and, consequently, that supply chains can contract. A couple added economic benefits of localizing production networks include their ability to turn metropolitan areas into regional hot-spots of innovation – e.g. Detroit and the automotive industry – and how the aforementioned fuel and inventory reductions help what may be an emergent U.S. cost advantage in some areas of manufacturing.

Engineering Expertise

Dealing with climate change for decades to come will involve careful thought about what skills future workforces should possess.  Federal initiatives to shore up math and science scores are a good start, but probably do little if our economy doesn’t also demand workers with quantitative skills.  Revitalizing domestic manufacturing will help persuade higher numbers of Americans to become scientists and engineers, and the jobs they fill will hone their skills over the course of their careers.  Economist Susan Helper at Case Western notes that we need an economy which consistently employs large numbers of engineers, as these skills and industrial capabilities “may be crucial in meeting crises we have not yet thought of.”  Allowing too many factories to close shop is a mistake we will be made painfully aware of if we find ourselves short of the engineering expertise to deal with the next 3-month long oil spill.

In conclusion, the mechanics of reviving an industrial sector in decline are complex but not as grim as one may assume.  Fuel costs are rising and becoming more volatile, and coastal Chinese labor costs are increasing about 15% each year; factors that may help naturally tilt certain cost advantages back in favor of U.S. manufacturing.  Conversely, the failure of recent efforts to reduce existing outsourcing incentives indicates a crippling lack of consensus around the importance of a domestic manufacturing economy.  Building political will among environmentalists and manufacturers should be viewed as a critical first step towards more effective environmental and industrial policy.

__

Tim Krueger is a Policy Fellow in AEL’s New Energy Leaders Project and will be a regular contributor to the website. Tim is a research assistant at Policy Matters Ohio, an economic think tank based in Cleveland. His research focuses primarily on manufacturing networks, economic transformation, and urban job creation. In 2010, he founded an organization named the Urban Defense Project, which deploys new strategies for urban revitalization and brings college graduates to Cleveland.

2 Responses to “Building the U.S. Cleantech Manufacturing Consensus”

  1. Shanelle says:

    Tim,

    Nice blog.

    Many of us see that cap & trade policy is clearly dead on arrival but even in the absence of comprehensive, federal clean energy policy we have a few policies we can look towards for investment.

    For example, Senator Sherrod Brown’s IMPACT bill would create a $30 billion revolving loan fund and provide manufactures with access to credit; IMPACT also offers assistance to Manufacturing Extension Partnerships.

    As we continue to build more political will, I advice that we continue to push for victories like Brown’s IMPACT.

    -Shanelle

  2. This website is excellent! Thanks for the information and facts. I always discover a little something new when I visit. Many thanks.

Leave a Reply