As the House GOP leadership proposes a plan to curtail long-term federal investment in strategic research, technology, and innovation, China’s new Five-Year Plan intends to increase the nation’s R&D investment as a percentage of GDP from 1.8% to 2.2% by 2015, an increase of over 22%, while raising its commitment to clean energy technology deployment and manufacturing.

According to Joshua Freed, director of the energy program at the centrist think tank Third Way, the new House budget proposal “protects existing regulated markets and guts innovation — particularly applied research and development that are parts of the valley of death for too many companies — while pulling the rug out from under clean energy deployment”

A new BusinessWeek article, “China Buries Obama’s ‘Sputnik’ Goal for Clean-Energy Use,” notes the following:

“They intend to leapfrog the U.S. in these technologies,” Will Coleman, a partner at Menlo Park, California-based Mohr Davidow Ventures, told the Senate Energy Committee on March 17. “If we don’t move forward urgently, I’m concerned that we will not only cede the current opportunity, but we’ll lose the knowledge and the experience necessary to compete.”

…After the Soviet Union in 1957 launched the beach ball- sized Sputnik, the first man-made satellite, President Dwight Eisenhower set up the National Aeronautics and Space Administration to energize the space program and take the lead from the Soviets. President John F. Kennedy set the goal of landing a man on the moon, and by 1965 NASA’s annual budget reached the equivalent of $37 billion in 2011 dollars.

China will invest about twice that in clean-energy projects each year for a decade in a 5 trillion-yuan program aimed at steering the economy away from fossil fuels, under a five-year plan announced last month. CDB loans are expanding the manufacturing base, driving down the cost of the renewable- energy equipment it exports.

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State of U.S. Solar PV Industry

The U.S. Energy Information Administration (EIA) recently released its “Solar Photovoltaic Cell/Module Manufacturing Activities 2009” report, and the results demonstrate the rapidly evolving landscape of the U.S. solar PV manufacturing industry. In 2009, the industry reached a record high 1.3 peak gigawatts of shipments, the sixth-consecutive year of growth and a 30% increase from 2008. According to EIA, an influx of stimulus spending and a decrease in manufacturing costs largely contributed to this increase.

Domestic shipments increased 15% over the course of 2009 to 601,133 peak kilowatts, 47% of which went to commercial electricity generation. Installers, at 36% of the domestic market share, were the largest customer type, followed by wholesale distributors at 23%. The solar photovoltaic module/cell market made shipments to all 50 states, with California and New Jersey combining for 55% of all domestic shipments.

At 57%, imports accounted for more than half of total shipments for the third time in four years. The importation of 743,414 peak kilowatts, 95% of which were crystalline silicon cells and modules, represented a 27% increase from 2008. China (31.75%), Philippines (28.68%), and Mexico (17.83%) were the top importers. Japan had the furthest decline in U.S. imports, falling from 24.85% of total imports in 2008 to 11.32% in 2009.

Although import shipments constituted greater than half of total shipments in 2009, export numbers actually increased 47% from 2008. Buoyed by crystalline silicon cells and modules, exports surpassed domestic shipments for the first time since 2004. Germany dominated the U.S. solar industry export market in 2009 with 45.37% of total exports, followed by Italy (15.88%) and France (6.94%).


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With the most recent announcement that China is committed to peaking its total energy use by 2015, in addition to its energy and emissions intensity reduction goals, China’s ability to swallow the bitter pill of aggressive environmental policy seems unprecedented. Skeptics may ask, “But is it enough?” The answer from the Chinese perspective is that it’s much more than the world’s largest democracies are currently willing to do.

China has committed to an absolute energy consumption cap of 4 billion tons coal equivalent (tce) by 2015, a binding limit on energy use which has been included in the current draft of the 12th Five-Year Plan. Depending on how one determines China’s projected energy consumption, the 4 billion tce cap could be more or less than business-as-usual  for 2015. However, in this case, the fact that a cap is even being discussed – much less implemented - is more important than the actual number: the 2010 World Energy Outlook projected that Chinese energy consumption would increase by 75% between 2008 and 2035, thereby reaching approximately 5 billion tce.[1] That the world’s largest energy consumer, which is otherwise projected to contribute 36% of global growth in energy consumption over the next 25 years, could instate such a cap is actually quite meaningful.


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As every cloud has a silver lining, the recession and the resulting weakness in the dollar has been a boon for American manufacturers.  Exports surged 21% to $1.28 trillion in 2010, and the American manufacturing sector added jobs for the first time since 1997.

Unfortunately, as long as the renminbi (RMB) remains pegged to the dollar, weakness in the dollar is synonymous to a weak currency in China.  While the recent détente in Sino-American relations has drawn focus away from the “managed float” of the RMB, the effects of this peg are rippling through both the American and Chinese economies. Inflation is building in China as foreign exchange reserves and M2 have surged as the American-Chinese trade deficit surpassed $273 billion in 2010

Chinese exchange rate policies directly impact the competitiveness of American renewable energy manufacturers.  One underlying similarity across the multi-faceted renewable energy sector, from wind to solar to fuel cells and beyond, is that each technology is still in its nascence.  Unlike more established industries where low-cost Chinese suppliers have come to provide components or assembly to higher value-add Western manufacturers, supply chains remain flexible and American products compete directly with Chinese on both function and cost.


Note: The views expressed are solely those of the author and do not necessarily reflect the position of AEL.

Thomas Friedman popularized it in 2009; Barack Obama reiterated in 2011. The Sputnik metaphor employed by both—Obama most recently in the State of the Union—handily condenses the clean energy challenge into a “great race” to win our nascent energy economy, to win the future, and to put America back on a path to exceptionalism.

We’ve had a few weeks to review and digest the Sputnik metaphor as put forth in the State of the Union. Commentary (including that from AEL) has been positive, noting a need to unify Americans in “stark and bracingly simple” terms, embrace a supply-side investment strategy, and inspire the action needed to take America’s energy future by the reins.

On the other hand, those skeptical of the metaphor have focused on the idea that Sputnik is generally mismatched to America’s current challenge — some stating that America’s energy situation doesn’t demand the same urgency as the Space Race and that if Obama’s domestic investment policies don’t bear fruit quickly, the public may soon grow disenchanted with them.

Atlantic Wire, while dutifully acknowledging the power of Sputnik as a catalyst, admirably synthesized various reasons for the perceived metaphor mismatch. One argument put forth— “Can We Have ‘Sputnik’ Without an External Enemy?” –is worthy of further discussion, and argues that “President Obama wants us to recreate the same sense of urgency [as in the Space Race], and the same national unity, but without the same fear of another competitor country, unless that country is supposed to be China.”

Particularly in light of President Hu’s recent visit, the administration does not appear to want to turn China into a competitor country on the same scale as the Soviet Union. (Nor should it.) But while China is not currently considered an outright competitor country, what if, in attempts to further the Sputnik narrative, the administration’s approach to a Sputnik-centered energy policy unwittingly transforms China into a staunch “competitor” in the eyes of Americans? And if that begins to occur, how do we prevent the alienation of Chinese Americans within the United States, or a general mistyping of the Chinese people as a whole?


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The Rise of Innovation Hawks

By Teryn Norris
Published by National Journal
January 26, 2011

Last night, President Obama crystallized a new moment in U.S. political and economic history. The president is declaring it the “new Sputnik moment,” but whatever the label, it represents a major development in U.S. politics.

The catalyzing force behind this trend is the rise of China and the aftermath of the Great Recession, which is quickly producing new political fault lines. Just as the rise of the Soviet Union caused a fundamental political realignment in the United States, so the rapid rise of China is causing another today.

This realignment is just beginning, but one of the clearest implications is the rise of a new national economic strategy based on “innovation economics.” Instead of emphasizing spending cuts, even in the face of the Tea Party and new Republican House, Obama strongly promoted an active, innovation-centric federal strategy at the front and center of his agenda – a first for any modern president.

The key to American leadership in the face of China, Obama argued, is to make large-scale federal investments in the three pillars of economic competitiveness: innovation, education, and infrastructure. “We need to out-innovate, out-educate, and out-build the rest of the world,” he declared. “That’s how we’ll win the future.”

By embracing an investment-centric strategy, Obama adopted a growing expert consensus: modern economic growth primarily emerges from technological innovation, and the federal government plays a central role in innovation. The information technology revolution was grounded in federal investments in microchips and the Internet – especially by the Department of Defense – and so were major growth sectors like aviation, biotech, and others.


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China’s President Hu Jintao recently ended his 4 day visit to the United States, leaving many questions as to the future of Chinese, American relations over clean energy and climate change mitigation.  The U.S. and China have numerous public and private partnerships on energy issues, but a recent complaint to the Word Trade Organization filed by the U.S. Trade Representative (USTR) against China could stall progress.

In September, the United Steelworkers Union (USW) filed a 5,800 page complaint with the US Trade Representative against China. The USW argued that China’s renewable energy policies violated international trade agreements by favoring domestic manufacturers.  The USW released a statement saying:

“These practices include discriminatory laws and regulations, technology transfer requirements, restrictions on access to critical materials, and massive subsidies that have caused serious prejudice to U.S. interests. Together, these practices have given Chinese producers an upper hand in accessing investment, technology, raw materials and markets, while foreclosing these same opportunities to U.S.producers.”

The USTR investigated the USW’s claims and in December filed an official complaint with the World Trade Organization against China’s wind power subsidies. The complaint lodged by the USTR specifically refers to China’s “Special Fund for Wind Power Manufacturing.” Under this program grants are available to Chinese manufacturers of wind turbines and manufacturers of parts and components for wind turbines ranging from $6.7 million and $22.5 million. Recipients can receive multiple grants as the size of the wind turbine model increases and the USTR estimates that since 2008 the grants awarded under this program could total several hundred million dollars. The USTR claims this program violates WTO regulations because the grants awarded are dependent upon Chinese wind power equipment manufactures using components made in China as opposed to foreign products.

China’s Commerce Ministry responded by saying:

“All countries are developing new energy sources to deal with the climate changes. China’s measures on wind power development help save energy, reduce emission, and protect environment, which are important measures for sustainable development, and comply with WTO rules. China show grave concern on U.S. request , and will make serious study of it., and deal with the request based on WTO rules, and also reserves her relevant rights.”

After a complaint is lodged with the WTO, the two parties have 60 days to resolve the dispute on their own. If the two parties do not come to a mutually agreeable resolution on their own, the WTO will review both parties’ arguments before making a ruling. The WTO panel’s review process can take anywhere from a year to 15 months. Should the WTO side with the U.S., then the U.S. would be allowed to impose penalty tariffs on Chinese goods to make up for lost revenue. On the other hand, should the WTO find that China’s wind grant program is not in violation of international trade agreements; it could be an embarrassment for the U.S., not to mention a waste of resources and time. (more…)

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US-China Energy Cooperation: The Case of CODA Automotive

Coda Automotives Kevin Czinger (left) discusses electric-car batteries in Tianjin, China, with U.S. Commerce Secretary Gary Locke (middle).

Coda Automotive's Kevin Czinger (left) discusses electric-car batteries in Tianjin, China, with U.S. Commerce Secretary Gary Locke (middle).

Much of the dialogue surrounding Chinese President Hu’s visit this week, at least from a media reporting perspective, has centered around Sino-U.S. energy deals—including players like Boeing, GE, Duke Energy, who launched China partnership announcements timed to coincide with Hu’s visit and the Brookings U.S.-China Strategic Forum on Clean Energy Cooperation. While there is much to cheer in these agreements, especially when it comes to job creation, there is also much to question as we move forward.

These energy agreements pose some rather obvious risks, in that U.S. companies will be sharing intellectual property with Chinese firms—and that any collaboration with China in an industry integral to U.S. national security presents some level of risk. But the deals also represent a laudable, long-awaited step forward in the Sino-U.S. relationship, affording market access and substantive China learning opportunities to U.S. firms.

While welcoming the collaboration that these announcements represent, it is perhaps important to recognize that the US-China narrative is multilayered—that these well-trumpeted corporate announcements come in the midst of some thought-provoking setbacks for some notable US-based energy companies which extended China operations over the past few months.

One of these companies is CODA Automotive, a US electric car company based in Santa Monica. CODA has been an intriguing story for journalists. The company was formed in 2009; that fall, CODA representatives came to Beijing to participate in the U.S. Department of Energy’s first US-China Electric Vehicles Forum, spearheaded by DOE Assistant Secretary for Policy and International Affairs, David Sandalow.

As you might imagine, CODA’s vision seemed especially apropos to Americans in Beijing in late 2009: China’s Chery Automobile was producing new models left and right, and China’s BYD (which has since experienced some notable setbacks) had announced its investment from Warren Buffet’s Berkshire Hathaway a little over 6 months prior. At that time, Americans in the region were left looking for a leader on the other side of the Pacific.


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A Renewable Interior

The use of public lands to spur the development of clean energy industries in China has been a contentious issue in recent months. While China’s aggressive growth in renewable energy manufacturing capacity has caused consternation over this lost American opportunity, few would argue that the Federal government should mirror the Chinese state and leverage federally managed lands to attract manufacturers (and the accompanying industrial waste). However, public lands overseen by the Bureau of Land Management can help drive domestic deployment of renewables and will be a critical proving ground for the next generation of energy technology.

Although reports on China’s efforts to nurture cleantech industries can be dismaying, such as the work by AEL’s Daniel Goldfarb on Chinese land hand-outs for manufacturing and contributor Leigh Ewbank additional commentary on the emerging Chinese, American trade dispute, it is important to note that America has not yet lost the renewable energy deployment battle. While growth in the Chinese wind market surpassed the US by almost 4,000 MW in 2009, America leads the world in wind power capacity by almost 10,000 MW (China is currently #2). Similarly, while China is investing heavily in renewable energy generation, Chinese solar power capacity stood at only 150 MW in 2008 compared to an EIA estimate of ~540 MW of in the United States. As is the case for wind, China is moving to aggressively increase solar capacity, targeting 2,000 MW by 2011. Geothermal appears to be a lonely bright-spot: America is far and away the world leader in geothermal generation, with more than 3,000 MW of existing capacity and an additional 4,500 MW in the pipeline. China ranks 17th, with less than 100 MW of geothermal capacity.

While the Race for Megawatts captivates the public, deployment is much more than a matter of national pride. Deployment drives both innovation, reducing technology cost through ‘learning-by-doing’, and economic growth, not only creating jobs through project development but rippling through ecosystem of suppliers, distributors, and manufacturers. A clear path to deployment is also critical if entrepreneurs are expected to invest the time and capital necessary to bring a new technology to market. As can clearly be seen in China (or Germany, Spain, and Japan), strong state support is the single most important factor currently driving the introduction of renewable energy onto the grid.


Guest contribution by Leigh Ewbank

In an attempt to advance the “new Sputnik” narrative, the Obama administration filed a complaint with the World Trade Organisation against China over its clean energy subsidies in the last weeks of 2010.

The administration’s move comes just months after the United Steelworkers (USW) union filed a trade case with the office of United States Trade Representative. The earlier USW petition argues that China’s generous subsidies and land grants, available only for locally made parts, constitute preferential treatment of its domestic clean energy manufacturers. The current practices, the USW argues, disadvantage American firms and are trade distorting.

Over at Grist, Lucia Green-Weiskel and Tina Gerhardt write that:

“Both complaints ignore the fact that energy industries all over the world benefit from government subsidies. In the U.S. and Europe, the nuclear and fossil-fuel industries get massive public subsidies. And as a percentage of GDP, Spain and the U.K. pump funding at levels similar to China’s into green subsidies.”


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