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.

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%).

Looking at the advance of various technologies, the report finds that the previously nascent thin-film technology steadily climbed from an 11% market share to 40% over a three-year period, beginning in 2004. This improvement in market share came at the expense of the more mature crystalline silicon, but 2009 saw crystalline technologies widen the gap again with 77% of total shipments. Thin-film cells/modules are inherently less expensive to produce because they do not rely on silicon, and their market share most likely increased from 2004-2007 as a result. Recently, however, more efficient silicon wafer technology has decreased the manufacturing costs of crystalline silicon cells/modules, and thus illustrated in its current market share.

Even in a suffering economy with high unemployment, the solar manufacturing industry contained 101 companies in 2009, a 53% increase from just a year before. In conjunction with an increased number of companies, employment, measured by “person-years” in the report, increased 28%. Most of the domestic manufacturing activity occurred in California, Maryland, Massachusetts, Michigan, and Ohio.

Lastly, in the continued debate about the clean energy race, the report illustrates the role of China in U.S. solar photovoltaic imports and exports. In only a year, China went from 22.68% of U.S. solar photovoltaic cells/modules imports to 31.57%. This increase represented a rise from the third largest importer to the first, having passed Japan and the Philippines.  On the other hand, the U.S. exports only 2.69% of total exports to China.

EIA’s collection of manufacturing activity data helps numerically illustrate the state of the U.S. solar manufacturing industry. Though the data can be analyzed and interpreted from numerous angles, overall the industry appeared to grow and expand substantially in 2009.  The findings provide hope for continued growth and yet another reason for America to invest in a rapidly growing U.S. solar PV manufacturing industry.

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Dan O’Connor is a Policy Fellow in AEL’s New Energy Leaders Project.  The views expressed are those of the author and do not necessarily reflect the position of AEL.

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 12^th 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.

First and foremost, the energy cap has well-recognized implications for reigning in China’s economic growth (Wen Jiabao has indicated that China will seek to reduce its growth rate by 0.5 percentage points over the next 5 years as compared to 2005-2010), and for reducing carbon emissions. Now that China is on the verge of implementing both an absolute energy consumption cap and an energy intensity reduction goal, the country is soon likely to have all the policy instruments in place to cap absolute energy-related emissions. Interestingly, the policy is not being communicated in this way, even though a Chinese emissions cap would generate an incredibly positive international response. Nevertheless, the connections are clear:

China’s energy ceiling could contribute substantially to the world’s ability to peak carbon emissions, or at least their ability to agree to do so. Such a development has come not a moment too soon: the Cancun Agreements, as drafted under the UNFCCC in December 2010, indicate that a time line for peaking global carbon emissions should be considered by the end of this year. China’s commitment to peaking energy use sets a nice pile of candy on the table for easing negotiations on this topic, and sets a precedent for other emerging economies to feel a bit more comfortable establishing similar goals.

The raw simplicity of the energy cap will also be harder for pundits to criticize, certainly compared to energy intensity and emissions intensity targets, which have solicited a mixed media response. A cap on energy use circumvents uncertainty over the utility of increases in energy efficiency for reducing energy use (due to the ‘rebound effect’). The cap complements China’s targets of decreasing the economy’s energy intensity by 16-17% by 2015, and reducing emissions intensity per unit GDP by 40-45% by 2020.

Furthermore, China has even started discussions with the EU on implementing pilot emissions trading systems (ETS) in certain Chinese provinces for select economic sectors (voluntary trading systems are already established in Beijing, Shanghai and Tianjin). Such supplementary initiatives can help achieve emissions intensity targets, and also indicate that China is serious about achieving its climate goals. It is also a promising indicator that China could institute an ‘absolute’ emissions cap in the near to medium term: a carbon trading system with an emissions intensity cap can be modified (relatively) easily to regulate absolute quantities. That China has built on its energy intensity target with a firm energy cap hints that it is not shying away from this type of progression.

The big question is: How likely is it that China will meet its climate and energy goals? Thus far, China has communicated remarkable progress, but has fallen just short of some key targets: China Daily indicates that energy intensity per unit GDP was cut by 19.1% during the period 2005-2010, missing its target of 20%. The non-fossil fuel proportion of energy consumption is currently about 8%, also short of the 2010 goal of 10%.  At least some of this ‘success’ has come at the unpopular cost of intermittently shutting down and rationing electricity production, enforced with prohibitive fines, which has impacted the output and prices in China’s dirtiest sectors (chemicals, textiles, machinery).

In short, China appears to take these goals very seriously. But not only due to environmental concerns. China’s growing anxiety over energy security has come to the fore in recent months, particularly due to the instability of Middle East oil flows. Notably, the Chinese navy has even embarked on its first active-duty deployment outside East Asia in stationing an aircraft carrier outside of Libya in the Gulf of Aden. While this move was partially driven by concerns over the safety of the last remaining Chinese citizens in Libya, some point to this as an indication that China wants to get in good with new, incoming governments in the Middle East, thereby securing oil supplies.

Oil comprises about 20% of current Chinese energy consumption, and with the need to power a growing car fleet, oil imports are likely to grow proportionally, even under an energy consumption cap. The energy cap itself is likely a way for China to limit even greater reliance on foreign oil, which has become increasingly risky as of late. However, even if China’s renewable energy deployment goals were met completely, the energy cap would allow for growth of another 1 billion tce of fossil fuel energy by 2015. Even this buffer may not be enough to account for all the new car owners, which could more than double by 2020.

Another facet of China’s evolving energy policy, as well as first steps to globalizing its military activity, is the desire to appear as a ‘responsible’ super power. As Western (largely US) concerns over China’s rise to prominence have grown over the years, China seems to have found that it is in its best interest to quell these concerns to the extent possible.

This can be seen in China’s evolving climate and energy stance on the international stage over the past few years. While all UNFCCC Parties have had to make important concessions in order to come to consensus on the Cancun Agreements, China is now able to put commitments on the table that may have seemed impossible only two years ago. While China and the US still tend to clash on how national emissions should be monitored (whether at the national or international level), the US can no longer argue that its ambitions are limited by willingness of emerging economies like China and India to act according to their ‘common but differentiated responsibilities and capabilities’ (as described in the convention text of the UNFCCC).  Granted, the international expectations for the form and content of a climate agreement have also been tempered – the negotiations are currently tending towards an agreement that would require only voluntary, not binding, emissions reductions from both developed countries and developing countries. Therefore, international expectations of what the US should agree to have been significantly lowered, while expectations of China have only slightly increased, if at all.

It is fairly clear that the decline in international expectations has come at least in part from the inability of big democracies (especially the US) to act on climate domestically. At a recent round table event with Urban Rid and Jonathan Pershing, Director of Climate and Energy for the German Ministry of Environment and US Deputy Special Envoy on Climate Change (respectively), both men reflected on the outcomes of Cancun and the magnitude of work that still needed to be done in order to fulfill the Agreements. Dr. Rid good-naturedly lamented the US’s difficulties as a democracy in implementing comprehensive climate policy. Germany has obviously not suffered to the same extent – but it is a point well taken, given that depending on who you talk to in Washington the prospects for passing any sort of climate legislation are nil for the next two to six years. Is the US doomed to climate shame simply because of the inertia of its political system? How much will it take for the US to catch up to China’s aggressive climate and energy policy framework?

While the Obama administration remains formally committed to reducing emissions 17% below 2005 levels by 2020, there is likely insufficient legislation in place at the state and federal level to meet this goal.  And with the role of the EPA in regulating greenhouse gas emissions so precarious, for now there is nowhere near enough policy driving the over 80% emissions cuts needed by 2050. Though Obama has sought to make progress where he can (e.g. his State of the Union clean energy goal would have 80% of US electricity coming from ‘clean’ sources by 2035), none of these non-binding goals elaborate interim targets for which the current administration can be held accountable. The appeal of China’s Five-Year Plan, at least from a policy perspective, is that the target dates are so close we can touch them (not to mention their binding nature). The political prospects for short term, binding, and ambitious policy in the US are incredibly poor.

Both Rid and Pershing reiterated that, unfortunately, the emissions reduction numbers volunteered by all UNFCCC Parties under the Copenhagen Accord do not currently add up to staying within the 2° C limit determined suitable by the IPCC to avoid the worst impacts of climate change. Everyone needs to agree to do more (some a little and some a lot). As outlined by the IPCC, all countries, developing and developed, the US and China, must instate some sort of emissions reduction efforts in order to keep global temperatures within a 2° C rise (a target now formalized under the Cancun Agreements).

One could argue that China’s rapid moves to improve its climate and energy policy have signaled a shift in leadership at the global level. This may very well be true, but it is the result of unsurprising tectonic shifts that have been in motion for the past several years. To secure and sustain its place as an economic superpower, China has recognized the need to begin working in the same direction as Western countries. This momentum, combined with the ability for centralized decision-making, has allowed for broad sweeping changes in Chinese environmental policy. The US, while it has an enormous voice at the UNFCCC negotiations, has been increasingly questioned over its ability to fulfill its international climate commitments. Political warfare at home and more immediate concerns like passing a 2011 federal budget consume the US political landscape, if anything generating backwards momentum in the climate policy realm.

China appears to be on track to meeting the “substantial deviation” requirement. When will the US get on track to an 80-95% reduction by 2050, and meet its own super power responsibility? Turning its current goals into legislation and making binding year-on-year interim goals would be an excellent first step. But in a democracy, the political will of the voters and the legislators has to materialize.

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Emily McGlynn is a Policy Fellow in AEL’s New Energy Leaders Project.   The views expressed are those of the author and do not necessarily reflect the position of AEL.

Phil Hannam, a Masters candidate at UNEP-Tongji Institute of Environment for Sustainable Development in Shanghai, contributed calculations and analysis.

[2] Based on Box 13.7 of IPCC Fourth Assessment Report, Working Group III: Mitigation of Climate Change. Developed and Developing correlates to Annex I and non-Annex I, respectively.

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.

Chinese exchange rate policies stand as an indirect but potent support for Chinese renewable energy manufacturers.  Between 2005 and 2008, the RMB appreciated 22% from 8.28 to 6.78999 RMB/dollar after China grudgingly implemented a “managed float” while under threat of Congressional tariff on Chinese imports. In May of 2008, China quietly responded to declining exports and surging unemployment caused by the global recession by holding the RMB at approximately 6.83 RMB/dollar; the exchange rate currently hovers around 6.6 RMB/dollar after China pledged before the G20 in 2010 to enhance “flexibility” while continuing to insist that the “basis for large-scale appreciation does not exist.”  Various studies (including the Economist’s Big Mac index) suggest that the RMB is undervalued by 20-40%.

What does this mean for American manufacturers?  Consider the following example.  Suntech, the largest low-cost c-PV manufacturer in China, booked a 40MW order of panels at just under $2.90/watt in 2009 ($115.8 million, page 90 of Suntech’s 2009 20-F).  This is well below struggling Evergreen Solar’s total panel cost of $3.19/watt in Q1 2009, though well above the $2.05/watt that Evergreen had achieved by Q4 2009.  $2.90/watt also significantly exceeds industry price leader First Solar’s average 2009 panel price (total 2009 sales divided by total production) of $1.88/watt.

Suntech’s price position disappears when we adjust for the valuation of the RMB.  If we assume that the RMB was only 10% underappreciated in 2009, Suntech’s price per watt rises to $3.1845 – all but indistinguishable from the high panel prices that have recently driven Evergreen to close manufacturing facilities in Massachusetts.  At 30%, Suntech’s price per watt rises to $3.7635/watt, exceeding even the $3.70/watt of American high-efficiency monocrystalline PV manufacturer SunPower.

Even if we were to ignore the advantage Chinese renewable energy manufacturers gain from local content regulations, tax-free land grants, and low-interest financing, the prices made possible by an undervalued RMB create a difficult marketplace for American manufacturers to compete.  This is particularly troubling given the developing state of the renewable energy industry.  While supply chains are currently flexible, contracts signed today allow manufacturers to invest and retool for future expansion.  Competition between the David’s of today will produce the Goliath’s of tomorrow.  If President Obama truly wishes to “reinvent” the American energy landscape and double exports by 2014 as noted in his recent State of the Union, we cannot afford to ignore the exchange rate.

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Dean Chuang is a Policy Fellow in AEL’s New Energy Leaders Project and will be a regular contributor to the website. The views expressed are those of the author and do not necessarily reflect the position of AEL.

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?

The link between Sputnik metaphors and anti-Chinese sentiment may seem questionable, but remember those China ads from the 2010 midterm elections? Examples include (former) Senator Russ Feingold, West Virginia Congressional candidate Spike Maynard, and 501(c)(4) Citizens Against Government Waste—vilifying China or constructed to inspire fear of China in voters fearful of “falling behind.” Perhaps it says something that both Feingold and Maynard lost, given their tactics – but the fact that both found the ads politically viable is troubling.

Furthermore, even before the State of the Union, the Administration had already begun to solidify a Sputnik narrative, filing a complaint over China’s domestic clean energy subsidies with the WTO in late 2010, after months of clamoring by the United Steelworkers Union.

Peggy Liu, Chairperson of the Joint US-China Collaboration on Clean Energy (JUCCCE) encapsulated the tension best, and ahead of time, in the 2010 Economist online debates: “China’s push in wind and solar is less about trying to win the Sputnik of clean-tech over the United States and more about providing cheap and scalable energy solutions across the vast domestic Chinese market and staying competitive in the export market.”

It’s not just that the Sputnik metaphor is arguably a bit forced to those who know the energy landscape well. After all, no metaphor is perfect, and Obama’s was undeniably well-intentioned. The problem is that we seem to appear unaware of its possible unintended consequences — accepting the metaphor without qualification runs the risk of portraying the Chinese people as distant potential enemies to young Americans, including young Chinese-Americans, who will be growing up in the same “future” we seek to “win.”

But cognizance of a potential problem, after all, is a start. And addressing the issue may, in fact, be its finish. The Obama administration should simply be actively inclusive of Chinese-Americans (and the Chinese people), as partners in developing America’s (and a global) energy future, particularly as things progress with the WTO complaint.  This means continuously framing the subsidy issue as one of fairness, and making unavoidably clear distinctions between the Chinese people and the actions of the Chinese government.

Why is this type of outreach so important? As the China Google debacle unfolded in January of 2010, Secretary of State Hillary Clinton made a notable speech about cyberfreedom, singling out China for substantial criticism. The parts of Clinton’s speech explicitly critical of China were played on loop, on state-run Chinese television, in the Shanghainese subway (with Chinese subtitles), for consecutive days.

So when the Obama administration singles out China for energy-oriented criticism, it must be more actively engaged in the business of continuously framing its energy dialogue for broader cultural consumption by the Chinese and American peoples. Because consume it they will; and that consumption may, in turn, determine the larger social macrodynamics of the energy future we’re presumably seeking to win.

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Elizabeth Campbell is a Policy Fellow in AEL’s New Energy Leaders Project.

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.

One of the key areas Obama emphasized was a new approach on energy policy. “We’ll invest in biomedical research, information technology, and especially clean energy technology,” he said. “We’re telling America’s scientists and engineers that if they assemble teams of the best minds in their fields, and focus on the hardest problems in clean energy, we’ll fund the Apollo projects of our time.”

The new energy and climate movement will not be led by “climate hawks,” as David Roberts of Grist recently coined. Rather it will be led by innovation hawks, most recently represented by the American Energy Innovation Council and the President’s Council of Advisors on Science and Technology. Indeed, even after the collapse of cap and trade, the rapid decline of climate-centrism was highlighted by Obama’s choice to omit “climate change” from his speech entirely.

Innovation hawks are reemerging today, but they held a much stronger position throughout the Cold War. During this period, the success of federal investment shared a strong bipartisan history, from President Eisenhower’s interstate highway system, to President Kennedy’s Apollo Project, to President Reagan’s defense technology efforts. This industrial and innovation policy was often conducted by DOD under political radar. The Soviet threat produced a powerful political consensus behind defense spending, even if parts of it represented industrial policy.

Unfortunately, beginning in the Reagan administration, neoliberal doctrine began to discredit the role of public investment. And when the Soviet threat dissolved, the underlying investment imperative disappeared. On one hand, the diminished threat increased political polarization and anti-government sentiment, beginning with the 1994 mid-term election. On the other hand, the Soviet collapse fueled the triumphal neoconservative movement, represented by Francis Fukuyama’s “The End of History” and Charles Krauthammer’s “The Unipolar Moment,” which argued that U.S. dominance was complete.

Despite the economic success during the Clinton administration – much of which came from past federal investments in information technology – Reaganomics and neoconservatism won the day, and the Bush administration was installed. September 11th crystallized the neoconservative foreign policy agenda, and the invasion of Iraq dominated the administration, distracting from “nation-building” at home and the need to guard against financial crisis.

Throughout this period, a significant part of the U.S. innovation system was dismantled. Federal research and development as a portion of GDP declined by over 50 percent since 1964. Infrastructure investment declined from 3 percent of GDP between 1950-70 to less than 2 percent since 1980, and the American Society of Civil Engineers now calls for $2.2 trillion of upgrades. Meanwhile, the U.S. fell behind in STEM education and clean energy technology, among other sectors.

The rise and fall of the Soviet Union, the twilight of American unipolarity, the foreign terrorist threat – each of these foreign policy events caused realignment in the U.S. polity. But Fukuyama and Krauthammer were wrong: history didn’t end, and unipolarity only lasted a brief moment, if it ever existed at all. Today, in the aftermath of the Great Recession, we are witnessing another realignment with the rise of the next great power – one which may have far greater implications than Sputnik.

Obama believes that with the rise of China, America’s future belongs to leaders who can convince the public of a strategy for national greatness. As national pollster Stan Greenberg recently said, “People think the country is in trouble and that countries like China have a strategy for success and we don’t. They will follow someone who convinces them that they have a plan to make America great again. That is what they want to hear. It cuts across Republicans and Democrats.”

If he’s correct, and if China produces the same type of public investment imperative as the Soviet Union once did, then the current Tea Party and Republican resurgence is doomed. Either the party itself will collapse under its own weight, or more hopefully, a new brand of “innovation conservatives” will rise within the party and take over the reins. Conservative intellectuals like David Brooks, Steven Hayward, and George Will are already starting this trend, but they’re still a small minority.

If he’s wrong, and the current political polarization and anti-government sentiment reflects a deeper trend, then the United States is most likely destined for slow but steady decline. This would imply an inability to confront the grand challenges of the century, including global energy transformation and continued role as the underwriter of international security, among others.

Either way, the rise of China is transforming the U.S. political landscape as we know it. The fault lines are still emerging, but Obama’s second State of the Union was one of the first major attempts to draw a clear battle line in the sand. Those committed to America’s global leadership have little choice but to get behind the president and fight for the next innovation agenda. As Obama put it, “Our destiny remains our choice.”

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.

There is certainly truth and merit to the USTR’s complaint, but given that countries around the world, including the U.S., regularly favor their domestic manufacturing with policy, the complaint comes off as a little hypocritical. As AEL reported earlier this month, President Obama recently signed a military authorization law that includes a “Buy American” clause, requiring the Department of Defense to purchase domestically manufactured solar panels. Surely no one in America is arguing against our military supporting the domestic solar industry, yet the reactive policy threatens to escalate the emerging trade dispute.

I am certainly not advocating that China be exempt to international trade rules; China is a member of the WTO and therefore subject to the organization’s rules and regulations. Nor am I arguing that the U.S. should not do what is within its means and rights to rectify practices that put it at a competitive disadvantage; however, it would be more productive for the Obama administration to put forth their own energy agenda rather than get caught up in a dispute with China over its energy policies. The two parties should strive to resolve the dispute without WTO involvement, which would be in the best interest of both countries. America and China are the two largest economies in the world, the two largest greenhouse gas emitters, and the two largest energy consumers. As such, they have the responsibility and opportunity to forge partnerships working towards more sustainable and cleaner energy usage in both countries and around the world.

The U.S and China have already begun to move forward on energy issues. In November 2009, President Obama and China’s President Hu announced a number of measures to strengthen cooperation on clean energy issues. One of these measures included a U.S- China Clean Energy Research Center, which will “facilitate joint research and development of clean energy technologies” and has received $150 million in funding.  Other initiatives include an electric vehicles initiative, shale gas initiative, and 20^th century goal to promote cooperation on cleaner uses of coal.

Many Chinese and American companies are forging energy partnerships as well. In my last article , I mentioned some of these partnerships and discussed Chinese investment into the U.S. wind energy industry. On the eve of President Hu’s visit to America, a series of Chinese and American companies announced clean energy partnerships. U.S. based Alcoa and China Power Investment Corp. announced collaboration on a range of projects that could total $7.5 billion in investments. American Electric Power Co, an Ohio utility company, is partnering with China Huaneng, the largest power-generation company in China, to evaluate carbon capturing technology. Duke energy and China’s ENN Group said they will work together to develop China’s first “eco-city” outside of Beijing.

The complaint with the WTO may likely amount to nothing, which is probably what the numerous American energy companies that work in China are hoping for. The worst outcome would be that the U.S imposes sanctions and the situation escalates to a trade war. This is not very likely, but would be bad not only for the companies who have collaborations in China, but also for all of us who are waiting for China and America to take the lead in fighting climate change. These two superpowers have a great opportunity to work together to reduce their emissions and develop clean technologies that would benefit the world. The U.S-China energy partnership is in its infancy, and the Obama administration should continue to encourage the growth of this relationship. Hopefully, the WTO dispute will not disrupt the progress that has been made.

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Natalie Relich is a Contributor in AEL’s New Energy Leaders Project and her work will be regularly featured on the website. The views expressed are those of the author and do not necessarily reflect the position of AEL.

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.

What struck many then was the innovative, forward-thinking, collaborative nature of the company. CODA is a US-based EV startup, but has a seemingly extraordinarily functional joint venture with Lishen Battery (a Chinese lithium ion battery company, the largest holder of which is China’s National Offshore Oil Company [CNOOC]). CODA’s batteries and vehicle chasses are made in China, yet 35% of the CODA car is made in the US, and the US end does the final inspections.

CODA explicitly recognizes this vision in its corporate materials: “Our heart is in America and our family of partners is global,” says CODA. A lofty goal, backed up by a pragmatic, disciplined model and a management team thought capable of delivering quickly made CODA a media darling. More recently, CODA’s goal of opening factories in Ohio, a manufacturing-dependent state hurt by the financial crisis, resonated well with commentators and journalists.

Yet despite its position as a role model for cross-national cooperation, CODA recently pushed back its initial sales date for its EV sedan to the third quarter of 2011, presumably as a result of executive-level shufflings, including losing the well-regarded Kevin Czinger as Chief Executive in November 2010. Earlier this month, CODA announced that it had closed a round of venture funding valued at USD76 million.  For CODA, a volatile few months make this funding, which brings Coda’s total invested capital to over USD200 million, much-needed good news.

The steep competitive landscape for EVs has become something of an issue for CODA, especially given CODA’s late 2010 pricing for its new sedan, whose initial tag is higher than competitors’ by a few thousand dollars (before factoring in tax rebates). These developments, plus manufacturing setbacks and the management shakeup, make the additional round of venture funding a welcome development.

It’s unclear what the impact of the pipeline setbacks, new funding, and executive changes will ultimately mean for CODA at a functional level. But, especially in the wake of Evergreen Solar’s move to China, it would be unfortunate to see CODA, a company which has demonstrated such exceptional and timely leadership of thought—and navigated the well-recognized complexities of a China joint venture so productively and ably—be beset by significant roadblocks now.

CODA’s setbacks are by no means the fault of China—nor a reason not to cheer this week’s Sino-U.S. cooperation agreements. Yet they are a reminder that, even for the most well-planned and seemingly functional of Sino-U.S. ventures, uncertainties are all but certain.

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Elizabeth Campbell is a Policy Fellow in AEL’s New Energy Leaders Project and will be a regular contributor to the website. The views expressed are those of the author and do not necessarily reflect the position of AEL.

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.

The good news is that the Bureau of Land Management has been evaluating the renewable energy resource potential of public lands since 2003 and now estimates that public lands have the potential to generate 2.9 million MW of solar, 206,000 MW of wind, and 39,000 MW of geothermal energy. An increasing number of proposals for large scale developments are progressing to the permitting and public participation stages of BLM review. The scale of these proposed projects is immense. The smallest fast-track solar energy project listed on the BLM website is larger than all but three existing solar power plants in America. The individual potential output of four proposed projects exceeds the total combined nameplate capacity of all existing solar plant in service in America. And that’s only the tip of the iceberg – sitting in the pipeline is the generating potential of future projects in the BLM’s 24 proposed “Solar Energy Zones” (recently released Draft PEIS available here).

However, as David Brower and the Sierra Club rose to oppose the Bureau of Reclamation during the American “Big Dam” era, a new generation of druids has risen to defend their beloved deserts and coastlines. Battles have already erupted over BrightSource and First Solar projects in the Mojave, while the Quechan Tribe recently won an injunction against Tessera’s Imperial Valley Solar Project in California.

This discord highlights the diverging paths of renewable energy deployment in China and the United States. Despite Secretary Salazar’s best efforts to play a modern-day Floyd Dominy, the disparate union of American States and interests simply cannot match the bulldozer efficacy of the Chinese State. Not only is all land in China essentially state owned, 90% of generating companies and 100% of transmission is government owned. Equally important are the cultural differences – China is a land where “not in my back yard” has not yet found a voice.

Whether it is a ‘New Sputnik’ or a “strategic inflection point,” we must recognize that the countries that develop the “green” technologies of today will be in a position to dominate the energy industry of tomorrow. However, China today has more in common with America’s robber baron era than with the current age of environmental impact statements and public review – China’s path to renewables is in many ways a refrain from our own Cuyahoga past and cannot be our path into the future. Additionally, although driving deployment today is critical to ensure that we develop experience in the energy technologies of the future, the demographic arithmetic does not favor America in the race for renewable megawatts. The rising demands of a hungry society of 1.5 billion will inevitably exceed even the most extravagant consumption of 300 million. While currently an export industry, China’s push to develop energy technology is not just aimed at industry domination – Chinese regulators are laying the foundation to ensure that development is not accompanied by the blackouts and power shortages that have plagued other developing nations.

Though China’s progress is enviable, America should focus on maximizing development the American Way rather than aping the success of a rising competitor. Despite the bureaucratic hoops, America has a strong business culture and climate and ranks 5th in the world on the World Bank’s “Ease of Doing Business” Index. Importantly, the US ranks 5th in protecting investors and 8th in enforcing contracts. China is far down the list at 79th overall, 93rd at protecting investors and 15th in enforcing contracts.

Companies cannot afford to ignore the rapid development of the Chinese market, as the New York Times Keith Bradsher reported in December. Still, they are beginning to understand that entry into China comes at the risk of training the next generation of competition. Renewable energy is a global industry and many of the multinationals that are exploring China have already invested in America; the fast-track BLM projects noted above include proposals by the Dutch Shell Energy and the Spanish Iberdrola. America must recognize that our open business climate is a great strength, and given the history of technology appropriation in the energy industry, perhaps the greatest selling point for developers comparing China and America.

In this respect, only the glacial pace of project permitting holds us back. The 10-year odyssey of Cape Wind – and the millions involved in paperwork and litigation throughout the process – stands in stark contrast to the rubber-stamped projects of China. The Department of the Interior appreciates this contrast and is working to accelerate the leasing process. Just as the BLM’s Solar Energy Zones are targeted at expediting solar leasing, the “Smart from the Start” wind initiative recently unveiled by Secretary Salazar is aimed at reducing the approval process to two years from the previous 7-10.

Expedited project approval is a start, but we can do more. The Department of the Interior should provide incentives to ensure that America’s renewable energy pipeline is actually developed and that leased lands are put to use. The BLM should fully transition away from the historical first-come, first-serve distribution of renewable energy leases to an auction system. This will ensure that the lands with the greatest potential are distributed to those with the greatest interest in development. Beyond this, the DOI should act to nudge current lease holders towards development. For example, an addendum that escalates lease cost in the absence of active development could be added to lease terms to increase the cost of squatting. This is particularly critical for the high-potential lands identified by the BLM. America’s greatest renewable resources should not be held hostage by speculators.

Opponents of public-land renewable energy have argued for distributed generation, envisioning a world of solar rooftops rather than solar farms in the desert. But large utility-scale projects are necessary to generate the economies of scale that will eventually drive down technology prices to the point where distributed generation becomes accessible to the masses and not just Tesla-driving elites. Distributed generation is the future and has an important role to play even today–but change is measured in MW not kW. The Department of the Interior is working now to make this change a reality.

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Dean Chuang is a Policy Fellow in AEL’s New Energy Leaders Project and will be a regular contributor to the website. The views expressed are those of the author and do not necessarily reflect the position of AEL.

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.”

While this critique is correct, ultimately it doesn’t really matter whether or not the WTO rules in favor of America. The whole exercise helps to focus attention on the “new Sputnik” narrative that appears to be gaining momentum.

In a recent speech, President Obama carefully positions China as a modern equivalent of the Soviet Union before riffing on the Sputnik theme and evokes the Cold War era space race:

“In 1957… the Soviet Union beat us into space by launching a satellite known as Sputnik. And that was a wake-up call that caused the United States to boost our investment in innovation and education – particularly in math and science. And as a result, once we put our minds to it, once we got focused, once we got unified, not only did we surpass the Soviets, we developed new American technologies, industries, and jobs.

So 50 years later, our generation’s Sputnik moment is back. This is our moment. If the recession has taught us anything, it’s that we cannot go back to an economy that’s driven by too much spending, too much borrowing, running up credit cards, taking out a lot of home equity loans, paper profits that are built on financial speculation. We’ve got to rebuild on a new and stronger foundation for economic growth.”

High profile administration officials have reiterated this sentiment. Time and time again, Nobel Laureate and Secretary of Energy Steven Chu speaks of the new “Sputnik moment.” Most recently, the President’s chief advisor on science and technology John Holdren discussed the theme after the passage of the America COMPETES Act.

The WTO complaint against China could create impetus for investment-centered energy legislation in the next Congress. Given that deficit reduction and austerity measures are a key priority of the Republican majority in the House of Representatives, large public investments in clean technology innovation and deployment will require strong public support to pass the House. The US-China clean technology trade dispute is a useful leverage point for proponents of this agenda. In the current political landscape it forms the foundation of a case for fighting fire with fire, or rather, investments with investments.

As Green-Weiskel and Gerhardt suggest at Grist, “If the U.S. wants to get serious about renewable energy, it should ramp up its own subsidies for clean technology, not quibble over China’s.” Given that China-based companies now dominate the production of wind turbines and solar panels—they were on track to make 39 per cent of the former and 43 per cent of the latter sold worldwide in 2010—perhaps the US would be best served by investing in cleantech innovation.

The United States has a proven track record with technology innovation. With strategic public investments it is the best candidate of any nation to produce the next wave of clean technology breakthroughs. This thinking underpins the joint Breakthrough Institute, Brookings Institution and American Enterprise Institute report Post Partisan Power, which sets out what an innovation-based climate and energy policy would look like.

Post Partisan Power recommends increasing federal investment in energy innovation from US$4 billion to $25 billion each year with the aim of making clean energy cheap. A four-part reform framework to empower America’s energy innovation system would accompany increased investment.

1. Invest in energy science and education
2. Overhaul the energy innovation system
3. Reform energy subsidies and use military procurement and competitive deployment to drive innovation and price declines
4. Internalise the cost of energy modernisation and ensure investments do not add to the national debt.

The passage of legislation that would increase public investments to $25 billion annually is a heavy lift. This is where the administration’s support for the WTO challenge is helpful. Democratic and Republican representatives can present China’s clean energy subsidies as a clear rationale for the need to invest and reform the American energy innovation system.

In 2011, we will see whether President Obama wins enough bipartisan support to turn the “new Sputnik” narrative into an opportunity for a national economic renewal. If successful, Obama and the US Congress will turn the latest trade dispute with China into an economic, environmental, and energy agenda that is good for America and the world.

See More:

A Profile of China’s Involvement in the U.S Wind Energy Industry

Foreign Affairs: How to Really Win the Clean-Energy Race

The Rise of China’s Green Mercantilism

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Leigh is a former Breakthrough Generation Fellow.  You can follow him at his blog “The Real Ewbank“.