US-China Energy Trade Dispute Supports ‘New Sputnik’ Moment

On 01.05.11, In Opinion, By Staff

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

On 12.29.10, In News, By Natalie Relich

The Pew Center on Global Climate Change released a brief in April discussing economic and job growth opportunities in clean energy markets. According to the report, global investment in renewable energy more than doubled from 2004-2009. From 2008-2009, China was the only country — out of the U.S, EU, Brazil, and India — whose investment increased. China attracted more investment in clean energy technologies ($34.6 billion) than the United States ($18.6 billion) for the first time in 2009. This first movers advantage could have large implications for future competitiveness:

“History shows that it matters where industries are first established, and countries can use policy to foster domestic “lead markets” for particular industries, giving them the foothold that can lead to significant growth in global market share. In the United States, well-crafted climate and clean energy policy can give nascent clean energy industries such a foothold by creating domestic demand and spurring investment and innovation.”

With China and the EU leading the way in clean energy investment, the U.S has already fallen behind and is losing opportunities to get a “foothold” in industries such as wind energy.  As we previously reported, for two quarters running Ernst and Young’s quarterly “Renewable Energy country attractiveness indices” have listed China as the most attractive destination for clean energy investments over the United States.  As part of the indices, the U.S. ranked third behind the China and the U.K. in both offshore and onshore wind investment attractiveness. Recognizing the rapid expansion of the world wind energy market — “China Wind Power Outlook 2010” asserts that over 100 countries will have installed wind power by the end of 2009 — China has moved to the forefront of the industry and is looking to expand its global market share.  World total installed wind capacity has steadily increased since 2001 and China has lead the way with a 2009 growth rate of 113%, says the 2009 World Wind Energy Report.

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

On 12.27.10, In Notes, By Teryn Norris

By Teryn Norris and Kevin Hsu

In a new article for Foreign Affairs, “Globalizing the Energy Revolution: How to Really Win the Clean-Energy Race” (subscript. req’d), Michael Levi and colleagues at the Council on Foreign Relations argue that the world is “woefully underspending on clean-energy innovation” and needs to pursue a new international strategy:

“Clean energy is almost always more expensive than energy from fossil fuels, and often by a big margin… Yet the world is woefully underspending on clean-energy innovation… the IEA estimated that the world would need to spend an average of $51-$100 billion each year to support the research, development, and demonstration of clean-energy technologies. Current public spending is a mere $10 billion annually… The shortfall is staggering.”

What should be done?  First, the developed world needs to ramp up its efforts. “Major scientific advances are still most likely to occur in the developed world, alongside much of the work necessary to commercialize clean-energy technologies and the capital required to support those efforts,” they write.  U.S. strategy should include two basic element: first, incentives to create a larger domestic market to drive both deployment and indirect innovation; and second, direct government support for clean energy innovation through research, development, and demonstration.

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Building the U.S. Cleantech Manufacturing Consensus

On 12.13.10, In Opinion, By Timothy Krueger

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.

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Green Provisions Added to Bipartisan Tax Package

On 12.13.10, In News, By Nishant Shah

The contentious tax deal between President Obama and House Majority Leader Mitch McConnell (R-KY) got a little more interesting last week.  On Thursday evening, Senate Majority Leader Harry Reid (D-NV) revealed a bill that adds green energy tax provisions to the deal.  As Alexander Bolton writes in The Hill,

“To win over wavering liberals, Reid has added an ethanol tax credit, which Sen. Tom Harkin (D-IA) supports, and an extension of the Section 1603 cash grant program for the renewable energy industry, which Sen. Sherrod Brown (D-OH) favors.”

The White House has welcomed the news, as has Senator John McCain (R-AZ), who despite having “serious concerns” about the package, plans on supporting it.  Lon Huber and Alex Christensen wrote recently on the importance of extending the Section 1603 grant program, and renewable energy trade groups have strongly supported the measure.  Bolton goes on to note,

“The package includes other green-energy incentives that could win support among House liberals, who are disappointed the Senate failed to take up a comprehensive energy reform and climate bill this year. They include tax credits for biodiesel and renewable diesel; energy-efficient homes; alternative fuels; and a 30-percent investment tax credit for alternative vehicle refueling properties.”

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The Importance of Extending the 1603 Treasury Grant Program

On 12.09.10, In Opinion, By Lon Huber

Written by Lon Huber with contributions from Alex Christensen

Anyone working in renewable energy will tell you that when it comes to getting a project off the ground, financing is key. Treasury Grant 1603, found in the American Recovery and Reinvestment Act, was designed to address the front loaded costs to entrepreneurs of installing renewable energy. Otherwise known as the Treasury cash grant, this program has been a lifeline for an industry that has had to depend on a complicated tax code and the likes of Lehmann Brothers and AIG for financing. At midnight on December 31st of this year, the 1603 Treasury Grant Program is set to expire, and unless Congress renews it, the young renewable energy industries will be forced to compete in a tax system designed to the advantage of fossil fuels.

Without Treasury Grant 1603 the clean energy industry would not be enjoying the success it is today.  To effectively compete against a fossil fuel industry that is heavily subsidized by the federal government, the renewable energy industry has needed federal help to level the playing field.

Unfortunately, the lack of a strong national energy policy has required the renewable energy industry to become cost effective through tax credits. The problem with trying to stimulate an emerging industry with tax credits is that it fails to eliminate two central problems facing small businesses, large up front costs and lower initial profits meaning lower initial tax credits. Many new clean energy businesses did not have enough income to fully utilize these tax credits, forcing them to turn to large financial institutions like Lehmann Brothers for assistance in realizing the advantages of such credits. After the financial meltdown and the resulting lack of finance, it became next to impossible to take advantage of the tax credits in the same way.

The Treasury cash grant program provided a lifeline by transitioning the unfavorable tax credits to upfront payments not tied to a particular company’s income. This was huge help to renewable energy developers and did not cost taxpayers any additional money – since it merely shifted the tax credit to an upfront subsidy.

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PISA Confirms: U.S. Education in Need of Moonshot

On 12.07.10, In News, By Daniel Goldfarb

In conjunction with today’s “Innovation for Education: A Digital Town Hall” hosted by ITIF, PBS, and the Aspen Institute, the Organization for Economic Cooperation and Development released findings for 2009’s Program for International Student Assessment (PISA). The results are hardly shocking to anyone who has followed the decline of American STEM education or competitiveness policy.  Compared to the 65 countries in the study the United States ranks 14th in reading, 17th in science and a below-average 25th in math.  The best educated students – those in Korea, Finland, Shanghai-China, and Hong Kon-China – by age 15 are a year ahead of their American counterparts in math and science.

The report’s results come at a time of heightened attention to America’s competitive posture. Recently Secretary of Energy Chu and President Obama have warned of a “Sputnik moment”, a parallel which was again invoked by Secretary of Education Duncan.  Just as Sputnik symbolized the U.S.S.R.’s lead in the space race, the Administration is looking to frame China’s economic and education triumphs as calls to action. During the town hall, Secretary Duncan framed the results as such a challenge to America, “We have to see this as a wake-up call,” that, “maintaining [the] status quo is effectively losing ground.”

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Rare Earth Metals: Hidden Hurdle in the Clean Energy Race

On 12.07.10, In Opinion, By Noah Fisher

Noah Rare EarthChina caused a stir in late October by expanding an existing embargo on rare earth metals to include the U.S. and other western nations. Although an infrequently discussed issue when it comes to energy policy, China’s monopoly of the rare earth metal production provides them yet another advantage in the clean energy race. Rare earth metals are vital to the development of clean energy technologies and therefore the future of clean energy in the U.S. As a result, it is imperative that future domestic energy policies include provisions for more secure and reliable acquisition of these metals.

Rare earth metals are actually not particularly “rare”, and consist of 17 minerals, many of which are used in clean energy technologies. Neodymium, a highly magnetic substance, is found in direct drive wind turbines, and metals such as gallium and indium are vital for photovoltaic panels.

China dominates the rare earth market by producing roughly 95 percent of the global supply, a monopoly which could be leveraged to provide Chinese clean-tech companies with considerable advantages. However, global rare earth metal resources are not as sharply skewed in favor of China.  According to the U.S. Geological Survey, China leads the world with 36 percent of global resources, and the U.S. follows with 13 percent. This vast discrepancy between global reserves and production, due mainly to the high fiscal and environmental costs of mining, fueled increasing concern amongst domestic and foreign leaders during the brief embargo.

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Why China Invests in Clean Energy

On 12.02.10, In Opinion, By Heming Yip

China’s impressive growth in clean energy industries has been backed by strong policies put in place by its leadership to support low carbon energy. Meanwhile, US progress on that front has been in paralysis. Why has the Chinese government been more willing to regulate, tax, subsidize, set targets—in other words, all the policies vital to global leadership in energy—than our government? What compels policymakers to legislate effective and sound energy policies? Looking across the Pacific might provide some insights.

Of course, China and the US have fundamentally different systems of government: each country’s leaders are responsive towards different constituencies; the dynamics between the central and local governments are drastically different; setting aggressive targets and goals is also not the same as actual implementation and enforcement. The inherent structural differences in political systems and why they matter for each country’s energy policy will be the subject of another post. The central question now, though, is what are the practical reasons the Chinese leadership is more willing to act and why the US leadership is falling behind.

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China Builds Cleantech Lead in 4th Quarter

On 12.01.10, In Events, By Daniel Goldfarb

Screen shot 2010-12-01 at 5.09.58 PMJust days after Secretary Chu’s declaration that America is facing a “Sputnik moment”, more proof continues to surface of China’s widening lead in the clean energy race.  Ernst and Young’s quarterly “country attractiveness” index has confirmed that not only is China still the most attractive destination for clean tech investment, as we previously reported it became for the first time last quarter, its lead is growing.

The warnings of Secretary Chu and the recommendations of the President’s Council of Advisors on Science and Technology (PCAST) take on new urgency in light of the report’s findings,”A new world is emerging in the clean energy sector with China now the clear leader in the global renewables market”.  At the same time the LA Times is reporting that clean tech investment in the U.S. fell 45% in the fourth quarter.

It is increasingly becoming clear that what is at stake is jobs.  Ernst and Young recognize an increasing disparity in the job creation in those countries that are “in the fast lane” and those that are “hesitant”. The focus in China and other emerging countries on their clean energy industries is already bearing fruit, “One striking feature of the post-credit-crunch world is the difference between the pedestrian pace of recovery in the West and the rapid turnaround in the new BRIC (Brazil, Russia, India, China)”.

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