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China Should Play by the Rules, and America Should Play to Win

We are consistently losing both manufacturing and deployment leadership in clean-energy technologies that were pioneered and developed in the United States. That's simply not worth debating -- the interesting question is what should we do about it?
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There's no doubt the U.S. is losing the clean-energy race. In 2010 our level of investment in clean energy fell behind both China and Germany, with a growth rate that is 11th among the industrial nations. Last year, China gave $30 billion to its largest solar manufacturers, 20 times the amount that the United States gave, according to Jonathan Silver, former executive director of the U.S. Energy Department's loan program. As a result, in 2010 China sold more than half of the world's solar panels, and is now gearing up a similar effort to dominate global wind markets.

We are consistently losing both manufacturing and deployment leadership in clean-energy technologies that were pioneered and developed in the United States. That's simply not worth debating -- the interesting question is what should we do about it?

There are, broadly, four approaches we can take:

Give Up

That's the approach favored by the Koch brothers (who don't want competition for fossil fuels), coal companies, and much of the Republican leadership Congress, including Representative Cliff Stearns, who is leading the witch-hunt into "Who Lost Solyndra?" When he was attacked by President Obama for saying the U.S. should not try to compete in manufacturing solar and wind power, Stearns responded that his position was based on the fact that "these other nations have cheaper labor, no environmental or safety standards, less regulation, and easy access to raw materials...." False. Of the world's ten largest wind manufacturers, five are based in countries with higher wages and less access to raw materials than the U.S.; one is American. The main raw material in a solar cell, polycrystalline silicon, is made in the U.S. and exported to China. None of Stearns's stated "advantages" are a significant part of why China -- and Germany -- are outpacing the U.S.

Invent Only

Represented by the Breakthrough Institute, and Republicans like Alaska's Lisa Murkowski, along with some high tech advocates, this school argues that as long as the U.S. keeps getting more patents and inventing more new technologies, we'll make the big bucks -- who cares where the stuff is made or deployed? The answer is that jobs don't flow from invention alone -- a point made most eloquently 18 months ago by Intel's Andy Grove

They flow from the combination of initial innovation, market creation, manufacturing , deployment, and perfection. It's the total package that drives the jobs -- and the competitive edge. The United States was able to dominate auto engineering in the 20th century not because we invented the basic technologies -- they were mostly European -- but because we built the roads, created the assembly line, and developed a mass market (when Henry Ford realized his workers could become his customers). The key "perfecting" technology contributed by the U.S. -- Kettering's self-starter -- was not invented until 1915, after American dominance in autos was already well-established.

A variant approach is to concede that America needs big markets for renewables, and that jobs and leadership will flow to the country with the largest volume of clean energy, but to argue that manufacturing doesn't really matter. This is the approach taken by some who argue that while the U.S. ought to have a renewable-energy standard, efforts like the Department of Energy's loan guarantee program to bring manufacturing back to the U.S. are foolish, because what matters is how much clean energy we buy, not how much we make. This has been the response of many solar energy development firms to concern over the tactics used by the Chinese to compete in the solar manufacturing arena -- if the Chinese want to sell solar panels cheaply, even at a loss, that builds U.S. markets and helps create jobs installing solar power.

Enforce the Rules

Last week a group of U.S. solar manufacturers filed unfair trade complaints against China, arguing that Chinese companies were receiving massive subsidies that allowed them to dump their solar cells in U.S. markets at economically unrealistic prices. The complaint, joined by Oregon senators Ron Wyden and Jeff Merkley, paralleled an early U.S. government complaint against similar Chinese subsidies for wind turbines.

So what are the rules? Are the Chinese breaking them? How important is it if they are?

Grossly oversimplifying, under world trade rules, a country can subsidize a particular industry to help it grow. What it cannot do is subsidize exports -- it has to subsidize the entire industry. And companies cannot export products below-cost to gain control of a market.

Initial Chinese solar and wind subsidies were not accompanied by any massive growth in domestic sales of renewables in China. China was manufacturing wind and solar, exporting them, and building coal plants domestically. And most economists believe that by keeping its currency artificially cheap the Chinese also subsidized all of their exports, not just clean energy. So those complaining about artificially cheap Chinese solar and wind exports start off with some pretty potent arguments. And since the cost of manufacturing any new technology comes down dramatically with scale, if the Chinese built up the scale of their wind and solar industries with unfair subsidies, that's a big deal, one that puts U.S. manufacturers at a disadvantage now and into the future.

But, having said that, it's only fair to point out that the Chinese recently took two important steps to create huge domestic markets for clean energy. They established a $0.075/kwh feed-in tarrif for wind several years ago, and have tacked on a $0.15/kwh price for solar. That is much more than the U.S. has done to encourage domestic deployment of solar and wind products.

So we ought to make China play by the rules, but they may be starting to do so anyway.

Win the Game -- With Manufacturing

If all we do is go after the Chinese when they cheat, we'll still lose. The way you win a game is by setting out to win it. And if the game pits countries against other countries, Team U.S.A has to play. That's the final perspective on the clean energy race, and its strongest advocates are major corporate leaders like -- unsurprisingly, perhaps -- Andy Grove -- and more surprisingly Andrew Liveris, the CEO of Dow Chemical. These leaders see our loss of the clean-energy race as emblematic of a broader national failure -- the inability to see that manufacturing, whether for established products like cars or new ones like solar cells -- is essential for economic vitality.

Manufacturing sits in the middle of a supply chain. You must invent wind-turbines before you can manufacture them, and you must have a market downstream before you can sell them. But if national policy makes this crucial middle link of manufacturing uncompetitive, then the whole supply chain will eventually shrink.

We need an American commitment to become first in manufacturing clean-energy technologies. Upstream, that requires that we invest in programs like the Department of Energy's Advanced Research Projects Agency-Energy, so that we will have the best new technology. Downstream, it requires that clean energy developers have fair access to utility markets and customers, as well as reliable access to capital to build their turbines and solar farms. But it will also require a national manufacturing innovation policy -- one that enables the U.S. to deploy the new ideas it creates, manufacture the products its markets demand, and do so on a level playing field with the rest of the world.

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