America Risks Missing Out in Clean Technology

Even before the Great Recession, policymakers were commonly asking, "Where are the new jobs going to come from?" Now with U.S. unemployment at 10%, that question has taken on a new urgency. And today's Mr. McGuire-like advice is as succinct as it was in The Graduate in 1967: "Green." Everyone from President Barack Obama to mayors of small towns are proclaiming that green industry is the savior of the U.S. economy, bringing jobs to the unemployed, needed economic activity to distressed industrial regions, and an overdue shot in the arm to U.S. industrial competitiveness.

This is not necessarily a vain hope. Global private investment in renewable energy and energy-efficient technologies is estimated to reach $450 billion in 2012 and $600 billion in 2020. These are hefty numbers, and attracting even a modest share of that investment will produce hundreds of thousands of jobs.

Yet these hopes are likely to remain unfilled unless the U.S. embarks on a very different course. A joint study by the Information Technology & Innovation Foundation, which I direct, and the Breakthrough Institute finds that Asia's rising "clean-technology tigers"—China, Japan, and South Korea—have already passed the U.S. in the production of virtually all clean-energy technologies. The report, Rising Tigers, Sleeping Giant, also finds that between 2009 and 2013, the governments of these nations will out-invest the U.S. three-to-one in these sectors­, or $509 billion to $172 billion.

china's growing clout

In fact, Asia's clean-tech tigers are already on the cusp of establishing a "first-mover advantage." China is exporting the first wind turbines destined for use in an American wind farm, a project valued at $1.5 billion. All three Asian nations lead the U.S. in the deployment of new nuclear power plants. The U.S. produces less than 10% of the world's solar cells, is losing ground on hybrid and electric vehicle technology and manufacturing, and lags far behind in clean-technology manufacturing.

While the U.S. historically has attracted the bulk of available private investment in clean energy, capital flows increasingly are being steered towards Asia's clean-tech tigers, and these nations' greater public investments are likely to attract much of the future private investment in clean energy technologies. From 2000 to 2008, the U.S. received $52 billion in private capital for renewable energy technologies, while China got $41 billion. China's share of global clean-tech investment is rising each year, however, and surpassed the U.S. for the first time in 2008.

This competitive edge hasn't emerged out of some kind of Ricardian comparative advantage that Asia possesses in green energy. Rather, it arose from conscious green innovation policies. As a recent study by Deutsche Bank (DB) states, "Generous and well-targeted [clean energy] incentives" in China and Japan will create a low-risk environment for investors and stimulate high levels of private investment in clean energy. These nations rely on a "comprehensive and integrated government plan, supported by strong incentives." In contrast, the investment firm calls the U.S. a "moderate-risk" country since it relies on "a more volatile market incentive approach and has suffered from a start-stop approach in some areas."

Korea's "Green New Deal"

The largest investments are being made by China, which is planning direct investments totaling at least $440 billion over 10 years. The money is expected to go primarily into research on low-carbon power, and is in addition to the $177 billion in stimulus funds China has already invested in clean technology, including rail and public transit. South Korea recently announced it will invest $46 billion over five years in clean-technology sectors—more than 1% of the nation's gross domestic product—with the explicit goal of increasing Korean companies' share of the global clean-tech export market by 8 percentage points. This "Green New Deal" will focus on solar, LED lighting, nuclear, and hybrid-car technologies. Japan will provide $33 billion in targeted deployment incentives for a number of clean-energy technologies, including solar, hybrid-electric vehicles, and energy-efficiency technologies, and plans to deploy an additional $30 billion over the next five years to implement technological roadmaps that focus on achieving price and performance improvements in a suite of low-carbon technologies.

While some U.S. firms will benefit from this upsurge in Asian spending, overwhelmingly the jobs, tax revenues, and other benefits will accrue to Asia's clean-tech tigers. Large, direct, and sustained public investments in research and development, clean-energy manufacturing capacity, the deployment of clean-energy technologies, and the establishment of enabling infrastructure will allow these Asian nations to capture economies of scale, learning-by-doing, and innovation advantages ahead of the U.S., where public investments are smaller, less direct, and less targeted.

Current U.S. energy and climate policies focus on stimulating domestic demand primarily through indirect demand-side incentives and regulations. Should these policies succeed in creating demand without providing robust support for U.S. clean-energy technology manufacturing and innovation, the U.S. will rely on foreign manufactured clean-technology products to supply the lion's share of demand. This would jeopardize America's economic recovery and its long-term competitiveness while making it even more difficult to reduce the massive trade deficit.

inadequate legislation

Proposed U.S. climate and energy legislation, as currently formulated, unfortunately won't close the clean-tech investment gap. For instance, the American Clean Energy & Security Act, passed by the U.S. House of Representatives in 2009, includes too few proactive policy initiatives and allocates relatively little funding to support R&D, commercialization and production of clean-energy technologies. It would be better, both for the economy and the environment, to set a lower "price" on carbon but devote a larger share to green innovation.

If the U.S. hopes to compete for new clean-energy industries, it must close the widening gap between public investments and provide more robust support for U.S. clean-tech research and innovation, manufacturing, and domestic market demand. Small, indirect, and uncoordinated incentives won't be enough to out-do China, Japan, and South Korea. To achieve economic leadership in the global clean-energy industry and gain the jobs associated with them, U.S. energy policy must include large, direct, and coordinated investments in clean-technology R&D, manufacturing, deployment, and infrastructure.

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