Throwing the Race for Green Energy

In a Miller-McCune Q&A, the co-author of the 'Rising Tigers, Sleeping Giant' report addresses the United States' stumbling response to green energy.
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A few years ago, the news was that China was adding two new coal plants a week to its energy grid. Last year the narrative shifted: China was erecting wind turbines at the rate of one turbine a week.

In 2010, yet another narrative is at work: China, Japan and South Korea are pouring lots of money into research and development of green technologies (not that China has abandoned coal, which provides about 80 percent of its electricity). Because of these strategic investments, China is positioned to emerge as a global green tech leader, gaining first-mover advantage and diminishing the United States' chances of capitalizing on green manufacturing jobs and the fruits of technological innovation.

Among those who have addressed this concern is Teryn Norris, one of the authors of a paper titled "Rising Tigers, Sleeping Giant" released late last year by the Breakthrough Institute and the Information Technology and Innovation Foundation. The authors conclude that the Chinese, Japanese and Korean governments will spend $509 billion on developing green energy from 2009 to 2013. The U.S. government will invest $172 billion over that same period — if the American Clean Energy and Security Act is fully implemented.

Increasingly, proponents of more aggressive U.S. funding for green tech are framing the issue in competitive terms, some referring to it as the "Earth Race." With the topic getting broad coverage, including articles in The New York Times, the Guardian and Newsweek, and think tanks like the Center for American Progress weighing in, Miller-McCune asked Norris directly about his findings.

Teryn Norris is an energy policy analyst and former project director at the Breakthrough Institute. As director of Americans for Energy Leadership, he has developed and advanced clean energy policy at the federal and state levels. He co-authored the National Energy Education Act proposal, which helped create the Obama administration's RE-ENERGYSE initiative. His writing has appeared in several publications, including the Harvard Law & Policy Review and Yale Environment 360. Currently he is a public policy major at Stanford University.

Miller-McCune.com: In " Rising Tigers, Sleeping Giant" you make the case that Asian countries, notably China, are out-investing the United States by a margin of 3 to 1 in green tech and attracting much of the future private investment in the field. Can you tell me how you and your co-authors came to that conclusion?

Teryn Norris: We started this project in the summer of 2009. What was happening at that point was a lot of reports were coming out about how heavily China was moving into this sector — particularly with the major stimulus package that it was using to react to the global recession. This was also taking place in South Korea and Japan. We saw that these countries are making a very concerted effort to try to gain market share as quickly as possible. One of their main strategies to accomplish this is through massive investment in technology and deployment. So we looked at the numbers compared to what the United States is investing in the sector and would be invested if the American Clean Energy and Security Act were actually implemented ... and we realized that they were going to massively out-invest us. They're already out-producing us in virtually all of these technologies, even if the act passes, so they're setting themselves up to dominate this industry over the next couple of decades.

We thought this was a very important issue to highlight for the country because this is one of the most important economic growth sectors. It's critical for allowing the U.S. to get out of the recession but also for building a new foundation for growth. It's an opportunity to have great, good-paying jobs in the next decade and boost our exports abroad and correct a lot of the trade imbalances that contributed to the global financial crisis.

M-M: You frame much of your discussion in terms of the importance of first-mover advantage and innovation clusters. I understand that China has developed two green tech clusters, mainly oriented toward manufacturing. Is this a main concern?

TN: Absolutely. We've seen the case of the first-mover advantage in other industries. Part of what this depends on is these innovation clusters. We're [in] Silicon Valley. We can see how important just the spatial dimension of innovation is. There are many different aspects that contribute to the innovation process — and a lot of momentum involved in that process. Once those clusters are established, it increases the barrier to entry significantly. It makes it harder for other countries to compete.

South Korea, China and Japan are setting up these clusters. They're going to be interacting — not only in their own countries but across borders — in a way that's going to make it increasingly difficult for the United States to compete. That's exactly what they're trying to do. That's why they're moving so quickly and so heavily into these sectors.

M-M: But won't they be relying to a large extent on American research and development?

TN: Certainly the U.S. has a very strong innovation system. We're still the world's leader in science and technology. We have great clusters already — Silicon Valley, Boston around MIT and Harvard; Detroit could become a cluster for hybrid-electric vehicle manufacturing. The challenge is to move quickly and make the right public investments and leverage private investments that are going to be necessary to get these clusters established as quickly as possible.

A lot of people think that China is only doing the manufacturing and can't do the innovation. This has been historically true and certainly China's competitive advantage so far has been in low-wage manufacturing. But they are really trying to move much more into the research and development and innovation side of things.

This just came out after our report: They're launching 16 new research-and-development centers around the country and then coordinating those through a centralized renewable energy center at the federal level. If you also look at the amount of researchers, scientists and engineers that China is churning out, it's phenomenal. Somewhere around 50 percent of first university degrees in China are in science and engineering. That compares to around 30 percent in the United States.

The National Science Board came out with a pretty definitive report in January called Science and Engineering Indicators. They found that China, for example, increased its investments in general research and development by 20 percent annually between 1996 and 2007 compared to less than 6 percent annual growth in research and development for the United States during that same period. Asia's share of global research and development increased from 24 to 32 percent over that period. North America's share decreased from 40 to 35. So they are very much moving into more of an innovation-centered economy.

M-M: You write that the proposed cap-and-trade effort being considered by Congress is pretty much dead on arrival in terms of meeting the funding challenge.

TN: President Obama promised during the campaign a $150 billion federal investment in clean energy in 10 years. That was a really positive step in the right direction. I believe that the amount of investment in clean energy technology in the stimulus package was comparable to the amount of investment the U.S. government has made in the sector over the past 30 years. So it was very historic and the kind of model that we need if we're going to lead this sector. But that plan is only for two years; so after the two years, all the investments are going to fall off the cliff.

The president, moving on to some other priorities, basically handed over the energy and climate agenda to an alliance of organizations called the U.S. Climate Action Partnership, or USCAP. It's a coalition of the largest green groups in the country. They came together to develop cap-and-trade legislation that they wanted to move forward with in 2009. The deal that they struck became the basis for the Waxman-Markley Clean Energy and Security Act. The problem is that that bill is far too weak to actually regain U.S. dominance in the sector for a number of reasons.

The first is the green groups have made it a priority to set some kind of binding cap on carbon emissions in the United States that ratchets down emissions by approximately 80 percent by 2050. The problem is that industry doesn't want to face the cost that that would impose and policymakers don't want them to face those costs, and they don't want consumers' prices to increase. So any policymaker is going to figure out how to contain the costs of this legislation.

The way they do it in this bill is through massive use of international and domestic carbon offsets, which are pretty cheap. So what you end up with — all the analysis shows — you'd end up with a price on carbon in the first 10 or 15 years in the range of $15 to $25 per ton of carbon dioxide. That's a very low price and not one that would provide a strong incentive to get American companies to invest in clean technology and innovation.

What you could do is take somewhere between 50 to 100 percent of the revenues generated from the [cap-and-trade] auction and directly invest it in clean energy technology development and deployment. Unfortunately, that's not what this bill does. It actually gives away the vast majority of those carbon allowances and only allocates a very small portion to clean energy research. What you end up with is about $1 to $1.5 billion a year coming out of this bill. Current federal energy investments per year are around $4 billion, so you get nowhere near close to what the majority of energy scientists are saying is necessary, which is more on the scale of $15 to $30 billion for research and development, and another $35 to $50 billion for deployment for a total annual investment of $50 to $80 billion.

Unfortunately, none of the green groups have prioritized these investments to spur this industry. It looks like cap and trade most likely will not advance in the Senate, and it's very unclear where we're going to go from here.

M-M: If you were given carte blanche for a day to develop policy, what would you do?

TN: First, I would consider how the U.S. could lead this industry, which is going to be one of the largest industries in the coming decades and is really critical to having good-paying American jobs and to maintaining our position in the world. The second is how do we make clean energy cheap, because that ultimately is the single greatest obstacle to transitioning to a clean energy economy in the U.S. and around the world.

We've got to drive down the price of these technologies as quickly as possible if we're going to get the world to start using them.

We can look to past models. The U.S. government has been very effective in driving down the price of technologies in the past. For example, starting in the late 1950s, the Department of Defense decided it needed microchips for ballistic missiles and for NASA and other purposes, so they started buying so many microchips that the price fell from a thousand dollars a chip to $20 a chip over the course of about five to seven years. That's the kind of learning curve we could achieve if we really focused on it.

Driving down the price will require a comprehensive innovation strategy that addresses every single stage of the technology innovation pipeline starting with basic R&D to applied R&D to demonstration projects to directly deploying them. There are many ways to do that — direct procurement at the federal level, incentives for deployment, even the use of renewable portfolio standards and other mechanisms.

We're going to need to leverage private investment as much as possible because we want this to become commercialized. The question is, how do we fund that kind of investment — ideally through some kind of modest price on carbon, and if we can get that, it's all the better. One way to get that would be the Cantwell-Collins [carbon auction] proposal in the Senate right now, if the portion of allowances for clean-tech was significantly greater.

M-M: The mood of the country doesn't seem in line with any big new expenditure of funds in any field.

TN: If cap and trade collapses, we've got to find another source. In the '90s, when we decided it was a national priority to address cancer, our policymakers figured out how to pay for it. That's the way we've got to approach this.

And the U.S. can't do this all alone. We need to be collaborating with other countries on technology development, including China. We need to realize we're never going to get China, India and other developing countries to commit to binding targets on carbon emissions. In fact, China just said [recently] that it's not ready to accept any binding emissions.

The whole UNFCCC approach [on climate change and limiting carbon emissions] is not working. We've got to shift to another strategy that is based on developing the technologies as quickly as possible and driving down the price. What we need is for the negotiators to approach this from the mindset of an engineer rather than an accountant. An engineer's perspective is to look at the specific technological hurdles to making this transition and achieving those emissions targets, and [asking] what financial and human resources do we need to leverage to overcome those technological hurdles.

M-M: So you're saying take more of a pragmatic approach — just get the technology out there.

TN: Yeah, sure. Ultimately, it's got to come down to pragmatism. Also, it has to be grounded in reality. The reality is that for developing countries, their priority is economic growth, and they're very concerned about the impact of capping their emissions when they're in the biggest stage of their industrial development. We've got to focus on technology innovation.

M-M: Some people say that having China or Japan or South Korea making the majority of solar panels in the world is not particularly surprising, given these countries have already captured the manufacturing share in many industries. Is it a lot different for the U.S. to import solar panels along with TVs and cell phones?

TN: It's actually one of the most critical questions the United States faces now. We have 10 percent unemployment, and we've been losing our manufacturing base for decades now. This really is a serious question — what are the jobs of the future in the United States, and how are we going to secure those jobs. Can we really afford to give up all manufacturing to other countries, and if so what exactly are Americans going to do other than, say, work in restaurants or cut hair? Certainly a lot of that manufacturing is going to take place abroad because of the wage deferential. But we can't afford to cede all that manufacturing. There are many forms of high-tech manufacturing that require advanced skills that we can move into.

For example, Sen. [Sherrod] Brown has been very favorable on a program called IMPACT by the Apollo Alliance that is focused on promoting energy manufacturing, especially in Midwestern states. We've got to figure out how to get the high-tech manufacturing sector.

M-M: Do you have any estimates of the number of manufacturing jobs that could be created in the U.S. related to government investment in such?

TN: There have been a number of job estimates. These are very, very tricky estimates to do and depend on a lot of different factors. And there have been some questionable reports put out by some on the advocacy side, so in terms of the exact numbers, it's challenging. Apollo Alliance has done a lot of good work on those estimates. They just came out with an analysis on the jobs that IMPACT would create in Ohio. According to the analysis, between that 41,000 and 52,000 new jobs would be created in Ohio. What we certainly do know is that for a dollar invested in fossil fuels versus a dollar in clean energy, you're going to get more jobs.

M-M: What do you say to people who counter that innovators will shy away from R&D in China because of a concern about intellectual property rights?

TN: Yeah. For example, advanced manufacturers that might want to manufacture advanced solar panels might be concerned that if they locate their factory in China, that the workers in that factory might try to reverse engineer the technology. So intellectual property protection is critical, but there are many systems that work very well. Taiwan is a great example. Taiwan produces a huge percentage of the world's electronics, and they do it legitimately. That is still a significant concern in China and one that they'll have to address if they do want to move into this area significantly. Certainly that's going to be a longer-term challenge for China to confront.

China isn't exactly known for its university system, research labs or for fostering cutting-edge technology. It seems for the Chinese to gear up in these areas, we're looking at a period of time. That's why the U.S. is still the world leader in science and technology. We have the tools in our hands; we just have to make the investments today to make sure we're focusing those researchers on clean tech.

M-M: Does defining green tech development as a race ignore or limit the idea of partnerships in developing technology across borders?

TN: I actually think that healthy, peaceful international competition in this sector is one of the best ways to promote the development of these technologies and their deployment around the world.

We glorify peaceful competition in the private sector, and we all recognize how that competition contributes to innovation in a very productive way. So why would we say that competition between countries in this sector is a bad thing? Certainly, to the extent that we can get China and United States and other countries investing and focusing on this sector because they're concerned about their economic competitiveness — that's only going to spur these sectors even more. With that said, there is a really critical role here for partnerships in development and deployment, and we should seize those as well. I don't see why we can't have both.

M-M: Is there anything you'd like to add to this discussion?

TN: There is another perspective. This is really a global human development imperative. This is an important industry for the U.S. to lead, to address climate change and avoid a potentially catastrophic event. But we're already facing a massive global catastrophe as we speak. Billions of people are living in destitute poverty. A lot of that is related to the fact that those people don't have access to energy, to electricity. Bill Gates said it in a speech [recently]. He said if he were to choose to drive down the price of any technology to address poverty, it would by far be energy. We have 1.7 billion people who have no access to electricity in the world. [Two and a half] to 3 billion people rely on primitive biomass, like dung and crop waste, to meet their cooking and heating needs. This is a human crisis, and we've got to figure out a way to make clean energy cheap if we want to address global poverty in this century.

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