On June 19th, the Assistant Commissioner of the Chinese National Energy Administration Yin Wu said at China’s 12th Five Year Plan (125) Energy Development Forum that China is about to have six big revolutions in its long-term strategic energy plan, and one of them is to shift its resource-dependent energy development model to a high technology and innovation-driven model. [1] To meet these growing energy needs, China has made great efforts in recent years to expand its renewable and clean energy capacity.
China’s strong determination and serious commitment to win the global clean energy technology race is impressive. According to the several reports, China is about to invest $440 to $660 billion in the next ten years. [2]
While the rest of the world is pulling ahead in the global race by large-scale public investment in clean energy technology, the United States is still groping in the dark to untie global warming’s “Gordian Knot” at the starting line through pollution regulations. It is time to take bold actions to solve the problems created by the regulation-centric approach, as an article in the Harvard Law and Policy Review put it. [3] The carbon pricing strategy alone will not guarantee the U.S. a promising clean technology future because it can neither close the price gap between emerging clean energy technologies and conventional alternatives, nor can it solve a variety of non-price-barrier problems in the clean energy technology sector.
From the table below, it is clear that carbon pricing is a dilemma itself because it is hard to make costly low-carbon clean energy as competitive as traditional dirty but cheap fossil fuels through a modest carbon price. According to a report of the Breakthrough Institute “Rising Tigers, Sleeping Giant”: [4]
“While it may help some lower-cost and more mature clean energy technologies (e.g., wind power) become more competitive with fossil fuels, it will do little for less mature and currently more expensive technologies such as solar energy or carbon capture and storage.”
Price Carbon Dioxide Must Reach to Make Clean Energy Cost-Competitive with Coal in the United States[5]
Source: Harvard Law and Policy Review
If a high price is imposed on carbon, there will be strong rejection from the general energy market in the name of economic development and people in general who are anxious about the energy price increase. Constant increases in carbon prices will only make people turn their faces away from the global warming issues and put the price at risk of a potential new low record due to political backlash.
Besides the price gap problem, “Rising Tigers, Sleeping Giant” also gave a detailed analysis on why carbon pricing alone does not solve the non-barrier problems specific to the adoption of emerging clean technologies.
“A high carbon price will not solve the problem of knowledge spillover and the long-term risks associated with large private investments in technology development and deployment. Nor will it facilitate the establishment of critical infrastructure, such as new transmission lines, grid upgrades, or storage for intermittent sources like wind and solar.”
Given each of these barriers, we conclude that carbon pricing strategy is not enough and large-scale public investment is the real key to boost the growing clean energy industry, regardless of carbon pricing. IEA’s Energy Technology Perspectives 2010 report also says that pricing carbon will not be the prime driver for this investment and another $46 trillion is needed to clean technology by 2050.
“We believe that a price on carbon is needed to send a strong signal to the market, but it’s unlikely this will be enough to transform our energy system,” said Peter Taylor, head of IEA’s Energy Technology Policy Division, “Other policies will be needed to support technology development and deployment.”
Large-scale and well-targeted public investment is the most effective way to overcome these key price and non-price barriers mentioned above, particularly to buy down the price of clean energy technology in absolute terms—not just for the United States, but the entire world.
Beyond providing a modest incentive for pollution reductions and low-carbon technology innovations, one of the most important roles a carbon price can play is providing constant revenue for public investment in clean energy technology. However, only $1.2 billion per year increase out of expected $80 billion cap and trade revenue is given to the clean energy sector in the Waxman Markey ACES bill, which is far from enough to embrace a real prosperous future of clean energy technology development and deployment. [6] And the new Kerry-Lieberman Act provides only similar scale or even weaker incentives.
As analyzed in “The Power to Compete”, a 2010 report published by the Breakthrough Institute and Americans for Energy Leadership, the American Power Act falls substantially short in each of the following clean energy competitiveness components: research and innovation; advanced manufacturing; and domestic market demand, as well as supporting investments in infrastructure, education and workforce development, and industry cluster formation.
“In research and innovation, the legislation would invest an order of magnitude less than the majority of energy experts recommend. In manufacturing, it would provide a modest expansion of existing programs, along with some targeted support for advanced vehicles and general manufacturing efficiency. Beyond a modest carbon price, APA would not provide robust and direct support for clean energy deployment and market creation besides carbon capture and storage, with largely insignificant results for renewable energy technology. Finally, it provides little support for clean energy industry cluster formation, clean energy workforce development, and infrastructure development.” [7]
All this evidence shows that the federal government significantly under-invests in the clean energy technology sector. As “The Power to Compete” suggests, if U.S. energy reform is to secure the nation’s leadership in this growing clean energy sector, the scale and scope of these provisions must be significantly improved in future legislative proposals. Unless generous and well-targeted incentives are provided, the United States will, sooner or later, lose the leadership position in a worldwide clean energy technology race. Teryn Norris, a senior advisor at the Breakthrough Institute, wrote in “The Collapse of Competitiveness Policy?” [8] ,“This kind of investment is not only a strategy for U.S. competitiveness and security, but also for long-term deficit reduction.” It is true that public investment in technology innovation is fundamentally different from other types of government spending, since the investments would create a risk-free environment for private investors and lead more domestic and foreign capitals to this sector, and therefore greater economic prosperity over the long-term.
As the Breakthrough Institute explains in one of its policy briefs:
“The public investment in clean energy is the cornerstone of an effective strategy for American energy transformation… it can make clean energy cheap and abundant; creates jobs and spurs economic growth… will put U.S. industries at the forefront of a burgeoning growth sector… will help restore America’s economic competitiveness… has always been a cornerstone strategy for American growth… strengthens our energy independence and can significantly reduce the cost of climate regulation.”[9]
In addition to all these benefits, a public investment approach gains the most public support of any alternative energy policy. According to a public opinion survey, the greatest public support went to a proposal to invest $300 billion over ten years to develop new, low-cost clean energy technologies and industries, eliminate dependence on foreign oil, create new jobs, and reduce US carbon emissions.[10]
While carbon pricing has polarized the U.S. energy and climate policy debate, the governments of some Asian nations are investing heavily to develop clean technology manufacturing and form innovation clusters. As a result the United States lags far behind its economic competitors in clean technology manufacturing. The United States relies on foreign-owned companies to manufacture the majority of its wind turbines, produces less than 10 percent of the world’s solar cells, and is losing ground on hybrid and electric vehicle technology and manufacturing.
China has become a leader in the clean energy sector not because the Chinese government put a price on carbon. According to Pew, China now leads the way with $34.6 billion invested last year across all investment types—nearly double the U.S. figure of $18.6 billion.[11] Instead of a single cap and trade regulation, public investments in China have led the way in driving down the price of solar and wind energy, and in developing better electricity storage technologies to enable electric vehicles and very-large-scale renewable energy for further development.
By 2020, clean energy will be one of the world’s largest industries, totaling as much as $2.3 trillion. As President Obama announced at the National Academy of Sciences annual meeting “The nation that leads the world in 21st century clean energy will be the nation that leads in the 21st century global economy”[12] Asia’s rising clean technology tigers, –China, Japan, and South Korea– have already passed the United States in the production of virtually all clean energy technologies and over the next five years will out-invest the U.S. three-to-one in these sectors.[13] Should this gap persist, the United States will be a long-term loser in this growing industry, regretting why it did not fully leverage its innovative capacity to regain economic leadership in the global clean energy race. The time to act is now.
[1] Six Changes in China’s Strategic Energy Plan (我国能源战略理念将发生六大转变)
http://www.nengyuan.net/201006/21-605820.html
[2] “Jumpstarting a Clean Energy Revolution with a National Institutes of Energy.” Third Way and Breakthrough Institute. 09/2009.
http://thebreakthrough.org/blog/Jumpstarting_Clean_Energy_Sept_09.pdf
[3] “The Emerging Climate Consensus: Global Warming Policy in a Post-Environmental World.” Ted Nordhaus, Michael Shellenberger, et al. Spring 2009.
http://thebreakthrough.org/blog/PDF/EmergingClimateConsensus.pdf
[4] Rising Tigers, Sleeping Giant.” Breakthrough Institute and Information Technology & Innovation Foundation. 11/2009.
[5] The figures are meant to be illustrative in the table since the calculation is done before 2008.
[6] “The Innovation Consensus: $15 Billion for Clean Energy R&D.” Jesse Jenkins. The Energy Collective. 10/2009. http://theenergycollective.com/TheEnergyCollective/50750
[7] http://leadenergy.org/publications/the-power-to-compete/
[8] “The Collapse of Competitiveness Policy?” Teryn Norris. The Huffington Post. 05/2010.http://www.huffingtonpost.com/teryn-norris/the-collapse-of-competiti_b_590173.html
[9] “Invest in New American Energy: Pathway to a Clean and Prosperous American Energy Economy”. Breakthrough Institute. 2009.
http://thebreakthrough.org/blog/BTI_Investment_Brief.pdf
[10] Will the Public Support Cap and Dividend? A Survey of Public Opinion Research on Carbon Prices and Rebate or Dividend Programs, January 2009.
<http://thebreakthrough.org/blog/Public_Support_Cap_and_Dividend.pdf>
[11] Pew: China overtakes U.S. in clean energy investment. http://cleantech.com/news/5731/pew-china-overtakes-us-clean-energy
[12] http://www.whitehouse.gov/the_press_office/Remarks-by-the-President-at-the-National-Academy-of-Sciences-Annual-Meeting/
[13] Rising Tigers, Sleeping Giant.” Breakthrough Institute and Information Technology & Innovation Foundation. 11/2009.
http://thebreakthrough.org/blog/Rising_Tigers_Summary.pdf
