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Rethinking The Clean Energy “Race”

October 26, 2011

For the last five years, the Clean Air Task Force has been working with companies in China and the United States on joint ventures to develop and market clean energy technologies in both countries and around the world. Based on that experience, we believe that the metaphor of a zero-sum China-US race on clean energy is misplaced and drives us to the wrong conclusions. Here are some perspectives that may make for a more productive discussion:

China is a critical ally in moving forward low-carbon energy development. CATF is working in China not only because it is the world’s largest carbon-emitting country, set to double its emissions by 2050, but also because China is a can’t-miss place to demonstrate new clean technologies at scale. Why?

First, China actually has growing electricity demand and needs to build a lot of new capacity; it is far cheaper to include low-carbon features into new designs than to retrofit them. In contrast, with stagnant energy demand in the US, the full cost of new clean technologies here must compete against low marginal costs of existing plants.

Second, Chinese companies can build first-of-a-kind projects more quickly than in the US, due to substantial infrastructure construction capability that has been lost in recent years in this country.

Third, Chinese firms are willing to spend significant funds to develop and launch new technology; for example, China National Offshore Oil Corporation (one of the country’s largest energy companies) reportedly has an alternative energy R&D budget that may be approaching the size of the entire US Department of Energy’s. And fourth, of somewhat less importance, developing projects in China is less expensive, at least in the short term.

That’s why CATF is helping western companies – in coal gasification, CCS, solar thermal, and energy storage — to find local allies in China that can quickly build clean energy projects at scale. Because the highest stakes race is the one to slow carbon emissions before we reach points of irreversible change. Winning that race requires commercializing every possible low-carbon technology as quickly as we can, wherever we can.

China’s engagement also means flow-back of valuable innovation and capital from China. Aside from being critical to helping the US and the world address climate change by being a test bed for innovative low-carbon technologies, China’s engagement also brings direct economic benefits to the US. First, the knowledge acquired by US-based companies developing first-of-kind projects in China will flow back to the US, reducing costs for clean technology deployment here and elsewhere, creating “reverse innovation.” Second, as a result of this cooperation, capital from Chinese companies is already flowing into US clean energy projects and manufacturing. The Wanxiang Corporation last year opened up a solar panel manufacturing plant in the US; China-based ENN is investing in Duke Energy solar projects in the US; and several Chinese companies are looking to gain valuable CCS experience by exploring joint ventures to do enhanced oil recovery-based projects in the Gulf States region. Third, Chinese companies are themselves developing innovative technology that can potentially be licensed to the US; emerging Chinese innovations in coal gasification and gas-cooled nuclear reactors are especially notable.

The significance of the low-end manufacturing race may be overstated. Recent events, including the recent trade petition submitted by seven US-based solar manufacturing companies (including SolarWorld, a German-owned company), have suggested China is unfairly subsidizing its solar panel companies. Of course the WTO should rectify any trade rule violations. IP theft must also be addressed. But it’s not clear how much retaining the low-end part of the clean energy supply chain matters in the end to US employment (although it may matter to company stockholders), or to building innovative clean-energy companies in the US that demand higher-end talent. First, much of low-end component manufacture in commodity items like solar cells and smaller turbine blades is moving to automation in any case, both in the US and China. Second, large-component manufacture such as increasingly supersized wind towers and turbines is likely to remain in the US, due to shipping costs. Finally, while much innovation undoubtedly stems from manufacturing experience, US companies manufacturing through joint ventures in China can still internalize that incremental learning.

Arguably, the US should focus on what it does best – high-end design, systems integration and advanced manufacturing – and not declare defeat if we lose the commodity end of the supply chain offshore, which is, in many cases, probably a losing battle anyway. We may have lost flat panel television and iPhone manufacture to China and South Korea, but does anyone seriously talk about trying to recapture it, or suggest that this development impedes US innovation in IT or electronics?

None of this means we should be complacent. American companies should accelerate, not slow, their partnerships with Chinese companies to demonstrate and commercialize technology. Government should continue to insist that China and its companies play by international trade rules and abide by IP protection agreements and rules. Finally, and most importantly, the US should play to its strengths at the higher end of the supply chain. That means adopting policies that accelerate the pace of energy innovation on our own shores through research, demonstration, and commercial scale-up of advanced energy systems – specific initiatives that we have detailed elsewhere: . and

Globalization is here to stay in clean energy, as in every other sector. Let’s be smart and play it to the advantage of the atmosphere and the US economy, rather than trying to run futile, distracting mercantile “races” that we are unlikely to “win.”

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