The global market for clean energy products grew to $243 billion in 2010, a year in which China and Germany both captured a greater share of this global investment than the United States. That has led many (myself included) to worry about the erosion of US competitiveness in a set of clean energy technology products–from solar and wind to nuclear and advanced batteries–originally invented in America.
Yet this growing market for clean tech is almost entirely dependent upon public subsidy and policy support. To be blunt: today’s clean energy markets are artificial, and without perpetual policy support, conventional clean energy products could not compete in most global energy markets.
Across the globe, cash-strapped governments and recession-hit publics are pulling back clean energy subsidies, revealing the ephemeral nature of today’s clean tech markets. In the last year, Spain, Italy, and the United Kingdom have all slashed feed-in tariffs for solar and certain other clean energy technologies. In America, expiring tax credits and fading stimulus investments are set to send federal clean tech expenditures plunging 75 percent from 2009 to 2014, according to our research.
There are a host of reasons why targeted policies and smart public investments in emerging clean tech sectors are justified. But clean tech business leaders and policymakers alike must be crystal clear: the true economic rewards in clean energy industries will not come from producing technology for subsidy-created markets that vacillate wildly with the public mood and the business cycle.
Without substantial innovation to improve the performance and reduce the cost of clean energy technologies, the promise that the clean energy sector might become economically viable, much less a cornerstone of American economic revival, will never be realized. The real clean energy race is thus to invent, commercialize, progressively improve, and mass-produce cheap and reliable clean energy technologies that can compete on cost not just with international competitors but also with fossil fuels.
In short, the race is to make clean energy cheap and subsidy-independent.
The ultimate economic prize is a $5 trillion global energy market expected to double over the next forty years. That economic opportunity dwarfs the value of today’s subsidy-dependent and often-volatile clean energy markets.
For security, economic, and environmental reasons, the global energy system is modernizing and diversifying. Developing and developed nations alike will move toward new forms of advanced energy technologies that reduce dependence on foreign nations, insulate their economies from volatile energy markets, and are cleaner and thus less costly from a public health perspective. Supplying this massive global market with reliable and affordable clean energy technologies thus represents one of the most significant market opportunities of the 21st century.
In this clean energy race, pole position is still up for grabs.
China may have cornered today’s subsidy-dependent markets for solar cells in recent years, but they have not yet won the race to make solar energy cheap. Chinese firms have achieved recent cost advantages by simply scaling up yesterday’s solar technology, wringing cost declines out of gigawatt-scale manufacturing supply chains and capitalizing on both a temporary glut in refined silicon and lucrative Chinese state subsidies. None of these factors are truly repeatable, and technology and market analysts project that China’s solar cost declines will soon stall out well above the levels necessary to make solar power truly affordable and subsidy-independent.
America is still home to the most innovative solar firms, from technology leaders like First Solar making advanced thin film solar technologies to SunPower Corp., the manufacturer of the world’s most efficient crystalline PV panels. And we retain a global lead in venture capital investment and clean energy research. Yet to win this race to make clean energy cheap, America must overcome two threats, one each from both home and abroad.
Abroad, we must ensure that Chinese firms play by the rules. And American manufacturers must out-innovate and out-compete China’s high-volume producers of conventional clean energy technologies, like crystalline PV cells, with steadily advancing technology and productivity. Already, technology leaders like First Solar are under pressure, with Citigroup reporting that the American firm may be facing layoffs of 10 percent of their workforce in coming months, as customers demand cheaper products. If these competitive pressures fuel a new round of American innovation, all the better. But if subsidized Chinese producers of conventional PV panels that will never become cheap enough to be subsidy independent end up knocking the real innovators out of the market, or squeezing their profits so much they cannot reinvest in continual R&D, both America and the world ultimately lose.
At home, today’s repeatedly expiring and poorly optimized energy subsidies do American innovators little favor. The problem is that today’s subsidies are principally designed to accelerate market adoption–a situation that strongly favors America’s mercantilist, low-wage competitors like China–rather than demand and reward innovation and support continual adoption of the most advanced manufacturing processes by US firms. Energy subsidies today operate more like crop supports than like the demanding military procurement policies that delivered jet engines, microchips, and a suite of other core technologies now enabling blockbuster products like Apple’s iPhone.
The intermittent and haphazard nature of US energy policy also wreaks havoc with the business confidence necessary for long-term investments in innovation. As a result, many private firms focus principally on ramping-up production for subsidized markets rather than pioneering next-generation designs and manufacturing processes.
This must change. Both industry and government must re-prioritize innovation and competitiveness if the United States is to build a durable and globally competitive clean energy industry. Making clean energy cheap and fully competitive should become our nation’s rallying focus.
The coming collapse of US clean tech policies thus presents a critical opportunity for intelligent energy policy reform. With the US clean energy policy system set to be effectively wiped clean in the coming years, American business and policymakers must now unite to craft a coordinated new set of limited but direct federal strategies optimized to drive innovation, advanced manufacturing, and competitiveness. With such a strategy in place, the United States has the potential to out-innovate and out-compete all global challengers and successfully make clean energy cheap enough for widespread export to energy-hungry markets throughout the world.
The above was originally submitted to the National Journal discussion “Is America Losing the Clean Energy Race?“
(Note: stay tuned for forthcoming research and recommendations on clean energy competitiveness from the Breakthrough Institute later this Fall…)
Jesse Jenkins is Director of Energy and Climate Policy at the Breakthrough Institute, and author of “Rising Tigers, Sleeping Giant,” “Strengthening Clean Energy Competitiveness,” “Power to Compete,” and other reports and articles on clean energy competitiveness policy.