How China is Winning the Renewable Energy Race
“Green jobs are key to our future, right now, China is taking every possible step – many of them illegal under international trade laws – to ensure that it will control that sector. America can’t afford to cede more of its manufacturing base to China.” — Leo W. Gerard, International President of the United Steel Workers
That was the press message from the United Steel Workers as they asked the US Government to file an unfair trade complaint against China at the World Trade Organization (WTO) as permitted by Section 301 of the treaty. The focus of the union complaint is China’s push into the clean and renewable energy sector of wind turbines and solar panels. The union says China is taking clean American manufacturing jobs by heavily subsidizing the production of cheaper wind and solar equipment and exporting it to the US at prices that make American made alternatives uncompetitive.
In fairness, this is not a new position for the USW or other unions. They have alleged that world trading regimes have caused the decline of America’s manufacturing base. European unions and manufacturers have made similar arguments. This same argument over solar panel prices hit the fan in Spain and then Germany where their own feed-in-tariffs (paying above market prices for solar and wind energy to attract producers) backfired because they attracted Chinese producers who offered lower prices for their equipment than Spanish or German firms and thus slurped up the lion’s share of the feed-in-tariff subsidy money and sent it back to China.
The EU was outraged that the Chinese would intrude in their efforts to subsidize their own manufacturers and undercut the locals to win the bidding on solar projects and wind turbines. Remember this happened just as Greece was melting down and thus was used, in part, as an excuse to reduce or eliminate the unsustainable feed-in-tariff subsidies blaming the Chinese.
Capitol Hill Meets Main Street
Here in the US the story is similar. The renewable portfolio standards adopted by the states and the pressure from Washington to do more to reduce emissions and grow market share for renewable energy has utilities scrambling to procure energy to meet those goals. Many utilities are near achieving those existing RPS targets so pressure is building to raise the RPS goals much as California is trying to do with its 33% target.
Meanwhile, the Bakersfield Effect of angry ratepayers waving their utility bills and demanding answers from regulators and politicians about why these policies are driving their rates through the roof. California even has Proposition 23 on the November 2010 ballot to suspend its AB32 Global Warming Solutions Act implementation until unemployment falls below 5.5% for four consecutive quarters. Bills to enshrine the 33% RPS goal into California law failed to pass this legislative session just ended. So 20% is the legally mandated goal and pushing beyond it is much tougher.
Utilities are under a regulatory obligation to add renewable energy to their power supply portfolio to meet these RPS goals but also satisfy a prudency test of ‘least cost, best fit’ standard of procurement care. Tough to do when the costs are going up. So along comes China with a growing manufacturing base for wind turbines and solar panels to compete against GE and other manufacturers who have sought to dominate the markets in renewable energy just as they did for gas-fired combustion turbine power plants.
Main Street Loves Low Prices
The Chinese offer low prices, almost always lower prices than American or European manufacturers and begin winning more of the deals. The Chinese also are investing in building American market share by buying the energy management and services firms needed to install and maintain all this equipment further irritating local vendors.
Are the Chinese subsidizing this manufacturing of wind and solar panels—absolutely.
The EU and US virtually demanded it remember in the aftermath of the Kyoto Protocol and the build up to Copenhagen by accusing China and other developing countries of failing to do enough to control greenhouse gas emissions. China responded that it was poor and just building its economy and could not slow its economic growth to clean up its environment UNLESS the US and EU were willing to pay it to do so faster by imposing restrictions on our greenhouse gas emissions while letting China off the hook.
This was the essence of the Kyoto Protocol and you know how well that worked. COP15 failed utterly because the world has wised up to the inconvenient truth about the game being played by the developing world to use the treaties and the political correctness of global climate change to enact the mother of all income redistribution regimes. But I digress. . .
The USW object to growing Chinese market share in the US for clean energy business seeing that as a threat to the growth of manufacturing here. The problem with that argument is that battle is already lost. China is driving down the cost of solar panels and wind turbines to grid parity prices and that is a wonderful thing. It means that soon utilities will be able to install this clean energy equipment without the necessity of subsidies from our own government.
The union believes in the promise of millions of clean energy jobs resulting from this shift to a clean energy policy subsidized into the mainstream by the Federal Government and ordered by the states in their RPS targets. These jobs are neither real nor promising. Roofing companies across America are adding solar panels to their inventory and using their existing work forces to install them in order to stay in business during the recession. American manufacturers like Dow are working overtime to design and build new roofing shingle systems with embedded thin film solar technologies to reduce the installation cost and thus compete head to head with older PV panel installation by offering a better product.
So what?
The trade complaint may be useful politics but it is wasted time and bad economics. Regaining America’s competitive advantage does indeed involve rebuilding our manufacturing prowess in strategic areas important to the nation. The unions can play a vital role in making that happen and in so doing probably win new members. But the prescription is not tariffs and trade restrictions it is reforming the tax structures, overhead and other costs which chip away at America’s ability to compete by building the newest technologies the world needs while commoditizing the old.
The real fight with China worth having is over access to Chinese markets on level playing field terms so that American manufacturers of new technologies can enter those markets and compete just as the Chinese do in American markets. The measure of that level playing field is a better balance of payments relationship that enables both sides to win through fair trade.
Coping with Copenhagen
Imagine Times Square, New York City on New Year’s Eve, you see the giant Tiffany crystal ball overhead prepared to light up and signal the fresh start of something new, something better, something hopeful to wash away the sweat and tears of the past year.
Now go to the website of the UN Climate Change Conference where you will find the countdown clock for the Copenhagen Conference on Climate Change ticking away dramatically. Don’t you feel the excitement, the anticipation, the prospect of realizing the aspirations of Kyoto which were frustrated by the refusal of the United States and a few other Neanderthal nations to play ball? This time around the United States has a new president, and he REALLY wants to play ball at Copenhagen. He wants to be accepted as a player in the global quest to solve the “climate crisis”.
Does this feel a little surreal?
If you answer yes, that’s good because the build-up to Copenhagen is one of the best produced movies since—well, An Inconvenient Truth. It has drama. It has villains. It has suspense. It has a noble quest to lift the spirit and a cast of many hero-wannabes.
What is does not have but is about to get is a big dose of reality therapy. That reality is being delivered in small doses these days as the countdown clock ticks on seeking desperately to adjust expectations to fit the facts of what can be done—and not done in Copenhagen in December. You will hear these messages in diplomatic dress over the next few months delivered by politicians and statesmen who having raised expectations by endless pandering to the true believers now try to adjust them to the current realities.
The Kyoto Protocol was successful in raising world awareness of environmental responsibility and good stewardship. It strengthened the drive for energy efficiency, expanded use of cleaner fuels and new renewable energy technologies, and encouraged investment in cleantech we might not have seen otherwise.
The Kyoto Protocol failed miserably as an enforceable global policy framework for disciplining countries in setting, enforcing and achieving specific mandated reductions in greenhouse gas emissions. We all know the reasons for this failure. The world’s biggest economy and some of the world’s fastest growing developing economies refused to be bound by arbitrary global mandates especially if they impeded economic growth. Others signed onto Kyoto and then either ignored the targets, failed to achieve them, or cheated. The rest lamented that the “science was settled” and chastised any who questioned it. But while the literati and environmental do-gooders rejoiced in Al Gore’s Nobel Prize and Academy Award the folks on Main Street were not quite convinced that the inconvenient truth was really true.
And so for all the hype and work of the climate change or “climate crisis” public relations machine, regular folk voted not to bankrupt themselves by imposing carbon taxes or environmental police measures on themselves when the world’s greatest economy and its fastest growing ones said “no thanks, we’ll just watch how it works out for you—but good luck with that” and went about their business.
Meanwhile, back in Washington, DC on September 22, 2009, the U.S. Environmental Protection Agency finalized new rules requiring major greenhouse gas emitters to monitor and report their emissions. The first report by emitters, covering 2010, is due in 2011. This reporting requirement will provide data to assist US EPA which is considering a rule to declare such emissions a public danger. Such a declaration would then lead to further new economy-wide rules to regulate emissions. These regulatory actions are being taken as part of an uncertain choreography with Congress which is considering a cap and trade bill called Waxman-Markey which is facing the death of a thousand cuts in Senate consideration.
The Copenhagen clock is indeed ticking—and so is the one in Washington, but we don’t know yet whether it will be a celebration or a wake.
