As we’ve discussed on this RMB forum, and as we read in the papers or see on our TV screens (every day), developing better and cheaper clean energy technology is central to the battle against climate change, for energy independence and creating a green energy energy jobs. While corporations, entrepreneurs and academia are taking initiative and making significant strides, it is on the National level where the real competitive advantage is at. As implied in the title of this piece, the question has to be asked…Will North America largely be an importer of these clean technologies, and lose the jobs related to them, or can we emerge as a global leader, driving exports and high-wage jobs? (I believe the latter – although it certainly won’t be easy)
This thesis is very well captured in the recently released report by the Information Technology and Innovation Foundation and the Breakthrough Institute titled Rising Tigers, Sleeping Giant, (Nov 2009 - a respected colleague of mine from Indianapolis sent me a copy). Per the authors note, it is the first report to thoroughly benchmark the clean energy competitiveness in four nations: China, Japan, South Korea and the United States. The report analyzes clean energy investments and policy support for research, manufacturing, and domestic demand, with a particular focus on six key technologies: wind, solar, nuclear, carbon capture and storage, hybrid and electric vehicles and advanced batteries, and high speed rail. The report effectively finds that the Asian Nations are set to dominate the clean energy race by out-investing the United States. To quote the core findings:
"1. 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, the government’s of these nations will out-invest the United States three-to-one in these sectors. This public investment gap will allow these Asian nations to attract a significant share of private sector investments in clean energy technology, estimated to total in the trillions of dollars over the next decade. While some U.S. firms will benefit from the establishment of joint ventures overseas, the jobs, tax revenues, and other benefits of CleanTech growth will overwhelmingly accrue to Asia’s CleaTtech tigers.
2. Large, direct and sustained public investments will solidify the competitive advantage of China, Japan, and South Korea.
Government investments in research and development, clean energy manufacturing capacity, the deployment of clean energy technologies, and the establishment of enabling infrastructure, will allow these Asian nations to capture economies of scale, learning-by-doing, and innovation advantages before the United States, where public investments are smaller, less direct, and less targeted.
3. Should the investment gap persist, the United States will import the overwhelming majority of clean energy technologies it deploys.
Current U.S. energy and climate policies focus on stimulating domestic demand primarily through indirect demand-side incentives and regulations. Should these policies succeed in creating demand without providing robust support for U.S. clean energy technology manufacturing and innovation, the U.S. will rely on foreign manufactured clean technology products. This could jeopardize America’s economic recovery and its long-term competitiveness while making it even more difficult to reduce the U.S. trade deficit.
4. Proposed U.S. climate and energy legislation, as currently formulated, is not yet sufficient to close the CleanTech investment gap.
In contrast to more direct investments by Asia’s clean tech tigers, current U.S. policies rely overwhelmingly on modest market incentives that are viewed by the private sector as more indirect, create more risks for private market investors, and do less to overcome the many barriers to clean energy adoption. The American Clean Energy and Security Act, passed by the U.S. House of Representative in June 2009, includes too few proactive policy initiatives and allocates relatively little funding to support research and development, commercialization and production of clean energy technologies within the United States. Including investments in clean energy R&D, demonstration, manufacturing and deployment in both U.S. economic recovery packages and the House-passed climate and energy bill, the United States is poised to invest $172 billion over the next five years, which compares to investments of $397 billion in China alone, a more than four-to-one ratio on a per-GDP basis.
5. If the United States hopes to compete for new clean energy industries it must close the widening gap between government investments in the United States and Asia’s CleanTech tigers and provide more robust support for U.S. CleanTech research and innovation, manufacturing, and domestic market demand.
Small, indirect and uncoordinated incentives are not sufficient to outcompete China, Japan, and South Korea. To regain economic leadership in the global clean energy industry, U.S. energy policy must include large, direct and coordinated investments in clean technology R&D, manufacturing, deployment, and infrastructure."
In regard to the fifth point, and recognizing that while firms gain a first-mover advantage by being the quickest to develop, commercialize, and widely produce emerging technologies, "nations can gain first-mover advantages by making investments to attract and grow leading firms, by fostering relationships between local firms, research labs, and universities, and by developing the associated infrastructure, human capital, and expertise that help firms become more competitive. Direct government investments are enabling Asia’s clean tech tigers form industry clusters, like the U.S.'s Silicon Valley ,where inventors, investors, manufacturers, suppliers, universities, and others can establish a dense network of relationships. There is a growing consituency and body of study that "enduring competitive advantages lie increasingly in the structure of these regional economies". The report cites numerous examples of national, regional, and local Asian governments offering clean energy companies generous subsidies to establish operations in their localities, including free land, low-cost financing, tax incentives, and money for research and development. In the 'rare metals space', this implies clusters from mine to market, including mining, processing,alloying through to magnets, phosphors and ultimately into end use CleanTech applications.
Western governments need respect and mirror in one form or another policies and investment framework that heavily develop clean technology manufacturing and innovation clusters domestically. No reason we can't wake up the tiger in us.
If you would like to read the Executive Summary (37 pages) or the full report (129 pages), I would invite you to click http://www.itif.org/index.php?id=315
Until soon… Ian
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