November 19, 2009

Cleantech Competitiveness

NQKPVCZB9Q6D A couple of days ago, I published a post regarding Chinese interests in U.S. cleantech initiatives entitled U.S. Stimulus, Cleantechs, and Foreign Investment. At the end of the post, as a reference to calls that federal subsidies be pulled from a particular project because it used Chinese turbines, I wrote that the U.S. needed to become more competitive in cleantechs, not protectionist.

Yesterday, Oakland-based policy group the Breakthrough Institute and the Information Technology and Innovation Foundation, a nonpartisan research and educational institute in Washington, jointly issued a report entitled Rising Tigers, Sleeping Giants, in which they state that “Asia is poised to dominate the fast-growing clean energy industry by outspending the United States by at least three-to-one on infrastructure and technology”.

The governments of China, Japan and South Korea will invest $519 billion in clean technology between 2009 and 2013, compared to $172 billion by the U.S. government. Climate and energy legislation, which passed the House in June, would contribute $28.7 billion of the $172 billion five year total. China alone will spend $440 billion to $660 billion over the next ten years on cleantech. If U.S. legislators like Senator Charles Schumer (D-NY) oppose that a vast majority of U.S. cleantech investments should go to foreign companies (thus far 84% of American Recovery and Reinvestment Act funds in cleantech), then more must be done to boost domestic competitiveness. Sporadic, shovel-ready projects will fail in the face of direct, immediate, and coordinated Asian government investments that allow their nations to create innovation "clusters" of manufacturers, universities, R&D labs, suppliers and other firms (a strategy copied from the Pentagon that helped create Silicon Valley in the 50s and 60s).

Venture capital may be part of the answer to the problem, but only so far as those VCs are only interested in U.S. ventures. VCs are looking for profits, and these clusters will be attractive to them. U.S. firms, according to the report, are already making large investments in China. Between 2000 and 2008, the U.S. attracted $52 billion in private capital for renewable energy technologies, but China alone attracted $41 billion. China secured more private investment in renewables and efficiency technologies than the U.S. for the first time in 2008.

The report expresses that "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." If Republicans and moderate Democrats in Congress oppose clean energy legislation on the grounds that it will kill jobs, they may in fact hinder the creation of jobs in a global vertical where economic growth is assured.

November 16, 2009

US Stimulus, Cleantechs, and Foreign Investments

Recently we witnessed Chinese company Suntech Power investing in U.S solar panel manufacturing. However, they received American stimulus funding to foster the investment. Suntech’s investment comes as anxieties are rising in Washington over foreign domination of the U.S. cleantech space. In late October the announcement of a Chinese-U.S. consortium planning to build a wind park in Texas using imported Chinese turbines led to calls that federal subsidies should be pulled from the project. The same month, a report from the Investigative Reporting Workshop found that in the wind sector, where foreign manufacturers dominate the market, overseas companies have received 84% of more than $1 billion in federal clean-energy grants released since Sept. 1. The study did not focus on solar energy, but the majority of solar panels are also produced by European and Asian companies.

The U.S. is part of the WTO and, therefore, has mutual obligations to its trading partners (in addition to other trade agreements such as NAFTA). Furthermore, the American Recovery and Reinvestment Act did not frame any “buy at home” clause other than for the use of steel products. Stimulus dollars should be used to create employment in the U.S., and the funds provided to foreign companies will, either directly or indirectly provide U.S. employment (parts and raw materials, assembly, infrastructure prototyping and construction, operations and maintenance, process engineering, distribution/energy grids, etc.).

Given CO2 and GHG mitigation costs, efforts to demonstrate environmental benefits and sustained economic growth become critical. Moreover, as the U.S. is trying to restore its global contribution, I would venture to say that now is not the best time to become protectionist. However, the temptation is great in recessionary times when elections are just around the corner. The U.S. needs to be competitive to win in clean technology markets. Is protectionism the answer to competitiveness?

November 15, 2009

What Corporate Citizens Can Do

We learned yesterday that leaders of Europe, the US and Asia agreed to delay a binding agreement on global warming mitigation until a later date, likely a meeting in Mexico City. This is not a big surprise.
"(…) the leaders, including Lars Lokke Rasmussen, the prime minister of Denmark and the chairman of the climate conference, agreed that in order to salvage Copenhagen they would have to push a fully binding legal agreement down the road, possibly to a second summit meeting in Mexico City later on."
This should give governments more time to problem-solve the differences that exist between industrialized and developing countries in terms of mitigation costs, as well as the complex mechanisms involved in passing relevant legislation in the United States – the world’s second largest emitter of greenhouse gases after China. Many countries – including European Union members at the forefront of mitigation initiatives – are wary of committing to further investments without assurances that America will be an active participant.

Global warming is not a regional problem. As I read somewhere, lack of synchronization “is like someone blowing their leaves into our backyard.” There is no fence. Hence, it is critical for the U.S., China, the EU, and India – among others – to be on the same page.

Many in the private sector are moving ahead, regulation or not. Multinationals like energy giants BP and Shell, General Electric and other are investing billions of dollars in cleaner technologies. They have become the necessary tree-huggers. Most governments tend to be reactive rather than proactive. It may be time for those new tree-huggers to also contribute politically as they have in terms of corporate image to a sustainable future that will ensure their continued growth.

November 14, 2009

Sustainable Development: Burden or Incentive?

I am amused when people lambaste Al Gore for profiting from investments in clean technology. The ability to adapt to and profit from change has been at the core of American capitalism since the 19th century. Even more amusing is when those same people contradict themselves by stating that investments in clean technology are counterproductive to economic growth. I guess they shouldn’t worry then with Al Gore’s ability to profit from clean technology.

The fact is that clean technologies, GHG mitigation, and sustainable development are disciplines where big government, big business, and venture capital, are investing a lot of resources.

GE is investing billions in clean technology, and venture capital is on the same wavelength.

On the government front, a report entitled The Economic Benefits of Investing in Clean Energy (PERI and CAP, June 2009) states that the American Recovery and Reinvestment Act (ARRA) and the American Clean Energy and Security Act (ACESA) together will result in new investments of approximately $150 billion per year over the next decade, hence creating around 2.5 million new jobs.

Furthermore, cap-and-trade legislation in effect in the EU, and modeled by the U.S. and other jurisdictions, has created a carbon trading market that the World Bank assessed to be worth $64 billion in 2007. Its value surged 84% to $118 billion last year according to market research firm New Carbon Finance, who predicts that a U.S. system of mandatory emission caps will spawn a $1 trillion carbon market by 2020.

I can understand why those who oppose GHG mitigation are upset. It seems that their arguments against emission caps are failing. Or are they? Despite the fact that carbon mitigation and sustainable development are hot business commodities, Congress may prevent the passage of ACESA. Rather than communicating the message that ACESA actually stimulates economic growth and employment, the perception is that it is yet another business tax. There seems to be a disconnect between the administration and voters.

Domestic Agendas, National Pride, and Global Warming

As renewable energy and carbon mitigation become, with equal zeal, the new darlings of venture capitalists and governments, I often encounter in my readings nationalistic fervor with which writers either praise their accomplishments, or denounce progress or lack thereof.

Yale Environment 360 recently published What Makes Europe Greener than the U.S.?, which laid out cultural and geographical differences between Americans and Europeans. In a nutshell, Europeans live in more dense and compact environments than the majority of Americans, where suburbanization depleted many urban centers and is encroaching on rural communities. Mass transit is more cost-efficient, energy conversation more common, and waste management more of a requirement in compact environments. Yet, the majority of comments from Americans was that the article was bashing the United States (when, in fact, it was exposing cultural and historical differences). Interestingly, another article in the same edition of the newsletter, entitled Greenest Place in the U.S.? It’s Not Where You Think had similar comments, but rather on a urban versus suburban or urban versus rural theme (it talks about New York City's density benefiting carbon mitigation and per capita energy conservation), rather than a U.S. versus Europe or Canada versus U.S. theme (the U.S. often seems to be the villain yet Canadian and European companies are more than willing to tap into its now considerable funding to abate pollution).

We incessantly compare the U.S. vs. Europe vs. Canada vs. China vs. India, etc. I believe that with the increased potential for economic growth and employment in clean technologies, the competition has increased further to take an economic dimension. Constructive competition should not be frowned upon. However, it seems to me that the same old debates, perceptions and stereotypes are seeping through at a time when we need to realize that this issue is not about regional, national or continental backyards. This backyard is global, and cooperation is required to mitigate risk and sustain growth.