The Clean Energy Race

The clean energy movement has been gaining speed and a lot of attention in the global arena. As hybrid cars, green buildings and other clean technologies continue to emerge, countries are outbidding each other in the investment in clean energy technology, which will threaten the balance of energy security and power among key regions around the world. The primary question will be: How will the energy map being redrawn, and what are the key implications? By evaluating the access to renewable resources and re-assessing established alliances, the race for clean energy will continue to drive competition. Bremner and Keat state that “the world’s energy supply increasingly comes from parts of the world that are politically unstable. The world’s growth is increasingly driven by emerging markets” (Bremner & Keat, 2009). The race for energy is exactly this, and this paper hopes to examine some of the intricacies, and political and economic risks.

The investment race

Taking a glance back in history, energy transitions take time. It took approximately 100 years for coal to go from being 10% of the world’s energy source to 60% currently. After that it took 60 years after the introduction of oil as fuel to provide 50% of the world’s energy (Hodum, 2010). Green technology or renewable energy is no different than coal or oil, and although the adoption of new technology has been slow, there is a large appetite for innovation, and research and development.

In terms of top investors, the biggest have been China, the United States, South Korea, and the European Union, although Europe severely lags compared to the Asian nations. Over the last five years, total global annual investment in clean energy has grown from $36 billion to $145 billion, with total transactions amounting to over $200 billion in 2009 (Swezey & Norris, 2009). Capital investment is going primarily to energy efficiency, mass transit, and renewable energy deployment. The Breakthrough Blog claims that China, Japan and South Korean “governments 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 clean tech.” (Breakthrough, 2009) See Graph 1 in the Appendix for a depiction of foreign and US investment in clean technology.

What does this investment in the public sector mean for the US? It means that the US must take swift actions in order to remain competitive. In 2009, the US House of Representatives passed a new clean energy policy known as the American Clean Energy and Security Act. While this looked like a good attempt for the US to stay viable, many Americans thought that it was too radical. However, when looking at this policy on the international scale, the policy did not include enough proactive policy, and the funding for research and development, commercialization and production of clean technology was rather low, when compared to Chinese investment. The issue is that if this investment gap continues to exist, the US will continue to become tremendously reliant upon importing these technologies.

Key players and real examples

The United States and China rank first and second in deploying clean energy and creating a policy environment for growth and investment. Let’s look at the G2. The bilateral relationship with the US and China is an example, where clean energy has been elevated to a priority issue between both governments. The G2 is steadily beginning to address trade pressures related to clean energy deployment.

Looking at wind energy for example, there is a rare earth element called neodymium that is required for the magnets in the wind turbine. The world’s largest earth deposits are currently located in China, and China recently made it public that they intended to strengthen control over these elements. Additionally, the report Rising Tigers Sleeping Giant states that, “the United States relies on foreign-owned companies to manufacture the majority of its wind turbines, produces less than 10 percent of the world’s solar cells, and is losing ground on hybrid and electric vehicle technology and manufacturing” (Rob Atkinson, 2009). This statistic is scary when considering that most Americans assume that they lead the way in green technology.

Moreover, when looking at hybrid vehicles, the rare earth element known as lanthanum is a primary component that is part of the nickel-metal hydrate battery in Toyota’s Prius. While the Prius also requires neodymium, the increasing dependence upon these rare earth elements has prompted companies like Toyota to search for other alternatives outside of China (Hsu, 2010). In addition, the Chinese company, BYD, introduced the world’s first plug-in hybrid car at the end of 2008, which was at least one full year ahead of the competition in Japan and the US. The bottom line is that the US is becoming heavily dependent upon importing these materials in order to stay in the race, and doesn’t even lead the race for new technologies.

It’s not just investment

Not only is investment an integral part of this race, but economic policy is also key. China has paid attention to this. In 2001, it cut value-added taxes in half on wind power production, and between October 2007 and June 2008, the government provided $205 million in financial subsidies to companies in wind power. It is important to note that the US suffers in this area also. Because the US does not have economic policies that incentivize companies to pursue and to compete with Chinese companies, there is little private investment.

An authoritarian globalizer or a resource nationalist?

Bremner and Keat refer to China as an authoritarian globalizer. They state that while China has accepted the necessity of foreign presence in their financial system and market, an authoritarian globalize state has small elites that hold a monopoly on political power. Because foreign exposure places pressure on this type of government, there is a constant balance between foreign influence and the elites in politics.

However, due to the nature of China’s investment in renewable energy, I would make the argument that they could also be seen as a resource nationalist. Bremner and Keat describe these nations as leveraging their “energy wealth to consolidate power at home and to flex their muscles abroad… [They] have changed the rules for foreign investment in what they consider to be ‘strategic sectors’ of their economies – especially natural resources” (Bremner & Keat, 2009). China seems to exude many of these qualities especially when considering the fact that they hold many of the resources necessary for renewable energy, both investment and resources.

However, it is also important to remember that the relationship between the US and China is very important. The Yuan is pegged to the dollar, and China is reliant upon the US for exports. Although it’s suspected that the Yuan is undervalued, China does not want the value to go up, because then the value of the exports would go down. Similarly, throughout the Great Recession, China has not wanted the US economy to hurt, because if the US economy hurts, then so do Chinese exports.

Implications

What do the above mentioned changes mean? They both reflect the accelerating shift of global power from America to Asia, which some claim to have been caused by poor US economic policy. While it may be possible for some US companies to benefit from joint ventures abroad (jobs, innovation, tax benefits, etc.), it is apparent that Asian nations are the clear winners, specifically China. The Rising Tiger Sleeping Giant report claims “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 clean tech tigers and provide more robust support for U.S. clean tech research and innovation, manufacturing, and domestic market demand” (Rob Atkinson, 2009).

As a result, one primary concern in the transition to clean energy is that the United States is only developing a new dependence on China. While the goal has been to move away from the dependence of Middle Eastern oil, some of the new technologies are dependent upon China, and as previously discussed, it is clear that China’s investment in renewable technology poses an enormous threat to the US.

Although the US clearly faces some new challenges, there are also opportunities. It is evident that the US is losing the clean technology race. If the US does not want to become dependent upon imports, they must implement new policies that encourage domestic investment and an appetite for innovation, research and development, and producing clean technologies on American soil. The US has always succeeded in innovation, especially when looking at Silicon Valley and the culture of start-ups and venture capitalists. Although China is dependent upon the US for exporting goods, the US and Chinese governments need to support policies that fosters collaboration, instead of protectionist competition. Managing these relationships and policies will ensure that the US remains competitive in the race for renewable energy.