The Green Leap Forward

An orange grove, a golf course, and a solar-powered model home occupy the grounds of Hunan Sunzone Optoelectronics, a solar panel manufacturer in south-central China. Not only has this nascent company cracked the code of linking corporate interests with aesthetic ones, but with almost 95 percent of its solar panel market in Europe, it has also proven its aptitude at matching its productivity with worldwide demand. Just two years old, Hunan Sunzone has turned the city of Hunan into a global hub for the production of green technology. By virtually any standard, its facilities are state of the art. But in the Middle Kingdom, this 22-acre juggernaut is no anomaly. In recent years, China’s green technology sector has seen a huge upsurge in productivity—and the thanks go largely to the Chinese government. Through generous government subsidies, China’s green technology sector has become the most productive and competitive in the world. With an eye towards fostering and maintaining this global competitiveness, the Chinese government has been channeling a growing amount of attention and resources towards the country’s green technology producers. But it’s not just Chinese officials who are enthusiastic about this green revolution. As the industry becomes ever more profitable, global capital is pouring into this booming Chinese sector. The capital base initially provided by the government is now being matched by private funds, fueling the field’s expansion even further. According to Devon Swezey, project director for the environmental think tank The Breakthrough Institute, by 2012 private investors around the world are expected to allocate $450 billion annually to renewable energy and energy-efficient technologies. By 2020, that figure will reach $600 billion. If current trends are any indication, the bulk of that will go to China.

With the entry of Chinese producers into the world market for green technology, the global green economy has become increasingly competitive. For the first time in history, formally limiting renewable resources can hold their own against the fossil fuels driving climate change. Due to China’s tremendous efforts, worldwide prices of solar panels have decreased almost 50 percent in the past two years, and wind turbine prices have declined by 25 percent. The Chinese government has allowed green technology factories to buy land at discounted rates and, contrary to common perceptions of a stifling Communist bureaucracy, has streamlined the process by which private individuals can build new green technology factories. It took Hunan Sunzone less than a year to begin operations. According to Tom Zarrella, former chief executive of GT Solar, a comparable company in the U.S. could take years to begin operating. Hunan Sunzone benefited from a Chinese administrative system that prioritizes green industries in its distribution of grants and permits.

As rates of green technology output continue to climb in China, the American media relishes pointing out that U.S.-based corporations are being left in the dust. Efforts by the U.S. government to nurture the growth of its domestic green energy sector pale in comparison to the aggressive track taken by China. Those in the American green technology industry easily become frustrated with the fact that it can take over a year for a new factory to be constructed—and even longer for it to become operational. Unlike in China, loans for U.S. green-technology start-ups are not prioritized or subsidized. Instead of wasting valuable time, these would-be businesses sometimes move their operations abroad—often to China. Evergreen Solar, a Massachusetts-based green technology manufacturer, opened a branch in China over a year ago after struggling for years in the U.S. and has had very little difficulty turning a profit there.

Unsurprisingly, not everyone is happy with China’s green revolution. In a petition filed with Timothy Keeler, chief of staff in the Office of the U.S. Trade Representative, on September 9th, 2010 and supported by many members of Congress, the U.S. United Steelworkers Union accused China of violating World Trade Organization agreements that limit government subsidies of products intended for export. The union claims that the Chinese government, has violated W.T.O. agreements by restricting export of raw materials essential to the manufacturing of green technology, subsidized green technology production on the basis of export performance and domestic consumption, encouraged consumption of domestic goods over foreign goods, required foreign investors to divest their technology to Chinese companies in order to have ventures approved, and distorted global trade through domestic subsidies. In support of stricter trade rules, a coalition of American business groups - including the Main Street Alliance, Small Business Majority, and American Businesses for Clean Energy—released a report on September 14th that directly blamed Chinese energy policy for the flight of billions of dollars of private capital and over two million jobs from American soil. The Chinese government denies all charges.

Still, Americans remain hesitant and divided on the best course of action. While the W.T.O. does not yet have an official case to consider regarding China’s green technology subsidies, it is increasingly probable that international injunctions against China may never arrive, and if they do, they are expected to be ineffective. China’s ability to influence or evade U.S. and W.T.O. trade measures has increased with its economic clout. American corporations themselves have been timid about advocating these measures. The New York Times reported on September 9th, 2010 that American corporations are hesitant to file a case against China out of fear of hostile retaliation by the Chinese government. While the United Steelworkers Union has filed a petition, there has not yet been any action at the governmental level in America.

Needless to say, such aggressive trade measures would do little to boost U.S.-China relations. But in addition to raising hostilities (and potentially setting off a mutually damaging trade war) there are signs that aggressive condemnation and sanctions from the U.S. might not be necessary after all. Indeed, alternatives already exist that could allow American firms to remain competitive in the green economy. A look at a new complex in Philadelphia proves that the U.S. is not without a few green shoots of its own. In a few dozen formerly abandoned buildings along the city’s waterfront, a new campus for researching energy efficiency in cities has emerged. The cluster forms a completely self-contained electrical grid, that allows the hub’s hundreds of researchers to replicate urban energy patterns and test certain technologies that would make local energy systems less wasteful. This new campus is just one outgrowth of a nation-wide plan recently inaugurated by President Obama. This Energy Innovation Hub program identifies dozens of public and public-private energy initiatives from across the country with the aim of fostering “major multidisciplinary, multi-investigator, multi-institutional integrated research centers” by endowing the most promising projects with generous government funds.

Initiatives like this have ramifications that extend far beyond the domestic market. The innovations generated by the Philadelphia project could prove especially relevant to densely populated China, which has yet to tailor a coherent strategy for greening its own energy market. While Chinese producers are garnering significant attention for their production of commonly-known products such as solar panels, the world market has proven receptive to a greater variety of green technology. While operating on a much smaller scale, a number of American entrepreneurs are developing cutting-edge—and highly marketable—innovations all their own. Mark Biddle, the founder of MBA Polymers, Inc., a company devoted to research on plastic recycling, has discovered what he calls “above-ground mining”: A way to recycle plastic waste in a time- and energy-efficient manner and use it to make new products. Yet while Biddle started his business in the U.S., MBA Polymers has proven most profitable overseas, in countries such as Austria, Britain, and, yes, even China. Success is more than creativity. Because of the U.S.’s complicated regulatory framework, the U.S. can produce innovative ideas, but giving them reason to stay and a path to prosperity is the trick.

This is where a little government support would come in handy - perhaps of the type demonstrated in the Energy Innovation Hubs. Luckily for struggling U.S. green-tech start-ups, such support may be on the way. The progressive Brookings Institution has collaborated with the unfailingly conservative American Enterprise Institute to release an October 13th, 2010 proposal for the federal government to dramatically increase its investment in clean energy innovation from $4 billion to $25 billion a year. Supported across the political aisle, the proposal indicates a tidal shift among liberals and conservatives alike towards greater federal support for green innovation.

As long as U.S.-backed trade restrictions do not get in the way, expanded government-supported innovation in the U.S. could take advantage of the very same international market China has so adeptly exploited. In the coming years, China’s demand for energy technology could very well come to match its productive power. While currently relying heavily on foreign markets and exports to support its production of green technology, Chinese Vice-Premier Li Keqiang emphasized in a speech this year that one of the main goals of Chinese energy policy will be to increase the number of domestic consumers of green technology and move away from reliance on export. When such a shift does occur, China may begin to exert a demand for certain American green energy technologies the likes of which have not developed on Chinese soil.

And, there is already a market in China for such products. Quoted in The New York Times on September 10th, 2010, technology expert Joanna Lewis of Georgetown University noted that there are many high-tech areas where U.S. corporations have a comparative advantage over China’s. American corporations are sometimes deterred from exporting their products by the poorly articulated regulations that create the risk of losin gone’s patented technology. What this suggests is that, rather than standing as strict competitors in the global green economy, with the appropriate free trade regime in place the United States and China could come to serve as complementary producers in a diverse, multinational market where no single country holds the monopoly on green innovation.

As environmental pressures exert a greater and greater influence on the policies of nations and institutions across the world, green energy technology represents more than just a new sector. With many viewing the shift to renewable energy use as not just a choice but an imperative, green energy represents a new economy, spread across hundreds of national and local markets driven by the creativity and techniques of countless producers—producers that could include both the United States and China. The American media likes to paint a picture of an aggressive China poised to dominate this new economy, but there is a place for the United States in this new configuration, whether or not U.S. policy-makers choose to recognize it.