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    Tuesday, November 24, 2009


    Asia Beats U.S. 3-1: Major New Report on US vs. Asian Competitiveness in Clean Energy Technology
    November 18, 2009 (Breakthrough Institute)

    Asian powers are winning the competition to dominate New Energy, a 21st century version of the Space Race in which the U.S. beat the USSR to the moon. And the governments of China, Japan and South Korea are aggressively outspending the U.S. on research, development and deployment by at least 3-to-1 to extend their superiority while the U.S. stumbles over policy inaction and fades.

    Even if the best proposals now working their way through Congress become law, the U.S. will invest no more than $172 billion in the next 5 years while China alone will invest $397 billion.

    Those are the findings of Rising Tigers, Sleeping Giant: Asian Nations Set to Dominate the Clean Energy Race By Out-Investing the United States, by Breakthrough Institute and the Information Technology and Innovation Foundation. It presents 5 core findings:

    click to enlarge

    (1) The U.S. is already losing the new Space Race-like competition and the 3-to-1 Asian spending advantage planned for the next 5 years will set them up to lure trillions in private sector investments. The U.S. may grab some joint venture fruits of their growth but the Asian powerhouses will reap the largest bounty in jobs, tax revenues, and indirect benefits.
    (2) The government spending for New Energy research, development and deployment (RD&D) in Asia will generate economies of scale, learning-by-doing, and innovations that will spawn new infrastructure and new economic leverage.
    (3) If the U.S. allows the New Energy “spending gap” to continue, it will lose the equivalent of a new Space Race and become a New Energy importer which will, in turn, hamper its short-term economic recovery and its long-term competitiveness.
    (4) The present House and Senate energy and climate bills are inadequate to get the U.S. back into the Race, lacking funding for RD&D to match the rising Asian New Energy powers.
    (5) If the U.S. hopes to remain competitive, it must not rely on the private sector and “small, indirect and uncoordinated incentives” but must commit to “large, direct and coordinated” federal investment.

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    The Asian government investment has spanned a spectrum from RD&D, private innovation, scaling up manufacturing capacity, and building infrastrucuture and domestic markets. Where governments spend, the private sector sees less risk. Confidence grows and economies of scale emerge.

    U.S. energy and climate policy has been inadequately aggressive to attract private scaling up.

    Global private New Energy (NE) and Energy Efficiency (EE) investment is estimated to be $450 billion per year by 2012 and $600 billion by 2020. Without a commitment from the federal government, the U.S. will not reap the largest share of the benefits of that explosion of spending and building.

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    Instead, Asia’s New Energy “tigers” will extend their “first-mover advantage.”

    In 2009, the first Chinese-manufactured wind turbines will be transported for use in a U.S. wind project, a $1.5 billion installation. Though U.S. installed wind capacity is growing, most of its turbines are manufactured outside the country.

    Plans for new U.S. high-speed rail projects will require Asian hardware because there are no domestic manufacturers. China, Japan and South Korea all have more new nuclear plant-building capacity. The U.S. builds less than 10% of its solar cells. And it is behind and falling back in battery electric vehicle (BEV) technology.

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    To now, the U.S. has attracted the largest part of private sector investment in NE and EE but a shift toward investment in Asia is ongoing. From 2000 to 2008, $52 billion in private capital went into U.S. NE and EE and $41 billion went to China. But China’s share increased each year and it passed the U.S. in 2008. On the basis of incentives and policies, a recent Deutsche Bank study rated China and Japan "low-risk" places to invest in NE and EE and it rated the U.S. a "moderate risk" place.

    China, South Korea and Japan will invest a total of $509 billion in NE and EE from 2009 to 2013, the largest part coming in China. The U.S. will invest $172 billion in the same period.

    South Korea’s “Green New Deal” will invest $46 billion, 1% of its GDP, in the 2009 to 2013 period, with a focus on solar, LED lighting, nuclear, and hybrid car technologies.

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    Japan will have $33 billion in targeted incentives, focusing on the deployment of solar, hybrid-electric vehicles, and EE technologies. It already has plans for an additional $30 billion in NE and EE spending from 2013 to 2018.

    The Asian strategy is to support start-up companies with low-interest loans, RD&D to favored whole industries, government procurement to generate markets, and subsidies to drive the buying of NE and EE technologies.

    Asian spending sets deployment as its goal. By 2012, China, Japan, and South Korea intend to produce 1.6 million BEVs per year. North America is expected to be producing 267,000 BEVs that year.

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    Japan reportedly has a plan to boost its installed solar capacity 20 times over by 2020 and has committed to obtaining 20% of its power from New Energy sources by 2020. Feed-in tariffs guaranteeing above-power-market returns is driving rapid deployment of wind and solar.

    China has committed to obtaining 15%-to-18% of its power from New Energy sources by 2020 but its growing momentum suggests it will get to 20% by then.

    With these strategies and policies, Asia will create economies of scale, learn-by-doing experience, supply chain efficiencies and market power advantages that will solidify their leverage. This will make it possible for them to resolve technology obstacles, streamline production and product performance and cut prices. The result will be a structural competitive advantage.

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    Pending Congressional legislation is entirely inadequate to the challenge and will not recapture NE and EE private investment before 2020. It sets greenhouse gas emissions prices too low and its RD&D funding is too low.

    The goal of federal investment should be to break down the barriers to private investment. Those barriers include: (1) High capital costs; (2) Uncertainty and risk; (3) A lack of enabling infrastructure like transmission and New Energy storage; (4) Low public RD&D funding; (5) Inadequate protections for intellectual property and spillover risks leading to low private RD&D spending; (6) Competitive disadvantages for New Energy in established energy markets giving default advantages to the Old Energies.

    The result: The energy sector defeats innovation and remains dependent on century-old technologies.

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    Government incentives can work. There are many examples of past U.S. public sector investments that spawned private sector investment and ended up creating new economic blessings: Agriculture, railroads, radio, the Internet, aerospace, IT and pharmaceuticals, as well as the invention of nuclear, wind, and solar energy technologies.

    Denmark became the leader in wind technology when government subsidies guaranteed a market for wind energy-generated electricity in the 1980s and 1990s. As result, Denmark’s Vestas is the world’s top wind turbine manufacturer.

    The U.S. has been behind before and caught up. Europe led in aerospace technology until sustained federal military-related funding of innovation and deployment in aviation technology turned the U.S. into a civil and military aviation leader.

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    The USSR’s Sputnik was the first satellite to orbit the earth but President Kennedy set U.S. sites higher and 12 years later U.S. astronauts were the first to walk on the moon – as tbe result of direct federal investment in innovation and technology.

    What is necessary now is a real public commitment. Because of the building advantage in Asia, the U.S. needs more than a price on emissions, New Energy standards and other indirect incentives. They are necessary but no longer sufficient.

    Only an aggressive, direct and targeted effort to strengthen research and innovation, manufacturing capacity, and domestic markets will get the U.S. back in the New Energy Race.

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    The report suggests 3 key necessities for the U.S:

    (1) A significant increase in New Energy innovation in the form of major and sustained spending on RD&D. If this does not happen, the next generation of NE and EE will be invented and commercialized in Europe and Asia where spending, policies and roadmaps are in place while the U.S. lags in all 3.

    (2) A focus on developing innovative manufacturing processes and investing in them to build economies of scale in manufacturing. The U.S. NE and EE manufacturing sector is seriously disadvantaged. Only a special focus on providing secure low-cost financing, incentives and technical assistance for retooling can make it competitive and bring the tax revenues, jobs, and supply chain of related industries and businesses back to the domestic economy.

    (3) Targeted public policy and spending aimed at accelerating NE and EE deployment and creating markets for it. Only accurately targeted polices can effectively and quickly bring down the price and spread adoption widely.

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    Finally, to be very specific, policies must be targeted to provide:

    (1) Meaningful technology-specific production incentives;

    (2) Concrete and large-scale promises of government procurement; and

    (3) Permanent and long-term lines of credit in the form of

    -(a) low-cost financing and

    -(b) credit guarantees.

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    From the report: “Nations that establish an early lead in key industries can more easily retain that advantage at a lower cost over the long-term. Direct government investments by Asia’s clean tech tigers will help them form industry clusters, like Silicon Valley in the United States, where investors, manufacturers, suppliers and others can establish dense networks of relationships that can provide cost and innovation advantages…In order to avoid ceding "rst-mover advantage to Asia’s clean tech tigers, U.S. support for the nation’s already lagging domestic industries must be robust. Unfortunately, according to the Environmental Protection Agency (EPA), the climate and energy bill passed by the U.S. House of Representatives in June 2009 is not sufficiently aggressive to significantly increase the deployment of renewable and other low-carbon energy generation technologies or advanced vehicle technologies, particularly in the near-term.”

    click to enlarge

    From the report: “…ACESA directs relatively little public funding to support research and development, commercialization and production of clean energy technologies within the United States. Furthermore, the legislation is unlikely to trigger significant private investments in clean energy development and deployment before 2020, if not much later, largely because carbon prices established by the bill’s cap and trade program are projected to remain relatively low…Renewable energy deployment standards contained in ACESA are also insufficient to require additional deployment beyond business-as-usual projections…”
    From the report: “Dollar for dollar, the direct and targeted public investments of China, Japan, and South Korea are likely to attract substantial private investment to clean energy industries in each country, perhaps more so than the market-based and indirect policies of the United States…As trillions of dollars are invested in the global clean energy sector over the next decade… investors will invest more in those countries that offer support for infrastructure, R&D, a trained workforce, guaranteed government purchases, deployment incentives, lower tax burdens, and other incentives…”

    click to enlarge

    From the report: “The United States has consistently been a leader in inventing new technologies and creating new industries and economic opportunities. It remains one of the most innovative economies in the world, and is home to the world’s best research institutions and most entrepreneurial workforce. The challenge will be for the United States to aggressively build on these strengths with robust public policy and government investment capable of establishing leadership in clean technology development, manufacturing, and deployment, and to do so before China, Japan and South Korea fully establish and cement their emerging competitive advantages.”


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