China leads green war charge

Canberra Times
4 January 2011, Page: 11

The West is finding itself running on empty as Beijing powers ahead to become a clean energy giant, Michael Richardson writes:

As 2011 begins, leadership in clean-energy manufacturing is shifting from the West to Asia as countries their support renewable energy and development of new exportable technologies. Within the Group of 20 leading economies that includes Australia, four Asian powers China, India, Japan and South Korea are projected to account for about 40% of renewable energy investments in 2020, leaving the United States and Europe trailing.

China is the pacesetter. It is rapidly becoming a global colossus in "green" power as it seeks to reduce reliance on polluting fossil fuels and establish itself as the top clean energy manufacturer and exporter.

A recent survey by Bloomberg, in collaboration with the UN Environment Program, found that China became the largest recipient of renewable-energy financing in 2009, attracting more than 20% of the $US162 billion ($A159 billion) invested worldwide in wind, solar, biomass, small hydro, biofuel and marine energy.

While such investment in China grew by 53%, it shrank in the US by 45%. The US exported at least $US2 billion of renewable energy products in 2009, almost double the sum in 2007. But it ran a trade deficit in the sector, with imports of wind-power equipment alone amounting to more than $US3.6 billion.

Reasons given for the West's decline and China's rise are a new source of friction in Sino-US relations. Both Washington and Beijing consider the clean technology sector crucial to energy security and economic growth. However, renewable-energy companies in the US struggle to find investments. They've cut jobs and, in some cases, moved operations to China. US President Barack Obama maintains that the industry should be vibrant source of employment and exports for America. In September, Obama called for "a home-grown clean energy industry".

In October, the US Trade Representative's Office announced that it would investigate Chinese Government support for manufacturers of wind and solar power products, advanced batteries and energy-efficient vehicles the result of a petition from a powerful US union, the United Steelworkers, with 850,000 members in a range of energy-related jobs.

The petition claims that China protects and unfairly supports its clean-energy producers in breach of World Trade Organisation (WTO) rules. The main thrust is that the Chinese Government makes widespread use of cheap loans and land grants to subsidise exports of clean energy equipment.

In an angry reaction to the US probe, Zhang Guobao, head of China's National Energy Administration, implied that the Obama Administration deliberately courts protectionist sentiment in the US, where nearly one in 10 are unemployed.

Chinese President Hu Jintao is due to make a state visit to Washington on January 19. Both sides say they want to repair relations strained over trade, security, human rights and other issues. But clean energy is on the agenda. The US recently took the first step in filing a trade case against China at the WTO, alleging that Beijing has given several hundred million US dollars in wind power grants that exclude foreign-made parts and components.

China is illegally subsidising wind equipment production and the "subsidies effectively operate as a barrier to US exports to China", US Trade Representative Ron Kirk said in a statement on December 22. The US and China have 60 days to resolve the disagreement. If negotiations fail, Washington could ask for a VVTO dispute settlement panel to hear the complaint.

The US Government has belatedly recognised the China challenge and last month convened the first meeting of a high-powered private sector advisory committee charged with developing a clean-energy export expansion plan. At the same time, the US Export-Import Bank announced increased financing for "green" exports.

The US is destined to lose this battle for dominance if Congress refuses to pass an energy policy promoting renewables. As part of a compromise on the US tax bill, lawmakers agreed on December 17 to extend a tax-credit scheme for another year, offering clean power producers grants worth up to 30% of development costs.

But America needs a more coordinated approach if it's to compete with China in clean-energy manufacturing and exports. A study published by Harvard Kennedy School's Belfer Centre found that, unlike industrialised countries, China and most other emerging economies coordinate and support their energy R&D through government-owned enterprises. The study covered Brazil, China, India, Mexico, Russia and South Africa.

By some estimates, investments in renewable-energy assets may total $US2.3 trillion by 2020, yielding increased jobs and exports, as well as reduced greenhouse gas emissions, for countries that harness green technology. China's rise in key sectors of the green-energy business has been breath taking. In 1999, China made around 1% of the photovoltaic cells put into solar panels to generate electricity. A decade later, it's the world's leading producers, with a 40% share of the market.

Firms in China are expected to make more than half of all solar panels manufactured this year and nearly 80% of solar hot-water units. The world's second biggest economy is also on course to produce nearly half the world's wind power turbines, selling them at prices significantly lower than those of manufacturers in the West and preparing for large-scale exports.

If China becomes a green-power export juggernaut, it will consolidate its lead in global high-technology sales, leaving the US well behind. In 1998, the US share of worldwide high-tech exports was nearly 25% while China's was less than 10%. By 2008, China's share was 20%, with America's below 15%. The stakes in the green power race could hardly be higher.

The writer is a visiting senior research fellow at the Institute of South East Asian Studies in Singapore.