Obama Desire For U.S.-China To Vie On Clean-Energy Faces Challenge

A Chinese wind turbine and a farmer plowing in the ancient method. i

The Chinese are more serious and focused than the U.S. about making renewable energy a big part of their economy. Imaginechina via AP Images hide caption

itoggle caption Imaginechina via AP Images
A Chinese wind turbine and a farmer plowing in the ancient method.

The Chinese are more serious and focused than the U.S. about making renewable energy a big part of their economy.

Imaginechina via AP Images

President Barack Obama, in his State of the Union address, spoke of his desire to see the U.S. compete successfully with other nations in producing clean-energy products like wind turbines.

Obama said:

... The nation that leads the clean energy economy will be the nation that leads the global economy. And America must be that nation.

But the Chinese aren't going to make it easy for the U.S. to achieve Obama's vision.

Just how difficult that will be for the U.S. is underscored by a New York Times piece on the strides China is making in this area. The article points out China's formidable competitive advantages in this area which are going to be very difficult, if not impossible, for the U.S. to overcome.

China has embraced renewable energy with an enthusiasm not yet apparent in the U.S. In part, it has to do with the nature of a mixed economy. China's communist authorities can and do dictate economic and industrial policies much more than is possible in the U.S.

Also, China has a lot less developed energy market than the U.S., which gives it enormous room for growing its renewable energy industry.

China furthermore has the killer advantage of extremely cheap labor, relative to the U.S. Some Chinese wind-turbine workers make $4,100 a year. That isn't a typo.

A key passage from the NYT:

China's top leaders are intensely focused on energy policy: on Wednesday, the government announced the creation of a National Energy Commission composed of cabinet ministers as a "superministry" led by Prime Minister Wen Jiabao himself.

Regulators have set mandates for power generation companies to use more renewable energy. Generous subsidies for consumers to install their own solar panels or solar water heaters have produced flurries of activity on rooftops across China.

China's biggest advantage may be its domestic demand for electricity, rising 15 percent a year. To meet demand in the coming decade, according to statistics from the International Energy Agency, China will need to add nearly nine times as much electricity generation capacity as the United States will.

So while Americans are used to thinking of themselves as having the world's largest market in many industries, China's market for power equipment dwarfs that of the United States, even though the American market is more mature. That means Chinese producers enjoy enormous efficiencies from large-scale production.

In the United States, power companies frequently face a choice between buying renewable energy equipment or continuing to operate fossil-fuel-fired power plants that have already been built and paid for. In China, power companies have to buy lots of new equipment anyway, and alternative energy, particularly wind and nuclear, is increasingly priced competitively.

Interest rates as low as 2 percent for bank loans — the result of a savings rate of 40 percent and a government policy of steering loans to renewable energy — have also made a big difference.

As in many other industries, China's low labor costs are an advantage in energy. Although Chinese wages have risen sharply in the last five years, Vestas still pays assembly line workers here only $4,100 a year.

Again, what kind of approach can U.S. policymakers come up with that would even come close to moving the needle away from all these Chinese advantages and at the very least level the playing field for U.S. green energy manufacturers? It's hard to imagine how you get there from here.



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