Why is the U.S. Losing the Race to Go Green

http://www.nytimes.com/roomfordebate...een-technology


Americans pride themselves on being global leaders in innovation. So why is the nation lagging behind China and Germany on renewable energy?
How the U.S. Can Be Effective

Updated September 21, 2011, 05:42 PM
Lisa Margonelli, is the director of the Energy Policy Initiative at New America Foundation. She is the author of "Oil on the Brain: Petroleum's Long Strange Trip to Your Tank" and published the Energy Trap.

The world will need 50 percent more energy by 2035. To compete in the world economy and generate manufacturing jobs in the coming decades, the United States needs to both nurture a green economy and reduce our reliance on fossil fuels. By comparison to other government energy investments, Solyndra's failure is more symbolic than fatal. Taxpayers have lost far more money to previous government bets on risky energy projects. Chief among them is nuclear power, which depends on hundreds of millions in government subsidies. Moreover, the risk of default on nuclear loans has been estimated at around 50 percent.

The U.S. government really needs to address our competitive disadvantage in the green space -- namely, that energy is cheaper here than in many industrialized countries.
Taxpayers should shy away from directly investing in energy production. Our real strengths are supporting basic research and fostering an active private venture capital community. Recently, the government has been abandoning its support of basic research in favor of playing venture capitalist with loans. The government runs a great risk of becoming “the lender of last resort” and supporting projects too risky for banks or venture capitalists.

For China, the calculus of subsidizing green industries is quite different, and that alone should warn U.S. policy makers away from trying to subsidize these technologies -- and consequently, jobs -- into existence. China’s one-party government has the political will and financial resources to effectively create millions of jobs, which helps to stabilize the society. Heavy subsidies, low labor costs and a desire to increase market share make it possible for Chinese producers to export products at very low prices. If we try to create industries simply through selective subsidies, the U.S. will lose the game of chicken with China. Instead, we need to do what we do well -- create innovative technology, business models and marketing platforms.

The U.S. government really needs to address our competitive disadvantage in the green space -- namely, that energy is cheaper here than in many industrialized countries. According to the Energy Information Administration, the U.S. economy needs 27 percent more energy to produce a dollar of G.D.P. than do the economies of Europe or Japan.

What that means is that when energy prices are high, we pay through the nose: By the end of the year, Americans will have paid nearly half a trillion dollars for gasoline in 2011 -- more than $100 billion more than we paid in 2010. Cycles of punishingly high prices, and the public perception that energy should be too cheap to notice, mean that energy efficient and low-carbon products in the U.S. -- from cars, to turbines that can generate power from factory exhaust, to innovative home furnaces that are also electrical generators -- have far dimmer prospects in our marketplaces than they do abroad.

Rather than financing big energy producers and concepts, the government should make many smaller loans to the consumers of these products to stimulate a market, while reducing our energy dependence. At the same time, American manufacturers need to change their sights from competing for government loans to competing for consumers’ dollars.


MORE ESSAYS FOLLOW IN THE LINK ABOVE.

The German Solution: Feed-In Tariffs

Updated September 21, 2011, 05:42 PM
Christoph H. Stefes is an associate professor of political science at the University of Colorado, Denver, and a senior associate at the Ecologic Institute.

You do not have to believe in global warming to support renewable energy. There are many good reasons to bet your money on renewables (to name just a few: national security, job creation and the finiteness of fossil fuels). But how do we get to a green economy?

For now, the United States is a good example of how not to get there. While some states have set ambitious goals for the expansion of renewable energy, a concerted effort at the federal level is missing. Instead, the Obama administration has continued to rely on an already existing patchwork of tax breaks, loans and research and development spending that has done little to provide entrepreneurs with a nurturing investment environment. In a market that is so heavily tilted in favor of conventional energy sources, governments need to provide some reassurance to investors in green technology.

German utilities can buy electricity from renewable energy operators at a guaranteed rate, providing a stable investment environment.
In contrast to the U.S., Germany has for two decades relied on a comprehensive policy instrument to promote renewable energy: feed-in tariffs. This model requires utilities to buy electricity from renewable energy operators at a fixed rate that is guaranteed for 20 years, providing entrepreneurs and banks with a stable investment environment. Since introduction of the first feed-in tariff in 1991, the share of renewables in the electricity sector has increased from less than 5 percent to about 20 percent, with 30 percent envisioned by 2020 and 80 percent by 2050. Renewable energy has thereby become a boom industry, employing around 300,000 workers today, with 500,000 expected by 2020. Utilities have passed on the extra costs to the end consumer. Yet consumers’ electricity bills have increased by less than 5 percent because of these tariffs, and customers have had no major objections.

Can the U.S. emulate the German success story? It would certainly be difficult. The tariff model had an advantage in Germany, because it was introduced when its major opponents (large utilities, energy-intensive industries and the Ministry of the Economy) were distracted by the challenges of German reunification. Today, the opponents of renewable energy are on high alert in all industrialized countries, making it all the more necessary for proponents to unify their forces.

In Germany, the coalition behind renewables has been held together by the Ministry of the Environment. In the U.S., a strong federal agency that could serve as a focal point for renewables has yet to emerge. The ultimate goal of such a coalition is clear: the introduction of a federal feed-in tariff model, following the German example.

It's Not Just About Creating Jobs

Updated September 21, 2011, 05:42 PM
Alexis Madrigal is a senior editor at The Atlantic and co-founder of Longshot magazine. He is the author of "Powering the Dream: The History and Promise of Green Technology."

President Obama sold his energy policy as a jobs plan. That was a bad idea. He set himself up for failure the second he made the wisdom of his energy policy dependent on the number of American jobs it would create. He didn’t sell the value of investing in energy, per se, opting to make it a means to a jobs end. To show progress, he needed to show “jobs created” and that meant celebrating companies that were hiring — as Solyndra was.

Green technology is not about saving the planet. It's about protecting what humans have built.
Technology research and development requires high levels of risk, which means that some companies will fail. As with most technology companies, green tech start-ups live in the near future hallucinations of their projections. “Costs will decline as we scale up our factories and learn more about our manufacturing processes,” they say. But the rate of learning is unpredictable. One (high) plausible rate of improvement yields success. Another (lower) plausible rate of improvement gives you bankruptcy. For some perspective, just ask an old nuclear engineer how many types of nuclear reactors were built in the 1950s.

Everyone but the Tea Partiers supports green technology — Republican, Democrat and independent alike. But Americans need to be leveled with. Green energy isn’t a jobs program or even an environmental policy. It’s insurance against fossil fuel price spikes and climate change. The president should remind people that stopping global warming isn’t about nature or “saving the planet.” Some set of plants and animals will survive. Human infrastructure is what’s in danger. We’ve built cities predicated on one climate and now those places have a new one. Climactic chaos is expensive.

Obama should have said: We support clean energy because we value the America we’ve built, and we’re going to fight to save and improve it through this country’s innovations. That could have been a generational challenge for an America lacking a sense of its own future — as sorely as it is lacking jobs.

A Smart Grid Is Crucial

Updated September 21, 2011, 03:10 PM
Nalin Kulatilaka is the Wing Tat Lee Family professor of management and the co-director of the Clean Energy Initiative at Boston University.

The failure of clean energy efforts in the U.S. comes not from a lack of technology innovations, but from the lack of their widespread adoption. Rather than singling out specific companies or industries, our clean energy efforts should focus on building a smarter electricity system, one in which consumers and producers base their decisions on timely information that reflect true costs. Such a system will accelerate the adoption of clean energy by bridging information gaps that are dissuading investments and inhibiting energy-saving behavior.

Once businesses and individuals can see what drives up their electric bills, a wide range of new energy business models will emerge.
The sources of generating electricity, hence the environmental impact and costs, change often and unpredictably. In the current system this is opaque to retail users. By making prices readily visible, smart electricity systems will reduce energy use. In fact, some European countries already have appliances that receive pricing information from the grid and are programmed to run during cheaper times. Having a smart grid is also essential in integrating renewable sources of energy like solar and wind by better managing their intermittent availability. Such a system is also imperative for the electrification of the transportation sector that needs to coordinate charging batteries with availability of cheap and clean sources of power. Because electricity and the transportation sector currently consume two-thirds of our fossil fuel use, these changes would have an enormous impact.

With the smart electricity infrastructure in place, a wide range of new energy business models will emerge. For example, the new information will enable cheaper and better audits of buildings’ energy use, which would help to tailor efficiency improvements.

As with the highway system, by investing public resources on a smart electricity infrastructure, we can create a truly transformative environment in complementary sectors and can take the U.S. to a leadership position

The Evidence Is Mixed

Updated September 21, 2011, 03:10 PM
Peter van Doren is a senior fellow at the Cato Institute and editor of Regulation.

What is the role of government in energy markets? Conventional wisdom presumes that a proper accounting of the negative environmental effects in the pricing of fossil fuels would result in renewable fuels being cheaper. The Chinese and German governments understand this; the United States government does not.

The bigger question: Can we be certain that there will eventually be a viable market for solar power?
Let’s examine this claim. Economists have reported wildly varied estimates of the environmental costs associated with energy. Some studies say that existing prices for conventional fuels, like natural gas, are too high relative to their external costs rather than too low because of regulatory distortions. For those fuels for which the evidence of environmental externalities is clear, the appropriate solution is a tax that increases the price and allows producers and consumers complete freedom to adjust. But such a policy creates visible costs and diffuse benefits, and politicians prefer the opposite: visible beneficiaries and diffuse costs to the taxpayers and the economy.

Another rationale for targeted subsidies is that innovators in energy markets cannot capture the full benefits of their innovations. Notice that the complaint, however, is that business will underinvest in research and development across the board, not that investors pick the wrong technologies in which to invest. If this is a serious problem, the solution is to make all research and development more attractive through subsidies.

Don’t we need to keep up with China? To be sure, in industries characterized by network effects or large economies of scale relative to the size of the world market, there are advantages to countries that jump out to an early manufacturing lead. Early firms will expand rapidly and later entrants will not be able to achieve sufficient scale to become viable. In theory, then, a country that hosts these “first movers” can permanently increase its welfare relative to the rest of the world through clever government intervention.

But can we be certain that there will eventually be a viable market for solar power or that solar panel manufacturing is in fact characterized by very large economies of scale? No, we can't. And if there is evidence that the economies of scale in solar power markets are great enough to fear that a first mover could choke off future competition in the market, I have not seen it.

Know Your Product

Updated September 21, 2011, 03:10 PM
Steven F. Hayward is is a resident scholar at the American Enterprise Institute and the co-author of “Post-Partisan Power: How a Limited and Direct Approach to Energy Innovation Can Deliver Clean Cheap Energy, Economic Productivity, and National Prosperity.”

President Obama’s now infamous speech saying, “the true engine of economic growth will always be companies like Solyndra ... leading the way to a brighter, more prosperous future” will go down on the list of risible executive pronouncements alongside Herbert Hoover’s “prosperity is just around the corner”; Dick Cheney’s “the insurgency is on its last legs”; and the Lyndon Johnson-era’s “light at the end of the tunnel” in Vietnam. And for the same reason: the presumption of mastery over real-world limitations that simply won’t conform to our wishful thinking.

Defenders of green energy investments are probably hoping that the Solyndra debacle can be attributed to corrupt or illegal influence from the White House, lest it discredit all government support for green energy. Already, these people are saying that Solyndra’s failure amounts to only about 2 percent of the $38 billion of the green energy loan guarantee program.

The U.S. should stop throwing taxpayer money at forms of advanced energy that are not practical or scalable.
My, how far we’ve come since 1979, when we had a serious national debate about whether it was appropriate at all for the government to provide a mere $1.5 billion loan guarantee to Chrysler — a legacy company with more plausible prospects for profitability than Solyndra. Opponents said that once the government started backstopping business, it would undermine the discipline of the marketplace and create a moral hazard. Now we’re bailing out auto companies again and handing out billions in loan guarantees like Halloween candy to shaky start-ups, with scarcely any debate. Looks like the Chrysler loan critics had a point.

The shame of it is that the Obama administration can point to more promising initiatives in energy, especially the Department of Energy's Advanced Research Projects Agency-Energy (modeled after the Pentagon’s Defense Advanced Research Projects Agency). But ARPA-E’s total budget was only $400 million in its first year — less than the Solyndra loan.

When contemplating their mistakes on energy innovation and the economy in general, Obama and his fellow progressives ought to heed the lesson that came too late to Lyndon Johnson: “Light at the end of the tunnel? We don't even have a tunnel; we don’t even know where the tunnel is.” We should admit that we’re still far away from knowing what forms of advanced energy will prove practical and scalable, and stop throwing taxpayer money after today’s uncompetitive technologies.