Witnesses: 
Justin Wu
Head of Wind Industry Research, Bloomberg New Energy Finance, Hong Kong
Alan Wolff
Senior Counsel, McKenna Long & Aldridge LLP
Clyde Prestowitz, Jr.
President, Economic Strategy Institute
Dan Holladay
Director, Advanced Technologies & PV Programs, SEMATECH
Derek Scissors
Senior Research Fellow, the Heritage Foundation

 

Committee Members Present:
Jeff Bingaman (D-NM), Chair
Lisa Murkowski (R-AK), Ranking Member
Al Franken (D-MN)
Ron Wyden (D-OR)

 

On June 14, 2012, the Senate Committee on Energy and Natural Resources hosted a hearing to discuss the level of success of China’s clean energy sector. Discussion focused on policy options that could promote international collaboration and ensure the competitiveness of U.S. clean energy innovations. In 2005, China created a Renewable Energy Law to mandate a portion of electricity generation be sourced from clean energy supplies. Following this and other supportive legislation, China became the world leader in attracting new capital for clean energy in 2009 and 2010. During 2012, U.S. clean energy investments are projected to fall relative to China. China invested $47 billion into wind, solar, and other clean energy development in 2011. It is uncertain the level to which the United States should prioritize alternative energy investments to ensure a sustainable supply of energy, improve environmental quality, and remain internationally competitive.   

 

Chairman Jeff Bingaman (D-NM) opened the hearing by describing the Chinese clean energy pursuits he witnessed during recent visits to Hong Kong. Because of China’s rapid economic growth and high reliance on coal and oil, the government has instituted incentives and other financial policies to promote clean energy development. Bingaman noted that clean energy investments in China are influencing markets in the U.S. and Europe. He called for a strong foundation of domestic policies, stating that the U.S. cannot compete under current “inconsistent and erratic” clean energy investments. Bingaman outlined the need to evaluate the investment landscape in China, the appropriate extent of U.S.-Chinese collaboration, and determine how the U.S. can remain competitive with China. 

 

In her opening remarks, Ranking Member Lisa Murkowski (R-AK) stressed the need to understand the key contextual differences between China and the United States. Murkowski said the U.S. is not falling behind in areas such as environmental and labor standards, therefore “imitating China is not the best way to compete.” Murkowski contrasted the alternative energy challenges China has faced with air and water quality issues and the displacement of millions of people by the Three Gorges Dam project, with U.S. energy problems, such as a rise in food prices associated with biofuels and the lack of a nuclear waste disposal site. Murkowski stated that the different challenges denote the importance to “look at the whole picture” in order to constructively advise congressional leaders. Murkowski concluded that the nation “should not be overwhelmed” by Chinese clean energy development. 

 

Justin Wu, of Bloomberg New Energy Finance, testified on the extensive work he has done in Hong Kong over the past several years. Because the nation manufactures half of all wind turbines and hosts eight of the top solar manufacturers, China is “a clean energy giant,” Wu said. He commented that the Chinese government has been influenced by factors such as annual economic growth of 8 percent and the reliance of coal to supply 70 percent of electricity needs. China has realized current energy trends may be expensive, bad for the environment, and weaken national security. Local governments have provided land and tax incentives for wind and solar energy, state-owned corporations are buying technology licenses, forming joint ventures, and hiring foreign engineers to design wind turbines, and private entrepreneurs have invested in solar manufacturing facilities. Wu concluded that trade relations between the U.S. and China can only increase in the future as China continues to rapidly develop clean energy.

 

In his testimony, Alan Wolff emphasized that solar and wind power must play a more significant role in the future to meet energy needs. Wolff noted that current U.S. measures are “temporary, erratic, and expired” and it should not be acceptable to have Chinese clean energy policy shape U.S. economic progress. He continued that it is essential to have efficient delivery of energy from production to an energy grid in order to be cost-effective. Wolf used the U.S. experience with semiconductor technologies as an example of a competitive framework similar to current Chinese-U.S. energy relations. In the 1980s, Japan began to introduce less-expensive semiconductors to the market because Japanese producers were vertically integrated and able to sustain below-average costs of production. To help Silicon Valley companies compete, the U.S. implemented a complete strategy of research and development (R&D) investments, foreign market access, and tax policy to eventually double Japanese production rates and make semiconductors one of the top five U.S. exports. To ensure market stability and competiveness for clean energy technologies, Wolff recommended the government avoid large cash deposit dumping, invest in R&D, strategically integrate trade measures into policy, and collaborate with China. Wolff concluded that China and the U.S. share “mutual interests” in clean energy and should lead negotiations that will not “end up in trade disputes.”

 

Clyde Prestowitz, President of the Economic Strategy Institute, began his testimony by comparing China’s clean energy pursuits to U.S. priorities in leading aircraft security and technology development. He highlighted that other national governments are supporting clean energy development such as Germany, where there are large subsidies for solar technology, and Denmark, who subsidizes wind power. Prestowitz stated that the world is at a place in which industrial policy, such as China’s 863 Program, is “defining the incentives and outcomes of the marketplace.” With the lack of an industrial policy in the U.S., the clean energy market will be determined by “external energy policy.” Prestowitz argued that the U.S. should respond by instituting a broad, comprehensive policy to support economies of scale, promote “learning by doing,” and ensure long-term, public-private commitment. He recognized the importance of the emerging shale gas industry, but noted that clean energy technology will still “be important down the road.”

 

In his testimony, Dan Holladay focused on the key role a public-private consortium, such as Semiconductor Manufacturing Technology (SEMATECH), can play in expanding the scope of next generation technology. SEMATECH is an organization that works to accelerate the commercialization of innovative technologies into manufacturing solutions by creating opportunities for flexible collaboration, investing in strategic R&D, and establishing global networks between suppliers, universities, research institutes, start-up companies, and government partners. Holladay attributed the past success of SEMATECH with semiconductor technologies to seven components: commitment from senior executives, industrial leadership, a pre-competitive mission to build a technology base and strengthen the manufacturing base, broad industrial engagement, leveraging of government and industrial funds to accelerate technology development, shared manufacturing development facilities, and the utilization of a membership model. Holladay stated that the SEMATECH model is being applied to photovoltaics (PV) through the Photovoltaic Manufacturing Consortium (PVMC), which will demonstrate capabilities to increase the performance and speed of implementation, improve manufacturing processes, and drive down costs of PV technologies. Holladay said the U.S. should not risk being a producer of intellectual property that is commercialized elsewhere. He concluded that private-public partnerships can build an infrastructure of sustainable growth and leadership in clean energy technologies.

 

Derek Scissors, Senior Research Fellow at the Heritage Foundation, testified that the negative aspects of China’s clean energy development are “pretty stark.” He said China is now the world’s leading importer of coal, has improved energy efficiency at an annual rate of 1.7 percent as opposed to U.S. improvements of 2.5 percent, is at least 50 percent ahead of the U.S. in carbon emissions, and has little primary innovation. Scissors said these factors are a result of economic policies associated with “state-control of energy,” that have suppressed competition and instituted price controls. Scissors emphasized that the U.S. is “winning” the competition. Scissors recommended the government comes to a consensus on corporate tax reform, create a stable yet minimally directed regulatory environment, and resist choosing “winners and losers” by subsidizing certain clean energy technologies.

 

Chairman Bingaman began the question and answer period by asking how partner organizations would initiate participation in a clean energy consortium and be as successful as SEMATECH. Wolff responded that the development of SEMATECH was driven by vertically integrated and Silicon Valley companies who recognized the need to develop better quality semiconductor chips to outcompete Japanese production. Government funding, matched dollar-for-dollar by industry, was a “major effort that paid off” because it led to the development of pre-competitive R&D practices. Holladay added that private companies, particularly along the supply chain, have expressed collective interest to develop high-quality R&D facilities to improve manufacturing and efficient deployment of crystal silicon cells. Bingaman then asked the panel to elaborate on the need to develop manufacturing capacity. Prestowitz described “path dependence,” the concept that decisions on further development are limited by potentially irrelevant past decisions, to highlight the importance of the “back and forth” scientific process to successfully transition along the stages of R&D to manufacturing to commercialization. Contributing to this comment, Holladay said it is essential to integrate innovation with manufacturing and deployment.

 

Ranking Member Murkowski questioned whether it is constructive to regard China-U.S. clean energy trade relations as “a race for the clean energy title.” She asked what metrics, such as generation capacity, the extent of emission reductions, or the quantity of federal investment, should be used to measure “who is winning or losing” in the development of clean energy. Wolff responded that in terms of environmental and energy sourcing reasons, it is internationally beneficial to promote a “race” in clean energy deployment, but collaboration in areas such as carbon sequestration and wind turbine technology are valuable as well. Wu commented that the focus should be on “grid parity,” the ability to deploy energy in a cost-effective manner, rather than on the quantity of wind turbines or solar panels. Prestowitz said industries are not characterized by “win-win” outcomes and the U.S. should invest in solar and wind in addition to shale gas technologies. Holliday noted that although photovoltaics are in the early stages of development, they will become a “huge market globally,” suggesting the U.S. should position itself as a leader of next generation technologies. Scissors commented that federal investment “money should not be a metric” to compare U.S. to China.

 

After describing China’s “green mercantilism,” a system of aggressive industrial policies and exportation of clean energy technologies, Senator Ron Wyden (D-OR) asked the panel how the nation should respond to this type of trade policy. Wu responded that Congress must consider economic differences, such as the higher demand for energy in China than in the U.S. Prestowitz suggested the U.S. strategically monitor green mercantilism practices, such as excessive investment followed by dumping, progressive industrial policies, and currency manipulation, by instituting foreign investment taxes or establishing public-private consortia. He recommended interested parties avoid debates over federal selection of “winners and losers,” because in a situation of active international, industrial policy “a decision not to intervene is a decision to pick losers.” Scissors suggested the U.S. focus efforts to apply political pressure on Chinese trade policy.

 

Senator Bingaman expressed concern about government procurement efforts in the United States. Unlike the U.S., China is not a signatory to the Government Procurement Agreement under the World Trade Organization (WTO) and is not obligated to offer fair opportunity to foreign producers. Bingaman asked if there should be more government demand for “buy-America” policies to support national industries. Wolff underscored the importance of government demand historically in areas such as the titanium industry, the internet, semiconductors, and global positioning systems (GPS), and highlighted the need for national policies to balance costs while concurrently maintaining a domestic industrial base. Senator Murkowski commented on the tension between environmental improvement, cost, and job creation, and questioned whether the nation will choose to prioritize either affordability or ‘made-in-America’ policies. Scissors claimed there will always be this type of tension. Wu disagreed that the tension presents “a stark choice,” because energy resources must be localized and therefore allow for job creation in installation and maintenance. Wolff added that a public-private consortium could drive down costs of clean energy technologies produced in the U.S.

 

Senator Al Franken (D-MN) suggested the statistics on China’s carbon emissions and clean energy efficiency used by Derek Scissors “need context” and asked the panel to respond to his testimony. Prestowitz said the fact that Chinese emissions are worse than the U.S. should not detract from their commitment to develop alternative energies. Wu noted that the poor emission statistics are a result of the massive growth in China’s economy and energy-use. He agreed with Scissors that federal investment in clean energy has not resulted in as much return as hoped, but said this is simply a function of poor grid parity. Wolff said he is more concerned about Chinese trade practices depressing clean energy production and preventing the U.S. from entering the clean energy market, than by the extent of Chinese renewable energy deployment. He concluded that “we breathe the same air around the world… it would be nice if they [China] had more clean energy.”

 

Visit the Senate Committee on Energy and Natural Resources web site for an archived webcast of the hearing and witness testimonies.