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The US-China Green War

A recent report from Ernst & Young showed that America has lost its spot at the top of the renewable energy ladder to China. So it comes as no great shock that the US government has picked the clean energy industry as the latest battleground in its cold war with China over currencies and trade.

The Obama Administration recently announced that it would proceed with an investigation into China's support for its renewable energy industry. The results of the investigation could eventually lead to litigation at the World Trade Organization.

What's at issue is Chinese government support for its 'green' industries such as wind turbines, solar energy products, energy-efficient vehicles and technologically advanced batteries.

China Going Green

Basically, the American government is trying to punish China for putting an emphasis on developing green industries. Something Washington has talked about for decades, but did little about it.

In contrast, the Chinese government has put its money where its mouth is. Even recently, officials have spoken of lavishing more investment on both better grid infrastructure and clean-tech industries. The investment figures being bandied about are comparable to the country's $600 billion stimulus after the global financial crisis.

The Chinese government has made the move toward a greener future the core of much of its policy-making. China's leaders see greener energy as a huge opportunity to push forward their economic restructuring agenda.

China has pushed hard to closing older industrial facilities and building bigger, more efficient ones. But, in addition, the Chinese government's aim is that green industries will spring up to provide fresh sources of economic growth.

In fact, of the nine key emerging industries ordained by Chinese policymakers, six are green technology-related.

One of those key industries where China has already had success is wind power equipment. China's appetite for such equipment has more than doubled in each of the past four years. And it is on course to beat its official target of 30 gigawatts of installed wind power by 2020. The country also looks likely to surpass the US as having the most wind power capacity.

It is a similar story in the solar power industry. The Chinese have proved adept at mastering new techniques and producing on a large scale. The result is that they have driven costs down fast and grabbed a large share of the market away from their American competitors.

The US Slips to Second

So why has the United States fallen behind in the green technology war? One major reason is the Silicon Valley approach to developing new energy technologies.

One prime example is the solar power industry where Silicon Valley promised to create a new, world-beating industry. But the shine has come off that promise.

Several years ago, venture capitalists were throwing money at new solar start-ups. Most of the start-ups were trying to apply a new technology based on printing thin layers of exotic new materials onto cheap substrates. The resulting panels are less efficient than silicon at converting sunlight to power. But they were expected to be far cheaper to produce and install.

However, many of the ideas backed by venture capitalists were nothing more than expensive and time-consuming “science projects”. As a result, many thin-film solar companies are finding it hard to reach the mass production levels needed to achieve the economies of scale necessary to compete.

The result of all this venture capital investment? A bunch of “me-too” companies that can't compete globally.

In addition, Silicon Valley vastly underestimated the adaptability of its competitor – China. China was using older technology based on making solar panels using silicon cells. Silicon Valley confidently thought its push into solar using thin-film technology would leave its Chinese competitors in the dust.

But that really hasn't worked out. First Solar is the acknowledged world leader in thin-film solar technology thanks to its mastery of a material known as cadmium telluride. Yet even it is starting to feel the competitive strain from China.

The US Government Blows Hot Air

The other main reason the US has fallen behind China in renewable energy is lack of government action. In the United States, there has been much talk about green energy industries. But little real concrete government action to support the industry.

Many in the American renewable energy industry are actually angry at the US government. They are angered by what they see as the administration's belated recognition that the US industry's competitive position has been eroded, after years of relative neglect.

Mike Eckhart, president of the American Council on Renewable Energy, spoke about the Obama Administration's investigation. He said “The Chinese did what they said they were going to do, and the US didn't. The fact that the US didn't support its renewable energy industry in the same way that other countries did is no grounds for complaining now.”

And while the US points to “unfair” Chinese policies...it is interesting to note that in the US, Chinese companies can make no headway. For instance, just three Chinese wind turbines in total have been sold in the United States. And the towers and blades for those were US-made. I guess it all depends on what your perspective is to determine the definition of “unfair”.

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