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At the end of September, Chinese President Xi Jinping announced his country’s intention to peak its emissions by 2030 and be carbon neutral before 2060. To meet this goal, China will have to expand its domestic market for clean energy technologies, many of which it produces. China is also hoping to spur other countries to be more aggressive in lowering emissions—calling for a “Green Revolution”—and these countries could also be a market for Chinese technologies.
Thanks to initiatives like these, China is for now winning the global race to invent and manufacture the technologies that will allow a new low-carbon world. Europe, which has made its own commitment to become climate neutral by 2050, is not far behind.
Given its robust high-tech sector and wealth of private investment, the United States is well positioned to compete, but it risks falling behind. For now, it is still resting on the energy boom that came with the shale oil revolution and relying on its traditional approach to energy innovation. This shortsightedness will hurt the country economically and geopolitically. To avoid the pain, the United States needs a clear strategy for leading in new energy markets and technologies.
The world’s energy system is changing rapidly. The last decade has seen exponential growth in the use of wind and solar for electricity generation and in the deployment of electric vehicles. Some of the milestones of this transition are well known: in 2019, consumption from renewable energy sources surpassed coal use in the United States for the first time in more than 130 years. In the United Kingdom and Spain, coal-fired power generation is almost phased out, while renewable energy sources have surpassed nonrenewable ones in Germany’s power consumption. This transition is not yet universal, but it is happening quickly and in an ever increasing number of places. Only when compared with the immense challenge of dealing with climate change does this transition look slow.
China has emerged as the lead supplier of this transition. In 2018, Chinese companies made up over a third of the world’s manufacturers of wind turbines. In 2019, the country built over 70 percent of the world’s solar photovoltaics. In electric vehicles, China’s command is even greater: It holds almost three-fourths of the world’s manufacturing capacity for lithium ion battery cells, and it controls even more of the supply chain before the final assembly. Of the three big green energy technologies taking off around the world, then, two are largely made in China with a good portion of the third made there as well.
Europe is also eyeing this growing market. European countries rely more on solar and wind than most other countries in the world, and European manufacturers are prominent in wind energy. The European Union has already unveiled a battery strategy to create a competitive manufacturing value chain in Europe for sustainable battery technologies, and its European Green Deal is explicitly seen as not just an environmental strategy but as an industrial strategy as well. Beyond decarbonizing the continent’s energy system, the Green Deal looks toward developing the industries necessary to do so, with a special focus on hydrogen, which is one of Europe’s big bets and an area where it hopes to lead.
The implications of this picture should be obvious, at least when it comes to China. China will get good jobs and become the partner of choice for any country that wants to lower its greenhouse gas emissions. It is unlikely to care as much as about how materials are sourced or whether their extraction enriches local politicians in shady deals. The country will also exert control over supply chains, possibly tampering with them when politically convenient. In turn, it will be harder for the United States to lead if it does not build any of the nuts and bolts that the new world needs.
For the United States, the green tech challenge is often framed as a need for more innovation—and it certainly is that. As a share of GDP, the United States spends less on research and development than competitors like Germany, Japan, and South Korea. The private sector, of course, has stepped in. But the shift of R&D money from government to individual companies also means a change in focus (narrower) and ambition (shorter term).
In energy, U.S. R&D spending is still above average versus other advanced economies but only barely: Among the 27 countries for which the International Energy Agency (IEA) reports spending relative to GDP, the United States ranked 10th in 2018. (The IEA figures include deployment, so this ranking constitutes research, development, and deployment.) China already spends more, in absolute dollars, than the United States. In areas where the United States leads technologically—namely health care and defense—such spending is much greater: Federal R&D for health care is roughly 1 percent of total health expenditures, four times greater than the equivalent number in energy. A commitment to excellence requires more money.
There’s also a problem with the targeting of U.S. spending. The country has a deep aversion toward “picking winners,” at least in theory (and usually when the winners are in someone else’s district). Avoiding heavy-handed government direction can be wise, but it can also lead to paralysis. We can already visualize what a low-carbon future looks like: It is more efficient and electrified, it relies on certain technologies that will provide storage and energy for sectors that are hard to electrify—industry, freight, shipping, aviation—and it involves removing carbon dioxide that is already in the atmosphere. Promoting the development of the technology needed to meet this future does not mean going all in on a few particular companies; a large country can afford to place multiple big bets even if they do not pay off (just as it is doing in the race to create a vaccine for COVID-19). The United States’ current innovation system is often geared to avoiding failure rather than supercharging success. It needs to flip that focus.
Innovation alone, though, will not be enough—it needs to be paired with deployment and manufacturing. In 2009, the United States had twice as much wind capacity as China and five times as much solar capacity. By 2019, China had taken the lead and deployed twice as much wind and three times as much solar as the Unites States. In electric vehicles, the reversal has been faster: The United States had five times as many electric vehicles as China in 2013, but now China has twice as many as the United States, courtesy of generous state support. These trends reverberate into manufacturing: In the late 1990s, for instance, the United States had a 30 percent market share in solar photovoltaics manufacturing. Now it has just 1 percent.
The toolkit for encouraging deployment is relatively straightforward—it is just a matter of choosing the level of ambition required. At one extreme are nudges: getting consumers to shift from one appliance to another, prompting them to cut individual energy use, and so on. In the middle are tax credits and firm mandates: support for purchases of electric vehicles or to retrofit a house, incentives to procure a certain amount of renewable energy or to build cars that meet a certain mileage standard, and so on. And on the other extreme are policies where the state takes a central role in creating a market—electrifying the region like the Tennessee Valley Authority did after the Great Depression or building highways that boost automobile use. This is largely a political challenge, not a policy or a technical one.
Deployment, however, cannot be divorced from manufacturing. From a climate perspective, a solar panel is a solar panel no matter where it was produced. But from an economic and national security perspective, manufacturing matters. This is not about fighting China. Rather, it means caring about where things are built and asking tough questions about why companies tend to go overseas to do manufacturing. It means building supply chains across the world and ensuring that the United States is embedded in them. And it means a commitment to making things again, rather than merely consuming or financing them.
Doubling down on R&D and encouraging deployment of green tech will mark a reversal from the United States’ policies of the past few years. The country has always struggled to operationalize a green energy strategy. But the Trump administration has gone further in doubling down on fossil fuels and prioritizing hydrocarbon exports, infrastructure, and consumption. When an oil or gas pipeline falters, the administration has plenty to say—but it lets permitting for an offshore wind project languish. It is trying to relax auto standards rather than working with Detroit to make the car of the future, and the Federal Energy Regulatory Commission has made it harder to deploy renewable energy by casting doubt on a state’s right to support new industries.
For an administration supposedly committed to not picking winners, this is not an approach that favors all energy sources equally. Looser regulations undermine the fuels and technologies that the administration seeks to support. Oil, natural gas, and coal will compete in a world with tighter environmental restrictions on their production and use. To not prepare traditional energy companies for that future puts them at a disadvantage worldwide.
In some ways, the situation the United States has put itself in is understandable. For decades, Washington has assumed that being a big hydrocarbon producer would yield lasting economic and geopolitical advantage. Now that U.S. oil and gas production has risen to record levels, it is hard to look beyond the short term and into a future where the commanding heights of the energy system may lay elsewhere. But that future is coming soon, and other major countries are vying to become leaders in the technologies that will define that future. The United States need not abandon fossil fuels, of course, nor assume that they will disappear anytime soon.
But it does need to look into the future, not just the past, and articulate a strategy to invent, manufacture, and deploy what the world will need over the next two decades. China and Europe certainly are.
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