A recently released report suggests that the United States should look abroad for how to approach financing a new “clean economy.” China is presented as a good example.
The Brookings Institution study is titled “National and Regional Green Jobs Assessment, Sizing the Green Economy.” It has been most noted for its claim that there are 2.7 million “clean economy” jobs in the United States. The 2.7 million jobs figure was tabulated in part because the report classified waste management jobs (such as garbage truck drivers) and mass transit jobs (such as city bus drivers) as “clean economy” jobs. This was the subject of yesterday’s analysis in Capitol Confidential: Media Loves 'Green Jobs' Report; Fine Print Shows 'Green' Means the Garbage Man
The report also develops the following theme: “China now leads the world in clean economy deployment. By the end of 2010 its 103 gigawatts of installed renewable energy generation capacity was more than double that of U.S. installations.”
China's “rapid clean economy build out” is explained as follows:
In 2010, China put into place a staggering $54.4 billion in clean energy investments. Of this, asset financing - funding for hard assets like wind farms and solar arrays - accounted for more than $47 billion of the total. By contrast, U.S. private investment in clean energy totaled $34 billion, with just $21 billion or so in asset finance. Now the gap is widening further, with Chinese asset finance investment in Q1 2011 clocking in $10.9 billion as compared to just $2 billion in the United States.
However, in perspective, the difference may not seem so staggering. With 1.3 billion-plus people, China is the most populated nation on Earth, with more than a billion extra souls needing energy than the United States has. In terms of investment per capita, the $21 billion in “hard asset” spending by the United States (6.8 cents of so-called “clean energy” spending per person) is nearly double that of China’s $47 billion (3.5 cents of “clean energy” spending per person).
China is also a totalitarian state when it comes to many forms of large capital spending on energy. Whereas private money in an open society may (and often does) shy away from risky and unproven investments such as large-scale power generation from windmills and solar panels, a government playing with somebody else’s money is less likely to be so careful — particularly when there is no voting electorate that talks back.
The report somewhat acknowledges this, but portrays absolute government control over a nation’s financial sector as an asset:
What is China’s secret in ensuring deployment finance? China has been inordinately successful in mobilizing large volumes of low-cost capital through its state-owned banks and other financial institutions. Clean energy projects have received preferential access to bank loans at interest rates far below what is available in other countries. Moreover, state-owned enterprises, especially the “Big Five” power companies, have been major investors …
The report does not go so far as to suggest that the United States could achieve higher “clean energy” investment levels by replicating the Chinese government’s control over banking and its energy sector. But absent this level of control, American capitalists investing their own money and voters choosing representatives to spend tax dollars will always have competing ideas about how those scarce resources should be spent, not least of which might be on generating electricity from proven sources of power that are much less costly and substantially more effective than windmills and solar panels.
And here too, even the Chinese are all about those old-fashioned, proven methods of generating power.
The truth is that the Chinese “clean energy” surge isn't about new “cutting edge” green technology so much as domination by two long-established energy sources: hydropower and nuclear power. Both are considered “clean technology” by the Brookings report due to there being no carbon release as a by-product of power generation. But nuclear power was a viable source of energy when Mao was still alive, and hydropower has been powering homes for more than a century.
So how big of a player in China’s energy picture are the old-fashioned hydro and nuke plants, and how much will be windmills and solar panels?
On July 21, 2011, the Worldwatch Institute, a Washington, D.C., environmentalist research organization, reported the following:
With an energy strategy emphasizing self-reliance, China will continue to embrace coal as its dominant energy source for decades to come. But its share in the nation’s total energy consumption is expected to shrink. The vacancy will be filled by hydropower and nuclear power, as well as wind and solar energy. For at least the next two decades, however, the latter are not expected to be large players because of issues of scale and capacity.
One of the authors of the study, Jonathon Rothwell, senior research analyst for the metropolitan policy program at Brookings, told Capitol Confidential that he wasn't aware of all the details of China's turn to “clean energy.”
“I don't know what their projections are,” Rothwell said. “I know that they have been producing a lot of solar technology.”
When asked if China's solar investment was aimed at domestic or export markets in Western nations, Rothwell said he wasn't sure.
According to a Reuters analysis dated July 12, 2011, China is planning a massive $62 billion hydropower development that would boost its power capacity nearly 50 percent by 2015. Part of the analysis reads as follows:
China wants to raise installed power capacity by 490 gigawatts (GW) to 1,440 GW by 2015. At least 140 gigawatts of the 490 gigawatts of new capacity would be from hydro power -- enough to run the whole of France.
But for “clean energy” opponents of coal-generated electricity, the news from China is actually bad, according to Reuters. With a carbon footprint that surpassed that of the United States a few years ago, China is projected to continue spewing carbon into the air at a huge rate, even if it achieved its “clean” energy goals.
According to Reuters:
[E]ven a stringent pollution-reduction regime would still see China pump out about 9.7 billion tons of CO2 emissions by 2030 as new coal and other fossil plants also come online. Government calculations suggest, however, that new hydro could cut coal use by more than 165 million tons, equivalent to China's 2010 imports but a fraction of [the] total output of more than 3 billion tons last year.
Having lauded the supposed success story of Chinese “clean energy,” several pages of the “Sizing the Clean Economy” study are dedicated to recommendations for American policymakers.
Scale up the market by taking steps to catalyze vibrant domestic demand for low-carbon and environmentally-oriented goods and services. Intensified “green” procurement efforts by all levels of government are one such market-making engagement. But there are others. Congress and the federal government could help by putting a price on carbon, passing a national clean energy standard (CES), and moving to ensure more rational cost recovery on new transmission links for the delivery of renewable energy to urban load centers. States can adopt or strengthen their own clean energy standards, reduce the initial costs of energy efficiency and renewable energy adoption, and pursue electricity market reform to facilitate the use of clean and efficient solutions. And localities can also support adoption by expediting permitting for green projects, adopting green building and other standards, and adopting innovative financing tools to reduce the upfront costs of investing in clean technologies.
What is missing in this analysis is any notion a market demand exists for the “green” economy. The prescriptions are mostly about creating that demand by shutting off other options that are being demanded by the existing marketplace. The presumption, in other words, is that Americans won’t buy in unless taxes are hiked on fossil fuels and regulations are imposed to force or subsidize the “green” alternatives.
And the assumption is that creating this demand and then meeting it will not come cheaply or easily. As in China, substantial financing is needed. Financing that American financiers thus far have been reluctant to put down in the amounts the authors might prefer:
Market-making policies won’t be enough, however. A second priority must be to address the serious finance problems that surround clean economy scale-up. On this front, the availability of affordable capital of the right scale and with the right tolerance for risk is essential to all companies. Access to affordable finance matters inordinately in the clean economy because promising clean enterprises - whether in renewable energy or energy efficiency or water technology or air purification - often draw together intriguing but new technology, unusually heavy upfront capital requirements, and tricky regulatory or market settings.
Capitol Confidential asked Rothwell if renewal of the soon-to-be ended subsidy programs was a major reason for doing the study in the first place.
“Actually we're pretty well split regarding perceptions on that,” Rothwell said. “A lot of us believe the current system of subsidies is not very effective. There is the belief that it should be more significant in terms of the market making the choice. We'd create the tax on carbon and then let the market sort things out. However, there are some technologies where the public sector would still have to be involved at least in the early stages.”
The “Sizing the Green Economy” report was done by The Brookings Institution in partnership with Battelle Memorial Institute. According to its website, “Battelle” is “leading a global energy revolution, helping diversify sources, safeguard reliability, maximize productivity, and deliver energy for all.” Its five energy services are: zero emissions fossil fuel, nuclear fuel cycle, alternative energy, energy infrastructure, and carbon management.