competitiveness

Low-Carbon Business Innovation: A Call for U.S. Leadership

Will U.S. companies be ready to compete in the world markets of the future? Global clean energy markets pose a $2.3 trillion opportunity over the next 10 years, providing enormous potential for innovation in new technologies, products and business models. These opportunities will help us achieve the greenhouse gas emission reductions that scientists say are needed to mitigate the worst effects of climate change. 

Yet the United States’ commitment to developing these markets for innovation is lagging. While the Pentagon is calling for improved energy security, the U.S. House of Representatives is proposing funding cuts for energy innovation that would reduce our reliance on fossil fuels. After surviving the FY 2011 federal budget battle by receiving $180 million out of the $300 million requested by the President, on June 15 the U.S. House Appropriations Committee voted to cut FY 2012 funding to $100 million for the Advanced Research Projects Agency-Energy (ARPA-E). The President had requested $550 million for the agency, which funds transformational energy technology research.

At a Policy Crossroad for Clean Energy Technologies

The United States is at a crucial crossroad in its stance on clean energy policy. Once the leader in emerging clean technology markets, the U.S. now trails European nations and China in the research, development, and deployment of many new energy technologies. Financial analysts and industry insiders presented a stark choice at a standing-room only hearing hosted by the House Select Committee on Energy Independence and Global Warming last week: either we can adopt and extend policies that promote domestic growth of clean energy industries, or we can continue to fall further behind other countries around the world in our ability to compete in the markets of the 21st century. Chairman Ed Markey (D-MA) echoed the experts in saying that without clear long-term and short-term incentives, companies will invest clean energy dollars in other countries, most notably China. In effect, we will be trading our addiction to Middle Eastern oil for an addiction to Asian clean energy technologies.

Clean energy technology markets are already substantial in scope and are likely to grow in the coming decade. According to Bloomberg New Energy Finance, global investments in new forms of clean energy have already surged from under $50 billion in 2004 to more than $170 billion four years later. And as mentioned in our brief on Clean Energy Markets, annual investments in global renewable energy could reach $424 billion a year in 2030.

The panel of expert witnesses advised the Committee that if the United States wants to be a leader in clean energy, it needs to foster innovation by extending successful programs like tax credits, loan guarantees and grants, and adopt a renewable energy standard (RES). Tom Carbone, Chief Executive Officer of Nordic Windpower, said firms like his need clear market signals, such as a price on carbon or a RES, so they can respond to market demand.

Michael Liebreich, Chief Executive of Bloomberg New Energy Finance, emphasized the importance of market signals. Under an RES, the government would require that a certain percentage of utilities’ power plant capacity or generation come from renewable sources by a given date, and mechanisms such as credit trading would allow flexibility in meeting this requirement. However, the RES needs both to be ambitious and to have stiff penalties for noncompliance in order to be successful. Such a policy solution could help create the market demand clean energy firms need to establish footholds and ultimately achieve significant, self-reinforcing growth.

Mark Fulton, Global Head of Climate Change Investment Research at Deutsche Bank, urged the adoption of policies that are transparent, have longevity, and have certainty (TLC) in order to ensure the United States has a competitive advantage in global energy markets. Investors want transparent policies that clearly define the rules and create a level playing field. So to attract private funding, these policies should be in place for the length of the investment and should not be subject to the kind of frequent and uncertain renewal that has stymied the production tax credit and investment tax credit.

In addition to their environmental benefits, Ravi Viswanathan, General Partner at New Enterprise Associates, believes that these policies are exactly what are needed at this uncertain economic time. Mr. Viswanathan argued that clean energy investments can lead to job creation and energy independence. If we have the right incentives, clean energy jobs would be created domestically rather than abroad. Innovation has long been a source of our competitive advantage. Other countries, such as China, have speed, capital, and scale, and they are exercising their manufacturing advantage. Now, these countries are beginning to do something that investors had not anticipated: foster innovation. Once other countries start innovating in earnest, unless the United States takes action, the economic benefits associated with these technologies will go elsewhere.

In his closing statement, Chairman Markey highlighted the role government has played in fostering innovation and developing new markets, citing examples from the Manhattan Project to the internet. In all past cases, the United States showed leadership in developing a national plan that incentivized private investment. We need a similar plan today in the energy sector that incorporates Fulton’s principles of TLC and harnesses the power of the markets to spur innovation. As mentioned in our Clean Energy Markets brief, well-crafted climate and clean energy policy can give nascent clean energy industries a foothold by creating domestic demand and spurring investment and innovation. The time to act is now: through policy leadership at home and abroad, the United States can position itself to become a market leader in the industries of the 21st century.

In Defense of Markets

This blog post originally appeared on Belfer Center's An Economic View of the Environment

Cap-and-trade has been demonized by conservatives as part of an effective strategy to stop climate legislation from moving forward in the U.S. Congress.  As I wrote in my previous blog post (“Beware of Scorched-Earth Strategies in Climate Debates,” July 27, 2010), this unfortunate tarnishing of market-based instruments for environmental protection will come back to haunt conservatives and liberals alike when it becomes politically difficult to use the power of the marketplace to reduce business costs in the pursuit of a wide variety of environmental objectives.

Standing Up for Cap and Trade

Cap and trade has gotten a bad rap. It’s been vilified as a national energy tax, an elaborate Ponzi scheme, and a giveaway to corporate polluters.

While these attacks are wrong, they succeeded in shaping the political discourse around national climate and energy policy, which undoubtedly contributed to last week’s decision by Senate leaders to delay consideration of legislation that would limit greenhouse gas emissions.

This is unfortunate. We need a national policy to reduce emissions, and, as our new white paper shows, cap and trade is still the best, most cost-effective way of doing so. When lawmakers turn their attention back to this issue — as  they must — they should make cap and trade a foundational element of the policy response to climate change. 

Breaking the Ice on U.S. Clean Energy Opportunities

On Friday, March 12, we held a briefing on jobs and opportunities in clean energy markets.

Today, the President signed an Executive Order creating an Export Promotion Cabinet of top officials and an Export Promotion Council, a private-sector advisory body. This Executive Order serves to highlight once again how important American exports and competitiveness are to economic recovery and continued US economic strength.  While much hand-wringing has occurred over the potential for climate and energy policy to hurt the ability of U.S. firms to compete in international markets, the opportunity of such policy to enhance the competitiveness of U.S. businesses has received less notice. The irony is that even as the planet warms, the United States may be left standing out in the cold if it doesn’t choose to lead in the development of next-generation energy technologies.

Will the House Climate Bill Protect U.S. Competitiveness?

Yes, according to a recent government report examining the impacts of the House-passed climate bill.

An important concern in any climate legislation is the negative impact it might have on domestic energy-intensive producers that compete in global markets.  Climate policy can raise the production costs of U.S. manufacturers relative to their unregulated foreign competitors, and as a result production and emissions could shift overseas.  Responding to a request by five Democratic senators, the Obama administration recently released an interagency report on the competitiveness impacts of the climate bill that passed the House in June.  It finds that most U.S. energy-intensive, trade-exposed industries (EITEs) will experience only small increases in their production costs.  As a result, emissions "leakage" to countries that do not adopt climate policies will be minimal. 

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