[Senate Hearing 112-623]
[From the U.S. Government Publishing Office]
S. Hrg. 112-623
CLEAN ENERGY RACE: THE UNITED STATES
AND CHINA
=======================================================================
HEARING
before the
COMMITTEE ON
ENERGY AND NATURAL RESOURCES
UNITED STATES SENATE
ONE HUNDRED TWELFTH CONGRESS
SECOND SESSION
TO
RECEIVE TESTIMONY ON COMPETITIVENESS AND COLLABORATION BETWEEN THE U.S.
AND CHINA ON CLEAN ENERGY
__________
JUNE 14, 2012
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Printed for the use of the
Committee on Energy and Natural Resources
_____
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COMMITTEE ON ENERGY AND NATURAL RESOURCES
JEFF BINGAMAN, New Mexico, Chairman
RON WYDEN, Oregon LISA MURKOWSKI, Alaska
TIM JOHNSON, South Dakota JOHN BARRASSO, Wyoming
MARY L. LANDRIEU, Louisiana JAMES E. RISCH, Idaho
MARIA CANTWELL, Washington MIKE LEE, Utah
BERNARD SANDERS, Vermont RAND PAUL, Kentucky
DEBBIE STABENOW, Michigan DANIEL COATS, Indiana
MARK UDALL, Colorado ROB PORTMAN, Ohio
JEANNE SHAHEEN, New Hampshire JOHN HOEVEN, North Dakota
AL FRANKEN, Minnesota DEAN HELLER, Nevada
JOE MANCHIN, III, West Virginia BOB CORKER, Tennessee
CHRISTOPHER A. COONS, Delaware
Robert M. Simon, Staff Director
Sam E. Fowler, Chief Counsel
McKie Campbell, Republican Staff Director
Karen K. Billups, Republican Chief Counsel
C O N T E N T S
----------
STATEMENTS
Page
Bingaman, Hon. Jeff, U.S. Senator From New Mexico................ 1
Holladay, Dan W., Director, Advanced Technologies and PV
Programs, SEMATECH............................................. 26
Murkowski, Hon. Lisa, U.S. Senator From Alaska................... 2
Prestowitz, Clyde, President, Economic Strategy Institute........ 20
Resch, Rhone, President & CEO, Solar Energy Industries
Association.................................................... 55
Scissors, Derek, The Heritage Foundation......................... 32
Wolff, Alan Wm., McKenna Long and Aldridge....................... 8
Wu, Justin, Head of Wind Industry Research, Bloomberg New Energy
Finance........................................................ 4
APPENDIX
Responses to additional questions................................ 59
CLEAN ENERGY RACE: THE UNITED STATES
AND CHINA
----------
THURSDAY, JUNE 14, 2012
U.S. Senate,
Committee on Energy and Natural Resources,
Washington, DC.
The committee met, pursuant to notice, at 9:36 a.m. in room
SD-366, Dirksen Senate Office Building, Hon. Jeff Bingaman,
chairman, presiding.
OPENING STATEMENT OF HON. JEFF BINGAMAN, U.S. SENATOR FROM NEW
MEXICO
The Chairman. I'm told Senator Murkowski is on her way and
said we should proceed. Today we'll hear from witnesses on
competitiveness and collaboration issues between the United
States and China related to clean energy. The hearing follows a
trip that I took to China in April to try to learn about
Chinese policies and incentives to deploy clean energy. My
staff and I visited Hong Kong and Shenzhen and Beijing to talk
with investors and business representatives and government
officials.
On that trip I was impressed by the vast combination of
financial investments and government partnerships with industry
to deploy clean energy. China is rapidly developing and,
although much of its growth is dominated by coal and fossil
fuels, the Chinese government has combined a mix of financial
incentives with government policies to promote the clean energy
sector as well.
That sector is not only developing domestically in China;
it's also extending abroad. It's influencing the United States
very directly and European markets.
The situation in China is in direct contrast to the
approach to clean energy that we have taken here in the United
States. Many of our efforts to promote clean tech in the United
States are addressed in an unpredictable fashion, with funds
and incentives that expire and come back to life and expire
again, and a lack of clear directional policy that would allow
industry to plan for the future.
I believe that the inconsistent approach that we've been
pursuing has put the United States at a disadvantage in
competing with China for a share of clean energy markets, both
at home and abroad. Many here in the United States argue that
we should allow the free market to determine the fate of
domestic industries. There's clearly truth in that suggestion,
but it fails to take into account the industrial policies and
practices of competing nations, as well as hidden costs in the
current energy system.
The U.S. cannot compete on a level playing field with
countries that have strong industrial policies when our own
policies are inconsistent and erratic. In the absence of clear
and coherent policies to support development of clean
technology in the United States, many of our companies and
industries are left to rely on trade policy to try to protect
their competitive interests. Trade enforcement is critical, but
we also need a strong foundation of domestic policies to build
upon.
I want to make clear that this is not a hearing intended to
focus on the trade cases that are currently before the ITC and
the Department of Commerce. The matters in these cases are not
under the jurisdiction of our committee. This hearing should
not be a forum to try to prejudice the outcome of any of those
cases. The purpose of this hearing is to gain a greater
understanding of what China's doing on clean energy, how that
impacts and relates to what the U.S. is doing.
I hope we're able to focus on 3 large issues: What's the
current landscape of Chinese investment in clean and renewable
energy; second, what are the appropriate U.S.-Chinese
relationships on clean energy issues; and how do we promote
U.S. knowledge competitiveness with China and other countries
in the clean tech sector.
I believe the U.S. should continue to rigorously enforce
its trade laws to level the playing field when there are unfair
disparities. But additional domestic measures are likely to be
needed if the U.S. is to fully compete in this sector.
I'm very interested in some of the testimony related to the
experience we had with Sematech back in the 1980s and drawing
the analogy between what the United States did there to try to
support the semiconductor industry and what might be done here
with these clean technology areas that we're discussing today.
I know Alan Wolff and Clyde Prestowitz have a substantial
history in connection with this and may be able to enlighten us
as well.
Finally, the U.S. and China have common interests in
deploying clean energy. While we may find ourselves. While we
may find ourselves in positions of competing with each other
for these new markets, I believe that part of our conversation
should also lead to answers on what the two countries can be
doing together to accelerate deployment of these technologies.
Let me call on Senator Murkowski for any comments she would
like to make.
STATEMENT OF HON. LISA MURKOWSKI, U.S. SENATOR
FROM ALASKA
Senator Murkowski. Thank you, Mr. Chairman. To the
witnesses, welcome and good morning.
The purpose of today's hearing is to take another, perhaps
a closer, look at clean tech competitiveness issues between
China and the United States. I want to reinforce the chairman's
remarks here that this hearing is not about ongoing trade
disputes. It's not the role of this committee to influence
those processes. Focusing, I think, in other topics will not
diminish our conversation, but rather, to the contrary,
competitiveness challenges surface long before trade complaints
are filed. They emerge even before the goods are manufactured
or the factories are built, because they start with the
decisions made by companies and individuals about where to
invest.
The factors guiding these decisions are nearly limitless
and they are no different when the choice is between the United
States and China or any other country. Regulatory and tax
treatments, property rights, raw material availability, labor,
health care costs, access to affordable energy, all of these
combine to guide investment decisions.
Our work to better understand these forces can benefit from
comparisons with China, but there are also some key differences
that I think it's important that we keep in mind. These
differences are rooted in some very important factors,
including what our own Constitution permits, how much taxpayer
we can afford to spend, what the American people really are
willing to support.
I'm one who believes that we need to be mindful of these
factors when we hear claims that the United States is somehow
falling behind China in a clean energy race. In so many ways, I
would suggest that we are not falling behind. From the wages
and conditions for our workers to our environmental standards
and capacity for innovation, I think that the United States is
leading.
We can and should work with China to make progress on our
energy challenges, but we should not necessarily copy what they
do or how they do it just for the sake of copying what they do.
Imitating China is not the best way to compete with China. This
is particularly true for energy technology subsidies as we work
to get our debt under control. I have long advocated for
funding clean tech research efforts with revenues from
conventional energy sources. This I think is a far more
sustainable approach than the one taken by China. I hope that
we continue to gain in traction in that direction.
Beyond spending, I think we need to be careful about
following even China's more progressive energy policy. An
example would be the Three Gorges Dam, a source of renewable
energy, but it has displaced several million people from their
homes and their communities. Chinese production of raw
materials for clean energy technologies has had some negative
impacts on their country's air and water quality. The solar
panel factories don't necessarily run on solar power.
But, having said all that, I think we also recognize that
our country policies are not perfect, either. Even here at
home, where we've got a proud history of improving
environmental performance, biofuels have played a role in
raising our food prices. We currently have no plan for
permanent disposal of our spent nuclear fuel and nuclear waste.
The siting of transmission lines to connect renewable assets to
the grid has, of course, resulted in some controversy out
there.
I raise these issues, not to throw cold water on the
enthusiasm for clean energy technologies, but perhaps to
provide some context and a reminder to us of the challenges
that we face. It's my hope that this hearing serves as the
basis for understanding how cautious we must be about accepting
some of the simple narratives.
In the end, this is not just about lowering the cost of
financing projects that we all support or finding the money in
the budget for subsidies. It's about looking honestly at the
whole picture, devoting as much attention to identifying areas
where our own government can play a constructive role as we do
identifying areas where it's getting in the way. It's about
balancing the priorities and reaching agreement on the policies
that address both our immediate and our long-term needs.
The discussion must account for China, but I don't think
that we should be overwhelmed by it.
I appreciate the fact that we have the opportunity to have
this hearing this morning, Mr. Chairman. I look forward to the
statements and comments from the witnesses.
The Chairman. Thank you very much.
We have 5 distinguished witnesses here and let me just
introduce all of them, and then we'll hearing from them: Mr.
Justin Wu, who is head of wind industry research with Bloomberg
New Energy Finance in Hong Kong. We appreciate you being here
very much.
Mr. Alan Wolff, who is Senior Counsel with McKenna Long and
Aldridge, we appreciate you being here very much.
Mr. Clyde Prestowitz, who's testified many times before our
committee, as have some of the other witnesses, President of
the Economic Strategy Institute, we appreciate you being here.
Mr. Dan Holladay, Director of Advanced technologies and PV
Programs with Sematech, thank you.
Dr. Derek Scissors, who is the Senior Research Fellow at
the Heritage Foundation, thank you for being here.
Our usual approach is to take--have each witness take 5 or
6 minutes and summarize the main points that you think we
should understand from your testimony. We will include your
full testimony in the record as if read, but if you could try
to give us the main points, that way we will have some time for
questions.
So why don't we just go in the order I introduced people.
Mr. Wu, why don't you start.
STATEMENT OF JUSTIN WU, HEAD OF WIND INDUSTRY RESEARCH,
BLOOMBERG NEW ENERGY FINANCE
Mr. Wu. Thank you very much. Good morning, Chairman
Bingaman, Senators, ladies and gentlemen: Thank you very much
for hosting me here today. It is an honor and privilege to be
offering my thoughts on these important topics before this
committee.
I join you in my role as an analyst with Bloomberg New
Energy Finance, a division of Bloomberg focused on the clean
energy sector. Our group provides accurate and actionable data
and insight on investment, technology, and policy trends in
clean energy. My remarks today represent my views alone and not
the corporate positions of either Bloomberg or Bloomberg New
Energy Finance. In addition, they do not represent any
investment advice and should not be construed as such.
The subject of today's hearing is China, clean energy and
the trade relationship between the United States and China. I
grew up in Maryland and have worked in China and Hong Kong over
the past 6 years analyzing the growth of China's clean energy
industry. I offer my thoughts on its current status and how it
has developed so rapidly and what we can expect in the future.
I will leave to my fellow panelists today to discuss more
specifically the relevant trade and cooperation issues.
There is no question that China is now a clean energy
giant. Its industry has grown rapidly from almost nothing in
less than a decade. The country now manufactures half the
world's wind turbines and solar PV modules. Four of the ten
largest wind turbine manufacturers and 8 of the top ten solar
manufacturers in the world are Chinese. The country overtook
the United States as the world's largest wind market in 2010
and installed more than 10,000 wind turbines in 2011. That
represents almost ten times the capacity of the Hoover Dam.
In 2009 and 2010 China was the world leader in attracting
new capital for clean energy. In 2011, a total of $47 billion
went into the country's wind, solar, and other clean energy
sectors, though China actually finished second to the United
States last year in total clean energy investment, for reasons
which I will explain in a moment.
What has driven this massive growth? First, the Chinese
economy is expanding at about 8 percent per year, with
electricity demand growth to match. Its utilities and power
generators have to invest heavily in new capacity to keep pace.
Second, over 70 percent of China's electricity currently
comes from coal. In the view of the Chinese government, this
overreliance has become expensive, environmentally damaging,
and bad for energy security. The need to diversify into
something cleaner and less vulnerable to fuel price shock is
attractive and important.
In 2005, the Chinese government drafted its first renewable
energy law, which set targets for non-large hydro renewable
energy and mandated that its utilities procure a certain
portion of electricity from these clean sources. This was
followed by other supportive measures, including feed-in
tariffs, which set high prices for power sold from wind or
biomass projects, and laws that required grid companies to
prioritize dispatch of renewables.
A vision for renewables was outlined at the national level
and China's state-owned utilities and industry embraced these
goals. Local governments followed, offering land and tax
incentives to clean energy companies to set up shop in their
home provinces. State-owned banks lent generously to power
companies to build their wind farms and solar parks.
A domestic clean energy manufacturing industry was built
alongside the generation capacity. Chinese state-owned
corporations, many with previous heavy manufacturing or
construction experience, began buying technology licenses,
forming joint ventures, and hiring foreign engineers to design
their wind turbines. Private entrepreneurs, some backed by
venture capital and private equity money from abroad, began
building solar manufacturing facilities. The ultimate result, a
manufacturing boom and the creation of leading clean energy
companies.
It should be noted that a number of European and American
clean tech companies have also benefited from this boom.
Advanced components of wind turbines were designed and supplied
by European firms and capital equipment used to manufacture
solar cells and modules often comes from American companies.
However, China's clean energy boom is not without its
problems. The rapid growth of the industry has created a clean
energy bubble. There are far too many wind and solar
manufacturing companies and many now face intense competitive
pressure and possible bankruptcy. One-quarter of China's wind
farms are not connected to the power grid.
They sit idle in remote regions with poor infrastructure
and very little electricity demand.
Today, China's clean energy industry is still growing, but
this growth has moderated significantly and a more mature
industry will eventually emerge. The government is trying to
cool investment in this sector and reduce the number of new
wind farms and solar parks being built in the country each year
to a more sustainable level. The focus is now more on quality
and not on quantity.
This change, coupled with major U.S. Government support in
the form of stimulus programs, allowed the U.S. to regain its
leadership position in clean energy investment dollars in 2011.
That said, we regard it as unlikely that the U.S. will top the
table again in 2012, as policy uncertainty appears to be
depressing investment, particularly in the wind sector.
Finally, I would like to address the question of what's
next for Chinese clean energy companies. As the industry cools
at home, many are now seeking opportunities abroad. China has a
surplus of savings and a strong need for further investment to
drive its economic growth, including more investment overseas.
Its government has encouraged the clean energy industry to do
this.
Chinese solar companies have exported their equipment to
Germany, the United States, and elsewhere for years. But
Chinese wind turbine manufacturers, utilities, and other clean
tech investors have remained largely confined to the domestic
market. In the coming months, we anticipate Chinese power
companies and banks developing and financing clean energy
projects abroad, not only in the United States, but also in
Europe and emerging markets, particularly in Latin America.
At the same time, American and European clean energy
companies will continue to sell their products and technology
to China and also partner with Chinese companies as they go
overseas. The trade flow in clean energy between the United
States and China will only increase in the future and it will
be a two-way street. However, unlike the breakneck pace of
Chinese domestic clean energy investment, overseas wind
ventures have so far been slow and cautious, a trickle and not
a flood.
Thank you for your time and attention. I welcome your
questions and comments.
[The prepared statement of Mr. Wu follows:]
Prepared Statement of Justin Wu, Head of Wind Industry Research,
Bloomberg New Energy Finance
Good morning, Chairman Bingaman, Senators, ladies and gentlemen.
Thank you very much for hosting me here today. It is an honor and
privilege to be offering my thoughts on these important topics before
this committee.
I join you in my role as analyst with Bloomberg New Energy Finance,
a division of Bloomberg focused on the clean energy sector. Our group
provides accurate and actionable data and insight on investment,
technology, and policy trends in clean energy. My remarks today
represent my views alone and not the corporate positions of either
Bloomberg LP or Bloomberg New Energy Finance. In addition, they do not
represent investment advice and should not be construed as such.
The subject of today's hearing is China, clean energy and the trade
relationship between the United States and China in this area. I grew
up in Maryland and have worked in China and Hong Kong over the past six
years analyzing the growth of China's clean energy industry. I offer my
thoughts on its current status, how it has developed so rapidly and
what we can expect in the future. I will leave to my fellow panelists
today to discuss more specifically the relevant trade and cooperation
issues.
There is no question that China is now a clean energy giant--its
industry has grown rapidly from almost nothing in less than a decade.
The country now manufactures half the world's wind turbines and solar
PV modules. Four of the 10 largest wind turbine manufacturers and eight
of the top ten solar manufacturers in the world are Chinese.
The country overtook the United States as the world's largest wind
market in 2010 and installed more than 10,000 wind turbines in 2011.
That represents almost ten times the capacity of the Hoover Dam.
In 2009 and 2010, China was the world leader in attracting new
capital for clean energy. In 2011, a total of $47bn went into the
country's wind, solar, and other clean energy sectors, though China
actually finished second to the US last year in total clean energy
investment for reasons I'll explain in just a moment.
What has driven this massive growth? First, the Chinese economy is
expanding at about 8% per year with electricity demand growth to match.
Its utilities and power generators have to invest heavily in new
capacity to keep pace. Second, over 70% of China's electricity comes
from coal. In the view of the Chinese government, this over reliance
has become expensive, environmentally damaging and bad for energy
security. The need to diversify into something cleaner and less
vulnerable to fuel price shock is attractive and important.
In 2005, the Chinese government drafted its first Renewable Energy
Law which set targets for non-large hydro renewable energy and mandated
that its utilities procure a certain portion of electricity from clean
sources. This was followed by other supportive measures including feed-
in tariffs, which set fixed high prices for power sold from wind or
biomass projects, and laws that require grid companies to prioritize
dispatch of renewables.
A vision for renewables was outlined at the national level and
China's state-owned utilities and industry embraced these goals. Local
governments followed, offering land and tax incentives to clean energy
companies to set up shop in their home provinces. State-owned banks
lent generously to power companies to build their wind farms and solar
parks.
A domestic clean energy manufacturing industry was built alongside
the generation capacity. Chinese state-owned corporations, many with
previous heavy manufacturing or construction experience began buying
technology licenses, forming joint ventures and hiring foreign
engineers to design their wind turbines. Private entrepreneurs, some
backed by venture capital and private equity money from abroad, began
building solar manufacturing facilities. The ultimate result: a
manufacturing boom and the creation of leading clean energy companies.
It should be noted that a number of European and American clean
tech companies have also benefited from this boom. Advanced components
of wind turbines were designed and supplied by European firms, and
capital equipment used to manufacture solar cells and modules often
comes from American companies.
However, China's clean energy boom is not without its problems. The
rapid growth of the industry has created a clean energy bubble--there
are far too many wind and solar manufacturing companies and many now
face intense competitive pressure and possible bankruptcy. One quarter
of China's wind farms are not connected to the power grid; they sit
idle in remote regions with poor infrastructure and very little
electricity demand.
Today China's clean energy industry is still growing, but this
growth has moderated significantly and a more mature industry will
eventually emerge. The government is trying to cool investment in this
sector and reduce the number of new wind farms and solar parks being
built in the country each year to a more sustainable level. The focus
is more on quality than quantity.
This change, coupled with major US government support in the form
of stimulus programs, allowed the US to regain its leadership position
in clean energy investment in 2011. That said, we regard it as unlikely
that the US will top the table again in 2012 as policy uncertainty
appears to be depressing investment, particularly in the wind sector.
Finally, I would like to address the question of what's next for
Chinese clean energy companies. As the industry cools at home, many are
now seeking opportunities abroad. China has a surplus of savings and a
strong need for further investment to drive its economic growth,
including more investment overseas. Its government has encouraged the
clean energy industry to do this.
Chinese solar companies have exported their equipment to Germany,
the US, and elsewhere for years. But Chinese wind turbine
manufacturers, utilities and other clean tech investors have remained
largely confined to the domestic market. In coming months, we
anticipate Chinese power companies and banks developing and financing
clean energy projects abroad, not only the US, but in Europe and
particularly in emerging markets such as Latin America.
At the same time, American and European clean energy companies will
continue to sell their products and technology to China and also
partner with Chinese companies as they go overseas. The trade flow in
clean technology between the United States and China will only increase
in the future--and it will be a two way street.
However, unlike the breakneck place of Chinese domestic clean
energy investment, overseas ventures have so far been slow and
cautious--a trickle and not a flood.
Thank you for your time and attention, I welcome your questions and
comments.
The Chairman. Thank you very much.
Mr. Wolff, go right ahead.
STATEMENT OF ALAN WM. WOLFF, MCKENNA LONG
AND ALDRIDGE
Mr. Wolff. Thank you, Mr. Chairman, Senator Murkowski,
Senators Wyden and Frank, and members of the committee.
Your hearing today on China and clean energy is both timely
and important. China is out-investing the United States and
that does have consequences in our market in clean energies.
Their industrial policies have created tremendous excess
capacity, particularly in photovoltaics.
China has exported until recently about 95 percent of its
production in photovoltaics and it's now estimated to be around
75 percent.
Many U.S. PV producers are in serious economic trouble, in
substantial part as a result of China's industrial policies.
China has also shut its market to our wind turbine exports, as
well as those of Europe and India.
U.S. measures, as you've pointed out, Mr. Chairman, in
support of the industry are temporary, they're erratic, they're
expiring. Confrontation over trade is likely within a few
months with the U.S. antidumping case on solar and China's
potential claim against U.S. State programs, as well as
bringing its own--potentially bringing its own antidumping case
on U.S. polysilicon.
Drawing on several experiences I have had, one is doing a
study for the national--chair a committee at the National
Academy of Science on comparative innovation policies, drawing
on the time I've spent advising the U.S. semiconductor industry
since 1980 in our problems with Japan, and the study* I did,
co-authored, for the National Foreign Trade Council on China's
support of renewable energy electric generating equipment,
which I ask be entered in the record--it's not all that long.
---------------------------------------------------------------------------
* Document has been retained in committee files.
---------------------------------------------------------------------------
The Chairman. We're glad to enter that in the record.
Thank you very much.
Mr. Wolff. The questions I see before us are: Can we reach
a national consensus that it's vitally important that clean
energy account for a much greater supply of our total energy
usage? Is complete U.S. domestic industrial production in the
entire supply chain delivering clean energy efficiently from
the production of photovoltaics through fabrication into panels
and deployment on wind farms of vital importance to the U.S.
economy? Decisions that have to be made.
As Senator Murkowski said, we're living in a time of fiscal
constraint and these are difficult questions. But I would say
there are two other questions that we have to face, and that
is: Is it acceptable for Chinese industrial policy to shape the
U.S. economy? I would suggest that it's not acceptable. Can the
country afford not to seek to find which clean energy
technologies lie just beyond the horizon? I think we have to.
So what should we do? We need a broad cross-sectoral set of
measures, beyond the scope of this hearing, but in terms of
taxation and job training, manufacturing, extension services,
things that will boost our economy and job creation broadly,
which are subjects the National Academy's report goes to.
For renewables, until costs come down there have to be
mandates and subsidies if we're going to increase our
deployment of clean energy and our production of the equipment
that generates it.
I think we can learn some useful lessons from the Sematech
and semiconductor experience, and you have a witness here who
will talk about what's being done today. But in the 1980s Japan
had a closed market, it was dumping its semiconductors, selling
below cost of production, generation after generation of
semiconductor product. Vertically integrated Japanese producers
were quite able to sustain that policy of selling below average
cost of production, and the Silicon Valley startups--Intel,
AMD, National--were really on the verge of extinction.
U.S. companies needed unencumbered access to foreign
markets, we needed to open the Japanese market, they needed to
improve their manufacturing skills, they needed to continue to
attract capital, they needed to improve the protection of the
intellectual property, they needed to make sure universities
were training engineers with relevant skills, they needed tax
policies that supported the need for R and D spending.
In short, they needed a complete strategy, not just a
partial strategy of just a trade element. In fact, all of the
elements were put into place, and the result today is U.S.
semiconductors, which were half the world market share in the
mid-1980s of Japan, are now double the Japanese market share.
We're over half the world in terms of supplying global needs,
and semiconductors account for one of the top 5 exports of the
United States. There's major new facilities that have gone into
upper New York State now with Global Foundries, and the years
of turbulence are behind us. We're now very good friends with
the Japanese producers and their government, working together
on things like energy saving and reduction of use of harmful
chemicals.
So what do we need now? We need to have market stability,
predictability for both the Chinese and the U.S. producers. We
need to--from the Chinese perspective, they probably need to
avoid large deposits, cash deposits at the U.S. Treasury, if
they are found to be dumping. There's room for mutual
cooperation, enhanced mutual cooperation, in R and D, and
potential Chinese investment in the U.S. market.
Ultimately, trade measures and domestic policies should be
integrated into a strategic approach, as we did in
semiconductors. Down the road, maybe we get the Europeans
involved as well. They face some of the same concerns that we
do.
The bottom line is I believe there is a negotiated solution
out there. It probably won't come by October or November. But
there are mutual interests that we should explore with China
and reach, I would hope, an accommodation that doesn't end up
in just a trade dispute that goes on for some years.
Thank you.
[The prepared statement of Mr. Wolff follows:]
Prepared Statement of Alan Wm. Wolff, McKenna Long & Aldridge
Mr. Chairman, members of the Committee, the subject of your hearing
today concerns one of the most important challenges facing America
today--our country's future in clean energy.
During 2011, fourteen solar energy companies announced plans to
scale back or cease U.S. production, five were in bankruptcy or
insolvency. Although the picture is mixed\1\ a substantial number of
others are in serious financial difficulties. In wind power, foreign
wind turbine producers share of the Chinese market dropped from 75% in
2004 to 11% in 2010. See Chart 1. There are clear limits to the degree
to which the U.S. market can be served with hydro power (even taking
into account additional hydro power from Canada) and biofuels have not
yet reached a stage where they can play a major role in the near-term
expansion of electric power derived from renewables. Solar and wind
must form an increasing part of the future source of U.S. energy needs,
and the American industries producing the equipment needed to generate
these forms of energy are under siege.
---------------------------------------------------------------------------
\1\ In March, 2012, Stion, a manufacturer of high-efficiency thin-
film solar modules, began to ship modules produced at its Hattiesburg,
Ms., factory.
* Charts 1 and 2 have been retained in committee files.
---------------------------------------------------------------------------
There are a number of causes of the current problem. The welcome
discovery of large untapped volumes of commercially accessible natural
gas has had and will continue to have a major near term depressing
effect on the development of renewable energy even when a new
equilibrium price for natural gas is established. But there is a second
major factor affecting U.S. productive capacity in this sector that is
less welcome, and that is the entry of China as a key producer of
renewable energy equipment because its industrial policies are re-
shaping an important segment of the U.S. economy. Global overcapacity,
and particularly overcapacity in China in polysilicon PV manufacturing,
is having a worldwide depressing effect on the PV manufacturing
industry.\2\ Market barriers to wind energy equipment are equally
troubling.
---------------------------------------------------------------------------
\2\ Asian producers are as a result scaling back.
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I have spent the better part of my professional life analyzing and
dealing with competitive challenges to U.S. industries. As trade
counsel to the U.S. Semiconductor Industry Association (SIA), I was
actively involved in the U.S. industry's efforts to survive and become
fully competitive when Japanese industrial policy threatened to
eliminate our industry. More recently, I have been actively engaged in
the work of the Science Technology and Economic Policy (STEP) Board of
the National Academies. I chair the Board's Committee on Comparative
Innovation Policies, which will soon publish its final report entitled
Rising to the Challenge: U.S. Innovation Policy for the Global Economy.
I also chair the Board of the National Foreign Trade Council (NFTC)
which published a study in 2010 that I co-authored entitled China's
Promotion of the Renewable Electric Power Equipment Industry--Hydro,
Wind, Solar, Biomass.\3\ I am, however, appearing today in an
individual capacity and not speaking for any client or institution.
---------------------------------------------------------------------------
\3\ http://www.nftc.org/default/Press%20Release/2010/
China%20Renewable%20Energy.pdf
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You have posed three questions.
What is the current landscape of Chinese investment in clean
and renewable energy?
How do we promote U.S. competitiveness with China in the
clean tech sector?
What are the appropriate U.S.-Chinese relationships on clean
energy?
In my oral remarks, I will, as you have requested, concentrate on
addressing questions #2 and #3.
the current landscape of chinese investment in clean and renewable
energy
China leads the world in installed clean energy capacity as of
2011\4\. See Table 1 and Chart 2. This is the result of many years of
government mandates and subsidies. The 2002 Government Procurement Law
required government entities to purchase domestic products, which was
one spur to China's development of the equipment needed to achieve its
renewable energy goals. Wind farms were required to meet a 70% local
content requirement.\5\ The 2006 Renewable Energy Law required
utilities to pay full price for electricity generated by renewable
energy sources, and gave discounted rates to consumers. Indigenous
innovation requirements introduced in 2006 reinforced the buy-domestic,
buy-Chinese requirements throughout China's state-owned sector. In
2007, the Medium and Long-Term Development Plan for Renewable Energy in
China set clean energy standards estimated to require non-hydro
renewable energy installed power capacity of 3% by 2010 and 8% by 2010,
causing investment in the renewables sector to surge. China's stimulus
package emphasized renewable energy projects.\6\ China continues to
maintain very aggressive targets for energy conservation and emissions
reduction in large part through rapid expansion in the installation of
renewable energy capacity.\7\ China's investments in renewable energy
in 2009 exceeded those made by the United States for the first time.\8\
---------------------------------------------------------------------------
\4\ Clean energy is defined as wind, small-hydro, solar, biomass,
geothermal and marine.
\5\ The Notice of Requirements for the Administration of Wind Power
Construction, National Development and Reform Commission, 2005.
\6\ Renewable Energy Policy Update for China, Eric Martinot and Li
Junfeng, Renewable Energy World, July 21, 2010.
\7\ Ucilia Wang, China's Solar Master Plan Sets Production,
Efficiency and Price Goals,'' Renewable Energy World.com (February 24,
2012); Damien Ma, ``Energy Policy to Fuel Economic Objectives,'' China
Daily (March 21, 2011); at http://www.gov.cn/zwgk/2011-09/07/
content_1941731.htm.
\8\ http://www.pewenvironment.org/uploadedFiles/PEG/Publications/
Report/EXEC%20SUM_FINAL_LORES_WhoIsWinningTheCleanEnergyRace-REPORT-
2012(1).pdf
The United States did lead the world in clean energy investment in
2011, followed by China, Germany and Italy. But this is a one-year
snapshot. In 2011, U.S. investment amounted to $48.1 billion, largely
in wind and solar power, coming in ahead of China's $45.5 billion for
the first U.S. lead since 2008.\9\
---------------------------------------------------------------------------
\9\ Bloomberg News Story on a Pew Charitable Trust finding. http://
www.bloomberg.com/news/print/2012-04-12/u-s-clean-energy-policies-risk-
losing-lead-over-china.html
TABLE 2: CLEAN ENERGY INVESTMENT BY COUNTRY 2011 ($BILLION)
----------------------------------------------------------------------------------------------------------------
2011 Investment 2010 Investment
----------------------------------------------------------------------------------------------------------------
U.S. $48.0 $33.7
China $45.5 $45.0
Germany $30.6 $32.1
Italy $28.0 $20.2
India $10.2 $6.6
U.K. $9.4 $7.0
Japan $8.6 $7.0
Spain $8.6 $6.9
Brazil $8.0 $6.9
----------------------------------------------------------------------------------------------------------------
Source: The Pew Charitable Trusts, Who's Winning the Clean Energy Race? 2011 Edition (2012).
This is said by a number of observers to be short-lived:
The [U.S.] jump to the top of the G-20 ranking followed
developers' efforts to finish projects before incentives
expire. With China taking on long-term renewable energy targets
and an American tax-break for wind lapsing in 2012, the U.S.
again risks losing its edge, said Phyllis Cuttino, Pew's clean
energy director.
``China is sending that important policy signal which the
United States is failing to do to for investors. Even though
China has fallen to number two, it seems as though investment
there is going to continue at a very significant level for the
foreseeable future. They are going to continue to be a dynamic
clean-energy hub for the world.''
The U.S. doesn't have any comparable targets to China's goals
of installing a total of 160 gigawatts of wind power and 50
gigawatts of solar power by 2020, she said. At the same time, a
production tax credit benefiting wind producers expires at the
end of the year. ``In the absence of long-term policy, it's
hard to see how the U.S. can grow significantly in the future.
The boom-and-bust cycle of U.S. energy policy sends a very
different signal to investors'' from China.
The U.S. led in investment in the year 2011 when the Recovery Act
had its greatest impact. Many of the Act's provisions have since
expired. For example, section 1603 has retired; the 48c Manufacturing
Tax Credit has not been renewed; and the DOE Loan Guarantee Program is
not expected to make significant future loans. In addition, it is worth
noting that U.S. deployment incentives like section 1603 did not
require the use of domestic products, so deployment-oriented incentives
had an effect in both the U.S. and Chinese markets
The Defense Department is the nation's largest consumer of energy.
In April, the department announced a fairly low goal of using 3
gigawatts of renewable energy by 2025--enough to power three-quarters
of a million homes. One gigawatt is to be developed for use by each
service branch: the Air Force by 2016, the Navy by 2020, and the Army
by 2025,\10\ although the Army is likely to develop and use double that
amount. As if to underline the uncertainties caused by U.S. policies
supporting the development of renewable energy, three weeks ago the
Senate Armed Services Committee adopted amendments to the National
Defense Authorization Act seeking to limit the Department of
Defense(DoD)'s use of domestically produced alternative energy.
Potentially cutting in the other direction, on May 21, 2012, DOD issued
a Defense Federal Acquisition Regulation Supplement to promote
utilization of domestic photovoltaic devices under energy savings,
utility service and housing contracts.\11\
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\10\ http://www.examiner.com/article/renewables-for-the-military-
part-1-congress-vs-defense-dept
\11\ 77 Fed. Reg. 30368 (May 22, 2012).
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Despite China's investments in renewables, DOE reports that
renewables account for only 0.2% of China's electric power generation,
and of that wind has the largest share.\12\ At least until a few years
ago, about 95% of China's PV production was exported, and China
accounted for about 55% of the world production.\13\ Today, the GTM
Research estimate is that for 2012 about 25% of all Chinese PV module
production will be consumed domestically, and 75% will be exported.
---------------------------------------------------------------------------
\12\ U.S. Energy Information Administration, Report on China, March
2012. Large-scale hydroelectric power represents 6% and nuclear power
represents 1%. Coal is the largest source of energy consumption at 71%
in 2008.http://www.eia.gov/countries/cab.cfm?fips=CH
\13\ Cleantech citing industry sources uses the 95% figure. NREL
data does not appear to contradict these statements. http://
cleantechnica.com/2012/02/12/dumping-solar-study-sheds-light-on-solar-
pv-trade-flows-us-china-manufacturing/
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promoting u.s. competitiveness in clean tech vis-a-vis china
[T]he country fails to deploy into the marketplace the clean
energy innovations it creates in the laboratory\14\
---------------------------------------------------------------------------
\14\ http://www.pewenvironment.org/uploadedFiles/PEG/Publications/
Report/EXEC%20SUM_FINAL_LORES_WhoIsWinningTheCleanEnergyRace-REPORT-
2012(1).pdf
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When Bell Labs was at its peak it was an idea factory that gave
rise to whole industries in the United States, and led ultimately to
the creation of the semiconductor industry.\15\ Globalization, improved
transportation, freer trade and the internet have created a world in
which there is locational competition for the production of most
industrial goods and services, and clean energy related equipment and
materials is no exception. Given the U.S. failure to commercialize its
inventions to the extent that we once did, the Committee on Comparative
Innovation Policies of the National Academies has engaged in an
intensive seven year effort to study best practices of other countries.
In our forthcoming report, we will make a series of recommendations of
factors determining the location of not only invention but production.
These recommendations could easily be the subject of a series of
separate hearings While the report does not focus on the renewable
energy sector, it does point to the cross-sectoral policy reforms that
the United States should consider in order to enhance the production
within the United States of what is invented here. The recommendations
are extensive--from the closer coordination of universities and the
national laboratories with business, to manufacturing extension
services and export promotion.
---------------------------------------------------------------------------
\15\ The Idea Factory: Bell Labs And The Great Age Of American
Innovation, Jon Gertner, Penguin Books Ltd, 2012.
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For renewable energy, more will be needed than simply greater
efforts at export promotion or increasing manufacturing extension
services. In most parts of the United States, clean energy for most
applications is still more expensive than fossil fuel sources. Without
subsidies and mandates, consumers will not choose clean energy, and
private capital will not fund either research and development or
deployment. A number of countries have promoted the installation of
clean energy capacity with various types of subsidies (Germany, Spain,
China, U.S., etc.) but budget constraints make a continuation of these
policies difficult. This calls for even greater efforts to aggressively
subsidize targeted R&D for clean energy to bring down the cost--making
PV cells more efficient and wind turbines cheaper and more efficient,
to take two examples. At the earliest stages of innovation, the U.S.
remains very strong. We have some of the top research universities and
national laboratories in the world. U.S. Government support for R&D has
resulted in significant advances in these technologies, for example,
the U.S. Department of Energy (DOE)-funded research over the past 35
years has yielded more than half of the world records in PV cell
efficiency. Continued support for research and development can continue
to lower the costs and improve performance for renewable energy
technologies.
However, if this approach is taken alone, it will delay
installation and use of clean energy capacity until it is economically
feasible--or until a carbon tax is levied on fossil fuels to reflect
their social cost. Neither are situations likely to exist in the near
term. Therefore support throughout the industrial chain from R&D
through to commercialization and deployment need to be considered. As
strong as the U.S. is in innovation, there are costs to the economy if
we fall behind in transitioning these technologies to domestically
manufactured products. Even though we are a world leader in patents and
research publications, U.S. manufacturing market share for PV cells and
modules has fallen dramatically, from 43% market share in 1997 to less
than 4% in 2011. R&D support by itself is not sufficient to develop a
healthy domestic industry.
A comprehensive and cohesive policy should have at least three
major elements: 1) an R&D strategy to lower costs and improve
performance so that clean energy technologies can be truly competitive
without the need for long term subsidies 2) a manufacturing strategy
that incentivizes domestic production and job creation to ensure a
healthy industrial ecosystem, and finally, 3) a deployment strategy
that helps transition these new technologies into the marketplace and
gradually phases out support as the technologies are able to compete
without support.
Whether to make major public investments to accomplish these ends
is an important subject for public policy debate. On the one hand,
there are clearly fiscal constraints that exist now that were not
present when the manned space flight program was announced. In
addition, the current global industry is dominated by Chinese PV
production, that even if dumped, is very low cost. On the other hand,
U.S. innovation (and commercialization) from past national
initiatives--whether from Bell Labs, NASA, DOE, NIH, or DOE and the
national labs--have provided very substantial economic benefits, and
support the commercial success of U.S. industry as well as ensuring
growth in highly productive jobs.
Clearly, concentrated efforts by governments to support specific
sectors have an effect on industrial development, whether here, China
or in Europe. The staff of the Joint Committee on Taxation recently
prepared a study on energy-related tax expenditures,\16\ which I am
sure that the Committee is familiar with. As noted above, the picture
is one of an array of measures that are in most cases not of a reliably
long duration. The electricity production credit provisions expire for
wind at the end of this year. The Investment Tax Credit is considered
to be at risk in tax reform given current fiscal pressures. The R&D tax
credit is always extended on just a short term basis. The section 1603
Treasury Grant Program expired at the end of last year and is favored
by the solar industry in preference to the advanced energy tax credit.
The industry has also recommended that the Advanced Energy
Manufacturing Tax Credit (MTC), which was over-subscribed, be
renewed.\17\
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\16\ Present Law and Analysis of Energy-Related Tax Expenditures,
Staff of the Joint Committee on Taxation, for the Subcommittee on
Energy, Natural Resources and Infrastructure of the Senate Committee on
Finance, March 23, 2012.
\17\ See Manufacturing Solar Photovoltaic Products in the United
States, the Semiconductor Equipment and Materials International (SEMI),
2012.
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The Department of Energy is making major efforts to support the
development of solar energy, aiming to reduce the cost of solar energy
systems by 75% before 2020. It seeks to enable widespread deployment of
solar energy equipment in the U.S. without continuing subsidies. The
SunShot Initiative is a business industry partnership with DOE funding
support and with participation of universities and the national labs.
The objectives are to return the U.S. to technological leadership,
reduce energy costs generally, create employment, reduce greenhouse gas
emissions and obtain a larger U.S. global market share. The Advanced
Research Projects Agency--Energy (ARPA-E) within the Department of
Energy (DOE) is also an important endeavor. The National Academy Report
Rising Above the Gathering Storm stimulated and an authorization
contained in passage of the America's Competes Act stimulated creation
of ARPA-E. It was funded at a $400 million level through the American
Recovery and Reinvestment Act (Recovery Act).\18\ Its mission is to
fund high risk energy research which holds some promise of dramatic
results, and often to support public-private partnerships to do so.
Future funding is not certain.
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\18\ ARPA-E's structure is codified in 42 U.S.C. 16538.
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I cannot give you detailed prescriptions for tax and other measures
to accomplish key renewable energy objectives. There are a number of
government studies and industry papers laying out alternatives and
recommendations that address these issues. But I have learned a few
things in the course of studying and finding solutions to dealing with
foreign industrial policies and the harm that they can cause to the
U.S. industrial base. In particular, although the two sets of
challenges are not alike in all respects, there are several informative
parallels to be drawn between the successful effort to preserve
America's future in semiconductors and the challenges posed by China's
promotion of its renewable electrical generating equipment industry.
In the early 1980s, the Japanese market was largely closed to
imports of semiconductors. Access to that market was essential for our
industry to remain competitive as Japanese companies dominated the
downstream consumer electronics industries that drove semiconductor
demand and technological progress. Japanese government-sponsored R&D
through MITI's and NTT's laboratories moved the industry down the
learning curve in terms of process and product. The vertically
integrated Japanese producers were selling semiconductors below their
average cost of production in all markets. Full-blown industrial
policies generally lead to the creation of excess capacity, and this
was the case in memory chips (DRAMs). The Silicon Valley start-ups--
Intel, AMD, National and others, were in danger of extinction.
There were a series of antidumping cases filed and large duties
were to be applied. But trade remedies were not going to be a
sufficient American response. For one thing, this would have been a
one-market solution and the relevant market was global. Elimination of
dumping in the United States alone would threaten the erosion of
downstream industries. The antidumping trade solution would also be
one-dimensional. The U.S. companies needed unencumbered access to
foreign markets, they needed to improve their manufacturing skills,
they needed to be able to engage in pre-competitive joint R&D to do so,
they needed to continue to attract capital, they needed to improve the
protection of their intellectual property, they needed to make sure
that universities were training engineers with relevant skills and they
needed tax policies that supported their voracious need for R&D
spending. In short, a complete strategy was needed to ensure the
competitiveness of the U.S. industry, not just trade measures.
There was a recognized U.S. national security interest in
maintaining a leading edge American industry. The U.S. industry united
around a series of domestic and trade policy responses and achieved
buy-in from the Executive Branch and strong support from the Congress.
All of the necessary measures were put into place. A U.S.-Japan
agreement on semiconductors ultimately opened the Japanese market for
foreign chips and precluded dumping by Japanese companies in any
market. The antitrust laws were amended to provide a limited safe
harbor for pre-competitive R&D, the Defense Department matched industry
contributions at a rate of $100 million per year for five years to
improve the manufacturing capability of the U.S. industry with the
creation of Sematech (the semiconductor manufacturing technology
initiative). A new form of intellectual property protection was created
for maskworks. The R&D tax credit was extended.
This endeavor required consistency of effort on the part of both
industry and government over a very extended period of time. The
necessary programs, begun by the Reagan Administration, and vigorously
supported by its free-market advocates including George Shulz and
Clayton Yeutter, continued during Republican and Democratic
administrations alike with strong bi-partisan Congressional support. It
took six years to put all the measures into place and another decade to
make them fully effective. It was the right mix of policies, but it
took crafting a comprehensive approach and consistent dedication to
implementation to achieve the desired result.
Today, semiconductors figure among the top categories of U.S.
exports each year. Amazing new greenfield facilities costing upwards of
$4 billion each can still be created here (for example, Global
Foundries in Upstate New York). Industry employment is in the hundreds
of thousands. And U.S. companies account for a majority share of global
production, double their share in the early 1980s. Moreover, the years
of turbulence have been replaced by years of international cooperation
on public policies. The EU, Korea, Taiwan and China have joined
together with Japan and the United States to eliminate tariffs on
semiconductors, work on energy saving both in semiconductor production
and through the use of semiconductors in other industries\19\, and
collaborate on improving a very good record with respect to
environmental impact through reduction of chemical use. The industries
support this effort through their World Semiconductor Council (WSC),
bringing their joint recommendations to a Government and Authorities
Meeting on Semiconductors (GAMS) annually.\20\ Global competition is
vigorous and semiconductors, doubling in functionality every eighteen
months in accordance with Moore's law, have enabled the information
revolution.
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\19\ See John A. ``Skip'' Laitner, Chris Knight, Vanessa McKinney,
and Karen Ehrhardt-Martinez, Semiconductor Technology: The Potential to
Revolutionize U.S. Energy Productivity, Research Report E094, May 1,
2009, American Council for an Energy Efficient Economy, athttp://
aceee.org/research-report/e094
\20\ See http://www.semiconductorcouncil.org/wsc/.
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The relevance of the success of the policy responses in
semiconductors to the challenges faced in the renewable energy sector
require answers to a series of questions:
First: Can it be demonstrated that there is a vital national
interest at stake in maintaining a domestic manufacturing base
for the tools to make solar energy cells and for their
production, and for the production of wind turbines?
Second: Is there a case to be made that joint pre-
competitive R&D and/or other support would have the potential
for yielding benefits important to the American economy?
Third: If the first two answers are affirmative, what policy
prescriptions should be implemented?
the national interest
Although our current reliance on GPS, internet and wireless
connectivity, I-Phones and hundreds of thousands of apps (applications)
were at the time a quarter century away, the founders of the U.S.
semiconductor industry had no doubt about whether their industry was
vital to the nation's future. It took just over seven years to get
Washington to fully share this vision.\21\ Factors leading to a
consensus among policy makers included the fact that the country was
locked in a Cold War with the Soviet Union and semiconductors had a
central role to play in national defense. Moreover, the inherent
unfairness of Japanese industrial policies, the closed Japanese home
market together with U.S. industry's legal rights to at least stop the
sales of Japanese semiconductors in the U.S. market at below cost of
production, provided additional impetus to forming a U.S. consensus
that a comprehensive response was necessary.
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\21\ The U.S. Semiconductor Industry Association (SIA) was founded
in 1977 by the co-inventor of the integrated circuit, Robert Noyce, CEO
of Intel, Charlie Sporck, CEO of National Semiconductor, Jerry Sanders,
CEO of Advanced Micro Devices (AMD), who were soon joined by John Welty
of Motorola. The association was formed to better understand the
foreign industrial policy challenge from Japan, and to collect and
publish industry data.
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Can a national consensus be formed today on the following two
points:
1) It is vitally important that clean energy account for a
much greater share of U.S. energy supply--for reasons ranging
from reducing the environmental impact of energy production and
use to greater energy independence and therefore increased
national security.
2) A complete U.S. domestic industrial production and supply
chain is required to deliver clean energy efficiently--from
R&D, to production of solar photovoltaic manufacturing
equipment, materials such as polysilicon, modules, cells and
turbines, through fabrication into panels and deployment into
solar and wind farms--because the entire industry is vital to
the American economy. Is it acceptable for Chinese industrial
policies, including protection and subsidies, to result in that
country being dominant in the technologies and products that
yield clean energy? Can the country afford not to explore to
find which clean energy technologies lie just beyond the
horizon, to forego forever whatever new discoveries lie in the
future?
We do not appear to be near a consensus yet that will drive a
comprehensive solution to our clean energy requirements and the
challenge posed by China's policies and objectives. The newly apparent
plentiful availability of natural gas is diminishing one of the drivers
of finding near term solutions. But that does not mean that a path
forward cannot be found. Natural gas is actually complementary to
renewable energy, as the sun does not always shine and the wind is not
always constant. And there should at least be a national debate about
whether government choices abroad should be allowed to shape the U.S.
economy. That China chooses to have these industries should not mean
that the United States should relinquish them. That said, there are a
series of interests that also must be taken into account. The U.S. will
not want to slow the deployment of low-cost renewable energy equipment.
Deployment has important ramifications for climate change, jobs,
sustainable development and economic growth. Upstream industries,
supplying silicon and other materials and leading the world in making
the tools that produce photovoltaics are also vitally important. The
entire value chain must be taken into account.
supportive domestic policies
The United States leads in the front end of innovation--invention--
in the renewables sector. It has the most patents and the most research
spending, but it has been losing out over the last decade in
commercialization, in domestic manufacturing. This is a general problem
for the United States, studied in depth by the National Academies in
several of its projects, including the work on Comparative Innovation
Policies. The creation of a substantial number of additional
manufacturing jobs is a high priority and the renewable energy sector
is a natural place to look to see what can be accomplished, because
there is more than one broad national policy goal to be served in
focusing on this sector.
The renewable energy industries require a stable and viable rate of
return in order to maintain and attract capital. This can be achieved
through a variety of measures--ameliorating excessive market
distortions caused by low cost imports that are the product of foreign
industrial policies; continuing supportive tax policies, use of direct
subsidies, and the use of renewable energy standards. These measures
are advocated in various publications of industry groups.
The solar photovoltaics industry shares some of the same
technologies as the semiconductor industry. It uses silicon, chemical
deposition, photo-lithography among other similarities. Whether
Sematech--that is government co-funding of joint industry pre-
competitive R&D--is a good model for this sector is well worth
exploring.
Making renewable energies more cost competitive with fossil fuels
should be approached not just from the side of creating demand and
assuring an adequate rate of return, but also with the aim of making
improvements in design and manufacturing technologies that will drive
down costs. Those in the industry will have to decide whether they find
a community of interest to engage in a common endeavor, and the
government has to ascertain whether the national interest is served by
spending more scare federal resources on an endeavor of this kind. It
worked extraordinarily well for semiconductor manufacturing in the
United States. And this joint endeavor led to other R&D efforts in this
sector--to joint industry-government funding of university research
through the Semiconductor Research Corporation (SRC), through Focus
Center Research Program (FCRP) and Nanoelectronics Research Initiative
(NRI). The industry also drove technological progress through creation
of a technology roadmap--indentifying the technology challenges that
would allow the creation of constantly increasing functionality.
Some questions that will have to be answered, that were answered in
the affirmative for semiconductors and that resulted in the creation of
a manufacturing technology research consortium are:
Are either the competition from China a sufficient
motivation for companies to engage in a common pre-competitive
research endeavor or are there other external pressures that
would cause them to do so?
Is the ability to develop needed design technologies beyond
the capability of any individual company?
Is there a need to develop more effective manufacturing and
process technology, leading to common testing and industry-wide
standards?
Can they achieve the necessary technology focus, determine
the bounds of shared technology policy, and achieve effective
means for technology transfer, while preserving vigorous
competition?\22\
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\22\ See remarks of Clark McFadden and Gordon Moore in Securing the
Future - Regional and National Programs to Support the Semiconductor
Industry, Government Industry Partnerships Project, National Research
Council of the National Academies, 2003.
The renewables industries, and the PV-related industries alone--
with a relatively large number of participants with a variety of
interests, is far more fragmented than was the semiconductor industry
in the 1980s: The PV industry is more global by far than the U.S.
semiconductor industry was. There are well-established, important
additional interests in the PV value chain. For example,. project
developers may have less interest in technological development than PV
producers have.
What is clear, and was enunciated by Gordon Moore, one of the
founders of Intel, is that Sematech played a key role in reversing the
X-curve that was the chief measure of semiconductor industry
performance. This referred to a chart showing that U.S. producers once
had a much greater share of the semiconductor market until 1985/86--
having 57% to Japanese producers' 32%. But by 1988, Japanese share of
worldwide production had climbed to about 52% and U.S. world share had
dropped to around 27%. By 1991, there was another X cross over, and
today, US share is about double that of the Japanese competition.
Sematech delivered the necessary improvements in semiconductor-related
technologies. When combined with other supportive public policies,
Sematech proved to be highly effective.
Is there a need to support basic and applied R&D in renewables? We
do not know where the technology will take us. We know that it is
likely to improve efficiency of delivering renewables, but it can also
result in dramatic breakthroughs and spin-offs, and this cannot be
discounted. The applicability of the Sematech model deserves serious
consideration.
crafting an appropriate u.s.-china relationship on clean energy
The trade relationship with China is complex. It is far from being
free of problems but they do not dominate the relationship in the same
way that the trade friction with Japan did in the 1970's to the early
1990s. China has been open to foreign investment since 1978 (although
interference by the Chinese government is pronounced in some sectors)
whereas Japan was completely closed during the period of trade
problems. Japan was (and is) an ally; China is sometimes a partner and
more often perhaps a rival. U.S businesses were largely united in their
grievances against Japan. The U.S. private sector, including
associations and even individual companies have divided interests with
respect to China--seeing China as one of the world's largest growing
markets, a major source of supply, a major location of foreign
investment, often a difficult competitor and sometimes a difficult host
country.
During the earlier period I am using for comparison with China,
Japan was only reluctantly and partially compliant with international
trade rules. Chinese policies are still evolving. China had to change
tens of thousands of laws and regulations to join the WTO, and to
liberalize its economy very substantially in a very short time. And yet
there is still an extensive list of barriers and market distortions
with which foreign companies and their governments must contend. China
accounts for the longest section of the U.S. Trade Representative's
National Trade Estimates catalog of foreign trade and investment
problems. Another difference in current trade relations with China as
compared with earlier trade relations with Japan is that since the
Uruguay Round was implemented in 1995, the United States has lost the
freedom to retaliate whenever it made a unilateral judgment that its
trade interests required it to do so. In addition, when the U.S.
imposes trade measures, China has made it a practice to retaliate with
its own trade actions which it seeks to justify under WTO rules, even
if the measures it was responding to are fully justified under the WTO.
Moreover, China has found the means to affect foreign trade in its
pursuit of development of its industries in informal ways that are not
necessarily as susceptible to being effectively remedied through WTO
challenges.
In the case of imports into the United States of semiconductors
from Japan, the dumping margins were prohibitive--trade in some
products would have ceased. Through the use of U.S. section 301,
unilateral trade retaliation was available to enforce an agreement. In
contrast, with the WTO green energy equipment subsidies case brought by
the U.S., although a positive WTO ruling was achieved, did not yield
much in the way of practical results. The final dumping determinations
will not be made in the solar polysilicon case until the Fall, but if
the duties and rates are along the lines of the preliminary findings
(30-34% for dumping margins for 90% of the trade, a few percent for
subsidy rates), the trade remedy may not be enough to change the
serious situation in which the solar industry finds itself--since the
decline in solar PV prices over the last eighteen months has been about
double those percentages.
A complicating factor of antidumping relief is that it affects only
shipments from one country. If the Chinese producers assemble panels in
third countries, source cells from Taiwan, or set up factories in third
countries, the trade remedy will likely not cover some or all of those
shipments.
There is authority in the Commerce Department to work out a
``suspension agreement'' to waive the duties in return for potentially
a quantitative restriction and a price floor covering China's shipments
of the subject merchandise.\23\ \24\ This is perhaps possible to
achieve if the Chinese government (which has effective control in this
sector) believes that the final margins will be prohibitively high, and
that it serves China's policy interests to enter into an arrangement of
this kind (which it has done in some other cases prior to its entry
into the WTO). While the domestic industry does not have a veto over
these arrangements, it is consulted, and it is politically difficult
for the U.S. government to compromise away what is taken in our legal
system to be a right to trade relief--unless the alternative is equally
or more attractive to the petitioning domestic industry.
---------------------------------------------------------------------------
\23\ 19 USC 1673c provides in relevant part:
(l) Special rule for nonmarket economy countries
(1) In general
The administering authority may suspend an investigation under this
part upon acceptance of an agreement with a nonmarket economy country
to restrict the volume of imports into the United States of the
merchandise under investigation only if the administering authority
determines that--
(A)such agreement satisfies the requirements of subsection (d) of
this section, and
(B)will prevent the suppression or undercutting of price levels of
domestic products by imports of the merchandise under investigation.
d) Additional rules and conditions The administering authority may
not accept an agreement under subsection (b) or (c) of this section
unless--
(1)it is satisfied that suspension of the investigation is in the
public interest, and
(2)effective monitoring of the agreement by the United States is
practicable.
\24\ Examples of antidumping suspension agreements entered into
with Chinese exporters include: Honey From the P.R.C., 60 Fed. Reg.
42,521 (ITA Aug. 16, 1995); Cut-to-length Plate from the PRC, 62 Fed.
Reg. 61774 (1997).
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Had the U.S. antidumping case been coordinated with a trade case
brought by the European Commission, something that has not to my
knowledge ever happened, there would perhaps be more interest on the
part of China in a settlement. Given the short time until the final
determination at Commerce, the likelihood of a negotiated settlement by
this Fall is probably close to nonexistent. It is not clear that
sufficient inducements can be found to bring about an agreement to
stabilize this trade. A settlement later is, however, possible--
especially with the consent of the U.S. petitioner industry.
What factors would militate toward a possible settlement? Are there
common interests that can grow out of the following common objectives?
Both China and the United States wish to deploy much more in
the way of renewables, enhancing the role of renewables in the
mix of their energy consumption.
Both China and the United States seek to see the price of PV
modules decline through increased efficiencies in both solar
and wind to foster this objective.
Both countries wish to maintain and nurture the industries
that produce the supply chain for renewables.
Both countries wish to foster the development of relevant
technologies at home.
Despite having a number of interests in common, a trade skirmish is
brewing. In the fall the U.S. will likely impose antidumping duties on
Chinese exports. This is not a minor amount of trade, an estimated 2
gigawatts worth of solar modules were shipped into North America in
2012 from Chinese manufacturers, representing as much as 60 percent of
the market, and about $3 billion in trade.\25\ Three weeks ago today
the Chinese Ministry of Commerce pronounced six renewable energy
support measures granted by the states of Washington, Massachusetts,
Ohio, New Jersey and California were grants as inconsistent with the
WTO rules. Of course, U.S. shipments of renewable energy generating
equipment such as wind turbines or solar modules to China is small
compared with Chinese shipments of solar cells and modules to the
United States--but the U.S. has strong export interests in the
equipment to make solar cells, in exports of polysilicon and exports of
high-value parts for wind turbines.
---------------------------------------------------------------------------
\25\ http://www.isuppli.com/photovoltaics/pages/headlines.aspx.
---------------------------------------------------------------------------
What are China's principal interests? The most obvious immediate
interest would be Chinese producers would wish to avoid making very
large cash deposits in the U.S. Treasury for a long time to come on
their exports . There is also the degree of uncertainty as to what the
ultimate duty liability will be, which if the Chinese did not adjust
their prices or cease shipping (the latter being extremely unlikely)
would be very large. Trade does not thrive with uncertainty. Moreover,
with a U.S. antidumping duty order in place on PV, the pressure on the
European market will increase, perhaps triggering antidumping action
there. (India may follow suit as well). There might be broader Chinese
interests about cooperation on R&D in the area of renewables. It also
may be that price stability with respect to exports would be in line
with and reinforce any Chinese government plans to rationalize domestic
overcapacity in wind and solar and increase its deployment of renewable
energy sources both in terms of grid-connected and residential uses.
What are America's principal interests? The U.S. government is
committed in principle to allowing industries to petition for trade
relief and to receive it where warranted under the law. This is
consistent with WTO rules where domestic industries are harmed by
dumped or subsidized trade. That said, trade measures are only a very
partial solution to strengthening the domestic U.S. renewables
industries. To foster the deployment of renewable energy equipment and
the industry producing the tool, equipment and materials for this
equipment, there has to be a reasonable rate of return to continue to
attract necessary capital. This objective can be served by a
predictable and consistent level of support in terms of tax policy, DOE
investments, feed in tariffs and clean energy standards. To reduce the
need for financial supports and mandates through clean energy
standards, the costs of producing renewable energy need to decline.
Harnessing the research capabilities of universities and the private
sector in a common effort to achieve this objective needs to be
seriously considered. A potentially useful model has been provided by
the interaction between the private sector and the U.S. government with
respect to semiconductors.
Ultimately trade measures and domestic policies should be
integrated and a strategic approach crafted to the U.S.-China clean
energy set of problems. If there is an attempt at a grand bargain,
access to the Chinese market for wind turbines produced outside China
should be part of any overall settlement.
Would China avoid talks because it would not want the precedent
established of its agreeing to settle antidumping cases with
quantitative restrictions and minimum price provisions? Would it do so
from fear that agreeing to a suspension agreement might lead to other
calls for export restraints by China? It is hard to predict. I know of
no instance where China has settled an antidumping order with the U.S.
with export restraints since China joined the WTO. However, China, it
should be assumed, can be pragmatic if it sees the balance of its
interests served by a settlement, particularly if it were part of a
very broad package. One consistent Chinese demand is that the U.S.
liberalize its export controls. While the United States will not
compromise its national security to reach any agreement with China,
extensive technology-sharing actually takes place now, although
informally, through foreign investment. Perhaps there is something in
the technology arena--R&D with respect to clean coal or carbon
sequestration--that would be of mutual interest and that could be added
to an agreement providing for the complete elimination of dumping. This
might occur through a broader program or with more resources than
currently exist for the U.S.-China Clean Energy Research Center (CERC).
Medium term, and not likely in the next few months, a trilateral
(U.S.-China-EU) renewables accord might create added interest for
China. My assumption is that none of the three--the U.S., China or the
EU--is prepared to see the growth of its domestic renewables industries
curtailed given its energy policy objectives? The World Semiconductor
Council and the Governments and Authorities Meeting on Semiconductors
may be models that can be employed to promote cooperation at the
industry and government levels on mutually beneficial public policies.
In that all three regions are supporting their renewables sector, it
may be that a trade agreement makes some sense, incorporating and
superseding antidumping relief.
The bottom line: It is not yet clear that sufficient inducements
can be found to bring about an agreement providing for equitable trade
that fosters long-term growth in these industries. This does not mean
that there should not be further consideration given to the
possibilities, and efforts made to find common ground Whatever the
possibilities are of reaching an accommodation with China on PV, there
is an overriding U.S. national interest in assuring that new leading
edge technologies are developed and manufactured in this country, or we
will lose the ability to do so. As the United States is the world's
most innovative country, that would be a loss not just for the United
States but for a world in which renewable energy sources must account
for an increasing proportion of the supply of growing energy needs.
The Chairman. Thank you very much.
Mr. Prestowitz, thank you for coming. We appreciate it.
STATEMENT OF CLYDE PRESTOWITZ, PRESIDENT, ECONOMIC STRATEGY
INSTITUTE
Mr. Prestowitz. Thank you, Mr. Chairman. It's my pleasure
to be here. I thank you, Senators Murkowski, Wyden, and
Franken, as well.
You've asked what is the current landscape of China's
investment and it's been delineated a bit by the previous two
speakers. I'd like to describe it in the following way. I think
China is committed to developing clean and renewable energy
technology in the same way that the United States is committed
to achieving air superiority aircraft as part of its pivot to
Asia. That is to say it's a high national priority. That is to
say that the United States Air Force is not thinking of turning
to European or Asian suppliers to supply its No. 1 strike
aircraft.
Developing this technology and leadership in this industry
in China is a matter of the highest national security, and
China is not thinking of it in terms of Adam Smith, David
Ricardo free trade, laissez faire, comparative advantage.
I say that because that has to inform then our own response
to China, and I want to emphasize, not just China. I remember
in February 2009 I was invited to a White House meeting to
discuss the future of green technology in the Obama
Administration, and there was a debate between those who--in
the administration, who wanted to become proactive with various
kinds of incentives to promote green energy and other, more
traditionally market-oriented officials who argued that we
don't want to pick winners and losers, that we should rely on
market incentives solely.
The point I made in that discussion was: Are you kidding
me? I look around the world and I see Germany has a huge
program subsidizing solar technology, and Denmark has a big
program subsidizing wind power technology, and Japan is doing
batteries and solar and wind power, and Korea is doing
batteries, and China is doing batteries and wind power and
solar, and I said: That's the market.
So when you say leave it to the market, you're saying leave
it to the tender mercies of German, Japanese, Korean, Chinese,
Norwegian industrial policy.
So when we ask ourselves what is an appropriate American
reaction or response now, that same situation pertains. We're
not living in a world of open market free trade here. This is
not Adam Smith. We're living in an environment in which
industrial policy is defining the outlines of the market and
the incentives.
So, that being the case, it seems to me that the first
major question that we the United States have to answer is: How
important do we think it is for the United States to have a
capability in these technologies. When I say capability, I mean
a technological capability, that is an understanding of the
technology and the ability to do research in the technology and
somehow to remain at the leading edge of the research.
But also, because it's often difficult to remain at that
leading edge without some competitive productive capability,
then the question also arises to what extent is it necessary
for us to have a commercially productive, competitive,
productive capability. That question has to be asked not for
the short term, but for the long term, because the nature of
these kinds of industries is that they're characterized by
economies of scale, by doing by learning, by past dependence.
So you don't get to there unless you've kind of gone
through the preliminary steps. You don't make huge leaps ahead
without having had the preliminary experience.
So if we think that these technologies are really going to
be important down the road, even if, for example, the low price
of shale gas undercuts them today, but maybe that's a temporary
phenomenon--if they're going to be important down the road,
then it's necessary to adequately identify the incentives and
disincentives in the market that are being created by the
industrial policies of our various competitors and trading
partners and by our own and adjust them in such ways as to
assure that there's a continuing competitive U.S. capability.
Now, as my colleague Alan Wolff pointed out, this is not a
new question. This is not a new phenomenon. We've been here
before. We saw this in the seventies and eighties with Japan
and more recently in the nineties and aughties with others,
Japan, Korea, Taiwan, Singapore. All of them have adopted
similar kinds of proactive industrial development policies to
achieve their miracles and to achieve dominance in industries
that used to be dominated by the U.S., and, let me under
strike, in industries that are capital-intensive, labor-
intensive--I mean, not labor-intensive, capital-intensive,
technology-intensive, not labor-intensive.
So those are the industries in which we keep telling
ourselves, our top economists keep telling us, that we are
competitive in capital-intensive and technology-intensive
industries. But what we keep seeing is loss of competitiveness
in those industries in the face of the policies of some of
these I've mentioned.
However, as Alan rightly points out, we in the case of
Japan in the semiconductor industry, there was a recognition in
the U.S. of a need to respond and we did respond. It wasn't a
perfect response, but, as Alan pointed out, the United States
retains a very powerful leading edge capability in the
semiconductor industry.
How did we respond? With a broad, comprehensive policy. We
self-initiated. Let me say the word again: self-initiated. That
is, the White House didn't wait for industry to bring a
complaint. The White House filed a complaint against Japanese
dumping of semiconductors. So an antidumping case, but it
wasn't just an antidumping case.
We created Sematech as an industry-government consortium to
promote cooperation and collaboration among device makers,
equipment makers, in order to foster the advance of that nexus
and the advance of leadership in the equipment industry.
We had the Plaza Agreement, which resulted in a revaluation
of the vastly undervalued Japanese yen. So a whole range,
panoply of measures, comprehensively linked together to deal
with the question of how do we stay competitive in this
industry. We had an agreement with Japan, the so-called
semiconductor agreement, under which the Japanese, No. 1,
agreed to halt their dumping, but, No. 2, also committed to
seeing to it that foreign producers got a fair share of the
Japanese market, defined as about 20 percent, which in fact we
did get.
So that I think is indicative of the kind of policy
approach, the kind of attitudinal response, that's called for
in this situation with China, and, again I say, not just China,
but in the world of clean energy, particularly in Asia.
Thank you.
[The prepared statement of Mr. Prestowitz follows:]
Prepared Statement of Clyde Prestowitz, President, Economic
Strategy Institute
Good morning Chairman Bingaman, Senator Murkowski, members of the
Committee. Thank you for the opportunity to testify before the
Committee this morning on this very timely topic.
This morning I would like to take a slightly different tack than
some of the other witnesses. Rather than look at some of the current
opportunities and issues that the United States and China face in green
technology space, I want to provide some historical perspective that I
think will be useful. There is a cliche that history tends to repeat
itself. I think this is one of those cases.
I was recently reminded of a conversation I participated in that
took place in Vice President Biden's office in the early days of the
Obama administration about how to put together the President's upcoming
stimulus proposal. Part of the overall discussion dealt with the role
of clean technologies and the possibility of using green jobs as one of
the lynch pins of the program.
The room split into two camps. On one side, you had environmental
activists who argued for a strong government role in helping these
relatively nascent industries grow and flourish. On the other side, you
had conventional economists making the opposite point that we should
allow the markets determine which industries would succeed. These
economists pulled out the old line about the government not picking
winners and losers.
I felt a sense of deja vu. I remembered having this exact same
conversation more than 25 years ago when I worked in the Reagan
administration.
After all, we have faced this question before in other industries,
especially in the semiconductor industry in the 1980s with regard to
Japan. In those days, Japan targeted key industries for development as
part of its industrial policy. It protected them at home, provided
special investment incentives and preferred financing, and promoted
their exports also with special tax incentives and by maintaining an
undervalued currency. The result was massive overinvestment and excess
capacity in Japan that was dumped into the U.S. market.
The United States faced the question of whether this dumping was a
gift to consumers or a force for destruction of an industrial
capability of vital long term importance. We also faced the question of
whether the gift would always be given or whether once Japan reached
dominance, prices in the United States would rise to Japanese levels.
It is important that we remember the lessons learned from our issues
with Japan in the 1980s when dealing with China.
In my opinion, this debate shows a continued fundamental
misunderstanding of the way the world works. Rather rehashing the same
old debate for the ten thousandth time, we need to realize that many of
our trading partners are already intervening in the market. Whether it
is China, Japan, Korea or Germany, all of these countries have long ago
put in place policies--dare I say industrial policies--to promote these
industries. They see clean tech industries--solar, wind, batteries and
others--as the industries of the future and have put policies in place
to support them.
Although China is not the only country that put policies into place
to support their clean tech industries, it is one of the most
aggressive.
One powerful element of China's industrial policy strategy is the
863 Program, a project launched in March 1986 (863 is the year and date
of the project's birth) by China's then paramount leader Deng Xiaoping
to drive its technological catch-up effort. In 2001 this program began
to focus intensely on energy, especially new or green energy, setting
targets for installing wind turbines, solar panels, hydroelectric dams,
and other renewable resources. In 2006 the 863 Program drove China to
double its wind power capacity, and then it doubled again the following
year and again the year after that. In 2003 China had virtually no
solar power industry. By 2008, it was making more solar cells than any
other country and taking customers away from American and other foreign
companies that had originally invented the technology.
In October 2009, President Hu commented that China must ``seize
preemptive opportunities in the new round of the global energy
revolution.'' In response, U.S. Assistant Secretary of Energy David
Sandalow acknowledged that ``unless the U.S. makes investments, we are
not competitive in the clean-tech sector in the years and decades to
come.'' Not only did 863 provide funding but it also required that wind
farms, for example, use locally manufactured equipment. The fact that
this requirement went into effect in 2003 and was dropped in 2009 is
instructive. In 2003, China was a high-cost producer. By 2009, it had
achieved such economies of scale and advanced in technology
sufficiently that it was the low-cost producer. Dropping the ``buy
Chinese'' rule then had no effect. By now everyone was buying Chinese
because they were the cheapest and of good quality.
Interestingly, the 863 Program was fashioned after similar programs
at the U.S. National Institutes of Health and the Pentagon's Defense
Advanced Research Projects Agency. Since the program got rolling in
1987, its budget has grown by more than fifty times.
Thanks to the research from Bloomberg New Energy Finance, we also
know about the large amounts of subsidies the central and provincial
governments have provided Chinese companies. A new World Bank report,
co-authored with the Development Research Center of the State Council
(DRC), reports that the Chinese government considers its solar and wind
power industry--along with its nascent solar polysilicon industry--to
be state controlled. We also know that the Chinese have instituted
policies, recently updated in the most recent Five Year Plan released
earlier this year, to support these industries and provide some level
of coordination.
There are specific plans for each of the individual clean tech
sectors, but for illustrative purposes, I would like to focus on the
plan for China's solar industry.
The recently published solar plan, which covers the period through
2015, reflects the Chinese government's resolve to ensure the
industry's continued rapid development by directly managing its
planning, policy and growth. According to one of the publicly available
translations of the latest plan, the Chinese government once again
designated its solar sector as one of seven ``strategic emerging
industries.'' As a result, the Plan calls for significant government
financial assistance, preferential treatment and significant oversight.
This includes new financial and price subsidies; more support in
industry, financial and tax policy; and further aid with development
and production of equipment used to produce polysilicon, silicon
ingots, wafers, cells and panels within the crystalline-silicon solar
industry. Moreover, the portfolio includes plans to support
industrialization of China's as-yet-undeveloped thin-film industry,
specifically harnessing silicon and copper indium gallium diselenide
solar technologies.
The new Five-Year Plan also provides even greater support for
exports than previous government plans. The 2011-2015 plan calls for
identifying and promoting ``national champions.'' It aims for
consolidation of ``the industry's position in the international
market,'' partly so that ``Chinese PV enterprises' international
influence will be greatly enhanced'' and be better able ``to cope with
international competition and market risks.''
The programs the Chinese lay out in their new Five-Year Plan are
not necessarily bad and, per the request of the Committee, I will not
comment as to whether they are WTO-legal or not.
The more important point is that the Chinese government had a plan
that helped its solar industry to grow from a non-factor in the
industry to the world's largest producer on solar in less than a
decade. It is now moving forward with the next generation of a program
that consolidates these gains.
So, what do we need to do? Again, I believe history has an answer.
To the extent that the United States and China can work together to
develop new technologies through non-commercial research, we should
applaud and support these programs. Programs such as the U.S.-China
Clean Energy Research Center (CERC), funded by the U.S. Department of
Energy, could have a significant long-term impact. As we have learned
through programs such as DARPA, Sematech and the new ARPA-E, there is a
role for the government to play in this process and these programs can
be extremely successful.
However, there is much more that we need to look at doing if we, as
a nation, decide we want to be players in the clean tech industries in
the future.
I believe that we need our own program to support industries we
deem important--and I believe clean tech is important. This is not, as
the conventional economists I mentioned at the start of my testimony
claim, picking winners and losers. We are already doing that--we just
don't want to say we do it using those loaded terms. Indeed, we should
not worry about these criticisms. We need to accept them, move on and
enact policies that will help American manufacturers and promote global
innovation.
Although the United States eschews a formal economic strategy and
any kind of stated industrial policy, we have such policies. We cannot
avoid having a de facto economic strategy and de facto industrial
policies of all kinds.
For example, the FCC must choose how to regulate
telecommunications. The choice of focusing on competition (a process)
rather than on deployment (a result) is a form of industrial policy--or
perhaps of anti-industrial policy.
I would argue that for the government to stand to the side and do
nothing is a de facto industrial policy of the worst kind. We are in
effect saying we don't care where the next generation of clean
technologies are designed and built. We are willing to step aside and
let another country dominate a sector. We are also saying we are
sticking with the status quo and continuing our reliance on imported
oil and dirty coal.
I would argue that the ongoing existence of DARPA, ARPA-E, and the
National Institutes of Health and many other agencies and programs is
an example of current U.S. industrial policies. The U.S. government is
very large, spends an enormous amount of money, and sets standards and
regulations that have an enormous impact on the business environment,
on the shape of various industries, and on the conditions of consumer
life.
As a result, I believe there is a significant role that the U.S.
government can play that will support the development of an American--
and global--clean tech industry.
The United States government did this back in the 1980s. In order
to help American manufacturers deal with Japan's industrial policy that
specifically targeted the semiconductor industry, the federal
government enacted a wide variety of initiatives. I would like to list
four, along with their current policy equivalents.
In 1985, the United States, in conjunction with the France,
Japan, United Kingdom and West Germany, negotiated the Plaza
Agreement. By reducing the value of the American dollar, a
Republican administration was able to help make American
exports more price competitive. This, in turn, allowed American
companies to continue to invest and improve their products so
that could become more competitive in the global marketplace.
Unfortunately, even this significant agreement was not enough.
We are seeing the same thing today with China. Both the Bush and
Obama administrations have gone out of their way to avoid
labeling China a currency manipulator. While the Chinese
government has made a few moves to increase the value of their
currency, its recent decision to devalue its currency in order
to prop up exports is a sign that jawboning and looking the
other way will not work. We need an aggressive currency policy,
enacted in conjunction with our allies, in order to ensure
change.
We used the purchasing power of the federal government to
build a market for semiconductors and, when necessary, codified
this preference through ``Buy American'' laws.
Although conventional economists eschew such rules, they are WTO-
legal as they long we include products made by countries that
have signed the WTO Government Procurement Protocol. This still
gives many of our global competitors in solar access to the
American government marketplace. However, it does send a signal
that we believe it is important where we purchase products,
especially for the military.
The federal government also took a strong look at using our
trade laws to remove market distorting measures enacted by the
Japan government and Japanese manufacturers that both helped
American companies in our market and worked to open up the
Japanese market to competition. This included self-initiating
an anti-dumping case against Japanese semiconductor
manufacturers and negotiating the 1986 Semiconductor Agreement.
We also learned to stay vigilant, as we learned that the
Japanese government replaced official trade barriers, such as
tariffs, with non-tariff barriers, such as production subsidies
and government-industry collusion.
In cases where we believe our competitors are not playing by the
rules, we should not hesitate to push to use our trade laws.
Last year, President Obama, acting on a complaint by the United
Steelworkers, spoke out against Chinese practices in the wind
power sector his administration thought were WTO illegal. By
taking the Chinese to the World Trade Organization, the
administration was able to get the Chinese to agree to stop
subsidizing wind power firms that used Chinese-made parts at
the expense of imports. The administration's decision, in
conjunction with the European Union and Japan, to force China
to lift export limits on rare earth minerals, is another
example. As the Committee knows, rare earths are important
parts of green technologies such as wind turbines, hybrid car
batteries, and energy-efficient lighting. Finally, should the
government take action against China, or any one or our other
trading partners, we must ensure U.S. Customs and Border
Protection has the resources it needs to prevent circumvention.
We developed government initiatives to help support our
domestic manufacturers through funding basic, non-commercial
research and development. Sematech is just one example of a
successful program. As the Chairman knows, we also gave wider
latitude to our national laboratories to work with industry as
opposed to only focusing on government problems. A Democratic
Congress passed, and President George H.W. Bush, signed the
High Performance Computing and Communication Act of 1991. This
one piece of legislation helped put in place many of the
necessary building blocks of the Internet we know today,
including high-speed fiber optic networks and the Mosaic
browser.
In addition to funding the China Clean Energy Research Center, I
also believe that we should take a serious look at increasing
support for the U.S. Photovoltaic Manufacturing Consortium, a
U.S. research consortium built along the lines of, and with the
support of, SEMATECH. I was an early proponent of SEMATECH and
continue to believe that these types of programs that solve
common manufacturing problems by leveraging resources and
sharing risks are helpful in ensuring that we leverage the
power of our corporate and university R&D to help American
industry.
The challenge we face is that if we want the United States to
remain competitive globally in clean technologies, we need to do
something that is rare in Washington these days. We need to be bold.
There are opportunities to work with China and the United States
government should explore them, just as we would with any other
country. But we should remember that the Chinese government has a
policy to not just be a leader in a number of technologies, but the
leader. The United States must determine how we are going to respond
and decide how much we want to be a leader. With strong action, we have
the opportunity to develop a globally competitive industry in a sector
that has great promise both economically and environmentally. Without
it, we face a future where the United States is sitting on the
sidelines.
Thank you again for this opportunity and I look forward to your
questions.
The Chairman. Thank you very much.
Mr. Holladay, you're the person who's expert on Sematech,
so you can correct the previous witnesses and give us your
view.
STATEMENT OF DAN W. HOLLADAY, DIRECTOR, ADVANCED TECHNOLOGIES
AND PV PROGRAMS, SEMATECH
Mr. Holladay. Thank you very much, and thank you for
inviting me here today to speak on these important topics. We
at Sematech deeply appreciate your leadership, Mr. Chairman,
Senator Murkowski, Senator Franken, Senator Wyden, on these
matters of industrial competitiveness that are so important to
our continued growth and prosperity.
We are facing challenges today that are comparable to the
late 1980s, which my colleagues have spoke on here, when
Sematech was established. At a time when both industry and
government budgets were tight, foreign producers have captured
key high tech product markets and are rapidly developing the
know-how and the capacity to capture next generation
technologies.
The U.S. has always led in R and D and there has been a
broad consensus that science and technology are integral to
economic growth. In recent decades, however, the relationship
between R and D and manufacturing has been less well
understood. While we as a nation still lead the world in
discovery, we do face a real danger of becoming a producer of
intellectual property that is ultimately commercialized
elsewhere. Such an outcome denies the American economy the
tremendous economic benefit that comes with manufacturing,
transforming IP into products, resulting in both revenue and
jobs.
As we face stiff competition and severe budget pressures,
the Sematech story is particularly instructive. In 1987,
Congress authorized the bold Sematech experiment and public-
private partnership and subsequently appropriated $100 million
per year, matched dollar for dollar by industry, to fund an
industry-led consortium of leading chipmakers to help restore
U.S. leadership in semiconductors.
By the mid-1990s, Sematech had accomplished its mission and
withdrawn from Federal funding. The experiment had succeeded
and, through collaborative programs to improve manufacturing
tools and processes, Sematech had indeed played a key role in
pulling the industry together and reestablishing U.S.
competitiveness in the global market. Even now, 25 years later,
the Sematech experience as an industrial consortium is one of
successfully facilitating collaboration in pre-competitive R
and D. Sematech memberships, cooperatively funded, conduct
projects to fill key gaps in R and D and manufacturing,
developing key tools, materials, processes, and providing
testbeds to facilitate demonstration and evaluation of
innovations in production.
This experience of groundbreaking industry consortium
support by public and private funding is directly applicable to
many critical industries today, including photovoltaics, energy
storage, smart grid, cyber security systems, biomedical
devices, MIMS and NIMS devices, biofuels, nanomaterials, and
others.
Such a consortium has these important attributes: It's
based on sharing costs and risk and collective intelligence.
Bob Noyce said: ``Knowledge is power, but knowledge shared is
power multiplied.''
It is industry-led, member-driven, assuring that its
direction and decisions are attuned to the industry's
priorities and to the market. It allows for both collaborative
programs and proprietary work with IP protection.
Its broad representation of the industry supply chain
creates a critical mass and ability to drive consensus, develop
road maps, and provide industry direction from a collective
voice.
It is built on public-private partnerships that leverage
both government and industry funding. Initial government
funding acts as a catalyst, while industrial funding increases
over time and moves the consortium toward financial self-
sufficiency.
It bridges research, development, and manufacturing,
pulling the research into the mainstream, providing
manufacturing development facilities similar to what EERE is
working on with their advanced manufacturing office. It
provides facilities for testing and prototyping at scale, which
is very critical, and accelerating the creation of advanced
production lines in the U.S. and commercialization of new
materials, equipment, and products.
It's a national initiative, but with selective
international collaboration, especially in areas such as
environmental safety and health, standards, reliability. We
have proven methodologies to collaborate internationally and
still protect U.S. manufacturing-based IP.
Sematech has evolved over its 25-year history to keep pace
and help lead this dynamic semiconductor industry. We have
expanded our program's scope and our engagement with the supply
chain and diversified our funding sources as we develop next
generation equipment and technology platforms, such as extreme
UV lithography programs, novel transistor materials, 3D
devices, and now the transition to 450-millimeter wafers.
At the same time, we're starting to apply Sematech's
experience to new technology areas with manufacturing
challenges. Last year Sematech was selected by the Department
of Energy to establish the U.S. Photovoltaic Manufacturing
Consortium, PVMC, to establish and accelerate the development
of and commercialization and manufacturing of next generation
solar photovoltaic systems. Keeping with Sematech's model and
proven best practices, PVMC will provide collaborative
consortium R and D programs, as well as manufacturing
development facilities to test and demonstrate new technologies
and manufacturing processes at production scale, which once
again is very critical.
In conclusion, in our view a Sematech-like model for
collaboration with a catalyst of public-private partnerships
must be part of the U.S. play book to leverage unique U.S.
advantages in innovations and strengthen the bridge between R
and D and manufacturing. In addition, to leverage our country's
strong universities, national labs, and venture capital system,
we as a nation must nurture disruptive technology development
and robust manufacturing if we are to build the infrastructure
for sustainable growth and leadership in the global economy.
Thank you.
[The prepared statement of Mr. Holladay follows:]
Prepared Statement of Dan W. Holladay, Director, Advanced Technologies
and PV Programs, SEMATECH
Thank you for inviting me here today to speak on this important
topic. On behalf of all of us at SEMATECH, I would also like to offer
our heartfelt gratitude to you, Mr. Chairman, for your strong support
over the years. We well remember your efforts in the early years, not
only to support our funding, but also to advocate for the principles of
industry autonomy and management, which have been so critical to our
ultimate success. Your vision was prescient then, and now, twenty-five
years later, you are still asking the right questions. Senator
Murkowski, we so deeply appreciate your commitment to our nation's
energy security and your leadership in supporting efforts to improve
our industrial competitiveness.
Today we find ourselves once again facing stiff global competition
as well as severe budget pressure. I understand the Committee's charge
to be: what can we do affirmatively to improve our industrial
competitiveness. We believe the SEMATECH experience is a big part of
the answer.
Even in the midst of a historic global economic slowdown, the US
remains the font of innovation, leading the world in patents, and
indeed, garnering as many patents as the rest of the world combined.
While we lead the world in discovery, we do face a real danger of
becoming merely a producer of intellectual property that is ultimately
commercialized elsewhere. Such an outcome denies the American economy
the tremendous economic benefit that comes with transforming IP into
products--both revenues and jobs--and ultimately denies the American
taxpayer a return on the investments in the underlying research.
Several trends, including outsourcing and growing competition from low
cost producers overseas have eroded the U.S. industrial base and, along
with it, the engineering and manufacturing capabilities needed to
produce next generation products. Erosion in know-how, skilled
personnel, and the supplier base has jeopardized or contributed to the
loss of U.S. leadership in several key hightech products including
solar cells. Foreign producers now dominate these component and product
markets, and are rapidly developing the know-how and capacity to
capture next generation technologies.
The United States cannot cede leadership in future game-changing
technologies such as nanotechnology-based products, smart materials,
biopharmaceuticals, energy storage, and digital devices for ubiquitous
computing. Both our economic and our national security depend on our
industrial competitiveness. But, increasingly, development of leading
edge products is intertwined tightly with manufacturing know-how and
development of production processes. Simply put, the erosion of U.S.
manufacturing capacity must be reversed to preserve America's ability
to innovate.
the sematech model
The competitive challenges we are facing today--while formidable--
are not unprecedented. We have faced similar challenges before and we
have met them. The conditions that gave rise to SEMATECH--most notably
our trade deficit with Japan--were similarly daunting. Twenty-five
years later, the SEMATECH story shows us that industrial consortia are
both necessary and effective. But at that time, much of what we now
know was in question. Whether the government should fund SEMATECH to
help bolster the U.S. semiconductor industry, and how involved the
government should be in SEMATECH's operations were seriously debated
issues. The strength of the foreign competition and DOD's interest in
having a domestic supply of both semiconductor devices and equipment,
however, drove the government to undertake this public-private
partnership that has since become the standard for many others.
In 1987, Congress authorized the bold SEMATECH (SEmiconductor
MAnufacturing TECHnology) experiment, and subsequently appropriated
$100M per year, matched dollar for dollar by industry, to fund an
industry-led consortium of leading chipmakers to help restore U.S.
leadership in semiconductors. By the mid-1990's, SEMATECH had
accomplished its mission and withdrawn from federal funding; the bold
experiment had succeeded, and through collaborative programs to improve
manufacturing tools and processes, SEMATECH had indeed played a key
role in pulling the industry together and re-establishing U.S.
competitiveness in the global market.
Today, twenty-five years after its founding, SEMATECH is a global
consortium of semiconductor device, equipment, and materials
manufacturers, continuing to explore ways to advance current
semiconductor manufacturing technologies and build the infrastructure
for emerging next-generation technologies, to transform novel ideas
into manufacturable and marketable solutions. SEMATECH's long-time
mission has been to focus on pre-competitive or noncompetitive R&D--
cooperatively developing standards, building infrastructure, assuring
that key components (tools, materials, processes) are in place when
needed by industry--always with an eye toward improving
manufacturability and accelerating commercialization. With strong
support of the State of New York, where we are headquartered, we work
closely with a collaborative network of over 150 global partners--
including our strategic partners, the College of Nanoscale Science and
Engineering of the University (CNSE) at Albany, as well as
semiconductor companies, equipment and materials manufacturers,
national laboratories, universities, research institutes and other
organizations throughout the industry ecosystem--to leverage resources
and develop innovative research, development, and manufacturing
solutions. Through SEMATECH, members cooperatively fund and conduct R&D
projects to fill key gaps in R&D/manufacturing infrastructure, such as
developing new manufacturing processes and equipment, standards, and
training programs.
SEMATECH remains one of the world's most successful industry-led
R&D consortia, with significant experience in managing large-scale
industry-government-university alliances. Our member-driven
collaborative model and best practices are standard-bearers for
industrial R&D consortia, and have been emulated and replicated both
nationally and internationally.
SEMATECH is often cited as the model for successful public-private
partnerships, based on our pioneering of the industrial R&D consortium
model and our success in helping the U.S. semiconductor industry regain
market share in the face of stiff competition from foreign competitors.
SEMATECH has spurred both technology innovation and economic growth,
including the creation of tens of thousands of high-wage jobs and
billions in capital investment. SEMATECH is one of the few entities
around the world that has continuously accelerated the RD&D timeline
and delivered substantial value to its participants on an annual basis.
In our view, given the history of SEMATECH we have just described,
several organizational features have been integral to the success of
the SEMATECH industrial consortium model:
Commitment from senior executives, long-term support: Through
their financial support, participation in programs, and
assigned personnel, member companies make a substantial
investment in SEMATECH, which in turn ensures that our
activities are directly relevant to their needs and priorities.
Industry leadership: While SEMATECH was established as a
public-private partnership, industry has retained the
management lead, ensuring that the consortium's activities are
aligned with industry priorities.
A clear, pre-competitive mission: SEMATECH accelerates
commercialization by addressing common challenges, which are
enumerated by the industry roadmap. This means a focus on
building technology infrastructure and strengthening the
manufacturing base.
Broad representation of the industry: SEMATECH engages the
whole supply chain, including manufacturers, universities,
national labs, research institutes, equipment/materials
manufacturers and other suppliers. This engagement allows each
entity to improve its understanding of its customers' needs,
and helps drive alignment and consensus across the broader
industry.
Leveraging of government and industry funds: Government
funding does not displace industry funding; rather, it
leverages it for the purpose of accelerating technology
development. SEMATECH's initial federal funding of $100M per
year was matched by industry, dollar for dollar. In the years
that followed, the industry increased its share and SEMATECH
became self-sufficient. This ongoing commitment is all the more
notable in light of the tremendous financial pressures most
national and international technology companies face.
A manufacturing development facility: The key here is scale.
A shared facility where companies can practice manufacturing in
a real-world manufacturing environment is a critical component,
making it possible to test equipment, materials, processes and
innovate new products at the scale that is necessary in order
to demonstrate performance, reliability, and cost savings. Such
a facility provides access to capabilities that enable next
generation start-up companies to succeed and provide the
critical validation of product performance for venture capital
funding.
Membership model: SEMATECH is a member-driven organization.
Participating companies provide technical personnel
(``assignees'') on two- or three-year rotations in addition to
their financial contributions. Most immediately, this exchange
of technical talent keeps SEMATECH attuned to member company
priorities, but it is also is the critical means of
transferring technology and manufacturing best practices.
SEMATECH has evolved over its 25-year history. In order to keep
pace with and help lead a dynamic industry, it has expanded its program
scope and its engagement with the supply chain, and diversified its
funding sources. As a result, SEMATECH has:
Helped recapture the US lead in semiconductor manufacturing,
Successfully managed $870M in federal funding, ramping up
membership, transitioning to self-sufficiency,
Led industry-wide initiatives to enable industry transitions
(next-generation patterning, next wafer size, novel materials
and device structures), and
Catalyzed technology commercialization and economic
development.
applying the sematech model to photovoltaics
At SEMATECH we see the incredible promise of renewable energy, and
have already started to extend our experience in this direction, with
the creation of the U.S. Photovoltaic Manufacturing Consortium (PVMC).
Last year, the Department of Energy selected SEMATECH to establish the
PVMC to accelerate the development, commercialization, and
manufacturing of next generation solar photovoltaic (PV) systems. In
keeping with the SEMATECH model, PVMC will provide a means for testing
and demonstrating new technologies and manufacturing processes at
production scale.
PVMC is leading a groundbreaking paradigm that will catalyze the
21st century solar PV industry, developing and commercializing
innovations in renewable energy thin film technology to enhance
performance and reliability while reducing the cost of manufacturing.
This unique effort builds on the approach successfully demonstrated in
the semiconductor industry, through the powerful combination of
SEMATECH's collaborative industry consortium model and CNSE's public-
private partnerships and unparalleled infrastructure.
PVMC private sector partners include companies from across the
solar industry representing equipment, materials and metrology
suppliers, module producers and integrators and end users. Working
together with institutional partners, PVMC companies will provide the
knowledge, experience and critical mass necessary to align the industry
and propel it forward.
PVMC's goal is to increase the performance and speed the
implementation of PV technologies while improving manufacturing
processes and driving down costs. PVMC is working towards this goal by:
Developing and disseminating technology roadmaps and
standards in order to identify priorities and coordinate the
technical agenda of the U.S. PV manufacturing industry,
Establishing and supporting manufacturing development
facilities to improve manufacturing productivity and increase
U.S. PV manufacturing market share, jobs and technology
innovation,
Linking research labs, universities and industry to
establish an effective PV commercialization support structure,
and
Developing a highly trained PV workforce.
Each of these strategic goals is supported by aggressive technical
objectives, with detailed deliverables, metrics and milestones. Through
its programs and advanced manufacturing development/prototyping
facilities, PVMC will be a proving ground for innovative, disruptive
solar technologies and manufacturing processes. Aligned and working
together, the PV industry can overcome technology and manufacturing
challenges, lower costs, regain market leadership, and spur the
transition to a low-carbon renewable energy economy. Based on our
decades of experience, we believe that this model of an industrial
consortium working in partnership with universities and national labs
can establish--or restore--national competitiveness in clean energy
technologies.
industrial consortia: keys to success
SEMATECH was conceived by industry and government to stop and
reverse the exodus of the semiconductor industry from the U.S.; the
mission was ultimately successful, and SEMATECH has continued to
evolve, adjusting to a dynamic industry and a dynamic world and
economy, for the last quarter century. Our experience over that time
tells us that the following are required to be successful:
In any emerging/disruptive technology sector, a U.S.
prototyping capability is needed to supplement R&D and bridge
to manufacturing--that is, a manufacturing development facility
(or facilities) that provides researchers and companies with
the capability to test and prove out innovative technologies
and manufacturing processes, either collaboratively or as part
of a proprietary program or fee-for-service arrangement. This
service goes well beyond what universities and national labs
provide, with capabilities at sufficient scale to provide the
data necessary to determine whether to adopt an innovation. A
manufacturing development facility provides companies shared
access to analytical, metrology, and advanced pilot line
equipment required for integrating new materials, developing
new equipment, and prototyping new products--services and
manufacturing infrastructure not available in a lab
environment.
Collaboration with, and alignment of, a U.S. supply chain is
needed to provide insight and guidance on the strategic
investments required to achieve consortia goals; suppliers'
direct engagement in collaborative R&D fosters innovation and
accelerates progress toward commercialization. This is what
Pisano and Shih have identified as the development of the
industrial commons. (``Restoring American Competitiveness'',
HBR, July-August 2009)
An efficient allocator of R&D funding is required--a
consortium model provides a precompetitive mechanism to bring
the industry together, prioritize and narrow technology
options, reduce the risks of technology R&D, and maximize
return on investment, to assure that funds are driven to
productive applied research resulting in the acceleration of
advanced manufacturing. It is difficult to evaluate long-term
R&D programs, or adapt to rapid changes in technology. In these
circumstances, the informed judgment of a combined cross-
functional team of experts in a consortium is a better method
of allocating R&D funding than a simple analytical model based
on arbitrary assumptions when data or even reasonable estimates
do not exist.
A bridge between innovative research and funding/
commercialization (e.g., across the Valley of Death) is needed,
through a consortium model that spreads benefits/risk across
all stakeholders, working with universities and national
centers to pull critical research into the industry mainstream,
working with industry to reduce costs/risks and accelerate
precompetitive technology and process development, and working
with government to realize the potential for economic benefit
and job creation.
Building and sustaining links to international partners is
required. Industries are global; U.S. firms rely on global
suppliers and have operations abroad, while many international
firms make significant contributions to the development of U.S.
innovation and manufacturing. While protecting our national
interests and building our national technology and
manufacturing capabilities, there are areas where international
collaboration makes sense. To develop solutions that will be
globally competitive, a consortium must have engagement with
the global supply chain, especially in areas such as
establishing common roadmaps, and providing access to critical
materials and equipment sets. In particular, the issues of
Environment, Health and Safety (EHS), standards, and quality/
reliability are ones in which we all have a vested interest in
establishing and maintaining a baseline standard. Ultimately,
we have the know-how and methodologies to collaborate globally,
while protecting national interests and protecting IP.
The organization's success or failure rests on the integrity
of the intellectual property management. A consortium must have
an effective structure and methodology allowing collaborative,
pre-competitive work while maintaining the integrity of the
contribution of consortium members' IP and enabling the
continuation into the competitive phase.
A consortium is a collaborative effort that leverages
resources; by combining both public and private resources, the
consortium can expand the scope of its programs, investigate
multiple technology options, and produce higher quality
solutions, thereby multiplying many times over the undertaking
that any single entity could afford.
At the same time, the consortium must have a glide path to
financial sustainability. We believe the membership model that
draws member companies from all along the supply chain is
critical to ensure that the consortium remains responsive to
industry needs.
A successful consortium must have the trust and confidence
of the federal government, private corporations, and
researchers/idea generators to provide the framework for, and
realize the benefits of, our next generation of innovation-
driven manufacturing. Trust and confidence comes from
experience; the SEMATECH model has evolved with proven success
in fostering technology innovation, reducing the costs of R&D,
enabling advanced manufacturing, and creating high wage jobs
and is respected worldwide.
conclusion
In conclusion, we want to emphasize that for all of the challenges
we face, we have faced similarly formidable challenges before, and we
have the tools and the experience to overcome them. The
Administration's National Network of Manufacturing Innovation holds a
lot of promise in this regard. We believe that the NNMI can replicate
SEMATECH's success across many industries, provided that it is guided
by the core principle of industry management and that it utilizes the
membership model.
The SEMATECH experience has reaffirmed that we as a nation can
benefit from an ambitious national strategy to drive broad
collaboration at sufficient scale to create technology roadmaps and
standards; build R&D and manufacturing infrastructure; reduce cost
across the supply chain; conduct both collaborative and proprietary
technology programs; and provide access to pilot facilities to
demonstrate innovations at manufacturing scale. In our view, public-
private initiatives--that focus on investments that are too large for
any single company or organization, and too long-term for companies
that need to demonstrate quarterly results--are critical for the United
States. In addition to leveraging our country's strong universities and
venture capital system, we as a nation must nurture disruptive
technology development and robust manufacturing, if we are to build the
infrastructure for sustainable growth and leadership in the global
economy. Given that the American taxpayer still funds the bulk of the
underlying research, these activities return a significant ROI: in
terms of generating revenue and high-value jobs, attracting companies
to form a virtuous cycle of innovation-driven economic development, and
thus enabling taxpayer-funded research to be commercialized here in the
United States.
The Chairman. Thank you very much.
Dr. Scissors, please go right ahead.
STATEMENT OF DEREK SCISSORS, THE HERITAGE FOUNDATION
Mr. Scissors. Thank you.
I don't think we've heard enough today about how China is
actually doing, and I'm going to say a few things about that,
and maybe we'll hear more. I would also suggest or recommend to
some extent my written testimony, which is hardly perfect, but
documents a little bit on China's actual performance.
China's actual performance is poor. That I think is not
really arguable. The reasons why, how long it will be poor, we
can argue about, and those will imply some lessons for the U.S.
Let me start with positives on what China has done so far.
They create jobs at home, partly by exporting solar panels,
partly by having too much wind capacity for their own use. But
jobs are good.
They also spend a lot, which makes it seem possible that
there will be improvement in their future outcomes, which I
think is fair--that possibility does exist--but that's it for
the positives; and the negatives are pretty stark.
No. 1, China is now significantly more dependent on
imported energy than it was. In 2007 China was a net coal
exporter. It is now the world's largest coal importer, and it
will pull away from everyone else in rather dramatic fashion.
Its oil important share is rising, so China is moving
farther away from its stated goal of self-sufficiency that most
countries have, including the PRC, and they're failing.
On efficiency gains, according to the International Energy
Agency, in the decade of the 2000s U.S. energy efficiency
improved annually at a 2.5 percentage point clip. China, which
had far greater scope for improvement, much more room to
improve, improved more slowly, 1.7 percent, percentage increase
annually in energy efficiency.
They're not doing well in efficiency, either.
Ecology. We talk about green energy--we started talking
about green energy primarily to reduce carbon emissions. In
2005 China was second to the United States in global carbon
emissions. They have spent a great deal of money since. They
are now at least 50 percent ahead of the U.S. in carbon
emissions. That's the result of their green energy spending.
Innovation. Some people think that you spend money, you get
more innovation. OK. I don't agree. There's very little primary
innovation in China to this point. There's a lot of plans for
innovation. Maybe we'll see it in the future. We haven't seen
it yet.
Even in jobs performance, China's job performance in
creating green energy jobs is heavily dependent on foreigners,
particularly demand subsidies in the EU that are now drying up,
or it's dependent on domestic overcapacity in wind.
So when we actually break down Chinese energy performance,
it's bad. Why? Now we're moving into the suggestion phase.
China extended a lot of support to large solar companies, for
example. Let me give you a statistic. Three of the top 5--not
all of them; 3 of the top 5--Chinese solar companies have debt
now that is 6 times their market cap. The Chinese system has
just failed, and those companies are either going to go out of
business or just continually be subsidized by the State.
They try to innovate by decree: We will now innovate more.
The decrees come a lot faster than protection of intellectual
property. I would argue that, even with Chinese spending, if
you don't protect intellectual property, which China is very
far away from doing, you're not going to innovate, no matter
how many orders you give from Beijing.
Their emissions profile changed when the State decided to
alter the direction of economic policy, which was 2002-2003, a
change in Chinese government. Their coal use was actually
declining. Their coal use soars, their emissions profile soars,
with a government change.
Their energy efficiency. China calls energy an area of
absolute state dominance and it discourages competition because
it wants to consolidate control of sectors on large state-owned
enterprises. When you suppress competition, you get less
efficiency.
China also imposes price controls. Price controls keep
energy too cheap. They overuse it, they import it. There goes
self-sufficiency.
The theme in all this is the state, the role of the state.
That's my hypothesis for why China's energy performance is so
poor.
So what are the implications for the U.S.'' Cooperation is
certainly worthwhile. I think the current direction of China's
energy policy is not going to accomplish anything. China's
priority in energy is state control of energy, not
technological breakthroughs, not reducing emissions. We've seen
them do exactly the opposite.
I think imitating China is a terrible idea. They spend a
little more than us and they get much worse results. Us
imitating China would hurt the entire planet economically,
environmentally, on any dimension you can think of, and it
would cost us more, of course.
In the competition sense, we're winning. We're getting
closer to self-sufficiency, they're getting farther away. Our
energy efficiency is higher and we're gaining more. We're
cutting our emissions, theirs are soaring. There's no sign of
us losing our tech leadership, unless you just substitute
``they're spending a lot of money, so eventually their going to
pass us.'' Even in jobs, they spend a lot more money to create
each green energy job and they may not be able to sustain their
job performance to this point.
Now, is there anything we can do to do better? Of course
there is. These are separate issues. I'm not arguing we're
perfect. I'm arguing we're way ahead of China and we shouldn't
lose track of that fact.
There was a brief moment of apparent bipartisan consensus
on corporate tax reform. We need to go back to that brief
moment. That would help us in green energy, energy, and
everything else. I'm not arguing about the terms of that, just
corporate tax reform I think both sides realize would be
helpful. Some sort of agreement would be very helpful.
I agree with the chairman's opening comment entirely that a
stable regulatory environment is very important and that
jumping back and forth is not helpful. I would go on to add
that I would prefer a minimally directive regulatory
environment. Why? Because when you set out specific targets you
pin us to technology paths that don't turn out to be the right
ones. This is a very dynamic industry. We should not be looking
and saying we know what technology should be chosen, we should
subsidize it and that's the direction we're going to go in.
We're going to be very sorry 5 to 10 years from now if we do
that. So I want stability, but I don't want the government
pushing industry in a certain direction.
Those would be my recommendations for the U.S., the main
point still being that, let's not forget we're outperforming
the Chinese in energy and by a wide margin.
Thank you.
[The prepared statement of Mr. Scissors follows:]
Prepared Statement of Derek Scissors, The Heritage Foundation
My name is Derek Scissors. I am Senior Research Fellow for Asia
Economics at The Heritage Foundation. The views I express in this
testimony are my own and should not be construed as representing any
official position of The Heritage Foundation.
There are serious misconceptions regarding China's energy and
environmental performance and what it means for the U.S. China is
indeed spending a great deal of money on clean energy, but it is doing
so largely in response to its own policy errors. The combined results
of this spending and these errors are abysmal--waste, below-average
gains in energy efficiency, lack of innovation, greater dependence on
foreign sources, and a terrible record on the environment.
American misconceptions arise from the fact the Beijing has
succeeded in one important area: green energy jobs. For the sake of
jobs, Congress can choose to follow China's example, but the costs
would be prohibitive. Not just money but efficiency, innovation, even
environmental protection would have to suffer for the sake of
employment. The U.S. boasts a far better energy and environmental
record than China, and moving in China's direction would be very risky.
china: is green energy investment helping?
One of the numbers that gets the most attention in clean energy
debates is the amount countries are said to invest. According to the
Pew Charitable Trusts, the People's Republic of China (PRC) spent a
total of $100 billion in 2010 and 2011 on green energy, though
noticeably less in 2011.\1\ If ``winning'' in green energy is defined
as just spending the most money, without reference to the outcomes,
China is doing very well. That, however, is a very strange notion of
success.
---------------------------------------------------------------------------
\1\ ``Who's Winning the Clean Energy Race? G-20 Investment Powering
Forward, 2011 Edition'' Pew Charitable Trusts, 2012, http://
www.pewtrusts.org/uploadedFiles/wwwpewtrustsorg/Reports/Clean_Energy/
Clean%20Energy%20Race%20Report%202012.pdf (accessed June 11, 2012).
---------------------------------------------------------------------------
The first problem with grappling with how the PRC is actually doing
is lack of transparency. Internal Chinese investment figures clash,\2\
making it more difficult for foreign observers to draw conclusions.
Some gaps are unintentional; elsewhere, there is deliberate
obfuscation. China stopped publishing regular coal figures in 2010 as
its share of global output approached 50 percent. It balks at almost
any form of international monitoring, from a sweeping agreement on
checking greenhouse emissions to U.S. embassy measurements of air
pollution in Beijing.
---------------------------------------------------------------------------
\2\ See the China Electricity Council cited in ``China to See Slow
Power Consumption Growth,'' Xinhua, February 7, 2012, http://
www.china.org.cn/business/2012-02/07/content_24576241.htm (accessed
June 11, 2012), versus the National Bureau of Statistics in National
Bureau of Statistics, China Monthly Statistics, Beijing, Volume 1 2012.
---------------------------------------------------------------------------
A related problem is the contrast between capacity and actual use:
The PRC's capacity to generate clean energy far outstrips its use. In
wind power, the initial surge in capacity was half-wasted--over half
the wind power generated in the first half of 2010 was unused. More
recently, even capacity expansion in offshore wind has stalled due to
delays and overcrowding.\3\ In solar, Chinese equipment does get used,
but almost entirely by others. The PRC now has the largest share of the
world production market, but 95 percent has gone to exports.\4\ China's
world-leading investment in clean energy has managed not to provide the
country with much clean energy.
---------------------------------------------------------------------------
\3\ ``Grid Issue Taking Wind Out of Energy Plan's Sails,'' China
Daily, February 16, 2011, http://www.china.org.cn/2011-02/16/
content_21933267.htm (accessed June 11, 2012), and Liu Yiyu, ``Wind
Firms in Doldrums,'' China Daily, May 31, 2012, http://
www.chinadaily.com.cn/cndy/2012-05/31/content_15430337.htm (accessed
June 11, 2012).
\4\ ``Factbox: How China Promotes Its Green Sector,'' Reuters,
January 17, 2011, http://www.reuters.com/article/2011/01/17/us-solar-
china-idUSTRE70G2CH20110117 (accessed June 11, 2012).
---------------------------------------------------------------------------
Another area of the PRC's troubled ``leadership'' is hydropower. At
home, hydro capacity outruns its use, just as with wind. Here the
reason is not lack of connection but lack of water flow due to
overconsumption and, to some extent, pollution. Major rivers now run
dry and fail to reach the sea, and 25 percent of surface water is rated
as unsafe.\5\ Overseas, China has inked billions in contracts to build
hydropower plants, mostly for less developed economies. These plants
provide clear and important benefits but their environmental impact is
dubious.\6\
---------------------------------------------------------------------------
\5\ Richard Spencer, ``Yangtze River Water Level at 140-Year Low,''
The Telegraph, January 17, 2008, http://www.telegraph.co.uk/earth/
earthnews/3322121/Yangtze-River-water-level-at-140-year-low.html
(accessed June 11, 2012), and ``China's Air Pollution Worsens After
Economic Growth Rebounds From Crisis,'' Bloomberg, July 27, 2010,
http://www.bloomberg.com/news/2010-07-27/china-s-air-pollution-worsens-
after-economic-growth-rebounds-from-crisis.html (accessed June 11,
2012).
\6\ Simon Marks, ``Chinese Dam Project in Cambodia Raises
Environmental Concerns,'' The New York Times, January 16, 2012, http://
www.nytimes.com/2012/01/17/business/global/17iht-rbog-
cam17.html?pagewanted=all (accessed June 11, 2012), and Derek Scissors,
``China Global Investment Tracker Interactive Map,'' The Heritage
Foundation, January 6, 2012, http://www.heritage.org/research/projects/
china-global-investment-tracker-interactive-map.
COAL PRODUCTION (TONS, MILLIONS)
------------------------------------------------------------------------
------------------------------------------------------------------------
1998 1,110
------------------------------------------------------------------------
1999 980
------------------------------------------------------------------------
2000 880
------------------------------------------------------------------------
2001 960
------------------------------------------------------------------------
2002 1,110
------------------------------------------------------------------------
2003 1,330
------------------------------------------------------------------------
2004 1,610
------------------------------------------------------------------------
2005 1,820
------------------------------------------------------------------------
2006 2,070
------------------------------------------------------------------------
2007 2,290
------------------------------------------------------------------------
2008 2,620
------------------------------------------------------------------------
2009 2,960
------------------------------------------------------------------------
2010 3,240
------------------------------------------------------------------------
2011 3,520
------------------------------------------------------------------------
Sources: National Bureau of Statistics, China Monthly Statistics,
Beijing, Volume 1 1999--Volume 1 2010, and ``Chinese Energy Chief
Stresses Coal Consumption Control,'' Coal World, February 25, 2012,
http://www.coalworld.net/indexnews/info.jsp?id=72651 (accessed June
11, 2012).
Notwithstanding all the green energy investment, coal dominates
generation of both electricity and energy, and that dominance is not
subsiding. On the (unreliable) official tally, energy consumption was
said to rise 7 percent in 2011. Coal demand rose almost 10 percent so
that its share in realized energy consumption expanded. Thermal power
generation, which in the PRC is utterly dominated by coal, outpaced
overall electricity generation last year because realized hydropower
generation fell outright.\7\
---------------------------------------------------------------------------
\7\ ``China Energy Consumption Rises At Fastest Pace in Four
Years,'' Bloomberg, February 22, 2012, http://www.bloomberg.com/news/
2012-02-22/china-energy-consumption-rises-at-fastest-pace-in-four-
years.html (accessed June 11, 2012), and National Bureau of Statistics,
China Monthly Statistics, Beijing, Volume 1 2012.
---------------------------------------------------------------------------
This is not surprising; coal's role has waxed for over a decade,
the very period where green energy is supposed to have become
important. When hydropower is included, green energy has in fact
receded while coal has advanced. In the late 1990's, coal accounted for
a bit over 60 percent of the PRC's energy use and a bit over 70 percent
of its electricity. Those numbers are now 70 percent and 80 percent,
respectively. Coal use accelerated most noticeably starting in 2002-
2003, when the current Chinese government took office and emphasized
investment in power-intensive heavy industries such as steel.\8\
Eventually, supply could not keep up. As recently as 2007, China was a
net coal exporter; it is now the world's largest coal importer.\9\
---------------------------------------------------------------------------
\8\ Derek Scissors, ``Deng Undone: The Costs of Halting Market
Reform in China,'' Foreign Affairs, May/June 2009, http://
www.foreignaffairs.com/articles/64947/derek-scissors/deng-undone
(accessed June 11, 2012).
\9\ ``China Surpasses Japan As Largest Coal Importer,'' Dow Jones,
January 25, 2012, http://www.iss-shipping.com/microsites/
NewsDetails.aspx?msid=194&newsid=6439 (accessed June 11, 2012).
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state dominance and its impact
For a decade, the economic model has been to lend, invest, produce,
and export. Coal and other energy consumption has essentially been
forced to rise in response, far more than if growth had been
consumption-or services-led. A simple way to understand Chinese energy
investment is the state trying to clean up after itself. It typically
fails because Beijing simultaneously takes actions that limit the value
of clean energy investment.
The government does not encourage or shape energy development; it
dictates it. The State Council requires ``absolute control'' of all
energy production, starting with price-setting. When prices are
permitted to rise, subsidies are often offered as compensation, so
government involvement still increases. Price controls have
consistently caused production of natural gas to fall short of
grandiose plans.\10\
---------------------------------------------------------------------------
\10\ As an illustration, see ``Chinese Cities Grappling with
Natural Gas Shortage,'' Xinhua, November 23, 2009, http://
english.people.com.cn/90001/90778/90860/6821411.html (accessed June 11,
2012), and ``Australia Cancels $40.4 Billion Natural Gas Contract with
China,'' People's Daily Online, January 5, 2010, http://
english.people.com.cn/90001/90778/90860/6859711.html (accessed June 11,
2012).
---------------------------------------------------------------------------
But coal, as usual, provides the starkest example of double-sided,
self-defeating government intervention. Effective price controls,
through electricity prices and central government coercion, keep coal
cheap for industrial expansion and lead to more coal use.\11\ This
prompts calls for clean energy. But the subsidies Beijing then provides
to green energy to make it competitive are much larger than they would
have to be if the price of coal was not kept too low in the first
place.
---------------------------------------------------------------------------
\11\ ``Development and Reform Commission Asked for Breach of
Contract Prices of Coal Enterprises to Resume Contract Price,'' Xinhua,
June 25, 2010, http://www.china-daily.org/China-News/Development-and-
Reform-Commission-asked-for-breach-of-contract-prices-of-coal-
enterprises-to-resume-contract-price/ (accessed June 11, 2012).
---------------------------------------------------------------------------
Beyond prices, the latest incarnation of state energy policy is the
12th five-year plan. Some goals, such as those for electric vehicles,
are far from being met.\12\ Others are standing orders modified only by
placing the word ``new'' before the word ``energy.'' One such goal is
to suppress competition. The three national oil majors account for well
over 90 percent of oil production and over 95 percent of gas
production. Oil and solar may seem strange bedfellows, but the PRC is
molding solar in oil's image, handing out gigantic loans to a select
few solar companies and then implementing regulations on standards that
will drive most small firms out of business.\13\
---------------------------------------------------------------------------
\12\ ``China `Can Still Lead' in Green Cars,'' China Daily, April
21, 2012, http://www.china.org.cn/environment/2012-04/21/
content_25200574.htm (accessed June 11, 2012).
\13\ ``Yingli's $5.3b Loan May Help China Double Global Solar Panel
Supply," China Daily, July 9, 2010, http://www.chinadaily.com.cn/
business/2010-07/09/content--10087488.htm (accessed June 11, 2012), and
Du Juan, "Solar Industry 12th Five-Year Plan Issued,'' China Daily,
February 25, 2012, http://www.china.org.cn/business/2012-02/25/
content_24728487.htm (accessed June 11, 2012).
---------------------------------------------------------------------------
The PRC spends heavily on green energy in large part because it has
bigger energy and environmental problems than any other country in the
world. Most of those problems are inflicted by the Chinese state
itself. Giving Beijing credit for spending on green energy is like
looking at a stunt driver's medical bills and giving her credit for
investing so much in her health.
STATE CONTROL OF ENERGY--A SUMMARY
------------------------------------------------------------------------
------------------------------------------------------------------------
Coal Price controls discourage use
of other sources
------------------------------------------------------------------------
Gas Price controls discourage
competition, innovation
------------------------------------------------------------------------
Oil Regional monopoly blocks
competition, innovation
------------------------------------------------------------------------
Solar Trying to imitate oil
------------------------------------------------------------------------
china and the u.s.: win or lose
Sino-American energy and environmental relations can be
cooperative, competitive, or imitative. Most observers would choose
cooperative, but a country that fights transparency and adopts
contradictory policies is not a pleasant partner. Joint research,
touted in the Strategic and Economic Dialogue, is reasonable, but
expectations should be minimal. Beijing's clear pattern is to put state
control of energy first, with energy efficiency and ecological
protection secondary.
In this light, any breakthroughs would come from the U.S. and then
be adopted by China. This is occurring now in natural gas, where China
is openly jealous of American progress. The PRC is said to have larger
shale reserves than the U.S., but its huge, sheltered companies and
massive spending have seen it only fall further behind in technology
and extraction, and Beijing has been forced to seek foreign
assistance.\14\ Cooperation with China should be seen more as a
contribution to the global community than as a way to make progress on
American aims.
---------------------------------------------------------------------------
\14\ ``China's Shale Reserves Already Surpass the U.S.,'' Real
Clear Energy, December 19, 2011, http://www.realclearenergy.org/
charticles/2011/12/19/
chinas_shale_resources_already_surpass_the_us.html (accessed June 11,
2012), and Leslie Hook, ``China Sets Target for Shale Gas
Development,'' Financial Times, March 16, 2012, http://www.ft.com/intl/
cms/s/0/2e7a77ac-6f59-11e1-9c57-00144feab49a.html#axzz1xQ5FoJl0
(accessed June 11, 2012).
---------------------------------------------------------------------------
Competition: We Win
If the PRC does get help to tap its gas reserves, it will of course
become a competitor for the U.S. This has already happened in wind,
solar, and elsewhere: China took technologies developed by others and
became a major commercial presence. Is this an economic or energy
threat to the U.S.? It depends first on American priorities. For more
than a generation, the U.S. has emphasized energy efficiency and
innovation while seeking self-sufficiency and trying to protect the
environment. This approach has borne fruit.
If the top priority is energy self-sufficiency, Chinese actions are
not directly relevant to the U.S. However, the extent of American self-
reliance has been increasing while China's decreases, so that the PRC's
model provides little reason for a change in American policy.\15\
---------------------------------------------------------------------------
\15\ ``BP Energy Outlook 2030,'' BP, January 2012, http://
www.bp.com/liveassets/bp_internet/globalbp/STAGING/global_assets/
downloads/O/2012_2030_energy_outlook_booklet.pdf (accessed June 11,
2012).
AMERICA VERSUS CHINA: THE SCOREBOARD
------------------------------------------------------------------------
------------------------------------------------------------------------
TARGET WINNER
------------------------------------------------------------------------
Self-sufficiency U.S.
------------------------------------------------------------------------
Efficiency U.S.
------------------------------------------------------------------------
Ecology U.S.
------------------------------------------------------------------------
Technology U.S.
------------------------------------------------------------------------
Jobs PRC
------------------------------------------------------------------------
If the top priority is energy efficiency, the U.S. is clearly
winning. Poor data from Beijing again obscure the situation, but
China's economy was half the size of the American economy by the end of
2011. Yet the Energy Information Administration, which has consistently
underestimated the PRC's expansion, estimates its energy consumption at
10 percent-15 percent larger than American energy consumption last
year. The efficiency gap has been widening. The International Energy
Agency found the U.S. improved energy efficiency 2.5 percent annually
from 2000 to 2009, compared to China's 1.7 percent. This occurred
despite the much larger scope for improvement on the western side of
the Pacific.\16\
---------------------------------------------------------------------------
\16\ ``International Energy Outlook 2011,'' U.S. Energy Information
Administration, September 2011, http://205.254.135.7/forecasts/ieo/pdf/
0484(2011).pdf (accessed June 11, 2012), and ``China Passes U.S. as
World's Biggest Energy Consumer,'' Bloomberg, July 20, 2010, http://
www.businessweek.com/news/2010-07-20/china-passes-u-s-as-world-s-
biggest-energy-consumer.html (accessed June 11, 2012).
---------------------------------------------------------------------------
It is difficult to imagine true competition in technology in the
foreseeable future. The PRC has a huge market and will continue to try
to lure foreign players to offset its own failings, but the requisite
state control of energy and lack of protection for intellectual
property are powerful disincentives. It is not surprising that the
larger energy investments have been made by Chinese firms in the U.S.,
rather than the reverse, led by gas but also including biofuels and
wind.\17\
---------------------------------------------------------------------------
\17\ Ryan Dezember and James T. Areddy, ``China Foothold in U.S.
Energy,'' The Wall Street Journal, March 6, 2012, http://
online.wsj.com/article/SB10001424052970204883304577223083067806776.html
(accessed June 11, 2012); ``China Egg Producer to Set Up U.S. Biogas
Project with Smithfield,'' Bloomberg, February 17, 2012, http://
www.bloomberg.com/news/2012-02-17/china-egg-producer-to-set-up-u-s-
biogas-project-with-smithfield.html (accessed June 11, 2012);, and
Brian Spegele, ``Chinese Firm to Build Big Wind Farm in U.S.,'' The
Wall Street Journal, September 20, 2011, http://online.wsj.com/article/
SB10001424053111904106704576579741179230646.html (accessed June 11,
2012).
---------------------------------------------------------------------------
If the top priority is a cleaner environment, there is no
competition: Cheap Chinese solar panels, wind turbines, or natural gas
all contribute positively to that end in all countries. In fact, they
seem to contribute more positively to protecting the environment
outside China than inside.
Cleaner energy improves water and air quality, both areas where
America far outperforms China, but attention has been focused on
capping or reducing greenhouse gas emissions. The record shows the U.S.
as the world's best performer since 2006, the golden age for green
energy.\18\ The PRC, in stark contrast, has moved from roughly equal to
the U.S. in emissions in 2006 to half again higher or more (with an
economy half the size). China's emissions per unit of GDP are thus four
times America's and its emissions per capita, while lower, are soaring.
Projections over the next decade have gross Chinese emissions larger
than the rest of the world combined.\19\
---------------------------------------------------------------------------
\18\ ``Global Carbon-Dioxide Emissions Increase by 1.0 Gt in 2011
to Record High,'' International Energy Agency, May 24, 2012, http://
iea.org/newsroomandevents/news/2012/may/name,27216,en.html (accessed
June 11, 2012).
\19\ Justin Gillis, ``Carbon Emissions Show Biggest Jump Ever
Recorded,'' The New York Times, December 4, 2011, http://
www.nytimes.com/2011/12/05/science/earth/record-jump-in-emissions-in-
2010-study-finds.html (accessed June 11, 2012), and Keith Bradsher,
``China Fears Consumer Impact on Global Warming,'' The New York Times,
July 4, 2010, http://www.nytimes.com/2010/07/05/business/global/
05warm.html (accessed June 11, 2012).
EMISSIONS TREND (TONS, BILLIONS)
------------------------------------------------------------------------
------------------------------------------------------------------------
Year U.S. PRC
------------------------------------------------------------------------
------------------------------------------------------------------------
1998 5.65 3.65
------------------------------------------------------------------------
1999 5.69 3.57
------------------------------------------------------------------------
2000 5.87 3.56
------------------------------------------------------------------------
2001 5.75 3.64
------------------------------------------------------------------------
2002 5.82 3.92
------------------------------------------------------------------------
2003 5.87 4.50
------------------------------------------------------------------------
2004 5.94 5.28
------------------------------------------------------------------------
2005 5.94 5.85
------------------------------------------------------------------------
2006 5.84 6.50
------------------------------------------------------------------------
2007 5.91 7.01
------------------------------------------------------------------------
2008 5.46 7.78
------------------------------------------------------------------------
2009 5.04 8.11
------------------------------------------------------------------------
2010 5.25 8.95
------------------------------------------------------------------------
Source: Jos GJ. Olivier, Greet Janssens-Maenhout, Jeroen A.H.W. Peters,
and Julian Wilson, ``Long-Term Trend in Global CO2 Emissions: 2011
Report,'' PBL Netherlands Environmental Assessment Agency and
Institute for Environment and Sustainability (IES) of the European
Commission's Joint Research Centre (JRC), 2011, http://www.pbl.nl/
sites/default/files/cms/publicaties/
CO2%20Mondiaal_%20webdef_19sept.pdf (accessed June 11, 2012).
The final priority is jobs. The reason Beijing ratcheted up
lending, investment, and production in 2002-2003, thus ratcheting up
coal use and carbon emissions, was to create jobs. Renewables are more
labor-intensive than fossil fuels, sometimes far more.\20\ This is a
drawback from the standpoint of cost and efficiency but a positive with
regard to employment. A natural result is that a job-seeking China will
favor green energy more than an efficiency-seeking U.S. will.
---------------------------------------------------------------------------
\20\ Robert Pollin, James Heintz, and Heidi Garrett-Peltier, ``The
Economic Benefits of Investing in Clean Energy,'' Department of
Economics and Political Economy Research Institute (PERI), University
of Massachusetts, Amherst, and Center for American Progress, June 2009,
http://www.peri.umass.edu/fileadmin/pdf/other_publication_types/
green_economics/economic_benefits/economic_benefits.PDF (accessed June
11, 2012).
---------------------------------------------------------------------------
Further, when domestic supply outruns demand, the excess is shipped
overseas. Chinese jobs then seem to come at the expense of foreign
jobs, a source of broader tension. In energy, solar is the most obvious
example: Chinese solar subsidies are wildly excessive if the purpose is
just to serve the home market; they began as a response to incentives
offered in Europe. With Europe now unable to afford its incentives,
Chinese panels have been diverted to the U.S.
Imitation: We Lose
As in other areas, the U.S. is suffering in clean energy from
China's job-seeking. Should America fight fire with fire? Should
Washington even go beyond simple retaliation and adopt ``the Beijing
model'' in energy? Should Congress pass legislation aimed at China that
would create more green energy jobs in the U.S.? The short answer to
all three questions is ``No.'' Jobs would be created but at the cost of
a pronounced deterioration in overall energy performance.
If green energy was already as efficient as conventional, no
subsidies would be needed. More green energy jobs at the moment means
less energy efficiency. Further, truly ensuring job creation requires
picking winners. Small, nimble firms can drive large employers out of
business: Jobs first means this competition must be suppressed, as in
the PRC. The result is unavoidably less innovation. Finally, more clean
energy jobs means less clean energy. Chinese subsidies harm U.S.
manufacturing but cut the price of power generation from renewables.
Blocking Chinese goods would raise the price, make green energy less
competitive, and undercut ecological gains.
The worst idea, though, is for America to imitate China in clean
energy. Even if Beijing were making wise choices for China, it is
extremely unlikely these choices would be wise for the U.S. The U.S. is
in a far better situation than China. The U.S. has a fundamentally more
conducive system for innovation. The U.S. would certainly suffer from
imitating Chinese practices with regard to transparency.
The U.S. is also blessed with a far better resource endowment--more
usable land and much more water per person. The water gap, in
particular, is an obstacle to Chinese natural gas development. So it is
no surprise that China invests a good deal in water. But it would still
make no sense at all for the U.S. to match this investment. Coal
generates about twice as much of America's electricity as natural gas
does. Coal generates about 20 times as much of the PRC's electricity as
natural gas does.\21\ This is not a model that the U.S. should follow.
---------------------------------------------------------------------------
\21\ Frank Wolak and Richard Morse, ``China's Green Gift to the
World,'' The Guardian, December 30, 2010, http://www.stanford.edu/
group/fwolak/cgi-bin/sites/default/files/files/
China's%20green%20gift%20to%20the%20world_Dec%202010_Wolak_Morse.pdf
(accessed June 11, 2012).
---------------------------------------------------------------------------
Even in solar, subject of much debate, the end of European
incentives reveal the cost of Chinese subsidies. As a group, LDK Solar,
Suntech Power, and Yingli Green Energy were offered tens of billions in
government assistance, and their announced debt runs in the billions.
Their combined market capitalization is now short of $1 billion. U.S.
government solar subsidies can be deemed inadequate compared to
China's, but the same is true for ensuing losses. All the PRC has on
its side is raw spending, spending that is often wasted and other times
is merely an attempt to compensate for harmful policy decisions in
other spheres. The U.S. has done far better.
The Chairman. Thank you very much.
Let me start with a few questions. This analogy to what was
done with Sematech I think is an intriguing one. My
recollection of that experience was that the industry itself,
the semiconductor firms themselves, Bob Noyce and others, came
to Washington and basically said: We need to do this, we want
to do this, we need government assistance to help us get
started, and we did that.
At the same time, my recollection is that the original
members of Sematech were U.S. companies. I think NEC applied
for membership and was not permitted to be a member at that
time, was my recollection.
I guess what I'm now sort of struggling with is, if there
were to be consortia of companies to pursue their competitive
position in some of these technologies in photovoltaics or
other areas, how do we go about identifying that organization?
Is there a critical mass of industry that want it that are
U.S.-based or that have operations in the United States, that
would want to do such a thing? I guess those are some obvious
questions.
Mr. Wolff, do you have thoughts on it?
Mr. Wolff. Just to begin, and I'm sure Mr. Holladay has
some current thoughts on the subject, Sematech was industry-
driven, you're quite right. Bob Noyce and the other, IBM, ATT,
both the vertically integrated companies and the Silicon Valley
companies, Texas Instruments as well, found that they were not
as efficient or producing as good a production as the Japanese.
It's one thing to say, well, there's dumping. It's another
thing to say, we don't have the quality that the others do. We
needed to drive our manufacturing efficiency, our toolmaking,
our processes, and the way to do that was in a hands-on
laboratory environment that actually was a factory that
produced something, not for commercial use, but to learn how to
make better chips.
You're right that this was a U.S. effort entirely. It was
funded by the Department of Defense, $100 million a year, as
has been testified to, for 5 years, and the industry also
matched that with a $100 million contribution. So it was a
major effort, and it paid off.
The industry has become global. There are foreign
participants in Sematech today and they're still pushing the
envelope, and it's all pre-competitive R and D, and the
benefits for the world have been dramatic in terms of the
information revolution.
Whether there's enough of a consensus in the U.S. private
sector today I would leave to the person who's currently
involved with them in the Sematech initiative with respect to
photovoltaics.
The Chairman. Mr. Holladay, what's your take on whether
there's a critical mass of industry interested in anything
comparable to Sematech or any kind of collaboration to improve
their competitiveness?
Mr. Holladay. Yes, sir, especially in the supply chain. The
supply chain is really desperate to be able to have, especially
access. The manufacturing development facility is critical.
Having a facility where people can do, not lab-related work,
but they can actually go do production-related work and develop
production-style tools and test production materials, and it's
critical to the supply chain to be able to develop these more
advanced materials, these more advanced tools, and having
access to those kind of facilities?
The Chairman. That's what you said you have been tasked to
do or are working with the Department of Energy to do? Did I
understand that.
Mr. Holladay. Yes, sir, in the SIGs, in some crystalline
silicon areas. So we have a very great opportunity. It's the
first time that Sematech's been replicated in 25 years, and the
Department of Energy has created that aground the SIGs
technology and, like I said, some components of the crystalline
silicon, and we're working to expand that.
The Chairman. It strikes me that, at least for several of
you, this point about maintaining in the U.S. a manufacturing
capacity has been made, and that the ability of the U.S. to
remain a leader in research and development is not going to be
possible if we don't have that manufacturing capacity in these
technologies. I just wondered if anybody wanted to elaborate on
that. Mr. Prestowitz, you made that point, I believe.
Mr. Prestowitz. Yes, I did. I think it's an important
point. I think there's a false sense widely spread that
innovation proceeds in kind of a straight line, that you do
basic R and D in a laboratory someplace and then that proceeds
to developmental R and D that proceeds to commercialization.
That's not really how it works. It's an iterative process.
It's very often that somebody in the field comes up with an
idea that they throw at the lab and back and forth. If you
don't have the bach and forth capability, much more difficult
to do the innovation.
I think that we've seen that in so many instances that this
concept of past dependence, that what happens next depends on
what happened the step before, and if you don't have the step
before then the next step doesn't happen, is pretty solidly
established both economically and scientifically. That's the
point, I think.
The Chairman. Mr. Holladay, did you want to add something?
Mr. Holladay. I agree with that 100 percent. I'll add to it
just a little bit. A great deal of innovations happen on the
shop floor or they understand the innovation to be able to pull
it from the research side. If you don't have the manufacturing
side to really understand the innovations or pull them from the
research or have an industry pull and a market pull mechanism,
then you lack that innovation.
The other thing is, you need to know how to integrate that
innovation into the manufacturing line. As you lose the
manufacturing, you lose those opportunities.
The Chairman. Mr. Wolff.
Mr. Wolff. There's a wonderful book called ``Bell Lab:
The Idea Factory'' that you may have read, by John Gertner,
that came out this year, and it was engineers and basic
scientists who were creating fabulous inventions, driven by
industry and driven by the need to actually have practical
manufacturing outcomes, including ultimately the transistor,
which of course gave birth to, through Bob Noyce and others, to
the integrated circuit.
So we don't have a Bell Labs today other than what DOE and
a Sematech can do. Those are our current idea factories.
The Chairman. Senator Murkowski.
Senator Murkowski. Thank you, Mr. Chairman.
I suggested in my opening that the United States was doing
relatively well in this race. Dr. Scissors, you seem to agree
with me. Some of the others are suggesting that China is ahead.
I guess the question to you would be whether or not it is
constructive to even talk about this being a race for the clean
energy title. Is it fair, is it constructive, to say that we
are in a race? Then if it is so, if it is appropriate to refer
to this as some kind of a competition, which everyone has used
that word, and we all recognize that words matter here, but if
this is a competition what's the metric that we use?
How do we judge who's winning and who's losing? Is it a
question of how much money has been deployed? Is it the
generating capacity that is then put in place? Is it a
calculation of reduction in emissions? How do we even measure
this to know who's up, who's down? I throw this out to all of
you because I think it is an important part to this discussion.
Is it all about how much money is spent or is it the outcome at
the end?
Mr. Wolff.
Mr. Wolff. If it's a race to deploy clean technologies then
it's a very useful thing to do. We ought to both be successful
in it. China needs to do more, for reasons of environment and
to change their energy sourcing.
Are there places to collaborate? I think so, with respect
to carbon sequestration, clean coal technology, perhaps in PV,
perhaps some things in wind.
I am struck by the fact that in consumer electronics
Japanese industrial policies took us out and we've come back.
We came back with iPhones and iPads, at least on the invention
side, and a lot of the benefit is to our economy.
But you don't know that you're going to come back, and here
the bet is not about consumer products like consumer
electronics, but whether we can have within our economy the
ability to generate not only the R and D and the invention, but
commercialization, and I think that's important.
Senator Murkowski. Let me ask, and maybe this will give
better definition to the others: Is it about just deploying it,
making sure that you've got the wind turbine up, but if that
wind turbine isn't connected to anything, if it's not
generating, is that something then that says China is more
successful in deploying this?
Again, what are these metrics? Mr. Wu? I'll just go down
the line here.
Mr. Wu. Thank you for your question. I think, Senator, I
think that's a very good point, and it's difficult for us to
say there's one metric. There's many ways of measuring it. But
if we may offer one suggestion, it's grid parity that matters.
It's being able to----
Senator Murkowski. Grid parity?
Mr. Wu. Grid parity, being able to deploy clean energy at a
cost-effective, sort of cost-effective way that is competitive
with fossil fuels and other forms of energy.
So I think it's not about how many turbines you put up
every year if they don't work. It's about whether or not you
can do that in a cost-effective way and you can produce energy
from it that's also cost-effective for consumers and also cost-
effective for the economy.
Senator Murkowski. Others? Mr. Prestowitz.
Mr. Prestowitz. I think to some extent I sense a little bit
of cross-talk here when we say we're doing better than the
Chinese. If we're talking in terms of reducing emissions, I
think that's right. The U.S. is doing better than China in
reducing emissions. We have had a great boom from shale gas,
and thank God we've had it, and so that's been a big piece of
our reduction of emissions, and we've also benefited from
rising gas mileage in automobiles and so forth, conservation
measures, again, very positive.
But that's a little bit different than the question we're
talking about. I mean, you may also want, in addition to
reducing emissions by dint of shale gas, you may also want to
have the potential to reduce emissions by dint of solar, solar
photovoltaics or wind power or battery-driven technologies. If
you do want that or if you think that those technologies also
have potential new knock-on capabilities for the future and you
want that for the future, then you need to question how you're
doing in that. Then your metrics, how you're doing in that,
are, well, how much is being invested, what's the state of your
technology versus the other technology, what is the rate of
deployment, what's the rate of innovation. These are all pretty
measurable things.
The measurements that we have so far seem to indicate that
the Chinese and others--again, I don't want to just put this on
the Chinese, but the Koreans, Japanese, Taiwanese, Germans,
many others--have advanced fairly rapidly and in many instances
more rapidly than we.
You ask, are we in competition? I have to say yes. These
industries are characterized by economies of scale and by
imperfect competition. They're not win-win industries. They
tend to be zero-sum industries. That is, when one's winning
somebody else is losing. Typically the aircraft industries or
auto industries or any major capital-intensive industry. In
those kinds of industries, if you're not keeping up in
investment and in R and D, then typically you're falling
behind. That seems to be the trend that the U.S. has found
itself in, not an irreversible trend.
Senator Murkowski. My time has expired, but I've got two
more that I'd like to hear from if they will. Thank you.
Mr. Holladay or Dr. Scissors.
Mr. Holladay. I guess the best way for me to describe what
the late great Nobel Laureate Dr. Smalley discovered before he
passed away and spent a lot of time looking at: If you can find
a solution to energy, you have a solution to many of the top
ten problems humanity faces over the next 50 years. So there's
a lot of reasons that we need to address clean energy, find
solutions to energy--national security, diverse fuel mixes.
Right now, photovoltaics, for example, is in the early
stages of its life cycle. Its bright future is still to come.
The technologies being developed today are not the technologies
that will actually be deployed in a wide level in the upcoming
years. But we will come to that point. It's going to be a huge
market globally. So it's critical that the United States be a
leader in that of next generation technologies and that we
position ourselves to do that.
Senator Murkowski. Dr. Scissors.
Mr. Scissors. I know what metric we shouldn't use, which is
how much money we spend. I think most people would say spending
more money is bad unless you get something for it, and the
Chinese aren't. So we want to save money. We want to spend as
little as possible and do as well as possible. So the idea that
somebody spending more money than you is a good thing doesn't
make any sense to me.
When you look at how they're actually performing, why did
we start with clean energy? We started because we're concerned
about carbon emissions. It's not something to just dismiss and
way, well, that doesn't matter now. It does matter, and the
U.S. is doing pretty well and China is doing terribly. That's a
metric. It's not the only one, but it's one.
Energy efficiency I mentioned before. We're doing better
than they are in energy efficiency. We're doing better than
they are in self-sufficiency.
So different people, different members of the committee and
of the Congress, are going to have different metrics. Money
should not be the metric. We want to see what we're getting for
what we're putting into this. Gas is an excellent example. The
Chinese are extremely jealous of gas extraction in the U.S.
They don't have the technology for it; we do. So who's winning
the innovation battle? We just won the biggest innovation
battle of the last few years in clean energy. Are we going to
lose the next one? It's possible. We're not doing perfectly.
But the amount of money we're spending is not the way to
measure the outcome.
The Chairman. Senator Wyden.
Senator Wyden. Thank you, Mr. Chairman. I think this has
been an excellent hearing, very good witnesses.
Let me start by saying, I think the principal question for
our panel and for our challenge in the days ahead is how our
country is going to respond to what has been described by some
experts as China's green mercantilism? There is a new paper*
out this morning, Mr. Chairman. I would just ask unanimous
consent to put it into the record. They, in the paper, define
``green mercantilism'' as essentially policies that give other
countries an unfair advantage in terms of our interests, allow
them to boost their exports, limit imports of clean energy
technologies.
---------------------------------------------------------------------------
* Document titled ``Green Mercantilism: Threat to the Clean Energy
Economy'' has been retained in committee files and can also be found at
http://www.itif.org/publications/green-mercantilism-threat-clean-
energy-economy.
---------------------------------------------------------------------------
Mr. Wolff, for me you really summed it up when you said in
your testimony--you asked essentially, is it acceptable for
Chinese industrial policy to shape the U.S. economy? I think
that that sort of incorporates the essence of this issue with
respect to green mercantilism, and it also goes beyond the
trade issue, which I think is important for us. I also chair
the Finance Subcommittee on International Trade. I'm interested
in expanding trade. I don't think free trade means trade free
from rules.
What is appealing to me about the way you asked it, it
gives us a chance to shape the challenge, both in terms of
trade and other kinds of issues.
So why don't we start with the other 4 witnesses responding
to Mr. Wolff's question. His question was: Is it acceptable for
China's industrial policy to shape the U.S. economy? Give me
your response to his question and, if you think it is
unacceptable for China to be shaping our policy, what do you
think we ought to do in a proactive way to combat it? Let's
start with you, Mr. Wu.
Mr. Wu. Thank you for the question. No, I don't think it's
acceptable. I think the point that also Senator Murkowski
brought up earlier is whether or not we should emulate China. I
think the answer to that is also no.
The fact of the matter is the economies of the United
States and China are different, and the reality is also that
China has a vast amount of energy demand that's still growing
and they have a very high reliance on coal at the moment, and
that's a very different situation to what we have here in the
United States. I think I agree with what Dr. Scissors mentioned
earlier about sort of the gas, the question about gas, which
is, yes, I think China is looking a little bit with envy over
to the United States regarding our ability to export shale gas,
which China does have vast reserves of, but currently lacks the
technology to exploit it on the level that we have done here in
the United States.
So I think the answer is no, we have to take a very
different look at the way the economies of the United States
and China are.
Finally, I would just like to add that, with regards to
metrics, yes, I think China has done very well in what it's
done very well, which is manufacturing. China makes a lot of
things, not just clean energy goods. So it has exploited its
advantage, which is to manufacture solar PV and also wind
turbines on a very large scale, and has done so in a very cost-
effective manner, which we can argue whether it's good or bad
for who and for whom. But also one perhaps benefit of that is
that it's been able to reduce the cost of renewable energy
significantly, at least for China, for its domestic
consumption.
Senator Wyden. Mr. Prestowitz, I know that you don't think
it's acceptable for China's industrial policy to shape the U.S.
economy. What do you think our country should do in a proactive
way to combat it?
Mr. Prestowitz. I think we have to use our heads. I don't
think that it's acceptable for China to shape our economy, but
at the same time I don't think that we need willy-nilly to
imitate everything that China does.
As Derek points out, everything that China does is not
necessarily right.
So I think what's required us for us to spend some time
thinking hard about what is it that's really important to us,
and then take the measures that are necessary to counter the
negative impact on us achieving our goals of some of these
mercantilist policies. So for example, we know that an element,
an aspect of the mercantilist policies tends to be excess
investment in the promoting country, followed by dumping.
Typically in the U.S., we wait for an affected company or
entity to file an antidumping complaint before we do anything
about dumping. We don't have to. The Secretary of Commerce has
the authority to self-initiate antidumping cases. So one thing
that I've advocated is, let's monitor industries where other
countries have active, proactive industrial policies, look at
the extent of their overinvestment and their dumping activity,
and self-initiate cases, take them to the WTO right away,
preempt them. That's one element.
Typically, such countries have currency manipulation
policies. Typically--not just China. Singapore, Taiwan, Korea.
They intervene in currency markets every day to keep their
currencies undervalued. Take measures to counter that. Impose
capital controls if necessary. Tim Geithner can do it, doesn't
even have to ask the Congress for permission.
Set up consortia, a la Sematech or PV Tech or whatever it
is. I think that a big factor in the United States is
investment taxes. I think that very often the incentives for
investment in the United States are not nearly as attractive as
they are for investment abroad. Singapore is the world champion
at attracting foreign investment. We could learn well to copy a
lot of what Singapore does.
So it's a matter of what's important to us, all right, then
what's our strategy, and a combination of carrots and sticks to
get what's important for us.
One point, and just to emphasize what Alan said, is this.
Typically, I know Alan and I have been involved in some of
these discussions for a long time. Typically, you get into
these debates in the administration, whoever's administration,
and the argument is we don't pick winners and losers and we
shouldn't be intervening to subsidize or provide corporate
benefits. What's lost in that discussion is that in a situation
in which you're facing an active industrial policy abroad, a
decision not to intervene is a decision. A decision not to pick
winners and losers is a decision to pick a loser. You're not
going to be in that industry. That I think doesn't get
understood today.
Senator Wyden. I know my time is up. If we could just, Mr.
Holladay and Dr. Scissors, again responding to the question Mr.
Wolff said.
Mr. Holladay. No, sir, I don't think we should dictate our
international policy, but we do need to be focused, we need to
have vision, we need to understand where our country's going
and where the global technologies and market are going, so that
we can be strong and successful. To build on the not picking
winners and losers, the consortium model is perfect for that.
You pick the technologies, you have a collaborative model where
you don't just spread the dollars around, you better leverage
our universities and our national labs to really impact the
industry, and it's critical that we do that.
Senator Wyden. Dr. Scissors.
Mr. Scissors. I have one objection to the green
mercantilism designation. The word ``green'' is unnecessary.
They're mercantilist and they're big, which means we cannot
avoid Chinese industrial policy affecting the U.S. economy. We
don't like it, but it's true.
To me the best response is to get them to do less of it.
We're not going to get them to stop, and that should include
threatening them. There are things China doesn't want to give
up and we need to push them to try to get their industrial
policy to back off in certain areas.
Where that isn't going to work, sometimes their subsidies
help us. They make things cheaper here for American consumers.
Sometimes they hurt in ways we can't respond to. So I think my
colleagues on the panel have all said a variation of the same
thing: We need to identify not everywhere they affect us, no
avoiding it, but where we don't like them affecting us and
where we can respond properly. That's a subset. So we need to
focus down and say, all right, here's the big group of things,
where can we do something that's useful that really matters.
Senator Wyden. Thank you, Mr. Chairman.
The Chairman. Let me ask another question. One of the
frustrations I have had is that we don't seem to have a
willingness to do on the procurement, government procurement
side, what other countries do on a regular basis. For example,
China is not a signatory to the government procurement
agreement under WTO, so they're not obligated to give fair
opportunity to foreign producers of products that they might
buy through their governmental organizations.
Should we be doing more with buy-America policies to try to
support U.S. industry? I mean, I'll give you a specific. I
attended the groundbreaking ceremony last year in Santa Fe and
the photovoltaic cells, of course, were made in China. We make
photovoltaic cells even in New Mexico and we make them in other
parts of the country, but the Chinese cells I'm sure were
cheaper and they were purchased by the contractor who was hired
by the governmental agency that was putting in the photovoltaic
panels.
Should we be doing more to urge that U.S. Government and
U.S. governmental entities pursue a buy-America policy when it
comes to U.S. industry? Mr. Wolff?
Mr. Wolff. I think that the fact that, in the case of,
again it was semiconductors in the very early stages,
transistors and then semiconductors, government demand
initially drove the startup of this industry. Government demand
started titanium. Government demand in the manned spaceflight
program really gave us our start on nanotechnologies.
Government demand gave us an Internet. Government demand gave
us new materials and GPS.
So intelligent use of government demand is I think a very
important component of national policy. It has to be balanced
against cost. We're not interested, I think, in having an
inefficient procurement system. But it can't be only cost. It
has to be maintaining a domestic base as well.
The military is a major consumer and has a major interest
in, for example, in renewables, with targets to increase the
amount of renewable energy that's sourced, for both national
security and cost reasons. I think that that program is a very
important one that has to be considered with respect to its
support of the U.S. industrial base.
The Chairman. All right.
Mr. Prestowitz.
Mr. Prestowitz. Just a point on cost as well. I recently
drove over the new--the Oakland Bay Bridge in California, which
is still being built. You know, the main spans of the bridge
are being made in China, and the reason for that is because
initially the Chinese had a very low bid on the steel
fabrication for those main spans. It turns out that they're way
behind schedule and way over cost, and California is not only
not saving any money, but it's also not generating the jobs it
might have generated had it actually procured the bridge in the
United States.
The Chairman. Senator Murkowski, go right ahead.
Senator Murkowski. Thank you, Mr. Chairman.
This kind of follows onto the chairman's question. I think
we recognize that oftentimes if we have a buy-America
requirement that that may add to the cost. I appreciate you
noting that sensitivity, that we've got to balance that.
Another area where we may be adding to cost is when we put
in place Federal requirements or mandates for production of
renewable fuels, whether it's through Federal or State
renewable energy standards, clean energy standards. The
President has proposed a new Federal mandate for clean energy,
the CES. The chairman has been working on some legislation.
But I think we recognize that, in an effort to comply with
these requirements, sometimes those--the equipment that the
utilities will turn to will be American-made, other times it
will not be American-made. We've got tensions between the goal
of environmental improvement on the one hand and then job
creation here in this country on the other hand.
Is this a situation where ultimately we're going to be able
to figure this out and we really are able to have our cake and
eat it too? Or will we invariably be dealing with a situation
where we have to prioritize one over the other? It's either
going to be more affordable energy, but maybe we compromise on
whether it is built here in America with jobs in America, or a
tradeoff with environmental aspect?
Do you see us getting to a point where it really is U.S.
jobs, it really is a win when it comes to reduced emissions,
and truly being able to have it all? Do we get to that point,
or are we constantly in this point of tension and
prioritization of one over the other?
Dr. Scissors.
Mr. Scissors. I think unfortunately we're constantly in
this tension. Unless the U.S. without subsidies, which of
course cost money and raise the effective cost of the clean
energy, is the superior provider across the whole range of
whatever clean energy technologies we're using at the time,
which is very, very unlikely, then somebody else is going to be
making something more affordably than we are, for whatever
reason, including industrial policy, subsidies, however they're
doing it.
So then we have this choice. Do we want the very heavily
subsidized Chinese solar panels that are cheaper and will make
solar more competitive within the U.S. market and provide us
with affordable clean energy, or do we want to say, they
subsidized those things and that cost American jobs and we
don't want to do that? It's not an easy choice. I don't mean to
be suggesting that for a second. I mean that unless the U.S.
private sector alone, because if you spend government money
that counts as the cost of energy, beats everybody else, some
foreign technology is going to be useful for helping our
environment and providing affordable clean energy. When we use
that foreign technology, we don't make it here.
So there's just no way to escape this. It's a tough choice
and we're stuck with it.
Senator Murkowski. We'll go down here, Mr. Wu and then Mr.
Wolff.
Mr. Wu. Thank you. I would respectfully slightly disagree
with that. I think it's not--to add a little more nuance, I
don't think it's a stark choice. The idea--energy is a very
localized resource. It's about energy security. You're putting
in a wind turbine or a coal plant or a nuclear plant, it's
located in one location, which if it's providing energy to the
United States it has to be located in the United States.
Therefore, it can generate jobs for maintenance, for
installation, for the ongoing operation of the plant over many,
many years.
We know that a lot of the jobs and economic benefits of
solar and wind, in addition to also traditional energy, is
generated with where it is located, which is the maintenance of
the wind far, installation of solar panels, and et cetera.
So I think it's not to say that none of this will be
manufactured -all of it will be manufactured in the U.S. and
none of it comes from China. There will be a mix. So I think
there is a little more nuance to just one or the other, it all
comes from one location or it all has to be based in another
location.
Thank you.
Senator Murkowski. Mr. Wolff.
Mr. Wolff. I think the purpose, one of the purposes, of the
government backing joint research and development and a
strategy including trade policy and other policies is to drive
down the cost of whatever we're trying to affect. In
semiconductors we did get an agreement with Japan not to sell
below average cost of production by company. The net result was
that Korea and Taiwan came on stream in memory chips and the
United States remained in that kind of technology, and Micron
Technologies--with no continuing trade relief. That's gone 15
to 20 years ago. But Micron Technologies is one of the most
competitive companies in the world, out of Boise, Idaho, and
bought facilities in Japan and produced there as well, because
the Japanese market was totally open.
So I think that the net result has to be not only to have
the technologies continue to be developed here, but to drive
costs down a learning curve. We've been very successful with
that in a number of areas, and my suspicion is that the
Sematech photovoltaics is going to achieve that as well.
Senator Murkowski. Mr. Chairman, thank you.
I appreciate the comments from the witnesses and the time
they've given the committee this morning.
The Chairman. Thank you.
Let me just ask another question or two. Senator Franken
has sent us word that he's anxious to ask a few questions and
he's on his way back from the Capitol. So let me ask a question
or two while he's on his way.
I guess one obvious question is, if a semiconductor--or a
Sematech-like entity is created with regard to photovoltaics or
any of the other clean energy sectors, how does that translate
into us actually manufacturing those products here? Frankly, my
impression is that we don't have enough U.S. firms to make a
Sematech-like entity on photovoltaics right now. We would have
to have a more global organization, and if we did why would
that manufacturing not be performed elsewhere?
Mr. Holladay.
Mr. Holladay. Yes, sir. When you create this type of hub,
this manufacturing development facility, it creates a catalyst.
It brings in the equipment suppliers, it grows new companies,
it gives companies the opportunity--it gives you business
advantages that don't exist anywhere else in the world
potentially unless, like Fromhoffer, who kind of replicated the
Sematech model for their energy piece.
But what it does is it brings the industry in. There's a
lot of industry anxious. They know for photovoltaics, for
example, that that's going to be a huge market. So industry
grows around that and, like with Sematech, it creates hundreds
of thousands of jobs. A supply industry comes. You're able to
develop next generation technologies and it just creates this
catalyst that grows the industry around this infrastructure
that you've established, this production infrastructure that
does not exist in the lab-scale environments of the
universities and most national labs.
The Chairman. Senator Franken, I advised folks that I was
filibustering until you returned.
Senator Franken. Go ahead, Mr. Chairman.
The Chairman. No, no.
Senator Franken. No, no.
The Chairman. I have asked my questions and we're now
anxious to hear what questions you have. Thank you.
Senator Franken. OK. Thank you.
Mr. Wu, Mr. Prestowitz, I'd like to give you an opportunity
to respond to some of Dr. Scissors' testimony, because it
struck me that some of the statistics that he was citing or
using, such as China's increased reliance on oil and coal and
its lack of energy efficiency improvement vis a vis or compared
to the United States, that they're a function of its growing
economy. I think that without that context that testimony was
kind of--it just needed that context, because otherwise it's
kind of meaningless.
I just want to have you put it in context for me. While
China was expanding its economy, I think in some years in
double digits, and in 2007-2008, I think the last quarter of
the Bush presidency, we cratered to a negative 9 percent of
GDP, well, of course we're going to be using less energy and
being less reliant on coal and oil.
So can you comment on that?
Mr. Prestowitz. Yes. I think you're right. In fact, I think
the Chinese, it seems to me, are actually to be admired in a
way in this. Obviously, they're trying to maintain the high
growth, the 8 and 9 and 10 percent growth rate, and that for
them has been very energy intensive, and it's been very energy
intensive with the worst kind of energy. They've got the worst
kind of coal and they've kind of got the worst kind of oil. If
you travel to China, you travel in a total miasmic haze and
everybody has a cough, and the Chinese are aware that that's
not good.
So it's precisely because of that that they've put such
emphasis on trying to develop alternative sources. They've been
catholic about the alternative sources, looking at all
possibilities. So I think that the fact that China's emissions
are worse than ours and trending worse than ours doesn't take
away from the significance, importance, and their commitment to
alternative energies.
So then the question becomes, well, in the alternative
energy field are they performing--are they doing dumb things?
Are they investing in the wrong technologies? Are they doing
smarter things? It's a mixed bag. They're probably
overinvesting because the incentives to invest have been made
very attractive. Essentially, the party has told the regional
banks to lend. This is like the old days in Japan where the
MITI told the banks, lend, and so they lent.
But that then gets to this question of, OK, maybe they're
overinvesting and maybe we wouldn't do it that way. But that
then begins to impact on us, and so you then get to the
question of are these technologies, put aside the coal and so
forth, but are the technologies that the Chinese are pursuing--
and again I want to emphasize, it's not just China. Japan,
Korea, Taiwan, Singapore, Denmark, Germany, all of these guys
are in the game. So are those technologies silly, we should
forget about them and just concentrate on fracking in the U.S.
Or are those things that could be important for the U.S.''
If they're important for the U.S.--I believe they are,
long-term--then we need to have a strategy to maintain
viability technologically and commercially.
Senator Franken. Mr. Wu.
Am I going to get a little bit more than 5 minutes here?
The Chairman. You take whatever time you'd like.
Senator Franken. OK, thank you.
The Chairman. Certainly.
Mr. Wu. Thank you, Senator. I completely agree with that,
and I agree with what Dr. Scissors said earlier as well. I
think all the metrics are true. The emissions have grown,
energy efficiency--or energy intensity, rather, has gotten
worse. Over 70 percent of China's primary energy use comes from
the industry, heavy industry and manufacturing, which is very
intensive in terms of energy consumption.
So I think that it's good that you point out, Senator, the
context of this, which is we're looking at sort of massive
economic growth and also energy use growth. Also, I think, as
Mr. Prestowitz said earlier, sort of the effort is also
important as well. If this investment in clean energy or if
this deployment in clean energy were not to take place, what
would it be? I would say probably right now it has not so far
not made as much difference as perhaps the Chinese government
hoped. The power generated from wind, the massive wind
deployment in China, is quite a bit lower than what we see in
the United States or also in Europe.
So if you look at the recent 5-year plans and also----
Senator Franken. Is that the amount of wind or the use of
the wind energy it's created, because it sounds like some of
it's being not put to use?
Mr. Wu. It's both. It's the efficiency of the ones that are
operating and the total amount, the total percentage of ones
installed versus ones that are working. So you have three-
fourths of it which are turning and then the other quarter
which are not turning, and then of the ones that are turning
the efficiency is a lot lower.
So if you look at the recent 5-year plans, the policy, the
idea is to turn that around, to increase the technology, to
increase the efficiency. I think a lot of expertise has to
actually come from ultimately European engineers, which are
going to China and being hired by Chinese companies in very
large numbers, to help turn this around.
So I think in terms of what we want in the United States,
yes, the quality versus quantity is do we want to emulate the
massive manufacturing scale that we see in China and produce as
many wind turbines and solar modules as possible, or do we want
cheap, affordable clean energy that's higher efficiency, that
is actually going to be part of our energy mix in the future?
So I think that's probably the more important question we
should consider, which is why I brought up the idea of grid
parity earlier, which is renewable energy that is competitive
with other energy sources. Perhaps that is one metric or one
goal that we should be thinking about.
Mr. Scissors. Senator, can I just make one small point of
context for your context?
Senator Franken. Absolutely.
Mr. Scissors. Thank you. I appreciate that. It will be very
short.
I take your point. I just want to bring up one thing. From
1998 to 2002 China was growing fine and their coal use was
shrinking. So it isn't just that they're growing and they're
using more energy, as my colleague just suggested.
They're growing in a certain way that's using a lot more
energy and a lot more kinds of energy, and that is swamping the
other things that they're also trying to do. So that's probably
a more refined way of saying--I accept your correction--what I
should have said in my introduction.
Senator Franken. Mr. Wolff, or Ambassador Wolff.
Mr. Wolff. If I could add just one element, and that is it
would be great if China had 15 times the amount of clean energy
that they have deployed now. We're not in that sort of race, it
seems to me. When a State in the U.S. adopts a clean energy
standard, it really isn't doing it because of trade
considerations. However, what the Chinese have done is, as Mr.
Wu has just testified, they have not deployed the best
windmills in the world, the best wind turbines, which come from
Vestas, a Danish company, Sezlon, an Indian company, General
Electric, a U.S. company.
They've kept us all out, and they buy the cheapest
turbines, but not cheapest in terms of their productivity in
terms of generating electricity on a sustainable basis over a
significant amount of time. So I wouldn't--as a metric, I'm not
concerned with their use of deploying a great deal of
renewables. We ought to do it, they ought to do it. That's I
think--our only concern is that we breathe the same air around
the world and it would be nice if they had more clean energy.
But we do care about being kept out of their market and we do
care about them depressing our production here, our industry
that can produce this equipment.
Senator Franken. By flooding or just by keeping us out, or
both?
Mr. Wolff. Both.
Senator Franken. OK.
You mentioned clean energy standard and a State adopting
that. Minnesota adopted at the time the highest renewable
energy standard for utilities in the country. It was 25 by 25
was the goal. XL Energy, our largest utility, was charged to
going to 35, I believe, by 2025, and they're ahead of the goal
of achieving it.
There's different ways to go at this, but it seems to me--
and the chairman has produced a clean energy standard piece of
legislation--that adopting a national clean energy standard
would be something that would incentivize the creation of clean
energy and renewables. I'd like to have a renewable energy
standard within the clean energy standard, something that would
incentivize these industries.
Does anyone disagree with that? Dr. Scissors.
Mr. Scissors. Why would you think it would be me? I think
you actually touched on where I would disagree with it in
exactly what you just said. You moved from clean to renewable,
and I'm going to say that I would want, if you impose a
standard like that to incentivize industries, the definition of
``clean'' to be as broad as possible. I don't mean that you
include everything. I mean the broader it is, the more chance
you have for industry to pick the right technology path, not to
be bound to what we think today is the good renewable energy
and the productive renewable energy and the one we're going to
be using 10 years from now.
Senator Franken. But there are a lot of renewable energy--
--
Mr. Scissors. Right, exactly. There are also some clean--I
agree with that. There are also some clean energies that people
would not count as renewable. If the goal is purely to be
clean, then let's just be clean. We're not in danger. If the
goal is we're worried about running out of something, then we
have to change the standards.
My advice to the Congress first would always be, be as
broad and non-specific as possible.
Senator Franken. So your issue with me is the renewable
part, not the clean part?
Mr. Scissors. My issue with you is the slipping of that
definition, where the narrower the definition becomes the worse
the outcome's going to be, because we're going to be pushing
people toward a smaller and smaller range of choices.
Senator Franken. I just think that in Minnesota we did it
renewable and it's worked out really well in many, many ways.
In Minnesota, we have manufacturers in Minnesota creating solar
panels. We have very good things happening. Actually, it
promotes diversity, which is I think what you're talking about,
not tieing ourselves to--if you call nuclear clean energy and
you call natural gas clean energy and you call clean coal with
some sequestration clean energy, we can get a clean energy
standard without going to any renewables whatsoever.
I think that if we're going to create diversity, which I
think is what you're talking about, let a thousand energy
flowers bloom, I think that putting some renewable in there is
a good idea.
Mr. Scissors, you did say we shouldn't be subsidizing
industry. I was taken with something before I had to leave,
with what Mr. Prestowitz says, which is that very often there
isn't like this--I think what you said was, there isn't just
this straight line where you start developing a technology and
it starts here and then you employ people like that. It seems
like, I think what Mr. Prestowitz was saying, is that there's a
fallow period in terms of job creation and then it kicks up.
In semiconductors, Sematech, it sounds like it started and
then it worked and it took off. How many people were employed
by the Internet during the first 10 years of its development at
DARPA? Just the people at DARPA. How many people employed by
the Internet now? Gee, a lot of people.
So it seems like--how many people were employed by the
space industry when our rockets--when I was a kid, our first
rockets went [indicating]. Remember those? We're coming to you
by CSPAN, the Cable Satellite Public Affairs Network. This is
telecommunications. That was started by the government. But
that didn't create a lot of jobs in the beginning. No one knew
exactly what that would yield. But all our telecommunications,
all our GPS, everything comes from that.
So this idea that, OK, well, these aren't creating jobs
right now--these industries will create. Our clean energy
technology has to create jobs. I mean, I believe it will create
millions and millions and millions of jobs in the future. It's
creating jobs now, too.
But the idea that just because it's not creating jobs now
and that we don't have to subsidize industries--we've
subsidized so many successful industries in this country that
it's hard to think of--it's hard to think of one that didn't
enjoy a government subsidy. The Erie Canal sort of brought the
Midwest to Europe so we could ship our agricultural products
and our timber to Europe, so we could get to the Hudson River
and so we could get to New York. That was a government
investment.
So this idea that we shouldn't choose winners or losers and
we shouldn't subsidize industries that have the potential to
employ millions and millions of people and to better our lives,
Look at the nuclear industry. We were just talking about
nuclear as one of the clean energy standards. Where would that
be without the Manhattan Project? Where would that be without
the Tennessee Valley Authority? Where would that be?
So I think that we have to be very careful when we look
back at our actual history. I've heard some of my colleagues on
the other side, not today of course, say that this should all
be free enterprise, there's no role for the government in this
stuff. There has been a role for the government in this stuff.
I know that sounded like a speech, not a question. But I
was kind of wrapping up.
The Chairman. Most questions around here sound like
speeches.
[Laughter.]
The Chairman. Let me thank the panel. This was very useful
testimony, a very useful hearing. We appreciate it very much,
and that will conclude our hearing.
[Whereupon, at 11:18 a.m., the hearing was adjourned.]
[The following statement was received for the record.)
Statement of Rhone Resch, President & CEO, Solar Energy Industries
Association
Chairman Bingaman, Ranking Member Murkowski and members of the
committee:
The Solar Energy Industries Association (SEIA) is the national
trade association for the U.S. solar energy industry. On behalf of our
1,000 member companies and the more than 100,000 American taxpayers
employed by the solar industry, I appreciate having the opportunity to
submit a statement for the record on the important topic of China and
clean energy.
According to a United Nations report released earlier this week,
global investment in renewable energy reached a record $257 billion in
2011, with solar energy attracting more than half at $147 billion. This
represents a year on year increase of 52%, led by strong demand in
Europe, China and here in the U.S. These trends are indicative of a
rapidly evolving, highly competitive and robust global industry.
The strong growth of the solar industry, however, has coincided
with increased competitive pressures throughout the solar value chain.
While SEIA supports the ability of sovereign nations to implement
policy designed to promote the production and use of renewable energy,
these incentives must be consistent with international trade rules and
the obligations of our trading partners.
america and the global solar value chain
Solar cell and module production are important parts of the solar
manufacturing process. It is, however, important to note that U.S.
manufacturing in the global solar value chain extends beyond these
stages in the production process. Today, there are at least 95 domestic
facilities in 26 states manufacturing photovoltaic (``PV'') primary
components, including solar-grade polysilicon, ingots, wafers, cells,
solar modules and inverters. Only 19 of these facilities were operating
in 2005--a five-fold increase in the U.S. in the last six years. These
products are not only utilized domestically, but are also destined for
growing export markets.
For example, Hemlock Semiconductor employs 900 workers at their
Michigan plant that processes silicon feedstock, an essential component
in solar panels. The company is currently building a facility in
Clarksville, Tennessee which is expected to employ another 500 workers.
The construction workforce to build the facility already tops 1,600
people.
In addition, a number of companies manufacture inverters
domestically. Inverters are a key component in a solar energy system;
they turn the direct current produced by a PV panel into the
alternating current that is used by lights and appliances. For example,
Siemens Industry, Inc. employs 100 people at its inverter manufacturing
location in Alpharetta, Georgia. Among its many solar products, DuPont
Photovoltaic Solutions manufactures solar film at its Circleville, Ohio
facility. Sixty-three Ohioans produce this high value solar film, which
is then used in PV panels installed across Europe and North America.
These are just a few examples of U.S. companies that rely on access to
markets at home and abroad to sell their products and create jobs here
in the U.S. Overall, 73% of the value of an installed PV solar system
is domestic.
trade remedies
As with other industries, trade disputes will emerge as a market
becomes competitive and global in scale. The agreements set forth
through the World Trade Organization (``WTO'') attempt to clarify what
are acceptable forms of support and what options countries have to
counteract unfair practices that are inconsistent with WTO-rules. SEIA
supports the rules-based global trading system and the use of
enforcement mechanisms, such as anti-dumping and countervailing duty
litigation, when appropriate. Litigation is a vital aspect of
maintaining free and fair global trade flows, and SEIA supports the
right of countries to investigate unfair trade practices and address
them accordingly.
resolution of global trade disputes
Litigation and trade remedy measures, however, should be employed
judiciously. More importantly, litigation and trade remedies are not
the only avenue for pursuing an equitable and robust global solar
marketplace that benefits both U.S. manufacturers and consumers.
Equally essential to the global trading system are dialogue and
negotiations. Averting escalating trade disputes is in the interest of
manufacturers in the domestic solar value chain that want access to
growing foreign markets and U.S. consumers who benefit from the reduced
energy costs that come with an efficient and competitive marketplace
from solar products.
Towards this end, SEIA is working with national solar trade
associations from around the world to create a public-private dialogue
on solar trade and competitiveness issues, beginning with the creation
of a Clean Energy Partnership within the Asia-Pacific Economic
Cooperation (``APEC''). Such a forum would provide an opportunity to
help clarify the role of government in encouraging the development of
national solar industries and, in turn, improve the competitive
landscape for U.S. companies, both within the U.S. and abroad.
The initial goals of an APEC Clean Energy Partnership would be to:
Promote WTO-acceptable trade in solar energy goods, while
taking into account the role of governments in the development
of the solar energy industry;
Ensure that global innovation, scaling and economic
development occur; and
Create a collaborative framework for preventing trade
conflict in the solar industry and resolving it constructively
if conflict does arise.
Building on successful collaboration within the private sector, the
American and Chinese governments should also begin working together
towards a mutually-satisfactory resolution of the growing trade
conflict within in the solar industry.
local content requirements
Open markets and the free flow of products within the confines of
the rules-based trading system will continue to drive down costs for
consumers and help significantly expand the deployment of solar
technology in America. Conversely, the imposition of requirements that
solar energy products utilized in a particular market be domestically
produced, commonly referred to as local content requirements, should be
avoided. These requirements generally run afoul of WTO rules and incite
the imposition of retaliatory market barriers. This in turn would lead
to costly inefficiencies in the marketplace.
As nations around the world recognize the energy policy benefits
associated with the deployment of solar technology, there has been a
growth in trade-distorting local content measures. For example, solar
programs in Ontario, Canada and India feature local content
requirements which preclude American companies from competing in these
promising markets. To prevent the expansion of such provisions and
roll-back existing policies, SEIA is building upon its collaboration
with other national solar trade associations to create a multilateral,
public-private forum focused exclusively on local content provisions.
One potential outcome of such a forum could be the development of a
list of WTO-consistent best practices that could serve as alternatives
to local content requirements. In this context, SEIA also encourages
U.S. policymakers to avoid imposing local content requirements on
domestic solar incentives.
the u.s. needs smart, stable policy to continue growth in the domestic
market
Access to a diverse, abundant, reliable and affordable supply of
energy is in the national interest. Accordingly, federal policy has for
decades provided a legislative and regulatory framework that has helped
every major source of energy utilized in the U.S. today reach
commercial scale. The recognition that smart policy can play a vital
role in developing new domestic energy resources has contributed
significantly to America's long-term economic prosperity and growth.
Similarly, history has shown that well-crafted and efficient
federal tax incentives can be powerful policy mechanisms to promote the
nation's energy objectives and leverage private sector investment for
the deployment and utilization of new energy resources. This is clearly
the case with federal tax incentives designed to promote the expanded
deployment and use of solar energy technologies.
Since the enactment of the 30 percent commercial and residential
solar Investment Tax Credit (``ITC'') in 2005 and the 1603 Treasury
Program (``1603'') in 2009, domestic deployment of solar has increased
seven-fold; the cost to consumers has significantly dropped; and we
have developed a domestic industry value chain that today employs over
100,000 Americans. By any objective measure, these important incentives
are doing exactly what they were meant to do--allow our nation to reap
the significant energy, economic and environmental benefits associated
with utilizing our abundant solar resources.
When compared to other sources of energy--both conventional and
renewable--the duration of federal support for solar has been brief.
The solar ITC is the primary federal policy that encourages the
deployment of solar technology. Since the ITC took effect in 2006, the
industry has made significant and concrete strides towards grid parity.
If current trends continue and costs continue to drop on account of
economies of scale, improved technology and enhanced efficiencies, the
solar industry's need for federal policy support will be shorter than
virtually any other domestic energy source.
Ultimately, it is the entrepreneurs in America's solar industry--
from the scientists developing more efficient and cost-effective solar
technologies to the market innovators providing new financing options
that make solar more affordable for consumers--who are responsible for
the rapid growth and reduced costs that are the hallmarks of America's
solar industry. Stable, reliable and well-structured tax policy
provides the framework that allows for this market-driven innovation.
If policymakers have the foresight to retain these highly effective tax
policies, this short-term investment will yield significant long-term
benefits.
conclusion
Chairman Bingaman, Ranking Member Murkowski and members of the
committee, SEIA again appreciates having the opportunity to submit a
statement for the record on this important hearing on China and clean
energy. A national policy that recognizes the benefits of open markets,
both at home and abroad, combined with smart and stable domestic policy
will accelerate the deployment of solar technology, continue the
positive trends of reduced costs for consumers and create jobs
throughout the solar value chain. SEIA looks forward to working
constructively with you to achieve these worthwhile policy outcomes.
APPENDIX
Responses to Additional Questions
----------
Responses of Dan W. Holladay to Questions From Senator Murkowski
Question 1. How significant is the role played by the cost and
availability of energy in the United States' competitive position,
compared to China's?
Answer. Cost and availability of energy will become one of the most
significant problems facing humanity in the next few decades. As the
demand for energy becomes the limiting factor for growing economies and
sustaining basic needs, being a leader in the manufacturing of
affordable clean energy will position any nation for a more
independent, economically stable future. The cost of energy is a
critical component of the cost of doing business, but the business
environment in China is beyond the purview of SEMATECH's expertise.
Question 2. How would each of you define the term ``green job''--or
do you think we should even have a separate category for them--and do
you think ``green jobs'' are any more or less susceptible to
outsourcing than regular jobs?
Answer. The debate over green jobs is complex and encompasses
issues of economic competitiveness, national security, and climate
change. The issue of outsourcing, however, is more straightforward, and
doesn't necessarily involve sending jobs overseas. For example,
companies routinely outsource administrative functions such as event
planning and payroll, but those functions don't necessarily move
offshore. The Committee is quite rightly concerned about the larger
issue of offshoring, as it potentially denies the American taxpayer the
return on investments in research. As a nation, we have come to realize
that favoring research over production removes critical manufacturing
``know-how'' from the iterative process of innovation; many of the most
impactful innovative breakthroughs come from the collective knowledge
developed on the manufacturing shop floor. Eventually, research follows
manufacturing leaving U.S. companies without the business, and the
nation dependent on foreign suppliers.
SEMATECH's experience is grounded in an established industry in
semiconductors, which has provided capabilities and spin-off
technologies for numerous emerging industries (nano-biomedical, MEMS/
NEMS devices, nano-materials, energy harvesting and generation, etc.),
all of which provide technology leadership, generate economic wealth
and thus enhance our national competitiveness. Although, through the
DOE's leadership, SEMATECH has most recently championed sustainability
programs that are aimed at solar energy manufacturing and deployment,
thus reducing industry's environmental footprint, we would argue that
rather than focusing on just on what's ``green,'' our policy focus
should be owning the leading edge of technology. When we develop
technology responsibly, and own the leading edge, our industries retain
competitive advantage and our nation maintains a strategic advantage.
Responses of Dan W. Holladay to Questions From Senator Cantwell
u.s.-china trade relations
Question 1. Do you agree that there is much more to gain for both
the US and China from a cooperative framework on our mutual clean
energy interests?
Question 2. How would the witnesses characterize the extent of
overlapping interests within the American and Chinese markets for clean
energy?
Question 3. Could eliminating tariffs and non-tariff barriers to
trade in clean energy and environmental goods and services be
beneficial to both countries?
Question 4. What particular mechanisms can we use to eliminate
existing tariffs and non-tariff barriers on clean energy technologies?
Question 5. Do you believe that the final result of these recent
trade cases will be good for our clean energy industries as a whole?
Question 6. Do escalating trade complaints on all sides endanger
growth, investments, and jobs in emerging clean energy industries?
Question 7. In terms of our international competitiveness going
forward, what sort of incentives are in place in China to promote clean
energy development and deployment and how do they compare to the U.S.
from your perspective?
Answer. Trade policy is not within the purview of SEMATECH's
organizational charter, but we strongly advocate the benefits of
collaboration across the national supply chain, and selective
international collaboration where it makes sense, as an effective
complement to trade policies. We have seen, through SEMATECH's
experience as a national consortium, the power of creative cooperation
to align and achieve national interests. Today we are an international
organization, and today's leading industries are global. U.S. firms
rely on global suppliers and have operations abroad, while many
international firms make significant contributions to the development
of U.S. innovation and manufacturing. We believe there are areas where
international collaboration is both possible, appropriate, and critical
to the overall success of an industry, while protecting national
interests and building domestic manufacturing capabilities. Our
position has been that an industrial consortium must have engagement
with the global supply chain in order to develop solutions that will be
globally competitive. This is especially evident in areas such as
establishing common roadmaps, providing access to critical materials
and developing common standards and protocols. More specifically, for
example, we all have a vested interest in establishing and maintaining
a baseline for Environment, Health and Safety (EHS) standards.
Ultimately, we have the know-how and methodologies to collaborate
globally, while protecting national interests and protecting IP.
policy environment
Question 8. Do you believe that if we fail to create the right
policies and investment incentives at home, we'll miss out on lucrative
opportunities for global leadership in clean energy?
Answer. Yes. The U.S. is no longer acting alone on the global
stage, as one might argue it did in the 1960s. In today's competitive
global economy, the investments that are not made here are made
elsewhere and the resulting economic benefits accrue to others. There
is a danger that the U.S. can be reduced to a producer of intellectual
property that is ultimately commercialized elsewhere. This economic
outcome denies the American economy the tremendous economic benefit
that comes with transforming IP into products--both revenues and jobs--
and ultimately denies the American taxpayer a return on the investments
in the underlying research. Public-private partnerships such as
SEMATECH can be instrumental in preserving--or establishing--U.S.
leadership in critical industries, including many clean technologies.
Our member-driven collaborative model and manufacturing best practices
are standard-bearers for industrial R&D consortia, and have been
emulated and replicated both nationally and internationally. After
twenty-five years of operation, SEMATECH is one of the few entities
around the world that has continuously accelerated the RD&D timeline
and delivered substantial value to its participants on an annual basis,
with our focus on filling key gaps in the R&D/manufacturing
infrastructure, developing key tools, materials, and processes, and
providing testbed facilities to demonstrate and evaluate innovations in
a production environment.
tax policy
Question 9. Wouldn't placing a clear price on carbon be one of the
policies that would spur our clean energy industries?
Question 10. Assuming comprehensive tax reform is not happening
this year, will jobs be lost if we fail to extend these expiring
credits that industries have been banking on?
Question 11. On the flip side, will businesses create jobs if these
provisions are extended for a predictable period of time?
Question 12. As Congress begins to grapple with a major reform of
the tax code, would you be willing to trade the certainty of multiyear
extensions for a sunset date for all energy tax subsidies?
Question 13. Do you think it's fair that some energy sources
benefit from permanent subsidies and others have to deal with the
uncertainty of short-term extensions?
Answer. Tax policy is outside the purview of SEMATECH's
organizational scope of expertise. As a general matter, we do believe
that the tax code should not choose among technologies, but rather
should be framed in terms of desired outcomes. This approach invites
the market to develop innovative solutions to meet policy objectives.
r&d budgets
Question 14. If securing our energy independence, averting climate
change and creating new energy industries and jobs are true national
priorities, shouldn't our energy R&D budgets be more on the scale of
NIH?
Answer. A strong commitment to R&D and manufacturing is critical to
the growth of our economy and the health of our industrial base.
Consistent and substantial investments in life sciences research have
yielded world-class pharmaceuticals and medical devices. A comparable
commitment to the physical sciences is critical if we are to continue
to see the breakthroughs that will unleash energy savings in existing
industries and create entirely new ones. Equally important, the U.S. is
no longer acting alone on the global stage. In today's competitive
global economy, the investments that are not made here are made
elsewhere and the resulting economic benefits accrue to others.
role of the defense department
Question 15. Do you believe that the Department of Defense can play
an important role in facilitating our emerging domestic biofuels
industry?
Question 16. Would these efforts advance our national security,
both by decreasing our energy dependence and by reducing our military's
expenditures on the full costs of energy over the long term?
Answer. SEMATECH does not have any programs in the development of
biofuels per se. Our experience, however, does illustrate the important
and positive role that the Department of Defense can plan in
cultivating and maintaining a robust industrial base. As the Committee
knows, SEMATECH originated with the Defense Department's need for
semiconductor devices and manufacturing equipment. The public-private
partnership that ensued yielded much more than a secure supply of
critical components for the Defense Department; indeed, working
collaboratively, the industry has facilitated breakthroughs in new
devices and materials that have revolutionized data processing and
communications.
______
Responses of Alan Wm. Wolff to Questions From Senator Murkowski
energy costs as a factor of competitiveness
Question 1. For all the talk of China's advances in clean energy
manufacturing, the country is struggling mightily with environmental
challenges. China has long since passed the United States in total
greenhouse gas emissions and approximately one quarter of its water
resources have been deemed unsafe. As I mentioned in my opening
statement, the country's solar panel factories don't tend to run on
solar power. The unfortunate irony of all this is that America has
often relied upon the cheaper, dirtier manufacturing practices of China
in order to affordably comply with requirements we've imposed on
ourselves for cleaner, pricier energy here at home.
How significant is the role played by the cost and availability of
energy in the United States' competitive position, compared to China's?
Answer. It is clear that the new techniques to extract gas from
U.S. rock formations will greatly enhance U.S. competitiveness as a
base from which to produce goods. Whether this changes the competitive
relationship with manufacturing in China depends on many factors--
relative exchange rates, relative rates of inflation, relative costs of
capital, relative productivity gains, relative wage levels, as well as
how successful the U.S. and China are in lowering energy costs. Clearly
the competitive relationship will be improved with the lowering of
energy costs in the United States, all other things being equal.
definition and outsourcing of green jobs
Question 2. There was a bit of renewed interest in ``green jobs''
recently, when an administration witness testified that this category
of employment includes everything from college professors and antique
dealers to bicycle repair clerks and used record shop employees. In
addition to these broad definitions, others have said that green jobs
``can never be outsourced.'' Together, these claims have created a lot
of confusion about - and, frankly, mistrust of - the pitches that have
been made in support of stimulus spending and other activities.
How would each of you define the term ``green job'' - or do you
think we should even have a separate category for them - and do you
think "green jobs" are any more or less susceptible to outsourcing than
regular jobs?
Answer. By far the largest category of jobs that will be stimulated
by increasingly changing the mix of energy to renewable sources will be
those in deploying the solar and wind equipment. The second largest
category is likely to be those jobs involved in production, assuming
that the equipment is produced onshore. A third category will be the
engineers, scientists, and administrative personnel involved in the
industry. The first and last of these groups are not very susceptible
to our-sourcing--namely deployment, and at present, invention (the
front end of innovation). What we are not assured of at present is
commercialization, that is, production of electrical generating
equipment at home.
Responses of Alan Wm. Wolff to Questions From Senator Cantwell
Question 1. As the top two energy consumers and greenhouse gas
emitters in the world, I believe the United States and China have a
tremendous opportunity to work together to solve their shared energy
and environmental challenges. China is investing heavily in clean
energy and that should be a huge market opportunity for the United
States.
The scale of their growth can be mind-boggling. China attracted
$45.4 billion worth of clean energy investments in 2011. And that's
going to continue.
According to the International Energy Agency (IEA), to match its
rapidly growing demand China needs to invest $3.7 trillion by 2030 to
build over 1,300 Gigawatts of new electricity generating capacity.
That's more than the total current installed capacity in the United
States!
Clearly the U.S. has much to gain from cooperating with China on
clean energy. Over the next decade, the Chinese government plans on
spending $1 trillion to expand their railway network. The country will
also build the equivalent of the United States' entire building stock
in the next twenty-five years. Already in China today, some of the
world's largest wind farms deliver power to cities over smart grid
enabled, ultra-high-voltage long-distance transmission lines. China's
vehicle mileage standards are higher than even our recently updated
CAFE rules.
As the world's fastest- and largest-growing energy market, China is
an ideal testing ground for scaling up and commercializing clean energy
technologies. Combining our two energy markets increases economies of
scale to bring down costs for consumers in both countries.
I see huge opportunities for U.S. technology exporters arising from
a more cooperative relationship with China on clean energy because this
is critical for our mutual efforts to produce clean abundant energy,
mitigate climate change, and meet our long term emissions target. While
we will certainly have to compete with each other, I think we need to
follow what some call ``co-opetition.''
a. Do you agree that there is much more to gain for both the
US and China from a cooperative framework on our mutual clean
energy interests?
b. How would the witnesses characterize the extent of
overlapping interests within the American and Chinese markets
for clean energy?
Answer. I agree that there is much that can be gained from
cooperation between China and the United States in increasing the
production of clean energy and clean energy generating equipment. For
this to occur, China would have to view cooperation rather than autarky
as a path to greater use of renewable energy. There is no need for
either country to go it alone. China would have to remove mercantilist
``buy-Chinese'' policies entirely and this would have to be
reciprocated by the United States.
Question 2. Senator Murkowski and I sent a letter to President
Obama with 13 other Senators urging him to strengthen cooperation with
China on clean energy technology development and deployment. I was very
pleased that Presidents Obama and Hu agreed on a clean energy package
that included several measures to advance our relationship with China.
Many experts have recommended keeping pressure to open markets and
to create an integrated US-China market for clean energy technologies.
I introduced a Senate Resolution calling for the U.S. to work on
eliminating tariff and non-tariff barriers to clean energy goods and
services.
For the last several years, the United States and European Union
have tried to eliminate tariffs and trade barriers to clean energy and
environmental goods and services at the World Trade Organization (WTO).
However, talks have stalled.
I think we need to try harder. Hundreds of billions of dollars in
exports of clean energy and environmental goods and services are needed
to get us to a clean energy future. But these tariffs and other trade
issues are slowing us down and harming what could be a tremendous trade
opportunity.
a. Could eliminating tariffs and non-tariff barriers to trade
in clean energy and environmental goods and services be
beneficial to both countries?
b. What particular mechanisms can we use to eliminate
existing tariffs and non-tariff barriers on clean energy
technologies?
Answer. I fully agree that it should be in both countries'
interests for China to remove its trade barriers. These are not so much
in the form of tariff and traditional nontariff barriers. The measures
are not much at the border, they take the form of national policies
implemented often through informal means by state-owned enterprises.
Sometimes market barriers take the form of visible measures--standards,
indigenous innovation mandates, procurement catalogs and the like. But
there are hidden barriers due to the structure of the Chinese economy.
For these, agreements have to concentrate on measurable results
compared with markets as open as those of, for example, the European
Union and the United States.
Question 3. Despite some of the recent news stories and trade
complaints, all is not wrong with our clean energy relationship with
China.
Emerging clean energy technologies are becoming increasingly
competitive in the marketplace. For instance, solar power is now
competitive with daytime retail power prices in a number of countries.
Last month Bloomberg New Energy Finance released a report finding that
average solar PV module prices have fallen by nearly 75 percent in the
past three years. That same Bloomberg report found that these recent
reductions in PV prices are likely to be sustainable, as they are
primarily a reflection of reductions in manufacturing costs. Lowering
the cost of clean energy, such as solar, is exactly what we need to be
doing.
The affordability of solar energy has stimulated business
investment and created jobs in most of the industry. Although much of
the focus on solar energy has focused on one sector of the industry -
manufacturing solar panels - it only accounts for roughly 5 percent of
solar jobs in the United States. Over half of the jobs in the solar
industry involve designing, installing, and maintaining solar energy
systems.
I am concerned about the recent trade complaints and their effect
on the over 2,000 solar employees in Washington state. Having the 12th
largest solar workforce in the nation, mostly in other sectors of the
solar industry, I think we need to be weary of the unintended
consequences. Our trade actions could lead to retaliation on our own
successful polysilicon industry, for example.
In my home state, REC Silicon has worked very hard to innovate and
cut costs and has become the leading low-cost supplier of polysilicon
in the world. Trade retaliation from China could endanger roughly 860
American manufacturing jobs that REC Silicon provides, and up to 49,589
jobs nationally.by 2014, according to a recent Brattle Group analysis.
My experience at a technology company taught me that innovation,
scale, and American entrepreneurship will always figure out how to
drive down costs over the long term. We will win with open markets, and
that's why we need to continue pressing for open markets for clean
energy rather than imposing new tariffs.
a. Do you believe that the final result of these recent trade
cases will be good for our clean energy industries as a whole?
b. Do escalating trade complaints on all sides endanger
growth, investments, and jobs in emerging clean energy
industries?
Answer. While I support an industry's right to petition for and
receive relief under the U.S. laws and consistent with U.S. rights and
obligations under the WTO, whatever the result of the current case on
solar, it does not constitute a national strategy for increasing the
technological development, commercialization and deployment of solar
energy in the United States. The country should not have a one-
dimensional policy for solar energy, consisting solely of whether
injury is found by an independent U.S. agency and dumping and
subsidization are found by the Department of Commerce.
Question 4. While I am glad to see that the US led the world in
private clean energy investment last year, this is just one inning of a
long series. I am frankly concerned that we cannot sustain this
leadership with the policies we have in place today - even if we extend
all of the clean energy tax incentives later this year.
Pew recently profiled the national energy policies by country in
its report ``Who's Winning the Clean Energy Race.'' Of the eight key
national clean energy policies listed in these country profiles, the US
only has three in place - three of the eight - and those include clean
energy tax incentives, which we still need to extend, and government
procurement, which is increasingly under political attacks. China, in
contrast, has six of the key eight national policies in place. And many
of our European competitors (including Germany, France, the United
Kingdom, and Italy) also have six or more of these critical policies.
This policy gap should be a call to action. We need to continue
moving forward, not backward. We need to be working on more aggressive
policies to seize this enormous global clean energy market opportunity
rather than debating the ones we've already passed on a bipartisan
basis.
While I have long advocated for bilateral clean energy cooperation
with China, I also want to be sure that the United States is the
world's leading supplier of clean energy technologies to meet the
exploding world demand.
a. In terms of our international competitiveness going
forward, what sort of incentives are in place in China to
promote clean energy development and deployment and how do they
compare to the U.S. from your perspective?
b. Do you believe that if we fail to create the right
policies and investment incentives at home, we'll miss out on
lucrative opportunities for global leadership in clean energy?
c. Wouldn't placing a clear price on carbon be one of the
policies that would spur our clean energy industries?
Answer. There is something wrong with China's mix of policies when
until very recently it produced a glut of solar cells and panels and
only was able to absorb 5% or so at home (the figure has since been
estimated to be during this year about 25%). The fact remains that
China's record of deployment of solar and wind, and the degree to which
these are grid-connected has not been good enough, and given China's
economic growth, while it has been greatly increasing the deployment of
renewable energy sources, the mix has in fact moved even more in the
direction of using fossil fuels. I agree that we need to put into place
the right mix of policies at home and maintain consistency in their
application. Too many incentives are simply too uncertain in this
country to call forth the private national effort needed to increase
greatly the deployment of clean energies. In both countries, while
hydro power is clean, it is also not feasible to greatly increase
reliance on it, except to the extent that existing generating
facilities can be made more efficient.
Question 5. Until the beginning of this Congress, there was an
overwhelming consensus that clean energy incentives were a good thing.
They worked and created jobs. Just a few years ago, the Cantwell-Ensign
bill -- which extended many key clean energy credits and established
the eight year ITC -- passed the Senate by a vote of 93 to 2.
There has been little success this Congress in reaching across the
aisle to get these credits extended -- or to reform the existing
credits to make them more effective. It has been an uphill battle, and
certainly not for a lack of trying.
So what's changed? Why are credits which used to enjoy fairly broad
support become so partisan? Many of those in Congress who have railed
against our attempt to build this new industry have petitioned for
clean energy projects for their constituents. And polling from Yale and
George Mason University show that they oppose the majority of Americans
who want to develop clean energy and invest in research.
So how do we get back on track? As many of you know we have already
lost a lot of ground. Many important energy credits have already
expired. Or in the case of wind, effectively expired given the placed-
in-service requirement. In the short term, I believe that we must
extend these credits to maintain the American clean energy jobs that
they support.
a. Assuming comprehensive tax reform is not happening this
year, will jobs be lost if we fail to extend these expiring
credits that industries have been banking on?
b. On the flip side, will businesses create jobs if these
provisions are extended for a predictable period of time?
c. As Congress begins to grapple with a major reform of the
tax code, would you be willing to trade the certainty of
multiyear extensions for a sunset date for all energy tax
subsidies?
d. Do you think it's fair that some energy sources benefit
from permanent subsidies and others have to deal with the
uncertainty of short-term extensions?
Answer. If the mix of energy sources is to change toward
renewables, they must benefit from greater economic incentives than
traditional fossil fuels. These incentives can be in many forms--
mandates, feed-in tariffs, direct government financial support and tax
incentives. If there is a consensus that the national security and the
country's environmental objectives require a change in the mix of
energy sources, to point the way this must be reflected in the direct
and indirect incentives offered.
Question 6. I want to ask about the scale of advanced energy R&D
investment that we need. As you are surely well aware, the energy
sector itself invests a far smaller fraction of its revenue in research
and new technology development than many other sectors of the American
economy. According to one analysis from the Breakthrough Institute, the
energy sector invests just two tenths of one percent of annual revenues
in R&D, an order of magnitude lower than the national average across
all industries (2.6%) and two orders of magnitude lower than leading
innovation-driven industries such as biotech, semiconductors or
information technology.
The health care sector invests a full 20% of its revenues in R&D
and the federal government adds to this with over $30 billion annually
in health care research spending through the National Institutes of
Health (NIH). Yet despite the far lower levels of private sector energy
research spending, the federal government invests just a few billion
annually in energy R&D, mostly through the Department of Energy (DOE).
With private sector investment levels like these, there seems to be
a strong need for public investments that can fill the gap and help
drive the innovation and advanced energy technologies we need. While we
certainly have to make some difficult choices when it comes to getting
our fiscal house in order, I do not believe critical investments in R&D
are the path to a brighter fiscal and economic future. If securing our
energy independence, averting climate change and creating new energy
industries and jobs are true national priorities, shouldn't our energy
R&D budgets be more on the scale of NIH?
Answer. You raise a key question. Just how high a priority is it
for the United States to change the course of the country's energy
policy to a much greater reliance on clean energy and particularly
renewables? The United States in the context of WWII engaged in a
herculean effort to master the forces of nuclear power, initially for
weapons development but with enormous additional applications in
peacetime, including nuclear fuel for power generation. A similar
effort was incurred in the manned space flight program. I recognize
that this is a time of budget stringency, but what if the cost of
renewables could be driven down to the point where it made energy much
less expensive. That investment would repay its costs hundreds if not
thousands of times over in terms of a boost to U.S. competitiveness and
jobs, not to mention national security through freeing the country from
reliance on foreign offshore sources of energy. The value would be
nearly incalculable. And this is without including the savings and
beneficial health effects of reducing the pressures on the atmosphere
leading to climate change. Is this a challenge on the order of
magnitude and worthy of the investments to cure diseases? That case can
and should be made.
Question 7. Biomass is one clean energy sector in which the United
States is second to none. We account for roughly 23 percent of the
world's installed capacity, compared to China's 7 percent share.
I do not believe this is a coincidence. The long-term market signal
that the Renewable Fuel Standard (RFS) sends reduces the uncertainty
and unleashes investment. This is precisely what is needed in other
sectors - a long term signal that unleashes investment in clean energy.
I am proud that my state is at the forefront of figuring out
alternative ways to produce jet fuel from a variety of non-petroleum
domestic sources. A broad coalition of researchers, farmers,
entrepreneurs, fuel producers, jet makers, airports, and others are all
working together to figure out the best way to make green jet fuel.
They believe that homegrown jet fuel alternatives will mean real
economic growth in Washington state and can create jobs around the
nation. They know that instead of sending billions overseas each year
for foreign oil, we should be figuring out ways we can keep that money
here at home, supporting our economy and workers.
The U.S. military is also leading the way on this opportunity. The
U.S. Air Force is currently testing different blends of biofuels and
jet fuels, and hopes to acquire 50 percent of its domestic aviation
fuel from alternative fuel blends by 2016. The Air Force is the
nation's largest user of energy, spending about $8 billion on fuel and
electricity every year - about 84 percent of that goes to fuel our
aircraft.
The U.S. Navy is also moving forward on biofuels. In an article in
the Washington Post, Secretary of the Navy Ray Mabus said that, ``[t]he
main reason we're moving toward alternative fuels in the Navy and the
Marine Corps is to make us better war fighters.'' Secretary Mabus went
on to say that having a Marine either wounded or killed for every 50
convoys of fuel brought into Afghanistan is ``just too high a price to
pay.''
a. Do you believe that the Department of Defense can play an
important role in facilitating our emerging domestic biofuels
industry?
b. Would these efforts advance our national security, both by
decreasing our energy dependence and by reducing our military's
expenditures on the full costs of energy over the long term?
Answer. DOD can certainly play an important role in the development
of alternative forms of energy, including biofuels. In a broad sense,
doing so will increase national security as it can decrease reliance on
importing fuels from abroad, especially from sources that may prove
unstable over time. If energy costs can be driven down, this will also
serve to make defense budgets go further. However, in terms of support
of troops deployed in remote locations, more important will be other
forms of renewable energy such as solar, as well as improved
conservation techniques (as relatively simple as improving insulation
for portable living quarters). As long as a gallon of biofuels produces
the same amount of energy as a gallon of traditional fuels,
transporting the fuel over great distances to remote battlefields would
not result in improved security.
______
Responses of Derek Scissors to Questions From Senator Murkowski
energy costs as a factor of competitiveness
Question 1. For all the talk of China's advances in clean energy
manufacturing, the country is struggling mightily with environmental
challenges. China has long since passed the United States in total
greenhouse gas emissions and approximately one quarter of its water
resources have been deemed unsafe. As I mentioned in my opening
statement, the country's solar panel factories don't tend to run on
solar power. The unfortunate irony of all this is that America has
often relied upon the cheaper, dirtier manufacturing practices of China
in order to affordably comply with requirements we've imposed on
ourselves for cleaner, pricier energy here at home.
How significant is the role played by the cost and availability of
energy in the United States' competitive position, compared to China's?
Answer. The American and Chinese approaches are very different. The
U.S. has intervened less and most American intervention has been to
discourage energy production for ecological reasons. Inhibiting coal
production and oil transport raises the cost of energy, making American
firms less competitive in energy-intensive activities, such as auto-
making. Recent green energy subsidies promise competitiveness in a new
field but rely in part on keeping traditional energy expensive, as well
as diverting resources from elsewhere in the economy. The U.S. tends to
hurt its competitiveness for the sake of the environment.
In contrast, the Chinese heavily subsidize energy consumption and
it appears that energy very much helps their competitiveness. Among
other things, subsidies have enabled electricity-intensive heavy
industries such as steel to expand to huge proportions. The gain for
China is more jobs in heavy industry and cheaper products, both for use
at home and to sell overseas. China is more competitive in these areas
than it would be with market prices for energy. However, in the PRC
consumers subsidize producers, through anti-competitive regulation, the
banking system, land acquisition bias, and so on. Ordinary people thus
pay (even if they don't pay taxes) so heavy industry can expand. The
other main cost is environmental. Both subsidizing heavy industry and
making energy too cheap increases resource depletion and pollution.
The green energy push further reveals Chinese policy as wasteful.
The PRC subsidizes coal consumption, making coal cheaper and increasing
carbon emissions. It then must subsidize green energy more, to make it
competitive with subsidized coal and to counter the emissions increase.
For the last few years, Beijing has been fighting itself.
definition and outsourcing of green jobs
Question 2. There was a bit of renewed interest in ``green jobs''
recently, when an administration witness testified that this category
of employment includes everything from college professors and antique
dealers to bicycle repair clerks and used record shop employees. In
addition to these broad definitions, others have said that green jobs
``can never be outsourced.'' Together, these claims have created a lot
of confusion about--and, frankly, mistrust of--the pitches that have
been made in support of stimulus spending and other activities.
How would each of you define the term ``green job''.or do you think
we should even have a separate category for them--and do you think
``green jobs'' are any more or less susceptible to outsourcing than
regular jobs?
Answer. The job classification issue is an old one. When American
manufacturers in the 1960's began hiving off supporting activities such
as accounting, human resources, etc. to specialized contractors, that
came to be seen as lost jobs in manufacturing. But in many cases, the
number of people involved in actual manufacturing did not change.
In green energy as in other sectors, the division should be (i)
jobs in green energy, (ii) jobs green energy indirectly supports, and
(iii) jobs that have less connection to green energy than other sectors
and should not be counted (antique dealer, for example). Going beyond
green energy jobs to ``green jobs'' is a mistake. If a green job is any
job that is considered good for the environment, it will be impossible
to compare green jobs to other kinds of jobs, because jobs measures are
based on occupation, not impact.
For outsourcing, it is easier to outsource production than
services. This is part of the reason our service sector is larger than
our manufacturing sector. If green jobs are thought to be concentrated
in services, they would be harder to outsource than jobs in general.
Green services jobs can still be outsourced, though. For example, an
environmental consulting firm that advises companies on how to reduce
their carbon footprint can be located anywhere.
Green jobs involving energy production are just as easy to
outsource as other energy production jobs. Electricity generation tends
to stay close to home but the materials needed to create electricity,
from crude oil to wind turbines, can be outsourced no matter whether
they are green or not.
Responses of Derek Scissors to Questions From Senator Cantwell
Question 1. As the top two energy consumers and greenhouse gas
emitters in the world, I believe the United States and China have a
tremendous opportunity to work together to solve their shared energy
and environmental challenges. China is investing heavily in clean
energy and that should be a huge market opportunity for the United
States.
The scale of their growth can be mind-boggling. China attracted
$45.4 billion worth of clean energy investments in 2011. And that's
going to continue. According to the International Energy Agency (IEA),
to match its rapidly growing demand China needs to invest $3.7 trillion
by 2030 to build over 1,300 Gigawatts of new electricity generating
capacity. That's more than the total current installed capacity in the
United States!
Clearly the U.S. has much to gain from cooperating with China on
clean energy. Over the next decade, the Chinese government plans on
spending $1 trillion to expand their railway network. The country will
also build the equivalent of the United States' entire building stock
in the next twenty-five years. Already in China today, some of the
world's largest wind farms deliver power to cities over smart grid
enabled, ultra-high-voltage long-distance transmission lines. China's
vehicle mileage standards are higher than even our recently updated
CAFE rules.
As the world's fastest-and largest-growing energy market, China is
an ideal testing ground for scaling up and commercializing clean energy
technologies. Combining our two energy markets increases economies of
scale to bring down costs for consumers in both countries.
I see huge opportunities for U.S. technology exporters arising from
a more cooperative relationship with China on clean energy because this
is critical for our mutual efforts to produce clean abundant energy,
mitigate climate change, and meet our long term emissions target. While
we will certainly have to compete with each other, I think we need to
follow what some call ``co-opetition.''
a. Do you agree that there is much more to gain for both the
US and China from a cooperative framework on our mutual clean
energy interests?
b. How would the witnesses characterize the extent of
overlapping interests within the American and Chinese markets
for clean energy?
Answer. There is potential for valuable and very extensive
cooperation in clean energy between the U.S. and PRC, the world's two
largest economies, two largest energy producers, and two largest clean
energy investors. This cooperation can range from simple energy trade
that changes China's energy mix to two-way investment to joint
research. These avenues should be explored.
Expectations should be limited, though, due to the lack of
overlapping interests. The PRC has explicitly required state control of
its energy sector. Energy is obviously crucial to the industrial
expansion that has created enough jobs to keep the Communist Party in
power during a period where the labor force has greatly expanded (for
an example of what happens when the labor force expands and job
creation is insufficient, see the Arab world.) There is no sign at
present that Beijing is willing to relax state control of the energy
industry.
American goals of innovation, energy efficiency, and limiting
carbon emissions are secondary for China to state control, low cost,
and job creation. This is evident in the PRC's simultaneous subsidies
for coal consumption and green energy production for export (chiefly
solar panels and wind turbines). Both countries value self-sufficiency
but, of course, that does not favor more trade and investment. While
the U.S. will look first for technological breakthroughs for the sake
of energy efficiency, low emissions, and self-sufficiency, China looks
first at turning technology into jobs via state regulatory and
financial actions, including actions that take jobs away from their
trade partners.
Cooperation should be pursued to the extent Beijing allows it. But,
as in so many other sectors, the promise of the Chinese market is
unlikely to be realized unless there are very considerable policy
changes.
Question 2. Senator Murkowski and I sent a letter to President
Obama with 13 other Senators urging him to strengthen cooperation with
China on clean energy technology development and deployment. I was very
pleased that Presidents Obama and Hu agreed on a clean energy package
that included several measures to advance our relationship with China.
Many experts have recommended keeping pressure to open markets and
to create an integrated US-China market for clean energy technologies.
I introduced a Senate Resolution calling for the U.S. to work on
eliminating tariff and non-tariff barriers to clean energy goods and
services.
For the last several years, the United States and European Union
have tried to eliminate tariffs and trade barriers to clean energy and
environmental goods and services at the World Trade Organization (WTO).
However, talks have stalled.
I think we need to try harder. Hundreds of billions of dollars in
exports of clean energy and environmental goods and services are needed
to get us to a clean energy future. But these tariffs and other trade
issues are slowing us down and harming what could be a tremendous trade
opportunity.
a. Could eliminating tariffs and non-tariff barriers to trade
in clean energy and environmental goods and services be
beneficial to both countries?
b. What particular mechanisms can we use to eliminate
existing tariffs and non-tariff barriers on clean energy
technologies?
Answer. A global agreement to reduce tariff and non-tariff barriers
in environmental trade would be a major breakthrough and is worth a
great deal of effort.
Some countries will seek to substitute non-tariff barriers for
tariffs. It is thus useful to start with countries truly committed to
open environmental trade. With the WTO stalled, the U.S. and EU should
proceed on their own, dropping all barriers to environmental goods and
services between the two. There should be a standing invitation to all
other countries to observe and, if they meet conditions on non-tariff
barriers, to join the group. The Information Technology Agreement is an
obvious model and could conceivably be extended for those ITA parties
which make sufficient commitments on non-tariff barriers.
A global agreement would be ideal but is not currently possible. A
multilateral agreement would be quite helpful and also exert pressure
toward a global agreement.
Question 3. Despite some of the recent news stories and trade
complaints, all is not wrong with our clean energy relationship with
China.
Emerging clean energy technologies are becoming increasingly
competitive in the marketplace. For instance, solar power is now
competitive with daytime retail power prices in a number of countries.
Last month Bloomberg New Energy Finance released a report finding that
average solar PV module prices have fallen by nearly 75 percent in the
past three years. That same Bloomberg report found that these recent
reductions in PV prices are likely to be sustainable, as they are
primarily a reflection of reductions in manufacturing costs. Lowering
the cost of clean energy, such as solar, is exactly what we need to be
doing.
The affordability of solar energy has stimulated business
investment and created jobs in most of the industry. Although much of
the focus on solar energy has focused on one sector of the industry--
manufacturing solar panels--it only accounts for roughly 5 percent of
solar jobs in the United States. Over half of the jobs in the solar
industry involve designing, installing, and maintaining solar energy
systems.
I am concerned about the recent trade complaints and their effect
on the over 2,000 solar employees in Washington state. Having the 12th
largest solar workforce in the nation, mostly in other sectors of the
solar industry, I think we need to be weary of the unintended
consequences. Our trade actions could lead to retaliation on our own
successful polysilicon industry, for example.
In my home state, REC Silicon has worked very hard to innovate and
cut costs and has become the leading low-cost supplier of polysilicon
in the world. Trade retaliation from China could endanger roughly 860
American manufacturing jobs that REC Silicon provides, and up to 49,589
jobs nationally.by 2014, according to a recent Brattle Group analysis.
My experience at a technology company taught me that innovation,
scale, and American entrepreneurship will always figure out how to
drive down costs over the long term. We will win with open markets, and
that's why we need to continue pressing for open markets for clean
energy rather than imposing new tariffs.
a. Do you believe that the final result of these recent trade
cases will be good for our clean energy industries as a whole?
b. Do escalating trade complaints on all sides endanger
growth, investments, and jobs in emerging clean energy
industries?
Answer. The environmental trade complaints against China are
understandable in an important respect: China heavily subsidizes its
environmental exports and these subsidies distort world trade. As a
pure trade correction, the complaints have merit.
With regard to our energy and environmental goals, however, the
trade cases are harmful. The original point of the clean energy
industry was to reduce carbon emissions and achieve other ecological
goals. Competition from imports can only bring these goals closer,
while blocking this competition will raise the price of clean energy
and discourage its use. If the primary goal is now job creation, jobs
can much more easily be created in coal and gas than in solar and wind.
The trade cases depart from the clean energy industry's reason for
being.
Global trade and investment tensions in clean energy threaten
ecological goals by raising costs and inhibiting innovation, both of
which flow from competition. Behind these trade complaints is the view
that clean energy is primarily about jobs, rather than limiting
emissions, for example. On this view, clean energy should be just
another target for industrial policy, inviting government intervention
and seeing foreign companies as harmful. An industrial policy approach
to clean energy will stifle innovation, efficiency, and growth, making
the enterprise much more expensive and wasteful than necessary.
Question 4. While I am glad to see that the US led the world in
private clean energy investment last year, this is just one inning of a
long series. I am frankly concerned that we cannot sustain this
leadership with the policies we have in place today--even if we extend
all of the clean energy tax incentives later this year.
Pew recently profiled the national energy policies by country in
its report ``Who's Winning the Clean Energy Race.'' Of the eight key
national clean energy policies listed in these country profiles, the US
only has three in place--three of the eight--and those include clean
energy tax incentives, which we still need to extend, and government
procurement, which is increasingly under political attacks. China, in
contrast, has six of the key eight national policies in place. And many
of our European competitors (including Germany, France, the United
Kingdom, and Italy) also have six or more of these critical policies.
This policy gap should be a call to action. We need to continue
moving forward, not backward. We need to be working on more aggressive
policies to seize this enormous global clean energy market opportunity
rather than debating the ones we've already passed on a bipartisan
basis.
While I have long advocated for bilateral clean energy cooperation
with China, I also want to be sure that the United States is the
world's leading supplier of clean energy technologies to meet the
exploding world demand.
a. In terms of our international competitiveness going
forward, what sort of incentives are in place in China to
promote clean energy development and deployment and how do they
compare to the U.S. from your perspective?
b. Do you believe that if we fail to create the right
policies and investment incentives at home, we'll miss out on
lucrative opportunities for global leadership in clean energy?
c. Wouldn't placing a clear price on carbon be one of the
policies that would spur our clean energy industries?
Answer. Chinese energy policies as a whole are an abysmal failure.
The reliance on coal has been increasing (after falling in the late
1990's), the first large-scale coal imports have begun, energy self-
sufficiency as a whole has declined, energy efficiency has improved
more slowly than necessary, carbon emissions have soared, and many
Chinese clean energy companies are sliding into deep debt. All China
has to offer in clean energy is policy and regulatory language that has
to this point proven largely empty and huge amounts of spending, most
of which serves to remedy the ills of its broader energy policies. This
is not a model for the U.S.
There is a trade-off between global commercial leadership in clean
energy and the environmental goals that brought the industry into
being. The U.S. can choose policies to make American companies
artificially competitive in clean energy, at the cost of provoking our
global partners. But this merely shifts the cost of clean energy onto
the taxpayer, it does not truly make clean energy more efficient.
Alternately, the U.S. can set ecological goals and take no stance on
which countries and firms lead in clean energy. Failing to make a
choice will lead to policy that bounces back and forth between
objectives, as in the solar trade cases, and risks accomplishing very
little.
Carbon is already clearly priced. The market failure is that the
price on carbon does not fully reflect its environmental impact and
thus is too low. Directly setting an artificial price for carbon would
be very harmful--price controls warp markets in often surprising and
always damaging ways. A carbon tax, on top of a flexible market price,
is superior to setting a price outright. The amount and timing of a tax
are major issues but an initially low tax as part of broader, pro-
growth tax reform would serve as an experiment to see how clean energy
development would respond.
Question 5. Until the beginning of this Congress, there was an
overwhelming consensus that clean energy incentives were a good thing.
They worked and created jobs. Just a few years ago, the Cantwell-Ensign
bill--which extended many key clean energy credits and established the
eight year ITC--passed the Senate by a vote of 93 to 2.
There has been little success this Congress in reaching across the
aisle to get these credits extended--or to reform the existing credits
to make them more effective. It has been an uphill battle, and
certainly not for a lack of trying.
So what's changed? Why are credits which used to enjoy fairly broad
support become so partisan? Many of those in Congress who have railed
against our attempt to build this new industry have petitioned for
clean energy projects for their constituents. And polling from Yale and
George Mason University show that they oppose the majority of Americans
who want to develop clean energy and invest in research.
So how do we get back on track? As you know we have already lost a
lot of ground. Many important energy credits have already expired. Or
in the case of wind, effectively expired given the placed-in-service
requirement. In the short term, I believe that we must extend these
credits to maintain the American clean energy jobs that they support.
a. Assuming comprehensive tax reform is not happening this
year, will jobs be lost if we fail to extend these expiring
credits that industries have been banking on?
b. On the flip side, will businesses create jobs if these
provisions are extended for a predictable period of time?
c. As Congress begins to grapple with a major reform of the
tax code, would you be willing to trade the certainty of
multiyear extensions for a sunset date for all energy tax
subsidies?
d. Do you think it's fair that some energy sources benefit
from permanent subsidies and others have to deal with the
uncertainty of short-term extensions?
Answer. The net effect on jobs of letting credits expire or
extending them cannot be calculated without specifying what the
resources would otherwise be used for. In a truly awful fiscal setting,
just creating jobs is not enough. An exceptional number of jobs must be
created. It is true that consistency and clarity in the regulatory
environment will improve the outcome regardless of whether extension or
expiration is chosen.
There are huge gains possible in tax reform. One such gain would be
ending all energy subsidies as quickly as possible. That would be far,
far better than dueling government subsidies for competing types of
energy production, where the government is effectively paying all
sides. This is the worst possible outcome. No sector should benefit
from any sort of subsidy, much less a permanent one.
Question 6. I want to ask about the scale of advanced energy R&D
investment that we need. As you are surely well aware, the energy
sector itself invests a far smaller fraction of its revenue in research
and new technology development than many other sectors of the American
economy. According to one analysis from the Breakthrough Institute, the
energy sector invests just two tenths of one percent of annual revenues
in R&D, an order of magnitude lower than the national average across
all industries (2.6%) and two orders of magnitude lower than leading
innovation-driven industries such as biotech, semiconductors or
information technology.
The health care sector invests a full 20% of its revenues in R&D
and the federal government adds to this with over $30 billion annually
in health care research spending through the National Institutes of
Health (NIH). Yet despite the far lower levels of private sector energy
research spending, the federal government invests just a few billion
annually in energy R&D, mostly through the Department of Energy (DOE).
With private sector investment levels like these, there seems to be
a strong need for public investments that can fill the gap and help
drive the innovation and advanced energy technologies we need. While we
certainly have to make some difficult choices when it comes to getting
our fiscal house in order, I do not believe critical investments in R&D
are the path to a brighter fiscal and economic future. If securing our
energy independence, averting climate change and creating new energy
industries and jobs are true national priorities, shouldn't our energy
R&D budgets be more on the scale of NIH?
Answer. One reason the revenue share of energy investment appears
low is that exploration is often not counted as research.
Putting that aside, there is an important role for government in
basic research. There is little point in starting a basic research
program only for the short-term, though, so government-sponsored
research must be fiscally sustainable. Once a sustainable fiscal course
is set, the government must resist the urge to support applied
research. When the government starts to influence the commercial path,
the result is inevitably harmful because the government is not a
commercial entity. If public R&D is both fiscally sustainable and
purely basic research, a large budget would be helpful in energy.
Question 7. Biomass is one clean energy sector in which the United
States is second to none. We account for roughly 23 percent of the
world's installed capacity, compared to China's 7 percent share.
I do not believe this is a coincidence. The long-term market signal
that the Renewable Fuel Standard (RFS) sends reduces the uncertainty
and unleashes investment. This is precisely what is needed in other
sectors--a long term signal that unleashes investment in clean energy.
I am proud that my state is at the forefront of figuring out
alternative ways to produce jet fuel from a variety of non-petroleum
domestic sources. A broad coalition of researchers, farmers,
entrepreneurs, fuel producers, jet makers, airports, and others are all
working together to figure out the best way to make green jet fuel.
They believe that homegrown jet fuel alternatives will mean real
economic growth in Washington state and can create jobs around the
nation. They know that instead of sending billions overseas each year
for foreign oil, we should be figuring out ways we can keep that money
here at home, supporting our economy and workers.
The U.S. military is also leading the way on this opportunity. The
U.S. Air Force is currently testing different blends of biofuels and
jet fuels, and hopes to acquire 50 percent of its domestic aviation
fuel from alternative fuel blends by 2016. The Air Force is the
nation's largest user of energy, spending about $8 billion on fuel and
electricity every year--about 84 percent of that goes to fuel our
aircraft.
The U.S. Navy is also moving forward on biofuels. In an article in
the Washington Post, Secretary of the Navy Ray Mabus said that, ``[t]he
main reason we're moving toward alternative fuels in the Navy and the
Marine Corps is to make us better war fighters.'' Secretary Mabus went
on to say that having a Marine either wounded or killed for every 50
convoys of fuel brought into Afghanistan is ``just too high a price to
pay.''
a. Do you believe that the Department of Defense can play an
important role in facilitating our emerging domestic biofuels
industry?
b. Would these efforts advance our national security, both by
decreasing our energy dependence and by reducing our military's
expenditures on the full costs of energy over the long term?
Answer. The Department of Defense can play an important role in
encouraging biofuels but it might be damaging if it does. DOD must
focus exclusively on its primary mission; detours into energy policy
are an awful idea.
If DOD finds that changing its fuel mix, for example, enhances the
primary mission, it will certainly affect the domestic energy market
because DOD is such a large player. But the effect may not be for the
better. DOD's fuel needs do not reflect the needs of typical energy
users and may (or may not) skew prices and supply in a way that harms
other market participants. Again, this should not enter DOD's own
calculus, either way.
The broad national security evaluation cannot be made solely by
DOD, it requires inter-agency coordination. Decisions concerning energy
dependence are of sufficient importance that such coordination should
involve the President. It should be noted that American dependence on
foreign energy is currently decreasing.
Question 8. Dr. Scissors, I noticed in your testimony that you
believe a primary reason for China's aggressive action on clean energy
is to create jobs and that renewables support more jobs compared to
fossil fuels. Could you please elaborate on this further?
I understand and support our desire to become a more efficient
nation, and this committee has worked on just that over the years. But
it's still not clear to me why you think we should give up and stop
competing with China for clean energy jobs. We need jobs--today and in
the future. Considering that clean energy may be one of the largest
market opportunities of the 21st century, where will find enough jobs
if we stop competing for jobs in one of the largest emerging markets?
Answer. The history of the Chinese clean energy industry starts
with a response to clean energy subsidies in Europe, not any ecological
goals in China itself. The vast majority of solar products have been
exported, creating jobs but not improving the environment. Chinese
performance on emissions, energy efficiency, and self-sufficiency has
been terrible, indicating these are not the main objectives. At this
stage in their development, renewables require more labor to generate
the same amount of electricity as fossil fuels. If the goal is job
creation, as in China, renewables therefore seem attractive. If the
goal is energy efficiency, renewable are less efficient and less
attractive.
There are two main reasons not to focus on jobs. First, making jobs
the goal also heightens trade conflicts, because jobs are unavoidably
seen as zero-sum to a certain extent. Making efficiency the goal
encourages open trade,.
Second and more fundamental, emphasizing jobs puts the cart before
the horse. Clean energy is considered to be a leading market
opportunity because it could bring enormous environmental benefits.
Promoting those benefits argue for making clean energy as cost-
effective and efficient as possible. Targeting jobs is a quite
different matter--it raises costs and reduces efficiency. In my view,
an emphasis on jobs warps the reason the clean energy industry is
valuable in the first place.
______
[Responses to the following questions were not received at
the time the hearing went to press:]
Questions for Clyde Prestowitz From Senator Murkowski
energy costs as a factor of competitiveness
Question 1. For all the talk of China's advances in clean energy
manufacturing, the country is struggling mightily with environmental
challenges. China has long since passed the United States in total
greenhouse gas emissions and approximately one quarter of its water
resources have been deemed unsafe. As I mentioned in my opening
statement, the country's solar panel factories don't tend to run on
solar power. The unfortunate irony of all this is that America has
often relied upon the cheaper, dirtier manufacturing practices of China
in order to affordably comply with requirements we've imposed on
ourselves for cleaner, pricier energy here at home.
a. How significant is the role played by the cost and
availability of energy in the United States' competitive
position, compared to China's?
definition and outsourcing of green jobs
Question 2. There was a bit of renewed interest in ``green jobs''
recently, when an administration witness testified that this category
of employment includes everything from college professors and antique
dealers to bicycle repair clerks and used record shop employees. In
addition to these broad definitions, others have said that green jobs
``can never be outsourced.'' Together, these claims have created a lot
of confusion about--and, frankly, mistrust of--the pitches that have
been made in support of stimulus spending and other activities.
a. How would each of you define the term ``green job''--or do
you think we should even have a separate category for them--and
do you think ``green jobs'' are any more or less susceptible to
outsourcing than regular jobs?
Questions for Clyde Prestowitz From Senator Cantwell
Question 1. As the top two energy consumers and greenhouse gas
emitters in the world, I believe the United States and China have a
tremendous opportunity to work together to solve their shared energy
and environmental challenges. China is investing heavily in clean
energy and that should be a huge market opportunity for the United
States.
The scale of their growth can be mind-boggling. China attracted
$45.4 billion worth of clean energy investments in 2011. And that's
going to continue. According to the International Energy Agency (IEA),
to match its rapidly growing demand China needs to invest $3.7 trillion
by 2030 to build over 1,300 Gigawatts of new electricity generating
capacity. That's more than the total current installed capacity in the
United States!
Clearly the U.S. has much to gain from cooperating with China on
clean energy. Over the next decade, the Chinese government plans on
spending $1 trillion to expand their railway network. The country will
also build the equivalent of the United States' entire building stock
in the next twenty-five years. Already in China today, some of the
world's largest wind farms deliver power to cities over smart grid
enabled, ultra-high-voltage long-distance transmission lines. China's
vehicle mileage standards are higher than even our recently updated
CAFE rules.
As the world's fastest-and largest-growing energy market, China is
an ideal testing ground for scaling up and commercializing clean energy
technologies. Combining our two energy markets increases economies of
scale to bring down costs for consumers in both countries.
I see huge opportunities for U.S. technology exporters arising from
a more cooperative relationship with China on clean energy because this
is critical for our mutual efforts to produce clean abundant energy,
mitigate climate change, and meet our long term emissions target. While
we will certainly have to compete with each other, I think we need to
follow what some call ``co-opetition.''
a. Do you agree that there is much more to gain for both the
US and China from a cooperative framework on our mutual clean
energy interests?
b. How would the witnesses characterize the extent of
overlapping interests within the American and Chinese markets
for clean energy?
Question 2. Senator Murkowski and I sent a letter to President
Obama with 13 other Senators urging him to strengthen cooperation with
China on clean energy technology development and deployment. I was very
pleased that Presidents Obama and Hu agreed on a clean energy package
that included several measures to advance our relationship with China.
Many experts have recommended keeping pressure to open markets and
to create an integrated US-China market for clean energy technologies.
I introduced a Senate Resolution calling for the U.S. to work on
eliminating tariff and non-tariff barriers to clean energy goods and
services.
For the last several years, the United States and European Union
have tried to eliminate tariffs and trade barriers to clean energy and
environmental goods and services at the World Trade Organization (WTO).
However, talks have stalled.
I think we need to try harder. Hundreds of billions of dollars in
exports of clean energy and environmental goods and services are needed
to get us to a clean energy future. But these tariffs and other trade
issues are slowing us down and harming what could be a tremendous trade
opportunity.
a. Could eliminating tariffs and non-tariff barriers to trade
in clean energy and environmental goods and services be
beneficial to both countries?
b. What particular mechanisms can we use to eliminate
existing tariffs and non-tariff barriers on clean energy
technologies?
Question 3. Despite some of the recent news stories and trade
complaints, all is not wrong with our clean energy relationship with
China.
Emerging clean energy technologies are becoming increasingly
competitive in the marketplace. For instance, solar power is now
competitive with daytime retail power prices in a number of countries.
Last month Bloomberg New Energy Finance released a report finding that
average solar PV module prices have fallen by nearly 75 percent in the
past three years. That same Bloomberg report found that these recent
reductions in PV prices are likely to be sustainable, as they are
primarily a reflection of reductions in manufacturing costs. Lowering
the cost of clean energy, such as solar, is exactly what we need to be
doing.
The affordability of solar energy has stimulated business
investment and created jobs in most of the industry. Although much of
the focus on solar energy has focused on one sector of the industry--
manufacturing solar panels--it only accounts for roughly 5 percent of
solar jobs in the United States. Over half of the jobs in the solar
industry involve designing, installing, and maintaining solar energy
systems.
I am concerned about the recent trade complaints and their effect
on the over 2,000 solar employees in Washington state. Having the 12th
largest solar workforce in the nation, mostly in other sectors of the
solar industry, I think we need to be weary of the unintended
consequences. Our trade actions could lead to retaliation on our own
successful polysilicon industry, for example.
In my home state, REC Silicon has worked very hard to innovate and
cut costs and has become the leading low-cost supplier of polysilicon
in the world. Trade retaliation from China could endanger roughly 860
American manufacturing jobs that REC Silicon provides, and up to 49,589
jobs nationally.by 2014, according to a recent Brattle Group analysis.
My experience at a technology company taught me that innovation,
scale, and American entrepreneurship will always figure out how to
drive down costs over the long term. We will win with open markets, and
that's why we need to continue pressing for open markets for clean
energy rather than imposing new tariffs.
a. Do you believe that the final result of these recent trade
cases will be good for our clean energy industries as a whole?
b. Do escalating trade complaints on all sides endanger
growth, investments, and jobs in emerging clean energy
industries?
Question 4. While I am glad to see that the US led the world in
private clean energy investment last year, this is just one inning of a
long series. I am frankly concerned that we cannot sustain this
leadership with the policies we have in place today--even if we extend
all of the clean energy tax incentives later this year.
Pew recently profiled the national energy policies by country in
its report ``Who's Winning the Clean Energy Race.'' Of the eight key
national clean energy policies listed in these country profiles, the US
only has three in place--three of the eight--and those include clean
energy tax incentives, which we still need to extend, and government
procurement, which is increasingly under political attacks. China, in
contrast, has six of the key eight national policies in place. And many
of our European competitors (including Germany, France, the United
Kingdom, and Italy) also have six or more of these critical policies.
This policy gap should be a call to action. We need to continue
moving forward, not backward. We need to be working on more aggressive
policies to seize this enormous global clean energy market opportunity
rather than debating the ones we've already passed on a bipartisan
basis.
While I have long advocated for bilateral clean energy cooperation
with China, I also want to be sure that the United States is the
world's leading supplier of clean energy technologies to meet the
exploding world demand.
a. In terms of our international competitiveness going
forward, what sort of incentives are in place in China to
promote clean energy development and deployment and how do they
compare to the U.S. from your perspective?
b. Do you believe that if we fail to create the right
policies and investment incentives at home, we'll miss out on
lucrative opportunities for global leadership in clean energy?
c. Wouldn't placing a clear price on carbon be one of the
policies that would spur our clean energy industries?
Question 5. Until the beginning of this Congress, there was an
overwhelming consensus that clean energy incentives were a good thing.
They worked and created jobs. Just a few years ago, the Cantwell-Ensign
bill--which extended many key clean energy credits and established the
eight year ITC--passed the Senate by a vote of 93 to 2.
There has been little success this Congress in reaching across the
aisle to get these credits extended--or to reform the existing credits
to make them more effective. It has been an uphill battle, and
certainly not for a lack of trying.
So what's changed? Why are credits which used to enjoy fairly broad
support become so partisan? Many of those in Congress who have railed
against our attempt to build this new industry have petitioned for
clean energy projects for their constituents. And polling from Yale and
George Mason University show that they oppose the majority of Americans
who want to develop clean energy and invest in research.
So how do we get back on track? As many of you know we have already
lost a lot of ground. Many important energy credits have already
expired. Or in the case of wind, effectively expired given the placed-
in-service requirement. In the short term, I believe that we must
extend these credits to maintain the American clean energy jobs that
they support.
a. Assuming comprehensive tax reform is not happening this
year, will jobs be lost if we fail to extend these expiring
credits that industries have been banking on?
b. On the flip side, will businesses create jobs if these
provisions are extended for a predictable period of time?
a. As Congress begins to grapple with a major reform of the
tax code, would
c. you be willing to trade the certainty of multiyear
extensions for a sunset date for all energy tax subsidies?
d. Do you think it's fair that some energy sources benefit
from permanent subsidies and others have to deal with the
uncertainty of short-term extensions?
Question 6. I want to ask about the scale of advanced energy R&D
investment that we need. As you are surely well aware, the energy
sector itself invests a far smaller fraction of its revenue in research
and new technology development than many other sectors of the American
economy. According to one analysis from the Breakthrough Institute, the
energy sector invests just two tenths of one percent of annual revenues
in R&D, an order of magnitude lower than the national average across
all industries (2.6%) and two orders of magnitude lower than leading
innovation-driven industries such as biotech, semiconductors or
information technology.
The health care sector invests a full 20% of its revenues in R&D
and the federal government adds to this with over $30 billion annually
in health care research spending through the National Institutes of
Health (NIH). Yet despite the far lower levels of private sector energy
research spending, the federal government invests just a few billion
annually in energy R&D, mostly through the Department of Energy (DOE).
With private sector investment levels like these, there seems to be
a strong need for public investments that can fill the gap and help
drive the innovation and advanced energy technologies we need. While we
certainly have to make some difficult choices when it comes to getting
our fiscal house in order, I do not believe critical investments in R&D
are the path to a brighter fiscal and economic future. If securing our
energy independence, averting climate change and creating new energy
industries and jobs are true national priorities, shouldn't our energy
R&D budgets be more on the scale of NIH?
Question 7. Biomass is one clean energy sector in which the United
States is second to none. We account for roughly 23 percent of the
world's installed capacity, compared to China's 7 percent share.
I do not believe this is a coincidence. The long-term market signal
that the Renewable Fuel Standard (RFS) sends reduces the uncertainty
and unleashes investment. This is precisely what is needed in other
sectors--a long term signal that unleashes investment in clean energy.
I am proud that my state is at the forefront of figuring out
alternative ways to produce jet fuel from a variety of non-petroleum
domestic sources. A broad coalition of researchers, farmers,
entrepreneurs, fuel producers, jet makers, airports, and others are all
working together to figure out the best way to make green jet fuel.
They believe that homegrown jet fuel alternatives will mean real
economic growth in Washington state and can create jobs around the
nation. They know that instead of sending billions overseas each year
for foreign oil, we should be figuring out ways we can keep that money
here at home, supporting our economy and workers.
The U.S. military is also leading the way on this opportunity. The
U.S. Air Force is currently testing different blends of biofuels and
jet fuels, and hopes to acquire 50 percent of its domestic aviation
fuel from alternative fuel blends by 2016. The Air Force is the
nation's largest user of energy, spending about $8 billion on fuel and
electricity every year--about 84 percent of that goes to fuel our
aircraft.
The U.S. Navy is also moving forward on biofuels. In an article in
the Washington Post, Secretary of the Navy Ray Mabus said that, ``[t]he
main reason we're moving toward alternative fuels in the Navy and the
Marine Corps is to make us better war fighters.'' Secretary Mabus went
on to say that having a Marine either wounded or killed for every 50
convoys of fuel brought into Afghanistan is ``just too high a price to
pay.''
a. Do you believe that the Department of Defense can play an
important role in facilitating our emerging domestic biofuels
industry?
b. Would these efforts advance our national security, both by
decreasing our energy dependence and by reducing our military's
expenditures on the full costs of energy over the long term?
______
Questions for Justin Wu From Senator Murkowski
energy costs as a factor of competitiveness
Question 1. For all the talk of China's advances in clean energy
manufacturing, the country is struggling mightily with environmental
challenges. China has long since passed the United States in total
greenhouse gas emissions and approximately one quarter of its water
resources have been deemed unsafe. As I mentioned in my opening
statement, the country's solar panel factories don't tend to run on
solar power. The unfortunate irony of all this is that America has
often relied upon the cheaper, dirtier manufacturing practices of China
in order to affordably comply with requirements we've imposed on
ourselves for cleaner, pricier energy here at home.
a. How significant is the role played by the cost and
availability of energy in the United States' competitive
position, compared to China's?
definition and outsourcing of green jobs
Question 2. There was a bit of renewed interest in ``green jobs''
recently, when an administration witness testified that this category
of employment includes everything from college professors and antique
dealers to bicycle repair clerks and used record shop employees. In
addition to these broad definitions, others have said that green jobs
``can never be outsourced.'' Together, these claims have created a lot
of confusion about--and, frankly, mistrust of--the pitches that have
been made in support of stimulus spending and other activities.
a. How would each of you define the term ``green job''--or do
you think we should even have a separate category for them--and
do you think ``green jobs'' are any more or less susceptible to
outsourcing than regular jobs?
Questions for Justin Wu From Senator Cantwell
Question 1. As the top two energy consumers and greenhouse gas
emitters in the world, I believe the United States and China have a
tremendous opportunity to work together to solve their shared energy
and environmental challenges. China is investing heavily in clean
energy and that should be a huge market opportunity for the United
States.
The scale of their growth can be mind-boggling. China attracted
$45.4 billion worth of clean energy investments in 2011. And that's
going to continue. According to the International Energy Agency (IEA),
to match its rapidly growing demand China needs to invest $3.7 trillion
by 2030 to build over 1,300 Gigawatts of new electricity generating
capacity. That's more than the total current installed capacity in the
United States!
Clearly the U.S. has much to gain from cooperating with China on
clean energy. Over the next decade, the Chinese government plans on
spending $1 trillion to expand their railway network. The country will
also build the equivalent of the United States' entire building stock
in the next twenty-five years. Already in China today, some of the
world's largest wind farms deliver power to cities over smart grid
enabled, ultra-high-voltage long-distance transmission lines. China's
vehicle mileage standards are higher than even our recently updated
CAFE rules.
As the world's fastest-and largest-growing energy market, China is
an ideal testing ground for scaling up and commercializing clean energy
technologies. Combining our two energy markets increases economies of
scale to bring down costs for consumers in both countries.
I see huge opportunities for U.S. technology exporters arising from
a more cooperative relationship with China on clean energy because this
is critical for our mutual efforts to produce clean abundant energy,
mitigate climate change, and meet our long term emissions target. While
we will certainly have to compete with each other, I think we need to
follow what some call ``co-opetition.''
a. Do you agree that there is much more to gain for both the
US and China from a cooperative framework on our mutual clean
energy interests?
b. How would the witnesses characterize the extent of
overlapping interests within the American and Chinese markets
for clean energy?
Question 2. Senator Murkowski and I sent a letter to President
Obama with 13 other Senators urging him to strengthen cooperation with
China on clean energy technology development and deployment. I was very
pleased that Presidents Obama and Hu agreed on a clean energy package
that included several measures to advance our relationship with China.
Many experts have recommended keeping pressure to open markets and
to create an integrated US-China market for clean energy technologies.
I introduced a Senate Resolution calling for the U.S. to work on
eliminating tariff and non-tariff barriers to clean energy goods and
services.
For the last several years, the United States and European Union
have tried to eliminate tariffs and trade barriers to clean energy and
environmental goods and services at the World Trade Organization (WTO).
However, talks have stalled.
I think we need to try harder. Hundreds of billions of dollars in
exports of clean energy and environmental goods and services are needed
to get us to a clean energy future. But these tariffs and other trade
issues are slowing us down and harming what could be a tremendous trade
opportunity.
a. Could eliminating tariffs and non-tariff barriers to trade
in clean energy and environmental goods and services be
beneficial to both countries?
b. What particular mechanisms can we use to eliminate
existing tariffs and non-tariff barriers on clean energy
technologies?
Question 3. Despite some of the recent news stories and trade
complaints, all is not wrong with our clean energy relationship with
China.
Emerging clean energy technologies are becoming increasingly
competitive in the marketplace. For instance, solar power is now
competitive with daytime retail power prices in a number of countries.
Last month Bloomberg New Energy Finance released a report finding that
average solar PV module prices have fallen by nearly 75 percent in the
past three years. That same Bloomberg report found that these recent
reductions in PV prices are likely to be sustainable, as they are
primarily a reflection of reductions in manufacturing costs. Lowering
the cost of clean energy, such as solar, is exactly what we need to be
doing.
The affordability of solar energy has stimulated business
investment and created jobs in most of the industry. Although much of
the focus on solar energy has focused on one sector of the industry--
manufacturing solar panels--it only accounts for roughly 5 percent of
solar jobs in the United States. Over half of the jobs in the solar
industry involve designing, installing, and maintaining solar energy
systems.
I am concerned about the recent trade complaints and their effect
on the over 2,000 solar employees in Washington state. Having the 12th
largest solar workforce in the nation, mostly in other sectors of the
solar industry, I think we need to be weary of the unintended
consequences. Our trade actions could lead to retaliation on our own
successful polysilicon industry, for example.
In my home state, REC Silicon has worked very hard to innovate and
cut costs and has become the leading low-cost supplier of polysilicon
in the world. Trade retaliation from China could endanger roughly 860
American manufacturing jobs that REC Silicon provides, and up to 49,589
jobs nationally.by 2014, according to a recent Brattle Group analysis.
My experience at a technology company taught me that innovation,
scale, and American entrepreneurship will always figure out how to
drive down costs over the long term. We will win with open markets, and
that's why we need to continue pressing for open markets for clean
energy rather than imposing new tariffs.
a. Do you believe that the final result of these recent trade
cases will be good for our clean energy industries as a whole?
b. Do escalating trade complaints on all sides endanger
growth, investments, and jobs in emerging clean energy
industries?
Question 4. While I am glad to see that the US led the world in
private clean energy investment last year, this is just one inning of a
long series. I am frankly concerned that we cannot sustain this
leadership with the policies we have in place today--even if we extend
all of the clean energy tax incentives later this year.
Pew recently profiled the national energy policies by country in
its report ``Who's Winning the Clean Energy Race.'' Of the eight key
national clean energy policies listed in these country profiles, the US
only has three in place--three of the eight--and those include clean
energy tax incentives, which we still need to extend, and government
procurement, which is increasingly under political attacks. China, in
contrast, has six of the key eight national policies in place. And many
of our European competitors (including Germany, France, the United
Kingdom, and Italy) also have six or more of these critical policies.
This policy gap should be a call to action. We need to continue
moving forward, not backward. We need to be working on more aggressive
policies to seize this enormous global clean energy market opportunity
rather than debating the ones we've already passed on a bipartisan
basis.
While I have long advocated for bilateral clean energy cooperation
with China, I also want to be sure that the United States is the
world's leading supplier of clean energy technologies to meet the
exploding world demand.
a. In terms of our international competitiveness going
forward, what sort of incentives are in place in China to
promote clean energy development and deployment and how do they
compare to the U.S. from your perspective?
b. Do you believe that if we fail to create the right
policies and investment incentives at home, we'll miss out on
lucrative opportunities for global leadership in clean energy?
c. Wouldn't placing a clear price on carbon be one of the
policies that would spur our clean energy industries?
Question 5. Until the beginning of this Congress, there was an
overwhelming consensus that clean energy incentives were a good thing.
They worked and created jobs. Just a few years ago, the Cantwell-Ensign
bill--which extended many key clean energy credits and established the
eight year ITC--passed the Senate by a vote of 93 to 2.
There has been little success this Congress in reaching across the
aisle to get these credits extended--or to reform the existing credits
to make them more effective. It has been an uphill battle, and
certainly not for a lack of trying.
So what's changed? Why are credits which used to enjoy fairly broad
support become so partisan? Many of those in Congress who have railed
against our attempt to build this new industry have petitioned for
clean energy projects for their constituents. And polling from Yale and
George Mason University show that they oppose the majority of Americans
who want to develop clean energy and invest in research.
So how do we get back on track? As many of you know we have already
lost a lot of ground. Many important energy credits have already
expired. Or in the case of wind, effectively expired given the placed-
in-service requirement. In the short term, I believe that we must
extend these credits to maintain the American clean energy jobs that
they support.
a. Assuming comprehensive tax reform is not happening this
year, will jobs be lost if we fail to extend these expiring
credits that industries have been banking on?
b. On the flip side, will businesses create jobs if these
provisions are extended for a predictable period of time?
a. As Congress begins to grapple with a major reform of the
tax code, would
c. you be willing to trade the certainty of multiyear
extensions for a sunset date for all energy tax subsidies?
d. Do you think it's fair that some energy sources benefit
from permanent subsidies and others have to deal with the
uncertainty of short-term extensions?
Question 6. I want to ask about the scale of advanced energy R&D
investment that we need. As you are surely well aware, the energy
sector itself invests a far smaller fraction of its revenue in research
and new technology development than many other sectors of the American
economy. According to one analysis from the Breakthrough Institute, the
energy sector invests just two tenths of one percent of annual revenues
in R&D, an order of magnitude lower than the national average across
all industries (2.6%) and two orders of magnitude lower than leading
innovation-driven industries such as biotech, semiconductors or
information technology.
The health care sector invests a full 20% of its revenues in R&D
and the federal government adds to this with over $30 billion annually
in health care research spending through the National Institutes of
Health (NIH). Yet despite the far lower levels of private sector energy
research spending, the federal government invests just a few billion
annually in energy R&D, mostly through the Department of Energy (DOE).
With private sector investment levels like these, there seems to be
a strong need for public investments that can fill the gap and help
drive the innovation and advanced energy technologies we need. While we
certainly have to make some difficult choices when it comes to getting
our fiscal house in order, I do not believe critical investments in R&D
are the path to a brighter fiscal and economic future. If securing our
energy independence, averting climate change and creating new energy
industries and jobs are true national priorities, shouldn't our energy
R&D budgets be more on the scale of NIH?
Question 7. Biomass is one clean energy sector in which the United
States is second to none. We account for roughly 23 percent of the
world's installed capacity, compared to China's 7 percent share.
I do not believe this is a coincidence. The long-term market signal
that the Renewable Fuel Standard (RFS) sends reduces the uncertainty
and unleashes investment. This is precisely what is needed in other
sectors--a long term signal that unleashes investment in clean energy.
I am proud that my state is at the forefront of figuring out
alternative ways to produce jet fuel from a variety of non-petroleum
domestic sources. A broad coalition of researchers, farmers,
entrepreneurs, fuel producers, jet makers, airports, and others are all
working together to figure out the best way to make green jet fuel.
They believe that homegrown jet fuel alternatives will mean real
economic growth in Washington state and can create jobs around the
nation. They know that instead of sending billions overseas each year
for foreign oil, we should be figuring out ways we can keep that money
here at home, supporting our economy and workers.
The U.S. military is also leading the way on this opportunity. The
U.S. Air Force is currently testing different blends of biofuels and
jet fuels, and hopes to acquire 50 percent of its domestic aviation
fuel from alternative fuel blends by 2016. The Air Force is the
nation's largest user of energy, spending about $8 billion on fuel and
electricity every year--about 84 percent of that goes to fuel our
aircraft.
The U.S. Navy is also moving forward on biofuels. In an article in
the Washington Post, Secretary of the Navy Ray Mabus said that, ``[t]he
main reason we're moving toward alternative fuels in the Navy and the
Marine Corps is to make us better war fighters.'' Secretary Mabus went
on to say that having a Marine either wounded or killed for every 50
convoys of fuel brought into Afghanistan is ``just too high a price to
pay.''
a. Do you believe that the Department of Defense can play an
important role in facilitating our emerging domestic biofuels
industry?
b. Would these efforts advance our national security, both by
decreasing our energy dependence and by reducing our military's
expenditures on the full costs of energy over the long term?