Is America Losing Its Edge in Clean-Energy Tech?

Amid all the concern over America’s competitiveness, it’s easy to overlook a sector where many U.S. companies are outperforming their overseas counterparts: Clean-energy technologies. These are the products and infrastructure elements such as solar panels and smart electricity grids that are reducing our reliance on petroleum and coal. This healthy, innovative sector holds out vast promise, but missteps now could cost the United States its lead.

The clean-energy field is evolving rapidly. In just the past few years, there has been a global boom in the wind and solar industries, with wind power’s generating capacity expanding dramatically and companies competing to offer free solar panels to households. The United States has played an enormous role in the expansion of these segments and is the world’s largest generator of renewable energy outside of conventional hydropower. That’s been due to the country’s unique combination of a large energy market, advanced research universities, innovative private-sector laboratories, an abundance of entrepreneurs, large pools of risk capital, and a historically supportive policy environment that has created incentives for innovation in — and deployment of — clean-energy sources and technologies. The U.S. has underwritten much of the technological innovation behind clean energy’s progress.

The pace of innovation is one reason prices have dropped dramatically: Putting solar panels on American roofs costs, on average, less than half of what it did just two years ago, in part because a Moore’s Law-like innovation cycle is unfolding in photovoltaic technology. The price collapse is great for consumers and utility companies, and it raises the prospect that American energy costs might someday reverse course, a turn of events that would do wonders for the nation’s productivity. Declining energy prices would also help raise U.S. competitiveness in the sense that they would boost consumers’ standard of living while increasing companies’ ability to succeed globally.

American leadership in the clean-energy sector extends beyond solar and wind to natural gas, which is much cleaner than other carbon-based fuels and is abundant in the United States. Revolutionary advances in the home-grown technology known as fracking — injecting high-pressure fluids to crack deep rock formations embedded with previously unrecoverable oil and gas — have unlocked huge sources of natural gas throughout the United States, from Pennsylvania to Colorado. Although there are legitimate concerns over possible groundwater contamination if the technology isn’t implemented and regulated properly, fracking has caused natural-gas prices to plummet to levels unimaginable six years ago. Fracking technology has been entirely funded, researched, and commercialized in the United States, with strong federal support, and is now being exported worldwide.

But with other countries working hard to develop their own clean technologies, the U.S. could lose its edge quickly, both in innovation and deployment. American dominance is threatened on a number of fronts, most notably in the areas of clean coal, solar power, and the lack of carbon constraints in our energy policy:

Clean coal: Although critics may label it as an oxymoron, clean coal, in which carbon dioxide and other pollutants from coal power plants are captured and sequestered in underground formations or used to grow biofuels, is not only a possibility but a necessity for meeting the world’s growing energy demands in an environmentally and economically sustainable manner. Global coal resources are enormous and conveniently located in the heart of high-energy-consuming areas such as China, Southeast Asia, and the United States. Cost-effective clean-coal technology will be a key competitive advantage, allowing countries to exploit their low-cost energy resources without widespread negative environmental consequences. But as James Fallows eloquently pointed out in The Atlantic, the U.S. is quickly losing any limited advantages it may have had in this sector because it has failed to provide the right market signals to encourage deployment of clean-coal technology. China may soon be positioned to get ahead of the United States and control the patents in clean coal — witness Duke Energy’s recent signing of an agreement to study possible use of Chinese carbon-capture-and-storage technology on a coal plant in Indiana.

Solar panels: The crash in prices for photovoltaic solar panels has been accelerated by state-supported Chinese manufacturers’ practice of dumping cheap panels on the market — a shock for U.S. manufacturers, whose business models have been based on high margins. American companies have had to slash their margins to compete, and their share prices have been hammered as a consequence. That dynamic was behind the demise of California-based solar-panel maker Solyndra, which filed for bankruptcy barely a year after receiving nearly half a billion dollars in federal loan guarantees. Now that Taiwanese semiconductor giant Foxconn has announced plans to make solar panels, the carnage could continue. To restore their competitive advantages, American manufacturers will be forced to create panels that are much more efficient or to move upstream into the higher-volume business of developing large-scale solar power plants.

Carbon constraints and energy policy: The United States has failed to create effective incentives for reducing the climate impact of its energy infrastructure and lessening its costly dependence on foreign energy. Europe, Australia, Japan, and now even China and India are way ahead of the U.S. in establishing policies that impose a cost on greenhouse-gas emissions. Such policies put a price on carbon emissions and provide an impetus for growth in the clean-energy industry as well as for more-efficient use of energy resources.

American policy makers have been justly criticized for failing to adopt an attitude of urgency on climate change, but equally important is fostering a sense of urgency on clean-tech innovation and deployment. American companies’ competitive advantages in this field are still substantial, but given the intensity of global competition, they could disappear in a puff of smoke.

by Alex Rau, HBR

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