U.S. Stimulus Helping Chinese, Spanish Wind Energy Industries
November 3, 2009 - 3:53am ET
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Wind energy is supposed to be able to create thousands of manufacturing jobs, but unfortunately the early wind energy manufacturing jobs financed by U.S. stimulus money have all gone to overseas manufacturers. There are at least three reasons why this happens, some easier to fix than others.
The Easier Problem
First is the problem of U.S. wind-turbine manufacturing capacity. It's tiny.
This could be improved by the adoption of a well-designed feed-in tariff. Feed-in tariffs are where the government sets mandates for renewable energy and supports the purchase of the resulting electricity at a rate that pays for the initial market entry.
Feed-in tariffs are why Spain is one of the countries whose wind turbines are being purchased for installation in the U.S. Also, many countries have preferential purchasing policies at the local level, which don't violate World Trade Organization rules.
Both feed-in tariffs and state or local government 'buy American' policies could be implemented in full keeping with our international trade obligations and we should do so at once.
The U.S. needs to support its own industries, particularly those with significant environmental benefits, without apology.
The Somewhat Harder Problem
The U.S. government has a bad attitude towards manufacturing and has favored the making of money over the making of things for a long time, the more complicated the scheme, the better. And conventional wisdom from the Commerce Department to all the serious business press has held that offshoring and outsourcing US jobs would cause no net changes in the job picture overall, even if there might be an unfortunate backlash tendency among the public.
Indeed, the policy elite seem baffled when people get upset that their mill or factory job disappears and they had to take work stocking shelves at a store that sells the imported version of what they used to make. Politicians appear confused when workers with degrees in computer science react badly to being told to get an education. But their confusion is surely an act.
It's been clear for a while now that many industries leave and don't come back. Manufacturing capacity and know-how is shipped off first, then the high value research and development jobs follow after them.
Retraining, a solution that politicians like to promote along with stern bromides about 'personal responsibility', is only a solution that works if there are comparable jobs to train for. It only works if the finance industry is willing to invest in businesses that hire skilled Americans, and if the tax code stops advantaging companies who keep jobs and profits overseas.
The reality more Americans live with all the time is that their job prospects have gotten worse over the years, with employers and investors increasingly unwilling to share profits with them.
Obama recognized this when he was campaigning and newly elected, saying that he'd stop offshoring tax breaks all the way through the summer. As of the middle of October, business leaders had convinced the president to shelve those plans.
You might hear politicians, business leaders, news anchors and various policy wonks say that outsourcing creates jobs and increases real wages for Americans. This is a lie unless you're referring specifically to the top 10 percent of U.S. income earners, though wage inequality is a problem all around the globe.
Those offshoring tax breaks need to be rescinded, and more, policy makers need to connect start connecting the dots between an economy that makes useful things and one in which ordinary consumers can afford to buy them. One hedge fund manage making a million dollars off an overseas business deal isn't going to generate the same level of beneficial economic activity as twenty manufacturing workers making $50,000* per year, each.
The Very Challenging Problem
This problem is the real sticker, because unlike adjusting our own policies, economy, or leaders' attitudes, this one involves Chinese policy.
Wind turbines require rare earth elements for their manufacture, which make good permanent magnets, and this is also true of many other green technologies. As Keith Bradsher pointed out, "China currently accounts for 93 percent of production of so-called rare earth elements — and more than 99 percent of the output for two of these elements, dysprosium and terbium," and they've been both more tightly restricting exports every year, as well as securing controlling interests in overseas mines.
The Chinese government is well aware that most wealth is created farther down the value chain than simple extraction, that the real money is in processing and fabrication. They would like their people to earn that profit. Considering that I'd like my government to take the same attitude, I can hardly fault the Chinese on that count.
I even hope the Chinese do continue to grow their alternative energy manufacturing for their own domestic market in particular. At present, they're sending over 95 percent of their solar panels to be exported, while opening a new coal plant every 7-10 days.
Yet it significantly disadvantages manufacturing in other countries that the Chinese government won't allow the materials to be sold on the open market like other commodities.
The Obama administration, acting in concert with the European Union, filed a June complaint with the WTO about Chinese export restrictions of raw materials that have driven prices up for the steel industry. It might be a while before we know how that's going to turn out in the end. Perhaps rare earth mineral exports will be a target of future actions, or perhaps more clean, high grade deposits (rare earths are often found in low concentrations and contaminated with radioactive elements) will come to light that the Chinese don't control.
Either way, something's got to give.
A flourishing US wind industry that does more than installation and maintenance will require steady supplies of permanent magnets. Otherwise, they'll end up over the same barrel as Toyota, whose Prius hybrids use 12 kg of rare earth materials per battery and more for the motor, and whose component manufacture they're now under pressure to move to China.
These issues are solvable, but it'll take quite the fire getting lit underneath the US political establishment to get them sorted out.
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