The Missing Link In Clean-Energy Policy

There was a certain irony in the U.S. decision to hold the recent G-20 meeting in Pittsburgh to show off the former steel town’s success at creating green jobs. Pittsburgh transformed itself from a polluted and declining industrial metropolis into a clean and booming green one by crafting deliberate economic development policies to support the growth of clean-energy industries. The irony is that the United States—unlike most other G-20 members—still needs a comprehensive national clean-energy economic development policy.

The American Recovery and Reinvestment Act could be considered a step toward a national economic development policy to promote a clean-energy economy. But the Recovery Act was merely a short-term approach designed to lift the U.S. economy out of recession.

What would it look like if the U.S. had a long-term national economic development policy to grow the clean-energy economy?

Most proposals for a national clean-energy economic development policy start with the need for federal policies that increase demand for clean energy. These might include putting a price on carbon (through a carbon tax or “cap and trade” program), adopting a national renewable energy standard, implementing national building and appliance energy efficiency standards, or encouraging small-scale renewable energy projects through a national feed-in tariff.

National energy policies should not only send a strong signal that the U.S. economy is set to embrace cleaner technologies; they should also be long term. Brian Sager, co-founder of Nanosolar, a solar power technology company, believes current U.S. clean-energy policies have created a difficult environment for businesses: “One thing we’ve been lacking in the U.S. is stable policy. In Germany, feed-in tariffs have been very stable. In the U.S. there is a lack of harmony from year to year, so there’s inherently a higher level of risk. The warranty for a solar panel is 25 years; that’s the kind of time-frame we’re talking about.”

Many experts believe the federal government should offer incentives to persuade clean-energy companies to set up facilities in the United States, a practice that is commonplace in other parts of the world. “Many countries offer financial investment incentives … but in the U.S., we don’t,” said Clyde Prestowitz, president of the Economic Strategy Institute and a former Reagan administration trade and investment counselor. “The issue of investment incentives is very important. I think we should try to negotiate some international discipline on investment subsidies (as we’ve already done on trade subsidies). I also think we should have a war chest and use our war chest to match the incentives that are being offered by others to move their production facilities elsewhere in the world.”

Another policy often described as essential to a clean-energy economic development policy designed to support a domestic clean-energy manufacturing industry is a local content requirement. Without such a requirement—also called a “Buy American” policy—most clean-energy manufacturing companies will likely locate overseas.

“First and foremost, we actually have to put a serious buy-American/domestic-content policy in place,” said Bob Baugh, executive director of the AFL-CIO’s Industrial Union Council. “It matters where you make things. In the case of wind turbines and solar, 70 to 80 percent of the cost itself is in the product, not the installation. That means you have to have a strategy and a policy that says you’ll do it here.”

Leo Hindery, chair of the Smart Globalization Initiative at the New America Foundation, also emphasizes the need for a buy American policy, but argues that it could begin with federal government purchases: “We need a buy-American policy that mirrors China’s,” Hindery said. “We have a GDP in this country of about $14 billion. Twenty percent of that comes from federal purchases. We should simply say that the federal government will buy domestically produced goods and services if they’re available. If they’re not available, then you’re allowed to buy them overseas.”

Other policy recommendations to promote clean-energy domestic manufacturing include programs to help U.S. manufacturers become more productive—and thus competitive, and programs to help reconcile supply chain challenges. Susan Helper, an economics professor at Case Western Reserve University, argues that Manufacturing Extension Partnership centers should be given additional funds to help small and medium-sized manufacturers become more productive. Helper cites a 1999 study by Roland Jarmin showing that productivity at firms that received assistance from a partnership center center rose in the range of 3.4 percent to 16 percent more between 1987 and 1992 than productivity at firms that received no assistance.

As Congress debates comprehensive clean-energy and climate legislation, and the issue of green jobs becomes increasingly important, perhaps it’s time for a comprehensive U.S. economic development policy to promote the clean-energy economy. From lithium-ion battery producers to wind turbine component manufacturers, the industries of the clean-energy future need clear direction—and support—from the U.S. government if they are going to be able to compete and thrive in a low-carbon global economy.

This blog post is an excerpt from a longer article, which can be found on the Apollo Alliance website. [1]