Increasing competitiveness through clean energy: Taking on China’s broad-based effort to be the world’s clean energy leader

I hope you have been watching panel 3 of today’s Senate climate bill hearings. It has been incredibly informative about the international competitiveness issue, especially China’s aggressive efforts to become the clean energy leader and the complete turnaround in the thinking of Chinese business and policymakers since Chinese President Hu Jintao’s UN speech (see “Are Chinese emissions pledges a game changer for Senate action?”). I’ll do a post on it later. Here is the testimony of CAP president and CEO John Podesta. I have reprinted the extensive discussion of China’s efforts to forever seize leadership in clean energy, which we can only match if we pass the clean energy bill.

Madam Chairman and members of the committee, thank you for inviting me to testify before you this afternoon. I am very pleased to have this time to share my thoughts on the Clean Energy Jobs and American Power Act, S. 1733, and its power to boost our economy’s competitiveness.

The Senate global warming debate has focused on pollution limits and timetables, carbon markets and allocations. But we have lost sight of our principal objective: building a robust and prosperous clean energy economy. Moving beyond fossil fuel pollution will involve exciting work, new opportunities, new products and innovation, and stronger communities. Our current national discussion about constraints, limits, and the costs of transition overshadows the economic opportunity of clean energy investments. It is as if, on the cusp of the Internet and telecommunications revolution, debate centered only on the cost of digging trenches to lay fiber optic cable.

Many of our economic competitors see investments in clean energy technologies as key to their long-term sustainable economic growth. Germany, Spain, Japan, China, and even India are building the foundation for a prosperous low-carbon future. Many leaders in the American business community realize the competitive threat to the United States if we do not join other nations by investing in our clean-energy sector. Venture capitalist John Doerr and General Electric CEO Jeff Immelt warn, “There is still time for us to lead this global race, although that window is closing. We need low-carbon policies to exploit America’s strengths””innovation and entrepreneurs.”To gain the lead in the clean-energy race””as we have done in other sectors””we need to reduce our global warming pollution as the Clean Energy Jobs and American Power Act requires. The bill puts a price on carbon pollution that recognizes the harms and costs of global warming, and it would level the playing field between the prices of dirty and cleaner energy sources. The Clean Energy Jobs Act, combined with companion measures before the Senate, would create a clean-energy investment program that would cut greenhouse gas pollution, spur clean-energy technology innovation, create new jobs, and increase American energy independence.

Here is Podesta’s discussion of China’s astonishingly broad-based clean energy efforts (footnotes are here):

Two months ago, I led a small American delegation to China that included Senator Tom Daschle, Ambassador Wendy Sherman, MIT Professor John Deutch, former Deputy Secretary of Defense Rudy deLeon, and SEIU President Andy Stern. Our group spent three full days speaking with some of the senior-most government officials, leading academics, and members of the financial industry about a range of issues of utmost importance between our two countries.

These discussions made us realize that climate change and clean energy rank among the very top issues of importance to China’s social and economic development challenges. China fully grasps the strategic economic opportunity that the clean-energy sector represents. As Li Keqiang, first vice premier of China and Premier Wen Jiabao’s deputy, has publicly said on various occasions, the development of new energy sources represents an opportunity to stimulate consumption, increase investments, achieve stable export opportunities, and adjust China’s energy structure, all while enhancing its internationaleconomic competitiveness.13

China is also diversifying into clean energy sources for energy security concerns. It already imports almost 50 percent of the oil it consumes, and for the first time in 2007, started to import coal. With China’s consumption expected to grow from eight million barrels of oil a day currently to 20 million barrels of oil a day by 2030, its demand for global oil resources is bound to rise steadily and drive oil prices up.14 It has started to build a strategic oil reserve, encouraged its state-owned energy companies to invest in overseas energy assets, and sealed multibillion dollar oil and gas supply contracts withcountries including Russia, Brazil, Iran and Venezuela.15 But Beijing knows that a reliance on fossil fuels is not a complete solution, and is thus making heavy investments in domestic sources of clean and renewable energy.

Over the past few years, China has quietly made significant investments into low-carbon infrastructure.16 Although reported numbers vary, allocations to clean energy and sustainable development account for 14.5 percent of China’s $586 billion economic stimulus in 2008, while the proportion is as high as 34 percent if supporting rail and grid infrastructure is included.

China is making steady progress to meet its goal to reduce energy consumption per unit of gross domestic product by 20 percent of 2005 levels by 2020. It has steadily grown its wind power industry as part of its long-term effort to increase its share of non-fossil fuel power to 15 percent of its overall energy mix by 2020. China’s installed wind power capacity has doubled for each of the past four years, and this year it has launched major investment programs in solar photovoltaic installation to catalyze the domestic solar market.

The rapid growth in renewable energy deployment in China has compelled its policymakers to revise their 2020 target for wind power from 30 gigawatts to 100 to 120 gigawatts, and for solar power from 1.8 gigawatts to 10 gigawatts. China also plans to make significant investments in nuclear energy””$130 billion over the next 15 years. It plans to expand its nuclear capacity from 11 gigawatts to 40 gigawatts in 2020. China had nearly twice the amount of installed renewable energy capacity, excluding large hydro, compared to the United States by the end of 2008 (76 gigawatts versus 40gigawatts).17

China is also an emerging world leader in ultra-high-voltage, or UHV transmission lines, with more than 100 domestic manufacturers and suppliers participating in the manufacturing and supply of UHV equipment. A transmission line from Shanxi to Hubei boasts the highest capacity in the world, and is able to transmit 1,000 kilovolts over 640 kilometers. The State Grid Corporation of China will invest $44 billion through 2012 and $88 billion through 2020 in building UHV transmission lines. China will unveil in the coming months plans to build an extensive smart grid by 2020.

As the world’s largest auto market, China is serious about making the clean-energy vehicles of the future. They have slashed gasoline subsidies and increased taxes on cars with bigger engines while reducing taxes on smaller cars. They are spending $2.9 billion on developing energy efficient vehicles. China wants to raise its annual production capacity of hybrid and all-electric cars and buses to 500,000 by the end of 2011. This would account for only 5 percent of total car sales, but is up from only 2,100 in 2008.

Thirteen cities will roll out pilot subsidy programs for the purchase of “new energy vehicles,” ranging from $7,350 for small hybrid passenger cars to $87,700 for large, fuelcell-powered commercial buses. The subsidies will target public-sector purchases such as public transportation, sanitation, and postal services. The State Grid plans to deploy pilot networks of charging stations for electric cars in Beijing, Tianjin, and Shanghai, while Nissan-Renault plans to help establish a pilot charging infrastructure network in Wuhan.

China’s emerging leadership in electric vehicles is based on its innovation in energy storage technology. The world’s first mass-produced, plug-in hybrid is the F3DM, launched by China’s BYD Auto last December. Just six years ago BYD Auto was only in the business of making batteries for mobile phones. The F3DM sells in China for approximately $22,000, and the founder of BYD, Wang Chuanfu, is now China’s richest person.18

During our delegation’s visit to Beijing, we rode on a high-speed train to Tianjin, traveling 65 miles in just 30 minutes””less than half the time compared to conventional rail. This is part of the largest railway expansion in history. China plans to spend almost $300 billion expanding its railway network from 78,000 km today to 120,000 km in 2020. Of this, 13,000 km will be high-speed rail. The 1,300 kilometer Beijing-Shanghai line is under construction and will reduce travel time between those destinations from 14 hours to 5 hours when it opens in 2013. This will attract an estimated 220,000 daily passengers and should dramatically reduce air travel between the metropolises. What’s more, China is poised to have the world’s largest network for intracity urban rail transit. About 2,100 km of railway lines will be laid and operational by 2015 in 19 cities.

Ten cities currently have 29 urban rail routes, totaling 778 km, and 14 cities are building 46 urban rail lines, which total 1,212 km. Aside from infrastructure, China is also leading the way in manufacturing clean-energy technologies and products. It accounts for nearly 40 percent of the global production of solar photovoltaic panels. Historically, the vast majority of this production has been exported, but as described above, a push to develop the domestic solar market will mean that more solar panels will stay in China to produce clean electricity for the benefit of its own people.

China’s rapid wind power expansion has also created a vibrant wind power manufacturing sector. Where some five years ago there were virtually no domestic manufacturers of wind components, now there are as many as 70 to 100 companies, with Sinovel, now the seventh largest in the world, producing one thousand 1.5 MW turbines in 2008 and with a capacity to produce twice this quantity. Though the first priority of these companies is to satisfy the growing domestic market, they are starting to explore international markets.

China’s program to increase renewable energy and efficiency will also lower its greenhouse gas pollution. The Washington Post noted that “last week, the Paris-based International Energy Agency said the efforts are starting to pay off”¦[and] lowered its estimate of future Chinese greenhouse gas emissions.”19 China has also signaled for the first time that it intends to manage carbon emissions growth. Last month, President Hu Jintao announced that China will reduce its carbon emissions per unit of GDP by a “notable margin.” How quickly such a deceleration leads to a peaking of China’s total emissions depends on the specific carbon intensity targets, but senior Chinese officials have recently given public assurance of its desire to peak its carbon pollution “as early as possible.”20

All these actions send signals to the international business community. According to a recent report, the clean tech market in China alone has a potential to develop into a $500 billion to $1 trillion per year market by 2013.21 Enterprising American companies such as First Solar and American Superconductor have sensed the economic opportunity by investing directly in the Chinese clean energy market or, in the case of Duke Energy, partnering with Chinese companies to develop clean-energy projects here in the United States.

Make no mistake about it””China wants to lead the world in the development and production of clean-energy technologies for use at home and abroad. The United States should assume that China is in the clean-energy technology race to win.