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Ensuring and Enhancing U.S. Competitiveness While Moving Toward a Clean-Energy Economy

Testimony Before the Senate Committee on Environment and Public Works

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SOURCE: CAP/Lauren Ferguson

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Madam Chairman and Members of the Senate Committee on Environment and Public Works, good morning and thank you for this opportunity to discuss how the U.S. economy can stay internationally competitive while moving toward a clean-energy economy. My name is Julian L. Wong and I am a Senior Policy Analyst at the Center for American Progress Action Fund. I have been specifically asked to describe what China is doing to invest in building a low-carbon economy as a driver for future economic growth, something I am pleased to share with the committee after spending most of last year in China as a Fulbright Scholar affiliated with Tsinghua University where I actively researched China’s policy and private sector initiatives in renewable energy and interacted daily with thought leaders who are shaping China’s clean-energy agenda.

It may seem paradoxical that a country said to be building an average of two medium-sized coal power plants a week is also laying the foundation for a clean-energy economy. But that is exactly what they are doing. Thomas Friedman tells a story in his latest book Hot, Flat and Crowded, about how when he was on a visit to China, speaking to Chinese students about the need for China to act on their energy and environmental problems, the students would inevitably respond that China should have a right to develop just like the West has done for the past 150 years. Friedman’s response would be something like: “Sure, take your time, grow as dirty as you want because the United States will just need five years to build all the clean-energy technologies that China will need when it starts choking on its pollution. Then, the United States will sell all the clean technologies that China needs.”

The irony is that, as Friedman noted in a column earlier this month, the Chinese seem to have completely grasped the point he was making to those Chinese students. It is China, and much less so the United States, that is now laying the foundation for a new clean-energy economy. It has emerged as a world leader in solar and wind component manufacturing and ultra high voltage grid transmission technology, as well as the development of electric vehicles and their associated charging infrastructure.

China recognizes the full threats of climate change and the limits of its own fossil fuel supply. It announced a National Climate Change Program in 2007, subsequently created an office for climate change within the National Development and Reform Commission—its top economic planning agency—and last year released a very comprehensive white paper on climate change outlining the threats and necessary responses that China will face.

China may have moved slower to acknowledge the threats of climate change than many other countries, but once it did, it acted swiftly and decisively, not only to address the need for action to slow down emissions from a business-as-usual scenario, but also to seize the energy opportunity to create a new pillar of prosperity. As Li Keqiang, first vice premier of China and Premier Wen Jiabao’s deputy, has 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 building international economic competitiveness.

China has, to that end, set up ambitious targets for itself in energy efficiency and renewable energy development across various sectors. And the government has now indicated that it is poised to unveil a new long-term stimulus package specifically for new energy development that will total as much as $440 billion over the next decade and include additional large investments in the wind and solar sectors. A comprehensive list of China’s efforts to build a clean-energy economy is listed in a recent article that my colleague Andrew Light and I published last month, included in this written testimony as Appendix I. I wish to discuss today three noteworthy aspects of China’s green leap forward toward a new energy economy that emphasize or supplement what is covered in that more extensive list.

Clean-energy infrastructure

China has set an aggressive target of achieving 15 percent of its electricity production from clean-energy sources by 2020. This initiative has already spurred entire new industries, particularly in wind and solar. The wind industry has been growing at over 100 percent per year for four years running. There were virtually no Chinese companies that made wind turbines five years ago, but now there are now more than 40. China now has the fourth largest installed capacity in the world—the United States is number one—but many are projecting that China will eclipse the United States as the largest installer of wind power on an annual basis this year.

China’s solar sector is equally impressive. China makes 40 percent of the world’s solar photovoltaic panels, almost all of which it exports. But it recently enacted a national incentive program for roof top solar applications and has begun awarding tariffs for utility scale ground mounted solar power plants, actions that are kickstarting what is shaping up to be a vibrant domestic solar market. China is also the world’s leader in solar thermal water heating, holding a 60 percent market share. Goldman Sachs invested recently in a Shangdong province-based company, Himin Solar, an industry leader that will soon start exporting their solar water heaters to the United States.

In terms of infrastructure, China is investing $88 billion through 2020 to build high voltage transmission lines, in large part to tap into these clean renewable sources located away from the cities. Its economic stimulus package also provides significant investments in rail infrastructure; although not necessarily “green” per se, such logistics infrastructure supports enhancing supply chains and building a low-carbon manufacturing economy. By the end of 2008, China had installed 76 GW of renewable energy capacity, which is nearly twice the United States’ 40 GW. And China is just getting started.

Energy efficiency

China has embarked on what must be acknowledged as one of the most aggressive energy conservation policies in the world. By 2010, China expects to have reduced its energy consumption by 20 percent per unit of GDP compared to 2005 levels. According to analysis by Lawrence Berkeley National Laboratory, such efforts, if sustained, will start to yield reductions from a business-as-usual trajectory of over one billion tons of carbon dioxide emissions per year by 2010.

China has also identified its top 1,000 energy consuming enterprises, which account for a whopping one-third of all of China’s emissions, and it has set binding energy efficiency targets for each of them. The program is on track to realize a savings of 100 million tons of coal equivalent by 2010.

Even though coal remains a dominant source of electricity in China, and the country continues to build new power plants, there is a policy to shut down smaller and inefficient coal plants as larger and more efficient ones take their place. China shut down 34 gigawatts worth of small, inefficient plants between 2006 and 2008, and plans to close another 31 GW (or more than 150 200-MW coal plants, or about one such plant a week) over the next three years. This relentless policy of “opening-the-large-and-closing-the-small” has increased Chinese coal plants’ average efficiency from 370 grams of coal per kilowatt hour of electricity generated in 2005 to 349 grams in 2008. And new plants such as the four units of 1 GW ultrasupercritical coal plants in Yuhuan can generate a kilowatt hour of electricity with just 283 grams of coal. By contrast, existing coal plants in the OECD average around 320 grams per kilowatt hour. The International Energy Agency has been compelled because of these rapid gains in efficiency to downward revise is projections of annual greenhouse gas emissions growth for China from 3.2 percent to 3 percent.

And in the auto sector, China’s fuel economy standards provide an average of over 36 miles per gallon, which is already higher than the new standards that President Barack Obama announced in May that will help U.S. fleets reach 35.5 miles per gallon by 2016. Plans to raise China’s standards to as high as 42 miles per gallon by 2015 are reportedly under serious consideration. The drive toward efficiency is spurring research and development of new drive-train technologies, including technologies for hybrid, plug-in hybrid, and pure electric vehicles.

Low-carbon development zones

I have witnessed firsthand how the drive toward a low-carbon economy is transforming China’s cities. Baoding, a city 140 kilometers southwest of Beijing, is an excellent case in point. I had the opportunity to visit this once sleepy agricultural-based town, which has transformed itself into a vibrant high-tech manufacturing hub for clean-energy products and technologies. It is home to one of the world’s largest solar companies, Yingli Green Energy, and many other manufacturers of components for the wind and solar sectors, numbering 150 businesses in total. Twelve percent of Baoding’s gross domestic product was derived from clean tech manufacturing in 2007, and the city has a long-term target of raising this percentage to 40 percent by 2050.

Baoding is not the only city pursuing a low-carbon growth strategy. I also visited the up and coming industrial hub of Tianjin, the site of a 30 square-kilometer eco-township that is integrating the latest designs in low-carbon sustainable living measured by tracking 22 key performance indicators and will be home to 350,000 residents within 10 to 15 years. The project is being implemented in collaboration with the Singapore government and has already broken ground. Tianjin is also a major wind manufacturing base that has attracted international names such as Vestas from Denmark and Gamesa from Spain to set up manufacturing plants. I also got to visit in Tianjin new dynamic Chinese enterprises such as Lishen, a lithium-ion battery maker, and Qingyuan, a manufacturer of electric vehicles.

Baoding and Tianjin are living examples of the future—the future of a new energy economy.

Implications for the United States

The United States may have won the race to the moon, but we’re losing the race for a sustainable Earth. And we’re not only behind China, and therefore losing access to valuable export markets, but also losing to countries such as Germany, Spain, and even India, which has recently set the world’s most ambitious solar energy target of 20 GW by 2020.

Opponents to climate action often cite the costs of legislation. These people are confusing cost with investment. Costs are incurred when the planet heats up, when the increased frequency of drought and floods wreak havoc to our food systems, when our rivers run dry. Those are the true costs—with no paybacks—that come with inaction. When we put money into research and innovation on clean technologies, and into our people in the form of education and workforce development, that is an investment that will provide returns many times over and truly enhance our competiveness.

The good news is that the United States has all the right ingredients to turn the corner and regain global leadership. We have always been a leader in technological innovation; we have the world’s most robust network of research and educational institutions, and a hardworking and productive work force. And now, we have an amazing opportunity before us to adopt a policy framework that will channel new investments into precisely these job creating clean-energy sectors. We should not be timid about climate legislation. Michael Porter of Harvard Business School, the guru on competition theory, has said:

Properly designed environmental standards can trigger innovation that may partially or more than fully offset the costs of complying with them. Such “innovation offsets” can not only lower the net cost of meeting environmental regulations, but can lead to absolute advantages over firms in foreign countries not subject to such regulations. Innovation offsets will be common because reducing pollution is often coincident with improving the productivity with which resources are used… By stimulating innovation, strict environmental regulations can actually enhance competitiveness.

With innovation and competitiveness comes job creation. A report by the University of Massachusetts and the Center for American Progress says an investment of $150 billion in clean energy—an amount that will be achievable through the combination of the American Recovery and Reinvestment Act of 2009 and the American Clean Energy and Security Act (ACESA) that just passed the House—will create 1.7 million new net jobs in the clean-energy sector.

ACESA is not just a “cap-and-trade” bill. ACESA not only attaches a price on carbon and sets renewable energy and energy efficiency standards that create signals to spur new energy investments; it also contains supporting mechanisms such as the Green Bank to finance emerging clean-energy companies, and provides financial incentives for small and medium sized manufacturers of clean-energy technologies and their components up their supply chains to ensure that new jobs stay within the United States and are not outsourced. ACESA is an integrated energy bill that provides us the unprecedented opportunity to lay the foundation for a prosperous clean-energy economy, but only if the House legislation has been met with a strong positive response from the Senate.

President Obama has said many times that, “The nation that leads the world in creating a new clean-energy economy will be the nation that leads the 21st century global economy.” The United States needs a bold vision and to seize the energy opportunity and be the nation that leads.

Thank you for listening and I look forward to your questions.

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