When Jimmy Carter was President, the U.S. was the world leader in solar cells and wind power. Today, most solar cells come from China and only one U.S. wind turbine supplier (GE Wind) ranks in the top ten for wind turbine market share. There is a long, sad story that explains how we got into this state of affairs. This story resembles the same trail of tears as that for numerous manufacturing sectors once dominated by the U.S., including machine tools, semiconductor manufacturing equipment, and consumer electronics: In a nutshell, other nations play by different rules than the U.S. when it comes to international trade. This difference in viewpoints has caused many manufacturers to migrate to countries with policies that stack the deck toward protecting industries residing within their borders.
But we don’t have to cede renewable energy manufacturing to other countries. And we can rectify the situation without paying much attention to labor unions, K-12 education, or any of the other scapegoats that are often blamed for the demise of U.S. manufacturing.
The key is in playing the international trade game the same way as our competitors. Insights into how we might approach this issue comes from Clyde Prestowitz, a labor economist who once served as a trade negotiator during the Reagan administration. Review Prestowitz’s numerous writings on U.S. trade and you will quickly conclude he was supremely frustrated with Asian nations when he tried to forge agreements that would open their markets to U.S. goods in the 1980s.
So if the U.S. adopted trade tactics for renewable energy that resembled those of our Asian competitors, this is the approach we’d take: First, reject the idea of free trade, as do our Asian competitors. All but ban investment in U.S. renewable technology by foreigners, but condition any investment in the U.S. on a scheme that transfers foreign technology here. And if foreigners want to sell solar cells or wind turbines into the U.S. market, it must be through joint ventures with U.S. firms. Additionally, seal the U.S. market against imports of solar and wind power products until our own manufacturing capabilities reach an economy of scale that makes us the world-wide low-cost producers.
The controversial Production Tax Credit for wind can play a role here. For readers who haven’t been following the PTC debate, the credit provides a 2.2 cent/kW-hour benefit for the first ten years of a renewable energy facility’s operation. It is the sole reason some U.S. wind facilities exist. If we were playing by Japanese rules, we would extend the PTC, which expires in Dec. 2012, but only for facilities containing U.S.-made turbines.
Critics of such predatory trade policies might argue that World Trade Organization agreements probably make these methods illegal. But as Prestowitz points out, there are numerous ways of limiting imports. Here again, we can draw lessons from Asia: In export-led economies there, complicated regulations, inspections, standards, and distribution arrangements are managed to effectively keep out foreign suppliers.
Free trade advocates will claim such measures will boost the cost of renewable energy. They are right, of course, but only in the short term. Higher prices are the dues we should be willing to pay for reestablishing a world-class manufacturing industry in renewable energy on U.S. shores. And after all, our Asian competitors have shown they are willing to pay dues like this for the sake of future generations.