While United States and Chinese diplomats are working to forge cooperation between the countries on climate issues, the Chinese government’s huge clean tech investments may help that country pass the U.S. as the worldwide clean technology leader.  Could this “competitiveness crisis,” as one group terms it, have implications for the U.S. economy and the clean tech industry?  The results of this global race for dominance in the cleantech sector could significantly impact not only the national economy, but also the condition of the global environment.

Chinese Energy Investments

The Chinese are investing approximately 3% of their GDP on cleantech and renewable energy, as compared to less than half a percent of GDP in the U.S.  During early summer, the Chinese government floated plans to spend at least $440 billion in another stimulus package-all of that money going toward new cleantech investment.

The Chinese government also set a number of demanding goals for renewable energy and clean tech production and installation, including-

• Increasing renewable energy production from wind to 150GW by 2020, from an earlier goal of 100GW, and solar production from 1.8GW to 20GW by the same year
• Increasing production of plug-in hybrid electric vehicles to 500,000 by the end of 2011, up from 2,100 in 2008
• A raft of transportation spending initiatives and policy reforms, including $1 trillion for increased railway infrastructure, tax programs to incentivize the purchase of fuel-efficient cars and increased fuel economy standards
• Strict energy-efficiency standards in building codes, home appliances and amongst China’s top 1000 energy consuming businesses.

China is also moving full speed ahead in the race to dominate nanotechnology research, a likely source for many of the cleantech industry’s future breakthroughs.  These investments, combined with what some see as a willingness to use border measures and anti-competitive bidding practices to discourage foreign participation in the Chinese cleantech market, position Chinese manufacturers to be a dominant player in the global cleantech market.  Indeed, China’s rise in the cleantech space has prompted some U.S. analysts to question the wisdom of investing in domestic cleantech manufacturing capacity, versus simply ceding manufacturing to China and focusing on domestic installation of less expensive Chinese equipment. 

When Cleantech Doesn’t Mean Cleanup

While China has made significant strides in cleantech investment and implementation, it has continued to resist international calls for binding emissions caps or reductions.  Instead, citing its prerogative as a developing nation, China has focused its pledges on reducing energy intensity-a measure of carbon emissions in relation to GDP.  This poses several challenges for international efforts to stabilize carbon levels.  First, with China becoming the world’s largest net emitter of CO₂, internationals effort to freeze global emissions will be an exercise in futility without China (and other large developing countries) making binding commitments.  Second, even under China’s current emissions-rate based goals, China has yet to meet any of the benchmarks necessary to achieve its efficiency goals of reducing emissions 20% by 2010.

China’s aggressive investment in the cleantech sector, combined with its continued refusal to reduce its net emissions, illustrates a major flaw in the assumption that investment in clean energy infrastructure and manufacturing capacity will automatically lead to both a cleaner environment and more robust national economies.  If, as some critics argue, China has opted for the robust economy while leaving the cleaner environment to others, China could reap disproportionate economic benefits from global cleantech investment, while shifting a disproportionate economic and environmental burden to other counties.  This, in turn, could undermine other countries’ efforts to fund today’s environmental cleanup efforts through long-term economic growth in their domestic cleantech industries. 

American cleantech companies are poised between a radical expansion of their potential markets into China and other cleantech-hungry developing countries and the specter of foreign companies, energized by concerted investment in their home nations, outcompeting them both overseas and at home.  This high-stakes race for cleantech hegemony will be hard fought, with China and the U.S. just two of the countries competing.  The race to be a global leader in actual emissions reductions, however, remains any country’s to win.

For further information about this topic, please contact Akin Gump.