Green stimulus and the dangers of ‘buy American’

Relations were – briefly – looking warmer between the US and China on the clean energy ‘race’ front last week, when trade talks in Hangzhou saw officials on both sides agree to relax several sticking points, including China dropping its local requirement on wind turbines tenders.

But even as the talks were concluding, trouble was brewing in the form of Texas wind farm that planned to use Chinese turbines.

The announcement has blown up into a row about US stimulus money being spent overseas – not helped by findings published last week by a non-profit journalism group that many of the wind farms receiving stimulus money were owned by foreign companies, mostly European.

Now Charles E. Schumer, a Democrat Senator in New York, has criticised the spending of stimulus money on the $1.5bn, 600MW farm in Texas, going on foreign-owned projects, called for stimulus funds to be conditional on sourcing components locally. Schumer pointed out that the entire Texas project could be built with American manufacturing.

Trade, however, is a two-way street, and US companies such as GE, which the world’s second-biggest wind turbine manufacturer and has 50 per cent of the US market, are keen to sell their technology and expertise to China.

GE has come out strongly against ‘buy American’ rules in stimulus spending. John Krenicki, chief executive of GE’s energy business, told the FT last month:

“Everybody wants this production in their own country,” he said. “But energy technology depends on scale, so unless we get the barriers down we will never be able to deploy these technologies fully.”

“If others follow these bad examples, that limits the market,” he said. “And it forces US taxpayers to shoulder the burden of higher costs.”

European countries, which have been supporting renewable energy sources such as wind and solar strongly in the past few years, have already discovered that that also means supporting offshore manufacturing. Solar and wind components are booming in developing countries, even through the recession.

Andrew Dorchak, who co-authored a University of Illinois report on greenjobs, told the FT in June that the US’ green stimulus spending could fare even worse in terms of boosting domestic production:

He believes it could end up losing out both to Europe, which holds much of the intellectual property behind wind turbine technology, and to China, which is grabbing a growing share of the lower-value end of “green manufacturing”, particularly cheap solar panels.

“Some green jobs will be created in America, but nowhere enough to offset those being lost in traditional manufacturing industries,” he says.

Recessions don’t change that fact that clean tech manufacturing, like much other manufacturing, can be done more cheaply overseas. Turbines in China can be manufactured for as little as $900,000 per installed megawatt – about half the going rate for western-based rivals. This is perhaps the fundamental problem in attempting to sell ‘green stimulus’ packages: if the goal is to reduce emissions, then the overarching goal is doing it the quickest and cheapest way possible. But this conflicts with the job-creating goals of fiscal stimulus packages. Either the ‘green’ or the ‘stimulus’ inevitably end up being compromised.

Related links:

US wind turbines: Blame the Europeans (FT Energy Source, 30/10/09)
Renewables manufacturing,and jobs, shift to developing countries (FT Energy Source, 04/06/09)

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