Saturday, July 31, 2010

U.S. Crushing China in Clean Energy Race

A commentary in Bloomberg Businessweek claims that the United States is somehow "sitting out the race for clean energy." The author points to various Chinese investments in solar power and other forms of clean energy and claims that the U.S. will lose a clean energy race to China unless we impose a large tax on carbon emissions and require utilities to produce 15 percent of their energy from renewable sources. The article seems unconvincing for several unrelated reasons.

First, the portrayal of China as some sort of clean energy leader is laughable. China is the world's largest emitter of carbon according to this 2006 article in the New York Times, and at the same time produces less than one half the output produced by the United States. In other words, China employs more than twice as much carbon per unit of output than does the United States. Thus, compared to China anyway, the United States has lapped China and is winning the clean energy race "going away."

Second, there is no indication that China will catch up to the United States. Indeed, some have estimated that, even under optimistic assumptions, China's carbon emissions will nearly double over the next two decades. By contrast, U.S. Greenhouse emissions actually fell from 2008 to 2009, according to the EPA. If, in fact, Chinese emissions almost double between now and 2030, this increase in emissions will by itself far offset any plausible decrease in American emissions during the same period.

Third, the U.S. lead over China likely reflects our far more stringent environmental regulations under existing law. Any argument for even more stringent regulation on American industry would have to explain why the USA, and not China, should have to bear an even a greater share of the burden of reducing carbon emissions.

Fourth, the author is certainly correct that a tax on carbon and requirement that utilities employ renewable sources of electricity will cause the additional development and marketing of methods of generating renewable sources of electricity. (Though of course foreign firms might outpace U.S. firms as they do in some other fields.) But this is unsurprising and no argument for such requirements. If the American government required automotive companies to paint all cars pink, then of course we'd witness a boom in the pink paint industry as firms came up with new and better ways to make pink paint. The prospect of such a boom, however, would not be an argument for such a pink paint mandate. Put another way, the fact that industries will respond in a predictable way to regulation is not an argument for such regulation.

Fifth, additional regulation of carbon emissions may be good public policy, but not because such regulations would help us win a race we are already winning or encourage firms to develop technology that helps firms comply with that regulation.