The Globalist Debate: Renewable Energy and the Clash of Civilizations

Samuel Huntington’s Clash of Civilizations is considered one of the foundation texts of our time, given its appearance in the decade prior to the destruction of the World Trade Center towers in September 2001.

But Huntington’s focus on “the West” and “Islam” has done little to illuminate an even more fundamental and far-reaching clash — the one pitching the waning fossil fuel civilization against the waxing civilization based on renewables and resource-efficiency.

We see the evidence for this “civilizational clash” in terms of the struggle of the renewables industries to be born and prosper, while the fossil fuel industries — along with the companies, subsidies, regulations and laws that uphold their privileges — refuse to leave the field.

China and the United States represent the polar extremes in this clash — with China acting to build renewable energy industries. It is racing ahead as fast as is physically possible in order to ensure energy security, even as it builds a coal- and nuclear-fired thermal energy system.

The United States, in contrast, is focusing on innovation, while Congressional leaders are subject to heavy fossil fuel lobbying and act to delay the transition to renewables.

The clash is heating up in the current spat over trade in solar photovoltaic modules, where the United States now (and potentially the European Union as well) is levelling countervailing tariffs on Chinese solar PV imports into the United States.

This move is inviting tit-for-tat retaliation by China against U.S. exports of polysilicon and PV equipment, where the United States currently runs a strong trade surplus with China. The dispute even threatens an all-out trade war.

That this is actually a clash of civilizations becomes evident when we examine the ideological support for each side’s position in this dispute. China is supporting its policies to promote its solar PV industry at home, and for companies that then export their product, on the grounds that it is a developing industry that needs support in order to become established in the face of incumbent intransigence. It is a market-oriented strategy that is proving to be extremely effective.

The United States, by contrast, is ideologically promoting a transition away from fossil fuels (insofar as any transition is allowed by Congress) through support for innovation and Schumpeterian creative destruction.

In its first term, the Obama Administration promoted renewables against fossil fuel incumbents through tax credits and loan guarantees, sometimes at very high levels (such as the $535 million allocated to Solyndra as a loan guarantee, which became a public liability when the company went bankrupt).

This policy was aimed at offering strong support for a few chosen recipients to help them bring new versions of existing products to market. In Solyndra’s case, this was CIGS thin-film PV technology, which has been falling rapidly in cost — but not as fast as first-generation crystalline silicon cells, which have overtaken the thin-film innovators and made life very difficult for them.

Where things become interesting is on the ideology-based flanking moves undertaken by Washington-based think tanks in support of the U.S. position. Consider the example of the ITIF, the Information Technology and Innovation Foundation, which is very active on this issue.

It conveniently labels the two sides in this clash as “innovation” on the one hand (the U.S. approach) and “green mercantilism” on the other (China’s approach). Innovation is “good” and green mercantilism is “bad.”

The ITIF (and other think tanks along with it) have taken sides in the current trade dispute, arguing that the U.S. Department of Commerce and the companies urging it forward (a coalition led by SolarWorld) are simply trying to enforce the rules of global competition, while the green mercantilists are threatening the survival of the rest of the industry.

The problem with this position is that it ignores the reasons for China’s success. Chinese firms are not “dumping” product on the rest of the world, but are benefiting from the cost advantages they have reaped through scaling up production.

This is a time-honored approach to reducing costs and enlarging the market, perfected in the United States ever since it was applied so effectively by Henry Ford to the (at the time) luxury automotive market.

In the solar race, U.S. firms like Solyndra and Konarka are in difficulties not because of Chinese dumping, but because their market in the United States was not allowed to expand fast enough — thanks to Congressional hostility linked to fossil fuel lobbying.

The American slowness to diffuse renewable energies does not so much reflect a lack of innovation as a plethora of regulatory and institutional blockages. Take the case of Google and its promotion of renewables — a quest launched with much fanfare in 2007 and quietly abandoned in November 2011.

Google invested in the Atlantic Wind Connection, an ambitious project to establish wind farms off the Northeast coast and link them to the mainland grid by a single connection. But the project has gone nowhere, as one regulatory barrier after another has had to be negotiated.

In China, by contrast, there is strong focus on building a national smart grid as counterpart to policies promoting renewables. This is not just a “fast follower” technology strategy, but one where China intends to take the lead through development of new standards and their promotion through domestic market creation.

Moreover, U.S. support for renewables producers at the state and local level is just as generous as it is in China — so U.S. states are just as “mercantilist” as their Chinese counterparts. The present incumbents enjoyed favorable treatment while they themselves were rising, and they now try to curtail such treatment being enjoyed by the new firms.

An exclusive focus on “innovation” as a form of public policy ignores the fact that newcomers need support to expand their market at the scale needed to drive down costs. Strong government action is needed to break down the barriers. This is what has been conspicuous by its absence in the United States.

Germany finds itself mid-way between the United States and China in this clash — making it a somewhat reluctant party to the EU-initiated trade dispute over solar PV panels. Germany has been promoting renewables through a policy targeted at market expansion (mainly in the form of the very successful feed-in tariff policies, which encourage independent power producers).

But this carries cost burdens for consumers that appear to have hit their ceiling in Germany. Now, the emphasis is likely to swing much more towards industry investment support (which is where it has always been, but at a lower level). This means Germany’s position is more in line with China’s approach than in opposition to it.

From a global and civilizational perspective, the world has an interest in seeing the fossil fuel civilization superseded. We must get to the renewables and resource-efficiency civilization as fast as possible. There is no doubt that China’s approach is working.

The U.S. focus on innovation ends up extolling the benefits of fracking and coal seam gas production. Yes, these are the fruits of “innovation,” but an innovation that is delaying the transition to renewables. The result is a lack of focus in U.S. national energy policy.

Mercantilist or not, China’s approach to highly-focused building of new export-oriented industries and expanding the markets for their products to drive down costs is winning. The U.S.-led approach that focuses exclusively on innovation and creative destruction as drivers of market transformation is too slow.

Most painful for the United States perhaps is recognition of the fact that its traditional advantages over other Western economies — market size and rapid scaling up — in the global era have been transferred to China.

All of this is good news for developing countries around the world, in that they are provided with an alternative to fossil-fuelled industrialization. It is also good news for entrepreneurial innovators in the EU and Japan, who can take advantage of the lower costs to fashion new business models.

And it is good news for our industrial civilization, which has to decarbonize rapidly if it is to have any hope of a future.

Editor’s note: The Globalist will publish a response to this essay, by Matthew Stepp of the Information Technology & Innovation Foundation, next Wednesday.