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How to Enter the Global Green Economy


By Jonathan Rynn
Foreign Policy In Focus
June 16, 2008


When New York City wanted to make the biggest purchase of
subway cars in U.S. history in the late 1990s, more than 3
billion dollars worth, the only companies that were able to
bid on the contract were foreign. The same problem applies to
high-speed rail today: only European or Japanese companies
could build any of the proposed rail networks in the United
States. The U.S. has also ceded the high ground to Europe and
Japan in a broad range of other sustainable technologies. For
instance, 11 companies produce 96% of medium to large wind
turbines; only one, GE, is based in the United States, with a
16% share of the global market. The differences in market
penetration come down to two factors: European and Japanese
companies have become more competent producers for these
markets, and their governments have helped them to develop
both this competence and the markets themselves.

Let’s take Germany as an example. Even though the sun is not
so shiny in that part of Europe, Germany has put up 88% of the
PV photovoltaics for solar power in Europe. Partly, this was
the result of a feed-in tariff (FIT); that is, Germany
guarantees that it will pay about .10 Euro per kilowatt/hour
of electricity to whoever produces wind or solar electricity.
The average for electricity that is paid for nonrenewable
sources is about .05 Euro per kwh, so Germany is effectively
paying double for its renewable electricity in a successful
effort to encourage its production. Every year, the guaranteed
price is lowered, so that the renewable sector can eventually
compete on its own, having gotten over the “hump” of
introducing new technology.

But Germany’s other advantage is that it is a world leader in
manufacturing renewable technology equipment. 32% of the solar
equipment manufacturers in the world are located in Germany.
In addition, almost 30% of global wind turbine manufacturing
capacity is German.

In Denmark we can see the advantages of good policy plus
competence in building machinery. The world’s largest wind
turbine manufacturer, Vestas, is Danish. According to the
Earth Policy Institute, “Denmark’s 3,100 megawatts of wind
capacity meet 20 percent of its electricity needs, the largest
share in any country.” The Danes have created a fascinating
experiment in democracy by building most of their wind
turbines through the agency of wind cooperatives, which may be
joined by individuals and families.

Spain has undertaken one of the most ambitious programs in
wind, solar, and high-speed trains. The Gamesa Corporation is
the second largest wind turbine manufacturer, and Acciona
Energy is the largest wind-park developer. The Spanish
government has very ambitious plans for wind production, and
occasionally wind power provides as much as 30% of the
country’s electrical power.

Spain is also the world’s fourth largest producer of solar
energy equipment, and is a leader in the development of
concentrated solar power (CSP). CSP is a form of solar power
obtained by using a very large quantity of mirrors, typically,
to concentrate solar rays onto a tower that produces steam,
which then turns a turbine, generating electricity. They are
often built in deserts, and can be spread over several acres.

These new solar technologies will probably result in lower
cost electricity for long-distance applications than
photovoltaics.

Asia is an important producer of renewable energy and train
equipment as well. As of 2006 Japan produced about 39% of the
solar cells in the world, and has encouraged solar energy in
Japan with subsidies for purchasing the equipment as well as
generous research budgets. Japan’s Shinkansen high-speed rail
network covers much of the country. China is set to take off
as one of the world’s biggest solar and wind equipment
producers, owing to its rise as a manufacturing nation.

But Europe and Japan’s dominance in renewable technologies is
really based in a broader domain of competitive competence.
They dominate the most fundamental sector of the economy,
namely the production of machinery for manufacturing
industries in general (often referred to as the mechanical
engineering sector). According to statistics compiled by the
European Union (EU), the EU produces almost twice as much
industrial equipment overall as the United States; Japan
produces almost as much as the US, with about half the
population. The split among the EU, US, and Japan, which
together produce most of the world’s machinery, is 52%, 27%,
and 21%, respectively.

A robust industrial sector is the infrastructure we need for
building the tools that will help us to avert climate
catastrophe. Think of the industrial sector of an economy as
an ecosystem. Instead of the grass and leaves that feed the
plant-eaters that feed the meat eaters, a modern economic
ecosystem contains industrial equipment that makes production
technology that creates the goods and services that people
consume.

The different “niches” of an economic ecosystem, such as the
various machinery and equipment sectors, thrive as a
self-reinforcing web of engineers, high-skill production
workers, operational managers and factories. As of 2003,
Europe’s manufacturing sector made up 32% of its nonfinancial
economy, while the manufacturing sector of the United States
comprised only 13% of its nonfinancial sectors. The decline of
American machinery and manufacturing sectors, in conjunction
with the on-again/off-again nature of American renewable
energy policy, explains why Europe and Japan are so far ahead
of the United States in the transition to a more sustainable
economy.

And America’s decline can be traced to one overriding factor:
a military budget that comprises nearly half of the world’s
military spending. For decades, as the late Professor Seymour
Melman showed in many books (such as After Capitalism) and in
numerous articles, the Pentagon has been draining, not just
money, but also the engineering, scientific and business
talent that Europe and Japan have been using for civilian
production. As Melman often pointed out, the U.S. military
budget is a capital fund, and American citizens can use that
fund to help finance the construction of the trains, wind and
solar power, and other green technologies that will help us to
avoid economic and environmental collapse.

That economic collapse, if it comes, will be caused by two
major factors: the end of the era of cheap oil, coal and
natural gas; and the decline of the manufacturing and
machinery base of the economy. Both problems can be addressed
simultaneously, as Europe and Japan are showing, by moving the
economy from one based on military and fossil fuel production
to one based on electric transportation and the generation of
renewable electricity.

 

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