In 2009 and to some degree in 2010, the big issue was carbon regulation.
In 2011, it is going to be free trade.
Politicians and some trade groups have begun to lobby the U.S. to pursue trade sanctions against China. At the same time, they warn that U.S. retaliatory trade barriers will cause the price of solar panels and other technologies to rise, create economic inefficiencies and slow innovation.
“If you don't believe in free trade and the market system, then you can look to North Korea for a roadmap for economic development,” one person told me.
On the other hand, executives like Bill Watkins, CEO of LED manufacturer Bridgelux, says “Buy American” provisions remain one of the best and simplest ways to grow the market.
Think of it for a second. What if the federal government created a fund that would pay communities to upgrade their streetlights to LEDs with a caveat that 60 percent of the equipment came from U.S.-based facilities? Energy consumption would be reduced, municipalities would see their power bills decline, and the fund could be paid in part through the tax revenues coming from those booming lighting and construction firms. Everybody, potentially, wins.
This debate is further fueled by the fact that nearly everyone’s opinion gets colored by a subjective worldview. Is the government an encroaching evil or the people that keep rat droppings out of burger meat? See the comments: the issue arouses emotions.
Personally, I come down on the side of experimental protectionism. We should try Buy American and Buy Local standards, and in a few years' time, pick which ones work best, if any. We have some with the ARRA and the DoD has imposed some already. Oil and coal get subsidies.
What’s the worse that could happen? An uptick to 9.8 percent unemployment? Here are the traditional bullet points why:
1. Everyone Else Does It. Does China play fair under WTO rules? Does Europe? Does anyone reading this enjoy a thriving export business in Japan?
Look around the globe and you will find policies directed at building economies through industrial subsidies and limiting contracts to local suppliers that arguably run afoul of trade agreements.
"In Michigan, we will give you the whole factory, land included," Michael Eckhart of ACORE said in October. "In 2004, 2005 and 2006, we asked [China] to become more efficient. The darn thing is, is that they did it and we got left in the dust. When I am wearing my U.S. hat, I say this is a threat. But when I wear my renewables hat, I have to say this is the best thing that ever happened."
We already give out stimuli. Buy American provisions can further level the playing field.
2. We Need Middle-Class Job Growth. A few years back, a well-known investor suggested to me that displaced IT workers could find new careers in “elder care.”
It reminded me of a summer job a friend once had. It involved applying Tuck’s Medicated Pads (for cooling relief!) to a woman in a terminal care facility.
Is this really the kind of opportunity you want to bequeath to the upcoming generation?
3. IP Jobs Can’t Employ Everyone. The oft-heard prescription for economic recovery is that Americans should aspire to “high value” jobs with a heavy emphasis on intellectual property. Unfortunately, not everyone is smart enough, or has the time, to get a PhD in biochemistry.
IP firms don’t employ massive numbers, either. The countries held up as paragons of the IP model -- Finland, Israel, Singapore, Taiwan -- have somewhat small populations.
4. Buyers Have Freedom. Most of these laws do not put restrictions on individuals or private organizations. They only require federal, state or local agencies buy a certain percentage of their products and services from U.S. suppliers.
Why can’t the Department of Defense choose its vendors? Free trade advocates mistakenly imply that price should be the only determining factor when picking a vendor. Instead, buyers can use any criteria -- good of the community, real estate tax benefits, longstanding relationships -- they like this side of outright bribery. If the DoD thinks a sound economy begets national security, so be it.
5. It’s Not That Mystifying. Late last year, Suntech Power Holdings, the large Chinese solar maker, opened a module assembly facility in Arizona. Why? To qualify under Buy in America statutes. The company also selects U.S. polysilicon, one of our strongest exports, to do the same.
Meanwhile, A-Power Technologies, a Chinese wind turbine maker, is building a factory in Nevada for the same reasons. Dialight hailed a decision this week that limits lighting projects sponsored by ARRA money to U.S. manufacturers. Dialight comes from the U.K. but has a U.S. subsidiary. People can figure out how to make it work.
6. Wall Street Will Comply. Investors and venture capitalists, when faced with more government restrictions, will walk away from energy, some claim.
And do what? Teach junior college? The investment community, particularly private equity, is swimming in money it doesn’t know what to do with. It’s too late to invest in Facebook. Building factories in Missouri beats the alternative of getting a consulting job.
7. It’s Hypocritical Not To. Renewable portfolio standards in California and approximately 29 other states guarantee demand. The market is further helped by federal and state tax credits that slash the price of products by one-third or more. Investors also get sweetheart tax grants. Biofuel makers get 50 cents to $1.00 a gallon.
With all of this munificence and deliberate manipulation of free market economics, the renewable industry really isn’t in a position to say “Build factories in America? Wait a minute. That interferes with the smooth running of market economics.”
Is there a sound philosophical principle that lets one support these subsides but not Buy American provisions? I can’t find one. (The outlandish subsidies given to coal and gas also undermine their ability to whine.)
One might counter that Buy American provisions delay the implementation of alternatives and therefore exacerbate climate change. Besides, wind and solar create construction jobs.
Valid points, but unless we get greater buy-in from most of the segments of our society, the need for renewable energy will remain contested. Construction jobs are -- rightly or wrongly -- often perceived as temporary.
And at this juncture in history, fence-sitters won't believe that the best way to counter environmental catastrophe is to ensure that big-time investors get the maximum rate of return.