More on Secy. Chu’s convoluted climate economics

by Marlo Lewis on November 5, 2009

In recent testimony before the Senate Environment and Public Works Committee, energy secretary Steven Chu makes a convoluted case for S. 1733, the Clean Energy Jobs and American Power Act, a.k.a. the Kerry-Boxer cap-and-trade bill.

Chu argues roughly as follows. Global investment in wind turbines and solar panels could reach $3.6 trillion by 2030. China is investing heavily. If we don’t ramp up our investment in “clean tech” products, we’ll be left behind, become increasingly dependent on foreign producers, and China will eat our lunch. The key to growing the U.S. clean-tech sector is to “put a price on carbon” — establish a “cap on carbon emissions that ratchets down over time.”

This is poppycock, as I explain today on MasterResource.Org, the free-market energy blog. 

Yes, China is investing heavily in solar panel and wind turbine manufacture, but China does not cap carbon. Also, only a small fraction of China’s production of solar photovoltaic generators — 20 megawatts out of 820 megawatts produced in 2007 — is for China’s domestic market. So capping domestic carbon emissions is not a prerequisite to success in exporting clean-tech products, nor is having a large domestic market for such products. The experience of the very country Chu spotlights as model and threat rebuts rather than supports the case he wants to make.

A key point Chu completely ignores is that, apart from certain niche markets, “clean tech” products consume more wealth than they create. That’s why they cannot “compete” without benefit of market-rigging mandates, subsidies, and penalties levied against fossil energy.

A fresh example of this inconvenient fact comes to us today from the great state of Massachusetts, home of Sen. John Kerry, chief sponsor of S. 1733, and Rep. Ed Markey, co-sponsor of the House companion bill, H.R. 2454, a.k.a. Waxman-Markey.

The Boston Globe reports that, ”A little more than a year after cutting the ribbon of a new factory in Devens built with $58 million in state aid, Evergreen Solar has announced it will shift its assembly of solar panels from there to China.”

Evergreen received “$58.6 in grants, loans, land, tax incentives, and other support,” says the Globe. Yet, ”Through the first nine months of this year, Evergreen lost $167 million, compared with $33.6 million for the same period last year.”

What would Chu have to say about this? Evergreen is not losing money because there’s no cap on carbon. Massachusetts is one of several states participating in a cap-and-trade program known as the Regional Greenhouse Gas Initiative (RGGI).

Why is Evergreen expanding operations in China?  ”Lower costs.” Such lower costs include lower-cost energy. To repeat, China does not have cap-and-trade; it does not put a price on carbon.

Now, I’ll wager that Evergreen would be losing money even if Massachusetts were a Kyoto-free zone. But we may surmise that Evergreen would not shift its operations to China if China’s economy were carbon-constrained.

Chu should at least consider the possibility that pricing carbon would vitiate what little competitiveness the U.S. clean-tech sector has. Low-cost energy is a source of competitive advantage, as China powerfully demonstrates. By increasing energy costs, cap-and-trade would make all U.S.-based manufacture less competitive, including companies specializing in clean-tech products.

Ron de Haan November 8, 2009 at 10:51 pm

Don't expect sensible arguments from a Nobel laureate.

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