Wednesday, September 08, 2010

Should the U.S Fear the Rise of China's Renewable Energy Sector?

Today, the New York Times has published a long piece on the microeconomics of activist industrial policy in China. According to the NY Times, using subsidized loans and free land provided by government, chinese firms are "taking over" this exciting new growing industry.

"Western clean energy companies complain of much higher financing costs — when they can raise money at all. Banks have been cautious about the sector, which leans heavily on venture capitalists and private equity firms that demand implicit interest rates of up to 9 percent right now in the United States, said Thomas Maslin, a senior solar analyst at IHS Emerging Energy Research.

Evergreen Solar, the Massachusetts company, struggled for three years to raise money in the States, but had no trouble doing so in China. Chinese state banks were happy to lend most of the money for the factory on very attractive terms, like a five-year loan with no payments of interest or principal until the end of the loan, said Michael El-Hillow, the company’s chief financial officer."

The NY Times hints that China's activist government's actions are "unfair" WTO violating that hurts the well being of the United States. Is this true? Are we a nation of producers or consumers?

China's actions will benefit U.S consumers who will import low priced , higher quality products due to China's activist policies.

These Chinese investments will help households all over the world to adapt to climate change (i.e access to air conditioning) without exacerbating global GHG levels. Why? Their "big push" will make renewable power generation more reliable, and cheaper and better able to compete with power generated by fossil fuel. The Sierra Club should thank China for this.


Could U.S producers gain? Energy intensive businesses would have access to improved "green" energy source. That's not a bad thing.

The NY Times hints that we are in direct competition with the Chinese over this future golden goose (the green economy). I don't know if this is correct. There are firms in the United States competing against Chinese firms but I don't believe that the geography of where green jobs production takes place is a national interest issue.

This newspaper wants domestic job creation. What creates a job? A firm hires a worker when its expected marginal revenue generated by the worker exceeds her wage.

China's activist industrial policies are portrayed as a "free lunch" but the land given away to these firms for free has alternative uses as does the capital lent to these firms at extremely low interest rates. Their government must be taxing something to balance its books.

Paul Krugman would be wise to revisit his 1980s work on whether industrial policy is "wise policy" in this new green case see this .

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