A study by the Pew Charitable Trust released recently titled “Who’s Winning the Clean Energy Race” pegged global spending on renewables at a record $263 billion last year. Clean energy investment worldwide grew by 6.5 percent from 2010, expanding faster than the overall economy.
Americans will be pleased to see the United States sitting atop the report’s leader board, having committed $48 billion to the cause in 2011. Unfortunately, that amount falls far short of what’s truly needed for a successful transition away from fossil fuels. And that transition is imperative, not so much to fight climate change so much as out of necessity in the face of growing resource scarcity.
When it comes to renewables, we’re still lacing our shoes while China is well on its way in a marathon that it’s all too likely to win.
According to the Pew study, China came in a close second on the list, with outlays of $45.5 billion last year. But that figure greatly understates China’s actual commitment. Take purchasing power parity into consideration, for instance, and China was the hands-down winner. That $45.5 billion in China would be worth closer to $70 billion if spent in the United States. Pew’s count also doesn’t include related infrastructure spending, which in China reached into the billions as well last year.
Pew estimates the installed renewable energy capacity in the US at 92.9 gigawatts, which has climbed at a 28 percent annual rate in the past five years. But support for clean energy is rapidly waning. A grant program aiding in the development and construction of renewable energy plants expired at the end of last year. Likewise, tax credits for wind power are set to expire at the end of the year. Unfortunately, lacking these incentives, new capacity additions in the US are likely to slow to a crawl.
The drop in subsidies and spending on renewables in the US comes at a time when crude oil prices so far this year have averaged just shy of the record set in 2008. To be fair, oil is primarily used as a transportation fuel while wind and solar power have to compete with natural gas and coal. And with natural gas prices falling to $2.40 per million British thermal units, and coal prices also soft, it’s easy to see the short-term appeal in Congress for fossil fuels over renewables. But for the reasons we’ve outlined in the past, those low prices are likely to be only temporary.
China, meanwhile, recognizes that as with oil, coal supplies are finite. And its energy requirements will continue to rise rapidly well into the future. It’s well on its way to meet that challenge. Despite an economy that is still only three quarters the size of the US (on a PPP basis), China’s installed renewables capacity has climbed to 133.5 gigawatts, a level it has reached with a 5-year growth rate of 92 percent.
While its renewables growth rate will slow in the years to come, it’s still likely to exceed 50 percent for the foreseeable future. That’s because Beijing is targeting generating 20 percent of the country’s primary energy from alternatives by 2020, up from about 12 percent in 2010. In the United States, renewables account for less than 2 percent of primary energy usage today and are likely to account for only a very modest portion of our energy going forward.
To achieve its clean energy goals, the country’s current five-year plan will steer trillions of dollars into not just alternative energy, but advanced materials, alternative-fuel cars, energy-saving and environmentally friendly technologies as well as next-generation information technology and high-end equipment manufacturing. It will foster the development of these sectors via policy incentives for corporations, investments by local governments and lending by state-controlled banks. And it will create a lot of jobs in the process.
The county’s run toward a renewable-based economy will require immense supplies of resources such as copper (for wind power) and silver (for solar). And the recent weakness in these and other commodities may be at an end judging by recent statistics out of China.
In stark contrast to the “hard landing” scenario so many have been calling for, China’s bank lending recently blew through even the most optimistic estimates, hitting a 14-month high of 1.01 trillion yuan ($160 billion). China’s bank lending is tightly controlled by the central government, so in effect what we’re seeing is de facto credit easing. Also supporting the idea that China’s economy remains on firm footing, the country’s crude oil imports remain near record levels.
As a result, commodity prices are likely to remain firm in the coming months, even if European economies continue to deteriorate.