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The Emerging US-China Strategic Alliance on Clean Energy

The bilateral relationship between the United States and China has begun to take on a more pragmatic and secure quality under the Obama Administration, a welcome contrast to the past, when the U.S. was mostly uneasy about the rise of China and China was often uncertain about assuming its emerging role as an economic and political center of gravity. Though disagreements over the value of the Yuan, trade restrictions and human rights issues will continue to be present in the Sino-U.S. relationship, the exigencies of the worldwide economic downturn and the opportunities for cooperation in the development of a new energy future, are paving the way for a sustainable and productive bilateral relationship.

It is in this latter area — cooperation on clean energy development — that the Obama Administration already has laid a foundation that presages unprecedented opportunities for Sino-U.S. cooperation.  President Obama’s meetings with the Chinese leadership this week give further impetus to the significant efforts by the two countries to forge a new energy future based on Shuang Ying the Chinese term for “win-win.”

Sino-U.S. Clean-Tech Cooperation under the Obama Administration

A sustained effort by the Obama administration to develop a strategic alliance on clean energy with China has been underway since the first days of the Obama Presidency; these efforts already have produced a robust set of agreements on clean energy, energy efficiency and environmental improvement that will bear fruit for both nations.  

Nearly every month this year senior administration officials have visited with their Chinese counterparts; Secretary of State Hillary Clinton, Commerce Secretary Gary Locke, Energy Secretary Steven Chu, Special Envoy on Climate Change Todd Stern, Assistant Secretary of Energy for Policy and International Affairs David Sandalow, Assistant Secretary of Energy for Energy Efficiency, Cathy Zoi and a host of other administration officials have forged significant agreements to realize the determination of the U.S. and China to end our respective roles as the world’s most egregious emitters of greenhouse gases and initiate an era of sustainable development worldwide. 

The principal bilateral policy vehicle for cooperation between the U.S. and China most recently has been the Strategic and Economic Dialogue (S&ED).  The first S&ED held since the beginning of the Obama Administration took place in late July, and resulted in a Memorandum of Understanding (MOU) on climate change and clean energy.  The July MOU focused on strengthening the EcoPartnerships Initiative, which will enable sub-national cooperation in such specific sectors as plug-in electric vehicles, Smart Grid development and other sustainability business models.

From the initial policy success of the S&ED, the emerging Sino-U.S. strategic alliance on clean energy has developed further.  In July, Secretaries Chu and Locke, together with the Chinese Minister of Science Wan Gang, and Zhang Guobao, the Administrator of the National Energy Administration, jointly announced the development of the U.S.-China Clean Energy Research Center. 

The U.S.-China Clean Energy Research Center will facilitate joint R&D between scientists and engineers from both countries, with a focus on energy efficiency in buildings, carbon capture and storage and electric vehicles.  Both countries pledged funds in support of this initiative and this week at their meetings in Beijing Presidents Obama and Hu Jintao substantially upped their pledges. 

Most recently, at the 20th U.S.-China Joint Commission on Commerce and Trade, Commerce Secretary Locke announced the formation of the U.S.-China Energy Cooperation Program (the ECP), an initiative of the U.S. Trade and Development Agency and the Chinese Ministry of Commerce to accelerate the deployment of clean energy in China through public-private partnerships, while advancing U.S. and Chinese commercial interests.  During the same event, the Chinese government announced that it would drop a domestic content requirement mandating that 70% of the components of wind-power equipment were to be produced within China. 

As we previously reported on RenewableEnergyWorld.com, this domestic content rule was the policy driver for significant growth in China’s wind energy components manufacturing industry over the last two years, perhaps to the detriment of foreign wind component manufacturers.  With the domestic content rule removed, a new opportunity exists for international wind energy equipment manufacturers, including American firms, to fully participate in China’s burgeoning wind industry.  

If this is the leading edge of a more expansive access to the Chinese clean-tech market, the desire of the Chinese to have more robust technology transfer from the U.S. is likely also to become a reality.  Together those steps will accelerate the restructuring of the way that the United States and China produce and consume energy.  

Less visible, but no less important to the nascent Sino-U.S. cooperation on clean energy development, is the robust dialogue that the Obama Administration has initiated with a diverse group of public and private stakeholders in the United States concerning opportunities for Sino-U.S. cooperation in renewable energy development, energy efficiency and environmental pollution prevention and remediation. This exchange of ideas between the Obama Administration and U.S. clean-tech stakeholders has already yielded benefits to the private sector in part through bilateral discussions that have led to greater resolve by each country to allow more access to markets and technologies essential to the growth of clean-tech industries. 

The Obama Administration’s meetings with the Chinese leadership this week in Beijing furthered the steady accretion of bilateral clean energy cooperation.  In their joint communiqué, President Obama and President Hu Jintao agreed (as we stated earlier) to a substantial increase in financial support for the U.S.-China Clean Energy Research Center and pledged, in the words of President Obama, to work together “to rally the world around a solution to our climate challenge.”

As an integral part of the U.S.-China Joint Communiqué, Deputy Premier Li Keqiang representing the Chinese government and Secretaries Locke and Chu, together with U.S. Trade Representative Ambassador Ron Kirk and Ms. Leocadia Zak, the Acting Director of the U.S. Trade and Development Agency, representing the United States, entered into three new agreements: the {Sino-U.S. Memorandum of Understanding Concerning Cooperation in the Field of Shale Gas Development}; the {Sino-U.S. Memorandum of Cooperation Concerning Establishing a Renewable Energy Partnership} and the {Memorandum of Understanding Concerning Sino-U.S. Cooperative Energy Projects}.

Demonstrated Leadership by the Obama Administration and the Chinese Government

As we have shown here previously, the Chinese government is pursuing an aggressive set of policies to restructure the way it produces and consumes energy.  These efforts continue to be refined and the goals expanded.   The outlines of the {Development Program for the Vigorous Promotion of New Energy Industries}, which officially will be released by the State Council in a matter of months, already are known. 

Among other goals, the {New Energy Industries Development Program} reiterates China’s goal of deriving 15% of its total energy production capacity from renewable energy sources by 2020.  Of particular note is the significant increase in planned solar power capacity in China by 2020; the previously modest plans of the Chinese to have 1800 MW of solar power capacity installed as of 2020 have been increased dramatically to 20,000 MW.  If past is prologue, China likely will exceed these goals well in advance of their plan.  

As recently as September 2007, the {Mid to Long-Term Development Plan for Renewable Energy} set a goal for China to deploy 5000 MW of total installed wind power capacity by 2010 increasing to 30,000 MW by 2020.  But by the end of 2008, total installed wind power capacity in China already had exceeded 12,000 MW and was on track to reach 30,000 MW by 2010 and a remarkable 100,000 MW by 2020.  

As is the case with the Chinese, a significant percentage of the Obama Administration’s economic stimulus funds has been directed into renewable energy and energy efficiency.  The American Recovery and Reinvestment Act of 2009 includes well over $60 billion in clean energy appropriations and tax incentives.

Though the Obama Administration also has taken a full range of administrative measures to address energy and environmental matters, to keep pace with China’s clean energy expansion, it is imperative for the U.S. Congress to enact comprehensive climate and energy legislation as soon as possible.  Delaying legislative action will impede American industry from fully benefiting as the infrastructure of the new energy economy is developed in both China and the United States.   

Clean-tech Success Stories

In late October, the U.S. Renewable Energy Group, Cielo Wind Power and China’s Shenyang Power Group made headlines with the announcement of the largest U.S-China joint investment in utility-scale wind power in the U.S.  The $1.5 billion, 600-MW wind farm project to be constructed across 36,000 acres in Texas will feature Chinese manufacturing (A-Power Energy Generation Systems will supply the wind turbines) and capital and American wind development expertise.  This true collaboration was made possible in part by wind energy provisions in the American Recovery and Reinvestment Act.  

Similarly, Suntech Power Holdings Co. announced this week that it would build a 100,000 square foot manufacturing facility in Arizona.  Renewable energy investments in the U.S. by the Chinese are but one side of the coin; on the other side are the enormous opportunities for American companies to participate as the Chinese spend some $2 trillion over the next 20 years to fundamentally restructure the way they produce and consume energy.  

Some of America’s most prominent clean energy companies already have found lucrative opportunities in China. In September, solar power developer, First Solar, signed an agreement to build the world’s largest photovoltaic power plant to date -- estimated at 2,000 megawatts -- in Inner Mongolia.   Massachusetts-based American Superconductor Corporation, which manufactures electrical systems for wind turbines, already has entered into more than $700 million in contracts with Beijing-based Sinovel Wind Corp. Ltd.

A Path Forward

Though it may not coincide with the specific agenda or timetable of the climate change negotiations to begin next month in Copenhagen, a Sino-U.S. strategic alliance on a new energy future is emerging from the sustained and concerted efforts of the Obama Administration and the Chinese government.

Collaboration between the world’s two largest energy users is the fastest route to ensure that the standards, technologies, financial resources and other essential elements of the emerging clean energy economy reach every corner of the globe.  This strategic alliance between the U.S. and China in fashioning a new energy future also will serve to create a new format for U.S.-China trade and investment to replace the old paradigm, which was thoroughly discredited by the recent worldwide financial meltdown.  

Increased access to the Chinese clean-tech market, leading to more robust technology transfer from the U.S. will allow the bilateral cooperation in clean-tech to take root in the marketplace; this in turn will accelerate the restructuring of the way that the United States and China produce and consume energy and set the stage for a reorientation of the trade relationship between our two countries. 

Lou Schwartz, a lawyer and China specialist who focuses his work on the energy and metals sectors in the People's Republic of China, is a frequent contributor to Renewable Energy World.   Through China Strategies, LLC, Lou provides clients research and analysis, due diligence, merger and acquisition, private equity investment and other support for trade and investment in China's burgeoning energy and metals industries. Lou earned degrees in East Asian Studies from Michigan and Harvard and a J.D. from George Washington University.  He can be reached at lou@chinastrategiesllc.com.

Ryan Hodum is a Senior Associate for Research at David Gardiner & Associates, LLC where he specializes in energy efficiency and climate policy analysis.  Ryan earned a degree in International Relations from the College of William and Mary, and an M.A. in Global Environmental Policy from American University. He can be reached at ryan@dgardiner.com

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