Will China Dominate the Green Economy? And if They Do, Should We Worry?

After a New York Times article looked at how government subsidies are giving the green tech industry a leg up in China, several responses have questioned whether that really is a bad thing for the U.S. From the Christian Science Monitor:

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.

And from Michael Levi’s blog for the Council on Foreign Relations:

But let’s take a more careful look at what’s going on. There are four basic stages in solar module manufacturing: silicon purification, ingot and wafer manufacturing, cell production, and module assembly. Evergreen Solar, according to its website, derives its competitive advantage through a proprietary low-cost technology for making wafers. Hunan Sunzone Optoelectronics, meanwhile, advertises its focus as being on cell production and module assembly. The two types of firms are not entirely, or even mostly, in competition.

This should not be particularly surprising. In what is quickly become one of my favorite obscure academic papers, Arnaud de la Tour and his colleagues at MINES ParisTech took a careful look (PDF) earlier this year at the structure of the Chinese solar industry. They found that China (circa 2008) was strong in the later stages of the solar value chain (27% of the cell and module market), but that it lagged far behind in the earlier stages (2.5% of the ultrapure silicon market and less than 5% of the ingot and wafer market). Those two later stages accounted for 60% of the cost of a module but only 18% of its profit. That’s because they’re less technologically sophisticated than the earlier stages, which accounted for only 40% of the cost but a whopping 82% of the profit. Those higher-value-added steps, in turn, support higher-wage jobs.

Seen from this vantage, the Sunzone/Evergreen story is decidedly less depressing. U.S. firms are unable to hold on to cell and module manufacturing (“the final manufacturing steps”) but still have an edge in wafers and silicon, where there is far more profit to be made. Indeed by lowering the cost of turning Evergreen Solar’s wafers into finished solar products, companies like Hunan Sunzone Optoelectronics help grow the market for the things that Evergreen Solar makes. Evergreen may have lost 300 cell and module manufacturing jobs to China, but it’s quite possible – indeed even likely – that it’s gaining (or retaining) high-wage jobs elsewhere in its value chain because of the same low-cost Chinese developments.

Indeed if the United States were to insist that all parts of the solar value chain stay in the United States, the result might not be more jobs – it might be less. Unable to reduce the cost of cell and module manufacturing, the cost of solar might stay too high, reducing the overall solar market, and with it jobs in wafer and silicon production too.

(Thanks to Jim Rothstein for providing the latter link.)

September 15, 2010 3:09 PM
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