Terry Cooke ............................................................................... U.S.-China Clean Energy

 

    Clean Energy: U.S.-China Cooperation and Competition

 

                                                                             by Merritt T. (Terry) Cooke

                                                                          

                 Even as green technology and climate change have become political hot-button issues in China and, especially, in the U.S., the practical level of U.S.- China cooperation on clean energy has advanced noticeably in the 15 months since the debacle at the United Nations Framework Talks on Climate Change Cooperation (UNFCCC, COP 15) in November 2009.   Multilaterally, at the follow-up UN climate change conference held in Cancun at the end of 2010, the two countries managed to break their previous cycle of finger-pointing and intransigence and to adopt compromise formulations.  These move the UNFCCC process forward and help make progress toward addressing the global climate change challenge.  Bilaterally, U.S. President Barack Obama hosted a successful, though hard edged, state visit by Chinese President Hu Jintao in January 2011. This visit avoided the gaffes of earlier summits and provided an occasion for the two presidents to convey their different visions of a future cooperation.   Beyond the politics of U.S.-China relations, technology and investment dynamics over the past year also altered the calculus of bilateral cooperation and competition in a variety of ways. The result has been a more realistic and more even base for building and expanding clean energy trade and investment linking the U.S. and China.

                A closer examination of each of recent developments shows that the twists and turns of U.S.-China clean energy cooperation may not have followed the roadmap that Obama presented at the outset of his administration, but they are bringing occasional lurches forward toward the goal of sustained engagement that Obama initially envisioned.

THE MULTILATERAL STAGE: A HANDSHAKE—AT LAST—AT THE UN

                The world stage of the UNFCCC  process to combat climate change has shown the U.S.-China dance of clean energy cooperation at its awkward worst.  At the outset of Obama’s presidency, his administration sought to build on the Clinton-era legacy of China's U.S.-supported accession to the WTO. Obama extended to China an open hand of “G2[i]"-level global cooperative leadership to mitigate and reduce carbon emissions. From February to November 2009, the Chinese side conspicuously refrained from reciprocating or accepting that gesture.  In retrospect, it may not have been realistic to expect that China would.  None of the preceding four generations of Chinese leadership has greeted a new US presidency with an attitude warmer than extreme wariness.  Given Barack Obama’s exceptional  personal story and his youth, the less-than-youthful and risen-through-the-system leadership in Zhongnanhai was perhaps even more wary. They were dealing with a particularly unknown quantity and chose to ignore the proffered hand.   At the time, the two sides did not have a sufficient shared understanding  of what U.S.-China bilateral global leadership on the clean energy issue  would look like.  Before he recast it as an American jobs-creation and "winning the future" issue in his January 2011 state of the union speech, Obama had treated the climate change issue primarily as a moral imperative for U.S. global leadership and as a means to help repair eight years of damage  to the U.S.’s working relationship with the UN and other multilateral organizations. The Chinese leadership, on the other hand, has consistently viewed the clean energy issue almost entirely through the lens of national energy security, which is seen as vital to maintaining China's economic growth and the Chinese Communist Party’s (CCP) political legitimacy.  With the two sides acting from such different motivations, a working partnership based on -- “one bed, different dreams” as the Chinese proverb puts it -- could not have been expected to develop quickly or, perhaps, at all.

                The tensions between the U.S. and Chinese views and the lack of a strong foundation for cooperation burst into full public view at the Copenhagen Conference when China responded to Obama’s open hand with an unexpected  pointed finger[ii] as the talks broke down.   This led to months of further finger-pointing among global leaders, stagnation in the UNFCCC process, and the collapse of political support for cap-and-trade legislation in the United States.  Expectations were accordingly low for the 16th Conference of the Parties (COP) meeting held in Cancun from November 29 to December10, 2010.  Initially, China and the U.S. struck rigid poses that suggested they would not be able to move toward cooperation. Xie Zhenhua, China’s top climate change negotiator and vice chairman of the National Development and Reform Commission, insisted that the issue of developed nations financing climate mitigation for the developing world be resolved before agreement on substantive obligations could be broached. The U.S. Deputy Special Envoy for Climate Change Jonathan Pershing was equally insistent that details on financing efforts to combat climate change could only be resolved after a basic agreement had been reached on measuring, reporting and verifying the levels of carbon emissions reduction in developing countries.  At the eleventh hour, however, the two sides suddenly moved toward compromise and a basic agreement for the 16th COP round -- an agreement in which both the U.S. and China yielded from their initial positions   -- was reached.  This agreement, mixing watered-down versions of both the financing and verification ingredients, has given new impetus to worldwide mobilization against carbon emissions.

 

THE PAS DE DEUX: CHANGING BEAT, CLEARER TUNE

                The bilateral accompaniment to this off-again on-again climate change dance of the U.S. and China on the world stage has three themes, two following the same line and one in close counterpoint.

                First , in the realm of the conventional and complex politics of U.S.-China relations, the U.S. has distinctly toughened its tone over the  past year and China reacted.  In the aftermath of the breakdown of the COP 15 talks in Copenhagen, tensions rose in the bilateral relationship. Several developments produced this pattern: Obama concluded the Administration’s arms sales deal to Taiwan; he met at the White House with the Dalai Lama; U.S. frustration rose with China's perceived failure to cooperate more fully on sanctions during Iran's postelection upheaval; and the simmering concern over undervaluation of the renminbi came to a boil again on Capitol Hill. 

                These tensions moderated somewhat when Hu accepted  Obama's invitation to the nuclear nonproliferation summit in Washington in April.  Almost immediately thereafter, however, there came another pronounced downturn in  the bilateral relationship during  the summer and fall.  Two long-time irritants in the relationship – North Korea and the South China Sea – resurfaced. The U.S. was unhappy with China’s failure to take a firmer line with an increasingly provocative North Korea, and the U.S. responded sharply to Chinese claims about “core interests.”  Particularly noteworthy was  Secretary of State Hillary Clinton’s  serving notice that the U.S. viewed freedom of transport in the South China Sea to be a vital U.S. security interest and pledging that the U.S. would work multilaterally with Southeast Asian nations to that end.  This represented a clear  rebuke to China's stated position that the issue was a purely regional concern to be dealt with by China on a bilateral basis with other countries.  It also constituted a U.S. policy response to China's growing naval strength and capacity for blue-water power projection.   The fact that Southeast Asian nations openly welcomed this U.S. reassertion of power in the region was salt in China’s wound.

                Second, a new theme --  the ”new politics” of economic statecraft – has generally followed this pattern in ”high politics.” Here too, there has been growing U.S. push-back against China’s move to assume leadership, specifically in the clean energy arena.  Partly, the new U.S. assertiveness reflected a changing intellectual viewpoint.  The U.S. was coming to grasp China's unprecedented success in wielding its economic power to reap outsized political influence traditionally generated by hard power.  Ian Bremmer, Les Gelb and other commentators have helped foster better understanding in U.S. foreign policy circles of the importance of  economic statecraft in the changing power equation between the U.S. and China .  More viscerally, public attitudes toward China in the U.S. have largely tracked the decaying orbit of the “high politics” relationship.  Throughout 2010, a series of reports triggered alarm. Among these were analyses that pointing to China’s growing traditional industrial might and others concluding that, in the wake of the Global Financial Crisis, China had blazed past the U.S. to become the global leader in clean energy investment and finance.[i]  The fallout included efforts to invoke trade remedies.   In September, the U.S. Steelworkers Union filed  a complaint against China to the U.S. government, citing a host of alleged unfair trade practices. In a later and related move, the U.S. Trade Representative initiated a dispute before the World Trade Organization over alleged Chinese subsidies to wind power equipment manufacturers.   The lead-up to the U.S. midterm elections in November also saw a near-viral spread of  attack ads targeting China in many congressional districts.  In January, the U.S. made two additional moves related to clean energy on seemingly small stages that attracted big attention:  Obama signed a new law containing a “buy American” provision for Defense Department purchases of solar panels; and, for the first time, the U.S.’s Eximbank moved to match its Chinese counterpart’s below-market interest rates and easy repayment terms to support an  export deal to Pakistan for advanced train technology from General Electric.  In his State of the Union address, Obama was clearly referring to China as the new Soviet Union-type challenger to the U.S. when he spoke of the U.S.’s new “Sputnik moment” and the need to pursue technological innovation, including in clean energy.

  

        The U.S.’s tougher tone in the traditional politics of bilateral relations and in the new politics of economic statecraft has not tripped up U.S.-China cooperation in clean energy or triggered a combative competitive response from China.  If anything, it seems to have given China’s leaders a clearer sense of a more assertive and comprehensible American president. China now seems to see Obama as playing an established and recognizable ”American tune” on the global stage.  During his January state visit to Washington, Hu took pains to show the ”smiling face” of Chinese ”peaceful rise” diplomacy, replacing the ”angry face” that had been on view after the Nobel Peace Prize award to Liu Xiaobo and a series of  incidents  in the South and East China Seas.  Hu also skillfully brandished “China, Inc.’s” checkbook, presiding over more than US $45 billion of commercial deals during his visit with one-quarter of that amount going to clean energy deals with major U.S. firms.[iv]   In negotiations during the state visit, China also appears to have ceded ground in the highly-charged dispute over China’s “indigenous innovation” policy in government technology procurement (which U.S. critics saw as disadvantaging U.S. providers or pressuring them to transfer intellectual property rights to Chinese firms). 

                This approach by China – a purring voice in response to twin U.S. growls  -- is understandable. The Chinese leadership, over many decades, has come to expect, and tends to respect, clear and principled postures of strength and clear assertions of legitimate interests from the United States. Chinese state-owned companies know that they cannot hope to become world-class if they do not acquire global market experience and global management skills. Access to U.S. markets provides an indispensible proving-ground. Chinese state-owned and private manufacturers depend on sales to U.S. markets in key areas, including, in the clean energy sector, photovoltaic solar products. They need U.S. markets to grow while they wait  for a domestic market to be developed. Public attitudes in China are deeply confused by all the talk they hear of from U.S. sources about “Sputnik moments” and about the U.S. losing the innovation race to the Chinese.  To their minds, innovation is in the U.S. market’s DNA and is the most notable feature missing from the Chinese market.  The notion that Chinese innovation is an existential ‘”Sputnik”-like threat to the U.S. thus does not describe for Chinese observers a recognizable reality.  That may make it all the more alarming and effective as a rallying cry for U.S. action taking a tougher line against, and seeking to outcompete, China in clean energy and other innovation-intensive sectors. 

         

CLEAN ENERGY TECHNOLOGY AND INVESTMENT: SUBSTANTIAL STEPS OUT OF THE SPOTLIGHT

         While high-level meetings such as Hu’s state visit capture and emphasize the bilateral relationship of the moment, they are less helpful as predictors of future directions, especially in particular issue areas or sectors.  For clean energy, the dynamics of investment and technology are more useful indicators. While the complexity of these developments precludes their full treatment here, one example suggests the broader pattern.

        While the broader bilateral relationship headed toward the cellar  during the summer of 2010, the U.S. Department of Energy announced six new public/ private regional centers for the development and commercialization of clean technologies.  Three of these are designated  national “Energy Innovation Hubs” (EIH): one in Southern California for solar energy, one in Oak Ridge, Tennessee, for nuclear energy; and one in Philadelphia for building efficiency.  Three other centers -- based on the same Brookings-developed model for 21st century regional development as the EIHs, but funded at less than one-sixth of their level -- are constituted as joint U.S.-China Clean Energy Research Centers (CERC).  The three U.S.-based CERCs (which have three counterpart, PRC-funded CERCs in China) are in Detroit for electric vehicles, in West Virginia for clean coal technology, and in Berkeley for building efficiency .  The six CERCs are to implement a clear plan to use the complementary strengths of the U.S. and PRC  markets, with innovation focused in the U.S. and rapid deployment and scaling up being the principal tasks for  China.  The commercial benefits – and intellectual property ownership – of the CERC collaborations are to be shared according to a negotiated protocol.

 

         While the price tag for these three  U.S.-based EIHs and the three U.S.-based  CERCs is exceedingly modest  -- less than US$1 billion in total over a five year period -- they represent a thoughtful and highly promising avenue for marshaling significant innovation talent,  top-level technology and investment support.

In an October 12, 2010 op-ed in the New York Times, Tom Friedman called these centers of “moon-shot quality” and "the most exciting initiative proposed by President Obama that no one has heard of.”  As of February 3, 2011, the Obama administration is no longer hiding this light under a bushel. In a major speech at Penn State and building on themes from his State of the Union address,  Obama championed these centers as keys to unlock U.S. innovation for the 21st century and as centerpieces of his initiative  to “Win the Future.”  This agenda is likely to last, not least because it fits with the strategy of triangulation that the Obama administration has chosen after the setback in the midterm elections. It offers a lever to use against—or a path between— the “won’t fund anything” fiscal conservatives on the right and the “don’t give business anything” wing on the left.

Much has happened to shape, and improve, the prospects for clean energy cooperation between the U.S. and China over the past year -- at the multilateral level, the bilateral level, and in the areas of technology and investment.  If captured in a Twitter feed, the message would be something like “Awkward pas-deux between China & US lurches forward on global stage.  Keep your eye on the EIHs and CERCs for real action to come.”