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Secretary Chu Speaks at Washington Post Live

November 3, 2011 - 9:12am

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Secretary Chu’s remarks, as prepared for delivery, at the Washington Post Smart Energy Conference.

Thank you, Mary [Jordan], for that kind introduction.  While the focus of this conference is on the future of energy, I want to start with some lessons from America’s past. 

On a windy day at Kitty Hawk on December 17, 1903, the Wright Brothers launched the world’s first powered airplane to achieve human flight – and with it, a whole new industry. For the next several years, they led the world. What is less appreciated is that the United States lost the technology lead in airplanes by the beginning of World War I. Although the U.S. military was the first and major customer of the Wright Brothers and their competitor, Glenn Curtiss, between 1908 and 1913, the United States ranked 14th in government investment in aviation.[i]The low level of government showed: When we entered the war in 1917, we were so far behind that our allies convinced us to produce European designed aircraft.

After the war, the United States did not say, “We can’t compete with Europe.” We saw leadership in this industry as a national security imperative and an economic opportunity – and we launched an agency to support research and development and passed legislation to allow private aviation companies to carry mail. Demand from the military and the postal service kept the industry alive during its early years, and laid the foundation for today’s domestic commercial aviation industry.

The second lesson involves the history of the automobile.  In 1885, the modern gasoline-powered internal combustion engine was invented in Germany by Gottlieb Daimler and Karl Benz.  Henry Ford didn’t invent the automobile; he invented the assembly line, which greatly increased worker productivity.  America became the dominant automobile manufacturing force in the world by becoming the low-cost, high-quality mass producer. As the price of cars came down, the market exploded.  More factories were built and more workers were hired – and America dominated the auto industry.

My final lesson is about information technologies.  American ingenuity created the technologies upon which modern electronics were born, but federal support helped usher in the telecommunications era.  The U.S. saw the potential of this emerging industry and took action to help foster its growth. The military was an early adopter of computers. The Defense Department backed research that helped lead to the development of Internet technology. The purchasing power of the Air Force, NASA and other federal agencies guaranteed a market and drove down costs for microchips, making them affordable and widely available for use in a range of technologies.

The lesson from these examples is clear: the U.S. government recognized an economic opportunity, made a choice to compete, and took the necessary actions to promote these industries.

This brings me to today. Once again, there is a huge opportunity before us – a global clean energy market that is already worth an estimated $240 billion and is growing rapidly.[ii]  In fact, a very reasonable estimate is that solar photovoltaic systems alone represent a global market worth more than $80 billion this year. To put that $80 billion in perspective, that’s nearly as much as Americans spend every year on beer. The difference is that the solar PV market will grow and will dwarf the beer market.

The United States built an early lead in the clean energy race. Solar cells, wind turbines, and lithium ion batteries were all invented here.  But we are no longer the leading manufacturer of any of those technologies. In keeping with the comparison with beer, in 2009, we spent $7.1 billion on potato chips – $2 billion more than our federal investments in energy research.[iii]

History is repeating itself – just like we took the lead in automobiles from Germany, other countries have studied the U.S. playbook and are using it to take the lead from us.  While some people in Washington are debating whether the clean energy economy is real or whether we should try to compete, other countries are seizing the opportunity. 

Nowhere is this more evident than in China.  Last year in Shanghai, I visited Suntech, currently the leading photovoltaic manufacturer in the world. They import their silicon wafer material from the United States, because the electrical energy required to refine the silicon is much less in the U.S. They add the high technology processing steps in a highly automated facility in China. Suntech is not only a low-cost leader, at the time of my visit they held the record for the highest efficiency poly-silicon solar cells in the world. Suntech is trying to do to us what Henry Ford did to Daimler and Benz.

Another secret to Suntech’s success is that China – like many countries – has learned from the U.S. how government can support critical emerging industries.  Last year, China offered roughly $30 billion in government financing to its solar companies, including $7 billion to Suntech[iv].  At least 10 countries have adopted renewable electricity standards[v], and more than 50 countries offer some type of public financing for clean energy projects.[vi]  For example, Germany and Canada operate government-backed clean energy lending programs, and in the last several months, the UK, Australia, and India have announced plans to do the same.

Since his first day in office, President Obama has been working to strengthen U.S. competitiveness in clean energy. The Energy Department has stimulated the innovation chain by using grants to support cutting-edge R&D projects and advanced battery factories, tax incentives like the 1603 program, which has supported nearly 20,000 renewable energy projects,[vii] and loan programs to finance innovative manufacturing and deployment of renewable energy.

While we’ve made progress, the United States is at a crossroads.  Many clean energy tax incentives are expiring.  The 1705 loan guarantee program closed on September 30th, and we've obligated virtually all of our Recovery Act money.

America faces a choice today: Are we going to recognize the opportunity and compete in the clean energy race or will we wave the white flag and watch all of these jobs go to China, Korea, Germany and other countries?

The global competition is fierce, and support for innovative technologies comes with inherent risk. Not every company or every product will succeed, but that is no reason to sit on the sidelines and concede leadership in clean energy. Some in Washington are ready to throw in the towel and write off the clean energy industry.  They don’t think America can compete or they don’t think it’s worth trying. Others think that the best thing we can do is for the government to get out of the way and let the free market work.

We had this same debate in 2008 and 2009 about the auto industry.  A lot of people in this town were ready to give up on U.S. auto manufacturing. President Obama refused to let the U.S. auto industry collapse. Today, Ford, GM and Chrysler are profitable and are creating jobs and quality products. After seven straight years of decline, America’s auto manufacturers expanded their output by 35 percent last year. 

The President took action because auto manufacturing is a lifeblood of our economy.  A Center for Automotive Research report[viii] found that nearly 8 million jobs are impacted by U.S. auto manufacturers, suppliers and dealers. This includes jobs directly connected to manufacturing and other jobs that benefit when workers spend their paychecks. The critics were wrong about the auto industry. I believe they are just as wrong today when they say we shouldn’t bother investing in efficient vehicles or clean energy. 

I recently read a paper that Michael Spence, a friend and one of the 2001 Nobel Laureates in Economics, wrote on job trends in the United States from 1990 to 2008. [ix] He divided employment into two sectors.  One sector is called tradable jobs – jobs where you make stuff like airplanes, cars, food and electronics that can be shipped and sold around the world.  The second sector is called non-tradable jobs, which are jobs that can’t be traded, like real estate, hotel and restaurant workers, health care professionals and government jobs.

The good news is that we added 27 million jobs in the United States during this period.  The bad news is that the job growth was almost all in the non-tradable sector. In other words, our job growth was in the sector of our economy where we don’t compete internationally. You don’t have to be a Nobel Laureate to conclude that if our economy is not competitive internationally, our prosperity will decline. The stakes are much bigger than beer and potato chips.

Some people say it doesn’t matter where products are manufactured as long as we invent them in America. The simple fact is that the continual improvements in productivity are due to the interplay between engineering and manufacturing. In the long run, production engineering follows manufacturing and research and development follows engineering.

China and many countries in Asia and Europe regard clean energy and other high technology products as critical to their future prosperity. Other countries whose economies are largely fueled by extractive industries such as oil, gas and minerals don’t say, “Our future is secure because we are blessed with oil or gas.” The leaders of these countries know that these supplies will eventually run out and they have a finite window of time to develop a knowledge-based economy.

To those in Washington who say we cannot or should not compete, I say: that’s not who we are.  In America, when we fall behind, we don’t give up. We dig in and come back. Why should we concede one of the biggest growing markets in the world that is in our sweet spot: technological and manufacturing innovation? America has the opportunity to lead the world in clean energy technologies and provide the foundation for our prosperity. We remain the most innovative country in the world ... but “Invented in America” is not good enough. We need to ensure that these technologies are invented in America, made in America and sold around the world.  That’s how we’ll prosper in the 21st century.

Thank you.

Corrected version posted at 11:39 a.m.

 

[i] Estimated Government Expenditures on Aviation, 1908-1913 (in 1913 U.S. dollars): Germany, $28,000,000; France, $22,000,000; Russia, $12,000,000; Italy, $8,000,000;  Austria, $5,000,000; England, $3,000,000; Belgium, $3,000,000; Japan, $1,500,000; Chile, $700,000; Bulgaria, $600,000; Greece, $660,000; Spain, $550,000; Brazil, $500,000; United States, $435,000; Denmark, $300,000

[ii]Pew Charitable Trusts, “Who’s Winning the Clean Energy Race? 2010 Edition,” http://www.pewenvironment.org/uploadedFiles/PEG/Publications/Report/G-20Report-LOWRes-FINAL.pdf

[iii] Rising Above the Gathering Storm, Revisited: Rapidly Approaching Category 5

[v] Pew Charitable Trusts, “Who’s Winning the Clean Energy Race? 2010 Edition,” http://www.pewenvironment.org/uploadedFiles/PEG/Publications/Report/G-20Report-LOWRes-FINAL.pdf

[vi] REN21, “Renewables 2011 Status Report,” http://www.ren21.net/Portals/97/documents/GSR/REN21_GSR2011.pdf

[vii] That figure is as of September 11, 2011

[viii] Center for Automotive Research, “Contribution of the Automotive Industry to the Economies of All Fifty States and the United States,” April 2010  http://www.cargroup.org/pdfs/association_paper.pdf

[ix] “The Evolving Structure of the American Economy and the Employment Challenge,” Michael Spence, Council on Foreign Relations, http://www.cfr.org/industrial-policy/evolving-structure-american-economy-employment-challenge/p24366

 

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