Report Urges U.S.-China Cleantech Partnership, Not Competition

A breakthrough in U.S.-China relations on green technology that creates conditions for both superpowers to succeed is crucial if the world wants to curb global warming, argues McKinsey & Co. in a new report.

The report flips a common argument on its head -- that an all-out, U.S-China battle for cleantech is inevitable; that in a matter of years, one of the two will lead, while the other will lag; and that the lucky winner will get the green jobs and new companies, while the loser will get left out in the cold.

The truth may be very different.

"Unless the two work together to provide the scale, standards, and technology transfer necessary to make a handful of promising but expensive new clean-energy technologies successful...neither country will maximize its gains...

"They cannot achieve separately what they could jointly," the McKinsey Quarterly report, China and the US: The Potential of a Clean-Tech Partnership, says.

China and the U.S. will most certainly compete to make the products of the next great global industry. But that musn't come at the expense of cooperation. The two countries should, and can, collaborate to create a global market that is bigger and more attractive for both, says McKinsey.

Such an effort would also "deliver benefits that would accrue to all nations."

McKinsey highlights three specific areas for cooperation: electric cars, concentrating solar power and carbon capture and storage technology.

Electric Cars

If a majority of the world's cars were hybrids and battery-powered by 2030, they would spew 42 percent fewer emissions than if all cars continued to run on today's gas engines, according to McKinsey calculations. But,

"such reductions won't occur—won't even come close to happening—unless China and the United States lay the groundwork to make it so."

What must the U.S. and China do? In the near term, the two should pick matching cities for electric car pilots. Longer term, they must

  • Set coordinated product and safety standards across the two markets.
  • Fund the rollout of infrastructure, sponsor joint R&D initiatives in select areas (such as new materials for parts).
  • Ensure that trade policies support rather than hinder the development of a global supply chain for the sector.
  • Provide consumers with financial incentives to buy the new models.

China and the U.S. are the two largest auto markets in the world. You can bet the effects of mass electric car adoption in both would ripple across the world. For one, oil consumption would fall dramatically, easing pressure on future global supply.

"One plus one would equal three. Such momentum would also likely spark Europe into competing in a global electrified-vehicle industry faster."

Concentrating Solar Power (CSP)

CSP plants use vast solar mirrors to concentrate the sun's rays to extremely high temperatures, producing steam to drive  turbines. Experts claim that deploying them on a sliver of desert 186 miles on each side could technically power the whole world.

The technology is ripe for exploitation. But massive investments are still needed on a scale that only the largest economies can support, says McKinsey. Because of that, CSP

"might not even have a future without joint action by China and the United States."

If both nations took the CSP plunge, the benefits would be huge. In fact, if CSP were scaled to generate 22 percent of total power in China and the U.S. by 2030, it could create over half a million jobs in each country.

What would it take? For starters, the nations would need to set common standards and co-invest in pilot projects and R&D.

Carbon Capture and Storage Technology (CCS)

McKinsey recommends the two nations pool their costs and knowledge on CCS, "another technology whose success needs the scale that only China and the United States can create together."

CCS, known as "clean" coal, is a controversial, still unproven and expensive practice that would strip CO2 from exhaust gases from coal plants, pipe it away and bury it in depleted oil and gas reservoirs and other geologic formations.

According to the firm's projections, by 2030, CCS could "clean" 17
percent of coal power in the U.S. and 30 percent of China's coal power,
reducing total combined emissions by as much as 7 percent.

McKinsey recommends that the two nations fund demo plants on their home soils to test out technologies available, set standards and drive down costs.

The obstacles are many for this level of U.S.-China cleantech cooperation, for all the technologies. But there are already some promising ventures in the works that could signal the beginnings of progress.

Duke Energy, America's third largest utility, has signed a memorandum of understanding with China Huaneng Group, which produces 10 percent of that nation's electricity, to work on CCS, as well as on wind, solar and other forms of renewable energy.

The DOE has recently announced a $15 million joint U.S.-Chinese clean energy research center, and has also signed a memorandum of understanding with China aimed at breaking ground in energy-efficient buildings and green vehicles.

For such partnerships to reach a scale that would help curb global climate change, though, there must be commitment at the top levels of both governments.

Institutional frameworks for implementing and managing projects must be developed between the two, as well as co-financing mechanisms, and other measures. For their part, U.S. companies would have to overcome concerns about protecting the intellectual property (IP) technologies that they use in China.

Cooperation may be easier said than done. The development of their own clean tech industries is a huge concern for both countries. And the U.S. is beginning to feel the heat: Currently, China is spending ten times more on clean energy than the U.S.

In a recent op-ed, John Doerr, a partner in the venture capital firm Kleiner Perkins Caufield & Byers, and Jeff Immelt, chairman and chief executive of GE, sounded the alarm over China's growing cleantech edge, arguing that America is in a "competitiveness crisis." They wrote:

"We are clearly not in the lead today. That position is held by China, which understands the importance of controlling its energy future. China's commitment to developing clean energy technologies and markets is breathtaking."

That may be true, and it certainly taps into fears of Chinese cleantech dominance.
But if an American clean tech revolution is the goal, and if this McKinsey report is anything to go by, then perhaps it's the current "cooperation crisis" the U.S. government should be most worried about.

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