Lessons From Europe on Clean Energy Manufacturing Policy That Works
America is on the verge of enacting groundbreaking energy legislation that will greatly increase demand for new renewable energy and energy efficiency systems. But unless American manufacturers can quickly scale up production lines to build the equipment, parts, and systems to meet the heightened demand the United States will cede to overseas competitors a once-in-a generation opportunity to create millions of new jobs.
The U.S. currently imports more than 70 percent of the component parts for these systems. If the international market in clean energy were a pizza, we would be left with the crust. About half of the installed wind energy capacity in the U.S. is imported, and American firms occupy less than 10 percent of the global solar component market - even though we invented solar photovoltaic technology.
The ability to produce material goods is the foundation of a healthy economy. For decades, however, the U.S. has been moving away from its once-strong manufacturing base to a less stable service industry base. On average, manufacturing jobs pay $25,000 more per year than service-sector jobs, and often provide benefits such as health care and pensions, creating favorable conditions for a prosperous middle class. Moreover, manufacturing firms provide clear local economic benefits, as they create work all along the product supply chain and in a variety of sectors, from production to transportation to sales and repair.
America Lags
Unless we invest in our own manufacturing sector, we will simply trade our dependence on foreign oil for a new dependence on foreign wind turbines, solar panels, and other building blocks of the clean energy future.
Other nations are ahead of us. Countries across Europe and Asia couple policies that create demand for renewable energy systems, like feed-in tariffs, with investments in clean energy manufacturing and workforce training for the manufacturing sector.
These policies pay off:
- The European wind industry will soon contribute more than 40 percent of the manufacturing jobs in the European Union’s power sector, according to the European Wind Energy Association.
- Danish wind turbines comprise nearly 40 percent of installed wind energy capacity worldwide, including 100 percent of Denmark’s domestic installations.
- In 2003, roughly 10,000 jobs existed in Germany’s solar PV manufacturing, sales, and installation sector. That number has risen to more than 50,000 and is expected to double by 2012 and quadruple by 2020.
Germany’s Clean Energy Achievement
Germany provides an instructive example of how strong policy can promote high-quality domestic jobs and also put a country at the forefront of the global clean energy market. The country’s landmark Renewable Energy Sources Act creates a feed-in tariff system which requires utilities to purchase a predetermined amount of renewable energy at a fixed price. The policy provides economic security for investors and manufacturers and is responsible for the bulk of Germany’s dynamic scale-up of renewable electricity capacity and equipment production.
As a result of the law, solar energy in Germany has gone from a $600 million niche market to a $6.5 billion mega-industry. Responding to explosive demand and consistent public-private investment, German solar companies are constantly improving and expanding their facilities and production lines. The law has likewise accelerated the growth of Germany’s $8 billion wind industry, helping to lower the cost of turbine production by nearly fifty percent.
Through federal workforce development programs that emphasize clean energy occupations, Germany ensures that its ‘green’ labor force - currently estimated at more than a quarter-million - will be equipped with the skills to support the clean energy manufacturing sector. One public-private vocational education program has secured more than 5,000 hands-on training opportunities at German clean energy firms.
Germany’s feed-in tariff and other federal and state policies have fostered a ‘quasi-protected market’ in which the allocation process for government subsidies typically results in German firms’ favor. The 250 MW program, a complementary policy which provided more than $200 million to wind turbine developers from 1990 to 2006, awarded nearly 60 percent of grants to domestic companies.
Even though Denmark led the European wind industry at the time, “a majority of the funds were used to support domestic German manufacturers in the hope of building national capability in the growing wind turbine manufacturing industry.” Overall, government programs and policies, voluntary industry preferences, and close local user-supplier relationships in the 1990s led to more than two-thirds of government subsidies going to projects using German turbines. Today, Germany continues to maintain dominance over its domestic market while exporting more than 80 percent of its value chain.
Spain’s Success
On Europe’s western frontier, Spain is also ahead of the curve in clean energy development and manufacturing. Spain’s feed-in tariff has helped it become the world’s second-fastest-growing wind energy producer (after Germany), and the country is home to some of the biggest names in the global wind industry, including Gamesa, Iberdrola and Acciona. More notable, though, are certain Spanish regions’ requirements that clean energy developers seeking government permits use domestically made equipment and components.
In Galicia, for instance, wind energy projects have been required to use at least 70 percent locally manufactured equipment. A similar requirement reportedly led to the Navarra region installing 700 megawatts (MW) of locally produced wind energy systems, thereby creating 4,000 local jobs. Countrywide, three-quarters of Spain’s installed wind energy is of domestic origin, and the country’s wind energy workforce is estimated to exceed 20,000, roughly half of which is involved in the manufacture of turbines and components.
Several other countries favor domestically manufactured clean energy systems and components:
- Sine 2004, China has required all large wind farms to use turbines incorporating 70 percent domestic content, up from 40 percent from 1996 to 2000, and 50 percent in 2003.
- Prior to 2007, Brazil required 60 percent of the total cost of wind plant goods and services to be sourced in Brazil; since 2007, the percentage has increased to 90 percent.
- In 2003, the Quebecois government required 40 percent of the total cost of the first 200 MW of a public wind project be spent in the region, rising to 50 percent for the next 100 MW, and 60 percent for the remaining 700 MW. Turbine nacelles had to be assembled in the region, and developers’ bidding documents had to include a statement from a turbine manufacturer promising to set up local assembly facilities. Upon agreeing to meet a 60 percent ‘local content requirement,’ a Canadian General Electric subsidiary provided the turbines for a total of 990 MW, and in late 2005 was establishing three manufacturing facilities in Canada.
Losses in United States
The policies that have been successful in scaling up manufacturing sectors outside the U.S. will undoubtedly need to be adapted to the unique characteristics of the American economy. Applying these programs within our borders will finally begin to address the need for a comprehensive national manufacturing policy that drives both public and private investment in the industrial sector, particularly in industries that are primed for expansion under imminent energy and climate legislation.
In the past few years, the bad news about America’s shift to a service economy has grown much worse. Since 1999, our manufacturing sector has lost 4.6 million jobs, many of them to foreign countries where production is cheaper and workers are underpaid. More than a million American manufacturing jobs have disappeared since the start of the recession in December 2007.
Only by giving American manufacturing the kind of large-scale, long-term support that Europe’s industries receive can we hope to rebuild the economy and lead the world’s transition to clean energy. By following the examples of countries that have successfully revived their manufacturing industries by investing in clean energy technology production, we can rebuild the American manufacturing sector and restore this critical piece of our faltering economy.
Seph Petta is a writer and researcher in the Apollo Alliance’s San Francisco office. Reach him at petta (at) apolloalliance.org.
Endnotes
German Solar Industry Association and Federal Ministry of Economics and Technology, Germany.
“Feed-in systems in Germany and Spain, and a comparison.” Summary of a report by the Frauenhofer Institute for Systems and Innovation Research, 2005.
Sawin, Janet. National Policy Instruments: Policy Lessons for the Advancement & Diffusion of Renewable Energy Technologies Around the World. Study for the International Conference of Renewable Energies, Bonn. January 2004.
“Renewable energy jobs soar in Germany.” Jane Burgermeister, RenewableEnergyWorld.com. April 8, 2008.
Langniss, Ole. “The German 250-MW-Wind-Program.” Center for Solar Energy and Hydrogen Research Baden-Württemberg, 2006.
Johnson, Anna and Staffan Jacobsson. The Emergence of a Growth Industry: A Comparative Analysis of the German, Dutch and Swedish Wind Turbine Industries. Department of Industrial Dynamics, Chalmers University of Technology, Sweden. December, 2000; and Connor, Peter M. National Innovation, Industrial Policy and Renewable Energy Technology. Warwick Business School, United Kingdom.
Wind at Work: Wind Energy and Job Creation in the EU. European Wind Energy Association, January 2009.
Lewis, Joanna and Ryan Wiser. Fostering a Renewable Energy Technology Industry: An International Comparison of Wind Industry Policy Support Mechanisms. Energy Policy, November 2005.
[...] Lessons From Europe on Clean Energy Manufacturing Policy That … [...]
[...] Lessons From Europe on Clean Energy Manufacturing Policy That …By following the examples of countries that have successfully revived their manufacturing industries by investing in clean energy technology production, we can rebuild the American manufacturing sector and restore this critical piece of … [...]
[...] Lessons From Europe on Clean Energy Manufacturing Policy That …Moreover, manufacturing firms provide clear local economic benefits, as they create work all along the product supply chain and in a variety of sectors, from production to transportation to sales and repair. …. By following the examples of countries that have successfully revived their manufacturing industries by investing in clean energy technology production, we can rebuild the American manufacturing sector and restore this critical piece of our faltering economy. … [...]
[...] competing against Germany and Spain and Denmark, where wages and benefits are good and labor standards are high,” Gordon said. “Those countries [...]
[...] the United States begins to produce clean, homemade energy, it must make efforts to strengthen the domestic manufacturing base that will supply the [...]