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The Not-So-Free Market for Clean Energy Technology

by Michael Levi
January 20, 2011

The New York Times “Room for Debate” asked seven smart experts whether the United States can compete with China on green technology. Their responses, published yesterday, are well worth reading. I worry, though, that they reflect a peculiar, and increasingly unproductive, debate.

The four participants who aren’t academic economists all offer some variation on the claim that green energy can be a central driver of economic growth, and that the United States thus needs a green industrial strategy. I’ve explained on many occasions why I’m skeptical of both assertions. Green technology is important, but there isn’t compelling evidence that it will have big direct consequences for economic growth.

I suspect that’s what motivated the three academic economists who were invited to contribute to all offer variations on a similar theme in response: in a free market, countries specialize in areas where they have comparative advantage; as a result, everyone wins. If China’s gaining market share in certain technologies, they argue, that’s ultimately good for all.

Here’s the massive problem with that: The global economy is nowhere close to being a free market. Barriers to trade and investment abound. Governments frequently use their power to promote favored firms and discriminate against others. The current situation isn’t the consequence of the free market. Saying “the free market works” is no way to defend it.

I have a new article up at Foreign Policy that comes to more mixed conclusions. The central point of my piece is that we ought to stop freaking out so much about supposed Chinese strength in clean energy. Like the academic economists in the New York Times debate, I’m sensitive to the fact that a lot of cleantech migration to China is the result of genuine comparative advantage, and thus doesn’t deserve to be demonized. But I also argue that that’s not the whole picture: in some cases, the shift is the result of anticompetitive Chinese policies that are anything but economically beneficial for the world. That’s not the sort of behavior that should be supported or ignored in the name of free market sensibilities.

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  • Posted by Jeremy

    Hi Michael,

    I just read your article in Slate and I have a couple questions. You argue that for every unit of green energy produced, there is an equivalent unit of traditional energy that is forgone. Clearly, there is a trade off between the types of energy production and, more importantly, in the kinds of jobs that are created as well.

    I question whether this claim is actually true in a global world where energy demand is continually rising. For example, how exactly do clean energy research jobs in California impact coal exporters in Portland and Washington? How do clean energy patent lawyer jobs impact on traditional energy production jobs? Second, energy demand is continuously growing. So how is it then that “Every unit of energy generated from alternative sources displaces a similar amount generated by traditional means”? If there is continuous growth in demand, we should not see such a one for one trade off.

    [ML: Two points. First, I wouldn’t claim a 1-to-1 tradeoff; there are other effects at work. But yes, these should push in opposite directions. Second, I’m not claiming that more green jobs would mean fewer fossil fuel jobs in an absolute sense; I’m arguing that the result would be fewer fossil fuel jobs than under business as usual.]

  • Posted by Tom Jędryszek POLAND EU

    I think, strategy for save a coal for only production in return for a rechangable or different alternative source. For example wind powerplants and solar powerplants,but different too. Use coal only to prodaction artefact materials prolongue periode exploatation of natural deposite. I think, pressing to the this branche take new workplease and restructure in ocassion sector of enrgy. This can by consider. Minimum tree profits in one action, but reduce emition CO2 and other substances to the atmospheare is possitive direct as growth energy market transformation.

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