Commentary July 29, 2010, 5:00PM EST

Commentary: America Sits Out the Race

(page 2 of 2)

Instead of funding U.S. projects, banks and venture capitalists increasingly are putting their energy money into China, where the market is large and secure, thanks to government mandates. In the second quarter, for example, China attracted more clean-tech asset financing than Europe and the U.S. combined, according to data compiled by Bloomberg New Energy Finance (BNEF). Financing of wind turbines, solar panels, and low-carbon technology in China climbed to $11.5 billion, a 72 percent jump from the year-earlier quarter. U.S. investment in clean energy for the quarter measured $4.9 billion; Europe's, $4.5 billion. "Where investors are placing their bets," says BNEF Chief Executive Michael Liebreich, "is changing rapidly."

On the same day that Reid pulled the plug on the carbon cap, China Daily announced that the People's Republic would begin an experiment in carbon trading—a policy mechanism invented in America, used by Republican George H.W. Bush to fight acid rain, and vilified by today's GOP as "cap and tax." China may spend $738 billion over the next decade developing cleaner sources of energy, according to Jiang Bing, head of the planning and development department for China's National Energy Administration. "The government is taking the issue of cleaner energy seriously for the reasons of climate change [and] energy security," says Barbara Hon, an analyst at China Everbright Securities in Hong Kong. "It's already meeting some of its targets for sectors like wind power well ahead of schedule."

It may already be too late to catch the Chinese, though there are ways the U.S. could stay in the game. The carbon cap would be Plan A, but that's off the table for now. Plan B would begin with passage of the RES and other measures also not being considered in current legislation. One such idea is a "Green Bank" that would leverage Treasury Dept. money for low-interest loans to projects that can't attract conventional financing because their path to profitability is too long. "I don't know if it really amounts to a Plan B," says Kenneth Berlin, a Green Bank proponent and cap-and-trade supporter who heads the environmental practice at Skadden, Arps, Slate, Meagher & Flom. "It's more like Plan D, but it would be far, far better than nothing."

Twenty-eight states and the District of Columbia already have RES laws, many with much higher targets than the one cut out of the Senate bill. Colorado voters approved one in 2004, and the state has increased the standard twice: The current target is 30 percent by 2020, double the one left out of the Senate bill. Colorado now generates almost 6 percent of its electricity from wind, and its commitment to clean energy has helped develop a solar industry as well: from 100 companies in 2007 to more than 400 today, according to the governor's office. When Vestas Wind Systems, the Danish turbine maker, chose to build its North American manufacturing plants in Colorado (a $1 billion investment that was good for 2,500 new jobs), it called the RES a major factor in the decision.

Another early adopter is Texas. Its RES, signed into law by Governor George W. Bush in 1999, has helped the state become a major producer of U.S. wind power, adding almost 10 gigawatts (up from 0.2 in 1999) and thousands of new jobs in the decade since the law was enacted. Although Texas has reduced its carbon emissions as a result of this push into wind energy, Bush and his fellow Texans didn't create the industry because they were worried about global warming. They did it because there was money to be made.

There still is. And if Congress doesn't hurry, most of it is going to be made in China.

Pooley is Deputy Editor of Bloomberg Businessweek. With Jessica Ng in Beijing.

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