How to Enter the Global Green Economy

When New York City wanted to make the biggest purchase of subway cars in U.S. history in the late 1990s, more than 3 billion dollars worth, the only companies that were able to bid on the contract were foreign. The same problem applies to high-speed rail today: only European or Japanese companies could build any of the proposed rail networks in the United States. The U.S. has also ceded the high ground to Europe and Japan in a broad range of other sustainable technologies. For instance, 11 companies produce 96% of medium to large wind turbines; only one, GE, is based in the United States, with a 16% share of the global market. The differences in market penetration come down to two factors: European and Japanese companies have become more competent producers for these markets, and their governments have helped them to develop both this competence and the markets themselves.

Let’s take Germany as an example. Even though the sun is not so shiny in that part of Europe, Germany has put up 88% of the PV photovoltaics for solar power in Europe. Partly, this was the result of a feed-in tariff (FIT); that is, Germany guarantees that it will pay about .10 Euro per kilowatt/hour of electricity to whoever produces wind or solar electricity. The average for electricity that is paid for nonrenewable sources is about .05 Euro per kwh, so Germany is effectively paying double for its renewable electricity in a successful effort to encourage its production. Every year, the guaranteed price is lowered, so that the renewable sector can eventually compete on its own, having gotten over the “hump” of introducing new technology.

But Germany’s other advantage is that it is a world leader in manufacturing renewable technology equipment. 32% of the solar equipment manufacturers in the world are located in Germany. In addition, almost 30% of global wind turbine manufacturing capacity is German.

In Denmark we can see the advantages of good policy plus competence in building machinery. The world’s largest wind turbine manufacturer, Vestas, is Danish. According to the Earth Policy Institute, “Denmark’s 3,100 megawatts of wind capacity meet 20 percent of its electricity needs, the largest share in any country.” The Danes have created a fascinating experiment in democracy by building most of their wind turbines through the agency of wind cooperatives, which may be joined by individuals and families.

Spain has undertaken one of the most ambitious programs in wind, solar, and high-speed trains. The Gamesa Corporation is the second largest wind turbine manufacturer, and Acciona Energy is the largest wind-park developer. The Spanish government has very ambitious plans for wind production, and occasionally wind power provides as much as 30% of the country’s electrical power.

Spain is also the world’s fourth largest producer of solar energy equipment, and is a leader in the development of concentrated solar power (CSP). CSP is a form of solar power obtained by using a very large quantity of mirrors, typically, to concentrate solar rays onto a tower that produces steam, which then turns a turbine, generating electricity. They are often built in deserts, and can be spread over several acres. These new solar technologies will probably result in lower cost electricity for long-distance applications than photovoltaics.

Asia is an important producer of renewable energy and train equipment as well. As of 2006 Japan produced about 39% of the solar cells in the world, and has encouraged solar energy in Japan with subsidies for purchasing the equipment as well as generous research budgets. Japan’s Shinkansen high-speed rail network covers much of the country. China is set to take off as one of the world’s biggest solar and wind equipment producers, owing to its rise as a manufacturing nation.

But Europe and Japan’s dominance in renewable technologies is really based in a broader domain of competitive competence. They dominate the most fundamental sector of the economy, namely the production of machinery for manufacturing industries in general (often referred to as the mechanical engineering sector). According to statistics compiled by the European Union (EU), the EU produces almost twice as much industrial equipment overall as the United States; Japan produces almost as much as the US, with about half the population. The split among the EU, US, and Japan, which together produce most of the world’s machinery, is 52%, 27%, and 21%, respectively.

A robust industrial sector is the infrastructure we need for building the tools that will help us to avert climate catastrophe. Think of the industrial sector of an economy as an ecosystem. Instead of the grass and leaves that feed the plant-eaters that feed the meat eaters, a modern economic ecosystem contains industrial equipment that makes production technology that creates the goods and services that people consume.

The different “niches” of an economic ecosystem, such as the various machinery and equipment sectors, thrive as a self-reinforcing web of engineers, high-skill production workers, operational managers and factories. As of 2003, Europe’s manufacturing sector made up 32% of its nonfinancial economy, while the manufacturing sector of the United States comprised only 13% of its nonfinancial sectors. The decline of American machinery and manufacturing sectors, in conjunction with the on-again/off-again nature of American renewable energy policy, explains why Europe and Japan are so far ahead of the United States in the transition to a more sustainable economy.

And America’s decline can be traced to one overriding factor: a military budget that comprises nearly half of the world’s military spending. For decades, as the late Professor Seymour Melman showed in many books (such as After Capitalism) and in numerous articles, the Pentagon has been draining, not just money, but also the engineering, scientific and business talent that Europe and Japan have been using for civilian production. As Melman often pointed out, the U.S. military budget is a capital fund, and American citizens can use that fund to help finance the construction of the trains, wind and solar power, and other green technologies that will help us to avoid economic and environmental collapse.

That economic collapse, if it comes, will be caused by two major factors: the end of the era of cheap oil, coal and natural gas; and the decline of the manufacturing and machinery base of the economy. Both problems can be addressed simultaneously, as Europe and Japan are showing, by moving the economy from one based on military and fossil fuel production to one based on electric transportation and the generation of renewable electricity.

Jonathan Rynn, Ph.D., is a frequent contributor to the Grist environmental blog and a contributor to Foreign Policy In Focus.