They’re Eating Our Lunch – U.S. Misses Green Opportunities

By Elisabeth Rosenthal

The [British] Mark Group started hunting for a new untapped market when it realized that its core business — insulating old homes using innovative technology — would drop off in coming years. Based in the rust-belt city of Leicester, the company had grown rapidly over the last decade largely because of generous and mandatory government subsidies for energy conservation that impelled the British to treat their homes.

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Lots of Business – Little Competition

But as a result of those incentives, market saturation was nearly complete — more than 80 percent of the country’s older homes had been at least partly retrofitted by 2010, the company estimated. So the Mark Group recently opened its newest office in another country, one with a relative paucity of expertise in the company’s specialty of cutting home energy bills and greenhouse gas emissions.

The office is in Philadelphia.

“The United States was a nearly untouched market with 120 million homes, most of them very energy-inefficient — it was a massive opportunity,” said Bill Rumble, the company’s commercial director, who had recently returned from its new American headquarters.

Many European countries — along with China, Japan and South Korea — have pushed commercial development of carbon-reducing technologies with a robust policy mix of direct government investment, tax breaks, loans, regulation and laws that cap or tax emissions. Incentives have fostered rapid entrepreneurial growth in new industries like solar and wind power, as well as in traditional fields like home building and food processing, with a focus on energy efficiency.

But with Congress deeply divided over whether climate change is real or if the country should use less fossil fuel, efforts in the United States have paled in comparison. That slow start is ceding job growth and profits to companies overseas that now profitably export their goods and expertise to the United States.

U.S. Energy Policy Lags Due to Partisan Politics

A recent report by the Pew Charitable Trusts found that while the clean technology sector was booming in Europe, Asia and Latin America, its competitive position was “at risk” in the United States because of “uncertainties surrounding key policies and incentives.”

“This is a $5 trillion business and if we fail to be serious players in the new energy economy, the costs will be staggering to this country,” said Hal Harvey, a Stanford engineer who was an adviser to both the Clinton and the first Bush administration and is now chief executive of the San Francisco-based energy and environment nonprofit organization Climate Works. Although the 2009 stimulus bill provided a burst of funding — $45 billion — that has now tapered off, he said, “We’ve let energy policy succumb to partisan politics.”

The aggressive entry of Britain into the field over the last few years shows the power of government inducements to redesign a nation’s energy economy away from traditional fuel. The country’s Green Deal, as it is called, is currently being spearheaded by the Conservative-led coalition government. In Britain, reducing carbon dioxide emissions was one of the few policies supported by political parties of both the right and left, which both accepted that climate change was a serious problem and saw clean technology investment as a growth opportunity rather than an onerous obligation.

“We are determined to harness the industrial benefits of the low-carbon economy ahead of the rest of the pack — we see it as a competitive advantage,” said Gregory Barker, Britain’s minister of state for energy and climate change. Last month, Mr. Barker led the first British green trade delegation to the United States; it included a wind energy company and a battery maker, but also AdnamsSouthwold, a famed brewery that now makes beer using less energy and water, and the Mark Group.

President Obama has vowed a switch to cleaner energy, and some states, like California, have taken aggressive measures. But the current patchwork of government inducements remains generally insufficient as a draw for American companies and investors to jump into new fields like wind power, energy-efficient appliances or even mass-market insulation, because upfront costs are large and profits uncertain.

Energy Department officials express frustration that they cannot do more at a crucial juncture without the support of Congress. Dr. ArunMajumdar, senior adviser to Energy Secretary Steven Chu, said that the department’s $5 billion budget for research should be tripled as it currently financed less than 5 percent of proposed projects. He said the country needed better low-cost financing methods to bring companies into the market, as well as stricter energy-efficiency standards to stimulate customer demand.

“We want this ecosystem to grow and thrive like I.T. and biotechnology,” he said, adding he was “concerned” it would not. While he agreed the United States remained a hotbed of good ideas, he said, “in actual downstream deployment we are at risk of falling behind — we are falling behind already.”

No Help in U.S. for Doing the Right Thing

Of the three largest operators of wind farms doing business in the United States, only one, NextEra, is American. Iberdrola is Spanish and Horizon Wind Energy is a subsidiary of Energias de Portugal. Among manufacturers making components for the industry, just one American company, General Electric, is in the top 10. The others include Suzlon (India), Vestas (Denmark), Goldwind (China) and Enercon (Germany).

Tighter energy-efficiency standards for machinery and appliances established in Europe, Japan and China have “primed the demand pump” for companies in those countries to develop innovative designs that use less energy than United States products, said Stefan Heck, head of McKinsey’s global clean technology practice. California is the only American state to adopt similarly high standards.

With less ambitious targets for things like emissions reductions and far lower financial incentives than are common elsewhere, United States policies have had a lackluster incubator effect. The United States’ Energy Star Program, for example, offers homeowners who buy energy-efficient appliances or add insulation to their homes a tax credit equal to 10 percent of the cost — with a cap of $500.

When David Slap recently hired the Mark Group to insulate his four-bedroom house in Penn Valley, Pa. — motivated by drafts and a fear of rising fuel prices — he paid over $5,000, all of it out of pocket.

Contrast that to the subsidy program offered in Britain. Power companies in Britain have been required to progressively reduce their greenhouse gas emissions and this year 68 percent of that reduction had to come from subsidizing professionally installed insulation in customers’ homes. Low-income and elderly customers got the home improvements free. Others paid less than $1,000 to insulate a four-bedroom home, the full cost subsidized 40 to 60 percent. Residents recouped their investment in 12 to 18 months as fuel bills after insulation typically decreased 20 to 30 percent.

“This policy framework allowed the industry to mature — we became cheaper, the quality improved,” Mr. Rumble said. The company developed a mobile infrared scanner operated from a van that could screen 1,000 homes an hour for heat loss as it cruised by.

Other British initiatives included money for new offshore wind farms, payments to homeowners who generated electricity and heat with renewable power, and loans for installing rooftop solar panels that could be progressively repaid from savings on home energy bills.

With its extensive experience in retrofitting homes in Britain, the Mark Group is expecting success in United States markets like Philadelphia, where the business is largely the province of small local contractors.

Some federal incentives may be on the horizon, though many will require Congressional approval. The Energy Department has pressed hard for a new home energy score program that would rate homes for energy efficiency just as cars are rated for gas mileage; that rating would be available to potential buyers.

Will United States companies be able to compete on the world market in the future?

Not unless the country invests more in basic research in renewable energy and energy efficiency, said Emily Carter, a professor of energy and the environment at Princeton University. “If we don’t invest in ways to efficiently produce sustainable energy, then I worry that once we stop importing from the Middle East, we’ll simply find ourselves importing from China.” Φ

Elizabeth Rosenthal writes for the New York Times