```

[Senate Hearing 112-623]
[From the U.S. Government Publishing Office]

                                                        S. Hrg. 112-623

                 CLEAN ENERGY RACE: THE UNITED STATES 
                               AND CHINA

=======================================================================

                                HEARING

                               before the

                              COMMITTEE ON
                      ENERGY AND NATURAL RESOURCES
                          UNITED STATES SENATE

                      ONE HUNDRED TWELFTH CONGRESS

                             SECOND SESSION

                                   TO

RECEIVE TESTIMONY ON COMPETITIVENESS AND COLLABORATION BETWEEN THE U.S. 
                       AND CHINA ON CLEAN ENERGY

                               __________

                             JUNE 14, 2012

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                       Printed for the use of the
               Committee on Energy and Natural Resources

                                _____

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76-898 PDF                WASHINGTON : 2012
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20402-0001

               COMMITTEE ON ENERGY AND NATURAL RESOURCES

                  JEFF BINGAMAN, New Mexico, Chairman

RON WYDEN, Oregon                    LISA MURKOWSKI, Alaska
TIM JOHNSON, South Dakota            JOHN BARRASSO, Wyoming
MARY L. LANDRIEU, Louisiana          JAMES E. RISCH, Idaho
MARIA CANTWELL, Washington           MIKE LEE, Utah
BERNARD SANDERS, Vermont             RAND PAUL, Kentucky
DEBBIE STABENOW, Michigan            DANIEL COATS, Indiana
MARK UDALL, Colorado                 ROB PORTMAN, Ohio
JEANNE SHAHEEN, New Hampshire        JOHN HOEVEN, North Dakota
AL FRANKEN, Minnesota                DEAN HELLER, Nevada
JOE MANCHIN, III, West Virginia      BOB CORKER, Tennessee
CHRISTOPHER A. COONS, Delaware

                    Robert M. Simon, Staff Director
                      Sam E. Fowler, Chief Counsel
               McKie Campbell, Republican Staff Director
               Karen K. Billups, Republican Chief Counsel

                            C O N T E N T S

                              ----------                              

                               STATEMENTS

                                                                   Page

Bingaman, Hon. Jeff, U.S. Senator From New Mexico................     1
Holladay, Dan W., Director, Advanced Technologies and PV 
  Programs, SEMATECH.............................................    26
Murkowski, Hon. Lisa, U.S. Senator From Alaska...................     2
Prestowitz, Clyde, President, Economic Strategy Institute........    20
Resch, Rhone, President & CEO, Solar Energy Industries 
  Association....................................................    55
Scissors, Derek, The Heritage Foundation.........................    32
Wolff, Alan Wm., McKenna Long and Aldridge.......................     8
Wu, Justin, Head of Wind Industry Research, Bloomberg New Energy 
  Finance........................................................     4

                                APPENDIX

Responses to additional questions................................    59

 
                 CLEAN ENERGY RACE: THE UNITED STATES 
                               AND CHINA

                              ----------                              

                        THURSDAY, JUNE 14, 2012

                                       U.S. Senate,
                 Committee on Energy and Natural Resources,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 9:36 a.m. in room 
SD-366, Dirksen Senate Office Building, Hon. Jeff Bingaman, 
chairman, presiding.

OPENING STATEMENT OF HON. JEFF BINGAMAN, U.S. SENATOR FROM NEW 
                             MEXICO

    The Chairman. I'm told Senator Murkowski is on her way and 
said we should proceed. Today we'll hear from witnesses on 
competitiveness and collaboration issues between the United 
States and China related to clean energy. The hearing follows a 
trip that I took to China in April to try to learn about 
Chinese policies and incentives to deploy clean energy. My 
staff and I visited Hong Kong and Shenzhen and Beijing to talk 
with investors and business representatives and government 
officials.
    On that trip I was impressed by the vast combination of 
financial investments and government partnerships with industry 
to deploy clean energy. China is rapidly developing and, 
although much of its growth is dominated by coal and fossil 
fuels, the Chinese government has combined a mix of financial 
incentives with government policies to promote the clean energy 
sector as well.
    That sector is not only developing domestically in China; 
it's also extending abroad. It's influencing the United States 
very directly and European markets.
    The situation in China is in direct contrast to the 
approach to clean energy that we have taken here in the United 
States. Many of our efforts to promote clean tech in the United 
States are addressed in an unpredictable fashion, with funds 
and incentives that expire and come back to life and expire 
again, and a lack of clear directional policy that would allow 
industry to plan for the future.
    I believe that the inconsistent approach that we've been 
pursuing has put the United States at a disadvantage in 
competing with China for a share of clean energy markets, both 
at home and abroad. Many here in the United States argue that 
we should allow the free market to determine the fate of 
domestic industries. There's clearly truth in that suggestion, 
but it fails to take into account the industrial policies and 
practices of competing nations, as well as hidden costs in the 
current energy system.
    The U.S. cannot compete on a level playing field with 
countries that have strong industrial policies when our own 
policies are inconsistent and erratic. In the absence of clear 
and coherent policies to support development of clean 
technology in the United States, many of our companies and 
industries are left to rely on trade policy to try to protect 
their competitive interests. Trade enforcement is critical, but 
we also need a strong foundation of domestic policies to build 
upon.
    I want to make clear that this is not a hearing intended to 
focus on the trade cases that are currently before the ITC and 
the Department of Commerce. The matters in these cases are not 
under the jurisdiction of our committee. This hearing should 
not be a forum to try to prejudice the outcome of any of those 
cases. The purpose of this hearing is to gain a greater 
understanding of what China's doing on clean energy, how that 
impacts and relates to what the U.S. is doing.
    I hope we're able to focus on 3 large issues: What's the 
current landscape of Chinese investment in clean and renewable 
energy; second, what are the appropriate U.S.-Chinese 
relationships on clean energy issues; and how do we promote 
U.S. knowledge competitiveness with China and other countries 
in the clean tech sector.
    I believe the U.S. should continue to rigorously enforce 
its trade laws to level the playing field when there are unfair 
disparities. But additional domestic measures are likely to be 
needed if the U.S. is to fully compete in this sector.
    I'm very interested in some of the testimony related to the 
experience we had with Sematech back in the 1980s and drawing 
the analogy between what the United States did there to try to 
support the semiconductor industry and what might be done here 
with these clean technology areas that we're discussing today. 
I know Alan Wolff and Clyde Prestowitz have a substantial 
history in connection with this and may be able to enlighten us 
as well.
    Finally, the U.S. and China have common interests in 
deploying clean energy. While we may find ourselves. While we 
may find ourselves in positions of competing with each other 
for these new markets, I believe that part of our conversation 
should also lead to answers on what the two countries can be 
doing together to accelerate deployment of these technologies.
    Let me call on Senator Murkowski for any comments she would 
like to make.

        STATEMENT OF HON. LISA MURKOWSKI, U.S. SENATOR 
                          FROM ALASKA

    Senator Murkowski. Thank you, Mr. Chairman. To the 
witnesses, welcome and good morning.
    The purpose of today's hearing is to take another, perhaps 
a closer, look at clean tech competitiveness issues between 
China and the United States. I want to reinforce the chairman's 
remarks here that this hearing is not about ongoing trade 
disputes. It's not the role of this committee to influence 
those processes. Focusing, I think, in other topics will not 
diminish our conversation, but rather, to the contrary, 
competitiveness challenges surface long before trade complaints 
are filed. They emerge even before the goods are manufactured 
or the factories are built, because they start with the 
decisions made by companies and individuals about where to 
invest.
    The factors guiding these decisions are nearly limitless 
and they are no different when the choice is between the United 
States and China or any other country. Regulatory and tax 
treatments, property rights, raw material availability, labor, 
health care costs, access to affordable energy, all of these 
combine to guide investment decisions.
    Our work to better understand these forces can benefit from 
comparisons with China, but there are also some key differences 
that I think it's important that we keep in mind. These 
differences are rooted in some very important factors, 
including what our own Constitution permits, how much taxpayer 
we can afford to spend, what the American people really are 
willing to support.
    I'm one who believes that we need to be mindful of these 
factors when we hear claims that the United States is somehow 
falling behind China in a clean energy race. In so many ways, I 
would suggest that we are not falling behind. From the wages 
and conditions for our workers to our environmental standards 
and capacity for innovation, I think that the United States is 
leading.
    We can and should work with China to make progress on our 
energy challenges, but we should not necessarily copy what they 
do or how they do it just for the sake of copying what they do. 
Imitating China is not the best way to compete with China. This 
is particularly true for energy technology subsidies as we work 
to get our debt under control. I have long advocated for 
funding clean tech research efforts with revenues from 
conventional energy sources. This I think is a far more 
sustainable approach than the one taken by China. I hope that 
we continue to gain in traction in that direction.
    Beyond spending, I think we need to be careful about 
following even China's more progressive energy policy. An 
example would be the Three Gorges Dam, a source of renewable 
energy, but it has displaced several million people from their 
homes and their communities. Chinese production of raw 
materials for clean energy technologies has had some negative 
impacts on their country's air and water quality. The solar 
panel factories don't necessarily run on solar power.
    But, having said all that, I think we also recognize that 
our country policies are not perfect, either. Even here at 
home, where we've got a proud history of improving 
environmental performance, biofuels have played a role in 
raising our food prices. We currently have no plan for 
permanent disposal of our spent nuclear fuel and nuclear waste. 
The siting of transmission lines to connect renewable assets to 
the grid has, of course, resulted in some controversy out 
there.
    I raise these issues, not to throw cold water on the 
enthusiasm for clean energy technologies, but perhaps to 
provide some context and a reminder to us of the challenges 
that we face. It's my hope that this hearing serves as the 
basis for understanding how cautious we must be about accepting 
some of the simple narratives.
    In the end, this is not just about lowering the cost of 
financing projects that we all support or finding the money in 
the budget for subsidies. It's about looking honestly at the 
whole picture, devoting as much attention to identifying areas 
where our own government can play a constructive role as we do 
identifying areas where it's getting in the way. It's about 
balancing the priorities and reaching agreement on the policies 
that address both our immediate and our long-term needs.
    The discussion must account for China, but I don't think 
that we should be overwhelmed by it.
    I appreciate the fact that we have the opportunity to have 
this hearing this morning, Mr. Chairman. I look forward to the 
statements and comments from the witnesses.
    The Chairman. Thank you very much.
    We have 5 distinguished witnesses here and let me just 
introduce all of them, and then we'll hearing from them: Mr. 
Justin Wu, who is head of wind industry research with Bloomberg 
New Energy Finance in Hong Kong. We appreciate you being here 
very much.
    Mr. Alan Wolff, who is Senior Counsel with McKenna Long and 
Aldridge, we appreciate you being here very much.
    Mr. Clyde Prestowitz, who's testified many times before our 
committee, as have some of the other witnesses, President of 
the Economic Strategy Institute, we appreciate you being here.
    Mr. Dan Holladay, Director of Advanced technologies and PV 
Programs with Sematech, thank you.
    Dr. Derek Scissors, who is the Senior Research Fellow at 
the Heritage Foundation, thank you for being here.
    Our usual approach is to take--have each witness take 5 or 
6 minutes and summarize the main points that you think we 
should understand from your testimony. We will include your 
full testimony in the record as if read, but if you could try 
to give us the main points, that way we will have some time for 
questions.
    So why don't we just go in the order I introduced people. 
Mr. Wu, why don't you start.

    STATEMENT OF JUSTIN WU, HEAD OF WIND INDUSTRY RESEARCH, 
                  BLOOMBERG NEW ENERGY FINANCE

    Mr. Wu. Thank you very much. Good morning, Chairman 
Bingaman, Senators, ladies and gentlemen: Thank you very much 
for hosting me here today. It is an honor and privilege to be 
offering my thoughts on these important topics before this 
committee.
    I join you in my role as an analyst with Bloomberg New 
Energy Finance, a division of Bloomberg focused on the clean 
energy sector. Our group provides accurate and actionable data 
and insight on investment, technology, and policy trends in 
clean energy. My remarks today represent my views alone and not 
the corporate positions of either Bloomberg or Bloomberg New 
Energy Finance. In addition, they do not represent any 
investment advice and should not be construed as such.
    The subject of today's hearing is China, clean energy and 
the trade relationship between the United States and China. I 
grew up in Maryland and have worked in China and Hong Kong over 
the past 6 years analyzing the growth of China's clean energy 
industry. I offer my thoughts on its current status and how it 
has developed so rapidly and what we can expect in the future. 
I will leave to my fellow panelists today to discuss more 
specifically the relevant trade and cooperation issues.
    There is no question that China is now a clean energy 
giant. Its industry has grown rapidly from almost nothing in 
less than a decade. The country now manufactures half the 
world's wind turbines and solar PV modules. Four of the ten 
largest wind turbine manufacturers and 8 of the top ten solar 
manufacturers in the world are Chinese. The country overtook 
the United States as the world's largest wind market in 2010 
and installed more than 10,000 wind turbines in 2011. That 
represents almost ten times the capacity of the Hoover Dam.
    In 2009 and 2010 China was the world leader in attracting 
new capital for clean energy. In 2011, a total of $47 billion 
went into the country's wind, solar, and other clean energy 
sectors, though China actually finished second to the United 
States last year in total clean energy investment, for reasons 
which I will explain in a moment.
    What has driven this massive growth? First, the Chinese 
economy is expanding at about 8 percent per year, with 
electricity demand growth to match. Its utilities and power 
generators have to invest heavily in new capacity to keep pace.
    Second, over 70 percent of China's electricity currently 
comes from coal. In the view of the Chinese government, this 
overreliance has become expensive, environmentally damaging, 
and bad for energy security. The need to diversify into 
something cleaner and less vulnerable to fuel price shock is 
attractive and important.
    In 2005, the Chinese government drafted its first renewable 
energy law, which set targets for non-large hydro renewable 
energy and mandated that its utilities procure a certain 
portion of electricity from these clean sources. This was 
followed by other supportive measures, including feed-in 
tariffs, which set high prices for power sold from wind or 
biomass projects, and laws that required grid companies to 
prioritize dispatch of renewables.
    A vision for renewables was outlined at the national level 
and China's state-owned utilities and industry embraced these 
goals. Local governments followed, offering land and tax 
incentives to clean energy companies to set up shop in their 
home provinces. State-owned banks lent generously to power 
companies to build their wind farms and solar parks.
    A domestic clean energy manufacturing industry was built 
alongside the generation capacity. Chinese state-owned 
corporations, many with previous heavy manufacturing or 
construction experience, began buying technology licenses, 
forming joint ventures, and hiring foreign engineers to design 
their wind turbines. Private entrepreneurs, some backed by 
venture capital and private equity money from abroad, began 
building solar manufacturing facilities. The ultimate result, a 
manufacturing boom and the creation of leading clean energy 
companies.
    It should be noted that a number of European and American 
clean tech companies have also benefited from this boom. 
Advanced components of wind turbines were designed and supplied 
by European firms and capital equipment used to manufacture 
solar cells and modules often comes from American companies.
    However, China's clean energy boom is not without its 
problems. The rapid growth of the industry has created a clean 
energy bubble. There are far too many wind and solar 
manufacturing companies and many now face intense competitive 
pressure and possible bankruptcy. One-quarter of China's wind 
farms are not connected to the power grid.
    They sit idle in remote regions with poor infrastructure 
and very little electricity demand.
    Today, China's clean energy industry is still growing, but 
this growth has moderated significantly and a more mature 
industry will eventually emerge. The government is trying to 
cool investment in this sector and reduce the number of new 
wind farms and solar parks being built in the country each year 
to a more sustainable level. The focus is now more on quality 
and not on quantity.
    This change, coupled with major U.S. Government support in 
the form of stimulus programs, allowed the U.S. to regain its 
leadership position in clean energy investment dollars in 2011. 
That said, we regard it as unlikely that the U.S. will top the 
table again in 2012, as policy uncertainty appears to be 
depressing investment, particularly in the wind sector.
    Finally, I would like to address the question of what's 
next for Chinese clean energy companies. As the industry cools 
at home, many are now seeking opportunities abroad. China has a 
surplus of savings and a strong need for further investment to 
drive its economic growth, including more investment overseas. 
Its government has encouraged the clean energy industry to do 
this.
    Chinese solar companies have exported their equipment to 
Germany, the United States, and elsewhere for years. But 
Chinese wind turbine manufacturers, utilities, and other clean 
tech investors have remained largely confined to the domestic 
market. In the coming months, we anticipate Chinese power 
companies and banks developing and financing clean energy 
projects abroad, not only in the United States, but also in 
Europe and emerging markets, particularly in Latin America.
    At the same time, American and European clean energy 
companies will continue to sell their products and technology 
to China and also partner with Chinese companies as they go 
overseas. The trade flow in clean energy between the United 
States and China will only increase in the future and it will 
be a two-way street. However, unlike the breakneck pace of 
Chinese domestic clean energy investment, overseas wind 
ventures have so far been slow and cautious, a trickle and not 
a flood.
    Thank you for your time and attention. I welcome your 
questions and comments.
    [The prepared statement of Mr. Wu follows:]

   Prepared Statement of Justin Wu, Head of Wind Industry Research, 
                      Bloomberg New Energy Finance
    Good morning, Chairman Bingaman, Senators, ladies and gentlemen. 
Thank you very much for hosting me here today. It is an honor and 
privilege to be offering my thoughts on these important topics before 
this committee.
    I join you in my role as analyst with Bloomberg New Energy Finance, 
a division of Bloomberg focused on the clean energy sector. Our group 
provides accurate and actionable data and insight on investment, 
technology, and policy trends in clean energy. My remarks today 
represent my views alone and not the corporate positions of either 
Bloomberg LP or Bloomberg New Energy Finance. In addition, they do not 
represent investment advice and should not be construed as such.
    The subject of today's hearing is China, clean energy and the trade 
relationship between the United States and China in this area. I grew 
up in Maryland and have worked in China and Hong Kong over the past six 
years analyzing the growth of China's clean energy industry. I offer my 
thoughts on its current status, how it has developed so rapidly and 
what we can expect in the future. I will leave to my fellow panelists 
today to discuss more specifically the relevant trade and cooperation 
issues.
    There is no question that China is now a clean energy giant--its 
industry has grown rapidly from almost nothing in less than a decade. 
The country now manufactures half the world's wind turbines and solar 
PV modules. Four of the 10 largest wind turbine manufacturers and eight 
of the top ten solar manufacturers in the world are Chinese.
    The country overtook the United States as the world's largest wind 
market in 2010 and installed more than 10,000 wind turbines in 2011. 
That represents almost ten times the capacity of the Hoover Dam.
    In 2009 and 2010, China was the world leader in attracting new 
capital for clean energy. In 2011, a total of $47bn went into the 
country's wind, solar, and other clean energy sectors, though China 
actually finished second to the US last year in total clean energy 
investment for reasons I'll explain in just a moment.
    What has driven this massive growth? First, the Chinese economy is 
expanding at about 8% per year with electricity demand growth to match. 
Its utilities and power generators have to invest heavily in new 
capacity to keep pace. Second, over 70% of China's electricity comes 
from coal. In the view of the Chinese government, this over reliance 
has become expensive, environmentally damaging and bad for energy 
security. The need to diversify into something cleaner and less 
vulnerable to fuel price shock is attractive and important.
    In 2005, the Chinese government drafted its first Renewable Energy 
Law which set targets for non-large hydro renewable energy and mandated 
that its utilities procure a certain portion of electricity from clean 
sources. This was followed by other supportive measures including feed-
in tariffs, which set fixed high prices for power sold from wind or 
biomass projects, and laws that require grid companies to prioritize 
dispatch of renewables.
    A vision for renewables was outlined at the national level and 
China's state-owned utilities and industry embraced these goals. Local 
governments followed, offering land and tax incentives to clean energy 
companies to set up shop in their home provinces. State-owned banks 
lent generously to power companies to build their wind farms and solar 
parks.
    A domestic clean energy manufacturing industry was built alongside 
the generation capacity. Chinese state-owned corporations, many with 
previous heavy manufacturing or construction experience began buying 
technology licenses, forming joint ventures and hiring foreign 
engineers to design their wind turbines. Private entrepreneurs, some 
backed by venture capital and private equity money from abroad, began 
building solar manufacturing facilities. The ultimate result: a 
manufacturing boom and the creation of leading clean energy companies.
    It should be noted that a number of European and American clean 
tech companies have also benefited from this boom. Advanced components 
of wind turbines were designed and supplied by European firms, and 
capital equipment used to manufacture solar cells and modules often 
comes from American companies.
    However, China's clean energy boom is not without its problems. The 
rapid growth of the industry has created a clean energy bubble--there 
are far too many wind and solar manufacturing companies and many now 
face intense competitive pressure and possible bankruptcy. One quarter 
of China's wind farms are not connected to the power grid; they sit 
idle in remote regions with poor infrastructure and very little 
electricity demand.
    Today China's clean energy industry is still growing, but this 
growth has moderated significantly and a more mature industry will 
eventually emerge. The government is trying to cool investment in this 
sector and reduce the number of new wind farms and solar parks being 
built in the country each year to a more sustainable level. The focus 
is more on quality than quantity.
    This change, coupled with major US government support in the form 
of stimulus programs, allowed the US to regain its leadership position 
in clean energy investment in 2011. That said, we regard it as unlikely 
that the US will top the table again in 2012 as policy uncertainty 
appears to be depressing investment, particularly in the wind sector.
    Finally, I would like to address the question of what's next for 
Chinese clean energy companies. As the industry cools at home, many are 
now seeking opportunities abroad. China has a surplus of savings and a 
strong need for further investment to drive its economic growth, 
including more investment overseas. Its government has encouraged the 
clean energy industry to do this.
    Chinese solar companies have exported their equipment to Germany, 
the US, and elsewhere for years. But Chinese wind turbine 
manufacturers, utilities and other clean tech investors have remained 
largely confined to the domestic market. In coming months, we 
anticipate Chinese power companies and banks developing and financing 
clean energy projects abroad, not only the US, but in Europe and 
particularly in emerging markets such as Latin America.
    At the same time, American and European clean energy companies will 
continue to sell their products and technology to China and also 
partner with Chinese companies as they go overseas. The trade flow in 
clean technology between the United States and China will only increase 
in the future--and it will be a two way street.
    However, unlike the breakneck place of Chinese domestic clean 
energy investment, overseas ventures have so far been slow and 
cautious--a trickle and not a flood.
    Thank you for your time and attention, I welcome your questions and 
comments.

    The Chairman. Thank you very much.
    Mr. Wolff, go right ahead.

           STATEMENT OF ALAN WM. WOLFF, MCKENNA LONG 
                          AND ALDRIDGE

    Mr. Wolff. Thank you, Mr. Chairman, Senator Murkowski, 
Senators Wyden and Frank, and members of the committee.
    Your hearing today on China and clean energy is both timely 
and important. China is out-investing the United States and 
that does have consequences in our market in clean energies. 
Their industrial policies have created tremendous excess 
capacity, particularly in photovoltaics.
    China has exported until recently about 95 percent of its 
production in photovoltaics and it's now estimated to be around 
75 percent.
    Many U.S. PV producers are in serious economic trouble, in 
substantial part as a result of China's industrial policies. 
China has also shut its market to our wind turbine exports, as 
well as those of Europe and India.
    U.S. measures, as you've pointed out, Mr. Chairman, in 
support of the industry are temporary, they're erratic, they're 
expiring. Confrontation over trade is likely within a few 
months with the U.S. antidumping case on solar and China's 
potential claim against U.S. State programs, as well as 
bringing its own--potentially bringing its own antidumping case 
on U.S. polysilicon.
    Drawing on several experiences I have had, one is doing a 
study for the national--chair a committee at the National 
Academy of Science on comparative innovation policies, drawing 
on the time I've spent advising the U.S. semiconductor industry 
since 1980 in our problems with Japan, and the study* I did, 
co-authored, for the National Foreign Trade Council on China's 
support of renewable energy electric generating equipment, 
which I ask be entered in the record--it's not all that long.
---------------------------------------------------------------------------
    * Document has been retained in committee files.
---------------------------------------------------------------------------
    The Chairman. We're glad to enter that in the record.
    Thank you very much.
    Mr. Wolff. The questions I see before us are: Can we reach 
a national consensus that it's vitally important that clean 
energy account for a much greater supply of our total energy 
usage? Is complete U.S. domestic industrial production in the 
entire supply chain delivering clean energy efficiently from 
the production of photovoltaics through fabrication into panels 
and deployment on wind farms of vital importance to the U.S. 
economy? Decisions that have to be made.
    As Senator Murkowski said, we're living in a time of fiscal 
constraint and these are difficult questions. But I would say 
there are two other questions that we have to face, and that 
is: Is it acceptable for Chinese industrial policy to shape the 
U.S. economy? I would suggest that it's not acceptable. Can the 
country afford not to seek to find which clean energy 
technologies lie just beyond the horizon? I think we have to.
    So what should we do? We need a broad cross-sectoral set of 
measures, beyond the scope of this hearing, but in terms of 
taxation and job training, manufacturing, extension services, 
things that will boost our economy and job creation broadly, 
which are subjects the National Academy's report goes to.
    For renewables, until costs come down there have to be 
mandates and subsidies if we're going to increase our 
deployment of clean energy and our production of the equipment 
that generates it.
    I think we can learn some useful lessons from the Sematech 
and semiconductor experience, and you have a witness here who 
will talk about what's being done today. But in the 1980s Japan 
had a closed market, it was dumping its semiconductors, selling 
below cost of production, generation after generation of 
semiconductor product. Vertically integrated Japanese producers 
were quite able to sustain that policy of selling below average 
cost of production, and the Silicon Valley startups--Intel, 
AMD, National--were really on the verge of extinction.
    U.S. companies needed unencumbered access to foreign 
markets, we needed to open the Japanese market, they needed to 
improve their manufacturing skills, they needed to continue to 
attract capital, they needed to improve the protection of the 
intellectual property, they needed to make sure universities 
were training engineers with relevant skills, they needed tax 
policies that supported the need for R and D spending.
    In short, they needed a complete strategy, not just a 
partial strategy of just a trade element. In fact, all of the 
elements were put into place, and the result today is U.S. 
semiconductors, which were half the world market share in the 
mid-1980s of Japan, are now double the Japanese market share. 
We're over half the world in terms of supplying global needs, 
and semiconductors account for one of the top 5 exports of the 
United States. There's major new facilities that have gone into 
upper New York State now with Global Foundries, and the years 
of turbulence are behind us. We're now very good friends with 
the Japanese producers and their government, working together 
on things like energy saving and reduction of use of harmful 
chemicals.
    So what do we need now? We need to have market stability, 
predictability for both the Chinese and the U.S. producers. We 
need to--from the Chinese perspective, they probably need to 
avoid large deposits, cash deposits at the U.S. Treasury, if 
they are found to be dumping. There's room for mutual 
cooperation, enhanced mutual cooperation, in R and D, and 
potential Chinese investment in the U.S. market.
    Ultimately, trade measures and domestic policies should be 
integrated into a strategic approach, as we did in 
semiconductors. Down the road, maybe we get the Europeans 
involved as well. They face some of the same concerns that we 
do.
    The bottom line is I believe there is a negotiated solution 
out there. It probably won't come by October or November. But 
there are mutual interests that we should explore with China 
and reach, I would hope, an accommodation that doesn't end up 
in just a trade dispute that goes on for some years.
    Thank you.
    [The prepared statement of Mr. Wolff follows:]

     Prepared Statement of Alan Wm. Wolff, McKenna Long & Aldridge
    Mr. Chairman, members of the Committee, the subject of your hearing 
today concerns one of the most important challenges facing America 
today--our country's future in clean energy.
    During 2011, fourteen solar energy companies announced plans to 
scale back or cease U.S. production, five were in bankruptcy or 
insolvency. Although the picture is mixed\1\ a substantial number of 
others are in serious financial difficulties. In wind power, foreign 
wind turbine producers share of the Chinese market dropped from 75% in 
2004 to 11% in 2010. See Chart 1. There are clear limits to the degree 
to which the U.S. market can be served with hydro power (even taking 
into account additional hydro power from Canada) and biofuels have not 
yet reached a stage where they can play a major role in the near-term 
expansion of electric power derived from renewables. Solar and wind 
must form an increasing part of the future source of U.S. energy needs, 
and the American industries producing the equipment needed to generate 
these forms of energy are under siege.
---------------------------------------------------------------------------
    \1\ In March, 2012, Stion, a manufacturer of high-efficiency thin-
film solar modules, began to ship modules produced at its Hattiesburg, 
Ms., factory.
    * Charts 1 and 2 have been retained in committee files.
---------------------------------------------------------------------------
    There are a number of causes of the current problem. The welcome 
discovery of large untapped volumes of commercially accessible natural 
gas has had and will continue to have a major near term depressing 
effect on the development of renewable energy even when a new 
equilibrium price for natural gas is established. But there is a second 
major factor affecting U.S. productive capacity in this sector that is 
less welcome, and that is the entry of China as a key producer of 
renewable energy equipment because its industrial policies are re-
shaping an important segment of the U.S. economy. Global overcapacity, 
and particularly overcapacity in China in polysilicon PV manufacturing, 
is having a worldwide depressing effect on the PV manufacturing 
industry.\2\ Market barriers to wind energy equipment are equally 
troubling.
---------------------------------------------------------------------------
    \2\ Asian producers are as a result scaling back.
---------------------------------------------------------------------------
    I have spent the better part of my professional life analyzing and 
dealing with competitive challenges to U.S. industries. As trade 
counsel to the U.S. Semiconductor Industry Association (SIA), I was 
actively involved in the U.S. industry's efforts to survive and become 
fully competitive when Japanese industrial policy threatened to 
eliminate our industry. More recently, I have been actively engaged in 
the work of the Science Technology and Economic Policy (STEP) Board of 
the National Academies. I chair the Board's Committee on Comparative 
Innovation Policies, which will soon publish its final report entitled 
Rising to the Challenge: U.S. Innovation Policy for the Global Economy. 
I also chair the Board of the National Foreign Trade Council (NFTC) 
which published a study in 2010 that I co-authored entitled China's 
Promotion of the Renewable Electric Power Equipment Industry--Hydro, 
Wind, Solar, Biomass.\3\ I am, however, appearing today in an 
individual capacity and not speaking for any client or institution.
---------------------------------------------------------------------------
    \3\ http://www.nftc.org/default/Press%20Release/2010/
China%20Renewable%20Energy.pdf
---------------------------------------------------------------------------
    You have posed three questions.

   What is the current landscape of Chinese investment in clean 
        and renewable energy?
   How do we promote U.S. competitiveness with China in the 
        clean tech sector?
   What are the appropriate U.S.-Chinese relationships on clean 
        energy?

    In my oral remarks, I will, as you have requested, concentrate on 
addressing questions #2 and #3.
  the current landscape of chinese investment in clean and renewable 
                                 energy
    China leads the world in installed clean energy capacity as of 
2011\4\. See Table 1 and Chart 2. This is the result of many years of 
government mandates and subsidies. The 2002 Government Procurement Law 
required government entities to purchase domestic products, which was 
one spur to China's development of the equipment needed to achieve its 
renewable energy goals. Wind farms were required to meet a 70% local 
content requirement.\5\ The 2006 Renewable Energy Law required 
utilities to pay full price for electricity generated by renewable 
energy sources, and gave discounted rates to consumers. Indigenous 
innovation requirements introduced in 2006 reinforced the buy-domestic, 
buy-Chinese requirements throughout China's state-owned sector. In 
2007, the Medium and Long-Term Development Plan for Renewable Energy in 
China set clean energy standards estimated to require non-hydro 
renewable energy installed power capacity of 3% by 2010 and 8% by 2010, 
causing investment in the renewables sector to surge. China's stimulus 
package emphasized renewable energy projects.\6\ China continues to 
maintain very aggressive targets for energy conservation and emissions 
reduction in large part through rapid expansion in the installation of 
renewable energy capacity.\7\ China's investments in renewable energy 
in 2009 exceeded those made by the United States for the first time.\8\
---------------------------------------------------------------------------
    \4\ Clean energy is defined as wind, small-hydro, solar, biomass, 
geothermal and marine.
    \5\ The Notice of Requirements for the Administration of Wind Power 
Construction, National Development and Reform Commission, 2005.
    \6\ Renewable Energy Policy Update for China, Eric Martinot and Li 
Junfeng, Renewable Energy World, July 21, 2010.
    \7\ Ucilia Wang, China's Solar Master Plan Sets Production, 
Efficiency and Price Goals,'' Renewable Energy World.com (February 24, 
2012); Damien Ma, ``Energy Policy to Fuel Economic Objectives,'' China 
Daily (March 21, 2011); at http://www.gov.cn/zwgk/2011-09/07/
content_1941731.htm.
    \8\ http://www.pewenvironment.org/uploadedFiles/PEG/Publications/
Report/EXEC%20SUM_FINAL_LORES_WhoIsWinningTheCleanEnergyRace-REPORT-
2012(1).pdf

    The United States did lead the world in clean energy investment in 
2011, followed by China, Germany and Italy. But this is a one-year 
snapshot. In 2011, U.S. investment amounted to $48.1 billion, largely 
in wind and solar power, coming in ahead of China's $45.5 billion for 
the first U.S. lead since 2008.\9\
---------------------------------------------------------------------------
    \9\ Bloomberg News Story on a Pew Charitable Trust finding. http://
www.bloomberg.com/news/print/2012-04-12/u-s-clean-energy-policies-risk-
losing-lead-over-china.html

                          TABLE 2: CLEAN ENERGY INVESTMENT BY  COUNTRY 2011 ($BILLION)
----------------------------------------------------------------------------------------------------------------
                                                                  2011  Investment          2010  Investment
----------------------------------------------------------------------------------------------------------------
U.S.                                                                            $48.0                     $33.7
China                                                                           $45.5                     $45.0
Germany                                                                         $30.6                     $32.1
Italy                                                                           $28.0                     $20.2
India                                                                           $10.2                      $6.6
U.K.                                                                             $9.4                      $7.0
Japan                                                                            $8.6                      $7.0
Spain                                                                            $8.6                      $6.9
Brazil                                                                           $8.0                      $6.9
----------------------------------------------------------------------------------------------------------------
 Source: The Pew Charitable Trusts, Who's Winning the Clean Energy Race? 2011 Edition (2012).

    This is said by a number of observers to be short-lived:

          The [U.S.] jump to the top of the G-20 ranking followed 
        developers' efforts to finish projects before incentives 
        expire. With China taking on long-term renewable energy targets 
        and an American tax-break for wind lapsing in 2012, the U.S. 
        again risks losing its edge, said Phyllis Cuttino, Pew's clean 
        energy director.
          ``China is sending that important policy signal which the 
        United States is failing to do to for investors. Even though 
        China has fallen to number two, it seems as though investment 
        there is going to continue at a very significant level for the 
        foreseeable future. They are going to continue to be a dynamic 
        clean-energy hub for the world.''
          The U.S. doesn't have any comparable targets to China's goals 
        of installing a total of 160 gigawatts of wind power and 50 
        gigawatts of solar power by 2020, she said. At the same time, a 
        production tax credit benefiting wind producers expires at the 
        end of the year. ``In the absence of long-term policy, it's 
        hard to see how the U.S. can grow significantly in the future. 
        The boom-and-bust cycle of U.S. energy policy sends a very 
        different signal to investors'' from China.

    The U.S. led in investment in the year 2011 when the Recovery Act 
had its greatest impact. Many of the Act's provisions have since 
expired. For example, section 1603 has retired; the 48c Manufacturing 
Tax Credit has not been renewed; and the DOE Loan Guarantee Program is 
not expected to make significant future loans. In addition, it is worth 
noting that U.S. deployment incentives like section 1603 did not 
require the use of domestic products, so deployment-oriented incentives 
had an effect in both the U.S. and Chinese markets
    The Defense Department is the nation's largest consumer of energy. 
In April, the department announced a fairly low goal of using 3 
gigawatts of renewable energy by 2025--enough to power three-quarters 
of a million homes. One gigawatt is to be developed for use by each 
service branch: the Air Force by 2016, the Navy by 2020, and the Army 
by 2025,\10\ although the Army is likely to develop and use double that 
amount. As if to underline the uncertainties caused by U.S. policies 
supporting the development of renewable energy, three weeks ago the 
Senate Armed Services Committee adopted amendments to the National 
Defense Authorization Act seeking to limit the Department of 
Defense(DoD)'s use of domestically produced alternative energy. 
Potentially cutting in the other direction, on May 21, 2012, DOD issued 
a Defense Federal Acquisition Regulation Supplement to promote 
utilization of domestic photovoltaic devices under energy savings, 
utility service and housing contracts.\11\
---------------------------------------------------------------------------
    \10\ http://www.examiner.com/article/renewables-for-the-military-
part-1-congress-vs-defense-dept
    \11\ 77 Fed. Reg. 30368 (May 22, 2012).
---------------------------------------------------------------------------
    Despite China's investments in renewables, DOE reports that 
renewables account for only 0.2% of China's electric power generation, 
and of that wind has the largest share.\12\ At least until a few years 
ago, about 95% of China's PV production was exported, and China 
accounted for about 55% of the world production.\13\ Today, the GTM 
Research estimate is that for 2012 about 25% of all Chinese PV module 
production will be consumed domestically, and 75% will be exported.
---------------------------------------------------------------------------
    \12\ U.S. Energy Information Administration, Report on China, March 
2012. Large-scale hydroelectric power represents 6% and nuclear power 
represents 1%. Coal is the largest source of energy consumption at 71% 
in 2008.http://www.eia.gov/countries/cab.cfm?fips=CH
    \13\ Cleantech citing industry sources uses the 95% figure. NREL 
data does not appear to contradict these statements. http://
cleantechnica.com/2012/02/12/dumping-solar-study-sheds-light-on-solar-
pv-trade-flows-us-china-manufacturing/
---------------------------------------------------------------------------
      promoting u.s. competitiveness in clean tech vis-a-vis china
          [T]he country fails to deploy into the marketplace the clean 
        energy innovations it creates in the laboratory\14\
---------------------------------------------------------------------------
    \14\ http://www.pewenvironment.org/uploadedFiles/PEG/Publications/
Report/EXEC%20SUM_FINAL_LORES_WhoIsWinningTheCleanEnergyRace-REPORT-
2012(1).pdf
---------------------------------------------------------------------------
    When Bell Labs was at its peak it was an idea factory that gave 
rise to whole industries in the United States, and led ultimately to 
the creation of the semiconductor industry.\15\ Globalization, improved 
transportation, freer trade and the internet have created a world in 
which there is locational competition for the production of most 
industrial goods and services, and clean energy related equipment and 
materials is no exception. Given the U.S. failure to commercialize its 
inventions to the extent that we once did, the Committee on Comparative 
Innovation Policies of the National Academies has engaged in an 
intensive seven year effort to study best practices of other countries. 
In our forthcoming report, we will make a series of recommendations of 
factors determining the location of not only invention but production. 
These recommendations could easily be the subject of a series of 
separate hearings While the report does not focus on the renewable 
energy sector, it does point to the cross-sectoral policy reforms that 
the United States should consider in order to enhance the production 
within the United States of what is invented here. The recommendations 
are extensive--from the closer coordination of universities and the 
national laboratories with business, to manufacturing extension 
services and export promotion.
---------------------------------------------------------------------------
    \15\ The Idea Factory: Bell Labs And The Great Age Of American 
Innovation, Jon Gertner, Penguin Books Ltd, 2012.
---------------------------------------------------------------------------
    For renewable energy, more will be needed than simply greater 
efforts at export promotion or increasing manufacturing extension 
services. In most parts of the United States, clean energy for most 
applications is still more expensive than fossil fuel sources. Without 
subsidies and mandates, consumers will not choose clean energy, and 
private capital will not fund either research and development or 
deployment. A number of countries have promoted the installation of 
clean energy capacity with various types of subsidies (Germany, Spain, 
China, U.S., etc.) but budget constraints make a continuation of these 
policies difficult. This calls for even greater efforts to aggressively 
subsidize targeted R&D for clean energy to bring down the cost--making 
PV cells more efficient and wind turbines cheaper and more efficient, 
to take two examples. At the earliest stages of innovation, the U.S. 
remains very strong. We have some of the top research universities and 
national laboratories in the world. U.S. Government support for R&D has 
resulted in significant advances in these technologies, for example, 
the U.S. Department of Energy (DOE)-funded research over the past 35 
years has yielded more than half of the world records in PV cell 
efficiency. Continued support for research and development can continue 
to lower the costs and improve performance for renewable energy 
technologies.
    However, if this approach is taken alone, it will delay 
installation and use of clean energy capacity until it is economically 
feasible--or until a carbon tax is levied on fossil fuels to reflect 
their social cost. Neither are situations likely to exist in the near 
term. Therefore support throughout the industrial chain from R&D 
through to commercialization and deployment need to be considered. As 
strong as the U.S. is in innovation, there are costs to the economy if 
we fall behind in transitioning these technologies to domestically 
manufactured products. Even though we are a world leader in patents and 
research publications, U.S. manufacturing market share for PV cells and 
modules has fallen dramatically, from 43% market share in 1997 to less 
than 4% in 2011. R&D support by itself is not sufficient to develop a 
healthy domestic industry.
    A comprehensive and cohesive policy should have at least three 
major elements: 1) an R&D strategy to lower costs and improve 
performance so that clean energy technologies can be truly competitive 
without the need for long term subsidies 2) a manufacturing strategy 
that incentivizes domestic production and job creation to ensure a 
healthy industrial ecosystem, and finally, 3) a deployment strategy 
that helps transition these new technologies into the marketplace and 
gradually phases out support as the technologies are able to compete 
without support.
    Whether to make major public investments to accomplish these ends 
is an important subject for public policy debate. On the one hand, 
there are clearly fiscal constraints that exist now that were not 
present when the manned space flight program was announced. In 
addition, the current global industry is dominated by Chinese PV 
production, that even if dumped, is very low cost. On the other hand, 
U.S. innovation (and commercialization) from past national 
initiatives--whether from Bell Labs, NASA, DOE, NIH, or DOE and the 
national labs--have provided very substantial economic benefits, and 
support the commercial success of U.S. industry as well as ensuring 
growth in highly productive jobs.
    Clearly, concentrated efforts by governments to support specific 
sectors have an effect on industrial development, whether here, China 
or in Europe. The staff of the Joint Committee on Taxation recently 
prepared a study on energy-related tax expenditures,\16\ which I am 
sure that the Committee is familiar with. As noted above, the picture 
is one of an array of measures that are in most cases not of a reliably 
long duration. The electricity production credit provisions expire for 
wind at the end of this year. The Investment Tax Credit is considered 
to be at risk in tax reform given current fiscal pressures. The R&D tax 
credit is always extended on just a short term basis. The section 1603 
Treasury Grant Program expired at the end of last year and is favored 
by the solar industry in preference to the advanced energy tax credit. 
The industry has also recommended that the Advanced Energy 
Manufacturing Tax Credit (MTC), which was over-subscribed, be 
renewed.\17\
---------------------------------------------------------------------------
    \16\ Present Law and Analysis of Energy-Related Tax Expenditures, 
Staff of the Joint Committee on Taxation, for the Subcommittee on 
Energy, Natural Resources and Infrastructure of the Senate Committee on 
Finance, March 23, 2012.
    \17\ See Manufacturing Solar Photovoltaic Products in the United 
States, the Semiconductor Equipment and Materials International (SEMI), 
2012.
---------------------------------------------------------------------------
    The Department of Energy is making major efforts to support the 
development of solar energy, aiming to reduce the cost of solar energy 
systems by 75% before 2020. It seeks to enable widespread deployment of 
solar energy equipment in the U.S. without continuing subsidies. The 
SunShot Initiative is a business industry partnership with DOE funding 
support and with participation of universities and the national labs. 
The objectives are to return the U.S. to technological leadership, 
reduce energy costs generally, create employment, reduce greenhouse gas 
emissions and obtain a larger U.S. global market share. The Advanced 
Research Projects Agency--Energy (ARPA-E) within the Department of 
Energy (DOE) is also an important endeavor. The National Academy Report 
Rising Above the Gathering Storm stimulated and an authorization 
contained in passage of the America's Competes Act stimulated creation 
of ARPA-E. It was funded at a $400 million level through the American 
Recovery and Reinvestment Act (Recovery Act).\18\ Its mission is to 
fund high risk energy research which holds some promise of dramatic 
results, and often to support public-private partnerships to do so. 
Future funding is not certain.
---------------------------------------------------------------------------
    \18\ ARPA-E's structure is codified in 42 U.S.C. 16538.
---------------------------------------------------------------------------
    I cannot give you detailed prescriptions for tax and other measures 
to accomplish key renewable energy objectives. There are a number of 
government studies and industry papers laying out alternatives and 
recommendations that address these issues. But I have learned a few 
things in the course of studying and finding solutions to dealing with 
foreign industrial policies and the harm that they can cause to the 
U.S. industrial base. In particular, although the two sets of 
challenges are not alike in all respects, there are several informative 
parallels to be drawn between the successful effort to preserve 
America's future in semiconductors and the challenges posed by China's 
promotion of its renewable electrical generating equipment industry.
    In the early 1980s, the Japanese market was largely closed to 
imports of semiconductors. Access to that market was essential for our 
industry to remain competitive as Japanese companies dominated the 
downstream consumer electronics industries that drove semiconductor 
demand and technological progress. Japanese government-sponsored R&D 
through MITI's and NTT's laboratories moved the industry down the 
learning curve in terms of process and product. The vertically 
integrated Japanese producers were selling semiconductors below their 
average cost of production in all markets. Full-blown industrial 
policies generally lead to the creation of excess capacity, and this 
was the case in memory chips (DRAMs). The Silicon Valley start-ups--
Intel, AMD, National and others, were in danger of extinction.
    There were a series of antidumping cases filed and large duties 
were to be applied. But trade remedies were not going to be a 
sufficient American response. For one thing, this would have been a 
one-market solution and the relevant market was global. Elimination of 
dumping in the United States alone would threaten the erosion of 
downstream industries. The antidumping trade solution would also be 
one-dimensional. The U.S. companies needed unencumbered access to 
foreign markets, they needed to improve their manufacturing skills, 
they needed to be able to engage in pre-competitive joint R&D to do so, 
they needed to continue to attract capital, they needed to improve the 
protection of their intellectual property, they needed to make sure 
that universities were training engineers with relevant skills and they 
needed tax policies that supported their voracious need for R&D 
spending. In short, a complete strategy was needed to ensure the 
competitiveness of the U.S. industry, not just trade measures.
    There was a recognized U.S. national security interest in 
maintaining a leading edge American industry. The U.S. industry united 
around a series of domestic and trade policy responses and achieved 
buy-in from the Executive Branch and strong support from the Congress. 
All of the necessary measures were put into place. A U.S.-Japan 
agreement on semiconductors ultimately opened the Japanese market for 
foreign chips and precluded dumping by Japanese companies in any 
market. The antitrust laws were amended to provide a limited safe 
harbor for pre-competitive R&D, the Defense Department matched industry 
contributions at a rate of $100 million per year for five years to 
improve the manufacturing capability of the U.S. industry with the 
creation of Sematech (the semiconductor manufacturing technology 
initiative). A new form of intellectual property protection was created 
for maskworks. The R&D tax credit was extended.
    This endeavor required consistency of effort on the part of both 
industry and government over a very extended period of time. The 
necessary programs, begun by the Reagan Administration, and vigorously 
supported by its free-market advocates including George Shulz and 
Clayton Yeutter, continued during Republican and Democratic 
administrations alike with strong bi-partisan Congressional support. It 
took six years to put all the measures into place and another decade to 
make them fully effective. It was the right mix of policies, but it 
took crafting a comprehensive approach and consistent dedication to 
implementation to achieve the desired result.
    Today, semiconductors figure among the top categories of U.S. 
exports each year. Amazing new greenfield facilities costing upwards of 
$4 billion each can still be created here (for example, Global 
Foundries in Upstate New York). Industry employment is in the hundreds 
of thousands. And U.S. companies account for a majority share of global 
production, double their share in the early 1980s. Moreover, the years 
of turbulence have been replaced by years of international cooperation 
on public policies. The EU, Korea, Taiwan and China have joined 
together with Japan and the United States to eliminate tariffs on 
semiconductors, work on energy saving both in semiconductor production 
and through the use of semiconductors in other industries\19\, and 
collaborate on improving a very good record with respect to 
environmental impact through reduction of chemical use. The industries 
support this effort through their World Semiconductor Council (WSC), 
bringing their joint recommendations to a Government and Authorities 
Meeting on Semiconductors (GAMS) annually.\20\ Global competition is 
vigorous and semiconductors, doubling in functionality every eighteen 
months in accordance with Moore's law, have enabled the information 
revolution.
---------------------------------------------------------------------------
    \19\ See John A. ``Skip'' Laitner, Chris Knight, Vanessa McKinney, 
and Karen Ehrhardt-Martinez, Semiconductor Technology: The Potential to 
Revolutionize U.S. Energy Productivity, Research Report E094, May 1, 
2009, American Council for an Energy Efficient Economy, athttp://
aceee.org/research-report/e094
    \20\ See http://www.semiconductorcouncil.org/wsc/.
---------------------------------------------------------------------------
    The relevance of the success of the policy responses in 
semiconductors to the challenges faced in the renewable energy sector 
require answers to a series of questions:

   First: Can it be demonstrated that there is a vital national 
        interest at stake in maintaining a domestic manufacturing base 
        for the tools to make solar energy cells and for their 
        production, and for the production of wind turbines?
   Second: Is there a case to be made that joint pre-
        competitive R&D and/or other support would have the potential 
        for yielding benefits important to the American economy?
   Third: If the first two answers are affirmative, what policy 
        prescriptions should be implemented?
                         the national interest
    Although our current reliance on GPS, internet and wireless 
connectivity, I-Phones and hundreds of thousands of apps (applications) 
were at the time a quarter century away, the founders of the U.S. 
semiconductor industry had no doubt about whether their industry was 
vital to the nation's future. It took just over seven years to get 
Washington to fully share this vision.\21\ Factors leading to a 
consensus among policy makers included the fact that the country was 
locked in a Cold War with the Soviet Union and semiconductors had a 
central role to play in national defense. Moreover, the inherent 
unfairness of Japanese industrial policies, the closed Japanese home 
market together with U.S. industry's legal rights to at least stop the 
sales of Japanese semiconductors in the U.S. market at below cost of 
production, provided additional impetus to forming a U.S. consensus 
that a comprehensive response was necessary.
---------------------------------------------------------------------------
    \21\ The U.S. Semiconductor Industry Association (SIA) was founded 
in 1977 by the co-inventor of the integrated circuit, Robert Noyce, CEO 
of Intel, Charlie Sporck, CEO of National Semiconductor, Jerry Sanders, 
CEO of Advanced Micro Devices (AMD), who were soon joined by John Welty 
of Motorola. The association was formed to better understand the 
foreign industrial policy challenge from Japan, and to collect and 
publish industry data.
---------------------------------------------------------------------------
    Can a national consensus be formed today on the following two 
points:

          1) It is vitally important that clean energy account for a 
        much greater share of U.S. energy supply--for reasons ranging 
        from reducing the environmental impact of energy production and 
        use to greater energy independence and therefore increased 
        national security.
          2) A complete U.S. domestic industrial production and supply 
        chain is required to deliver clean energy efficiently--from 
        R&D, to production of solar photovoltaic manufacturing 
        equipment, materials such as polysilicon, modules, cells and 
        turbines, through fabrication into panels and deployment into 
        solar and wind farms--because the entire industry is vital to 
        the American economy. Is it acceptable for Chinese industrial 
        policies, including protection and subsidies, to result in that 
        country being dominant in the technologies and products that 
        yield clean energy? Can the country afford not to explore to 
        find which clean energy technologies lie just beyond the 
        horizon, to forego forever whatever new discoveries lie in the 
        future?

    We do not appear to be near a consensus yet that will drive a 
comprehensive solution to our clean energy requirements and the 
challenge posed by China's policies and objectives. The newly apparent 
plentiful availability of natural gas is diminishing one of the drivers 
of finding near term solutions. But that does not mean that a path 
forward cannot be found. Natural gas is actually complementary to 
renewable energy, as the sun does not always shine and the wind is not 
always constant. And there should at least be a national debate about 
whether government choices abroad should be allowed to shape the U.S. 
economy. That China chooses to have these industries should not mean 
that the United States should relinquish them. That said, there are a 
series of interests that also must be taken into account. The U.S. will 
not want to slow the deployment of low-cost renewable energy equipment. 
Deployment has important ramifications for climate change, jobs, 
sustainable development and economic growth. Upstream industries, 
supplying silicon and other materials and leading the world in making 
the tools that produce photovoltaics are also vitally important. The 
entire value chain must be taken into account.
                      supportive domestic policies
    The United States leads in the front end of innovation--invention--
in the renewables sector. It has the most patents and the most research 
spending, but it has been losing out over the last decade in 
commercialization, in domestic manufacturing. This is a general problem 
for the United States, studied in depth by the National Academies in 
several of its projects, including the work on Comparative Innovation 
Policies. The creation of a substantial number of additional 
manufacturing jobs is a high priority and the renewable energy sector 
is a natural place to look to see what can be accomplished, because 
there is more than one broad national policy goal to be served in 
focusing on this sector.
    The renewable energy industries require a stable and viable rate of 
return in order to maintain and attract capital. This can be achieved 
through a variety of measures--ameliorating excessive market 
distortions caused by low cost imports that are the product of foreign 
industrial policies; continuing supportive tax policies, use of direct 
subsidies, and the use of renewable energy standards. These measures 
are advocated in various publications of industry groups.
    The solar photovoltaics industry shares some of the same 
technologies as the semiconductor industry. It uses silicon, chemical 
deposition, photo-lithography among other similarities. Whether 
Sematech--that is government co-funding of joint industry pre-
competitive R&D--is a good model for this sector is well worth 
exploring.
    Making renewable energies more cost competitive with fossil fuels 
should be approached not just from the side of creating demand and 
assuring an adequate rate of return, but also with the aim of making 
improvements in design and manufacturing technologies that will drive 
down costs. Those in the industry will have to decide whether they find 
a community of interest to engage in a common endeavor, and the 
government has to ascertain whether the national interest is served by 
spending more scare federal resources on an endeavor of this kind. It 
worked extraordinarily well for semiconductor manufacturing in the 
United States. And this joint endeavor led to other R&D efforts in this 
sector--to joint industry-government funding of university research 
through the Semiconductor Research Corporation (SRC), through Focus 
Center Research Program (FCRP) and Nanoelectronics Research Initiative 
(NRI). The industry also drove technological progress through creation 
of a technology roadmap--indentifying the technology challenges that 
would allow the creation of constantly increasing functionality.
    Some questions that will have to be answered, that were answered in 
the affirmative for semiconductors and that resulted in the creation of 
a manufacturing technology research consortium are:

   Are either the competition from China a sufficient 
        motivation for companies to engage in a common pre-competitive 
        research endeavor or are there other external pressures that 
        would cause them to do so?
   Is the ability to develop needed design technologies beyond 
        the capability of any individual company?
   Is there a need to develop more effective manufacturing and 
        process technology, leading to common testing and industry-wide 
        standards?
   Can they achieve the necessary technology focus, determine 
        the bounds of shared technology policy, and achieve effective 
        means for technology transfer, while preserving vigorous 
        competition?\22\
---------------------------------------------------------------------------
    \22\ See remarks of Clark McFadden and Gordon Moore in Securing the 
Future - Regional and National Programs to Support the Semiconductor 
Industry, Government Industry Partnerships Project, National Research 
Council of the National Academies, 2003.

    The renewables industries, and the PV-related industries alone--
with a relatively large number of participants with a variety of 
interests, is far more fragmented than was the semiconductor industry 
in the 1980s: The PV industry is more global by far than the U.S. 
semiconductor industry was. There are well-established, important 
additional interests in the PV value chain. For example,. project 
developers may have less interest in technological development than PV 
producers have.
    What is clear, and was enunciated by Gordon Moore, one of the 
founders of Intel, is that Sematech played a key role in reversing the 
X-curve that was the chief measure of semiconductor industry 
performance. This referred to a chart showing that U.S. producers once 
had a much greater share of the semiconductor market until 1985/86--
having 57% to Japanese producers' 32%. But by 1988, Japanese share of 
worldwide production had climbed to about 52% and U.S. world share had 
dropped to around 27%. By 1991, there was another X cross over, and 
today, US share is about double that of the Japanese competition. 
Sematech delivered the necessary improvements in semiconductor-related 
technologies. When combined with other supportive public policies, 
Sematech proved to be highly effective.
    Is there a need to support basic and applied R&D in renewables? We 
do not know where the technology will take us. We know that it is 
likely to improve efficiency of delivering renewables, but it can also 
result in dramatic breakthroughs and spin-offs, and this cannot be 
discounted. The applicability of the Sematech model deserves serious 
consideration.
    crafting an appropriate u.s.-china relationship on clean energy
    The trade relationship with China is complex. It is far from being 
free of problems but they do not dominate the relationship in the same 
way that the trade friction with Japan did in the 1970's to the early 
1990s. China has been open to foreign investment since 1978 (although 
interference by the Chinese government is pronounced in some sectors) 
whereas Japan was completely closed during the period of trade 
problems. Japan was (and is) an ally; China is sometimes a partner and 
more often perhaps a rival. U.S businesses were largely united in their 
grievances against Japan. The U.S. private sector, including 
associations and even individual companies have divided interests with 
respect to China--seeing China as one of the world's largest growing 
markets, a major source of supply, a major location of foreign 
investment, often a difficult competitor and sometimes a difficult host 
country.
    During the earlier period I am using for comparison with China, 
Japan was only reluctantly and partially compliant with international 
trade rules. Chinese policies are still evolving. China had to change 
tens of thousands of laws and regulations to join the WTO, and to 
liberalize its economy very substantially in a very short time. And yet 
there is still an extensive list of barriers and market distortions 
with which foreign companies and their governments must contend. China 
accounts for the longest section of the U.S. Trade Representative's 
National Trade Estimates catalog of foreign trade and investment 
problems. Another difference in current trade relations with China as 
compared with earlier trade relations with Japan is that since the 
Uruguay Round was implemented in 1995, the United States has lost the 
freedom to retaliate whenever it made a unilateral judgment that its 
trade interests required it to do so. In addition, when the U.S. 
imposes trade measures, China has made it a practice to retaliate with 
its own trade actions which it seeks to justify under WTO rules, even 
if the measures it was responding to are fully justified under the WTO. 
Moreover, China has found the means to affect foreign trade in its 
pursuit of development of its industries in informal ways that are not 
necessarily as susceptible to being effectively remedied through WTO 
challenges.
    In the case of imports into the United States of semiconductors 
from Japan, the dumping margins were prohibitive--trade in some 
products would have ceased. Through the use of U.S. section 301, 
unilateral trade retaliation was available to enforce an agreement. In 
contrast, with the WTO green energy equipment subsidies case brought by 
the U.S., although a positive WTO ruling was achieved, did not yield 
much in the way of practical results. The final dumping determinations 
will not be made in the solar polysilicon case until the Fall, but if 
the duties and rates are along the lines of the preliminary findings 
(30-34% for dumping margins for 90% of the trade, a few percent for 
subsidy rates), the trade remedy may not be enough to change the 
serious situation in which the solar industry finds itself--since the 
decline in solar PV prices over the last eighteen months has been about 
double those percentages.
    A complicating factor of antidumping relief is that it affects only 
shipments from one country. If the Chinese producers assemble panels in 
third countries, source cells from Taiwan, or set up factories in third 
countries, the trade remedy will likely not cover some or all of those 
shipments.
    There is authority in the Commerce Department to work out a 
``suspension agreement'' to waive the duties in return for potentially 
a quantitative restriction and a price floor covering China's shipments 
of the subject merchandise.\23\ \24\ This is perhaps possible to 
achieve if the Chinese government (which has effective control in this 
sector) believes that the final margins will be prohibitively high, and 
that it serves China's policy interests to enter into an arrangement of 
this kind (which it has done in some other cases prior to its entry 
into the WTO). While the domestic industry does not have a veto over 
these arrangements, it is consulted, and it is politically difficult 
for the U.S. government to compromise away what is taken in our legal 
system to be a right to trade relief--unless the alternative is equally 
or more attractive to the petitioning domestic industry.
---------------------------------------------------------------------------
    \23\ 19 USC 1673c provides in relevant part:
    (l) Special rule for nonmarket economy countries
    (1) In general
    The administering authority may suspend an investigation under this 
part upon acceptance of an agreement with a nonmarket economy country 
to restrict the volume of imports into the United States of the 
merchandise under investigation only if the administering authority 
determines that--
    (A)such agreement satisfies the requirements of subsection (d) of 
this section, and
    (B)will prevent the suppression or undercutting of price levels of 
domestic products by imports of the merchandise under investigation.
    d) Additional rules and conditions The administering authority may 
not accept an agreement under subsection (b) or (c) of this section 
unless--
    (1)it is satisfied that suspension of the investigation is in the 
public interest, and
    (2)effective monitoring of the agreement by the United States is 
practicable.
    \24\ Examples of antidumping suspension agreements entered into 
with Chinese exporters include: Honey From the P.R.C., 60 Fed. Reg. 
42,521 (ITA Aug. 16, 1995); Cut-to-length Plate from the PRC, 62 Fed. 
Reg. 61774 (1997).
---------------------------------------------------------------------------
    Had the U.S. antidumping case been coordinated with a trade case 
brought by the European Commission, something that has not to my 
knowledge ever happened, there would perhaps be more interest on the 
part of China in a settlement. Given the short time until the final 
determination at Commerce, the likelihood of a negotiated settlement by 
this Fall is probably close to nonexistent. It is not clear that 
sufficient inducements can be found to bring about an agreement to 
stabilize this trade. A settlement later is, however, possible--
especially with the consent of the U.S. petitioner industry.
    What factors would militate toward a possible settlement? Are there 
common interests that can grow out of the following common objectives?

   Both China and the United States wish to deploy much more in 
        the way of renewables, enhancing the role of renewables in the 
        mix of their energy consumption.
   Both China and the United States seek to see the price of PV 
        modules decline through increased efficiencies in both solar 
        and wind to foster this objective.
   Both countries wish to maintain and nurture the industries 
        that produce the supply chain for renewables.
   Both countries wish to foster the development of relevant 
        technologies at home.

    Despite having a number of interests in common, a trade skirmish is 
brewing. In the fall the U.S. will likely impose antidumping duties on 
Chinese exports. This is not a minor amount of trade, an estimated 2 
gigawatts worth of solar modules were shipped into North America in 
2012 from Chinese manufacturers, representing as much as 60 percent of 
the market, and about $3 billion in trade.\25\ Three weeks ago today 
the Chinese Ministry of Commerce pronounced six renewable energy 
support measures granted by the states of Washington, Massachusetts, 
Ohio, New Jersey and California were grants as inconsistent with the 
WTO rules. Of course, U.S. shipments of renewable energy generating 
equipment such as wind turbines or solar modules to China is small 
compared with Chinese shipments of solar cells and modules to the 
United States--but the U.S. has strong export interests in the 
equipment to make solar cells, in exports of polysilicon and exports of 
high-value parts for wind turbines.
---------------------------------------------------------------------------
    \25\ http://www.isuppli.com/photovoltaics/pages/headlines.aspx.
---------------------------------------------------------------------------
    What are China's principal interests? The most obvious immediate 
interest would be Chinese producers would wish to avoid making very 
large cash deposits in the U.S. Treasury for a long time to come on 
their exports . There is also the degree of uncertainty as to what the 
ultimate duty liability will be, which if the Chinese did not adjust 
their prices or cease shipping (the latter being extremely unlikely) 
would be very large. Trade does not thrive with uncertainty. Moreover, 
with a U.S. antidumping duty order in place on PV, the pressure on the 
European market will increase, perhaps triggering antidumping action 
there. (India may follow suit as well). There might be broader Chinese 
interests about cooperation on R&D in the area of renewables. It also 
may be that price stability with respect to exports would be in line 
with and reinforce any Chinese government plans to rationalize domestic 
overcapacity in wind and solar and increase its deployment of renewable 
energy sources both in terms of grid-connected and residential uses.
    What are America's principal interests? The U.S. government is 
committed in principle to allowing industries to petition for trade 
relief and to receive it where warranted under the law. This is 
consistent with WTO rules where domestic industries are harmed by 
dumped or subsidized trade. That said, trade measures are only a very 
partial solution to strengthening the domestic U.S. renewables 
industries. To foster the deployment of renewable energy equipment and 
the industry producing the tool, equipment and materials for this 
equipment, there has to be a reasonable rate of return to continue to 
attract necessary capital. This objective can be served by a 
predictable and consistent level of support in terms of tax policy, DOE 
investments, feed in tariffs and clean energy standards. To reduce the 
need for financial supports and mandates through clean energy 
standards, the costs of producing renewable energy need to decline. 
Harnessing the research capabilities of universities and the private 
sector in a common effort to achieve this objective needs to be 
seriously considered. A potentially useful model has been provided by 
the interaction between the private sector and the U.S. government with 
respect to semiconductors.
    Ultimately trade measures and domestic policies should be 
integrated and a strategic approach crafted to the U.S.-China clean 
energy set of problems. If there is an attempt at a grand bargain, 
access to the Chinese market for wind turbines produced outside China 
should be part of any overall settlement.
    Would China avoid talks because it would not want the precedent 
established of its agreeing to settle antidumping cases with 
quantitative restrictions and minimum price provisions? Would it do so 
from fear that agreeing to a suspension agreement might lead to other 
calls for export restraints by China? It is hard to predict. I know of 
no instance where China has settled an antidumping order with the U.S. 
with export restraints since China joined the WTO. However, China, it 
should be assumed, can be pragmatic if it sees the balance of its 
interests served by a settlement, particularly if it were part of a 
very broad package. One consistent Chinese demand is that the U.S. 
liberalize its export controls. While the United States will not 
compromise its national security to reach any agreement with China, 
extensive technology-sharing actually takes place now, although 
informally, through foreign investment. Perhaps there is something in 
the technology arena--R&D with respect to clean coal or carbon 
sequestration--that would be of mutual interest and that could be added 
to an agreement providing for the complete elimination of dumping. This 
might occur through a broader program or with more resources than 
currently exist for the U.S.-China Clean Energy Research Center (CERC).
    Medium term, and not likely in the next few months, a trilateral 
(U.S.-China-EU) renewables accord might create added interest for 
China. My assumption is that none of the three--the U.S., China or the 
EU--is prepared to see the growth of its domestic renewables industries 
curtailed given its energy policy objectives? The World Semiconductor 
Council and the Governments and Authorities Meeting on Semiconductors 
may be models that can be employed to promote cooperation at the 
industry and government levels on mutually beneficial public policies. 
In that all three regions are supporting their renewables sector, it 
may be that a trade agreement makes some sense, incorporating and 
superseding antidumping relief.
    The bottom line: It is not yet clear that sufficient inducements 
can be found to bring about an agreement providing for equitable trade 
that fosters long-term growth in these industries. This does not mean 
that there should not be further consideration given to the 
possibilities, and efforts made to find common ground Whatever the 
possibilities are of reaching an accommodation with China on PV, there 
is an overriding U.S. national interest in assuring that new leading 
edge technologies are developed and manufactured in this country, or we 
will lose the ability to do so. As the United States is the world's 
most innovative country, that would be a loss not just for the United 
States but for a world in which renewable energy sources must account 
for an increasing proportion of the supply of growing energy needs.

    The Chairman. Thank you very much.
    Mr. Prestowitz, thank you for coming. We appreciate it.

  STATEMENT OF CLYDE PRESTOWITZ, PRESIDENT, ECONOMIC STRATEGY 
                           INSTITUTE

    Mr. Prestowitz. Thank you, Mr. Chairman. It's my pleasure 
to be here. I thank you, Senators Murkowski, Wyden, and 
Franken, as well.
    You've asked what is the current landscape of China's 
investment and it's been delineated a bit by the previous two 
speakers. I'd like to describe it in the following way. I think 
China is committed to developing clean and renewable energy 
technology in the same way that the United States is committed 
to achieving air superiority aircraft as part of its pivot to 
Asia. That is to say it's a high national priority. That is to 
say that the United States Air Force is not thinking of turning 
to European or Asian suppliers to supply its No. 1 strike 
aircraft.
    Developing this technology and leadership in this industry 
in China is a matter of the highest national security, and 
China is not thinking of it in terms of Adam Smith, David 
Ricardo free trade, laissez faire, comparative advantage.
    I say that because that has to inform then our own response 
to China, and I want to emphasize, not just China. I remember 
in February 2009 I was invited to a White House meeting to 
discuss the future of green technology in the Obama 
Administration, and there was a debate between those who--in 
the administration, who wanted to become proactive with various 
kinds of incentives to promote green energy and other, more 
traditionally market-oriented officials who argued that we 
don't want to pick winners and losers, that we should rely on 
market incentives solely.
    The point I made in that discussion was: Are you kidding 
me? I look around the world and I see Germany has a huge 
program subsidizing solar technology, and Denmark has a big 
program subsidizing wind power technology, and Japan is doing 
batteries and solar and wind power, and Korea is doing 
batteries, and China is doing batteries and wind power and 
solar, and I said: That's the market.
    So when you say leave it to the market, you're saying leave 
it to the tender mercies of German, Japanese, Korean, Chinese, 
Norwegian industrial policy.
    So when we ask ourselves what is an appropriate American 
reaction or response now, that same situation pertains. We're 
not living in a world of open market free trade here. This is 
not Adam Smith. We're living in an environment in which 
industrial policy is defining the outlines of the market and 
the incentives.
    So, that being the case, it seems to me that the first 
major question that we the United States have to answer is: How 
important do we think it is for the United States to have a 
capability in these technologies. When I say capability, I mean 
a technological capability, that is an understanding of the 
technology and the ability to do research in the technology and 
somehow to remain at the leading edge of the research.
    But also, because it's often difficult to remain at that 
leading edge without some competitive productive capability, 
then the question also arises to what extent is it necessary 
for us to have a commercially productive, competitive, 
productive capability. That question has to be asked not for 
the short term, but for the long term, because the nature of 
these kinds of industries is that they're characterized by 
economies of scale, by doing by learning, by past dependence.
    So you don't get to there unless you've kind of gone 
through the preliminary steps. You don't make huge leaps ahead 
without having had the preliminary experience.
    So if we think that these technologies are really going to 
be important down the road, even if, for example, the low price 
of shale gas undercuts them today, but maybe that's a temporary 
phenomenon--if they're going to be important down the road, 
then it's necessary to adequately identify the incentives and 
disincentives in the market that are being created by the 
industrial policies of our various competitors and trading 
partners and by our own and adjust them in such ways as to 
assure that there's a continuing competitive U.S. capability.
    Now, as my colleague Alan Wolff pointed out, this is not a 
new question. This is not a new phenomenon. We've been here 
before. We saw this in the seventies and eighties with Japan 
and more recently in the nineties and aughties with others, 
Japan, Korea, Taiwan, Singapore. All of them have adopted 
similar kinds of proactive industrial development policies to 
achieve their miracles and to achieve dominance in industries 
that used to be dominated by the U.S., and, let me under 
strike, in industries that are capital-intensive, labor-
intensive--I mean, not labor-intensive, capital-intensive, 
technology-intensive, not labor-intensive.
    So those are the industries in which we keep telling 
ourselves, our top economists keep telling us, that we are 
competitive in capital-intensive and technology-intensive 
industries. But what we keep seeing is loss of competitiveness 
in those industries in the face of the policies of some of 
these I've mentioned.
    However, as Alan rightly points out, we in the case of 
Japan in the semiconductor industry, there was a recognition in 
the U.S. of a need to respond and we did respond. It wasn't a 
perfect response, but, as Alan pointed out, the United States 
retains a very powerful leading edge capability in the 
semiconductor industry.
    How did we respond? With a broad, comprehensive policy. We 
self-initiated. Let me say the word again: self-initiated. That 
is, the White House didn't wait for industry to bring a 
complaint. The White House filed a complaint against Japanese 
dumping of semiconductors. So an antidumping case, but it 
wasn't just an antidumping case.
    We created Sematech as an industry-government consortium to 
promote cooperation and collaboration among device makers, 
equipment makers, in order to foster the advance of that nexus 
and the advance of leadership in the equipment industry.
    We had the Plaza Agreement, which resulted in a revaluation 
of the vastly undervalued Japanese yen. So a whole range, 
panoply of measures, comprehensively linked together to deal 
with the question of how do we stay competitive in this 
industry. We had an agreement with Japan, the so-called 
semiconductor agreement, under which the Japanese, No. 1, 
agreed to halt their dumping, but, No. 2, also committed to 
seeing to it that foreign producers got a fair share of the 
Japanese market, defined as about 20 percent, which in fact we 
did get.
    So that I think is indicative of the kind of policy 
approach, the kind of attitudinal response, that's called for 
in this situation with China, and, again I say, not just China, 
but in the world of clean energy, particularly in Asia.
    Thank you.
    [The prepared statement of Mr. Prestowitz follows:]

      Prepared Statement of Clyde Prestowitz, President, Economic 
                           Strategy Institute
    Good morning Chairman Bingaman, Senator Murkowski, members of the 
Committee. Thank you for the opportunity to testify before the 
Committee this morning on this very timely topic.
    This morning I would like to take a slightly different tack than 
some of the other witnesses. Rather than look at some of the current 
opportunities and issues that the United States and China face in green 
technology space, I want to provide some historical perspective that I 
think will be useful. There is a cliche that history tends to repeat 
itself. I think this is one of those cases.
    I was recently reminded of a conversation I participated in that 
took place in Vice President Biden's office in the early days of the 
Obama administration about how to put together the President's upcoming 
stimulus proposal. Part of the overall discussion dealt with the role 
of clean technologies and the possibility of using green jobs as one of 
the lynch pins of the program.
    The room split into two camps. On one side, you had environmental 
activists who argued for a strong government role in helping these 
relatively nascent industries grow and flourish. On the other side, you 
had conventional economists making the opposite point that we should 
allow the markets determine which industries would succeed. These 
economists pulled out the old line about the government not picking 
winners and losers.
    I felt a sense of deja vu. I remembered having this exact same 
conversation more than 25 years ago when I worked in the Reagan 
administration.
    After all, we have faced this question before in other industries, 
especially in the semiconductor industry in the 1980s with regard to 
Japan. In those days, Japan targeted key industries for development as 
part of its industrial policy. It protected them at home, provided 
special investment incentives and preferred financing, and promoted 
their exports also with special tax incentives and by maintaining an 
undervalued currency. The result was massive overinvestment and excess 
capacity in Japan that was dumped into the U.S. market.
    The United States faced the question of whether this dumping was a 
gift to consumers or a force for destruction of an industrial 
capability of vital long term importance. We also faced the question of 
whether the gift would always be given or whether once Japan reached 
dominance, prices in the United States would rise to Japanese levels. 
It is important that we remember the lessons learned from our issues 
with Japan in the 1980s when dealing with China.
    In my opinion, this debate shows a continued fundamental 
misunderstanding of the way the world works. Rather rehashing the same 
old debate for the ten thousandth time, we need to realize that many of 
our trading partners are already intervening in the market. Whether it 
is China, Japan, Korea or Germany, all of these countries have long ago 
put in place policies--dare I say industrial policies--to promote these 
industries. They see clean tech industries--solar, wind, batteries and 
others--as the industries of the future and have put policies in place 
to support them.
    Although China is not the only country that put policies into place 
to support their clean tech industries, it is one of the most 
aggressive.
    One powerful element of China's industrial policy strategy is the 
863 Program, a project launched in March 1986 (863 is the year and date 
of the project's birth) by China's then paramount leader Deng Xiaoping 
to drive its technological catch-up effort. In 2001 this program began 
to focus intensely on energy, especially new or green energy, setting 
targets for installing wind turbines, solar panels, hydroelectric dams, 
and other renewable resources. In 2006 the 863 Program drove China to 
double its wind power capacity, and then it doubled again the following 
year and again the year after that. In 2003 China had virtually no 
solar power industry. By 2008, it was making more solar cells than any 
other country and taking customers away from American and other foreign 
companies that had originally invented the technology.
    In October 2009, President Hu commented that China must ``seize 
preemptive opportunities in the new round of the global energy 
revolution.'' In response, U.S. Assistant Secretary of Energy David 
Sandalow acknowledged that ``unless the U.S. makes investments, we are 
not competitive in the clean-tech sector in the years and decades to 
come.'' Not only did 863 provide funding but it also required that wind 
farms, for example, use locally manufactured equipment. The fact that 
this requirement went into effect in 2003 and was dropped in 2009 is 
instructive. In 2003, China was a high-cost producer. By 2009, it had 
achieved such economies of scale and advanced in technology 
sufficiently that it was the low-cost producer. Dropping the ``buy 
Chinese'' rule then had no effect. By now everyone was buying Chinese 
because they were the cheapest and of good quality.
    Interestingly, the 863 Program was fashioned after similar programs 
at the U.S. National Institutes of Health and the Pentagon's Defense 
Advanced Research Projects Agency. Since the program got rolling in 
1987, its budget has grown by more than fifty times.
    Thanks to the research from Bloomberg New Energy Finance, we also 
know about the large amounts of subsidies the central and provincial 
governments have provided Chinese companies. A new World Bank report, 
co-authored with the Development Research Center of the State Council 
(DRC), reports that the Chinese government considers its solar and wind 
power industry--along with its nascent solar polysilicon industry--to 
be state controlled. We also know that the Chinese have instituted 
policies, recently updated in the most recent Five Year Plan released 
earlier this year, to support these industries and provide some level 
of coordination.
    There are specific plans for each of the individual clean tech 
sectors, but for illustrative purposes, I would like to focus on the 
plan for China's solar industry.
    The recently published solar plan, which covers the period through 
2015, reflects the Chinese government's resolve to ensure the 
industry's continued rapid development by directly managing its 
planning, policy and growth. According to one of the publicly available 
translations of the latest plan, the Chinese government once again 
designated its solar sector as one of seven ``strategic emerging 
industries.'' As a result, the Plan calls for significant government 
financial assistance, preferential treatment and significant oversight. 
This includes new financial and price subsidies; more support in 
industry, financial and tax policy; and further aid with development 
and production of equipment used to produce polysilicon, silicon 
ingots, wafers, cells and panels within the crystalline-silicon solar 
industry. Moreover, the portfolio includes plans to support 
industrialization of China's as-yet-undeveloped thin-film industry, 
specifically harnessing silicon and copper indium gallium diselenide 
solar technologies.
    The new Five-Year Plan also provides even greater support for 
exports than previous government plans. The 2011-2015 plan calls for 
identifying and promoting ``national champions.'' It aims for 
consolidation of ``the industry's position in the international 
market,'' partly so that ``Chinese PV enterprises' international 
influence will be greatly enhanced'' and be better able ``to cope with 
international competition and market risks.''
    The programs the Chinese lay out in their new Five-Year Plan are 
not necessarily bad and, per the request of the Committee, I will not 
comment as to whether they are WTO-legal or not.
    The more important point is that the Chinese government had a plan 
that helped its solar industry to grow from a non-factor in the 
industry to the world's largest producer on solar in less than a 
decade. It is now moving forward with the next generation of a program 
that consolidates these gains.
    So, what do we need to do? Again, I believe history has an answer.
    To the extent that the United States and China can work together to 
develop new technologies through non-commercial research, we should 
applaud and support these programs. Programs such as the U.S.-China 
Clean Energy Research Center (CERC), funded by the U.S. Department of 
Energy, could have a significant long-term impact. As we have learned 
through programs such as DARPA, Sematech and the new ARPA-E, there is a 
role for the government to play in this process and these programs can 
be extremely successful.
    However, there is much more that we need to look at doing if we, as 
a nation, decide we want to be players in the clean tech industries in 
the future.
    I believe that we need our own program to support industries we 
deem important--and I believe clean tech is important. This is not, as 
the conventional economists I mentioned at the start of my testimony 
claim, picking winners and losers. We are already doing that--we just 
don't want to say we do it using those loaded terms. Indeed, we should 
not worry about these criticisms. We need to accept them, move on and 
enact policies that will help American manufacturers and promote global 
innovation.
    Although the United States eschews a formal economic strategy and 
any kind of stated industrial policy, we have such policies. We cannot 
avoid having a de facto economic strategy and de facto industrial 
policies of all kinds.
    For example, the FCC must choose how to regulate 
telecommunications. The choice of focusing on competition (a process) 
rather than on deployment (a result) is a form of industrial policy--or 
perhaps of anti-industrial policy.
    I would argue that for the government to stand to the side and do 
nothing is a de facto industrial policy of the worst kind. We are in 
effect saying we don't care where the next generation of clean 
technologies are designed and built. We are willing to step aside and 
let another country dominate a sector. We are also saying we are 
sticking with the status quo and continuing our reliance on imported 
oil and dirty coal.
    I would argue that the ongoing existence of DARPA, ARPA-E, and the 
National Institutes of Health and many other agencies and programs is 
an example of current U.S. industrial policies. The U.S. government is 
very large, spends an enormous amount of money, and sets standards and 
regulations that have an enormous impact on the business environment, 
on the shape of various industries, and on the conditions of consumer 
life.
    As a result, I believe there is a significant role that the U.S. 
government can play that will support the development of an American--
and global--clean tech industry.
    The United States government did this back in the 1980s. In order 
to help American manufacturers deal with Japan's industrial policy that 
specifically targeted the semiconductor industry, the federal 
government enacted a wide variety of initiatives. I would like to list 
four, along with their current policy equivalents.

   In 1985, the United States, in conjunction with the France, 
        Japan, United Kingdom and West Germany, negotiated the Plaza 
        Agreement. By reducing the value of the American dollar, a 
        Republican administration was able to help make American 
        exports more price competitive. This, in turn, allowed American 
        companies to continue to invest and improve their products so 
        that could become more competitive in the global marketplace. 
        Unfortunately, even this significant agreement was not enough.

    We are seeing the same thing today with China. Both the Bush and 
        Obama administrations have gone out of their way to avoid 
        labeling China a currency manipulator. While the Chinese 
        government has made a few moves to increase the value of their 
        currency, its recent decision to devalue its currency in order 
        to prop up exports is a sign that jawboning and looking the 
        other way will not work. We need an aggressive currency policy, 
        enacted in conjunction with our allies, in order to ensure 
        change.

   We used the purchasing power of the federal government to 
        build a market for semiconductors and, when necessary, codified 
        this preference through ``Buy American'' laws.

    Although conventional economists eschew such rules, they are WTO-
        legal as they long we include products made by countries that 
        have signed the WTO Government Procurement Protocol. This still 
        gives many of our global competitors in solar access to the 
        American government marketplace. However, it does send a signal 
        that we believe it is important where we purchase products, 
        especially for the military.

   The federal government also took a strong look at using our 
        trade laws to remove market distorting measures enacted by the 
        Japan government and Japanese manufacturers that both helped 
        American companies in our market and worked to open up the 
        Japanese market to competition. This included self-initiating 
        an anti-dumping case against Japanese semiconductor 
        manufacturers and negotiating the 1986 Semiconductor Agreement. 
        We also learned to stay vigilant, as we learned that the 
        Japanese government replaced official trade barriers, such as 
        tariffs, with non-tariff barriers, such as production subsidies 
        and government-industry collusion.

    In cases where we believe our competitors are not playing by the 
        rules, we should not hesitate to push to use our trade laws. 
        Last year, President Obama, acting on a complaint by the United 
        Steelworkers, spoke out against Chinese practices in the wind 
        power sector his administration thought were WTO illegal. By 
        taking the Chinese to the World Trade Organization, the 
        administration was able to get the Chinese to agree to stop 
        subsidizing wind power firms that used Chinese-made parts at 
        the expense of imports. The administration's decision, in 
        conjunction with the European Union and Japan, to force China 
        to lift export limits on rare earth minerals, is another 
        example. As the Committee knows, rare earths are important 
        parts of green technologies such as wind turbines, hybrid car 
        batteries, and energy-efficient lighting. Finally, should the 
        government take action against China, or any one or our other 
        trading partners, we must ensure U.S. Customs and Border 
        Protection has the resources it needs to prevent circumvention.

   We developed government initiatives to help support our 
        domestic manufacturers through funding basic, non-commercial 
        research and development. Sematech is just one example of a 
        successful program. As the Chairman knows, we also gave wider 
        latitude to our national laboratories to work with industry as 
        opposed to only focusing on government problems. A Democratic 
        Congress passed, and President George H.W. Bush, signed the 
        High Performance Computing and Communication Act of 1991. This 
        one piece of legislation helped put in place many of the 
        necessary building blocks of the Internet we know today, 
        including high-speed fiber optic networks and the Mosaic 
        browser.

    In addition to funding the China Clean Energy Research Center, I 
        also believe that we should take a serious look at increasing 
        support for the U.S. Photovoltaic Manufacturing Consortium, a 
        U.S. research consortium built along the lines of, and with the 
        support of, SEMATECH. I was an early proponent of SEMATECH and 
        continue to believe that these types of programs that solve 
        common manufacturing problems by leveraging resources and 
        sharing risks are helpful in ensuring that we leverage the 
        power of our corporate and university R&D to help American 
        industry.

    The challenge we face is that if we want the United States to 
remain competitive globally in clean technologies, we need to do 
something that is rare in Washington these days. We need to be bold.
    There are opportunities to work with China and the United States 
government should explore them, just as we would with any other 
country. But we should remember that the Chinese government has a 
policy to not just be a leader in a number of technologies, but the 
leader. The United States must determine how we are going to respond 
and decide how much we want to be a leader. With strong action, we have 
the opportunity to develop a globally competitive industry in a sector 
that has great promise both economically and environmentally. Without 
it, we face a future where the United States is sitting on the 
sidelines.
    Thank you again for this opportunity and I look forward to your 
questions.

    The Chairman. Thank you very much.
    Mr. Holladay, you're the person who's expert on Sematech, 
so you can correct the previous witnesses and give us your 
view.

 STATEMENT OF DAN W. HOLLADAY, DIRECTOR, ADVANCED TECHNOLOGIES 
                   AND PV PROGRAMS, SEMATECH

    Mr. Holladay. Thank you very much, and thank you for 
inviting me here today to speak on these important topics. We 
at Sematech deeply appreciate your leadership, Mr. Chairman, 
Senator Murkowski, Senator Franken, Senator Wyden, on these 
matters of industrial competitiveness that are so important to 
our continued growth and prosperity.
    We are facing challenges today that are comparable to the 
late 1980s, which my colleagues have spoke on here, when 
Sematech was established. At a time when both industry and 
government budgets were tight, foreign producers have captured 
key high tech product markets and are rapidly developing the 
know-how and the capacity to capture next generation 
technologies.
    The U.S. has always led in R and D and there has been a 
broad consensus that science and technology are integral to 
economic growth. In recent decades, however, the relationship 
between R and D and manufacturing has been less well 
understood. While we as a nation still lead the world in 
discovery, we do face a real danger of becoming a producer of 
intellectual property that is ultimately commercialized 
elsewhere. Such an outcome denies the American economy the 
tremendous economic benefit that comes with manufacturing, 
transforming IP into products, resulting in both revenue and 
jobs.
    As we face stiff competition and severe budget pressures, 
the Sematech story is particularly instructive. In 1987, 
Congress authorized the bold Sematech experiment and public-
private partnership and subsequently appropriated $100 million 
per year, matched dollar for dollar by industry, to fund an 
industry-led consortium of leading chipmakers to help restore 
U.S. leadership in semiconductors.
    By the mid-1990s, Sematech had accomplished its mission and 
withdrawn from Federal funding. The experiment had succeeded 
and, through collaborative programs to improve manufacturing 
tools and processes, Sematech had indeed played a key role in 
pulling the industry together and reestablishing U.S. 
competitiveness in the global market. Even now, 25 years later, 
the Sematech experience as an industrial consortium is one of 
successfully facilitating collaboration in pre-competitive R 
and D. Sematech memberships, cooperatively funded, conduct 
projects to fill key gaps in R and D and manufacturing, 
developing key tools, materials, processes, and providing 
testbeds to facilitate demonstration and evaluation of 
innovations in production.
    This experience of groundbreaking industry consortium 
support by public and private funding is directly applicable to 
many critical industries today, including photovoltaics, energy 
storage, smart grid, cyber security systems, biomedical 
devices, MIMS and NIMS devices, biofuels, nanomaterials, and 
others.
    Such a consortium has these important attributes: It's 
based on sharing costs and risk and collective intelligence. 
Bob Noyce said: ``Knowledge is power, but knowledge shared is 
power multiplied.''
    It is industry-led, member-driven, assuring that its 
direction and decisions are attuned to the industry's 
priorities and to the market. It allows for both collaborative 
programs and proprietary work with IP protection.
    Its broad representation of the industry supply chain 
creates a critical mass and ability to drive consensus, develop 
road maps, and provide industry direction from a collective 
voice.
    It is built on public-private partnerships that leverage 
both government and industry funding. Initial government 
funding acts as a catalyst, while industrial funding increases 
over time and moves the consortium toward financial self-
sufficiency.
    It bridges research, development, and manufacturing, 
pulling the research into the mainstream, providing 
manufacturing development facilities similar to what EERE is 
working on with their advanced manufacturing office. It 
provides facilities for testing and prototyping at scale, which 
is very critical, and accelerating the creation of advanced 
production lines in the U.S. and commercialization of new 
materials, equipment, and products.
    It's a national initiative, but with selective 
international collaboration, especially in areas such as 
environmental safety and health, standards, reliability. We 
have proven methodologies to collaborate internationally and 
still protect U.S. manufacturing-based IP.
    Sematech has evolved over its 25-year history to keep pace 
and help lead this dynamic semiconductor industry. We have 
expanded our program's scope and our engagement with the supply 
chain and diversified our funding sources as we develop next 
generation equipment and technology platforms, such as extreme 
UV lithography programs, novel transistor materials, 3D 
devices, and now the transition to 450-millimeter wafers.
    At the same time, we're starting to apply Sematech's 
experience to new technology areas with manufacturing 
challenges. Last year Sematech was selected by the Department 
of Energy to establish the U.S. Photovoltaic Manufacturing 
Consortium, PVMC, to establish and accelerate the development 
of and commercialization and manufacturing of next generation 
solar photovoltaic systems. Keeping with Sematech's model and 
proven best practices, PVMC will provide collaborative 
consortium R and D programs, as well as manufacturing 
development facilities to test and demonstrate new technologies 
and manufacturing processes at production scale, which once 
again is very critical.
    In conclusion, in our view a Sematech-like model for 
collaboration with a catalyst of public-private partnerships 
must be part of the U.S. play book to leverage unique U.S. 
advantages in innovations and strengthen the bridge between R 
and D and manufacturing. In addition, to leverage our country's 
strong universities, national labs, and venture capital system, 
we as a nation must nurture disruptive technology development 
and robust manufacturing if we are to build the infrastructure 
for sustainable growth and leadership in the global economy.
    Thank you.
    [The prepared statement of Mr. Holladay follows:]

Prepared Statement of Dan W. Holladay, Director, Advanced Technologies 
                       and PV Programs, SEMATECH
    Thank you for inviting me here today to speak on this important 
topic. On behalf of all of us at SEMATECH, I would also like to offer 
our heartfelt gratitude to you, Mr. Chairman, for your strong support 
over the years. We well remember your efforts in the early years, not 
only to support our funding, but also to advocate for the principles of 
industry autonomy and management, which have been so critical to our 
ultimate success. Your vision was prescient then, and now, twenty-five 
years later, you are still asking the right questions. Senator 
Murkowski, we so deeply appreciate your commitment to our nation's 
energy security and your leadership in supporting efforts to improve 
our industrial competitiveness.
    Today we find ourselves once again facing stiff global competition 
as well as severe budget pressure. I understand the Committee's charge 
to be: what can we do affirmatively to improve our industrial 
competitiveness. We believe the SEMATECH experience is a big part of 
the answer.
    Even in the midst of a historic global economic slowdown, the US 
remains the font of innovation, leading the world in patents, and 
indeed, garnering as many patents as the rest of the world combined. 
While we lead the world in discovery, we do face a real danger of 
becoming merely a producer of intellectual property that is ultimately 
commercialized elsewhere. Such an outcome denies the American economy 
the tremendous economic benefit that comes with transforming IP into 
products--both revenues and jobs--and ultimately denies the American 
taxpayer a return on the investments in the underlying research. 
Several trends, including outsourcing and growing competition from low 
cost producers overseas have eroded the U.S. industrial base and, along 
with it, the engineering and manufacturing capabilities needed to 
produce next generation products. Erosion in know-how, skilled 
personnel, and the supplier base has jeopardized or contributed to the 
loss of U.S. leadership in several key hightech products including 
solar cells. Foreign producers now dominate these component and product 
markets, and are rapidly developing the know-how and capacity to 
capture next generation technologies.
    The United States cannot cede leadership in future game-changing 
technologies such as nanotechnology-based products, smart materials, 
biopharmaceuticals, energy storage, and digital devices for ubiquitous 
computing. Both our economic and our national security depend on our 
industrial competitiveness. But, increasingly, development of leading 
edge products is intertwined tightly with manufacturing know-how and 
development of production processes. Simply put, the erosion of U.S. 
manufacturing capacity must be reversed to preserve America's ability 
to innovate.
                           the sematech model
    The competitive challenges we are facing today--while formidable--
are not unprecedented. We have faced similar challenges before and we 
have met them. The conditions that gave rise to SEMATECH--most notably 
our trade deficit with Japan--were similarly daunting. Twenty-five 
years later, the SEMATECH story shows us that industrial consortia are 
both necessary and effective. But at that time, much of what we now 
know was in question. Whether the government should fund SEMATECH to 
help bolster the U.S. semiconductor industry, and how involved the 
government should be in SEMATECH's operations were seriously debated 
issues. The strength of the foreign competition and DOD's interest in 
having a domestic supply of both semiconductor devices and equipment, 
however, drove the government to undertake this public-private 
partnership that has since become the standard for many others.
    In 1987, Congress authorized the bold SEMATECH (SEmiconductor 
MAnufacturing TECHnology) experiment, and subsequently appropriated 
$100M per year, matched dollar for dollar by industry, to fund an 
industry-led consortium of leading chipmakers to help restore U.S. 
leadership in semiconductors. By the mid-1990's, SEMATECH had 
accomplished its mission and withdrawn from federal funding; the bold 
experiment had succeeded, and through collaborative programs to improve 
manufacturing tools and processes, SEMATECH had indeed played a key 
role in pulling the industry together and re-establishing U.S. 
competitiveness in the global market.
    Today, twenty-five years after its founding, SEMATECH is a global 
consortium of semiconductor device, equipment, and materials 
manufacturers, continuing to explore ways to advance current 
semiconductor manufacturing technologies and build the infrastructure 
for emerging next-generation technologies, to transform novel ideas 
into manufacturable and marketable solutions. SEMATECH's long-time 
mission has been to focus on pre-competitive or noncompetitive R&D--
cooperatively developing standards, building infrastructure, assuring 
that key components (tools, materials, processes) are in place when 
needed by industry--always with an eye toward improving 
manufacturability and accelerating commercialization. With strong 
support of the State of New York, where we are headquartered, we work 
closely with a collaborative network of over 150 global partners--
including our strategic partners, the College of Nanoscale Science and 
Engineering of the University (CNSE) at Albany, as well as 
semiconductor companies, equipment and materials manufacturers, 
national laboratories, universities, research institutes and other 
organizations throughout the industry ecosystem--to leverage resources 
and develop innovative research, development, and manufacturing 
solutions. Through SEMATECH, members cooperatively fund and conduct R&D 
projects to fill key gaps in R&D/manufacturing infrastructure, such as 
developing new manufacturing processes and equipment, standards, and 
training programs.
    SEMATECH remains one of the world's most successful industry-led 
R&D consortia, with significant experience in managing large-scale 
industry-government-university alliances. Our member-driven 
collaborative model and best practices are standard-bearers for 
industrial R&D consortia, and have been emulated and replicated both 
nationally and internationally.
    SEMATECH is often cited as the model for successful public-private 
partnerships, based on our pioneering of the industrial R&D consortium 
model and our success in helping the U.S. semiconductor industry regain 
market share in the face of stiff competition from foreign competitors. 
SEMATECH has spurred both technology innovation and economic growth, 
including the creation of tens of thousands of high-wage jobs and 
billions in capital investment. SEMATECH is one of the few entities 
around the world that has continuously accelerated the RD&D timeline 
and delivered substantial value to its participants on an annual basis.
    In our view, given the history of SEMATECH we have just described, 
several organizational features have been integral to the success of 
the SEMATECH industrial consortium model:

          Commitment from senior executives, long-term support: Through 
        their financial support, participation in programs, and 
        assigned personnel, member companies make a substantial 
        investment in SEMATECH, which in turn ensures that our 
        activities are directly relevant to their needs and priorities.
          Industry leadership: While SEMATECH was established as a 
        public-private partnership, industry has retained the 
        management lead, ensuring that the consortium's activities are 
        aligned with industry priorities.
          A clear, pre-competitive mission: SEMATECH accelerates 
        commercialization by addressing common challenges, which are 
        enumerated by the industry roadmap. This means a focus on 
        building technology infrastructure and strengthening the 
        manufacturing base.
          Broad representation of the industry: SEMATECH engages the 
        whole supply chain, including manufacturers, universities, 
        national labs, research institutes, equipment/materials 
        manufacturers and other suppliers. This engagement allows each 
        entity to improve its understanding of its customers' needs, 
        and helps drive alignment and consensus across the broader 
        industry.
          Leveraging of government and industry funds: Government 
        funding does not displace industry funding; rather, it 
        leverages it for the purpose of accelerating technology 
        development. SEMATECH's initial federal funding of $100M per 
        year was matched by industry, dollar for dollar. In the years 
        that followed, the industry increased its share and SEMATECH 
        became self-sufficient. This ongoing commitment is all the more 
        notable in light of the tremendous financial pressures most 
        national and international technology companies face.
          A manufacturing development facility: The key here is scale. 
        A shared facility where companies can practice manufacturing in 
        a real-world manufacturing environment is a critical component, 
        making it possible to test equipment, materials, processes and 
        innovate new products at the scale that is necessary in order 
        to demonstrate performance, reliability, and cost savings. Such 
        a facility provides access to capabilities that enable next 
        generation start-up companies to succeed and provide the 
        critical validation of product performance for venture capital 
        funding.
          Membership model: SEMATECH is a member-driven organization. 
        Participating companies provide technical personnel 
        (``assignees'') on two- or three-year rotations in addition to 
        their financial contributions. Most immediately, this exchange 
        of technical talent keeps SEMATECH attuned to member company 
        priorities, but it is also is the critical means of 
        transferring technology and manufacturing best practices.

    SEMATECH has evolved over its 25-year history. In order to keep 
pace with and help lead a dynamic industry, it has expanded its program 
scope and its engagement with the supply chain, and diversified its 
funding sources. As a result, SEMATECH has:

   Helped recapture the US lead in semiconductor manufacturing,
   Successfully managed $870M in federal funding, ramping up 
        membership, transitioning to self-sufficiency,
   Led industry-wide initiatives to enable industry transitions 
        (next-generation patterning, next wafer size, novel materials 
        and device structures), and
    Catalyzed technology commercialization and economic 
        development.
              applying the sematech model to photovoltaics
    At SEMATECH we see the incredible promise of renewable energy, and 
have already started to extend our experience in this direction, with 
the creation of the U.S. Photovoltaic Manufacturing Consortium (PVMC). 
Last year, the Department of Energy selected SEMATECH to establish the 
PVMC to accelerate the development, commercialization, and 
manufacturing of next generation solar photovoltaic (PV) systems. In 
keeping with the SEMATECH model, PVMC will provide a means for testing 
and demonstrating new technologies and manufacturing processes at 
production scale.
    PVMC is leading a groundbreaking paradigm that will catalyze the 
21st century solar PV industry, developing and commercializing 
innovations in renewable energy thin film technology to enhance 
performance and reliability while reducing the cost of manufacturing. 
This unique effort builds on the approach successfully demonstrated in 
the semiconductor industry, through the powerful combination of 
SEMATECH's collaborative industry consortium model and CNSE's public-
private partnerships and unparalleled infrastructure.
    PVMC private sector partners include companies from across the 
solar industry representing equipment, materials and metrology 
suppliers, module producers and integrators and end users. Working 
together with institutional partners, PVMC companies will provide the 
knowledge, experience and critical mass necessary to align the industry 
and propel it forward.
    PVMC's goal is to increase the performance and speed the 
implementation of PV technologies while improving manufacturing 
processes and driving down costs. PVMC is working towards this goal by:

   Developing and disseminating technology roadmaps and 
        standards in order to identify priorities and coordinate the 
        technical agenda of the U.S. PV manufacturing industry,
   Establishing and supporting manufacturing development 
        facilities to improve manufacturing productivity and increase 
        U.S. PV manufacturing market share, jobs and technology 
        innovation,
   Linking research labs, universities and industry to 
        establish an effective PV commercialization support structure, 
        and
   Developing a highly trained PV workforce.

    Each of these strategic goals is supported by aggressive technical 
objectives, with detailed deliverables, metrics and milestones. Through 
its programs and advanced manufacturing development/prototyping 
facilities, PVMC will be a proving ground for innovative, disruptive 
solar technologies and manufacturing processes. Aligned and working 
together, the PV industry can overcome technology and manufacturing 
challenges, lower costs, regain market leadership, and spur the 
transition to a low-carbon renewable energy economy. Based on our 
decades of experience, we believe that this model of an industrial 
consortium working in partnership with universities and national labs 
can establish--or restore--national competitiveness in clean energy 
technologies.
                 industrial consortia: keys to success
    SEMATECH was conceived by industry and government to stop and 
reverse the exodus of the semiconductor industry from the U.S.; the 
mission was ultimately successful, and SEMATECH has continued to 
evolve, adjusting to a dynamic industry and a dynamic world and 
economy, for the last quarter century. Our experience over that time 
tells us that the following are required to be successful:

   In any emerging/disruptive technology sector, a U.S. 
        prototyping capability is needed to supplement R&D and bridge 
        to manufacturing--that is, a manufacturing development facility 
        (or facilities) that provides researchers and companies with 
        the capability to test and prove out innovative technologies 
        and manufacturing processes, either collaboratively or as part 
        of a proprietary program or fee-for-service arrangement. This 
        service goes well beyond what universities and national labs 
        provide, with capabilities at sufficient scale to provide the 
        data necessary to determine whether to adopt an innovation. A 
        manufacturing development facility provides companies shared 
        access to analytical, metrology, and advanced pilot line 
        equipment required for integrating new materials, developing 
        new equipment, and prototyping new products--services and 
        manufacturing infrastructure not available in a lab 
        environment.
   Collaboration with, and alignment of, a U.S. supply chain is 
        needed to provide insight and guidance on the strategic 
        investments required to achieve consortia goals; suppliers' 
        direct engagement in collaborative R&D fosters innovation and 
        accelerates progress toward commercialization. This is what 
        Pisano and Shih have identified as the development of the 
        industrial commons. (``Restoring American Competitiveness'', 
        HBR, July-August 2009)
   An efficient allocator of R&D funding is required--a 
        consortium model provides a precompetitive mechanism to bring 
        the industry together, prioritize and narrow technology 
        options, reduce the risks of technology R&D, and maximize 
        return on investment, to assure that funds are driven to 
        productive applied research resulting in the acceleration of 
        advanced manufacturing. It is difficult to evaluate long-term 
        R&D programs, or adapt to rapid changes in technology. In these 
        circumstances, the informed judgment of a combined cross-
        functional team of experts in a consortium is a better method 
        of allocating R&D funding than a simple analytical model based 
        on arbitrary assumptions when data or even reasonable estimates 
        do not exist.
   A bridge between innovative research and funding/
        commercialization (e.g., across the Valley of Death) is needed, 
        through a consortium model that spreads benefits/risk across 
        all stakeholders, working with universities and national 
        centers to pull critical research into the industry mainstream, 
        working with industry to reduce costs/risks and accelerate 
        precompetitive technology and process development, and working 
        with government to realize the potential for economic benefit 
        and job creation.
   Building and sustaining links to international partners is 
        required. Industries are global; U.S. firms rely on global 
        suppliers and have operations abroad, while many international 
        firms make significant contributions to the development of U.S. 
        innovation and manufacturing. While protecting our national 
        interests and building our national technology and 
        manufacturing capabilities, there are areas where international 
        collaboration makes sense. To develop solutions that will be 
        globally competitive, a consortium must have engagement with 
        the global supply chain, especially in areas such as 
        establishing common roadmaps, and providing access to critical 
        materials and equipment sets. In particular, the issues of 
        Environment, Health and Safety (EHS), standards, and quality/
        reliability are ones in which we all have a vested interest in 
        establishing and maintaining a baseline standard. Ultimately, 
        we have the know-how and methodologies to collaborate globally, 
        while protecting national interests and protecting IP.
   The organization's success or failure rests on the integrity 
        of the intellectual property management. A consortium must have 
        an effective structure and methodology allowing collaborative, 
        pre-competitive work while maintaining the integrity of the 
        contribution of consortium members' IP and enabling the 
        continuation into the competitive phase.
   A consortium is a collaborative effort that leverages 
        resources; by combining both public and private resources, the 
        consortium can expand the scope of its programs, investigate 
        multiple technology options, and produce higher quality 
        solutions, thereby multiplying many times over the undertaking 
        that any single entity could afford.
   At the same time, the consortium must have a glide path to 
        financial sustainability. We believe the membership model that 
        draws member companies from all along the supply chain is 
        critical to ensure that the consortium remains responsive to 
        industry needs.
   A successful consortium must have the trust and confidence 
        of the federal government, private corporations, and 
        researchers/idea generators to provide the framework for, and 
        realize the benefits of, our next generation of innovation-
        driven manufacturing. Trust and confidence comes from 
        experience; the SEMATECH model has evolved with proven success 
        in fostering technology innovation, reducing the costs of R&D, 
        enabling advanced manufacturing, and creating high wage jobs 
        and is respected worldwide.
                               conclusion
    In conclusion, we want to emphasize that for all of the challenges 
we face, we have faced similarly formidable challenges before, and we 
have the tools and the experience to overcome them. The 
Administration's National Network of Manufacturing Innovation holds a 
lot of promise in this regard. We believe that the NNMI can replicate 
SEMATECH's success across many industries, provided that it is guided 
by the core principle of industry management and that it utilizes the 
membership model.
    The SEMATECH experience has reaffirmed that we as a nation can 
benefit from an ambitious national strategy to drive broad 
collaboration at sufficient scale to create technology roadmaps and 
standards; build R&D and manufacturing infrastructure; reduce cost 
across the supply chain; conduct both collaborative and proprietary 
technology programs; and provide access to pilot facilities to 
demonstrate innovations at manufacturing scale. In our view, public-
private initiatives--that focus on investments that are too large for 
any single company or organization, and too long-term for companies 
that need to demonstrate quarterly results--are critical for the United 
States. In addition to leveraging our country's strong universities and 
venture capital system, we as a nation must nurture disruptive 
technology development and robust manufacturing, if we are to build the 
infrastructure for sustainable growth and leadership in the global 
economy. Given that the American taxpayer still funds the bulk of the 
underlying research, these activities return a significant ROI: in 
terms of generating revenue and high-value jobs, attracting companies 
to form a virtuous cycle of innovation-driven economic development, and 
thus enabling taxpayer-funded research to be commercialized here in the 
United States.

    The Chairman. Thank you very much.
    Dr. Scissors, please go right ahead.

      STATEMENT OF DEREK SCISSORS, THE HERITAGE FOUNDATION

    Mr. Scissors. Thank you.
    I don't think we've heard enough today about how China is 
actually doing, and I'm going to say a few things about that, 
and maybe we'll hear more. I would also suggest or recommend to 
some extent my written testimony, which is hardly perfect, but 
documents a little bit on China's actual performance.
    China's actual performance is poor. That I think is not 
really arguable. The reasons why, how long it will be poor, we 
can argue about, and those will imply some lessons for the U.S.
    Let me start with positives on what China has done so far. 
They create jobs at home, partly by exporting solar panels, 
partly by having too much wind capacity for their own use. But 
jobs are good.
    They also spend a lot, which makes it seem possible that 
there will be improvement in their future outcomes, which I 
think is fair--that possibility does exist--but that's it for 
the positives; and the negatives are pretty stark.
    No. 1, China is now significantly more dependent on 
imported energy than it was. In 2007 China was a net coal 
exporter. It is now the world's largest coal importer, and it 
will pull away from everyone else in rather dramatic fashion.
    Its oil important share is rising, so China is moving 
farther away from its stated goal of self-sufficiency that most 
countries have, including the PRC, and they're failing.
    On efficiency gains, according to the International Energy 
Agency, in the decade of the 2000s U.S. energy efficiency 
improved annually at a 2.5 percentage point clip. China, which 
had far greater scope for improvement, much more room to 
improve, improved more slowly, 1.7 percent, percentage increase 
annually in energy efficiency.
    They're not doing well in efficiency, either.
    Ecology. We talk about green energy--we started talking 
about green energy primarily to reduce carbon emissions. In 
2005 China was second to the United States in global carbon 
emissions. They have spent a great deal of money since. They 
are now at least 50 percent ahead of the U.S. in carbon 
emissions. That's the result of their green energy spending.
    Innovation. Some people think that you spend money, you get 
more innovation. OK. I don't agree. There's very little primary 
innovation in China to this point. There's a lot of plans for 
innovation. Maybe we'll see it in the future. We haven't seen 
it yet.
    Even in jobs performance, China's job performance in 
creating green energy jobs is heavily dependent on foreigners, 
particularly demand subsidies in the EU that are now drying up, 
or it's dependent on domestic overcapacity in wind.
    So when we actually break down Chinese energy performance, 
it's bad. Why? Now we're moving into the suggestion phase. 
China extended a lot of support to large solar companies, for 
example. Let me give you a statistic. Three of the top 5--not 
all of them; 3 of the top 5--Chinese solar companies have debt 
now that is 6 times their market cap. The Chinese system has 
just failed, and those companies are either going to go out of 
business or just continually be subsidized by the State.
    They try to innovate by decree: We will now innovate more. 
The decrees come a lot faster than protection of intellectual 
property. I would argue that, even with Chinese spending, if 
you don't protect intellectual property, which China is very 
far away from doing, you're not going to innovate, no matter 
how many orders you give from Beijing.
    Their emissions profile changed when the State decided to 
alter the direction of economic policy, which was 2002-2003, a 
change in Chinese government. Their coal use was actually 
declining. Their coal use soars, their emissions profile soars, 
with a government change.
    Their energy efficiency. China calls energy an area of 
absolute state dominance and it discourages competition because 
it wants to consolidate control of sectors on large state-owned 
enterprises. When you suppress competition, you get less 
efficiency.
    China also imposes price controls. Price controls keep 
energy too cheap. They overuse it, they import it. There goes 
self-sufficiency.
    The theme in all this is the state, the role of the state. 
That's my hypothesis for why China's energy performance is so 
poor.
    So what are the implications for the U.S.'' Cooperation is 
certainly worthwhile. I think the current direction of China's 
energy policy is not going to accomplish anything. China's 
priority in energy is state control of energy, not 
technological breakthroughs, not reducing emissions. We've seen 
them do exactly the opposite.
    I think imitating China is a terrible idea. They spend a 
little more than us and they get much worse results. Us 
imitating China would hurt the entire planet economically, 
environmentally, on any dimension you can think of, and it 
would cost us more, of course.
    In the competition sense, we're winning. We're getting 
closer to self-sufficiency, they're getting farther away. Our 
energy efficiency is higher and we're gaining more. We're 
cutting our emissions, theirs are soaring. There's no sign of 
us losing our tech leadership, unless you just substitute 
``they're spending a lot of money, so eventually their going to 
pass us.'' Even in jobs, they spend a lot more money to create 
each green energy job and they may not be able to sustain their 
job performance to this point.
    Now, is there anything we can do to do better? Of course 
there is. These are separate issues. I'm not arguing we're 
perfect. I'm arguing we're way ahead of China and we shouldn't 
lose track of that fact.
    There was a brief moment of apparent bipartisan consensus 
on corporate tax reform. We need to go back to that brief 
moment. That would help us in green energy, energy, and 
everything else. I'm not arguing about the terms of that, just 
corporate tax reform I think both sides realize would be 
helpful. Some sort of agreement would be very helpful.
    I agree with the chairman's opening comment entirely that a 
stable regulatory environment is very important and that 
jumping back and forth is not helpful. I would go on to add 
that I would prefer a minimally directive regulatory 
environment. Why? Because when you set out specific targets you 
pin us to technology paths that don't turn out to be the right 
ones. This is a very dynamic industry. We should not be looking 
and saying we know what technology should be chosen, we should 
subsidize it and that's the direction we're going to go in. 
We're going to be very sorry 5 to 10 years from now if we do 
that. So I want stability, but I don't want the government 
pushing industry in a certain direction.
    Those would be my recommendations for the U.S., the main 
point still being that, let's not forget we're outperforming 
the Chinese in energy and by a wide margin.
    Thank you.
    [The prepared statement of Mr. Scissors follows:]

     Prepared Statement of Derek Scissors, The Heritage Foundation
    My name is Derek Scissors. I am Senior Research Fellow for Asia 
Economics at The Heritage Foundation. The views I express in this 
testimony are my own and should not be construed as representing any 
official position of The Heritage Foundation.
    There are serious misconceptions regarding China's energy and 
environmental performance and what it means for the U.S. China is 
indeed spending a great deal of money on clean energy, but it is doing 
so largely in response to its own policy errors. The combined results 
of this spending and these errors are abysmal--waste, below-average 
gains in energy efficiency, lack of innovation, greater dependence on 
foreign sources, and a terrible record on the environment.
    American misconceptions arise from the fact the Beijing has 
succeeded in one important area: green energy jobs. For the sake of 
jobs, Congress can choose to follow China's example, but the costs 
would be prohibitive. Not just money but efficiency, innovation, even 
environmental protection would have to suffer for the sake of 
employment. The U.S. boasts a far better energy and environmental 
record than China, and moving in China's direction would be very risky.
               china: is green energy investment helping?
    One of the numbers that gets the most attention in clean energy 
debates is the amount countries are said to invest. According to the 
Pew Charitable Trusts, the People's Republic of China (PRC) spent a 
total of $100 billion in 2010 and 2011 on green energy, though 
noticeably less in 2011.\1\ If ``winning'' in green energy is defined 
as just spending the most money, without reference to the outcomes, 
China is doing very well. That, however, is a very strange notion of 
success.
---------------------------------------------------------------------------
    \1\ ``Who's Winning the Clean Energy Race? G-20 Investment Powering 
Forward, 2011 Edition'' Pew Charitable Trusts, 2012, http://
www.pewtrusts.org/uploadedFiles/wwwpewtrustsorg/Reports/Clean_Energy/
Clean%20Energy%20Race%20Report%202012.pdf (accessed June 11, 2012).
---------------------------------------------------------------------------
    The first problem with grappling with how the PRC is actually doing 
is lack of transparency. Internal Chinese investment figures clash,\2\ 
making it more difficult for foreign observers to draw conclusions. 
Some gaps are unintentional; elsewhere, there is deliberate 
obfuscation. China stopped publishing regular coal figures in 2010 as 
its share of global output approached 50 percent. It balks at almost 
any form of international monitoring, from a sweeping agreement on 
checking greenhouse emissions to U.S. embassy measurements of air 
pollution in Beijing.
---------------------------------------------------------------------------
    \2\ See the China Electricity Council cited in ``China to See Slow 
Power Consumption Growth,'' Xinhua, February 7, 2012, http://
www.china.org.cn/business/2012-02/07/content_24576241.htm (accessed 
June 11, 2012), versus the National Bureau of Statistics in National 
Bureau of Statistics, China Monthly Statistics, Beijing, Volume 1 2012.
---------------------------------------------------------------------------
    A related problem is the contrast between capacity and actual use: 
The PRC's capacity to generate clean energy far outstrips its use. In 
wind power, the initial surge in capacity was half-wasted--over half 
the wind power generated in the first half of 2010 was unused. More 
recently, even capacity expansion in offshore wind has stalled due to 
delays and overcrowding.\3\ In solar, Chinese equipment does get used, 
but almost entirely by others. The PRC now has the largest share of the 
world production market, but 95 percent has gone to exports.\4\ China's 
world-leading investment in clean energy has managed not to provide the 
country with much clean energy.
---------------------------------------------------------------------------
    \3\  ``Grid Issue Taking Wind Out of Energy Plan's Sails,'' China 
Daily, February 16, 2011, http://www.china.org.cn/2011-02/16/
content_21933267.htm (accessed June 11, 2012), and Liu Yiyu, ``Wind 
Firms in Doldrums,'' China Daily, May 31, 2012, http://
www.chinadaily.com.cn/cndy/2012-05/31/content_15430337.htm (accessed 
June 11, 2012).
    \4\ ``Factbox: How China Promotes Its Green Sector,'' Reuters, 
January 17, 2011, http://www.reuters.com/article/2011/01/17/us-solar-
china-idUSTRE70G2CH20110117 (accessed June 11, 2012).
---------------------------------------------------------------------------
    Another area of the PRC's troubled ``leadership'' is hydropower. At 
home, hydro capacity outruns its use, just as with wind. Here the 
reason is not lack of connection but lack of water flow due to 
overconsumption and, to some extent, pollution. Major rivers now run 
dry and fail to reach the sea, and 25 percent of surface water is rated 
as unsafe.\5\ Overseas, China has inked billions in contracts to build 
hydropower plants, mostly for less developed economies. These plants 
provide clear and important benefits but their environmental impact is 
dubious.\6\
---------------------------------------------------------------------------
    \5\ Richard Spencer, ``Yangtze River Water Level at 140-Year Low,'' 
The Telegraph, January 17, 2008, http://www.telegraph.co.uk/earth/
earthnews/3322121/Yangtze-River-water-level-at-140-year-low.html 
(accessed June 11, 2012), and ``China's Air Pollution Worsens After 
Economic Growth Rebounds From Crisis,'' Bloomberg, July 27, 2010, 
http://www.bloomberg.com/news/2010-07-27/china-s-air-pollution-worsens-
after-economic-growth-rebounds-from-crisis.html (accessed June 11, 
2012).
    \6\ Simon Marks, ``Chinese Dam Project in Cambodia Raises 
Environmental Concerns,'' The New York Times, January 16, 2012, http://
www.nytimes.com/2012/01/17/business/global/17iht-rbog-
cam17.html?pagewanted=all (accessed June 11, 2012), and Derek Scissors, 
``China Global Investment Tracker Interactive Map,'' The Heritage 
Foundation, January 6, 2012, http://www.heritage.org/research/projects/
china-global-investment-tracker-interactive-map.

                    COAL PRODUCTION (TONS, MILLIONS)
------------------------------------------------------------------------

------------------------------------------------------------------------
1998                                                               1,110
------------------------------------------------------------------------
1999                                                                 980
------------------------------------------------------------------------
2000                                                                 880
------------------------------------------------------------------------
2001                                                                 960
------------------------------------------------------------------------
2002                                                               1,110
------------------------------------------------------------------------
2003                                                               1,330
------------------------------------------------------------------------
2004                                                               1,610
------------------------------------------------------------------------
2005                                                               1,820
------------------------------------------------------------------------
2006                                                               2,070
------------------------------------------------------------------------
2007                                                               2,290
------------------------------------------------------------------------
2008                                                               2,620
------------------------------------------------------------------------
2009                                                               2,960
------------------------------------------------------------------------
2010                                                               3,240
------------------------------------------------------------------------
2011                                                               3,520
------------------------------------------------------------------------
 Sources: National Bureau of Statistics, China Monthly Statistics,
  Beijing, Volume 1 1999--Volume 1 2010, and ``Chinese Energy Chief
  Stresses Coal Consumption Control,'' Coal World, February 25, 2012,
  http://www.coalworld.net/indexnews/info.jsp?id=72651 (accessed June
  11, 2012).

    Notwithstanding all the green energy investment, coal dominates 
generation of both electricity and energy, and that dominance is not 
subsiding. On the (unreliable) official tally, energy consumption was 
said to rise 7 percent in 2011. Coal demand rose almost 10 percent so 
that its share in realized energy consumption expanded. Thermal power 
generation, which in the PRC is utterly dominated by coal, outpaced 
overall electricity generation last year because realized hydropower 
generation fell outright.\7\
---------------------------------------------------------------------------
    \7\ ``China Energy Consumption Rises At Fastest Pace in Four 
Years,'' Bloomberg, February 22, 2012, http://www.bloomberg.com/news/
2012-02-22/china-energy-consumption-rises-at-fastest-pace-in-four-
years.html (accessed June 11, 2012), and National Bureau of Statistics, 
China Monthly Statistics, Beijing, Volume 1 2012.
---------------------------------------------------------------------------
    This is not surprising; coal's role has waxed for over a decade, 
the very period where green energy is supposed to have become 
important. When hydropower is included, green energy has in fact 
receded while coal has advanced. In the late 1990's, coal accounted for 
a bit over 60 percent of the PRC's energy use and a bit over 70 percent 
of its electricity. Those numbers are now 70 percent and 80 percent, 
respectively. Coal use accelerated most noticeably starting in 2002-
2003, when the current Chinese government took office and emphasized 
investment in power-intensive heavy industries such as steel.\8\ 
Eventually, supply could not keep up. As recently as 2007, China was a 
net coal exporter; it is now the world's largest coal importer.\9\
---------------------------------------------------------------------------
    \8\ Derek Scissors, ``Deng Undone: The Costs of Halting Market 
Reform in China,'' Foreign Affairs, May/June 2009, http://
www.foreignaffairs.com/articles/64947/derek-scissors/deng-undone 
(accessed June 11, 2012).
    \9\ ``China Surpasses Japan As Largest Coal Importer,'' Dow Jones, 
January 25, 2012, http://www.iss-shipping.com/microsites/
NewsDetails.aspx?msid=194&newsid=6439 (accessed June 11, 2012).
---------------------------------------------------------------------------
                     state dominance and its impact
    For a decade, the economic model has been to lend, invest, produce, 
and export. Coal and other energy consumption has essentially been 
forced to rise in response, far more than if growth had been 
consumption-or services-led. A simple way to understand Chinese energy 
investment is the state trying to clean up after itself. It typically 
fails because Beijing simultaneously takes actions that limit the value 
of clean energy investment.
    The government does not encourage or shape energy development; it 
dictates it. The State Council requires ``absolute control'' of all 
energy production, starting with price-setting. When prices are 
permitted to rise, subsidies are often offered as compensation, so 
government involvement still increases. Price controls have 
consistently caused production of natural gas to fall short of 
grandiose plans.\10\
---------------------------------------------------------------------------
    \10\ As an illustration, see ``Chinese Cities Grappling with 
Natural Gas Shortage,'' Xinhua, November 23, 2009, http://
english.people.com.cn/90001/90778/90860/6821411.html (accessed June 11, 
2012), and ``Australia Cancels $40.4 Billion Natural Gas Contract with 
China,'' People's Daily Online, January 5, 2010, http://
english.people.com.cn/90001/90778/90860/6859711.html (accessed June 11, 
2012).
---------------------------------------------------------------------------
    But coal, as usual, provides the starkest example of double-sided, 
self-defeating government intervention. Effective price controls, 
through electricity prices and central government coercion, keep coal 
cheap for industrial expansion and lead to more coal use.\11\ This 
prompts calls for clean energy. But the subsidies Beijing then provides 
to green energy to make it competitive are much larger than they would 
have to be if the price of coal was not kept too low in the first 
place.
---------------------------------------------------------------------------
    \11\ ``Development and Reform Commission Asked for Breach of 
Contract Prices of Coal Enterprises to Resume Contract Price,'' Xinhua, 
June 25, 2010, http://www.china-daily.org/China-News/Development-and-
Reform-Commission-asked-for-breach-of-contract-prices-of-coal-
enterprises-to-resume-contract-price/ (accessed June 11, 2012).
---------------------------------------------------------------------------
    Beyond prices, the latest incarnation of state energy policy is the 
12th five-year plan. Some goals, such as those for electric vehicles, 
are far from being met.\12\ Others are standing orders modified only by 
placing the word ``new'' before the word ``energy.'' One such goal is 
to suppress competition. The three national oil majors account for well 
over 90 percent of oil production and over 95 percent of gas 
production. Oil and solar may seem strange bedfellows, but the PRC is 
molding solar in oil's image, handing out gigantic loans to a select 
few solar companies and then implementing regulations on standards that 
will drive most small firms out of business.\13\
---------------------------------------------------------------------------
    \12\ ``China `Can Still Lead' in Green Cars,'' China Daily, April 
21, 2012, http://www.china.org.cn/environment/2012-04/21/
content_25200574.htm (accessed June 11, 2012).
    \13\ ``Yingli's $5.3b Loan May Help China Double Global Solar Panel 
Supply," China Daily, July 9, 2010, http://www.chinadaily.com.cn/
business/2010-07/09/content--10087488.htm (accessed June 11, 2012), and 
Du Juan, "Solar Industry 12th Five-Year Plan Issued,'' China Daily, 
February 25, 2012, http://www.china.org.cn/business/2012-02/25/
content_24728487.htm (accessed June 11, 2012).
---------------------------------------------------------------------------
    The PRC spends heavily on green energy in large part because it has 
bigger energy and environmental problems than any other country in the 
world. Most of those problems are inflicted by the Chinese state 
itself. Giving Beijing credit for spending on green energy is like 
looking at a stunt driver's medical bills and giving her credit for 
investing so much in her health.

                   STATE CONTROL OF ENERGY--A SUMMARY
------------------------------------------------------------------------

------------------------------------------------------------------------
Coal                                       Price controls discourage use
                                            of other sources
------------------------------------------------------------------------
Gas                                        Price controls discourage
                                            competition, innovation
------------------------------------------------------------------------
Oil                                        Regional monopoly blocks
                                            competition, innovation
------------------------------------------------------------------------
Solar                                      Trying to imitate oil
------------------------------------------------------------------------

                    china and the u.s.: win or lose
    Sino-American energy and environmental relations can be 
cooperative, competitive, or imitative. Most observers would choose 
cooperative, but a country that fights transparency and adopts 
contradictory policies is not a pleasant partner. Joint research, 
touted in the Strategic and Economic Dialogue, is reasonable, but 
expectations should be minimal. Beijing's clear pattern is to put state 
control of energy first, with energy efficiency and ecological 
protection secondary.
    In this light, any breakthroughs would come from the U.S. and then 
be adopted by China. This is occurring now in natural gas, where China 
is openly jealous of American progress. The PRC is said to have larger 
shale reserves than the U.S., but its huge, sheltered companies and 
massive spending have seen it only fall further behind in technology 
and extraction, and Beijing has been forced to seek foreign 
assistance.\14\ Cooperation with China should be seen more as a 
contribution to the global community than as a way to make progress on 
American aims.
---------------------------------------------------------------------------
    \14\ ``China's Shale Reserves Already Surpass the U.S.,'' Real 
Clear Energy, December 19, 2011, http://www.realclearenergy.org/
charticles/2011/12/19/
chinas_shale_resources_already_surpass_the_us.html (accessed June 11, 
2012), and Leslie Hook, ``China Sets Target for Shale Gas 
Development,'' Financial Times, March 16, 2012, http://www.ft.com/intl/
cms/s/0/2e7a77ac-6f59-11e1-9c57-00144feab49a.html#axzz1xQ5FoJl0 
(accessed June 11, 2012).
---------------------------------------------------------------------------
Competition: We Win
    If the PRC does get help to tap its gas reserves, it will of course 
become a competitor for the U.S. This has already happened in wind, 
solar, and elsewhere: China took technologies developed by others and 
became a major commercial presence. Is this an economic or energy 
threat to the U.S.? It depends first on American priorities. For more 
than a generation, the U.S. has emphasized energy efficiency and 
innovation while seeking self-sufficiency and trying to protect the 
environment. This approach has borne fruit.
    If the top priority is energy self-sufficiency, Chinese actions are 
not directly relevant to the U.S. However, the extent of American self-
reliance has been increasing while China's decreases, so that the PRC's 
model provides little reason for a change in American policy.\15\
---------------------------------------------------------------------------
    \15\ ``BP Energy Outlook 2030,'' BP, January 2012, http://
www.bp.com/liveassets/bp_internet/globalbp/STAGING/global_assets/
downloads/O/2012_2030_energy_outlook_booklet.pdf (accessed June 11, 
2012).

                  AMERICA VERSUS CHINA: THE SCOREBOARD
------------------------------------------------------------------------

------------------------------------------------------------------------
TARGET                                     WINNER
------------------------------------------------------------------------
Self-sufficiency                           U.S.
------------------------------------------------------------------------
Efficiency                                 U.S.
------------------------------------------------------------------------
Ecology                                    U.S.
------------------------------------------------------------------------
Technology                                 U.S.
------------------------------------------------------------------------
Jobs                                       PRC
------------------------------------------------------------------------

    If the top priority is energy efficiency, the U.S. is clearly 
winning. Poor data from Beijing again obscure the situation, but 
China's economy was half the size of the American economy by the end of 
2011. Yet the Energy Information Administration, which has consistently 
underestimated the PRC's expansion, estimates its energy consumption at 
10 percent-15 percent larger than American energy consumption last 
year. The efficiency gap has been widening. The International Energy 
Agency found the U.S. improved energy efficiency 2.5 percent annually 
from 2000 to 2009, compared to China's 1.7 percent. This occurred 
despite the much larger scope for improvement on the western side of 
the Pacific.\16\
---------------------------------------------------------------------------
    \16\ ``International Energy Outlook 2011,'' U.S. Energy Information 
Administration, September 2011, http://205.254.135.7/forecasts/ieo/pdf/
0484(2011).pdf (accessed June 11, 2012), and ``China Passes U.S. as 
World's Biggest Energy Consumer,'' Bloomberg, July 20, 2010, http://
www.businessweek.com/news/2010-07-20/china-passes-u-s-as-world-s-
biggest-energy-consumer.html (accessed June 11, 2012).
---------------------------------------------------------------------------
    It is difficult to imagine true competition in technology in the 
foreseeable future. The PRC has a huge market and will continue to try 
to lure foreign players to offset its own failings, but the requisite 
state control of energy and lack of protection for intellectual 
property are powerful disincentives. It is not surprising that the 
larger energy investments have been made by Chinese firms in the U.S., 
rather than the reverse, led by gas but also including biofuels and 
wind.\17\
---------------------------------------------------------------------------
    \17\ Ryan Dezember and James T. Areddy, ``China Foothold in U.S. 
Energy,'' The Wall Street Journal, March 6, 2012, http://
online.wsj.com/article/SB10001424052970204883304577223083067806776.html 
(accessed June 11, 2012); ``China Egg Producer to Set Up U.S. Biogas 
Project with Smithfield,'' Bloomberg, February 17, 2012, http://
www.bloomberg.com/news/2012-02-17/china-egg-producer-to-set-up-u-s-
biogas-project-with-smithfield.html (accessed June 11, 2012);, and 
Brian Spegele, ``Chinese Firm to Build Big Wind Farm in U.S.,'' The 
Wall Street Journal, September 20, 2011, http://online.wsj.com/article/
SB10001424053111904106704576579741179230646.html (accessed June 11, 
2012).
---------------------------------------------------------------------------
    If the top priority is a cleaner environment, there is no 
competition: Cheap Chinese solar panels, wind turbines, or natural gas 
all contribute positively to that end in all countries. In fact, they 
seem to contribute more positively to protecting the environment 
outside China than inside.
    Cleaner energy improves water and air quality, both areas where 
America far outperforms China, but attention has been focused on 
capping or reducing greenhouse gas emissions. The record shows the U.S. 
as the world's best performer since 2006, the golden age for green 
energy.\18\ The PRC, in stark contrast, has moved from roughly equal to 
the U.S. in emissions in 2006 to half again higher or more (with an 
economy half the size). China's emissions per unit of GDP are thus four 
times America's and its emissions per capita, while lower, are soaring. 
Projections over the next decade have gross Chinese emissions larger 
than the rest of the world combined.\19\
---------------------------------------------------------------------------
    \18\ ``Global Carbon-Dioxide Emissions Increase by 1.0 Gt in 2011 
to Record High,'' International Energy Agency, May 24, 2012, http://
iea.org/newsroomandevents/news/2012/may/name,27216,en.html (accessed 
June 11, 2012).
    \19\ Justin Gillis, ``Carbon Emissions Show Biggest Jump Ever 
Recorded,'' The New York Times, December 4, 2011, http://
www.nytimes.com/2011/12/05/science/earth/record-jump-in-emissions-in-
2010-study-finds.html (accessed June 11, 2012), and Keith Bradsher, 
``China Fears Consumer Impact on Global Warming,'' The New York Times, 
July 4, 2010, http://www.nytimes.com/2010/07/05/business/global/
05warm.html (accessed June 11, 2012).

                    EMISSIONS TREND (TONS, BILLIONS)
------------------------------------------------------------------------

------------------------------------------------------------------------
Year                                U.S.               PRC
------------------------------------------------------------------------

------------------------------------------------------------------------
1998                                5.65               3.65
------------------------------------------------------------------------
1999                                5.69               3.57
------------------------------------------------------------------------
2000                                5.87               3.56
------------------------------------------------------------------------
2001                                5.75               3.64
------------------------------------------------------------------------
2002                                5.82               3.92
------------------------------------------------------------------------
2003                                5.87               4.50
------------------------------------------------------------------------
2004                                5.94               5.28
------------------------------------------------------------------------
2005                                5.94               5.85
------------------------------------------------------------------------
2006                                5.84               6.50
------------------------------------------------------------------------
2007                                5.91               7.01
------------------------------------------------------------------------
2008                                5.46               7.78
------------------------------------------------------------------------
2009                                5.04               8.11
------------------------------------------------------------------------
2010                                5.25               8.95
------------------------------------------------------------------------
 Source: Jos GJ. Olivier, Greet Janssens-Maenhout, Jeroen A.H.W. Peters,
  and Julian Wilson, ``Long-Term Trend in Global CO2 Emissions: 2011
  Report,'' PBL Netherlands Environmental Assessment Agency and
  Institute for Environment and Sustainability (IES) of the European
  Commission's Joint Research Centre (JRC), 2011, http://www.pbl.nl/
  sites/default/files/cms/publicaties/
  CO2%20Mondiaal_%20webdef_19sept.pdf (accessed June 11, 2012).

    The final priority is jobs. The reason Beijing ratcheted up 
lending, investment, and production in 2002-2003, thus ratcheting up 
coal use and carbon emissions, was to create jobs. Renewables are more 
labor-intensive than fossil fuels, sometimes far more.\20\ This is a 
drawback from the standpoint of cost and efficiency but a positive with 
regard to employment. A natural result is that a job-seeking China will 
favor green energy more than an efficiency-seeking U.S. will.
---------------------------------------------------------------------------
    \20\ Robert Pollin, James Heintz, and Heidi Garrett-Peltier, ``The 
Economic Benefits of Investing in Clean Energy,'' Department of 
Economics and Political Economy Research Institute (PERI), University 
of Massachusetts, Amherst, and Center for American Progress, June 2009, 
http://www.peri.umass.edu/fileadmin/pdf/other_publication_types/
green_economics/economic_benefits/economic_benefits.PDF (accessed June 
11, 2012).
---------------------------------------------------------------------------
    Further, when domestic supply outruns demand, the excess is shipped 
overseas. Chinese jobs then seem to come at the expense of foreign 
jobs, a source of broader tension. In energy, solar is the most obvious 
example: Chinese solar subsidies are wildly excessive if the purpose is 
just to serve the home market; they began as a response to incentives 
offered in Europe. With Europe now unable to afford its incentives, 
Chinese panels have been diverted to the U.S.
Imitation: We Lose
    As in other areas, the U.S. is suffering in clean energy from 
China's job-seeking. Should America fight fire with fire? Should 
Washington even go beyond simple retaliation and adopt ``the Beijing 
model'' in energy? Should Congress pass legislation aimed at China that 
would create more green energy jobs in the U.S.? The short answer to 
all three questions is ``No.'' Jobs would be created but at the cost of 
a pronounced deterioration in overall energy performance.
    If green energy was already as efficient as conventional, no 
subsidies would be needed. More green energy jobs at the moment means 
less energy efficiency. Further, truly ensuring job creation requires 
picking winners. Small, nimble firms can drive large employers out of 
business: Jobs first means this competition must be suppressed, as in 
the PRC. The result is unavoidably less innovation. Finally, more clean 
energy jobs means less clean energy. Chinese subsidies harm U.S. 
manufacturing but cut the price of power generation from renewables. 
Blocking Chinese goods would raise the price, make green energy less 
competitive, and undercut ecological gains.
    The worst idea, though, is for America to imitate China in clean 
energy. Even if Beijing were making wise choices for China, it is 
extremely unlikely these choices would be wise for the U.S. The U.S. is 
in a far better situation than China. The U.S. has a fundamentally more 
conducive system for innovation. The U.S. would certainly suffer from 
imitating Chinese practices with regard to transparency.
    The U.S. is also blessed with a far better resource endowment--more 
usable land and much more water per person. The water gap, in 
particular, is an obstacle to Chinese natural gas development. So it is 
no surprise that China invests a good deal in water. But it would still 
make no sense at all for the U.S. to match this investment. Coal 
generates about twice as much of America's electricity as natural gas 
does. Coal generates about 20 times as much of the PRC's electricity as 
natural gas does.\21\ This is not a model that the U.S. should follow.
---------------------------------------------------------------------------
    \21\ Frank Wolak and Richard Morse, ``China's Green Gift to the 
World,'' The Guardian, December 30, 2010, http://www.stanford.edu/
group/fwolak/cgi-bin/sites/default/files/files/
China's%20green%20gift%20to%20the%20world_Dec%202010_Wolak_Morse.pdf 
(accessed June 11, 2012).
---------------------------------------------------------------------------
    Even in solar, subject of much debate, the end of European 
incentives reveal the cost of Chinese subsidies. As a group, LDK Solar, 
Suntech Power, and Yingli Green Energy were offered tens of billions in 
government assistance, and their announced debt runs in the billions. 
Their combined market capitalization is now short of $1 billion. U.S. 
government solar subsidies can be deemed inadequate compared to 
China's, but the same is true for ensuing losses. All the PRC has on 
its side is raw spending, spending that is often wasted and other times 
is merely an attempt to compensate for harmful policy decisions in 
other spheres. The U.S. has done far better.

    The Chairman. Thank you very much.
    Let me start with a few questions. This analogy to what was 
done with Sematech I think is an intriguing one. My 
recollection of that experience was that the industry itself, 
the semiconductor firms themselves, Bob Noyce and others, came 
to Washington and basically said: We need to do this, we want 
to do this, we need government assistance to help us get 
started, and we did that.
    At the same time, my recollection is that the original 
members of Sematech were U.S. companies. I think NEC applied 
for membership and was not permitted to be a member at that 
time, was my recollection.
    I guess what I'm now sort of struggling with is, if there 
were to be consortia of companies to pursue their competitive 
position in some of these technologies in photovoltaics or 
other areas, how do we go about identifying that organization? 
Is there a critical mass of industry that want it that are 
U.S.-based or that have operations in the United States, that 
would want to do such a thing? I guess those are some obvious 
questions.
    Mr. Wolff, do you have thoughts on it?
    Mr. Wolff. Just to begin, and I'm sure Mr. Holladay has 
some current thoughts on the subject, Sematech was industry-
driven, you're quite right. Bob Noyce and the other, IBM, ATT, 
both the vertically integrated companies and the Silicon Valley 
companies, Texas Instruments as well, found that they were not 
as efficient or producing as good a production as the Japanese. 
It's one thing to say, well, there's dumping. It's another 
thing to say, we don't have the quality that the others do. We 
needed to drive our manufacturing efficiency, our toolmaking, 
our processes, and the way to do that was in a hands-on 
laboratory environment that actually was a factory that 
produced something, not for commercial use, but to learn how to 
make better chips.
    You're right that this was a U.S. effort entirely. It was 
funded by the Department of Defense, $100 million a year, as 
has been testified to, for 5 years, and the industry also 
matched that with a $100 million contribution. So it was a 
major effort, and it paid off.
    The industry has become global. There are foreign 
participants in Sematech today and they're still pushing the 
envelope, and it's all pre-competitive R and D, and the 
benefits for the world have been dramatic in terms of the 
information revolution.
    Whether there's enough of a consensus in the U.S. private 
sector today I would leave to the person who's currently 
involved with them in the Sematech initiative with respect to 
photovoltaics.
    The Chairman. Mr. Holladay, what's your take on whether 
there's a critical mass of industry interested in anything 
comparable to Sematech or any kind of collaboration to improve 
their competitiveness?
    Mr. Holladay. Yes, sir, especially in the supply chain. The 
supply chain is really desperate to be able to have, especially 
access. The manufacturing development facility is critical. 
Having a facility where people can do, not lab-related work, 
but they can actually go do production-related work and develop 
production-style tools and test production materials, and it's 
critical to the supply chain to be able to develop these more 
advanced materials, these more advanced tools, and having 
access to those kind of facilities?
    The Chairman. That's what you said you have been tasked to 
do or are working with the Department of Energy to do? Did I 
understand that.
    Mr. Holladay. Yes, sir, in the SIGs, in some crystalline 
silicon areas. So we have a very great opportunity. It's the 
first time that Sematech's been replicated in 25 years, and the 
Department of Energy has created that aground the SIGs 
technology and, like I said, some components of the crystalline 
silicon, and we're working to expand that.
    The Chairman. It strikes me that, at least for several of 
you, this point about maintaining in the U.S. a manufacturing 
capacity has been made, and that the ability of the U.S. to 
remain a leader in research and development is not going to be 
possible if we don't have that manufacturing capacity in these 
technologies. I just wondered if anybody wanted to elaborate on 
that. Mr. Prestowitz, you made that point, I believe.
    Mr. Prestowitz. Yes, I did. I think it's an important 
point. I think there's a false sense widely spread that 
innovation proceeds in kind of a straight line, that you do 
basic R and D in a laboratory someplace and then that proceeds 
to developmental R and D that proceeds to commercialization. 
That's not really how it works. It's an iterative process.
    It's very often that somebody in the field comes up with an 
idea that they throw at the lab and back and forth. If you 
don't have the bach and forth capability, much more difficult 
to do the innovation.
    I think that we've seen that in so many instances that this 
concept of past dependence, that what happens next depends on 
what happened the step before, and if you don't have the step 
before then the next step doesn't happen, is pretty solidly 
established both economically and scientifically. That's the 
point, I think.
    The Chairman. Mr. Holladay, did you want to add something?
    Mr. Holladay. I agree with that 100 percent. I'll add to it 
just a little bit. A great deal of innovations happen on the 
shop floor or they understand the innovation to be able to pull 
it from the research side. If you don't have the manufacturing 
side to really understand the innovations or pull them from the 
research or have an industry pull and a market pull mechanism, 
then you lack that innovation.
    The other thing is, you need to know how to integrate that 
innovation into the manufacturing line. As you lose the 
manufacturing, you lose those opportunities.
    The Chairman. Mr. Wolff.
    Mr. Wolff. There's a wonderful book called ``Bell Lab:
    The Idea Factory'' that you may have read, by John Gertner, 
that came out this year, and it was engineers and basic 
scientists who were creating fabulous inventions, driven by 
industry and driven by the need to actually have practical 
manufacturing outcomes, including ultimately the transistor, 
which of course gave birth to, through Bob Noyce and others, to 
the integrated circuit.
    So we don't have a Bell Labs today other than what DOE and 
a Sematech can do. Those are our current idea factories.
    The Chairman. Senator Murkowski.
    Senator Murkowski. Thank you, Mr. Chairman.
    I suggested in my opening that the United States was doing 
relatively well in this race. Dr. Scissors, you seem to agree 
with me. Some of the others are suggesting that China is ahead.
    I guess the question to you would be whether or not it is 
constructive to even talk about this being a race for the clean 
energy title. Is it fair, is it constructive, to say that we 
are in a race? Then if it is so, if it is appropriate to refer 
to this as some kind of a competition, which everyone has used 
that word, and we all recognize that words matter here, but if 
this is a competition what's the metric that we use?
    How do we judge who's winning and who's losing? Is it a 
question of how much money has been deployed? Is it the 
generating capacity that is then put in place? Is it a 
calculation of reduction in emissions? How do we even measure 
this to know who's up, who's down? I throw this out to all of 
you because I think it is an important part to this discussion. 
Is it all about how much money is spent or is it the outcome at 
the end?
    Mr. Wolff.
    Mr. Wolff. If it's a race to deploy clean technologies then 
it's a very useful thing to do. We ought to both be successful 
in it. China needs to do more, for reasons of environment and 
to change their energy sourcing.
    Are there places to collaborate? I think so, with respect 
to carbon sequestration, clean coal technology, perhaps in PV, 
perhaps some things in wind.
    I am struck by the fact that in consumer electronics 
Japanese industrial policies took us out and we've come back. 
We came back with iPhones and iPads, at least on the invention 
side, and a lot of the benefit is to our economy.
    But you don't know that you're going to come back, and here 
the bet is not about consumer products like consumer 
electronics, but whether we can have within our economy the 
ability to generate not only the R and D and the invention, but 
commercialization, and I think that's important.
    Senator Murkowski. Let me ask, and maybe this will give 
better definition to the others: Is it about just deploying it, 
making sure that you've got the wind turbine up, but if that 
wind turbine isn't connected to anything, if it's not 
generating, is that something then that says China is more 
successful in deploying this?
    Again, what are these metrics? Mr. Wu? I'll just go down 
the line here.
    Mr. Wu. Thank you for your question. I think, Senator, I 
think that's a very good point, and it's difficult for us to 
say there's one metric. There's many ways of measuring it. But 
if we may offer one suggestion, it's grid parity that matters. 
It's being able to----
    Senator Murkowski. Grid parity?
    Mr. Wu. Grid parity, being able to deploy clean energy at a 
cost-effective, sort of cost-effective way that is competitive 
with fossil fuels and other forms of energy.
    So I think it's not about how many turbines you put up 
every year if they don't work. It's about whether or not you 
can do that in a cost-effective way and you can produce energy 
from it that's also cost-effective for consumers and also cost-
effective for the economy.
    Senator Murkowski. Others? Mr. Prestowitz.
    Mr. Prestowitz. I think to some extent I sense a little bit 
of cross-talk here when we say we're doing better than the 
Chinese. If we're talking in terms of reducing emissions, I 
think that's right. The U.S. is doing better than China in 
reducing emissions. We have had a great boom from shale gas, 
and thank God we've had it, and so that's been a big piece of 
our reduction of emissions, and we've also benefited from 
rising gas mileage in automobiles and so forth, conservation 
measures, again, very positive.
    But that's a little bit different than the question we're 
talking about. I mean, you may also want, in addition to 
reducing emissions by dint of shale gas, you may also want to 
have the potential to reduce emissions by dint of solar, solar 
photovoltaics or wind power or battery-driven technologies. If 
you do want that or if you think that those technologies also 
have potential new knock-on capabilities for the future and you 
want that for the future, then you need to question how you're 
doing in that. Then your metrics, how you're doing in that, 
are, well, how much is being invested, what's the state of your 
technology versus the other technology, what is the rate of 
deployment, what's the rate of innovation. These are all pretty 
measurable things.
    The measurements that we have so far seem to indicate that 
the Chinese and others--again, I don't want to just put this on 
the Chinese, but the Koreans, Japanese, Taiwanese, Germans, 
many others--have advanced fairly rapidly and in many instances 
more rapidly than we.
    You ask, are we in competition? I have to say yes. These 
industries are characterized by economies of scale and by 
imperfect competition. They're not win-win industries. They 
tend to be zero-sum industries. That is, when one's winning 
somebody else is losing. Typically the aircraft industries or 
auto industries or any major capital-intensive industry. In 
those kinds of industries, if you're not keeping up in 
investment and in R and D, then typically you're falling 
behind. That seems to be the trend that the U.S. has found 
itself in, not an irreversible trend.
    Senator Murkowski. My time has expired, but I've got two 
more that I'd like to hear from if they will. Thank you.
    Mr. Holladay or Dr. Scissors.
    Mr. Holladay. I guess the best way for me to describe what 
the late great Nobel Laureate Dr. Smalley discovered before he 
passed away and spent a lot of time looking at: If you can find 
a solution to energy, you have a solution to many of the top 
ten problems humanity faces over the next 50 years. So there's 
a lot of reasons that we need to address clean energy, find 
solutions to energy--national security, diverse fuel mixes.
    Right now, photovoltaics, for example, is in the early 
stages of its life cycle. Its bright future is still to come. 
The technologies being developed today are not the technologies 
that will actually be deployed in a wide level in the upcoming 
years. But we will come to that point. It's going to be a huge 
market globally. So it's critical that the United States be a 
leader in that of next generation technologies and that we 
position ourselves to do that.
    Senator Murkowski. Dr. Scissors.
    Mr. Scissors. I know what metric we shouldn't use, which is 
how much money we spend. I think most people would say spending 
more money is bad unless you get something for it, and the 
Chinese aren't. So we want to save money. We want to spend as 
little as possible and do as well as possible. So the idea that 
somebody spending more money than you is a good thing doesn't 
make any sense to me.
    When you look at how they're actually performing, why did 
we start with clean energy? We started because we're concerned 
about carbon emissions. It's not something to just dismiss and 
way, well, that doesn't matter now. It does matter, and the 
U.S. is doing pretty well and China is doing terribly. That's a 
metric. It's not the only one, but it's one.
    Energy efficiency I mentioned before. We're doing better 
than they are in energy efficiency. We're doing better than 
they are in self-sufficiency.
    So different people, different members of the committee and 
of the Congress, are going to have different metrics. Money 
should not be the metric. We want to see what we're getting for 
what we're putting into this. Gas is an excellent example. The 
Chinese are extremely jealous of gas extraction in the U.S. 
They don't have the technology for it; we do. So who's winning 
the innovation battle? We just won the biggest innovation 
battle of the last few years in clean energy. Are we going to 
lose the next one? It's possible. We're not doing perfectly. 
But the amount of money we're spending is not the way to 
measure the outcome.
    The Chairman. Senator Wyden.
    Senator Wyden. Thank you, Mr. Chairman. I think this has 
been an excellent hearing, very good witnesses.
    Let me start by saying, I think the principal question for 
our panel and for our challenge in the days ahead is how our 
country is going to respond to what has been described by some 
experts as China's green mercantilism? There is a new paper* 
out this morning, Mr. Chairman. I would just ask unanimous 
consent to put it into the record. They, in the paper, define 
``green mercantilism'' as essentially policies that give other 
countries an unfair advantage in terms of our interests, allow 
them to boost their exports, limit imports of clean energy 
technologies.
---------------------------------------------------------------------------
    * Document titled ``Green Mercantilism: Threat to the Clean Energy 
Economy'' has been retained in committee files and can also be found at 
http://www.itif.org/publications/green-mercantilism-threat-clean-
energy-economy.
---------------------------------------------------------------------------
    Mr. Wolff, for me you really summed it up when you said in 
your testimony--you asked essentially, is it acceptable for 
Chinese industrial policy to shape the U.S. economy? I think 
that that sort of incorporates the essence of this issue with 
respect to green mercantilism, and it also goes beyond the 
trade issue, which I think is important for us. I also chair 
the Finance Subcommittee on International Trade. I'm interested 
in expanding trade. I don't think free trade means trade free 
from rules.
    What is appealing to me about the way you asked it, it 
gives us a chance to shape the challenge, both in terms of 
trade and other kinds of issues.
    So why don't we start with the other 4 witnesses responding 
to Mr. Wolff's question. His question was: Is it acceptable for 
China's industrial policy to shape the U.S. economy? Give me 
your response to his question and, if you think it is 
unacceptable for China to be shaping our policy, what do you 
think we ought to do in a proactive way to combat it? Let's 
start with you, Mr. Wu.
    Mr. Wu. Thank you for the question. No, I don't think it's 
acceptable. I think the point that also Senator Murkowski 
brought up earlier is whether or not we should emulate China. I 
think the answer to that is also no.
    The fact of the matter is the economies of the United 
States and China are different, and the reality is also that 
China has a vast amount of energy demand that's still growing 
and they have a very high reliance on coal at the moment, and 
that's a very different situation to what we have here in the 
United States. I think I agree with what Dr. Scissors mentioned 
earlier about sort of the gas, the question about gas, which 
is, yes, I think China is looking a little bit with envy over 
to the United States regarding our ability to export shale gas, 
which China does have vast reserves of, but currently lacks the 
technology to exploit it on the level that we have done here in 
the United States.
    So I think the answer is no, we have to take a very 
different look at the way the economies of the United States 
and China are.
    Finally, I would just like to add that, with regards to 
metrics, yes, I think China has done very well in what it's 
done very well, which is manufacturing. China makes a lot of 
things, not just clean energy goods. So it has exploited its 
advantage, which is to manufacture solar PV and also wind 
turbines on a very large scale, and has done so in a very cost-
effective manner, which we can argue whether it's good or bad 
for who and for whom. But also one perhaps benefit of that is 
that it's been able to reduce the cost of renewable energy 
significantly, at least for China, for its domestic 
consumption.
    Senator Wyden. Mr. Prestowitz, I know that you don't think 
it's acceptable for China's industrial policy to shape the U.S. 
economy. What do you think our country should do in a proactive 
way to combat it?
    Mr. Prestowitz. I think we have to use our heads. I don't 
think that it's acceptable for China to shape our economy, but 
at the same time I don't think that we need willy-nilly to 
imitate everything that China does.
    As Derek points out, everything that China does is not 
necessarily right.
    So I think what's required us for us to spend some time 
thinking hard about what is it that's really important to us, 
and then take the measures that are necessary to counter the 
negative impact on us achieving our goals of some of these 
mercantilist policies. So for example, we know that an element, 
an aspect of the mercantilist policies tends to be excess 
investment in the promoting country, followed by dumping.
    Typically in the U.S., we wait for an affected company or 
entity to file an antidumping complaint before we do anything 
about dumping. We don't have to. The Secretary of Commerce has 
the authority to self-initiate antidumping cases. So one thing 
that I've advocated is, let's monitor industries where other 
countries have active, proactive industrial policies, look at 
the extent of their overinvestment and their dumping activity, 
and self-initiate cases, take them to the WTO right away, 
preempt them. That's one element.
    Typically, such countries have currency manipulation 
policies. Typically--not just China. Singapore, Taiwan, Korea. 
They intervene in currency markets every day to keep their 
currencies undervalued. Take measures to counter that. Impose 
capital controls if necessary. Tim Geithner can do it, doesn't 
even have to ask the Congress for permission.
    Set up consortia, a la Sematech or PV Tech or whatever it 
is. I think that a big factor in the United States is 
investment taxes. I think that very often the incentives for 
investment in the United States are not nearly as attractive as 
they are for investment abroad. Singapore is the world champion 
at attracting foreign investment. We could learn well to copy a 
lot of what Singapore does.
    So it's a matter of what's important to us, all right, then 
what's our strategy, and a combination of carrots and sticks to 
get what's important for us.
    One point, and just to emphasize what Alan said, is this. 
Typically, I know Alan and I have been involved in some of 
these discussions for a long time. Typically, you get into 
these debates in the administration, whoever's administration, 
and the argument is we don't pick winners and losers and we 
shouldn't be intervening to subsidize or provide corporate 
benefits. What's lost in that discussion is that in a situation 
in which you're facing an active industrial policy abroad, a 
decision not to intervene is a decision. A decision not to pick 
winners and losers is a decision to pick a loser. You're not 
going to be in that industry. That I think doesn't get 
understood today.
    Senator Wyden. I know my time is up. If we could just, Mr. 
Holladay and Dr. Scissors, again responding to the question Mr. 
Wolff said.
    Mr. Holladay. No, sir, I don't think we should dictate our 
international policy, but we do need to be focused, we need to 
have vision, we need to understand where our country's going 
and where the global technologies and market are going, so that 
we can be strong and successful. To build on the not picking 
winners and losers, the consortium model is perfect for that. 
You pick the technologies, you have a collaborative model where 
you don't just spread the dollars around, you better leverage 
our universities and our national labs to really impact the 
industry, and it's critical that we do that.
    Senator Wyden. Dr. Scissors.
    Mr. Scissors. I have one objection to the green 
mercantilism designation. The word ``green'' is unnecessary. 
They're mercantilist and they're big, which means we cannot 
avoid Chinese industrial policy affecting the U.S. economy. We 
don't like it, but it's true.
    To me the best response is to get them to do less of it. 
We're not going to get them to stop, and that should include 
threatening them. There are things China doesn't want to give 
up and we need to push them to try to get their industrial 
policy to back off in certain areas.
    Where that isn't going to work, sometimes their subsidies 
help us. They make things cheaper here for American consumers. 
Sometimes they hurt in ways we can't respond to. So I think my 
colleagues on the panel have all said a variation of the same 
thing: We need to identify not everywhere they affect us, no 
avoiding it, but where we don't like them affecting us and 
where we can respond properly. That's a subset. So we need to 
focus down and say, all right, here's the big group of things, 
where can we do something that's useful that really matters.
    Senator Wyden. Thank you, Mr. Chairman.
    The Chairman. Let me ask another question. One of the 
frustrations I have had is that we don't seem to have a 
willingness to do on the procurement, government procurement 
side, what other countries do on a regular basis. For example, 
China is not a signatory to the government procurement 
agreement under WTO, so they're not obligated to give fair 
opportunity to foreign producers of products that they might 
buy through their governmental organizations.
    Should we be doing more with buy-America policies to try to 
support U.S. industry? I mean, I'll give you a specific. I 
attended the groundbreaking ceremony last year in Santa Fe and 
the photovoltaic cells, of course, were made in China. We make 
photovoltaic cells even in New Mexico and we make them in other 
parts of the country, but the Chinese cells I'm sure were 
cheaper and they were purchased by the contractor who was hired 
by the governmental agency that was putting in the photovoltaic 
panels.
    Should we be doing more to urge that U.S. Government and 
U.S. governmental entities pursue a buy-America policy when it 
comes to U.S. industry? Mr. Wolff?
    Mr. Wolff. I think that the fact that, in the case of, 
again it was semiconductors in the very early stages, 
transistors and then semiconductors, government demand 
initially drove the startup of this industry. Government demand 
started titanium. Government demand in the manned spaceflight 
program really gave us our start on nanotechnologies. 
Government demand gave us an Internet. Government demand gave 
us new materials and GPS.
    So intelligent use of government demand is I think a very 
important component of national policy. It has to be balanced 
against cost. We're not interested, I think, in having an 
inefficient procurement system. But it can't be only cost. It 
has to be maintaining a domestic base as well.
    The military is a major consumer and has a major interest 
in, for example, in renewables, with targets to increase the 
amount of renewable energy that's sourced, for both national 
security and cost reasons. I think that that program is a very 
important one that has to be considered with respect to its 
support of the U.S. industrial base.
    The Chairman. All right.
    Mr. Prestowitz.
    Mr. Prestowitz. Just a point on cost as well. I recently 
drove over the new--the Oakland Bay Bridge in California, which 
is still being built. You know, the main spans of the bridge 
are being made in China, and the reason for that is because 
initially the Chinese had a very low bid on the steel 
fabrication for those main spans. It turns out that they're way 
behind schedule and way over cost, and California is not only 
not saving any money, but it's also not generating the jobs it 
might have generated had it actually procured the bridge in the 
United States.
    The Chairman. Senator Murkowski, go right ahead.
    Senator Murkowski. Thank you, Mr. Chairman.
    This kind of follows onto the chairman's question. I think 
we recognize that oftentimes if we have a buy-America 
requirement that that may add to the cost. I appreciate you 
noting that sensitivity, that we've got to balance that.
    Another area where we may be adding to cost is when we put 
in place Federal requirements or mandates for production of 
renewable fuels, whether it's through Federal or State 
renewable energy standards, clean energy standards. The 
President has proposed a new Federal mandate for clean energy, 
the CES. The chairman has been working on some legislation.
    But I think we recognize that, in an effort to comply with 
these requirements, sometimes those--the equipment that the 
utilities will turn to will be American-made, other times it 
will not be American-made. We've got tensions between the goal 
of environmental improvement on the one hand and then job 
creation here in this country on the other hand.
    Is this a situation where ultimately we're going to be able 
to figure this out and we really are able to have our cake and 
eat it too? Or will we invariably be dealing with a situation 
where we have to prioritize one over the other? It's either 
going to be more affordable energy, but maybe we compromise on 
whether it is built here in America with jobs in America, or a 
tradeoff with environmental aspect?
    Do you see us getting to a point where it really is U.S. 
jobs, it really is a win when it comes to reduced emissions, 
and truly being able to have it all? Do we get to that point, 
or are we constantly in this point of tension and 
prioritization of one over the other?
    Dr. Scissors.
    Mr. Scissors. I think unfortunately we're constantly in 
this tension. Unless the U.S. without subsidies, which of 
course cost money and raise the effective cost of the clean 
energy, is the superior provider across the whole range of 
whatever clean energy technologies we're using at the time, 
which is very, very unlikely, then somebody else is going to be 
making something more affordably than we are, for whatever 
reason, including industrial policy, subsidies, however they're 
doing it.
    So then we have this choice. Do we want the very heavily 
subsidized Chinese solar panels that are cheaper and will make 
solar more competitive within the U.S. market and provide us 
with affordable clean energy, or do we want to say, they 
subsidized those things and that cost American jobs and we 
don't want to do that? It's not an easy choice. I don't mean to 
be suggesting that for a second. I mean that unless the U.S. 
private sector alone, because if you spend government money 
that counts as the cost of energy, beats everybody else, some 
foreign technology is going to be useful for helping our 
environment and providing affordable clean energy. When we use 
that foreign technology, we don't make it here.
    So there's just no way to escape this. It's a tough choice 
and we're stuck with it.
    Senator Murkowski. We'll go down here, Mr. Wu and then Mr. 
Wolff.
    Mr. Wu. Thank you. I would respectfully slightly disagree 
with that. I think it's not--to add a little more nuance, I 
don't think it's a stark choice. The idea--energy is a very 
localized resource. It's about energy security. You're putting 
in a wind turbine or a coal plant or a nuclear plant, it's 
located in one location, which if it's providing energy to the 
United States it has to be located in the United States. 
Therefore, it can generate jobs for maintenance, for 
installation, for the ongoing operation of the plant over many, 
many years.
    We know that a lot of the jobs and economic benefits of 
solar and wind, in addition to also traditional energy, is 
generated with where it is located, which is the maintenance of 
the wind far, installation of solar panels, and et cetera.
    So I think it's not to say that none of this will be 
manufactured -all of it will be manufactured in the U.S. and 
none of it comes from China. There will be a mix. So I think 
there is a little more nuance to just one or the other, it all 
comes from one location or it all has to be based in another 
location.
    Thank you.
    Senator Murkowski. Mr. Wolff.
    Mr. Wolff. I think the purpose, one of the purposes, of the 
government backing joint research and development and a 
strategy including trade policy and other policies is to drive 
down the cost of whatever we're trying to affect. In 
semiconductors we did get an agreement with Japan not to sell 
below average cost of production by company. The net result was 
that Korea and Taiwan came on stream in memory chips and the 
United States remained in that kind of technology, and Micron 
Technologies--with no continuing trade relief. That's gone 15 
to 20 years ago. But Micron Technologies is one of the most 
competitive companies in the world, out of Boise, Idaho, and 
bought facilities in Japan and produced there as well, because 
the Japanese market was totally open.
    So I think that the net result has to be not only to have 
the technologies continue to be developed here, but to drive 
costs down a learning curve. We've been very successful with 
that in a number of areas, and my suspicion is that the 
Sematech photovoltaics is going to achieve that as well.
    Senator Murkowski. Mr. Chairman, thank you.
    I appreciate the comments from the witnesses and the time 
they've given the committee this morning.
    The Chairman. Thank you.
    Let me just ask another question or two. Senator Franken 
has sent us word that he's anxious to ask a few questions and 
he's on his way back from the Capitol. So let me ask a question 
or two while he's on his way.
    I guess one obvious question is, if a semiconductor--or a 
Sematech-like entity is created with regard to photovoltaics or 
any of the other clean energy sectors, how does that translate 
into us actually manufacturing those products here? Frankly, my 
impression is that we don't have enough U.S. firms to make a 
Sematech-like entity on photovoltaics right now. We would have 
to have a more global organization, and if we did why would 
that manufacturing not be performed elsewhere?
    Mr. Holladay.
    Mr. Holladay. Yes, sir. When you create this type of hub, 
this manufacturing development facility, it creates a catalyst. 
It brings in the equipment suppliers, it grows new companies, 
it gives companies the opportunity--it gives you business 
advantages that don't exist anywhere else in the world 
potentially unless, like Fromhoffer, who kind of replicated the 
Sematech model for their energy piece.
    But what it does is it brings the industry in. There's a 
lot of industry anxious. They know for photovoltaics, for 
example, that that's going to be a huge market. So industry 
grows around that and, like with Sematech, it creates hundreds 
of thousands of jobs. A supply industry comes. You're able to 
develop next generation technologies and it just creates this 
catalyst that grows the industry around this infrastructure 
that you've established, this production infrastructure that 
does not exist in the lab-scale environments of the 
universities and most national labs.
    The Chairman. Senator Franken, I advised folks that I was 
filibustering until you returned.
    Senator Franken. Go ahead, Mr. Chairman.
    The Chairman. No, no.
    Senator Franken. No, no.
    The Chairman. I have asked my questions and we're now 
anxious to hear what questions you have. Thank you.
    Senator Franken. OK. Thank you.
    Mr. Wu, Mr. Prestowitz, I'd like to give you an opportunity 
to respond to some of Dr. Scissors' testimony, because it 
struck me that some of the statistics that he was citing or 
using, such as China's increased reliance on oil and coal and 
its lack of energy efficiency improvement vis a vis or compared 
to the United States, that they're a function of its growing 
economy. I think that without that context that testimony was 
kind of--it just needed that context, because otherwise it's 
kind of meaningless.
    I just want to have you put it in context for me. While 
China was expanding its economy, I think in some years in 
double digits, and in 2007-2008, I think the last quarter of 
the Bush presidency, we cratered to a negative 9 percent of 
GDP, well, of course we're going to be using less energy and 
being less reliant on coal and oil.
    So can you comment on that?
    Mr. Prestowitz. Yes. I think you're right. In fact, I think 
the Chinese, it seems to me, are actually to be admired in a 
way in this. Obviously, they're trying to maintain the high 
growth, the 8 and 9 and 10 percent growth rate, and that for 
them has been very energy intensive, and it's been very energy 
intensive with the worst kind of energy. They've got the worst 
kind of coal and they've kind of got the worst kind of oil. If 
you travel to China, you travel in a total miasmic haze and 
everybody has a cough, and the Chinese are aware that that's 
not good.
    So it's precisely because of that that they've put such 
emphasis on trying to develop alternative sources. They've been 
catholic about the alternative sources, looking at all 
possibilities. So I think that the fact that China's emissions 
are worse than ours and trending worse than ours doesn't take 
away from the significance, importance, and their commitment to 
alternative energies.
    So then the question becomes, well, in the alternative 
energy field are they performing--are they doing dumb things? 
Are they investing in the wrong technologies? Are they doing 
smarter things? It's a mixed bag. They're probably 
overinvesting because the incentives to invest have been made 
very attractive. Essentially, the party has told the regional 
banks to lend. This is like the old days in Japan where the 
MITI told the banks, lend, and so they lent.
    But that then gets to this question of, OK, maybe they're 
overinvesting and maybe we wouldn't do it that way. But that 
then begins to impact on us, and so you then get to the 
question of are these technologies, put aside the coal and so 
forth, but are the technologies that the Chinese are pursuing--
and again I want to emphasize, it's not just China. Japan, 
Korea, Taiwan, Singapore, Denmark, Germany, all of these guys 
are in the game. So are those technologies silly, we should 
forget about them and just concentrate on fracking in the U.S. 
Or are those things that could be important for the U.S.''
    If they're important for the U.S.--I believe they are, 
long-term--then we need to have a strategy to maintain 
viability technologically and commercially.
    Senator Franken. Mr. Wu.
    Am I going to get a little bit more than 5 minutes here?
    The Chairman. You take whatever time you'd like.
    Senator Franken. OK, thank you.
    The Chairman. Certainly.
    Mr. Wu. Thank you, Senator. I completely agree with that, 
and I agree with what Dr. Scissors said earlier as well. I 
think all the metrics are true. The emissions have grown, 
energy efficiency--or energy intensity, rather, has gotten 
worse. Over 70 percent of China's primary energy use comes from 
the industry, heavy industry and manufacturing, which is very 
intensive in terms of energy consumption.
    So I think that it's good that you point out, Senator, the 
context of this, which is we're looking at sort of massive 
economic growth and also energy use growth. Also, I think, as 
Mr. Prestowitz said earlier, sort of the effort is also 
important as well. If this investment in clean energy or if 
this deployment in clean energy were not to take place, what 
would it be? I would say probably right now it has not so far 
not made as much difference as perhaps the Chinese government 
hoped. The power generated from wind, the massive wind 
deployment in China, is quite a bit lower than what we see in 
the United States or also in Europe.
    So if you look at the recent 5-year plans and also----
    Senator Franken. Is that the amount of wind or the use of 
the wind energy it's created, because it sounds like some of 
it's being not put to use?
    Mr. Wu. It's both. It's the efficiency of the ones that are 
operating and the total amount, the total percentage of ones 
installed versus ones that are working. So you have three-
fourths of it which are turning and then the other quarter 
which are not turning, and then of the ones that are turning 
the efficiency is a lot lower.
    So if you look at the recent 5-year plans, the policy, the 
idea is to turn that around, to increase the technology, to 
increase the efficiency. I think a lot of expertise has to 
actually come from ultimately European engineers, which are 
going to China and being hired by Chinese companies in very 
large numbers, to help turn this around.
    So I think in terms of what we want in the United States, 
yes, the quality versus quantity is do we want to emulate the 
massive manufacturing scale that we see in China and produce as 
many wind turbines and solar modules as possible, or do we want 
cheap, affordable clean energy that's higher efficiency, that 
is actually going to be part of our energy mix in the future? 
So I think that's probably the more important question we 
should consider, which is why I brought up the idea of grid 
parity earlier, which is renewable energy that is competitive 
with other energy sources. Perhaps that is one metric or one 
goal that we should be thinking about.
    Mr. Scissors. Senator, can I just make one small point of 
context for your context?
    Senator Franken. Absolutely.
    Mr. Scissors. Thank you. I appreciate that. It will be very 
short.
    I take your point. I just want to bring up one thing. From 
1998 to 2002 China was growing fine and their coal use was 
shrinking. So it isn't just that they're growing and they're 
using more energy, as my colleague just suggested.
    They're growing in a certain way that's using a lot more 
energy and a lot more kinds of energy, and that is swamping the 
other things that they're also trying to do. So that's probably 
a more refined way of saying--I accept your correction--what I 
should have said in my introduction.
    Senator Franken. Mr. Wolff, or Ambassador Wolff.
    Mr. Wolff. If I could add just one element, and that is it 
would be great if China had 15 times the amount of clean energy 
that they have deployed now. We're not in that sort of race, it 
seems to me. When a State in the U.S. adopts a clean energy 
standard, it really isn't doing it because of trade 
considerations. However, what the Chinese have done is, as Mr. 
Wu has just testified, they have not deployed the best 
windmills in the world, the best wind turbines, which come from 
Vestas, a Danish company, Sezlon, an Indian company, General 
Electric, a U.S. company.
    They've kept us all out, and they buy the cheapest 
turbines, but not cheapest in terms of their productivity in 
terms of generating electricity on a sustainable basis over a 
significant amount of time. So I wouldn't--as a metric, I'm not 
concerned with their use of deploying a great deal of 
renewables. We ought to do it, they ought to do it. That's I 
think--our only concern is that we breathe the same air around 
the world and it would be nice if they had more clean energy. 
But we do care about being kept out of their market and we do 
care about them depressing our production here, our industry 
that can produce this equipment.
    Senator Franken. By flooding or just by keeping us out, or 
both?
    Mr. Wolff. Both.
    Senator Franken. OK.
    You mentioned clean energy standard and a State adopting 
that. Minnesota adopted at the time the highest renewable 
energy standard for utilities in the country. It was 25 by 25 
was the goal. XL Energy, our largest utility, was charged to 
going to 35, I believe, by 2025, and they're ahead of the goal 
of achieving it.
    There's different ways to go at this, but it seems to me--
and the chairman has produced a clean energy standard piece of 
legislation--that adopting a national clean energy standard 
would be something that would incentivize the creation of clean 
energy and renewables. I'd like to have a renewable energy 
standard within the clean energy standard, something that would 
incentivize these industries.
    Does anyone disagree with that? Dr. Scissors.
    Mr. Scissors. Why would you think it would be me? I think 
you actually touched on where I would disagree with it in 
exactly what you just said. You moved from clean to renewable, 
and I'm going to say that I would want, if you impose a 
standard like that to incentivize industries, the definition of 
``clean'' to be as broad as possible. I don't mean that you 
include everything. I mean the broader it is, the more chance 
you have for industry to pick the right technology path, not to 
be bound to what we think today is the good renewable energy 
and the productive renewable energy and the one we're going to 
be using 10 years from now.
    Senator Franken. But there are a lot of renewable energy--
--
    Mr. Scissors. Right, exactly. There are also some clean--I 
agree with that. There are also some clean energies that people 
would not count as renewable. If the goal is purely to be 
clean, then let's just be clean. We're not in danger. If the 
goal is we're worried about running out of something, then we 
have to change the standards.
    My advice to the Congress first would always be, be as 
broad and non-specific as possible.
    Senator Franken. So your issue with me is the renewable 
part, not the clean part?
    Mr. Scissors. My issue with you is the slipping of that 
definition, where the narrower the definition becomes the worse 
the outcome's going to be, because we're going to be pushing 
people toward a smaller and smaller range of choices.
    Senator Franken. I just think that in Minnesota we did it 
renewable and it's worked out really well in many, many ways. 
In Minnesota, we have manufacturers in Minnesota creating solar 
panels. We have very good things happening. Actually, it 
promotes diversity, which is I think what you're talking about, 
not tieing ourselves to--if you call nuclear clean energy and 
you call natural gas clean energy and you call clean coal with 
some sequestration clean energy, we can get a clean energy 
standard without going to any renewables whatsoever.
    I think that if we're going to create diversity, which I 
think is what you're talking about, let a thousand energy 
flowers bloom, I think that putting some renewable in there is 
a good idea.
    Mr. Scissors, you did say we shouldn't be subsidizing 
industry. I was taken with something before I had to leave, 
with what Mr. Prestowitz says, which is that very often there 
isn't like this--I think what you said was, there isn't just 
this straight line where you start developing a technology and 
it starts here and then you employ people like that. It seems 
like, I think what Mr. Prestowitz was saying, is that there's a 
fallow period in terms of job creation and then it kicks up.
    In semiconductors, Sematech, it sounds like it started and 
then it worked and it took off. How many people were employed 
by the Internet during the first 10 years of its development at 
DARPA? Just the people at DARPA. How many people employed by 
the Internet now? Gee, a lot of people.
    So it seems like--how many people were employed by the 
space industry when our rockets--when I was a kid, our first 
rockets went [indicating]. Remember those? We're coming to you 
by CSPAN, the Cable Satellite Public Affairs Network. This is 
telecommunications. That was started by the government. But 
that didn't create a lot of jobs in the beginning. No one knew 
exactly what that would yield. But all our telecommunications, 
all our GPS, everything comes from that.
    So this idea that, OK, well, these aren't creating jobs 
right now--these industries will create. Our clean energy 
technology has to create jobs. I mean, I believe it will create 
millions and millions and millions of jobs in the future. It's 
creating jobs now, too.
    But the idea that just because it's not creating jobs now 
and that we don't have to subsidize industries--we've 
subsidized so many successful industries in this country that 
it's hard to think of--it's hard to think of one that didn't 
enjoy a government subsidy. The Erie Canal sort of brought the 
Midwest to Europe so we could ship our agricultural products 
and our timber to Europe, so we could get to the Hudson River 
and so we could get to New York. That was a government 
investment.
    So this idea that we shouldn't choose winners or losers and 
we shouldn't subsidize industries that have the potential to 
employ millions and millions of people and to better our lives, 
Look at the nuclear industry. We were just talking about 
nuclear as one of the clean energy standards. Where would that 
be without the Manhattan Project? Where would that be without 
the Tennessee Valley Authority? Where would that be?
    So I think that we have to be very careful when we look 
back at our actual history. I've heard some of my colleagues on 
the other side, not today of course, say that this should all 
be free enterprise, there's no role for the government in this 
stuff. There has been a role for the government in this stuff.
    I know that sounded like a speech, not a question. But I 
was kind of wrapping up.
    The Chairman. Most questions around here sound like 
speeches.
    [Laughter.]
    The Chairman. Let me thank the panel. This was very useful 
testimony, a very useful hearing. We appreciate it very much, 
and that will conclude our hearing.
    [Whereupon, at 11:18 a.m., the hearing was adjourned.]

    [The following statement was received for the record.)
  Statement of Rhone Resch, President & CEO, Solar Energy Industries 
                              Association
    Chairman Bingaman, Ranking Member Murkowski and members of the 
committee:
    The Solar Energy Industries Association (SEIA) is the national 
trade association for the U.S. solar energy industry. On behalf of our 
1,000 member companies and the more than 100,000 American taxpayers 
employed by the solar industry, I appreciate having the opportunity to 
submit a statement for the record on the important topic of China and 
clean energy.
    According to a United Nations report released earlier this week, 
global investment in renewable energy reached a record $257 billion in 
2011, with solar energy attracting more than half at $147 billion. This 
represents a year on year increase of 52%, led by strong demand in 
Europe, China and here in the U.S. These trends are indicative of a 
rapidly evolving, highly competitive and robust global industry.
    The strong growth of the solar industry, however, has coincided 
with increased competitive pressures throughout the solar value chain. 
While SEIA supports the ability of sovereign nations to implement 
policy designed to promote the production and use of renewable energy, 
these incentives must be consistent with international trade rules and 
the obligations of our trading partners.
                america and the global solar value chain
    Solar cell and module production are important parts of the solar 
manufacturing process. It is, however, important to note that U.S. 
manufacturing in the global solar value chain extends beyond these 
stages in the production process. Today, there are at least 95 domestic 
facilities in 26 states manufacturing photovoltaic (``PV'') primary 
components, including solar-grade polysilicon, ingots, wafers, cells, 
solar modules and inverters. Only 19 of these facilities were operating 
in 2005--a five-fold increase in the U.S. in the last six years. These 
products are not only utilized domestically, but are also destined for 
growing export markets.
    For example, Hemlock Semiconductor employs 900 workers at their 
Michigan plant that processes silicon feedstock, an essential component 
in solar panels. The company is currently building a facility in 
Clarksville, Tennessee which is expected to employ another 500 workers. 
The construction workforce to build the facility already tops 1,600 
people.
    In addition, a number of companies manufacture inverters 
domestically. Inverters are a key component in a solar energy system; 
they turn the direct current produced by a PV panel into the 
alternating current that is used by lights and appliances. For example, 
Siemens Industry, Inc. employs 100 people at its inverter manufacturing 
location in Alpharetta, Georgia. Among its many solar products, DuPont 
Photovoltaic Solutions manufactures solar film at its Circleville, Ohio 
facility. Sixty-three Ohioans produce this high value solar film, which 
is then used in PV panels installed across Europe and North America. 
These are just a few examples of U.S. companies that rely on access to 
markets at home and abroad to sell their products and create jobs here 
in the U.S. Overall, 73% of the value of an installed PV solar system 
is domestic.
                             trade remedies
    As with other industries, trade disputes will emerge as a market 
becomes competitive and global in scale. The agreements set forth 
through the World Trade Organization (``WTO'') attempt to clarify what 
are acceptable forms of support and what options countries have to 
counteract unfair practices that are inconsistent with WTO-rules. SEIA 
supports the rules-based global trading system and the use of 
enforcement mechanisms, such as anti-dumping and countervailing duty 
litigation, when appropriate. Litigation is a vital aspect of 
maintaining free and fair global trade flows, and SEIA supports the 
right of countries to investigate unfair trade practices and address 
them accordingly.
                  resolution of global trade disputes
    Litigation and trade remedy measures, however, should be employed 
judiciously. More importantly, litigation and trade remedies are not 
the only avenue for pursuing an equitable and robust global solar 
marketplace that benefits both U.S. manufacturers and consumers.
    Equally essential to the global trading system are dialogue and 
negotiations. Averting escalating trade disputes is in the interest of 
manufacturers in the domestic solar value chain that want access to 
growing foreign markets and U.S. consumers who benefit from the reduced 
energy costs that come with an efficient and competitive marketplace 
from solar products.
    Towards this end, SEIA is working with national solar trade 
associations from around the world to create a public-private dialogue 
on solar trade and competitiveness issues, beginning with the creation 
of a Clean Energy Partnership within the Asia-Pacific Economic 
Cooperation (``APEC''). Such a forum would provide an opportunity to 
help clarify the role of government in encouraging the development of 
national solar industries and, in turn, improve the competitive 
landscape for U.S. companies, both within the U.S. and abroad.
    The initial goals of an APEC Clean Energy Partnership would be to:

   Promote WTO-acceptable trade in solar energy goods, while 
        taking into account the role of governments in the development 
        of the solar energy industry;
   Ensure that global innovation, scaling and economic 
        development occur; and
   Create a collaborative framework for preventing trade 
        conflict in the solar industry and resolving it constructively 
        if conflict does arise.

    Building on successful collaboration within the private sector, the 
American and Chinese governments should also begin working together 
towards a mutually-satisfactory resolution of the growing trade 
conflict within in the solar industry.
                       local content requirements
    Open markets and the free flow of products within the confines of 
the rules-based trading system will continue to drive down costs for 
consumers and help significantly expand the deployment of solar 
technology in America. Conversely, the imposition of requirements that 
solar energy products utilized in a particular market be domestically 
produced, commonly referred to as local content requirements, should be 
avoided. These requirements generally run afoul of WTO rules and incite 
the imposition of retaliatory market barriers. This in turn would lead 
to costly inefficiencies in the marketplace.
    As nations around the world recognize the energy policy benefits 
associated with the deployment of solar technology, there has been a 
growth in trade-distorting local content measures. For example, solar 
programs in Ontario, Canada and India feature local content 
requirements which preclude American companies from competing in these 
promising markets. To prevent the expansion of such provisions and 
roll-back existing policies, SEIA is building upon its collaboration 
with other national solar trade associations to create a multilateral, 
public-private forum focused exclusively on local content provisions. 
One potential outcome of such a forum could be the development of a 
list of WTO-consistent best practices that could serve as alternatives 
to local content requirements. In this context, SEIA also encourages 
U.S. policymakers to avoid imposing local content requirements on 
domestic solar incentives.
the u.s. needs smart, stable policy to continue growth in the domestic 
                                 market
    Access to a diverse, abundant, reliable and affordable supply of 
energy is in the national interest. Accordingly, federal policy has for 
decades provided a legislative and regulatory framework that has helped 
every major source of energy utilized in the U.S. today reach 
commercial scale. The recognition that smart policy can play a vital 
role in developing new domestic energy resources has contributed 
significantly to America's long-term economic prosperity and growth.
    Similarly, history has shown that well-crafted and efficient 
federal tax incentives can be powerful policy mechanisms to promote the 
nation's energy objectives and leverage private sector investment for 
the deployment and utilization of new energy resources. This is clearly 
the case with federal tax incentives designed to promote the expanded 
deployment and use of solar energy technologies.
    Since the enactment of the 30 percent commercial and residential 
solar Investment Tax Credit (``ITC'') in 2005 and the 1603 Treasury 
Program (``1603'') in 2009, domestic deployment of solar has increased 
seven-fold; the cost to consumers has significantly dropped; and we 
have developed a domestic industry value chain that today employs over 
100,000 Americans. By any objective measure, these important incentives 
are doing exactly what they were meant to do--allow our nation to reap 
the significant energy, economic and environmental benefits associated 
with utilizing our abundant solar resources.
    When compared to other sources of energy--both conventional and 
renewable--the duration of federal support for solar has been brief. 
The solar ITC is the primary federal policy that encourages the 
deployment of solar technology. Since the ITC took effect in 2006, the 
industry has made significant and concrete strides towards grid parity. 
If current trends continue and costs continue to drop on account of 
economies of scale, improved technology and enhanced efficiencies, the 
solar industry's need for federal policy support will be shorter than 
virtually any other domestic energy source.
    Ultimately, it is the entrepreneurs in America's solar industry--
from the scientists developing more efficient and cost-effective solar 
technologies to the market innovators providing new financing options 
that make solar more affordable for consumers--who are responsible for 
the rapid growth and reduced costs that are the hallmarks of America's 
solar industry. Stable, reliable and well-structured tax policy 
provides the framework that allows for this market-driven innovation. 
If policymakers have the foresight to retain these highly effective tax 
policies, this short-term investment will yield significant long-term 
benefits.
                               conclusion
    Chairman Bingaman, Ranking Member Murkowski and members of the 
committee, SEIA again appreciates having the opportunity to submit a 
statement for the record on this important hearing on China and clean 
energy. A national policy that recognizes the benefits of open markets, 
both at home and abroad, combined with smart and stable domestic policy 
will accelerate the deployment of solar technology, continue the 
positive trends of reduced costs for consumers and create jobs 
throughout the solar value chain. SEIA looks forward to working 
constructively with you to achieve these worthwhile policy outcomes.
                                APPENDIX

                   Responses to Additional Questions

                              ----------                              

    Responses of Dan W. Holladay to Questions From Senator Murkowski
    Question 1. How significant is the role played by the cost and 
availability of energy in the United States' competitive position, 
compared to China's?
    Answer. Cost and availability of energy will become one of the most 
significant problems facing humanity in the next few decades. As the 
demand for energy becomes the limiting factor for growing economies and 
sustaining basic needs, being a leader in the manufacturing of 
affordable clean energy will position any nation for a more 
independent, economically stable future. The cost of energy is a 
critical component of the cost of doing business, but the business 
environment in China is beyond the purview of SEMATECH's expertise.
    Question 2. How would each of you define the term ``green job''--or 
do you think we should even have a separate category for them--and do 
you think ``green jobs'' are any more or less susceptible to 
outsourcing than regular jobs?
    Answer. The debate over green jobs is complex and encompasses 
issues of economic competitiveness, national security, and climate 
change. The issue of outsourcing, however, is more straightforward, and 
doesn't necessarily involve sending jobs overseas. For example, 
companies routinely outsource administrative functions such as event 
planning and payroll, but those functions don't necessarily move 
offshore. The Committee is quite rightly concerned about the larger 
issue of offshoring, as it potentially denies the American taxpayer the 
return on investments in research. As a nation, we have come to realize 
that favoring research over production removes critical manufacturing 
``know-how'' from the iterative process of innovation; many of the most 
impactful innovative breakthroughs come from the collective knowledge 
developed on the manufacturing shop floor. Eventually, research follows 
manufacturing leaving U.S. companies without the business, and the 
nation dependent on foreign suppliers.
    SEMATECH's experience is grounded in an established industry in 
semiconductors, which has provided capabilities and spin-off 
technologies for numerous emerging industries (nano-biomedical, MEMS/
NEMS devices, nano-materials, energy harvesting and generation, etc.), 
all of which provide technology leadership, generate economic wealth 
and thus enhance our national competitiveness. Although, through the 
DOE's leadership, SEMATECH has most recently championed sustainability 
programs that are aimed at solar energy manufacturing and deployment, 
thus reducing industry's environmental footprint, we would argue that 
rather than focusing on just on what's ``green,'' our policy focus 
should be owning the leading edge of technology. When we develop 
technology responsibly, and own the leading edge, our industries retain 
competitive advantage and our nation maintains a strategic advantage.
    Responses of Dan W. Holladay to Questions From Senator Cantwell
                       u.s.-china trade relations
    Question 1. Do you agree that there is much more to gain for both 
the US and China from a cooperative framework on our mutual clean 
energy interests?
    Question 2. How would the witnesses characterize the extent of 
overlapping interests within the American and Chinese markets for clean 
energy?
    Question 3. Could eliminating tariffs and non-tariff barriers to 
trade in clean energy and environmental goods and services be 
beneficial to both countries?
    Question 4. What particular mechanisms can we use to eliminate 
existing tariffs and non-tariff barriers on clean energy technologies?
    Question 5. Do you believe that the final result of these recent 
trade cases will be good for our clean energy industries as a whole?
    Question 6. Do escalating trade complaints on all sides endanger 
growth, investments, and jobs in emerging clean energy industries?
    Question 7. In terms of our international competitiveness going 
forward, what sort of incentives are in place in China to promote clean 
energy development and deployment and how do they compare to the U.S. 
from your perspective?
    Answer. Trade policy is not within the purview of SEMATECH's 
organizational charter, but we strongly advocate the benefits of 
collaboration across the national supply chain, and selective 
international collaboration where it makes sense, as an effective 
complement to trade policies. We have seen, through SEMATECH's 
experience as a national consortium, the power of creative cooperation 
to align and achieve national interests. Today we are an international 
organization, and today's leading industries are global. U.S. firms 
rely on global suppliers and have operations abroad, while many 
international firms make significant contributions to the development 
of U.S. innovation and manufacturing. We believe there are areas where 
international collaboration is both possible, appropriate, and critical 
to the overall success of an industry, while protecting national 
interests and building domestic manufacturing capabilities. Our 
position has been that an industrial consortium must have engagement 
with the global supply chain in order to develop solutions that will be 
globally competitive. This is especially evident in areas such as 
establishing common roadmaps, providing access to critical materials 
and developing common standards and protocols. More specifically, for 
example, we all have a vested interest in establishing and maintaining 
a baseline for Environment, Health and Safety (EHS) standards. 
Ultimately, we have the know-how and methodologies to collaborate 
globally, while protecting national interests and protecting IP.
                           policy environment
    Question 8. Do you believe that if we fail to create the right 
policies and investment incentives at home, we'll miss out on lucrative 
opportunities for global leadership in clean energy?
    Answer. Yes. The U.S. is no longer acting alone on the global 
stage, as one might argue it did in the 1960s. In today's competitive 
global economy, the investments that are not made here are made 
elsewhere and the resulting economic benefits accrue to others. There 
is a danger that the U.S. can be reduced to a producer of intellectual 
property that is ultimately commercialized elsewhere. This economic 
outcome denies the American economy the tremendous economic benefit 
that comes with transforming IP into products--both revenues and jobs--
and ultimately denies the American taxpayer a return on the investments 
in the underlying research. Public-private partnerships such as 
SEMATECH can be instrumental in preserving--or establishing--U.S. 
leadership in critical industries, including many clean technologies. 
Our member-driven collaborative model and manufacturing best practices 
are standard-bearers for industrial R&D consortia, and have been 
emulated and replicated both nationally and internationally. After 
twenty-five years of operation, SEMATECH is one of the few entities 
around the world that has continuously accelerated the RD&D timeline 
and delivered substantial value to its participants on an annual basis, 
with our focus on filling key gaps in the R&D/manufacturing 
infrastructure, developing key tools, materials, and processes, and 
providing testbed facilities to demonstrate and evaluate innovations in 
a production environment.
                               tax policy
    Question 9. Wouldn't placing a clear price on carbon be one of the 
policies that would spur our clean energy industries?
    Question 10. Assuming comprehensive tax reform is not happening 
this year, will jobs be lost if we fail to extend these expiring 
credits that industries have been banking on?
    Question 11. On the flip side, will businesses create jobs if these 
provisions are extended for a predictable period of time?
    Question 12. As Congress begins to grapple with a major reform of 
the tax code, would you be willing to trade the certainty of multiyear 
extensions for a sunset date for all energy tax subsidies?
    Question 13. Do you think it's fair that some energy sources 
benefit from permanent subsidies and others have to deal with the 
uncertainty of short-term extensions?
    Answer. Tax policy is outside the purview of SEMATECH's 
organizational scope of expertise. As a general matter, we do believe 
that the tax code should not choose among technologies, but rather 
should be framed in terms of desired outcomes. This approach invites 
the market to develop innovative solutions to meet policy objectives.
                              r&d budgets
    Question 14. If securing our energy independence, averting climate 
change and creating new energy industries and jobs are true national 
priorities, shouldn't our energy R&D budgets be more on the scale of 
NIH?
    Answer. A strong commitment to R&D and manufacturing is critical to 
the growth of our economy and the health of our industrial base. 
Consistent and substantial investments in life sciences research have 
yielded world-class pharmaceuticals and medical devices. A comparable 
commitment to the physical sciences is critical if we are to continue 
to see the breakthroughs that will unleash energy savings in existing 
industries and create entirely new ones. Equally important, the U.S. is 
no longer acting alone on the global stage. In today's competitive 
global economy, the investments that are not made here are made 
elsewhere and the resulting economic benefits accrue to others.
                     role of the defense department
    Question 15. Do you believe that the Department of Defense can play 
an important role in facilitating our emerging domestic biofuels 
industry?
    Question 16. Would these efforts advance our national security, 
both by decreasing our energy dependence and by reducing our military's 
expenditures on the full costs of energy over the long term?
    Answer. SEMATECH does not have any programs in the development of 
biofuels per se. Our experience, however, does illustrate the important 
and positive role that the Department of Defense can plan in 
cultivating and maintaining a robust industrial base. As the Committee 
knows, SEMATECH originated with the Defense Department's need for 
semiconductor devices and manufacturing equipment. The public-private 
partnership that ensued yielded much more than a secure supply of 
critical components for the Defense Department; indeed, working 
collaboratively, the industry has facilitated breakthroughs in new 
devices and materials that have revolutionized data processing and 
communications.
                                 ______
                                 
    Responses of Alan Wm. Wolff to Questions From Senator Murkowski
              energy costs as a factor of competitiveness
    Question 1. For all the talk of China's advances in clean energy 
manufacturing, the country is struggling mightily with environmental 
challenges. China has long since passed the United States in total 
greenhouse gas emissions and approximately one quarter of its water 
resources have been deemed unsafe. As I mentioned in my opening 
statement, the country's solar panel factories don't tend to run on 
solar power. The unfortunate irony of all this is that America has 
often relied upon the cheaper, dirtier manufacturing practices of China 
in order to affordably comply with requirements we've imposed on 
ourselves for cleaner, pricier energy here at home.
    How significant is the role played by the cost and availability of 
energy in the United States' competitive position, compared to China's?
    Answer. It is clear that the new techniques to extract gas from 
U.S. rock formations will greatly enhance U.S. competitiveness as a 
base from which to produce goods. Whether this changes the competitive 
relationship with manufacturing in China depends on many factors--
relative exchange rates, relative rates of inflation, relative costs of 
capital, relative productivity gains, relative wage levels, as well as 
how successful the U.S. and China are in lowering energy costs. Clearly 
the competitive relationship will be improved with the lowering of 
energy costs in the United States, all other things being equal.
                definition and outsourcing of green jobs
    Question 2. There was a bit of renewed interest in ``green jobs'' 
recently, when an administration witness testified that this category 
of employment includes everything from college professors and antique 
dealers to bicycle repair clerks and used record shop employees. In 
addition to these broad definitions, others have said that green jobs 
``can never be outsourced.'' Together, these claims have created a lot 
of confusion about - and, frankly, mistrust of - the pitches that have 
been made in support of stimulus spending and other activities.
    How would each of you define the term ``green job'' - or do you 
think we should even have a separate category for them - and do you 
think "green jobs" are any more or less susceptible to outsourcing than 
regular jobs?
    Answer. By far the largest category of jobs that will be stimulated 
by increasingly changing the mix of energy to renewable sources will be 
those in deploying the solar and wind equipment. The second largest 
category is likely to be those jobs involved in production, assuming 
that the equipment is produced onshore. A third category will be the 
engineers, scientists, and administrative personnel involved in the 
industry. The first and last of these groups are not very susceptible 
to our-sourcing--namely deployment, and at present, invention (the 
front end of innovation). What we are not assured of at present is 
commercialization, that is, production of electrical generating 
equipment at home.
     Responses of Alan Wm. Wolff to Questions From Senator Cantwell
    Question 1. As the top two energy consumers and greenhouse gas 
emitters in the world, I believe the United States and China have a 
tremendous opportunity to work together to solve their shared energy 
and environmental challenges. China is investing heavily in clean 
energy and that should be a huge market opportunity for the United 
States.
    The scale of their growth can be mind-boggling. China attracted 
$45.4 billion worth of clean energy investments in 2011. And that's 
going to continue.
    According to the International Energy Agency (IEA), to match its 
rapidly growing demand China needs to invest $3.7 trillion by 2030 to 
build over 1,300 Gigawatts of new electricity generating capacity. 
That's more than the total current installed capacity in the United 
States!
    Clearly the U.S. has much to gain from cooperating with China on 
clean energy. Over the next decade, the Chinese government plans on 
spending $1 trillion to expand their railway network. The country will 
also build the equivalent of the United States' entire building stock 
in the next twenty-five years. Already in China today, some of the 
world's largest wind farms deliver power to cities over smart grid 
enabled, ultra-high-voltage long-distance transmission lines. China's 
vehicle mileage standards are higher than even our recently updated 
CAFE rules.
    As the world's fastest- and largest-growing energy market, China is 
an ideal testing ground for scaling up and commercializing clean energy 
technologies. Combining our two energy markets increases economies of 
scale to bring down costs for consumers in both countries.
    I see huge opportunities for U.S. technology exporters arising from 
a more cooperative relationship with China on clean energy because this 
is critical for our mutual efforts to produce clean abundant energy, 
mitigate climate change, and meet our long term emissions target. While 
we will certainly have to compete with each other, I think we need to 
follow what some call ``co-opetition.''

          a. Do you agree that there is much more to gain for both the 
        US and China from a cooperative framework on our mutual clean 
        energy interests?
          b. How would the witnesses characterize the extent of 
        overlapping interests within the American and Chinese markets 
        for clean energy?

    Answer. I agree that there is much that can be gained from 
cooperation between China and the United States in increasing the 
production of clean energy and clean energy generating equipment. For 
this to occur, China would have to view cooperation rather than autarky 
as a path to greater use of renewable energy. There is no need for 
either country to go it alone. China would have to remove mercantilist 
``buy-Chinese'' policies entirely and this would have to be 
reciprocated by the United States.
    Question 2. Senator Murkowski and I sent a letter to President 
Obama with 13 other Senators urging him to strengthen cooperation with 
China on clean energy technology development and deployment. I was very 
pleased that Presidents Obama and Hu agreed on a clean energy package 
that included several measures to advance our relationship with China.
    Many experts have recommended keeping pressure to open markets and 
to create an integrated US-China market for clean energy technologies. 
I introduced a Senate Resolution calling for the U.S. to work on 
eliminating tariff and non-tariff barriers to clean energy goods and 
services.
    For the last several years, the United States and European Union 
have tried to eliminate tariffs and trade barriers to clean energy and 
environmental goods and services at the World Trade Organization (WTO). 
However, talks have stalled.
    I think we need to try harder. Hundreds of billions of dollars in 
exports of clean energy and environmental goods and services are needed 
to get us to a clean energy future. But these tariffs and other trade 
issues are slowing us down and harming what could be a tremendous trade 
opportunity.

          a. Could eliminating tariffs and non-tariff barriers to trade 
        in clean energy and environmental goods and services be 
        beneficial to both countries?
          b. What particular mechanisms can we use to eliminate 
        existing tariffs and non-tariff barriers on clean energy 
        technologies?

    Answer. I fully agree that it should be in both countries' 
interests for China to remove its trade barriers. These are not so much 
in the form of tariff and traditional nontariff barriers. The measures 
are not much at the border, they take the form of national policies 
implemented often through informal means by state-owned enterprises. 
Sometimes market barriers take the form of visible measures--standards, 
indigenous innovation mandates, procurement catalogs and the like. But 
there are hidden barriers due to the structure of the Chinese economy. 
For these, agreements have to concentrate on measurable results 
compared with markets as open as those of, for example, the European 
Union and the United States.
    Question 3. Despite some of the recent news stories and trade 
complaints, all is not wrong with our clean energy relationship with 
China.
    Emerging clean energy technologies are becoming increasingly 
competitive in the marketplace. For instance, solar power is now 
competitive with daytime retail power prices in a number of countries. 
Last month Bloomberg New Energy Finance released a report finding that 
average solar PV module prices have fallen by nearly 75 percent in the 
past three years. That same Bloomberg report found that these recent 
reductions in PV prices are likely to be sustainable, as they are 
primarily a reflection of reductions in manufacturing costs. Lowering 
the cost of clean energy, such as solar, is exactly what we need to be 
doing.
    The affordability of solar energy has stimulated business 
investment and created jobs in most of the industry. Although much of 
the focus on solar energy has focused on one sector of the industry - 
manufacturing solar panels - it only accounts for roughly 5 percent of 
solar jobs in the United States. Over half of the jobs in the solar 
industry involve designing, installing, and maintaining solar energy 
systems.
    I am concerned about the recent trade complaints and their effect 
on the over 2,000 solar employees in Washington state. Having the 12th 
largest solar workforce in the nation, mostly in other sectors of the 
solar industry, I think we need to be weary of the unintended 
consequences. Our trade actions could lead to retaliation on our own 
successful polysilicon industry, for example.
    In my home state, REC Silicon has worked very hard to innovate and 
cut costs and has become the leading low-cost supplier of polysilicon 
in the world. Trade retaliation from China could endanger roughly 860 
American manufacturing jobs that REC Silicon provides, and up to 49,589 
jobs nationally.by 2014, according to a recent Brattle Group analysis.
    My experience at a technology company taught me that innovation, 
scale, and American entrepreneurship will always figure out how to 
drive down costs over the long term. We will win with open markets, and 
that's why we need to continue pressing for open markets for clean 
energy rather than imposing new tariffs.

          a. Do you believe that the final result of these recent trade 
        cases will be good for our clean energy industries as a whole?
          b. Do escalating trade complaints on all sides endanger 
        growth, investments, and jobs in emerging clean energy 
        industries?

    Answer. While I support an industry's right to petition for and 
receive relief under the U.S. laws and consistent with U.S. rights and 
obligations under the WTO, whatever the result of the current case on 
solar, it does not constitute a national strategy for increasing the 
technological development, commercialization and deployment of solar 
energy in the United States. The country should not have a one-
dimensional policy for solar energy, consisting solely of whether 
injury is found by an independent U.S. agency and dumping and 
subsidization are found by the Department of Commerce.
    Question 4. While I am glad to see that the US led the world in 
private clean energy investment last year, this is just one inning of a 
long series. I am frankly concerned that we cannot sustain this 
leadership with the policies we have in place today - even if we extend 
all of the clean energy tax incentives later this year.
    Pew recently profiled the national energy policies by country in 
its report ``Who's Winning the Clean Energy Race.'' Of the eight key 
national clean energy policies listed in these country profiles, the US 
only has three in place - three of the eight - and those include clean 
energy tax incentives, which we still need to extend, and government 
procurement, which is increasingly under political attacks. China, in 
contrast, has six of the key eight national policies in place. And many 
of our European competitors (including Germany, France, the United 
Kingdom, and Italy) also have six or more of these critical policies.
    This policy gap should be a call to action. We need to continue 
moving forward, not backward. We need to be working on more aggressive 
policies to seize this enormous global clean energy market opportunity 
rather than debating the ones we've already passed on a bipartisan 
basis.
    While I have long advocated for bilateral clean energy cooperation 
with China, I also want to be sure that the United States is the 
world's leading supplier of clean energy technologies to meet the 
exploding world demand.

          a. In terms of our international competitiveness going 
        forward, what sort of incentives are in place in China to 
        promote clean energy development and deployment and how do they 
        compare to the U.S. from your perspective?
          b. Do you believe that if we fail to create the right 
        policies and investment incentives at home, we'll miss out on 
        lucrative opportunities for global leadership in clean energy?
          c. Wouldn't placing a clear price on carbon be one of the 
        policies that would spur our clean energy industries?

    Answer. There is something wrong with China's mix of policies when 
until very recently it produced a glut of solar cells and panels and 
only was able to absorb 5% or so at home (the figure has since been 
estimated to be during this year about 25%). The fact remains that 
China's record of deployment of solar and wind, and the degree to which 
these are grid-connected has not been good enough, and given China's 
economic growth, while it has been greatly increasing the deployment of 
renewable energy sources, the mix has in fact moved even more in the 
direction of using fossil fuels. I agree that we need to put into place 
the right mix of policies at home and maintain consistency in their 
application. Too many incentives are simply too uncertain in this 
country to call forth the private national effort needed to increase 
greatly the deployment of clean energies. In both countries, while 
hydro power is clean, it is also not feasible to greatly increase 
reliance on it, except to the extent that existing generating 
facilities can be made more efficient.
    Question 5. Until the beginning of this Congress, there was an 
overwhelming consensus that clean energy incentives were a good thing. 
They worked and created jobs. Just a few years ago, the Cantwell-Ensign 
bill -- which extended many key clean energy credits and established 
the eight year ITC -- passed the Senate by a vote of 93 to 2.
    There has been little success this Congress in reaching across the 
aisle to get these credits extended -- or to reform the existing 
credits to make them more effective. It has been an uphill battle, and 
certainly not for a lack of trying.
    So what's changed? Why are credits which used to enjoy fairly broad 
support become so partisan? Many of those in Congress who have railed 
against our attempt to build this new industry have petitioned for 
clean energy projects for their constituents. And polling from Yale and 
George Mason University show that they oppose the majority of Americans 
who want to develop clean energy and invest in research.
    So how do we get back on track? As many of you know we have already 
lost a lot of ground. Many important energy credits have already 
expired. Or in the case of wind, effectively expired given the placed-
in-service requirement. In the short term, I believe that we must 
extend these credits to maintain the American clean energy jobs that 
they support.

          a. Assuming comprehensive tax reform is not happening this 
        year, will jobs be lost if we fail to extend these expiring 
        credits that industries have been banking on?
          b. On the flip side, will businesses create jobs if these 
        provisions are extended for a predictable period of time?
          c. As Congress begins to grapple with a major reform of the 
        tax code, would you be willing to trade the certainty of 
        multiyear extensions for a sunset date for all energy tax 
        subsidies?
          d. Do you think it's fair that some energy sources benefit 
        from permanent subsidies and others have to deal with the 
        uncertainty of short-term extensions?

    Answer. If the mix of energy sources is to change toward 
renewables, they must benefit from greater economic incentives than 
traditional fossil fuels. These incentives can be in many forms--
mandates, feed-in tariffs, direct government financial support and tax 
incentives. If there is a consensus that the national security and the 
country's environmental objectives require a change in the mix of 
energy sources, to point the way this must be reflected in the direct 
and indirect incentives offered.
    Question 6. I want to ask about the scale of advanced energy R&D 
investment that we need. As you are surely well aware, the energy 
sector itself invests a far smaller fraction of its revenue in research 
and new technology development than many other sectors of the American 
economy. According to one analysis from the Breakthrough Institute, the 
energy sector invests just two tenths of one percent of annual revenues 
in R&D, an order of magnitude lower than the national average across 
all industries (2.6%) and two orders of magnitude lower than leading 
innovation-driven industries such as biotech, semiconductors or 
information technology.
    The health care sector invests a full 20% of its revenues in R&D 
and the federal government adds to this with over $30 billion annually 
in health care research spending through the National Institutes of 
Health (NIH). Yet despite the far lower levels of private sector energy 
research spending, the federal government invests just a few billion 
annually in energy R&D, mostly through the Department of Energy (DOE).
    With private sector investment levels like these, there seems to be 
a strong need for public investments that can fill the gap and help 
drive the innovation and advanced energy technologies we need. While we 
certainly have to make some difficult choices when it comes to getting 
our fiscal house in order, I do not believe critical investments in R&D 
are the path to a brighter fiscal and economic future. If securing our 
energy independence, averting climate change and creating new energy 
industries and jobs are true national priorities, shouldn't our energy 
R&D budgets be more on the scale of NIH?
    Answer. You raise a key question. Just how high a priority is it 
for the United States to change the course of the country's energy 
policy to a much greater reliance on clean energy and particularly 
renewables? The United States in the context of WWII engaged in a 
herculean effort to master the forces of nuclear power, initially for 
weapons development but with enormous additional applications in 
peacetime, including nuclear fuel for power generation. A similar 
effort was incurred in the manned space flight program. I recognize 
that this is a time of budget stringency, but what if the cost of 
renewables could be driven down to the point where it made energy much 
less expensive. That investment would repay its costs hundreds if not 
thousands of times over in terms of a boost to U.S. competitiveness and 
jobs, not to mention national security through freeing the country from 
reliance on foreign offshore sources of energy. The value would be 
nearly incalculable. And this is without including the savings and 
beneficial health effects of reducing the pressures on the atmosphere 
leading to climate change. Is this a challenge on the order of 
magnitude and worthy of the investments to cure diseases? That case can 
and should be made.
    Question 7. Biomass is one clean energy sector in which the United 
States is second to none. We account for roughly 23 percent of the 
world's installed capacity, compared to China's 7 percent share.
    I do not believe this is a coincidence. The long-term market signal 
that the Renewable Fuel Standard (RFS) sends reduces the uncertainty 
and unleashes investment. This is precisely what is needed in other 
sectors - a long term signal that unleashes investment in clean energy.
    I am proud that my state is at the forefront of figuring out 
alternative ways to produce jet fuel from a variety of non-petroleum 
domestic sources. A broad coalition of researchers, farmers, 
entrepreneurs, fuel producers, jet makers, airports, and others are all 
working together to figure out the best way to make green jet fuel. 
They believe that homegrown jet fuel alternatives will mean real 
economic growth in Washington state and can create jobs around the 
nation. They know that instead of sending billions overseas each year 
for foreign oil, we should be figuring out ways we can keep that money 
here at home, supporting our economy and workers.
    The U.S. military is also leading the way on this opportunity. The 
U.S. Air Force is currently testing different blends of biofuels and 
jet fuels, and hopes to acquire 50 percent of its domestic aviation 
fuel from alternative fuel blends by 2016. The Air Force is the 
nation's largest user of energy, spending about $8 billion on fuel and 
electricity every year - about 84 percent of that goes to fuel our 
aircraft.
    The U.S. Navy is also moving forward on biofuels. In an article in 
the Washington Post, Secretary of the Navy Ray Mabus said that, ``[t]he 
main reason we're moving toward alternative fuels in the Navy and the 
Marine Corps is to make us better war fighters.'' Secretary Mabus went 
on to say that having a Marine either wounded or killed for every 50 
convoys of fuel brought into Afghanistan is ``just too high a price to 
pay.''

          a. Do you believe that the Department of Defense can play an 
        important role in facilitating our emerging domestic biofuels 
        industry?
          b. Would these efforts advance our national security, both by 
        decreasing our energy dependence and by reducing our military's 
        expenditures on the full costs of energy over the long term?

    Answer. DOD can certainly play an important role in the development 
of alternative forms of energy, including biofuels. In a broad sense, 
doing so will increase national security as it can decrease reliance on 
importing fuels from abroad, especially from sources that may prove 
unstable over time. If energy costs can be driven down, this will also 
serve to make defense budgets go further. However, in terms of support 
of troops deployed in remote locations, more important will be other 
forms of renewable energy such as solar, as well as improved 
conservation techniques (as relatively simple as improving insulation 
for portable living quarters). As long as a gallon of biofuels produces 
the same amount of energy as a gallon of traditional fuels, 
transporting the fuel over great distances to remote battlefields would 
not result in improved security.
                                 ______
                                 
    Responses of Derek Scissors to Questions From Senator Murkowski
              energy costs as a factor of competitiveness
    Question 1. For all the talk of China's advances in clean energy 
manufacturing, the country is struggling mightily with environmental 
challenges. China has long since passed the United States in total 
greenhouse gas emissions and approximately one quarter of its water 
resources have been deemed unsafe. As I mentioned in my opening 
statement, the country's solar panel factories don't tend to run on 
solar power. The unfortunate irony of all this is that America has 
often relied upon the cheaper, dirtier manufacturing practices of China 
in order to affordably comply with requirements we've imposed on 
ourselves for cleaner, pricier energy here at home.
    How significant is the role played by the cost and availability of 
energy in the United States' competitive position, compared to China's?
    Answer. The American and Chinese approaches are very different. The 
U.S. has intervened less and most American intervention has been to 
discourage energy production for ecological reasons. Inhibiting coal 
production and oil transport raises the cost of energy, making American 
firms less competitive in energy-intensive activities, such as auto-
making. Recent green energy subsidies promise competitiveness in a new 
field but rely in part on keeping traditional energy expensive, as well 
as diverting resources from elsewhere in the economy. The U.S. tends to 
hurt its competitiveness for the sake of the environment.
    In contrast, the Chinese heavily subsidize energy consumption and 
it appears that energy very much helps their competitiveness. Among 
other things, subsidies have enabled electricity-intensive heavy 
industries such as steel to expand to huge proportions. The gain for 
China is more jobs in heavy industry and cheaper products, both for use 
at home and to sell overseas. China is more competitive in these areas 
than it would be with market prices for energy. However, in the PRC 
consumers subsidize producers, through anti-competitive regulation, the 
banking system, land acquisition bias, and so on. Ordinary people thus 
pay (even if they don't pay taxes) so heavy industry can expand. The 
other main cost is environmental. Both subsidizing heavy industry and 
making energy too cheap increases resource depletion and pollution.
    The green energy push further reveals Chinese policy as wasteful. 
The PRC subsidizes coal consumption, making coal cheaper and increasing 
carbon emissions. It then must subsidize green energy more, to make it 
competitive with subsidized coal and to counter the emissions increase. 
For the last few years, Beijing has been fighting itself.
                definition and outsourcing of green jobs
    Question 2. There was a bit of renewed interest in ``green jobs'' 
recently, when an administration witness testified that this category 
of employment includes everything from college professors and antique 
dealers to bicycle repair clerks and used record shop employees. In 
addition to these broad definitions, others have said that green jobs 
``can never be outsourced.'' Together, these claims have created a lot 
of confusion about--and, frankly, mistrust of--the pitches that have 
been made in support of stimulus spending and other activities.
    How would each of you define the term ``green job''.or do you think 
we should even have a separate category for them--and do you think 
``green jobs'' are any more or less susceptible to outsourcing than 
regular jobs?
    Answer. The job classification issue is an old one. When American 
manufacturers in the 1960's began hiving off supporting activities such 
as accounting, human resources, etc. to specialized contractors, that 
came to be seen as lost jobs in manufacturing. But in many cases, the 
number of people involved in actual manufacturing did not change.
    In green energy as in other sectors, the division should be (i) 
jobs in green energy, (ii) jobs green energy indirectly supports, and 
(iii) jobs that have less connection to green energy than other sectors 
and should not be counted (antique dealer, for example). Going beyond 
green energy jobs to ``green jobs'' is a mistake. If a green job is any 
job that is considered good for the environment, it will be impossible 
to compare green jobs to other kinds of jobs, because jobs measures are 
based on occupation, not impact.
    For outsourcing, it is easier to outsource production than 
services. This is part of the reason our service sector is larger than 
our manufacturing sector. If green jobs are thought to be concentrated 
in services, they would be harder to outsource than jobs in general. 
Green services jobs can still be outsourced, though. For example, an 
environmental consulting firm that advises companies on how to reduce 
their carbon footprint can be located anywhere.
    Green jobs involving energy production are just as easy to 
outsource as other energy production jobs. Electricity generation tends 
to stay close to home but the materials needed to create electricity, 
from crude oil to wind turbines, can be outsourced no matter whether 
they are green or not.
     Responses of Derek Scissors to Questions From Senator Cantwell
    Question 1. As the top two energy consumers and greenhouse gas 
emitters in the world, I believe the United States and China have a 
tremendous opportunity to work together to solve their shared energy 
and environmental challenges. China is investing heavily in clean 
energy and that should be a huge market opportunity for the United 
States.
    The scale of their growth can be mind-boggling. China attracted 
$45.4 billion worth of clean energy investments in 2011. And that's 
going to continue. According to the International Energy Agency (IEA), 
to match its rapidly growing demand China needs to invest $3.7 trillion 
by 2030 to build over 1,300 Gigawatts of new electricity generating 
capacity. That's more than the total current installed capacity in the 
United States!
    Clearly the U.S. has much to gain from cooperating with China on 
clean energy. Over the next decade, the Chinese government plans on 
spending $1 trillion to expand their railway network. The country will 
also build the equivalent of the United States' entire building stock 
in the next twenty-five years. Already in China today, some of the 
world's largest wind farms deliver power to cities over smart grid 
enabled, ultra-high-voltage long-distance transmission lines. China's 
vehicle mileage standards are higher than even our recently updated 
CAFE rules.
    As the world's fastest-and largest-growing energy market, China is 
an ideal testing ground for scaling up and commercializing clean energy 
technologies. Combining our two energy markets increases economies of 
scale to bring down costs for consumers in both countries.
    I see huge opportunities for U.S. technology exporters arising from 
a more cooperative relationship with China on clean energy because this 
is critical for our mutual efforts to produce clean abundant energy, 
mitigate climate change, and meet our long term emissions target. While 
we will certainly have to compete with each other, I think we need to 
follow what some call ``co-opetition.''

          a. Do you agree that there is much more to gain for both the 
        US and China from a cooperative framework on our mutual clean 
        energy interests?
          b. How would the witnesses characterize the extent of 
        overlapping interests within the American and Chinese markets 
        for clean energy?

    Answer. There is potential for valuable and very extensive 
cooperation in clean energy between the U.S. and PRC, the world's two 
largest economies, two largest energy producers, and two largest clean 
energy investors. This cooperation can range from simple energy trade 
that changes China's energy mix to two-way investment to joint 
research. These avenues should be explored.
    Expectations should be limited, though, due to the lack of 
overlapping interests. The PRC has explicitly required state control of 
its energy sector. Energy is obviously crucial to the industrial 
expansion that has created enough jobs to keep the Communist Party in 
power during a period where the labor force has greatly expanded (for 
an example of what happens when the labor force expands and job 
creation is insufficient, see the Arab world.) There is no sign at 
present that Beijing is willing to relax state control of the energy 
industry.
    American goals of innovation, energy efficiency, and limiting 
carbon emissions are secondary for China to state control, low cost, 
and job creation. This is evident in the PRC's simultaneous subsidies 
for coal consumption and green energy production for export (chiefly 
solar panels and wind turbines). Both countries value self-sufficiency 
but, of course, that does not favor more trade and investment. While 
the U.S. will look first for technological breakthroughs for the sake 
of energy efficiency, low emissions, and self-sufficiency, China looks 
first at turning technology into jobs via state regulatory and 
financial actions, including actions that take jobs away from their 
trade partners.
    Cooperation should be pursued to the extent Beijing allows it. But, 
as in so many other sectors, the promise of the Chinese market is 
unlikely to be realized unless there are very considerable policy 
changes.
    Question 2. Senator Murkowski and I sent a letter to President 
Obama with 13 other Senators urging him to strengthen cooperation with 
China on clean energy technology development and deployment. I was very 
pleased that Presidents Obama and Hu agreed on a clean energy package 
that included several measures to advance our relationship with China.
    Many experts have recommended keeping pressure to open markets and 
to create an integrated US-China market for clean energy technologies. 
I introduced a Senate Resolution calling for the U.S. to work on 
eliminating tariff and non-tariff barriers to clean energy goods and 
services.
    For the last several years, the United States and European Union 
have tried to eliminate tariffs and trade barriers to clean energy and 
environmental goods and services at the World Trade Organization (WTO). 
However, talks have stalled.
    I think we need to try harder. Hundreds of billions of dollars in 
exports of clean energy and environmental goods and services are needed 
to get us to a clean energy future. But these tariffs and other trade 
issues are slowing us down and harming what could be a tremendous trade 
opportunity.

          a. Could eliminating tariffs and non-tariff barriers to trade 
        in clean energy and environmental goods and services be 
        beneficial to both countries?
          b. What particular mechanisms can we use to eliminate 
        existing tariffs and non-tariff barriers on clean energy 
        technologies?

    Answer. A global agreement to reduce tariff and non-tariff barriers 
in environmental trade would be a major breakthrough and is worth a 
great deal of effort.
    Some countries will seek to substitute non-tariff barriers for 
tariffs. It is thus useful to start with countries truly committed to 
open environmental trade. With the WTO stalled, the U.S. and EU should 
proceed on their own, dropping all barriers to environmental goods and 
services between the two. There should be a standing invitation to all 
other countries to observe and, if they meet conditions on non-tariff 
barriers, to join the group. The Information Technology Agreement is an 
obvious model and could conceivably be extended for those ITA parties 
which make sufficient commitments on non-tariff barriers.
    A global agreement would be ideal but is not currently possible. A 
multilateral agreement would be quite helpful and also exert pressure 
toward a global agreement.
    Question 3. Despite some of the recent news stories and trade 
complaints, all is not wrong with our clean energy relationship with 
China.
    Emerging clean energy technologies are becoming increasingly 
competitive in the marketplace. For instance, solar power is now 
competitive with daytime retail power prices in a number of countries. 
Last month Bloomberg New Energy Finance released a report finding that 
average solar PV module prices have fallen by nearly 75 percent in the 
past three years. That same Bloomberg report found that these recent 
reductions in PV prices are likely to be sustainable, as they are 
primarily a reflection of reductions in manufacturing costs. Lowering 
the cost of clean energy, such as solar, is exactly what we need to be 
doing.
    The affordability of solar energy has stimulated business 
investment and created jobs in most of the industry. Although much of 
the focus on solar energy has focused on one sector of the industry--
manufacturing solar panels--it only accounts for roughly 5 percent of 
solar jobs in the United States. Over half of the jobs in the solar 
industry involve designing, installing, and maintaining solar energy 
systems.
    I am concerned about the recent trade complaints and their effect 
on the over 2,000 solar employees in Washington state. Having the 12th 
largest solar workforce in the nation, mostly in other sectors of the 
solar industry, I think we need to be weary of the unintended 
consequences. Our trade actions could lead to retaliation on our own 
successful polysilicon industry, for example.
    In my home state, REC Silicon has worked very hard to innovate and 
cut costs and has become the leading low-cost supplier of polysilicon 
in the world. Trade retaliation from China could endanger roughly 860 
American manufacturing jobs that REC Silicon provides, and up to 49,589 
jobs nationally.by 2014, according to a recent Brattle Group analysis.
    My experience at a technology company taught me that innovation, 
scale, and American entrepreneurship will always figure out how to 
drive down costs over the long term. We will win with open markets, and 
that's why we need to continue pressing for open markets for clean 
energy rather than imposing new tariffs.

          a. Do you believe that the final result of these recent trade 
        cases will be good for our clean energy industries as a whole?
          b. Do escalating trade complaints on all sides endanger 
        growth, investments, and jobs in emerging clean energy 
        industries?

    Answer. The environmental trade complaints against China are 
understandable in an important respect: China heavily subsidizes its 
environmental exports and these subsidies distort world trade. As a 
pure trade correction, the complaints have merit.
    With regard to our energy and environmental goals, however, the 
trade cases are harmful. The original point of the clean energy 
industry was to reduce carbon emissions and achieve other ecological 
goals. Competition from imports can only bring these goals closer, 
while blocking this competition will raise the price of clean energy 
and discourage its use. If the primary goal is now job creation, jobs 
can much more easily be created in coal and gas than in solar and wind. 
The trade cases depart from the clean energy industry's reason for 
being.
    Global trade and investment tensions in clean energy threaten 
ecological goals by raising costs and inhibiting innovation, both of 
which flow from competition. Behind these trade complaints is the view 
that clean energy is primarily about jobs, rather than limiting 
emissions, for example. On this view, clean energy should be just 
another target for industrial policy, inviting government intervention 
and seeing foreign companies as harmful. An industrial policy approach 
to clean energy will stifle innovation, efficiency, and growth, making 
the enterprise much more expensive and wasteful than necessary.
    Question 4. While I am glad to see that the US led the world in 
private clean energy investment last year, this is just one inning of a 
long series. I am frankly concerned that we cannot sustain this 
leadership with the policies we have in place today--even if we extend 
all of the clean energy tax incentives later this year.
    Pew recently profiled the national energy policies by country in 
its report ``Who's Winning the Clean Energy Race.'' Of the eight key 
national clean energy policies listed in these country profiles, the US 
only has three in place--three of the eight--and those include clean 
energy tax incentives, which we still need to extend, and government 
procurement, which is increasingly under political attacks. China, in 
contrast, has six of the key eight national policies in place. And many 
of our European competitors (including Germany, France, the United 
Kingdom, and Italy) also have six or more of these critical policies.
    This policy gap should be a call to action. We need to continue 
moving forward, not backward. We need to be working on more aggressive 
policies to seize this enormous global clean energy market opportunity 
rather than debating the ones we've already passed on a bipartisan 
basis.
    While I have long advocated for bilateral clean energy cooperation 
with China, I also want to be sure that the United States is the 
world's leading supplier of clean energy technologies to meet the 
exploding world demand.

          a. In terms of our international competitiveness going 
        forward, what sort of incentives are in place in China to 
        promote clean energy development and deployment and how do they 
        compare to the U.S. from your perspective?
          b. Do you believe that if we fail to create the right 
        policies and investment incentives at home, we'll miss out on 
        lucrative opportunities for global leadership in clean energy?
          c. Wouldn't placing a clear price on carbon be one of the 
        policies that would spur our clean energy industries?

    Answer. Chinese energy policies as a whole are an abysmal failure. 
The reliance on coal has been increasing (after falling in the late 
1990's), the first large-scale coal imports have begun, energy self-
sufficiency as a whole has declined, energy efficiency has improved 
more slowly than necessary, carbon emissions have soared, and many 
Chinese clean energy companies are sliding into deep debt. All China 
has to offer in clean energy is policy and regulatory language that has 
to this point proven largely empty and huge amounts of spending, most 
of which serves to remedy the ills of its broader energy policies. This 
is not a model for the U.S.
    There is a trade-off between global commercial leadership in clean 
energy and the environmental goals that brought the industry into 
being. The U.S. can choose policies to make American companies 
artificially competitive in clean energy, at the cost of provoking our 
global partners. But this merely shifts the cost of clean energy onto 
the taxpayer, it does not truly make clean energy more efficient. 
Alternately, the U.S. can set ecological goals and take no stance on 
which countries and firms lead in clean energy. Failing to make a 
choice will lead to policy that bounces back and forth between 
objectives, as in the solar trade cases, and risks accomplishing very 
little.
    Carbon is already clearly priced. The market failure is that the 
price on carbon does not fully reflect its environmental impact and 
thus is too low. Directly setting an artificial price for carbon would 
be very harmful--price controls warp markets in often surprising and 
always damaging ways. A carbon tax, on top of a flexible market price, 
is superior to setting a price outright. The amount and timing of a tax 
are major issues but an initially low tax as part of broader, pro-
growth tax reform would serve as an experiment to see how clean energy 
development would respond.
    Question 5. Until the beginning of this Congress, there was an 
overwhelming consensus that clean energy incentives were a good thing. 
They worked and created jobs. Just a few years ago, the Cantwell-Ensign 
bill--which extended many key clean energy credits and established the 
eight year ITC--passed the Senate by a vote of 93 to 2.
    There has been little success this Congress in reaching across the 
aisle to get these credits extended--or to reform the existing credits 
to make them more effective. It has been an uphill battle, and 
certainly not for a lack of trying.
    So what's changed? Why are credits which used to enjoy fairly broad 
support become so partisan? Many of those in Congress who have railed 
against our attempt to build this new industry have petitioned for 
clean energy projects for their constituents. And polling from Yale and 
George Mason University show that they oppose the majority of Americans 
who want to develop clean energy and invest in research.
    So how do we get back on track? As you know we have already lost a 
lot of ground. Many important energy credits have already expired. Or 
in the case of wind, effectively expired given the placed-in-service 
requirement. In the short term, I believe that we must extend these 
credits to maintain the American clean energy jobs that they support.

          a. Assuming comprehensive tax reform is not happening this 
        year, will jobs be lost if we fail to extend these expiring 
        credits that industries have been banking on?
          b. On the flip side, will businesses create jobs if these 
        provisions are extended for a predictable period of time?
          c. As Congress begins to grapple with a major reform of the 
        tax code, would you be willing to trade the certainty of 
        multiyear extensions for a sunset date for all energy tax 
        subsidies?
          d. Do you think it's fair that some energy sources benefit 
        from permanent subsidies and others have to deal with the 
        uncertainty of short-term extensions?

    Answer. The net effect on jobs of letting credits expire or 
extending them cannot be calculated without specifying what the 
resources would otherwise be used for. In a truly awful fiscal setting, 
just creating jobs is not enough. An exceptional number of jobs must be 
created. It is true that consistency and clarity in the regulatory 
environment will improve the outcome regardless of whether extension or 
expiration is chosen.
    There are huge gains possible in tax reform. One such gain would be 
ending all energy subsidies as quickly as possible. That would be far, 
far better than dueling government subsidies for competing types of 
energy production, where the government is effectively paying all 
sides. This is the worst possible outcome. No sector should benefit 
from any sort of subsidy, much less a permanent one.
    Question 6. I want to ask about the scale of advanced energy R&D 
investment that we need. As you are surely well aware, the energy 
sector itself invests a far smaller fraction of its revenue in research 
and new technology development than many other sectors of the American 
economy. According to one analysis from the Breakthrough Institute, the 
energy sector invests just two tenths of one percent of annual revenues 
in R&D, an order of magnitude lower than the national average across 
all industries (2.6%) and two orders of magnitude lower than leading 
innovation-driven industries such as biotech, semiconductors or 
information technology.
    The health care sector invests a full 20% of its revenues in R&D 
and the federal government adds to this with over $30 billion annually 
in health care research spending through the National Institutes of 
Health (NIH). Yet despite the far lower levels of private sector energy 
research spending, the federal government invests just a few billion 
annually in energy R&D, mostly through the Department of Energy (DOE).
    With private sector investment levels like these, there seems to be 
a strong need for public investments that can fill the gap and help 
drive the innovation and advanced energy technologies we need. While we 
certainly have to make some difficult choices when it comes to getting 
our fiscal house in order, I do not believe critical investments in R&D 
are the path to a brighter fiscal and economic future. If securing our 
energy independence, averting climate change and creating new energy 
industries and jobs are true national priorities, shouldn't our energy 
R&D budgets be more on the scale of NIH?
    Answer. One reason the revenue share of energy investment appears 
low is that exploration is often not counted as research.
    Putting that aside, there is an important role for government in 
basic research. There is little point in starting a basic research 
program only for the short-term, though, so government-sponsored 
research must be fiscally sustainable. Once a sustainable fiscal course 
is set, the government must resist the urge to support applied 
research. When the government starts to influence the commercial path, 
the result is inevitably harmful because the government is not a 
commercial entity. If public R&D is both fiscally sustainable and 
purely basic research, a large budget would be helpful in energy.
    Question 7. Biomass is one clean energy sector in which the United 
States is second to none. We account for roughly 23 percent of the 
world's installed capacity, compared to China's 7 percent share.
    I do not believe this is a coincidence. The long-term market signal 
that the Renewable Fuel Standard (RFS) sends reduces the uncertainty 
and unleashes investment. This is precisely what is needed in other 
sectors--a long term signal that unleashes investment in clean energy.
    I am proud that my state is at the forefront of figuring out 
alternative ways to produce jet fuel from a variety of non-petroleum 
domestic sources. A broad coalition of researchers, farmers, 
entrepreneurs, fuel producers, jet makers, airports, and others are all 
working together to figure out the best way to make green jet fuel. 
They believe that homegrown jet fuel alternatives will mean real 
economic growth in Washington state and can create jobs around the 
nation. They know that instead of sending billions overseas each year 
for foreign oil, we should be figuring out ways we can keep that money 
here at home, supporting our economy and workers.
    The U.S. military is also leading the way on this opportunity. The 
U.S. Air Force is currently testing different blends of biofuels and 
jet fuels, and hopes to acquire 50 percent of its domestic aviation 
fuel from alternative fuel blends by 2016. The Air Force is the 
nation's largest user of energy, spending about $8 billion on fuel and 
electricity every year--about 84 percent of that goes to fuel our 
aircraft.
    The U.S. Navy is also moving forward on biofuels. In an article in 
the Washington Post, Secretary of the Navy Ray Mabus said that, ``[t]he 
main reason we're moving toward alternative fuels in the Navy and the 
Marine Corps is to make us better war fighters.'' Secretary Mabus went 
on to say that having a Marine either wounded or killed for every 50 
convoys of fuel brought into Afghanistan is ``just too high a price to 
pay.''

          a. Do you believe that the Department of Defense can play an 
        important role in facilitating our emerging domestic biofuels 
        industry?
          b. Would these efforts advance our national security, both by 
        decreasing our energy dependence and by reducing our military's 
        expenditures on the full costs of energy over the long term?

    Answer. The Department of Defense can play an important role in 
encouraging biofuels but it might be damaging if it does. DOD must 
focus exclusively on its primary mission; detours into energy policy 
are an awful idea.
    If DOD finds that changing its fuel mix, for example, enhances the 
primary mission, it will certainly affect the domestic energy market 
because DOD is such a large player. But the effect may not be for the 
better. DOD's fuel needs do not reflect the needs of typical energy 
users and may (or may not) skew prices and supply in a way that harms 
other market participants. Again, this should not enter DOD's own 
calculus, either way.
    The broad national security evaluation cannot be made solely by 
DOD, it requires inter-agency coordination. Decisions concerning energy 
dependence are of sufficient importance that such coordination should 
involve the President. It should be noted that American dependence on 
foreign energy is currently decreasing.
    Question 8. Dr. Scissors, I noticed in your testimony that you 
believe a primary reason for China's aggressive action on clean energy 
is to create jobs and that renewables support more jobs compared to 
fossil fuels. Could you please elaborate on this further?
    I understand and support our desire to become a more efficient 
nation, and this committee has worked on just that over the years. But 
it's still not clear to me why you think we should give up and stop 
competing with China for clean energy jobs. We need jobs--today and in 
the future. Considering that clean energy may be one of the largest 
market opportunities of the 21st century, where will find enough jobs 
if we stop competing for jobs in one of the largest emerging markets?
    Answer. The history of the Chinese clean energy industry starts 
with a response to clean energy subsidies in Europe, not any ecological 
goals in China itself. The vast majority of solar products have been 
exported, creating jobs but not improving the environment. Chinese 
performance on emissions, energy efficiency, and self-sufficiency has 
been terrible, indicating these are not the main objectives. At this 
stage in their development, renewables require more labor to generate 
the same amount of electricity as fossil fuels. If the goal is job 
creation, as in China, renewables therefore seem attractive. If the 
goal is energy efficiency, renewable are less efficient and less 
attractive.
    There are two main reasons not to focus on jobs. First, making jobs 
the goal also heightens trade conflicts, because jobs are unavoidably 
seen as zero-sum to a certain extent. Making efficiency the goal 
encourages open trade,.
    Second and more fundamental, emphasizing jobs puts the cart before 
the horse. Clean energy is considered to be a leading market 
opportunity because it could bring enormous environmental benefits. 
Promoting those benefits argue for making clean energy as cost-
effective and efficient as possible. Targeting jobs is a quite 
different matter--it raises costs and reduces efficiency. In my view, 
an emphasis on jobs warps the reason the clean energy industry is 
valuable in the first place.
                                 ______
                                 
    [Responses to the following questions were not received at 
the time the hearing went to press:]

         Questions for Clyde Prestowitz From Senator Murkowski
              energy costs as a factor of competitiveness
    Question 1. For all the talk of China's advances in clean energy 
manufacturing, the country is struggling mightily with environmental 
challenges. China has long since passed the United States in total 
greenhouse gas emissions and approximately one quarter of its water 
resources have been deemed unsafe. As I mentioned in my opening 
statement, the country's solar panel factories don't tend to run on 
solar power. The unfortunate irony of all this is that America has 
often relied upon the cheaper, dirtier manufacturing practices of China 
in order to affordably comply with requirements we've imposed on 
ourselves for cleaner, pricier energy here at home.

          a. How significant is the role played by the cost and 
        availability of energy in the United States' competitive 
        position, compared to China's?

                definition and outsourcing of green jobs
    Question 2. There was a bit of renewed interest in ``green jobs'' 
recently, when an administration witness testified that this category 
of employment includes everything from college professors and antique 
dealers to bicycle repair clerks and used record shop employees. In 
addition to these broad definitions, others have said that green jobs 
``can never be outsourced.'' Together, these claims have created a lot 
of confusion about--and, frankly, mistrust of--the pitches that have 
been made in support of stimulus spending and other activities.

          a. How would each of you define the term ``green job''--or do 
        you think we should even have a separate category for them--and 
        do you think ``green jobs'' are any more or less susceptible to 
        outsourcing than regular jobs?
          Questions for Clyde Prestowitz From Senator Cantwell
    Question 1. As the top two energy consumers and greenhouse gas 
emitters in the world, I believe the United States and China have a 
tremendous opportunity to work together to solve their shared energy 
and environmental challenges. China is investing heavily in clean 
energy and that should be a huge market opportunity for the United 
States.
    The scale of their growth can be mind-boggling. China attracted 
$45.4 billion worth of clean energy investments in 2011. And that's 
going to continue. According to the International Energy Agency (IEA), 
to match its rapidly growing demand China needs to invest $3.7 trillion 
by 2030 to build over 1,300 Gigawatts of new electricity generating 
capacity. That's more than the total current installed capacity in the 
United States!
    Clearly the U.S. has much to gain from cooperating with China on 
clean energy. Over the next decade, the Chinese government plans on 
spending $1 trillion to expand their railway network. The country will 
also build the equivalent of the United States' entire building stock 
in the next twenty-five years. Already in China today, some of the 
world's largest wind farms deliver power to cities over smart grid 
enabled, ultra-high-voltage long-distance transmission lines. China's 
vehicle mileage standards are higher than even our recently updated 
CAFE rules.
    As the world's fastest-and largest-growing energy market, China is 
an ideal testing ground for scaling up and commercializing clean energy 
technologies. Combining our two energy markets increases economies of 
scale to bring down costs for consumers in both countries.
    I see huge opportunities for U.S. technology exporters arising from 
a more cooperative relationship with China on clean energy because this 
is critical for our mutual efforts to produce clean abundant energy, 
mitigate climate change, and meet our long term emissions target. While 
we will certainly have to compete with each other, I think we need to 
follow what some call ``co-opetition.''

          a. Do you agree that there is much more to gain for both the 
        US and China from a cooperative framework on our mutual clean 
        energy interests?
          b. How would the witnesses characterize the extent of 
        overlapping interests within the American and Chinese markets 
        for clean energy?

    Question 2. Senator Murkowski and I sent a letter to President 
Obama with 13 other Senators urging him to strengthen cooperation with 
China on clean energy technology development and deployment. I was very 
pleased that Presidents Obama and Hu agreed on a clean energy package 
that included several measures to advance our relationship with China.
    Many experts have recommended keeping pressure to open markets and 
to create an integrated US-China market for clean energy technologies. 
I introduced a Senate Resolution calling for the U.S. to work on 
eliminating tariff and non-tariff barriers to clean energy goods and 
services.
    For the last several years, the United States and European Union 
have tried to eliminate tariffs and trade barriers to clean energy and 
environmental goods and services at the World Trade Organization (WTO). 
However, talks have stalled.
    I think we need to try harder. Hundreds of billions of dollars in 
exports of clean energy and environmental goods and services are needed 
to get us to a clean energy future. But these tariffs and other trade 
issues are slowing us down and harming what could be a tremendous trade 
opportunity.

          a. Could eliminating tariffs and non-tariff barriers to trade 
        in clean energy and environmental goods and services be 
        beneficial to both countries?
          b. What particular mechanisms can we use to eliminate 
        existing tariffs and non-tariff barriers on clean energy 
        technologies?

    Question 3. Despite some of the recent news stories and trade 
complaints, all is not wrong with our clean energy relationship with 
China.
    Emerging clean energy technologies are becoming increasingly 
competitive in the marketplace. For instance, solar power is now 
competitive with daytime retail power prices in a number of countries. 
Last month Bloomberg New Energy Finance released a report finding that 
average solar PV module prices have fallen by nearly 75 percent in the 
past three years. That same Bloomberg report found that these recent 
reductions in PV prices are likely to be sustainable, as they are 
primarily a reflection of reductions in manufacturing costs. Lowering 
the cost of clean energy, such as solar, is exactly what we need to be 
doing.
    The affordability of solar energy has stimulated business 
investment and created jobs in most of the industry. Although much of 
the focus on solar energy has focused on one sector of the industry--
manufacturing solar panels--it only accounts for roughly 5 percent of 
solar jobs in the United States. Over half of the jobs in the solar 
industry involve designing, installing, and maintaining solar energy 
systems.
    I am concerned about the recent trade complaints and their effect 
on the over 2,000 solar employees in Washington state. Having the 12th 
largest solar workforce in the nation, mostly in other sectors of the 
solar industry, I think we need to be weary of the unintended 
consequences. Our trade actions could lead to retaliation on our own 
successful polysilicon industry, for example.
    In my home state, REC Silicon has worked very hard to innovate and 
cut costs and has become the leading low-cost supplier of polysilicon 
in the world. Trade retaliation from China could endanger roughly 860 
American manufacturing jobs that REC Silicon provides, and up to 49,589 
jobs nationally.by 2014, according to a recent Brattle Group analysis.
    My experience at a technology company taught me that innovation, 
scale, and American entrepreneurship will always figure out how to 
drive down costs over the long term. We will win with open markets, and 
that's why we need to continue pressing for open markets for clean 
energy rather than imposing new tariffs.

          a. Do you believe that the final result of these recent trade 
        cases will be good for our clean energy industries as a whole?
          b. Do escalating trade complaints on all sides endanger 
        growth, investments, and jobs in emerging clean energy 
        industries?

    Question 4. While I am glad to see that the US led the world in 
private clean energy investment last year, this is just one inning of a 
long series. I am frankly concerned that we cannot sustain this 
leadership with the policies we have in place today--even if we extend 
all of the clean energy tax incentives later this year.
    Pew recently profiled the national energy policies by country in 
its report ``Who's Winning the Clean Energy Race.'' Of the eight key 
national clean energy policies listed in these country profiles, the US 
only has three in place--three of the eight--and those include clean 
energy tax incentives, which we still need to extend, and government 
procurement, which is increasingly under political attacks. China, in 
contrast, has six of the key eight national policies in place. And many 
of our European competitors (including Germany, France, the United 
Kingdom, and Italy) also have six or more of these critical policies.
    This policy gap should be a call to action. We need to continue 
moving forward, not backward. We need to be working on more aggressive 
policies to seize this enormous global clean energy market opportunity 
rather than debating the ones we've already passed on a bipartisan 
basis.
    While I have long advocated for bilateral clean energy cooperation 
with China, I also want to be sure that the United States is the 
world's leading supplier of clean energy technologies to meet the 
exploding world demand.

          a. In terms of our international competitiveness going 
        forward, what sort of incentives are in place in China to 
        promote clean energy development and deployment and how do they 
        compare to the U.S. from your perspective?
          b. Do you believe that if we fail to create the right 
        policies and investment incentives at home, we'll miss out on 
        lucrative opportunities for global leadership in clean energy?
          c. Wouldn't placing a clear price on carbon be one of the 
        policies that would spur our clean energy industries?

    Question 5. Until the beginning of this Congress, there was an 
overwhelming consensus that clean energy incentives were a good thing. 
They worked and created jobs. Just a few years ago, the Cantwell-Ensign 
bill--which extended many key clean energy credits and established the 
eight year ITC--passed the Senate by a vote of 93 to 2.
    There has been little success this Congress in reaching across the 
aisle to get these credits extended--or to reform the existing credits 
to make them more effective. It has been an uphill battle, and 
certainly not for a lack of trying.
    So what's changed? Why are credits which used to enjoy fairly broad 
support become so partisan? Many of those in Congress who have railed 
against our attempt to build this new industry have petitioned for 
clean energy projects for their constituents. And polling from Yale and 
George Mason University show that they oppose the majority of Americans 
who want to develop clean energy and invest in research.
    So how do we get back on track? As many of you know we have already 
lost a lot of ground. Many important energy credits have already 
expired. Or in the case of wind, effectively expired given the placed-
in-service requirement. In the short term, I believe that we must 
extend these credits to maintain the American clean energy jobs that 
they support.

          a. Assuming comprehensive tax reform is not happening this 
        year, will jobs be lost if we fail to extend these expiring 
        credits that industries have been banking on?
          b. On the flip side, will businesses create jobs if these 
        provisions are extended for a predictable period of time?
          a. As Congress begins to grapple with a major reform of the 
        tax code, would
          c. you be willing to trade the certainty of multiyear 
        extensions for a sunset date for all energy tax subsidies?
          d. Do you think it's fair that some energy sources benefit 
        from permanent subsidies and others have to deal with the 
        uncertainty of short-term extensions?

    Question 6. I want to ask about the scale of advanced energy R&D 
investment that we need. As you are surely well aware, the energy 
sector itself invests a far smaller fraction of its revenue in research 
and new technology development than many other sectors of the American 
economy. According to one analysis from the Breakthrough Institute, the 
energy sector invests just two tenths of one percent of annual revenues 
in R&D, an order of magnitude lower than the national average across 
all industries (2.6%) and two orders of magnitude lower than leading 
innovation-driven industries such as biotech, semiconductors or 
information technology.
    The health care sector invests a full 20% of its revenues in R&D 
and the federal government adds to this with over $30 billion annually 
in health care research spending through the National Institutes of 
Health (NIH). Yet despite the far lower levels of private sector energy 
research spending, the federal government invests just a few billion 
annually in energy R&D, mostly through the Department of Energy (DOE).
    With private sector investment levels like these, there seems to be 
a strong need for public investments that can fill the gap and help 
drive the innovation and advanced energy technologies we need. While we 
certainly have to make some difficult choices when it comes to getting 
our fiscal house in order, I do not believe critical investments in R&D 
are the path to a brighter fiscal and economic future. If securing our 
energy independence, averting climate change and creating new energy 
industries and jobs are true national priorities, shouldn't our energy 
R&D budgets be more on the scale of NIH?
    Question 7. Biomass is one clean energy sector in which the United 
States is second to none. We account for roughly 23 percent of the 
world's installed capacity, compared to China's 7 percent share.
    I do not believe this is a coincidence. The long-term market signal 
that the Renewable Fuel Standard (RFS) sends reduces the uncertainty 
and unleashes investment. This is precisely what is needed in other 
sectors--a long term signal that unleashes investment in clean energy.
    I am proud that my state is at the forefront of figuring out 
alternative ways to produce jet fuel from a variety of non-petroleum 
domestic sources. A broad coalition of researchers, farmers, 
entrepreneurs, fuel producers, jet makers, airports, and others are all 
working together to figure out the best way to make green jet fuel. 
They believe that homegrown jet fuel alternatives will mean real 
economic growth in Washington state and can create jobs around the 
nation. They know that instead of sending billions overseas each year 
for foreign oil, we should be figuring out ways we can keep that money 
here at home, supporting our economy and workers.
    The U.S. military is also leading the way on this opportunity. The 
U.S. Air Force is currently testing different blends of biofuels and 
jet fuels, and hopes to acquire 50 percent of its domestic aviation 
fuel from alternative fuel blends by 2016. The Air Force is the 
nation's largest user of energy, spending about $8 billion on fuel and 
electricity every year--about 84 percent of that goes to fuel our 
aircraft.
    The U.S. Navy is also moving forward on biofuels. In an article in 
the Washington Post, Secretary of the Navy Ray Mabus said that, ``[t]he 
main reason we're moving toward alternative fuels in the Navy and the 
Marine Corps is to make us better war fighters.'' Secretary Mabus went 
on to say that having a Marine either wounded or killed for every 50 
convoys of fuel brought into Afghanistan is ``just too high a price to 
pay.''

          a. Do you believe that the Department of Defense can play an 
        important role in facilitating our emerging domestic biofuels 
        industry?
          b. Would these efforts advance our national security, both by 
        decreasing our energy dependence and by reducing our military's 
        expenditures on the full costs of energy over the long term?
                                 ______
                                 
             Questions for Justin Wu From Senator Murkowski
              energy costs as a factor of competitiveness
    Question 1. For all the talk of China's advances in clean energy 
manufacturing, the country is struggling mightily with environmental 
challenges. China has long since passed the United States in total 
greenhouse gas emissions and approximately one quarter of its water 
resources have been deemed unsafe. As I mentioned in my opening 
statement, the country's solar panel factories don't tend to run on 
solar power. The unfortunate irony of all this is that America has 
often relied upon the cheaper, dirtier manufacturing practices of China 
in order to affordably comply with requirements we've imposed on 
ourselves for cleaner, pricier energy here at home.

          a. How significant is the role played by the cost and 
        availability of energy in the United States' competitive 
        position, compared to China's?

                definition and outsourcing of green jobs
    Question 2. There was a bit of renewed interest in ``green jobs'' 
recently, when an administration witness testified that this category 
of employment includes everything from college professors and antique 
dealers to bicycle repair clerks and used record shop employees. In 
addition to these broad definitions, others have said that green jobs 
``can never be outsourced.'' Together, these claims have created a lot 
of confusion about--and, frankly, mistrust of--the pitches that have 
been made in support of stimulus spending and other activities.

          a. How would each of you define the term ``green job''--or do 
        you think we should even have a separate category for them--and 
        do you think ``green jobs'' are any more or less susceptible to 
        outsourcing than regular jobs?
             Questions for Justin Wu From Senator Cantwell
    Question 1. As the top two energy consumers and greenhouse gas 
emitters in the world, I believe the United States and China have a 
tremendous opportunity to work together to solve their shared energy 
and environmental challenges. China is investing heavily in clean 
energy and that should be a huge market opportunity for the United 
States.
    The scale of their growth can be mind-boggling. China attracted 
$45.4 billion worth of clean energy investments in 2011. And that's 
going to continue. According to the International Energy Agency (IEA), 
to match its rapidly growing demand China needs to invest $3.7 trillion 
by 2030 to build over 1,300 Gigawatts of new electricity generating 
capacity. That's more than the total current installed capacity in the 
United States!
    Clearly the U.S. has much to gain from cooperating with China on 
clean energy. Over the next decade, the Chinese government plans on 
spending $1 trillion to expand their railway network. The country will 
also build the equivalent of the United States' entire building stock 
in the next twenty-five years. Already in China today, some of the 
world's largest wind farms deliver power to cities over smart grid 
enabled, ultra-high-voltage long-distance transmission lines. China's 
vehicle mileage standards are higher than even our recently updated 
CAFE rules.
    As the world's fastest-and largest-growing energy market, China is 
an ideal testing ground for scaling up and commercializing clean energy 
technologies. Combining our two energy markets increases economies of 
scale to bring down costs for consumers in both countries.
    I see huge opportunities for U.S. technology exporters arising from 
a more cooperative relationship with China on clean energy because this 
is critical for our mutual efforts to produce clean abundant energy, 
mitigate climate change, and meet our long term emissions target. While 
we will certainly have to compete with each other, I think we need to 
follow what some call ``co-opetition.''

          a. Do you agree that there is much more to gain for both the 
        US and China from a cooperative framework on our mutual clean 
        energy interests?
          b. How would the witnesses characterize the extent of 
        overlapping interests within the American and Chinese markets 
        for clean energy?

    Question 2. Senator Murkowski and I sent a letter to President 
Obama with 13 other Senators urging him to strengthen cooperation with 
China on clean energy technology development and deployment. I was very 
pleased that Presidents Obama and Hu agreed on a clean energy package 
that included several measures to advance our relationship with China.
    Many experts have recommended keeping pressure to open markets and 
to create an integrated US-China market for clean energy technologies. 
I introduced a Senate Resolution calling for the U.S. to work on 
eliminating tariff and non-tariff barriers to clean energy goods and 
services.
    For the last several years, the United States and European Union 
have tried to eliminate tariffs and trade barriers to clean energy and 
environmental goods and services at the World Trade Organization (WTO). 
However, talks have stalled.
    I think we need to try harder. Hundreds of billions of dollars in 
exports of clean energy and environmental goods and services are needed 
to get us to a clean energy future. But these tariffs and other trade 
issues are slowing us down and harming what could be a tremendous trade 
opportunity.

          a. Could eliminating tariffs and non-tariff barriers to trade 
        in clean energy and environmental goods and services be 
        beneficial to both countries?
          b. What particular mechanisms can we use to eliminate 
        existing tariffs and non-tariff barriers on clean energy 
        technologies?

    Question 3. Despite some of the recent news stories and trade 
complaints, all is not wrong with our clean energy relationship with 
China.
    Emerging clean energy technologies are becoming increasingly 
competitive in the marketplace. For instance, solar power is now 
competitive with daytime retail power prices in a number of countries. 
Last month Bloomberg New Energy Finance released a report finding that 
average solar PV module prices have fallen by nearly 75 percent in the 
past three years. That same Bloomberg report found that these recent 
reductions in PV prices are likely to be sustainable, as they are 
primarily a reflection of reductions in manufacturing costs. Lowering 
the cost of clean energy, such as solar, is exactly what we need to be 
doing.
    The affordability of solar energy has stimulated business 
investment and created jobs in most of the industry. Although much of 
the focus on solar energy has focused on one sector of the industry--
manufacturing solar panels--it only accounts for roughly 5 percent of 
solar jobs in the United States. Over half of the jobs in the solar 
industry involve designing, installing, and maintaining solar energy 
systems.
    I am concerned about the recent trade complaints and their effect 
on the over 2,000 solar employees in Washington state. Having the 12th 
largest solar workforce in the nation, mostly in other sectors of the 
solar industry, I think we need to be weary of the unintended 
consequences. Our trade actions could lead to retaliation on our own 
successful polysilicon industry, for example.
    In my home state, REC Silicon has worked very hard to innovate and 
cut costs and has become the leading low-cost supplier of polysilicon 
in the world. Trade retaliation from China could endanger roughly 860 
American manufacturing jobs that REC Silicon provides, and up to 49,589 
jobs nationally.by 2014, according to a recent Brattle Group analysis.
    My experience at a technology company taught me that innovation, 
scale, and American entrepreneurship will always figure out how to 
drive down costs over the long term. We will win with open markets, and 
that's why we need to continue pressing for open markets for clean 
energy rather than imposing new tariffs.

          a. Do you believe that the final result of these recent trade 
        cases will be good for our clean energy industries as a whole?
          b. Do escalating trade complaints on all sides endanger 
        growth, investments, and jobs in emerging clean energy 
        industries?

    Question 4. While I am glad to see that the US led the world in 
private clean energy investment last year, this is just one inning of a 
long series. I am frankly concerned that we cannot sustain this 
leadership with the policies we have in place today--even if we extend 
all of the clean energy tax incentives later this year.
    Pew recently profiled the national energy policies by country in 
its report ``Who's Winning the Clean Energy Race.'' Of the eight key 
national clean energy policies listed in these country profiles, the US 
only has three in place--three of the eight--and those include clean 
energy tax incentives, which we still need to extend, and government 
procurement, which is increasingly under political attacks. China, in 
contrast, has six of the key eight national policies in place. And many 
of our European competitors (including Germany, France, the United 
Kingdom, and Italy) also have six or more of these critical policies.
    This policy gap should be a call to action. We need to continue 
moving forward, not backward. We need to be working on more aggressive 
policies to seize this enormous global clean energy market opportunity 
rather than debating the ones we've already passed on a bipartisan 
basis.
    While I have long advocated for bilateral clean energy cooperation 
with China, I also want to be sure that the United States is the 
world's leading supplier of clean energy technologies to meet the 
exploding world demand.

          a. In terms of our international competitiveness going 
        forward, what sort of incentives are in place in China to 
        promote clean energy development and deployment and how do they 
        compare to the U.S. from your perspective?
          b. Do you believe that if we fail to create the right 
        policies and investment incentives at home, we'll miss out on 
        lucrative opportunities for global leadership in clean energy?
          c. Wouldn't placing a clear price on carbon be one of the 
        policies that would spur our clean energy industries?

    Question 5. Until the beginning of this Congress, there was an 
overwhelming consensus that clean energy incentives were a good thing. 
They worked and created jobs. Just a few years ago, the Cantwell-Ensign 
bill--which extended many key clean energy credits and established the 
eight year ITC--passed the Senate by a vote of 93 to 2.
    There has been little success this Congress in reaching across the 
aisle to get these credits extended--or to reform the existing credits 
to make them more effective. It has been an uphill battle, and 
certainly not for a lack of trying.
    So what's changed? Why are credits which used to enjoy fairly broad 
support become so partisan? Many of those in Congress who have railed 
against our attempt to build this new industry have petitioned for 
clean energy projects for their constituents. And polling from Yale and 
George Mason University show that they oppose the majority of Americans 
who want to develop clean energy and invest in research.
    So how do we get back on track? As many of you know we have already 
lost a lot of ground. Many important energy credits have already 
expired. Or in the case of wind, effectively expired given the placed-
in-service requirement. In the short term, I believe that we must 
extend these credits to maintain the American clean energy jobs that 
they support.

          a. Assuming comprehensive tax reform is not happening this 
        year, will jobs be lost if we fail to extend these expiring 
        credits that industries have been banking on?
          b. On the flip side, will businesses create jobs if these 
        provisions are extended for a predictable period of time?
          a. As Congress begins to grapple with a major reform of the 
        tax code, would
          c. you be willing to trade the certainty of multiyear 
        extensions for a sunset date for all energy tax subsidies?
          d. Do you think it's fair that some energy sources benefit 
        from permanent subsidies and others have to deal with the 
        uncertainty of short-term extensions?

    Question 6. I want to ask about the scale of advanced energy R&D 
investment that we need. As you are surely well aware, the energy 
sector itself invests a far smaller fraction of its revenue in research 
and new technology development than many other sectors of the American 
economy. According to one analysis from the Breakthrough Institute, the 
energy sector invests just two tenths of one percent of annual revenues 
in R&D, an order of magnitude lower than the national average across 
all industries (2.6%) and two orders of magnitude lower than leading 
innovation-driven industries such as biotech, semiconductors or 
information technology.
    The health care sector invests a full 20% of its revenues in R&D 
and the federal government adds to this with over $30 billion annually 
in health care research spending through the National Institutes of 
Health (NIH). Yet despite the far lower levels of private sector energy 
research spending, the federal government invests just a few billion 
annually in energy R&D, mostly through the Department of Energy (DOE).
    With private sector investment levels like these, there seems to be 
a strong need for public investments that can fill the gap and help 
drive the innovation and advanced energy technologies we need. While we 
certainly have to make some difficult choices when it comes to getting 
our fiscal house in order, I do not believe critical investments in R&D 
are the path to a brighter fiscal and economic future. If securing our 
energy independence, averting climate change and creating new energy 
industries and jobs are true national priorities, shouldn't our energy 
R&D budgets be more on the scale of NIH?
    Question 7. Biomass is one clean energy sector in which the United 
States is second to none. We account for roughly 23 percent of the 
world's installed capacity, compared to China's 7 percent share.
    I do not believe this is a coincidence. The long-term market signal 
that the Renewable Fuel Standard (RFS) sends reduces the uncertainty 
and unleashes investment. This is precisely what is needed in other 
sectors--a long term signal that unleashes investment in clean energy.
    I am proud that my state is at the forefront of figuring out 
alternative ways to produce jet fuel from a variety of non-petroleum 
domestic sources. A broad coalition of researchers, farmers, 
entrepreneurs, fuel producers, jet makers, airports, and others are all 
working together to figure out the best way to make green jet fuel. 
They believe that homegrown jet fuel alternatives will mean real 
economic growth in Washington state and can create jobs around the 
nation. They know that instead of sending billions overseas each year 
for foreign oil, we should be figuring out ways we can keep that money 
here at home, supporting our economy and workers.
    The U.S. military is also leading the way on this opportunity. The 
U.S. Air Force is currently testing different blends of biofuels and 
jet fuels, and hopes to acquire 50 percent of its domestic aviation 
fuel from alternative fuel blends by 2016. The Air Force is the 
nation's largest user of energy, spending about $8 billion on fuel and 
electricity every year--about 84 percent of that goes to fuel our 
aircraft.
    The U.S. Navy is also moving forward on biofuels. In an article in 
the Washington Post, Secretary of the Navy Ray Mabus said that, ``[t]he 
main reason we're moving toward alternative fuels in the Navy and the 
Marine Corps is to make us better war fighters.'' Secretary Mabus went 
on to say that having a Marine either wounded or killed for every 50 
convoys of fuel brought into Afghanistan is ``just too high a price to 
pay.''

          a. Do you believe that the Department of Defense can play an 
        important role in facilitating our emerging domestic biofuels 
        industry?
          b. Would these efforts advance our national security, both by 
        decreasing our energy dependence and by reducing our military's 
        expenditures on the full costs of energy over the long term?

                                  

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