The China Model and U.S. Energy Policy

September 24, 2012

For the past 40 years, both Republican and Democratic presidents have pursued flawed energy policies that promised a breakthrough in energy independence. Yet despite past failures, a majority of Americans, as well as the lawmakers that represent them, support subsidies to promote the latest in alternative energy technology. This support can be partly attributed to the president and other politicians linking green energy to fears about the rise of China in the energy sector, says Lee Lane, a visiting fellow with the Hudson Institute.

However, China's institutions and economic growth are unsustainable, even with the rise of its alternative energy sector. China's growth from energy provides not an example, but a cautionary tale about its energy policy and larger model for economic growth.

The source of most of China's growth came from cheap surplus labor:

  • Wages have been rising and the labor force will begin shrinking by 2015.
  • The old-age dependency ratio will double by 2030, forcing China to expand social services.
  • Furthermore, the effects of early reforms and first round of technology imports have been absorbed and total factor productivity growth has slowed.

Moreover, China's inefficient institutions will come to affect its economic performance in the coming decades.

  • First, China's effort to "rebalance" the economy by boosting productivity and raising household consumption standards is failing.
  • Second, China's emphasis on investing in state-owned enterprises discourages competitions and stifles innovation.
  • Third, corruption within these institutions is rampant and costly to the Chinese government.

China's green energy sector is not immune from the overall economic problems the country faces. Even with its growing production of solar and wind power technologies, China still imports coal to provide 60 percent of its electricity. Furthermore, the environmental cost of sustained fossil fuel use will cancel out any effect that alternative energy will have for the economy.

As it stands, the United States has no reason to model China's strategy for alternative energy.

  • First, U.S. wages are too high to match China's labor-intensive manufacturing sector, which is required of green technology.
  • Second, the government has been shown to lack the capacity to implement the technology.

Source: Lee Lane, "The China Model and U.S. Energy Policy," Hudson Institute, September 2012.

 

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