It’s About China, Stupid

by Richard T. Stuebi

In the energy sector, it’s becoming increasingly clear that the name of the game — whatever game you wanna talk about — is China.

My favorite recent contribution to this strain of literature was a blog entry from late August written by the Center for Geoeconomic Studies at the Council on Foreign Relations
called “China Will Force the World Off Oil”. Here’s the eye-popping core of this short post:

“As a country’s per capita income increases, its per capita oil consumption increases. Consumption growth tends to be modest up until $15,000 income per head, but then accelerates rapidly. China is quickly approaching this point…Were China’s per capita oil consumption be brought up to South Korea’s, its share of global consumption would increase from today’s 10% to over 70%. In order to cap China’s share at 22%, which is the U.S. share today, global oil output would have to increase by a massive 13% per annum over ten years — well beyond the 1% growth averaged since 1975. This rate of growth is inconceivable, even if vastly more expensive sources of supply…were developed at breakneck speed.”

And, of course, this is why China is leading the pack on advanced energy technologies of all sorts to move off of oil and other fossil fuels. Take batteries, for instance: as Thomas Friedman noted in his late September New York Times editorial “Their Moon Shot and Ours”, China will be “providing $15 billion in seed money for the country’s leading auto and battery companies to create an electric car industry.”

Note the choice of words: Beijing is not aiming to merely build companies, but to create entire industries. (Of course, that’s easier said than done, and top-down command-and-control economic dictates don’t necessarily produce success.)

And, note the magnitude of dollars: $15 billion of them, just for electric vehicles (not to mention investments in solar energy, wind energy, etc.). In contrast, according to some comments made at the Cleantech Forum in New York earlier this month by Dr. Arun Majumdar, Director of ARPA-E, the U.S. spends more each year on potato chips than it does on energy sector R&D.

Here in the U.S., we don’t have a lot of disposable dollars either in public or private coffers, and we aren’t inclined to allocate a large share of the little we have to our energy challenges. China has lots of bucks — primarily from U.S. purchases of consumer products — and is flowing a large portion of them to energy technologies. The Chinese can see, as apparently we Americans can’t, that the current energy paradigm isn’t sustainable — even if we loved it and didn’t want it to change. Even though status quo isn’t an option, we Americans seem to think our current system of energy supplies, technologies and economics is a destiny or a right that must be defended.

Why, then, do we need to ask what ABC World News did a few months ago with their story “Clean Energy: Why Is China Ahead of the U.S.?” Why, then, is anyone surprised when they learn about examples such as New Jersey-based solar company Natcore Technology being lured by sizable financial inducements to set up operations in China?

If you want to be at the tip of the spear in advanced energy over the coming decades, you will need a major presence in China. It’s really that simple.

Richard T. Stuebi is a founding principal of NorTech Energy Enterprise, the advanced energy initiative at NorTech, where he is on loan from The Cleveland Foundation as its Fellow of Energy and Environmental Advancement. He is also a Managing Director in charge of cleantech investment activities at Early Stage Partners, a Cleveland-based venture capital firm.