President Bill Clinton was interviewed this week on The Daily Show about his new book, “Back to Work: Why We Need Smart Government for a Strong Economy.” Of particular note, the President pointed out that government’s role right now is to create jobs through the right policies.
He suggested the opposite may be happening when he said; “There is no correlation between the amount of corporate tax that companies pay and whether they’re creating jobs in America. The countries that are doing great have a partnership between government and business.”
Hard to disagree.
He also noted that manufacturers all over the world want research and development to be near their manufacturing facilities. He said, “ We have a huge chance to do that.” To do so, the President “…would keep the research and development tax credit and eliminate the others.” He referenced Germany as an example of a country whose incentives has netted 300,000 jobs in clean tech and solar over the years.
President Clinton deduced that because the U.S. is four times the size and twice as sunny, we could implement the same program and create 2.5 million new jobs. He concluded the interview by saying, “…I don’t mind giving people tax credits, but it ought to be to generate jobs and opportunity in America.”
Manufacturing vs deployment
But, the reality is that there are two kinds of clean tech jobs: manufacturing and deployment.
While the U.S. remains the global leader in research and development, it has been unable to match the industrial policy of Germany, China, Malaysia, Taiwan, Japan, Vietnam, and others. It means that the one-off tax incentives and grants deployed recently in the U.S. are unlikely to create massive American manufacturing jobs in clean tech.
Why? Once an R&D manufacturing facility has “perfected” a manufacturing method, the jobs will be filled in a country with a sustained effort around industrial policy — as they should. The cost is less.
This is much more than just incentives for the actual plant. The incentives include training for labor, low-cost electricity and input costs, and low-cost debt for the rest of the plant financing. We can argue about whether this is a trade barrier, but the reality is that China is not the only country doing this – there are several.
On the other hand, service and deployment jobs continue to grow in America and are sustainable. These are the jobs, for example, where a solar facility is fabricated on site –- like a rooftop. These jobs are needed in-country and cannot easily be outsourced to an overseas workforce.
Keep in mind, there is interdependence between the manufacturing jobs in China and the deployment jobs in the U.S.
To increase the number of deployment jobs, we actually need the manufacturing jobs to go to the lowest-cost producer to drive down the cost. The difference between solar panel costs of $1.10 and $1.40 per Watt is substantial. This can mean a 15 percent difference in the electricity price to the consumer – enough to make or break a deal.
It’s about deployment
I co-authored a recent opinion piece in Politico that “cost reduction has helped create a U.S. solar industry that employs more than 100,000 Americans, with growth rates that far outpace the general economy. The vast majority – about 75 percent – of solar’s job and value creation is in project development and installation.”
When we decided to pursue globalization many years ago, we agreed to let countries and private capital focus on their core competencies. China shares our addiction to coal and is working with us to drastically reduce the costs of installing solar power so that we can achieve cleaner air and water. With 7 billion people on the globe, we have to find ways of meeting our growing demand for electricity with cleaner sources at scale.
So the key question is, how do we deploy the lowest-cost, sustainable fuel sources to meet our energy needs?
And, how do we measure the cost on a level playing field?
I ask about a level playing field because, right now, the playing field is not level. For example, U.S. government incentives for nuclear, oil, coal, gas and fossil fuels add up to more than $380 billion over the next five years, according to the bi-partisan Green Scissors report.
While we need incentives to incubate new technologies to reach the scale necessary to reduce costs, we do not need to incentivize proven existing technologies.
So, I agree with President Clinton. We need Smart Government. But where I disagree is that we have limited funds for incentives, so we have to focus on our core strengths. For us that is innovation and deployment.
So while I would love to get clean tech manufacturing jobs here near R&D facilities, I do not think these manufacturing jobs will have the staying power of deployment jobs. With limited funds, over incentivizing manufacturing jobs for clean tech is not Smart Government for the U.S. We can pursue both, but be realistic about the outcome.
Innovation and deployment will create millions of jobs in the US as we replace our 50-year old infrastructure with the best that American ingenuity has to offer. We just need Smart Government to set up a level playing field and then let the most cost efficient energy fuel sources win. It is how Americans can leverage their core competencies to meet our energy needs and win the future.
Jigar Shah is the CEO of the Carbon War Room, a nonprofit that harnesses the power of entrepreneurs to implement market-driven solutions to climate change and create a post-carbon economy. By bringing project finance and growth capital together with infrastructure entrepreneurs, corporations, governments and nongovernmental organizations (NGOs), he identifies and eliminates market barriers, driving environmental improvements alongside economic growth.
Shah founded SunEdison in 2003 with a new business model, the solar power services agreement business (SPSA). The SPSA uses mature technologies and required no new legislative action. The SPSA model launched solar services into a multibillion dollar industry. SunEdison now has more solar energy systems and megawatts under management than any other company.