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Cleaning up China: Opportunities Beckon for U.S. Businesses

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U.S. Treasury Secretary Henry Paulson goes before the Senate Banking Committee on January 31 to detail the state of his recently launched U.S.-China Strategic Economic Dialogue between key government officials in Washington and Beijing. The committee members should be sure to ask Paulson about his plans for promoting business opportunities for U.S. green technology companies in China.

Back in December, when Paulson made his first trip to China for the Strategic Economic Dialogue, we noted in a column in the Washington Post that U.S. businesses could profit handsomely from a country that increasingly realizes it must go green—if only the Bush administration would see the wisdom of promoting the products and services of U.S. green technology companies to China. Well, very little has changed since then except this: Paulson’s boss has since then embraced the fact that global warming is a serious threat to humanity.

That, in turn, means that President Bush, Paulson, Congress and America’s green technology companies can now all row in the same direction when it comes to helping China help itself and the planet combat climate change. If the Bush administration is serious about finding innovative ways to reduce carbon emissions and promote clean energy—and if it is serious about its intentions to help reverse the mammoth U.S. trade deficit with China—then the Strategic Economic Dialogue is a promising place to begin.

The U.S.-China Strategic Economic Dialogue counts energy and the environment among its planks, which is a good launching pad for a new export promotion initiative. Paulson could pave the way for green technology to become as successful a U.S. export to China as airplanes and software by striking an agreement with his Chinese counterpart to facilitate such transactions.

How? For starters, he could commit to negotiating the necessary changes to the existing OECD financing arrangement in order to extend the loan repayment time for clean energy projects. The Chinese government in return could offer greater access to its clean energy market by agreeing to abide by the terms of the World Trade Organization’s Government Procurement Agreement for alternative energy projects. This would make American companies eligible to provide significant inputs for China’s burgeoning wind farm and solar power industry, among other things.

If Paulson set something like this in motion, he could then compel Congress (Republicans and Democrats alike) to work constructively together on an issue that should make both the business and environmental communities pleased: How best to promote the sale to China of green technology that is made in the U.S.A.

Members of Congress this week should ask Paulson why he hasn’t made such a move, and then encourage him to do so by requiring that the U.S. Export-Import Bank (which currently provides billions of dollars each year of financing and credit to export American products) allocate a fixed percentage of all of its financing solely to clean energy projects. Furthermore, the Export-Import Bank could offer extended loan repayment time, reduced requirements for local financing, and the opportunity to forge joint partnerships with private banks to leverage additional assistance.

The global market for green technologies is not waiting for the United States to act. Now is the time to invest in the development of a domestic clean energy industry that can outperform its international competitors and capture a large share of this rapidly growing market. This is how America can work towards getting its trade deficit back into the black, and how we can help China to get into the green—for the good of both nations and everyone else around the globe.

Paulson and Secretary of Energy Samuel Bodman are well aware of the challenges posed by China’s voracious appetite for fossil fuels. A recent report by the International Energy Agency projects that China will overtake the United States as the world’s worst carbon emitter by 2009, thanks in large part to its reliance on environmentally caustic coal-fired power plants for electricity. Last year, China built approximately 75 such plants, and it will continue to build them at a rate of almost one per week for years to come. The carbon shadow of these plants stretches for decades into the future and their pollutants already reach across the Pacific.

China, like the United States, is not bound by any international commitment to reduce its carbon emissions, but there are signs that Beijing has begun to recognize the dangers of fossil fuel dependence and the resulting environmental damage. China’s latest Five Year Plan on national priorities and goals places unprecedented emphasis on environmental sustainability. Moreover, there is growing awareness that its energy security will be enhanced by diversifying away from fossil fuels.

China’s interest in clean energy presents an enormous business opportunity as well as an environmental one. Unfortunately, it is an opportunity that the United States has not yet fully seized. A study released in October by former World Bank Chief Economist Nicholas Stern on the economic impact of climate change calculated that the markets for low-carbon energy projects will be worth at least $500 billion by 2050. In other words, combating global warming is not only an environmental necessity, but a vast economic opportunity.

Some U.S. investment companies are beginning to take notice. Morgan Stanley recently announced that it plans to invest some $3 billion in the carbon trading market and other clean energy related projects. But if the United States does not do more to promote the development of our domestic clean energy sector industry, it will find that its international competitors will be the ultimate beneficiaries of this new market.

Denis McDonough is a Senior Fellow at the Center for American Progress. Peter Ogden is the Center’s program coordinator for National Security and International Policy.

To learn more about the Center’s alternative energy and environmental initiatives please go the Energy and Environment web page on the Center for American Progress web site.

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