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Dear America: The energy transition is a global story, does not revolve around us and it will not wait



2024 began with the IEA reporting record renewable installations during 2023, above the forecast they projected at the beginning of 2023. This continued a familiar pattern over the last decade, in which every year, the actual reported renewable installations exceeded the IEAs forecast from the beginning of the year.  Further, 2023 also ended with record EV sales and battery storage installations.  These signs point to the ever-growing nature of the energy transition.  Yet, the US, for being such a global powerhouse, only ranks two or three in installations or sales.  Renewable energy and battery storage are consistently crushing installation expectations without the US as the leading force.      

   

The IEA forecasts provide clarity around the US impact, or lack thereof, on total renewable energy generation additions.  Specifically, over the past few years and projecting out to 2028, the US accounts for slightly more than 10% of global installations. Discussions concerning renewable energy in the US would make it seem that we are a make-or-break country for renewable energy, but that clearly is not the case. When it comes to manufacturing capacity for solar panels, the US dips below 10% of global capacity. A world led by China is quickly moving in the direction of renewables as the most cost-effective form of energy and is not waiting for the US to decide to take part in the global megatrend.


The rise of battery storage and electric vehicles is a similar story. While the discussion in the US revolves around whether these technologies will take off, growing areas around the world are busy discussing how quickly the technologies are becoming the main growth driver for new vehicle sales and energy storage. Again, for all the talk of global importance, the US accounts for less than 10% of electric vehicle sales and battery manufacturing globally. These less than impressive statistics for the US lead to one place: The Inflation Reduction Act.


The Inflation Reduction Act has been described as either a way for the US to help save the planet and invest in growth industries or as a pointless boondoggle that is just giving money to the green lobby.  Both assertions miss the point of the Inflation Reduction Act; to keep the US relevant in terms of manufacturing as it relates to two of the largest sources of demand for manufactured goods: energy and transportation systems of today and tomorrow.   Renewable energy now attracts more investor capital than upstream oil and gas. The lead in investor capital should only grow as the rate of installations continues to rise.  As it relates to cars, EVs continue as the only form of vehicle showing demand growth.  The incentives in the Inflation Reduction Act are an avenue to attract capital to manufacturing in the US with the goal of keeping the US competitive and relevant in the new energy world. 


The need to stay competitive is especially relevant when discussing the largest global power miles ahead of the US in terms of these growth markets: China.  China has dominated solar, battery and EV manufacturing and investment.  China accounts for 50% of renewable and EV investment and up to 90% of certain solar parts manufacturing capacity.  For over a decade, China has created a clear policy to support renewable technologies, compared to the stop and start approach of the US. Over that time, China also invested in its manufacturing base to scale technologies. They viewed renewables as an economic opportunity, as most research showed at scale the technologies would be the cheapest form of energy and transportation. This investment has started to blossom for China. Demand for solar panels, batteries and EVs has boomed as the technologies became the cheapest form of energy and transportation.  This has helped the Chinese economy as it faces major headwinds from its overinvestment in real estate.    


Renewable energy, batteries and EVs have long been pushed for environmental reasons; now, the decarbonization and energy transition is being pushed by economic forces. The Inflation Reduction Act is a potential Rubicon moment for the US: Does the US want to stay relevant as a manufacturing power by embracing the IRA and the economic forces it represents or does the US want to become an also-ran and talk about the good old days because it failed to invest in the future? As someone living in the Rust Belt, I so often hear about foreign countries’ cheating leading to job losses, when that was just the simple excuse for bad domestic policy. The US needs to stop being so parochial and instead focus on how to compete as the world changes and avoid the job losses that come with betting on outdated and inferior technology.  The world will not wait and is not waiting for us; the energy transition does not depend on what we do. 


I close with a quote from the Qianlong Emperor to the emissary from the UK in 1792 when the UK was trying to open trade relations with China, “Our Celestial Empire possesses all things in prolific abundance and lacks no product within its borders. There is therefore no need to import the manufactures of outside barbarians in exchange for our own produce.”  China paid a huge price for its arrogance.  Within a few decades of this meeting, China’s lack of investing in new technology, and expansive foreign competition would begin a structural decline in China that has taken over two centuries for its economy to recover.  Today, the US can avoid this fate and choose to embrace renewables, batteries and EVs and allow economic trends to power us into a fruitful new energy world.      

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