In an attempt to advance the “new Sputnik” narrative, the Obama administration filed a complaint with the World Trade Organisation against China over its clean energy subsidies in the last weeks of 2010.

The administration’s move comes just months after the United Steelworkers (USW) union filed a trade case with the office of United States Trade Representative. The earlier USW petition argues that China’s generous subsidies and land grants, available only for locally made parts, constitute preferential treatment of its domestic clean energy manufacturers. The current practices, the USW argues, disadvantage American firms and are trade distorting.

Over at Grist, Lucia Green-Weiskel and Tina Gerhardt write that:

“Both complaints ignore the fact that energy industries all over the world benefit from government subsidies. In the U.S. and Europe, the nuclear and fossil-fuel industries get massive public subsidies. And as a percentage of GDP, Spain and the U.K. pump funding at levels similar to China’s into green subsidies.”

While this critique is correct, ultimately it doesn’t really matter whether or not the WTO rules in favor of America. The whole exercise helps to focus attention on the “new Sputnik” narrative that appears to be gaining momentum.

In a recent speech, President Obama carefully positions China as a modern equivalent of the Soviet Union before riffing on the Sputnik theme and evokes the Cold War era space race:

“In 1957… the Soviet Union beat us into space by launching a satellite known as Sputnik. And that was a wake-up call that caused the United States to boost our investment in innovation and education – particularly in math and science. And as a result, once we put our minds to it, once we got focused, once we got unified, not only did we surpass the Soviets, we developed new American technologies, industries, and jobs.

So 50 years later, our generation’s Sputnik moment is back. This is our moment. If the recession has taught us anything, it’s that we cannot go back to an economy that’s driven by too much spending, too much borrowing, running up credit cards, taking out a lot of home equity loans, paper profits that are built on financial speculation. We’ve got to rebuild on a new and stronger foundation for economic growth.”

High profile administration officials have reiterated this sentiment. Time and time again, Nobel laureate and Secretary of Energy Steven Chu speaks of the “Sputnik moment.” Most recently, the President’s chief advisor on science and technology John Holdren discussed the theme after the passage of the US COMPETES Act.

The WTO complaint against China could create impetus for investment-centered energy legislation in the next Congress. Given that deficit reduction and austerity measures are a key priority of the Republican majority in the House of Representatives, large public investments in clean technology innovation and deployment will require strong public support to pass the House. The US/China clean technology trade dispute is a useful leverage point for proponents of this agenda. In the current political landscape it forms the foundation of a case for fighting fire with fire, or rather, investments with investments.

As Green-Weiskel and Gerhardt suggest at Grist, “If the U.S. wants to get serious about renewable energy, it should ramp up its own subsidies for clean technology, not quibble over China’s.” Given that China-based companies now dominate the production of wind turbines and solar panels—they were on track to make 39 per cent of the former and 43 per cent of the latter sold worldwide in 2010—perhaps the US would be best served by investing in cleantech innovation.

The United States has a proven track record with technology innovation. With strategic public investments it is the best candidate of any nation to produce the next wave of clean technology breakthroughs. This thinking underpins the joint Breakthrough Institute, Brookings Institution and American Enterprise Institute report Post Partisan Power, which sets out what an innovation-based climate and energy policy would look like.

Post Partisan Power recommends increasing federal investment in energy innovation from US$4 billion to $25 billion each year with the aim of making clean energy cheap. A four-part reform framework to empower America’s energy innovation system would accompany increased investment.

  1. Invest in energy science and education
  2. Overhaul the energy innovation system
  3. Reform energy subsidies and use military procurement and competitive deployment to drive innovation and price declines
  4. Internalise the cost of energy modernisation and ensure investments do not add to the national debt.

The passage of legislation that would increase public investments to $25 billion annually is a heavy lift. This is where the administration’s support for the WTO challenge is helpful. Democratic and Republican representatives can present China’s clean energy subsidies as a clear rationale for the need to invest and reform the American energy innovation system.

In 2011, we will see whether President Obama wins enough bipartisan support to turn the “new Sputnik” narrative into an opportunity for a national economic renewal. If successful, Obama and the US Congress will turn the latest trade dispute with China into an economic, environmental, and energy agenda that is good for America and the world.

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Leigh Ewbank is a former Breakthrough Institute Summer Fellow. You can follow him at his blog “The Real Ewbank“.