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Ernst & Young: China Widens the Clean Energy Gap

There's a new world order in the clean energy sector and China is leading the way, according to Ernst & Young's Global Renewable Energy Attractiveness Indices report. The upshot? Confirmation of what U.S. cleantech and venture capitalists have been warning about for some time: China is dominating the clean tech sector in terms of spending, research and development and attracting investors. And that means the U.S. and Europe are not.

China's rise in the clean tech sector isn't exactly surprising. China has spent aggressively in all energy areas and this is the second consecutive quarter that it has topped the Ernst & Young report, which tracks the relative attractiveness of 30 countries' renewable energy markets each quarter. What's more interesting and surprising is what this "new world order" is starting to look like.

The U.S, which held the top indices spot between 2006 and the first half of 2010, has continued to slide and is now five points behind China. Meanwhile, four new countries -- South Korea, Romania, Egypt and Mexico -- have entered into the rankings primarily due to the growth in their solar and wind markets. A shift is clearly underway and its leaning heavily towards Asia and other developing countries and away from Western Europe.

China's record spending The U.S. still leads in solar, geothermal and biomass, but China has far surpassed us in the onshore and offshore wind sector and in total infrastructure. Here's a little tidbit that puts China's aggressiveness in perspective: China spent about $10 billion on wind energy in the second quarter -- that's nearly half of the total global investment.

Why the U.S. is faltering The U.S. is being dragged down by some factors out of our control, namely continued fallout from the financial crisis and low gas prices. But its continued fall in the Ernst & Young indices report also is due to an highly uncertain policy environment, including a lack of optimism that Congress will pass legislation that establishes a federal renewable energy standards and that lawmakers won't extend soon-to-be expired tax credits of the renewable energy industry.

The U.S. cleantech industry also has to compete not just with the China's record levels of investment, but its low production costs. The cost of producing equipment such as solar panels or wind turbines in China is estimated on average 30 percent lower than more developed countries.

So what's to be done? At the moment, there's lots of rhetoric and not a lot of action at the government level.

The U.S. Energy Secretary Steven Chu just this week warned that China's dominance of the clean energy was our "Sputnik moment." And the EVCA, Europe's largest private equity and venture capital industry association is pressing governments within the EU to take stronger action, according to the FT.

And with the year coming to a close and a lame duck congressional session underway, it's unlikely Chu's "call to action" will turn into action.

Photo from Flickr user peruisay, CC 2.0