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[MoneyToday-CEO Column]
September 22, 2009
Expansion of green growth
The Obama administration announced this May that automobiles sold in the U.S. starting in 2016 must have fuel efficiency of at least 15.1 km/l on average. The U.S. automakers, which mainly produce mid- and large-sized cars, expressed shock at the news, saying the standard was far higher than expected. However, the EU is moving even more ambitiously and will require average fuel efficiency of 18.1km/l by 2012, only three years from now.
If the U.S. and EU automakers achieve these targets, the EU automakers will be able to export to the U.S., but the U.S. makers will not be able to export to Europe. The impact of such strong regulation is already apparent. At global motor shows, cars with great design and performance previously garnered the most attention, but now, the stars are electric, hydrogen, and hybrid cars, which are far less polluting and extremely fuel efficient. It is only a matter of time before these technologies become commercially viable and widely used. As a businessman, I sometimes receive requests from policy makers involved in renewable energy for advice. Whenever I receive such request, I reply as follows: “The renewable energy market is still much smaller than the traditional energy markets. For domestic companies to succeed in this new market, they have to secure a certain share of the global market, not the domestic market. Both they and the government should set the target share and devise policies and provide support to achieve the target.” Denmark’s Vestas, the no. 1 wind turbine maker in the world, Japan’s Sharp, and Germany’s Q-Cell, the no. 1 and no. 2 players in the solar cell market, and other EU and Japanese companies were able to claim the global renewable energy market because of sound government policy. In the North American market including the U.S., where oil taxes are kept low, it was difficult for the renewable energy to take root because of the relatively high unit prices for electric power generation. In the EU and Japan, on the other hand, renewable energy has some price competitiveness because oil is taxed heavily and governments have rendered effective financial assistance. Therefore, the renewable energy market was stimulated at an early stage, and companies felt adequately assured to jump aggressively into technology development. The EU nations restrict energy consumption to the maximum by means of a carbon tax and such and guarantee the price competitiveness of renewable energy such as solar, wind, and water power by keeping taxes on oil high. They are also boldly supporting renewable energy in order to raise its share of energy consumption to at least 50%. This is intended to reduce dependence on oil imports to the minimum and move away from the oil-dependent economic system. At the joint WEC and ABAC meeting held in Da Nang, Vietnam last month, François Moisan, the president of the WEC Energy Efficiency Commission, announced a WEC study finding that energy intensity, a measure of the energy efficiency of a nation's economy, has steadily declined and each nation’s purchasing power has increased. This strongly suggests that the widespread belief and argument that regulation for environmental preservation impedes economic development is not in fact true. Harvard Business School Professor Michael Potter put forward the Potter Hypothesis, which states that appropriate environmental regulation facilitates development of technology and helps companies improve productivity. The conventional wisdom is that more stringent environmental regulation would force up costs and reduce economic growth. The hypothesis argues, to the contrary, that companies can decrease energy costs and increase quality by developing environment-friendly technology and thereby raise corporate competitiveness and increase productivity. Though there is skepticism about this hypothesis, it is very persuasive considering the strides that have been made by European and Japanese companies in environment-friendly technology and renewable energy. The Korean government is pursuing low-carbon green growth with firm conviction. I understand that it intends to nurture environmental-friendly and green industries as the nation’s core industries or growth drivers. However, we cannot deny that there is still heavy resistance both in the government and in the private sector. To overcome this, I hope the government suggests a clearer long-term roadmap. When the government shows conviction by suggesting objectives for each area through its policy and specific strategies, I believe the private sector will step up its R&D and facility investment. And in this process, the government will have to more effectively use the carrot and stick, namely, bold regulation and support.
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