The US can build a durable competitive advantage in clean technologies and generate significant economic benefits in the process—creating jobs, achieving national energy security and sustainability goals, and catalyzing the global adoption of key green solutions. The opportunities and challenges differ from one set of technologies to the next, however, and they will require different approaches, according to Two Paths to US Competitiveness in Clean Technologies, a new BCG report which expands upon a previous study into US competitiveness in clean tech. Both reports were commissioned by Breakthrough Energy and Third Way.
Here’s what our latest report found:
Tax credits and other financial incentives in the Inflation Reduction Act (IRA) and the Infrastructure Investment and Jobs Act (IIJA) have provided significant support for US investment in these technologies—in some cases making domestically manufactured systems substantially cheaper than imports.
However, for the US to achieve strong market positions across all four technologies, policymakers and companies must build on this recent legislation. They should take targeted actions that support the varying needs of these technologies, including tackling infrastructure bottlenecks, streamlining permitting processes, and accelerating investment plans.
Our analysis of these four technologies builds on our previous report, which examined the market opportunity for US companies in six complementary technologies: electric vehicles, clean steel, low-carbon hydrogen, long-duration energy storage, direct air capture, and advanced nuclear small modular reactors. For each of the ten technologies, we examined the market opportunity available to the US and its current competitive position at a value-chain level. This allowed us to identify specific areas where the US would benefit most from building a strong presence.
We estimate that the global market for all ten technologies could total $130 to $140 trillion between now and 2050. Of this figure, the serviceable addressable market (SAM) for US companies—in other words, the cumulative market for these technologies domestically and in countries where US exports are most feasible—could be worth $100 to $110 trillion over the same time period. The ten technologies could also avoid or capture about 30 gigatons per year of greenhouse gas emissions by 2050, equivalent to nearly 60% of total annual emissions worldwide. (See Exhibit 1.)
Our market projections are based on the IEA’s Announced Pledges Scenario (APS), which assumes that governments will meet their current emission reduction commitments in full and on time. This scenario is the most likely of three IEA emission reduction outlooks (the other two being stated policies and net-zero emissions).
Within the US, we estimate that the domestic market for US companies in solar PV, offshore wind, geothermal and CCUS—the focus of this report—could be worth a combined $3 to $4 trillion between now and 2050 and create up to 800,000 new US jobs, roughly equal to the chemical manufacturing industry’s current US workforce. They could also generate $25 to $30 billion for the US in annual export revenues in 2050, which is about the size of US grain exports in 2020. Because the opportunities and challenges of these four technologies differ, we have divided them into two separate groupings.
Today, foreign companies dominate global solar PV and offshore wind markets, including that of the US. Over 85% of solar PV manufacturing capacity belongs to lower-cost competitors in China and Southeast Asia; while in offshore wind, the European Union, the UK, and China are responsible for over 95% of manufacture and installations. The US, by comparison, imports around 90% of solar panels and its domestic offshore wind capacity is negligible compared to Europe and China. (See Exhibit 2.)
Increased political will in the US and recent legislation are set to change that. Provisions in the IRA will make domestically produced solar panels up to 30% to 40% cheaper than imported ones, reducing the costs of generating solar energy and supporting a significant expansion in deployment. Similarly, IRA provisions support the domestic manufacturing of offshore wind components and address supply chain bottlenecks through funding for port upgrades and installation vessels. These measures are designed to help the US achieve the Biden administration’s goal of creating 30 gigawatts of offshore wind capacity by 2030, putting the US on par with leading countries.
By developing its own domestic capabilities in these two areas, the US can meet growing demand at home and serve a small number of nearby export markets. (As shown in Exhibit 1, we estimate that the proportion of the global market accessible to US players is 25% to 30% for solar PV and 20% to 25% for offshore wind, below other clean technologies.) To seize this opportunity, US players should start by targeting those areas that offer the greatest potential.
Areas to Prioritize for Solar PV. According to our analysis of the solar PV market, solar manufacturing, polysilicon production, and project development should be priority areas for the US, based on the possible market size of these areas and the competitive advantages they offer.
Areas to Prioritize for Offshore Wind. In offshore wind, we believe the US should prioritize component manufacturing, engineering, procurement, and construction (EPC) and operations and maintenance (O&M). Each area offers a sizeable market opportunity where the US can develop a durable competitive advantage.
Key Steps for Building Competitive Advantage. IRA and IIJA incentives help to tackle the significant cost issues that have prevented US companies from competing effectively against foreign competitors in solar PV and offshore wind markets. But policymakers and companies need to address structural challenges to maximize the potential benefit from these incentives and improve long-term competitiveness. Here are our top measures for urgent action in these markets:
The US is currently a global leader in geothermal energy and CCUS. While global deployment of these two solutions is limited today, technical innovations, cost reductions, and favorable policies are likely to accelerate the use of both technologies. The US can build on the impetus created by IRA and IIJA legislation, using techniques from the domestic oil and gas industry and its own technological prowess, to strengthen its leadership position in geothermal energy and CCUS, catalyze demand, and capture export revenues.
Geothermal energy stands at an inflection point, with new technical developments set to transform it from a niche to a central decarbonization solution. As well as providing clean heat and power, geothermal wells could be an important source of lithium and other valuable minerals, creating additional opportunities for US players. However, the US will need to invest in new geothermal approaches to maintain its lead over competitors in East and Southeast Asia.
The US faces similar challenges in CCUS. Domestic deployment in China and other large economies is expected to overtake that of the US unless it builds on its first-mover advantage by investing in next-generation capture techniques and strengthening access to foreign markets. (See Exhibit 3.)
Areas to Prioritize for Geothermal Energy. According to our analysis, project development, EPC, and advanced equipment manufacturing are priority areas for the US to build a durable competitive advantage in geothermal energy.
Areas to Prioritize for CCUS. We’ve identified EPC, project development, and equipment and chemical manufacturing as priority areas for the US to build a durable competitive advantage in domestic and export markets for CCUS.
Key Steps for Building Competitive Advantage. Recent legislation makes many more CCUS projects commercially viable in the near term. It also marks a significant and positive shift in how policy makers treat geothermal energy. However, additional steps are needed in several areas to prevent other countries from seizing the US’s position as global leader. Here are key areas for urgent action:
In addition to the technology-specific actions examined above, several enablers will be important across all four technologies to accelerate deployment, drive down costs, and permit US players to benefit from the lessons learned during development. On the demand side, these include actions that boost demand for green technologies, either through incentives that reduce their cost or disincentives that raise the cost of greenhouse-gas-emitting alternatives. As policymakers address how IRA and IIJA provisions will work in practice, we expect to see greater clarity on the use of both these measures—for example, through more details on which players qualify for various solar-PV or offshore-wind tax incentives.
On the supply side, the enablers include actions that allow US players to boost competitiveness by building economies of scale. By streamlining burdensome permitting processes, for example, policymakers can facilitate the development of CCUS hubs, which allow permitters to reduce the expense of deployment by sharing infrastructure, and geothermal wells on greenfield sites. Similarly, through targeted research, investing in demonstration and commercialization initiatives, and by rebuilding domestic manufacturing capabilities, the US can maintain its global leadership position in IP and innovation—another important supply-side enabler (See Exhibit 4.)
The market opportunities available for the US in solar PV, offshore wind, geothermal energy, and CCUS differ significantly. US players have a chance to reclaim the domestic market in solar PV and offshore wind, while in geothermal and CCUS technologies they can maintain a leadership position not just at home but globally. The incentives included in recent legislation are an essential first step to boost US competitiveness in all four. But policymakers and companies need to go further. They need to focus on those areas of the value chain with the greatest potential and use a mix of targeted actions and more general enablers to fully unlock the opportunities ahead.
Click here to see Third Way’s materials on this effort, along with the complete appendix for the report.