For economic growth, tougher environmental laws?

When tiny Clipper Windpower builds its first factory, perhaps this year, it will automatically become America's second-largest manufacturer of wind turbines. The Carpinteria, Calif., company even has a hot new technology that should be a sure thing.

But it's still hunting for financing because being a wind-turbine builder in the United States is tough, so tough that only one other US manufacturer exists.

In 20 years, the US has gone from leading the world in wind-energy manufacturing - with at least a dozen enterprising firms - to lagging badly. Companies in Germany, Denmark, Spain, and elsewhere have grabbed the technological lead and now hold roughly 80 percent of a $8 billion market that's growing 25 to 35 percent a year.

The reason? Some experts point to lax clean-air laws in the US. That's right. Weak environmental regulations may hurt, not help, industries by blunting their technological edge. Such contrarian logic, controversial among economists, is about to be put to the test.

By not signing the Kyoto Protocol, the US has set itself apart from most of the industrialized world. So will its companies flourish, thanks to lower environmental costs - or lose out to foreign firms that cut greenhouse gases?

When it comes to green technologies, some contend the record is pretty clear.

"There are major technological and competitive benefits in getting to clean up your act," says Amory Lovins, who heads the Rocky Mountain Institute, an energy and environment think tank in Snowmass, Colo. "By passing on Kyoto, the US will reduce its competitive advantage compared to overseas firms paying attention to carbon reduction."

Consider air-pollution controls, known as scrubbers. After the 1970 Clean Air Act mandated that about a third of power plants clean up their emissions, the US scrubber industry became a world leader. American companies became the first large exporters of scrubber technology to other nations, industry experts say. But after a fast start, the industry stagnated during the 1980s as many power plants were able to avoid scrubbers. When tougher laws went into effect in the '90s, the industry perked up.

Meanwhile, Germany and Japan implemented strict air-pollution laws that kept getting stricter. Today, Japanese, German, and Danish companies have pioneered technologies while some experts say the US lags in key areas.

"The country that's first with the toughest regulations becomes the biggest net exporter of pollution-control equipment," says Robert McIlvaine, an industry analyst. For example: Germany and Japan have been requiring power plants to reduce nitrogen oxides (NOX) for at least 20 years. Result: German and Japanese firms have a big edge today in the lucrative market for selective catalytic reduction technology. Now that NOX regulation has come to the US, American pollution-control companies are sometimes forced to license or purchase crucial anti-NOX technology from Japanese, German, or other foreign firms, Mr. McIlvaine says.

Something even more dramatic has happened in solar photovoltaics. Solar cells, which convert sunlight into electricity, were invented and pioneered in the US. A domestic industry began growing rapidly. As recently as 1997, the US still led the world in solar panel production.

Today, though, the US makes only about 10 percent of global solar panel output, says the Solar Energy Industries Association (SEIA), a trade group. Major subsidies and other government incentives in Japan and Germany created the markets and the technological, manufacturing, and cost advantages to those countries. Many US solar panel installers now buy Japanese modules.

1 | 2

Next