Josephine V. Yam

AI Lawyer & AI Ethicist.
Equity, Diversity & Inclusion Specialist.
Climate Change Advocate.


The Varying Effects of Government Policy on the Wind Power Industry: A Comparison between the United States and China

March 2011

This article discusses the major renewable energy policies of the United States and China and compare how effective they have been in developing the wind power industries in these jurisdictions.

The U.S. and China are two of the leading countries in the global wind power industry. This is primarily because their governments have taken central roles in stimulating the growth of wind power as part of their overall national energy strategies towards environmental sustainability (Campbell, 2010).

A. United States

While the U.S. has principally a market-driven economy (Campbell, 2010), governments at the federal, state and local levels have actively promoted renewable energy technologies through various policy instruments (Menza, 2005). The main drivers of wind energy growth have been federal tax incentives, state renewables portfolio standards, concerns about global climate change and continued uncertainty about the future costs and liabilities of coal-fired power plants (Bolinger, 2009). It is important to recognize that states, rather than the federal government, hold important authority for regulating energy facilities and transmission, planning energy system expansions and siting plants. This is more pronounced for wind power because, unlike coal, natural gas, nuclear plants or even energy efficiency programs which can be deployed almost anywhere, wind power is limited to areas where the wind blows (Wilson, 2009).

Two significant policy instruments that have developed the U.S. wind energy industry are the Energy Policy Act of 1992 (EPACT) and the American Recovery and Reinvestment Act of 2009 (ARRA). The EPACT established the Production Tax Credit (PTC), a per kilowatt-hour tax credit for wind-generated electricity (Bolinger, 2009). Because the PTC has gone through several cycles of expiration and renewal, it has created uncertainty in the wind industry for long-term planning and steady market development. The ARRA was enacted as a stopgap measure to the 2008 - 2009 financial crisis by providing more than $45 billion for federal energy efficiency and renewable energy programs (Campbell, 2010). It also provided a three-year extension of the PTC until 2012 (Junfeng, Pengfei, & Hu, 2010).

Indeed, the past decade has seen enormous growth in the U.S. wind power industry. Back in 2000, slightly more than 2.5 gigawatts (GW) had been installed. By the end of 2009, that number had risen to a world-leading installed capacity of more than 35 GW (Junfeng et al., 2010). However, that growth in installed capacity has not been steady. Wind power installations in the first half of 2010 amounting to 1,239 megawatts (MW) have dropped by seventy one percent compared to the same period in 2009 (Junfeng et al., 2010). For the U.S. wind industry, the year 2010 was affected by the low level of wind turbine orders in the aftermath of the economic crisis (Junfeng et al., 2010).

B. China

China essentially functions as a “command and control” economy (Campbell, 2010). The national government, which owns or controls many of the country’s industries and enterprises, sets goals for economic development in the periodic Five Year Plans (Campbell, 2010).

Due to its phenomenal economic growth, coal-dominated energy structure and increasing exports, China has been confronted with severe policy challenges in its quest for long-term sustainable development (Zhao, Hu, & Zuo, 2009). These policy challenges have been caused by China’s rapid urbanization, industrialization and globalization against the backdrop of heightened concern for environmental protection and public health, the threat of energy security and global climate change. Such policy challenges have motivated China to develop, among other things, its vast wind energy resources (Zhao et al., 2009).

The most significant policy instrument that has developed China’s wind energy industry is the Renewable Energy Law of 2006. It has played a crucial role of making China’s renewable energy policy gain an overarching framework (Wang, 2010). Pursuant to this law, China has also instituted specific market policies that have stimulated the commercialization of renewable power projects using feed-in tariffs and renewable portfolio standards. It has also introduced grants and subsidies to enable the industry to invest in wind farms that require vast upfront investment costs with a long payback period. It has also implemented favourable taxation schemes such as the reduction of the value-added-tax and the introduction of special import duties to favour domestic wind turbine production (Zhao et al., 2009).
For the first time in 2010, more than half of all new wind power was added outside of the traditional markets in Europe and North America (Junfeng et al., 2010). This development was mainly driven by the continuing boom in China, which accounted for nearly half of the new wind installations amounting to 16.5 GW. Thus, China has surpassed the U.S. in terms of total installed capacity and has become the world’s largest producer of wind energy equipment (Junfeng et al., 2010).

C. Effectiveness of Wind Energy Policies

In order to assess how effective a country’s wind energy policies are, Karl Mallon’s ten Features of Successful Renewable Markets is a useful framework for such assessment (Mallon, 2006).

The U.S. saw its annual installations drop by fifty percent from 10 GW in 2009 to just over 5 GW in 2010 (U.S. Energy Information Administration, 2011). Using Mallon’s policy assessment framework, it is clear that the lack of long-term, predictable federal policies that provide well-defined objectives and appropriately applied incentives on wind energy development is a major reason for such stark decline (Campbell, 2010). Indeed, U.S. wind development has been characterized by “boom and bust” cycles, which were driven by the passage, renewal and expiration cycles of the PTC (Wilson, 2009). Also, there is a lack of federal climate change legislation that can provide an overarching national policy framework to guide all policy-making on sustainability. Such legislation could set out provisions to increase power generation from renewable energy by establishing market drivers, such as a national renewable electricity standard, which could catalyze U.S. renewable electricity development and encourage venture capital and private sector investment (Campbell, 2010).

Currently, the U.S. has 40,180 MW of installed wind capacity for 2010 (Junfeng et al., 2010). Wind energy now generates around two percent of U.S. electricity needs and renewable energy has provided about ten percent of total national electricity generation in 2009 (U.S. Energy Information Administration, 2011).

In contrast, China has become one of the largest wind energy producers in the world (Zhao et al., 2009) and the world’s fastest growing market for wind energy technology (Wang, 2010). Using Mallon’s policy assessment framework, it is clear that China’s comprehensive and consistent renewable energy policies have provided policy stability, which is a fundamental requirement of market certainty for private sector investment. For example, China’s Renewable Energy Law has provided well-defined objectives, appropriately-applied incentives and an effective contextual framework to create a very robust wind power industry in China. Also, because of its “command and control” governance structure in a centrally planned economy, the Chinese government has been unequivocal about aggressively growing the renewable energy industry by implementing policy measures to produce such an outcome. This in turn has positively affected both the production price of wind energy and the development of manufacturing wind capacity (Junfeng, Hu, Pengfei, Jingli, Lingjuan, Haiyan & Yanqin, 2007).

Currently, China has 42, 287 MW of installed wind capacity for 2010 (Junfeng et al., 2010). Wind energy is generating around three to five percent of China’s electricity needs and renewable energy has provided about twenty six percent of national electricity generation in 2010 (Junfeng et al., 2010).

D. The Outlook for Wind Power

The U.S. estimates that its installed wind capacity could reach 61 GW or greater by 2030 (Campbell, 2010). To achieve this goal, the U.S. needs long-term federal policy stability to ensure that massive growth in the wind industry is conducted in a sustainable and efficient, rather than chaotic, manner (Bolinger, 2009). Thus, the U.S. wind industry has strongly urged President Obama to assert more aggressive governmental intervention to accelerate renewable energy growth through robust federal energy legislation and regulations (Junfeng et al., 2010).

China, on the other hand, has set its national wind energy targets of 90 GW for 2015 and 200 GW for 2020 (Junfeng et al., 2010). To achieve this goal, China needs to continue to demonstrate its strong political will to execute comprehensive wind energy policies that have served as powerful catalysts in the continued trajectory growth of wind power in China (Junfeng et al., 2010).

In conclusion, it is undeniable that the effectiveness of a government’s renewable energy policies is pivotal to the future growth of its wind industry (Mallon, 2006). While the U.S. wind industry has lagged behind China’s in 2010, the U.S. can still play catch up by implementing wind power policies that provide long-term policy stability and market certainty. In doing so, the U.S. may then recapture the wind in its sails to successfully deploy wind power to address climate change while simultaneously addressing the huge energy appetite of its large, energy-intensive economy.


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