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.

"It's not that our technologies were inferior, but we didn't have the public policy or patience to build the industry," says the SEIA's Colin Murchie. While Europeans subsidized solar and wind production, the US offered tax breaks for fossil fuels and has allowed its wind-production tax credit to lapse repeatedly.

When the US did lead on a global environmental issue, however, it translated into a substantial competitive advantage for a number of American manufacturers.

In the mid-1980s, when British scientists documented a huge hole in the ozone layer over Antarctica, Dupont was a leading maker of chlorofluorocarbons, or CFCs, a refrigerant and one of the chief causes of ozone depletion. But instead of fighting to block CFC regulation, the company joined the Reagan administration in leading the global community in a phaseout of CFCs. Dupont soon developed an alternative to CFCs it deployed ahead of competing products, developing a lucrative global market.

The development of new technology that could use one of Dupont's alternative cooling substances, dubbed HFC, helped spawn a new generation of more efficient compressors that have led to refrigerators that use only about a third of the energy they did in the 1970s. The result has been a huge energy savings worldwide.

Of course, green technology represents only a small part of the nation's economy. Gauging whether stricter environmental regulation helps - or hurts - the overall economy is tougher and more controversial.

"We find no evidence that improving environmental quality compromises economic progress," wrote Michael Porter of Harvard Business School and Daniel Esty of Yale University in a 2002 study of leading industrialized nations. That doesn't prove that one causes the other, Dr. Esty is quick to point out in a phone interview. But "there's good reason to believe that there's a connection."

Many economists disagree. "To suggest that there will be all of these savings as [businesses] comply with regulations is just silly," says Paul Portney, president of Resources for the Future, a nonpartisan economic think tank. "It's wishful thinking. I would love it if, when regulating firms, we helped them see all these other opportunities, but it's a hopelessly naive view."

In any case, all of America's green technology isn't lost. For example: US firms, pioneering a nanotechnology that can print solar cells on fabric or plastic to make flexible solar power, could become world-beaters, Mr. Murchie says. But they may only have a few years to do it.

Many countries have tried to boost their competitiveness by supporting research in green technologies. But the results are mixed. For example:

• The United States in the '70s and the '90s increased research funds, but with few long-lasting effects.

• Japan launched its Research Institute of Innovative Technology in 1990 as a research hub. It regularly announces new initiatives, such as biodegradable plastics, that some Japanese corporations have picked up. Critics remain skeptical.

• The European Commission last year launched a plan to boost funding in research in fuel-saving engines, soil-cleaning techniques, and other Earth-friendly technologies. It's too soon to judge its lasting impact.