In the wake of House’s failure on Monday to pass legislation to help alleviate the credit crisis, America’s economic outlook looks pretty grim at the moment. Even before the recent bank failures, there were other fundamentals in the American economy that have been leading to some serious problems. The dollar has weakened in value, factories are closing down, energy prices are skyrocketing, and unemployment is slowly creeping up. The economy looks bad enough right now that some commentators have gone as far as to say that the days of American economic dominance are over.

It doesn’t have to be that way. That’s because while the economic crisis is brewing here and abroad, there’s another crisis brewing, too: an environmental crisis. The effects of climate change are becoming more apparent as more of the polar ice caps melt, hurricanes are on the rise, and droughts are popping up in formerly wet areas. Water shortages are becoming more common, and pollution is still an increasing concern, especially when it comes to the oceans.

Despite the dire nature of both of these trends, the fact is that America’s current economic crisis has uniquely positioned the United States to rebuild its industrial capacity–by embracing environmental technology. All of America’s economic problems–high energy prices, weak currency, and closed factories–are in fact assets which could be used to reposition America as an industrial power again.

Higher Costs Increase the Demand for Efficient Technology

High energy costs have increased costs to businesses across the board for everything. As a consequence, more and more businesses are turning to greener technologies as a way to reduce their costs. This look to green tech has begun to lead to an influx of capital into the industry, as represented by the fact that more and more green tech companies are going public and attracting investors. This influx of capital into green markets is a golden opportunity for American manufacturers to expand their focus to green technologies and techniques.

In addition, high energy costs are leading to a boom in the alternative energy industry. The Solar energy industry grew by 57% last year, and more and more solar projects are popping up everywhere. In addition, other types of energy technology, such as wave power, are the targets of innovation by niche companies such as Ocean Power Technologies. As environmental regulations maintain restrictions on the use of coal and oil prices continue to stay high, this trend is unlikely to go away anytime soon.

America Has a Competitive Advantage Over the Developing World in Manufacturing Green Products

One interesting aspect about the manufacturing of green technology is that, in many cases, it’s simply easier to manufacture in the United States than it would be in developing countries. The manufacture of solar panels, for example, is an intensive process which requires a strong infrastructure, clean rooms, a more educated workforce, and other commodities that are already present in the United States. The United States remains a world leader in a lot of specialized, high-tech manufacturing, and green tech is no different.

Additionally, with factory closings on the rise in recent years, America possesses a lot of excess industrial capacity (and a lot of displaced persons who are skilled in manufacturing). As green tech matures, there’s no reason why some of these factories–and the people who used to work in them–can’t be co-opted for newer, more productive uses.

The Declining Value of the Dollar Makes American Exports Cheaper

Over the past several years, that dollar has been declining in value against most other world currencies, including the British Pound, the Euro, and even the Canadian dollar (indeed, less than a year ago, the American dollar was worth less than the Canadian dollar). While this might seem bad at first glance, it’s actually a great deal for American manufacturers–it means that American exports are now cheaper. This is especially true in developed nations in Europe, as the dollar right now is worth only about 1/3 of the Euro. Given the greater emphasis currently placed in Europe on the marketing and purchasing of Green Technology, the weak dollar actually provides a great incentive for American companies to get into those markets by being able to undercut the prices of European products.

The Way Forward

Given the situation before us, it is imperative that American businesses seize the reins of the Green Tech Revolution and take control of it so that the United States can once again be a dominant industrial power–only this time in the manufacture of environmentally friendly technologies. To that end, it is imperative that federal and state governments begin removing market distorting subsidies and provide incentives for the development of greener technology.

One of the first thing that governments can do is to eliminate all subsidies on coal, oil, natural gas, and other “dirty” tech. These prices should be allowed to rise to their natural market level so that green tech can compete on an even playing field. Lifting of these subsidies should also include the practice of state and federal governments of allowing fossil fuels to be removed from public lands royalty-free, a practice which has occurred several times in recent years.

Governments should also offer tax incentives for manufacturers who are willing to move into and renovate previously abandoned factories if they convert those facilities into factories capable of manufacturing green technology. However, these incentives should not include subsidies, as those would distort the market further. Additionally, existing subsidies on green tech–especially ethanol–should be lifted as well. Let the free market determine which green technologies are the most useful and efficient. The use of subsidies might end up supporting industry movement into technologies which aren’t as promising as other, less politically influential ones.

Although the American economy looks weak now, all of the pieces are now in place for America to revitalize its economy and help solve the environmental crisis at the same time. The question then, is simple: is America bold enough to take that chance? Let’s hope so.