Chinese Energy Innovation Espionage: What’s at stake and what we can do about it ?

Corporate espionage agents from China are ramping up their efforts to target the U.S. energy sector. Left unchecked, this threat poses a threat to our economy, energy security, and energy innovators.

Classic American technology companies are top of mind as the usual intellectual property (IP) victims, with theft patents, trade secrets, trademarks, and copyrights placing them at risk. Large American tech companies, including T-Mobile, Apple, and Tesla, are among the recent victims of Chinese corporate espionage—a problem U.S. companies have been complaining about for decades. But these companies are not alone. One in five U.S. companies claim China has stolen their IP over the last year, and the victimization of our energy sector is increasingly visible.

According to the Department of Justice, China was involved with 90 percent of all economic espionage cases over the last seven years. Although President Obama signed a deal with China to end IP theft in 2015 that appeared to accomplish a temporary lull in theft activity, espionage activity ramped up amid new trade tensions after President Trump took office. China lacks robust intellectual property law due to cultural differences and fiercely competitive global markets coupled with meeting the human needs of over 1 billion people means Chinese leaders resist much international cooperation on ending IP theft.

While IP theft can be accomplished by skilled cyber hackers around the world, recent cases show thieves are likely to be Chinese nationals employed by U.S. companies. An engineer at petroleum company Phillips 66 was arrested in December 2018 for stealing over $1 billion worth of energy innovation trade secrets. He downloaded hundreds of confidential files that contained information about manufacturing a downstream energy market product, and planned to provide it to his new employer in China. Had he been successful, Phillips 66 might have ended up competing against their own innovative technology.

And competing against yourself is a big risk. Beijing-based company Sinovel stole wind turbine technology from U.S. company American Superconductor, allegedly by way of an employee. Sinovel began installing pirated versions of electronic components in the wind turbines it sold, which temporarily left the American company, “in perilous financial shape and written off for dead by Wall Street,” according to NPR. American Superconducter’s revenue plummeted from $100 million dollars the quarter before theft to under $9 million the quarter immediately after the theft. The company had to lay off over 700 American workers, too.

Our historic great American companies are targets for energy innovation IP theft, too. In April of 2019, the U.S. Department of Justice charged a Chinese national and former employee of General Electric Water and Power with economic espionage, alleging he stole intellectual property on the behalf of the Chinese government that would have allowed the Chinese to copy GE’s steam and gas turbine engine technology for electricity plants.

As another example, employees at Tesla and Apple have been accused of selling secrets on electric and autonomous cars to Chinese company Xpeng Motors. Just a few weeks ago, Tesla accused a former engineer of uploading hundreds of thousands of files to his personal cloud storage before quitting in early January. The electric car market is an extension of U.S. energy market. This key part of the U.S. transition to a clean energy economy is also global economic opportunity for America to export cutting edge, zero-carbon automotive technology to the world. Hundreds of billions of dollars are in play along with U.S. global leadership.

While we don’t know exactly how much these cases cost our domestic energy economy as a whole, the U.S. Trade Representative estimates that the U.S. loses up to 600 billion dollars each year from IP theft. We are losing hundreds of billions of dollars each year, as well as discouraging innovation at energy companies since we’re failing to protect them. Some have even called modern IP theft “the greatest transfer of wealth in history.”

These are preventable losses. We’ve taken some small steps in the right direction. IP theft is front-and-center in the Trump administration’s on-going trade talks with China. The Department of Energy has responded by banning recruitment programs they suspect of funneling spies into the country. The U.S. DOJ created a “China Initiative” to hold aggressively prosecute Chinese corporate espionage agents. A good start. But a more effective response would find Congress and innovators in the energy industry working together to kneecap foreign hackers.

Our domestic IP, power grids, and pipelines are vulnerable to cyber hackers—and energy companies’ internal company systems and technology are vulnerable to theft by greedy and disloyal employees. But additional private investments in security can help patch these inevitable vulnerabilities. Public-private partnerships—requiring congressional buy-in and, ideally, a healthy dose of public pressure—will help domestic innovators keep ahead of foreign hackers.

Congress must also do more to encourage energy innovation at home by re-examining regulatory streamlining options. Our bureaucratic red-tape too often sends our energy innovators overseas to complete critical demonstration projects. If we can keep these projects at home with smarter permitting and regulatory approval processes, we can eliminate the risks associated with our U.S. energy innovators being forced to take sensitive projects abroad for demonstration.

The best weapon against these attacks, however, is something we already have in this country: Unmatched ingenuity. We can always use more — but we will only get it if our policies adapt to show our innovators that we will protect their ability to innovate and home and profit off the results of their genius on a global scale.