Don Quixote would have a fit if he could see what has become of his native Spain.

In recent years, Spain, as well as Germany and Denmark, have leapt to the forefront of renewable energy technology. In Spain, that means windmills. Lots of them. Some provinces of northern Spain now produce as much as 50% of their electricity supply by farming the wind.

With good reason. Spain this year will get 87% of its energy from oil, gas and coal–up 4.6% since 2004–2% more than the United States. More than 50% of Spain’s energy is imported, comparable with the 60% the U.S. relies on.

But while the problems faced on either side of the Atlantic are much the same, America and Europe have taken different paths toward finding solutions. Neither side can claim victory. Despite a host of initiatives, new technologies and regulations, alternative energy remains a patchwork affair that has done little to offset needs. Increasingly, both sides are looking to the other to see what can be learned.

The guiding principal in Europe has been government mandates. European Union member states are led by ambitious long-term targets to reduce greenhouse gas emissions. Rules also require they develop increased energy capacity from renewable sources.

By comparison, Washington, D.C. still prefers to let technology be the driving force in the quest for low cost alternatives to fossil fuels. While some tax incentives do exist (for ethanol and wind energy), there are no federal energy mandates besides a meager Renewable Fuel Standard passed last year by Congress to boost production of ethanol and biodiesel. Mostly it’s left up to the individual states.

The debate in the U.S. is shifting more Europe’s way. Despite recent declines in prices at the pump, volatile energy costs over the last year and the bloody war in Iraq have made “energy independence” an election-year issue. Twenty-two states now have modest renewable energy laws. The leader is California, which requires that 20% of electricity come from renewable sources by 2010.

But for all its concern over climate change, Europe doesn’t have a lot to show for it yet.

In fact, renewable energy production is dropping in European Union member states as a percentage of total consumption. In Spain’s case it is down from 7% in 2003 to 5.9% last year, according to Antonio Morales, a Madrid attorney focusing on energy issues for Lovells, a large U.K.-based international law firm. That’s about the same as the U.S.

Europe is forging ahead regardless, taking the view that technology will catch up with necessity.

“Europe will lead by example,” said Jonathan Shopley, chief executive of the London-based CarbonNeutral Company, which advises businesses how to manage their carbon ‘footprint.’

Many experts predict the nuclear industry is poised to make a comeback in this environment. Europe and the U.S. both currently rely on nuclear energy for 20% of their total capacity. But neither has built a new nuclear plant in decades, and existing plants are reaching the end of their operating licenses.

So far, 44 of the 104 U.S. nuclear power plants have received licenses for renewal for an extra 20 years. Eventually, virtually all U.S. nuclear plants are expected to apply for license renewal. Some companies are also filing with the Nuclear Regulatory Commission for permission to build new plants. Spanish nuclear power plants are also seeking extensions, though the political climate for new plants is much less favorable.

But, as in the U.S., Spain has yet to overcome the problem of disposing of its nuclear waste. Instead, it pays France to take care of it. The U.S. is still trying to decide whether to go ahead with its Yucca Mountain nuclear waste dump in Nevada.

So far only Finland has gone ahead. Construction of the Olkiluoto 3 nuclear power plant in Eurajoki, may spur other European countries to follow suit. Finland is using a new breed of pressurized water reactor that is being built by a German-French consortium for around three billion euros. The 1,600-megawatt plant, the world’s most powerful, will go on line in 2009.

Perhaps the biggest progress has been in wind energy where Germany and Spain lead the world. The provinces of Navarra and Rioja in the north-east of Spain now rely on wind farms for 50% of their electricity. Wind is projected to supply 16% of Spain’s entire electricity generating capacity by 2010.

Europe’s wind capacity may already be close to topping out, industry experts say. Unlike the U.S., which has vast, remote and unpopulated regions, Europe is already more overcrowded.

Explosive growth of more than 40% this year–3,400 megawatts of new generation is expected–could make the U.S. the world’s largest wind-power market, a new report shows. The U.S. led the world in wind energy installations last year. FPL Energy and GE Energy have expanded rapidly in recent years. This October, FPL Energy will inaugurate the world’s largest wind farm, Horse Hollow Wind Energy Center in Abilene, Tex., with a capacity of 735 megawatts per hour. One megawatt is enough to power 250-300 homes.

“A lot of credit goes to the Europeans,” says Mike O’Sullivan, FPL Energy’s senior vice-president for development. “They got the cost-curve down tremendously in the 90s.”

But wind energy faces obstacles to expansion in both Spain and the U.S. In part that is due to disagreement over a fair regulatory system for access to the grid, as well as the on-again, off-again Tax Production Credit in the U.S. (The current wind energy tax credit of two cents per KW hour, runs out at the end of next year.)

The bigger problem: Despite being the cleanest energy available, some environmental groups object to large wind turbines spoiling the landscape, as well as the impact on migrating birds. Industry advocates call the opponents “Nimsbys,” short for “Not In My Summer Backyard.” Offshore farms, where wind strengths are greater, face similar challenges from marine and fisheries industries.

The bottom line for pollution reduction is also a question. Despite the wind farms sprouting across the landscape, and tough EU mandates, Spain’s “greenhouse gas” emissions have actually risen to 47% above its level for 1990, the international benchmark. Contrast that with U.S. greenhouse gas emissions, which have also risen, but stand only 20% above the 1990 level.

“We don’t fulfill anything. We are at the bottom of the ranking,” said Montserrat Fernandez, an energy official in Spain’s Ministry of Environment. “The goals are very good and very positive, but I don’t think we can come close to achieving them.”