China Doubles Down on Green Tech and the Energy Transition

Stuart P.M. Mackintosh

WASHINGTON, DC – Amid an onslaught ofgrim climatenews, China’s recent decision topursuea faster green transitionis a rare bright spot. In early March, at the annual National People’s Congress, Premier Li Qiangannouncedthat the country would accelerate investment in clean-energy projects. The plan is for a“new trio”of industries – solar panels, electric vehicles (EVs), and lithium batteries – to drive economic growth, replacingthe “old trio” of clothing, furniture, and appliances. Although investment in the targeted industries will not be enough to reverse the country’songoing economic slowdown, the West should appreciate the implications of Li’s announcement.

A globalgreen transition is already well underway; at this stage, countries and firms are largelyon board with the shift to clean energy. According to the International Energy Agency, annual additions to renewablecapacity increased by nearly 50% in 2023, to 507 gigawatts, the fastest growth rate in the past two decades. The European Union, the United States, and Brazil, in particular,installedrecordamounts of renewable-energy capacity.ButChina experienced the largest growth by far, commissioning as much solar PV in 2023 as the entire world did in 2022, and increasing its wind capacity by 66% yearonyear.

China’s decision to ramp up spending couldfurther accelerate this epochal shift and help achieve long-term climate goals bybringingforward the peakin fossil-fuel use andlowering greenhouse-gas emissions.Moreover, it suggests that place-based industrial policies are facilitating, not impeding,decarbonization.US President Joe Bidenushered the world into a new era of industrial policywhen he passed his $800billionInflation Reduction Act (IRA),which includes $391 billion in energy and climate spending, and his $1.2trillionBipartisan Infrastructure Law (BIL). This strategy pushed the EU to implement its own raft of green subsidies. And now, China is addressingits economic woes by channeling even more resourcesintodecarbonization.

Atthe same time, an increased supply oflow-cost green products from China– a likely outcome of the country’s bet on emerging technologies –would not flow to the US, owing to its embrace of industrial policy. The US governmenthas alreadyimposed tariffson strategic Chinese imports. And with the IRA and the BIL pumping massive sums into domestic clean-energy manufacturing and deployment, the Biden administration is considering new protectionist measures to prevent China from undercutting the US market.

This is frustrating for ardentadvocates of freetrade, asit means that cheap Chinese solar panels, EVs, and batterieswill notbe available inAmerica any time soon. A Donald Trump victory in November would only make things worse:the former president has proposeda staggering 60% tariffon allChinese imports.

Although the energy transition is coming at a high price for Americans,it is a price worth paying.By defending its domestic industries, the US governmentwill likelydivert Chinese products to other countries, especially in the developing world, which would allow consumers to buy clean-tech products at low prices. More importantly, if developing countries seize this opportunity, they could accelerate their own green transitions.

For example, IndianPrime Minister Narendra Modi, whose plan for reaching net-zero emissions by 2070 is highly insufficient, shouldtake advantage of China’s green-tech surge. In the short term, that means using Chinese products to plug the gaps in India’s clean-energy industry. Modi should also convince Chinese companies to build additional production facilities in India, which would facilitatetechnology transfer, create jobs, and lower the cost of greentech.

African leaders should likewise electrify their economies using China’sgreen products and technologies.Just as many African countries have leapfrogged to mobile networks, skipping landline development, they must do the same with clean energy, bypassing fossil fuels. While certainly a challenge, such an approach is well-suited for a continent with abundant solar and wind resources and a need for distributed-energy solutions. Moreover, African countries with a large supply of rareearths should work with Chinese firms to move up the value chain and create more jobs.

Whenever CEOs and policymakersmeetat climate conferences or in Davos, a common refrain isthat the green transition must be just.That would require $1trillion in annual clean-energy investment in low- and middle-income countries–aseven-fold increasefromcurrent levels. While thereis a desperate need for more financing,China’s increased investment in cleanenergycould be an important part of the solution.

Ultimately, China and the US (as well as the EU)mustreach an agreementon what constitutes fair and free trade of green goods. But in the meantime, given the existential imperative to achievenet-zero emissions, we should welcome China’s investment plans, even as we worry about their implications for US industry. For now,I can drive an American-made EV from Ford or Tesla,butI hope one daytohave the option ofpurchasing anEV built by China’s BYD. Either way, I will be on the road to a less polluting future.

Stuart P.M. Mackintosh is Executive Director of the Group of Thirty.

Copyright: Project Syndicate, 2024.

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