Roadblock to Climate-Saving Solar, EVs
Global warming can still be capped at 1.5℃, thanks to huge progress on solar energy and electric vehicles (EVs), the International Energy Agency (IEA) proclaims in an updated version of what passes in energy circles for its blockbuster 2021 hit Net Zero Roadmap.
Despite gargantuan efforts by governments, international organizations, and the press to push Big Oil-oriented corporate welfare schemes like carbon capture and storage, it’s been evident for some time that EVs and solar — with backup from batteries and onshore wind — will be the star performers in any energy transition rapid enough to keep climate crisis from morphing into climate catastrophe.
But these “modular” technologies, as the IEA calls them, face one big and growing roadblock: China is miles ahead of the US and Europe in both, and as East-West relations deteriorate, that could slow or even derail this vital initial stage of the transition, which can get rid of as much as 80% of CO2 emissions. If the US, EU, and UK close their markets to Chinese products, the cheap and easy aspect that is key to solar and EV success will be stymied.
The 1.5℃ target could well slip totally out of reach.
Trade Trade-offs
Global trade, and especially the movement of goods and services from China to the US and Europe, is shrinking as Western governments strive to rebuild, or in Germany’s case retain, their manufacturing bases. Global trade adjusted for inflation was down 3.2% year-on-year in July, the most since the height of the pandemic, according to closely watched figures from the Netherlands Bureau for Economic Policy Analysis.
China exported 14.5% less and imported 12.4% less in July. A severe drop in China’s shipments to the West made up the bulk of this decline. Its exports to the US were off 23% year-on-year and to the EU were down 20.6%.
There’s ample evidence that this is a long-term trend, not just a passing reflection of wrong-footed Chinese economic policy, as many Western commentators suggest. The Financial Times reported in September that roughly one-third of European and nearly one-quarter of US firms told their respective Chambers of Commerce in China in a survey that they either have already or are preparing to reduce investment in China.
That’s huge, since for years, China has been considered the next big hope for Western companies facing stagnant markets for their products at home. Some firms are still hoping to grab a piece of expected growth in China’s consumer economy by splitting off their manufacturing inside China into a separate unit and targeting its output exclusively at domestic Chinese consumers. Goods for the firms’ home markets would be made elsewhere.
Whether the Chinese government will continue to welcome foreign manufacturers and allow them to repatriate profits from sales inside China is dubious if the West cuts them off. But these are desperate times, particularly for German and some other European companies facing inflated energy bills and an ongoing and possibly entrenched recession at home.
Clean Comebacks
Clean energy technology is a key element in this breakdown of the globalized trading environment. China’s dominance in solar panels and, even more so, some of the critical components in those panels, is overwhelming — and getting more so all the time. China accounted for over 90% of investment last year in new and expanded factories to make clean-energy equipment, solar included. The solar panels that come out of those factories have a cost advantage of more than 50% over EU and US.
Washington is running hard to catch up, offering many billions of dollars in tax credits and direct subsidies to private companies to build solar factories in the US. On its own, that’s a good thing. One that is being loudly trumpeted as a success in the Western press and feels like a massive change after decades of deindustrialization. Unfortunately, the speed at which this campaign is running isn’t even keeping the US in place, much less helping it gain on China.
But who notices amid all the red-hot anti-China sentiment in Washington? Rather than trying to figure out how to rebuild domestic US industry without baking the planet, the government responds to real or imagined sins in Beijing by implementing tariffs and outright bans on imports — justified politically with claims that China abuses workers in Xinjiang province, where some solar components are made — only to open up again when solar installation jobs come under threat.
Since there aren’t nearly enough US-made solar panels to fill the gap when imports decline, the result is inevitably a fall in all US solar installations. Last year, US installations were down by 16% from 2021, even as Chinese and European solar capacity soared. This year Washington opened the gates to imports early on, and installations soared. But it began the import-permit delaying game again this summer, and the pace of its solar build-out has drifted back down.
There is some good news buried in this: The smaller panels used for rooftop and other distributed solar installations are often made outside China, and so aren’t subject to the same jerking around by the Commerce Dept. as utility-scale projects. As a result, what the US Energy Information Administration (EIA) defines as “small-scale solar” grew at a record clip last year and now accounts for around one-third of all solar capacity in the US. While that category extends up to 1 megawatt projects — not exactly small by my reckoning — the EIA says a majority of this capacity is rooftop solar on homes.
Europe hasn’t followed the US down the solar tariff path over the last couple of years. With the disappearance of Russian natural gas, it doesn’t have the luxury of delaying alternative electricity capacity that’s the cheapest thing out there.
Europe’s EV
However, the European Commission did last month launch an investigation into the role of state subsidies in the recent stunning success of Chinese-made EVs. Chinese upstart EV makers led by BYD first took a lead over all comers except Tesla in their domestic auto market, where conventional car sales were long dominated by foreign companies. More recently, these companies have made major inroads into Europe’s soaring EV market — where Chinese EVs have a cost advantage so large that they can undercut European-made models while reportedly charging 30%-80% more than they do at home.
That success has spread something akin to panic through Europe’s automotive manufacturing sector, since it not only creates unexpected competition in their home market, but it has largely frozen them out of a Chinese market on which many had been betting heavily. Adding to the complication, Europe’s own automakers tend to be heavily dependent on Chinese batteries.
It also demonstrates that there is appetite for trade- and transition-demolishing measures against China in Brussels, just as there is in Washington.
Surprisingly, the big German automakers, especially Volkswagen and BMW, are not pleased at the prospect of an EU move against Chinese cars. They have giant manufacturing and sales operations in China that account for one-third of more of their sales. These could be in the firing line for reciprocal attacks by Beijing if the EU acts. So Germany may block EU action. But a shadow has been cast over Europe’s ability to continue electrifying its transport sector at the pace required to meet its climate goals.
The US doesn’t face a similar EV incursion, as Chinese EV makers tend to see both the costs and the political risks of breaking into that market as too high. The result will be less access by US drivers to relatively inexpensive and high-performing EVs –- albeit perhaps also a stronger domestic manufacturing sector.
Big Backdrop
It is conceivable that China on its own could drive a sharp reduction in global emissions by 2030. The IEA calculates that there was a rise of only 1% in CO2 emissions worldwide between 2019 and 2022, and that this increase was “largely driven” by a 7% rise in China, which is now installing solar at a breakneck clip.
Further gains can come from its sale of cheap solar panels, batteries, and wind turbines to countries outside the West, from the Middle East and Africa to other Asian and Latin American countries. Indeed, China has been promising as much as part of its outreach to developing countries this year.
But if momentum stalls in the US and Europe because they freeze out Chinese imports, the global 1.5℃ target will probably go by the wayside.
This would be a huge blow to US and European standing in a world in which deadly severe-weather events traceable to climate change can be expected to proliferate even more rapidly as a result. A loss of prestige may not seem important compared to the likely loss of life in the Sahel and other spots scattered around the globe — unless it leads humanity closer to world-scale war.
