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Why China’s slowdown is ominous for the West’s climate policy
Would it be easier to fight climate change if America was China’s ally, or even a neutral third party, rather than its growing rival?
For the past few years, this has been one of the great what-ifs of global climate policy. It’s also been somewhat moot because, well, America isn’t China’s ally. The United States would never have passed the Inflation Reduction Act if not for China’s perceived technological leadership (even if China also emits far more carbon pollution than America does).
But the question has persisted, and it has hinted at a larger one: How should a given country approach the energy transition? Should it try to assert itself by making some input to decarbonization, some necessary technology? Or should it simply allow China, the world’s factory, to sell it everything it needs to decarbonize?
For years, many countries — especially in Europe — have tried to walk a line between these two approaches, promising that decarbonization could lead to good jobs at home while avoiding outright protectionism. But recent events have rendered this dilemma less and less theoretical. As the Chinese economy slows, the world will have to decide how to handle its climate-friendly industries.
A brief backgrounder. China dominates the global clean-energy manufacturing industry. It makes 60% of the world’s electric car batteries and wind turbines. It manufactures 80% of its solar panels. By one measure, the Chinese automaker BYD became the world’s largest electric vehicle maker this year, outselling Tesla. Chinese companies are also able to make many of these products more cheaply and at a greater scale than those of other countries.
China also finds itself in an increasingly troublesome economic slowdown. Its working-age population has peaked, home prices have fallen, and consumer activity is moribund. Even as the rest of the world combats stubborn inflation, China has slipped into deflation.
Although China’s slowdown is being driven by a few factors, its core problem is structural. For the past few decades, China has grown its economy by juicing production on the supply side — the construction firms, steelmakers, real-estate developers, and (more recently) manufacturing sector. It invested heavily in infrastructure projects, laying more cement in three years than the United States made in the entire 20th century. This type of infrastructure spending is key to how local Chinese leaders generate economic growth on paper, meeting the national government’s GDP targets. It also helps them stay in power and sometimes enrich themselves.
This arrangement has suppressed worker wages and dampened consumer spending. China’s capital controls have also forced Chinese families to save in the places where the government wants them to. As Paul Krugman writes, that led first to a surge in global goods exports, then to a real-estate bubble, which popped a few years ago.
Faced with such a conundrum, most Western economists would recommend that the national government offer support directly to consumers and households — much like the American government did during the pandemic. That would help families repair their finances, which were damaged by the real-estate bubble, and give them the money and security to buy the products that Chinese factories manufacture. It would, in essence, continue the process of turning China into a consumer economy.
But China doesn’t seem to want to do that. Earlier this week, The Wall Street Journal reported that President Xi Jinping does not believe that China should provide direct fiscal support to consumers. Instead, he appears to believe that China should recover through austerity, fiscal discipline, and by increasing its support of its manufacturing and industrial sectors.
Xi and the men around him seem to hold a set of ideas that, in a Western context, we would see as an odd mix of the right and left. On the one hand, Xi is suspicious of “welfarism” and warns that China must avoid the mistakes of Latin America (as he understands them). On the other hand, Xi dislikes entrepreneurs — see here his treatment of Jack Ma — and is suspicious of what we would call the software industry.
China’s leaders also don’t want to give consumers more power in their economy for fear of disempowering the Communist Party, which is able to use its power over banks to shape the domestic economy. Private consumption makes up about 60% of the average country’s GDP. (In the U.S., it’s closer to 70%.) But in China, households consume less than 40% of GDP. But according to the Journal, Xi believes “China should address ‘insufficient effective supply capacity’ — in essence, build more factories and industry — so as not to become overly dependent on ‘overseas shopping’ for goods supplied by the West.”
One domestic industry that China’s leaders do like is the clean-energy industry, the hundreds of firms that make electric cars, batteries, renewables, and their constituent parts and ingredients. These companies not only generate a ton of exports — China became the world’s top car exporter this year, driven in part by the success of the electric-car maker BYD — but they are strategically useful, placing China at the center of the global energy transition while relieving it of its dependence on seaborne fossil-fuel imports.
And that is what concerns me. The Chinese government is planning a new burst of infrastructure and factory spending, according to the Journal, and it may also make it easier for certain government-favored firms and projects to borrow money. These measures don’t even need to directly target the clean-energy industry to help it: There are so many constraints on how and where investment happens in China that the money could flow into these green-energy firms anyway.
But that could set up an unstable dynamic in the world economy — and one that will matter profoundly for the politics of decarbonization.
Deluged with cash, those EV and clean-energy firms would expand production, flooding the market with even more vehicles, batteries, solar panels, and the rest. But Chinese consumers won’t have the money to buy that stuff, so it will get exported abroad, driving down global prices even further.
And that brings us back to the Chinese decarbonization paradox. Would a global glut of Chinese climate tech be good for the planet? In the short term, probably yes. (My colleague Jeremy Wallace recently argued that it could be a very good thing.) Chinese firms already make some of the world’s cheapest electric vehicles and batteries. Expanding production further would allow China to keep learning by doing, driving down their cost even further. If the yuan were to lose value against the dollar or Euro (something that, to be clear, the Chinese government hopes to avoid), then that technology would get even cheaper. And cheaper EVs are a good thing, because more drivers would be able to buy them, cutting global oil demand.
But such a glut would be politically complicated in the medium and long term. Across developed democracies, politicians have promised that the energy transition will create good jobs at home. President Joe Biden’s mantra — “When I hear climate, I think jobs” — is just the most recent of many similar promises issued in Asia and Europe.
And a sudden global export glut of Chinese clean tech could be catastrophic for those promises, especially in Europe and North America, where inflation is higher and interest rates are tighter. When Chinese firms flooded the world with cheap solar panels in the early 2010s, they inadvertently killed a crop of companies abroad working on advanced or experimental solar technology — including Solyndra, the American startup whose failure became synonymous with President Barack Obama’s aborted green industrial policy.
Now, to some degree, the United States may have insulated itself from a glut this time by passing the Inflation Reduction Act, whose subsidies will ensure that America maintains at least a minimal base of solar panel, battery, and electric vehicle production. The Biden administration has also shown itself to be more willing to raise tariffs to fight sudden shifts in the market. But if American companies want to export what they make in the U.S. — and they should, given that making globally competitive products is essential for maintaining an edge — then they will have to compete with bargain-basement prices.
Where a deluge of Chinese EVs would be really catastrophic is Europe, where BYD and other Chinese automakers have already made a beachhead. Volkswagen and other European manufacturers are switching to an all-electric fleet slower than their Chinese counterparts; their vehicles are also more expensive than Chinese imports.
To be sure, there’s no guarantee that China’s slowdown will automatically lead to a global green glut; Corey Cantor, an EV analyst at BloombergNEF, told me that he doesn’t think it’s the most likely scenario. But I’m worried anyway. The EU has been slow to react to the Inflation Reduction Act; its trade negotiators have clung to the ideal of free global trade even as the continent’s major trading partners have modified their approaches. (Even when it does engage in quasi-protectionism — such as with its carbon border adjustment mechanism — it has chosen methods with a veneer of fairness and impartiality.) In the European democracies, meanwhile, the far right is gaining steam. Will the EU bureaucracy adjust its stance in time?
For the past few decades, the decarbonization story has been a sideshow on the world stage. Diplomats gathered once a year to discuss climate change, then they got on with the major set pieces of geopolitics: trade, economics, war, peace. But Bidenomics and the Chinese slowdown show that that act has ended. Those of us who care about climate change — who have devoted our time, money, or careers to slowing it — can no longer pretend our issue exists solely in a domestic or environmental context. We insisted for years that climate change was the world’s most important story, and the world, in all its terrible power, has finally listened.
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Defenders of the Inflation Reduction Act have hit on what they hope will be a persuasive argument for why it should stay.
With the fate of the Inflation Reduction Act and its tax credits for building and producing clean energy hanging in the balance, the law’s supporters have increasingly turned to dollars-and-cents arguments in favor of its preservation. Since the election, industry and research groups have put out a handful of reports making the broad argument that in addition to higher greenhouse gas emissions, taking away these tax credits would mean higher electricity bills.
The American Clean Power Association put out a report in December, authored by the consulting firm ICF, arguing that “energy tax credits will drive $1.9 trillion in growth, creating 13.7 million jobs and delivering 4x return on investment.”
The Solar Energy Industries Association followed that up last month with a letter citing an analysis by Aurora Energy Research, which found that undoing the tax credits for wind, solar, and storage would reduce clean energy deployment by 237 gigawatts through 2040 and cost nearly 100,000 jobs, all while raising bills by hundreds of dollars in Texas and New York. (Other groups, including the conservative environmental group ConservAmerica and the Clean Energy Buyers Association have commissioned similar research and come up with similar results.)
And just this week, Energy Innovation, a clean energy research group that had previously published widely cited research arguing that clean energy deployment was not linked to the run-up in retail electricity prices, published a report that found repealing the Inflation Reduction Act would “increase cumulative household energy costs by $32 billion” over the next decade, among other economic impacts.
The tax credits “make clean energy even more economic than it already is, particularly for developers,” explained Energy Innovation senior director Robbie Orvis. “When you add more of those technologies, you bring down the electricity cost significantly,” he said.
Historically, the price of fossil fuels like natural gas and coal have set the wholesale price for electricity. With renewables, however, the operating costs associated with procuring those fuels go away. The fewer of those you have, “the lower the price drops,” Orvis said. Without the tax credits to support the growth and deployment of renewables, the analysis found that annual energy costs per U.S. household would go up some $48 annually by 2030, and $68 by 2035.
These arguments come at a time when retail electricity prices in much of the country have grown substantially. Since December 2019, average retail electricity prices have risen from about $0.13 per kilowatt-hour to almost $0.18, according to the Bureau of Labor Statistics. In Massachusetts and California, rates are over $0.30 a kilowatt-hour, according to the Energy Information Administration. As Energy Innovation researchers have pointed out, states with higher renewable penetration sometimes have higher rates, including California, but often do not, as in South Dakota, where 77% of its electricity comes from renewables.
Retail electricity prices are not solely determined by fuel costs Distribution costs for maintaining the whole electrical system are also a factor. In California, for example,it’s these costs that have driven a spike in rates, as utilities have had to harden their grids against wildfires. Across the whole country, utilities have had to ramp up capital investment in grid equipment as it’s aged, driving up distribution costs, a 2024 Energy Innovation report argued.
A similar analysis by Aurora Energy Research (the one cited by SEIA) that just looked at investment and production tax credits for wind, solar, and batteries found that if they were removed, electricity bills would increase hundreds of dollars per year on average, and by as much as $40 per month in New York and $29 per month in Texas.
One reason the bill impact could be so high, Aurora’s Martin Anderson told me, is that states with aggressive goals for decarbonizing the electricity sector would still have to procure clean energy in a world where its deployment would have gotten more expensive. New York is targetinga target for getting 70% of its electricity from renewable sources by 2030, while Minnesota has a goal for its utilities to sell 55% clean electricity by 2035 and could see its average cost increase by $22 a month. Some of these states may have to resort to purchasing renewable energy certificates to make up the difference as new generation projects in the state become less attractive.
Bills in Texas, on the other hand, would likely go up because wind and solar investment would slow down, meaning that Texans’ large-scale energy consumption would be increasingly met with fossil fuels (Texas has a Renewable Portfolio Standard that it has long since surpassed).
This emphasis from industry and advocacy groups on the dollars and cents of clean energy policy is hardly new — when the House of Representatives passed the (doomed) Waxman-Markey cap and trade bill in 2009, then-Speaker of the House Nancy Pelosi told the House, “Remember these four words for what this legislation means: jobs, jobs, jobs, and jobs.”
More recently, when Democratic Senators Martin Heinrich and Tim Kaine hosted a press conference to press their case for preserving the Inflation Reduction Act, the email that landed in reporters’ inboxes read “Heinrich, Kaine Host Press Conference on Trump’s War on Affordable, American-Made Energy.”
“Trump’s war on the Inflation Reduction Act will kill American jobs, raise costs on families, weaken our economic competitiveness, and erode American global energy dominance,” Heinrich told me in an emailed statement. “Trump should end his destructive crusade on affordable energy and start putting the interests of working people first.”
That the impacts and benefits of the IRA are spread between blue and red states speaks to the political calculation of clean energy proponents, hoping that a bill that subsidized solar panels in Texas, battery factories in Georgia, and battery storage in Southern California could bring about a bipartisan alliance to keep it alive. While Congressional Republicans will be scouring the budget for every last dollar to help fund an extension of the 2017 Tax Cuts and Jobs Act, a group of House Republicans have gone on the record in defense of the IRA’s tax credits.
“There's been so much research on the emissions impact of the IRA over the past few years, but there's been comparatively less research on the economic benefits and the household energy benefits,” Orvis said. “And I think that one thing that's become evident in the last year or so is that household energy costs — inflation, fossil fuel prices — those do seem to be more top of mind for Americans.”
Opinion modeling from Heatmap Pro shows that lower utility bills is the number one perceived benefit of renewables in much of the country. The only counties where it isn’t the number one perceived benefit are known for being extremely wealthy, extremely crunchy, or both: Boulder and Denver in Colorado; Multnomah (a.k.a. Portland) in Oregon; Arlington in Virginia; and Chittenden in Vermont.
On environmental justice grants, melting glaciers, and Amazon’s carbon credits
Current conditions: Severe thunderstorms are expected across the Mississippi Valley this weekend • Storm Martinho pushed Portugal’s wind power generation to “historic maximums” • It’s 62 degrees Fahrenheit, cloudy, and very quiet at Heathrow Airport outside London, where a large fire at an electricity substation forced the international travel hub to close.
President Trump invoked emergency powers Thursday to expand production of critical minerals and reduce the nation’s reliance on other countries. The executive order relies on the Defense Production Act, which “grants the president powers to ensure the nation’s defense by expanding and expediting the supply of materials and services from the domestic industrial base.”
Former President Biden invoked the act several times during his term, once to accelerate domestic clean energy production, and another time to boost mining and critical minerals for the nation’s large-capacity battery supply chain. Trump’s order calls for identifying “priority projects” for which permits can be expedited, and directs the Department of the Interior to prioritize mineral production and mining as the “primary land uses” of federal lands that are known to contain minerals.
Critical minerals are used in all kinds of clean tech, including solar panels, EV batteries, and wind turbines. Trump’s executive order doesn’t mention these technologies, but says “transportation, infrastructure, defense capabilities, and the next generation of technology rely upon a secure, predictable, and affordable supply of minerals.”
Anonymous current and former staffers at the Environmental Protection Agency have penned an open letter to the American people, slamming the Trump administration’s attacks on climate grants awarded to nonprofits under the Inflation Reduction Act’s Greenhouse Gas Reduction Fund. The letter, published in Environmental Health News, focuses mostly on the grants that were supposed to go toward environmental justice programs, but have since been frozen under the current administration. For example, Climate United was awarded nearly $7 billion to finance clean energy projects in rural, Tribal, and low-income communities.
“It is a waste of taxpayer dollars for the U.S. government to cancel its agreements with grantees and contractors,” the letter states. “It is fraud for the U.S. government to delay payments for services already received. And it is an abuse of power for the Trump administration to block the IRA laws that were mandated by Congress.”
The lives of 2 billion people, or about a quarter of the human population, are threatened by melting glaciers due to climate change. That’s according to UNESCO’s new World Water Development Report, released to correspond with the UN’s first World Day for Glaciers. “As the world warms, glaciers are melting faster than ever, making the water cycle more unpredictable and extreme,” the report says. “And because of glacial retreat, floods, droughts, landslides, and sea-level rise are intensifying, with devastating consequences for people and nature.” Some key stats about the state of the world’s glaciers:
In case you missed it: Amazon has started selling “high-integrity science-based carbon credits” to its suppliers and business customers, as well as companies that have committed to being net-zero by 2040 in line with Amazon’s Climate Pledge, to help them offset their greenhouse gas emissions.
“The voluntary carbon market has been challenged with issues of transparency, credibility, and the availability of high-quality carbon credits, which has led to skepticism about nature and technological carbon removal as an effective tool to combat climate change,” said Kara Hurst, chief sustainability officer at Amazon. “However, the science is clear: We must halt and reverse deforestation and restore millions of miles of forests to slow the worst effects of climate change. We’re using our size and high vetting standards to help promote additional investments in nature, and we are excited to share this new opportunity with companies who are also committed to the difficult work of decarbonizing their operations.”
The Bureau of Land Management is close to approving the environmental review for a transmission line that would connect to BluEarth Renewables’ Lucky Star wind project, Heatmap’s Jael Holzman reports in The Fight. “This is a huge deal,” she says. “For the last two months it has seemed like nothing wind-related could be approved by the Trump administration. But that may be about to change.”
BLM sent local officials an email March 6 with a draft environmental assessment for the transmission line, which is required for the federal government to approve its right-of-way under the National Environmental Policy Act. According to the draft, the entirety of the wind project is sited on private property and “no longer will require access to BLM-administered land.”
The email suggests this draft environmental assessment may soon be available for public comment. BLM’s web page for the transmission line now states an approval granting right-of-way may come as soon as May. BLM last week did something similar with a transmission line that would go to a solar project proposed entirely on private lands. Holzman wonders: “Could private lands become the workaround du jour under Trump?”
Saudi Aramco, the world’s largest oil producer, this week launched a pilot direct air capture unit capable of removing 12 tons of carbon dioxide per year. In 2023 alone, the company’s Scope 1 and Scope 2 emissions totalled 72.6 million metric tons of carbon dioxide equivalent.
If you live in Illinois or Massachusetts, you may yet get your robust electric vehicle infrastructure.
Robust incentive programs to build out electric vehicle charging stations are alive and well — in Illinois, at least. ComEd, a utility provider for the Chicago area, is pushing forward with $100 million worth of rebates to spur the installation of EV chargers in homes, businesses, and public locations around the Windy City. The program follows up a similar $87 million investment a year ago.
Federal dollars, once the most visible source of financial incentives for EVs and EV infrastructure, are critically endangered. Automakers and EV shoppers fear the Trump administration will attack tax credits for purchasing or leasing EVs. Executive orders have already suspended the $5 billion National Electric Vehicle Infrastructure Formula Program, a.k.a. NEVI, which was set up to funnel money to states to build chargers along heavily trafficked corridors. With federal support frozen, it’s increasingly up to the automakers, utilities, and the states — the ones with EV-friendly regimes, at least — to pick up the slack.
Illinois’ investment has been four years in the making. In 2021, the state established an initiative to have a million EVs on its roads by 2030, and ComEd’s new program is a direct outgrowth. The new $100 million investment includes $53 million in rebates for business and public sector EV fleet purchases, $38 million for upgrades necessary to install public and private Level 2 and Level 3 chargers, stations for non-residential customers, and $9 million to residential customers who buy and install home chargers, with rebates of up to $3,750 per charger.
Massachusetts passed similar, sweeping legislation last November. Its bill was aimed to “accelerate clean energy development, improve energy affordability, create an equitable infrastructure siting process, allow for multistate clean energy procurements, promote non-gas heating, expand access to electric vehicles and create jobs and support workers throughout the energy transition.” Amid that list of hifalutin ambition, the state included something interesting and forward-looking: a pilot program of 100 bidirectional chargers meant to demonstrate the power of vehicle-to-grid, vehicle-to-home, and other two-way charging integrations that could help make the grid of the future more resilient.
Many states, blue ones especially, have had EV charging rebates in places for years. Now, with evaporating federal funding for EVs, they have to take over as the primary benefactor for businesses and residents looking to electrify, as well as a financial level to help states reach their public targets for electrification.
Illinois, for example, saw nearly 29,000 more EVs added to its roads in 2024 than 2023, but that growth rate was actually slower than the previous year, which mirrors the national narrative of EV sales continuing to grow, but more slowly than before. In the time of hostile federal government, the state’s goal of jumping from about 130,000 EVs now to a million in 2030 may be out of reach. But making it more affordable for residents and small businesses to take the leap should send the numbers in the right direction, as will a state-backed attempt to create more public EV chargers.
The private sector is trying to juice charger expansion, too. Federal funding or not, the car companies need a robust nationwide charging network to boost public confidence as they roll out more electric offerings. Ionna — the charging station partnership funded by the likes of Hyundai, BMW, General Motors, Honda, Kia, Mercedes-Benz, Stellantis, and Toyota — is opening new chargers at Sheetz gas stations. It promises to open 1,000 new charging bays this year and 30,000 by 2030.
Hyundai, being the number two EV company in America behind much-maligned Tesla, has plenty at stake with this and similar ventures. No surprise, then, that its spokesperson told Automotive Dive that Ionna doesn’t rely on federal dollars and will press on regardless of what happens in Washington. Regardless of the prevailing winds in D.C., Hyundai/Kia is motivated to support a growing national network to boost the sales of models on the market like the Hyundai Ioniq5 and Kia EV6, as well as the company’s many new EVs in the pipeline. They’re not alone. Mercedes-Benz, for example, is building a small supply of branded high-power charging stations so its EV drivers can refill their batteries in Mercedes luxury.
The fate of the federal NEVI dollars is still up in the air. The clearinghouse on this funding shows a state-by-state patchwork. More than a dozen states have some NEVI-funded chargers operational, but a few have gotten no further than having their plans for fiscal year 2024 approved. Only Rhode Island has fully built out its planned network. It’s possible that monies already allocated will go out, despite the administration’s attempt to kill the program.
In the meantime, Tesla’s Supercharger network is still king of the hill, and with a growing number of its stations now open to EVs from other brands (and a growing number of brands building their new EVs with the Tesla NACS charging port), Superchargers will be the most convenient option for lots of electric drivers on road trips. Unless the alternatives can become far more widespread and reliable, that is.
The increasing state and private focus on building chargers is good for all EV drivers, starting with those who haven’t gone in on an electric car yet and are still worried about range or charger wait times on the road to their destination. It is also, by the way, good news for the growing number of EV folks looking to avoid Elon Musk at all cost.