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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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On the Senate’s climate whip, green cement deals, and a U.S. uranium revival.
Current conditions: Flash flooding strikes the Southeastern U.S. • Monsoon rains unleash landslides in southern China • A heat dome is bringing temperatures of up to 107 degrees Fahrenheit to France, Italy, and the Balkans.
An August 5 chart showing last month's record electricity demand peaks.EIA
The United States’ demand for electricity broke records twice last month. Air conditioners cranking on hot days, combined with surging demand from data centers, pushed the peak in the Lower 48 states to a high of 758,053 megawatts on July 28, between 6 p.m. and 7 p.m. EST, data from the U.S. Energy Information Administration’s Hourly Electric Grid Monitor shows. The following day, peak demand set another record, hitting 759,180 megawatts. That’s nearly 2% above the previous record set on July 15, 2024.
The EIA predicted demand to grow by more than 2% per year between 2025 and 2026. Forecasts are even higher in areas with large data centers and factories underway, such as Texas and northern Virginia. The milestone comes as the Trump administration cracks down on solar and wind energy, two of the fastest-growing and quicker-to-build sources of new generation. On Tuesday, The New York Times reported that the Environmental Protection Agency is moving to eliminate $7 billion in spending on grants for solar energy, though when Heatmap’s Emily Pontecorvo asked the agency, it said only that, “With the passage of the One Big Beautiful Bill, EPA is working to ensure Congressional intent is fully implemented in accordance with the law.”
Senator Brian Schatz, a Democrat from Hawaii, locked down enough votes on Tuesday to replace Illinois Senator Dick Durbin as the Democrats’ whip in the chamber. Durbin, who is retiring next year, has served in the Senate Democrats’ No. 2 position since 2005. In his endorsement on Tuesday, Senate Minority Leader Chuck Schumer of New York called Schatz “a close friend and one of my most valued allies.”
Schatz crusaded for the Inflation Reduction Act and told Heatmap he supported last year’s failed bipartisan permitting reform deal, even as progressive greens campaigned against its giveaways to fossil fuels. In a Shift Key podcast interview with my colleague Robinson Meyer and his co-host, Princeton professor Jesse Jenkins, in February, Schatz pitched a big tent for climate action. “We all have to hang together. It’s the American Clean Power Association. It’s the energy company that does both clean and fossil energy. It’s the transmission and distribution companies. It’s the manufacturers. It’s labor. It’s Wall Street. It’s K Street. Everyone has to hang together and say, not only is this good for business, but there’s something that is foundationally worse for business than any individual policy decision.”
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The Trump administration may be clawing back funding for cleaning up heavy industry, but Big Tech is still inking deals. On Monday, Amazon agreed to buy low-carbon cement from the startup Brimstone. Then on Tuesday, the data center developer STACK Infrastructure announced the completion of “a pilot pour” of green cement from rival startup Sublime. The moves highlight the growing demand for cleaner industrial materials amid increased scrutiny of the energy and pollution linked to server farms.
America’s uranium enrichment went out of business in the early 2000s after the Clinton-era megatons-to-megawatts program essentially ceded the industry to cheap Russian imports made from disassembled atomic weapons. Since banning imports from Russia last year, the U.S. has been ramping up funding for nuclear fuel again, especially as the industry looks to build new types of reactors that rely on fuel other than the low-enriched uranium that virtually all the country’s operating 94 commercial reactors use. On Monday, the Department of Energy announced its first pilot project for advanced nuclear fuels, giving the startup Standard Nuclear the first federal deal. On Tuesday, the agency signed a $1.5 billion deal to restore the so-called Atomic City on the 100-acre parcel of federal land at the former Paducah Gaseous Diffusion Plan in Kentucky.
The Trump administration gave permission to the National Weather Service to hire up to 450 meteorologists, hydrologists, and radar technicians after sweeping cuts from the Department of Government Efficiency, CNN’s Andrew Freedman reported. The agency, which was partly blamed for its warnings going unheeded ahead of the deadly Texas floods last month, also received an exemption from the federal hiring freeze.
The move came the same day as a federal judge blocked the administration from diverting billions of dollars in Federal Emergency Management Agency funding for disaster resilience and flood mitigation. The injunction warned FEMA against spending the money on anything else.
Beyond Meat is finally getting beyond meat. The company plans to shed the flesh reference in its name this week as it launches its new Beyond Ground product that promises more protein than ground beef. “With this launch,” Fast Company’s Clint Rainey reported, “Beyond Meat is becoming merely Beyond and turning its focus away from only mimicking animal proteins to letting plant-based proteins speak for themselves. The radical move is cultural, agricultural, and financial.”
Rob and Jesse talk through the proposed overturning of the EPA’s “endangerment finding” on greenhouse gases with Harvard Law School’s Jody Freeman.
The Trump administration has formally declared that carbon dioxide and other greenhouse gases are not dangerous pollutants. If the president gets his way, then the Environmental Protection Agency may soon surrender any ability to regulate heat-trapping pollution from cars and trucks, power plants, and factories — in ways that a future Democratic president potentially could not reverse.
On this week’s episode of Shift Key, we discuss whether Trump’s EPA gambit will work, the arguments that the administration is using, and what it could mean for the future of U.S. climate and energy policy. We’re joined by Jody Freeman, the Archibald Cox Professor of Law at Harvard and the director of Harvard’s environmental and energy law program. She was an architect of the Obama administration’s landmark deal with automakers to accept carbon dioxide regulations.
Shift Key is hosted by Jesse Jenkins, a professor of energy systems engineering at Princeton University, and Robinson Meyer, Heatmap’s executive editor.
Subscribe to “Shift Key” and find this episode on Apple Podcasts, Spotify, Amazon, YouTube, or wherever you get your podcasts.
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Here is an excerpt from our conversation:
Robinson Meyer: I just want to make a related question, which is, you can actually say some of the sentences in the DOE report — you can believe tornadoes don’t show any influence from climate change and still believe heatwaves do, and still believe extreme rainfall events do. In fact, you could believe the cost of heat waves getting worse could justify the entire regulatory edifice.
Jody Freeman: What I love about you, Rob, right now, is you’re kind of incensed about little points that might individually sort of be right, maybe each one separately, but none of it adds up to even a chink in the armor. Right? And what’ll have to happen is the scientific community writ large, en masse, is going to have to come back and say, even if one or two or three of these sentences could possibly, plausibly be actually accurate, it does nothing to change the overwhelming —
Jesse Jenkins: It doesn’t matter.
Freeman: Right. What I think is happening is we’re all getting poked and distracted and tweaked into outrage over science, when in fact, the first argument they’re making is the one where they could actually attract some judges and justices to say, Oh wait, maybe you have a little more discretion here to set a threshold level. You know, Maybe it matters that you’re saying nothing we do here in the U.S. will make a difference in the end to global warming, and maybe that is a reason you don’t want to regulate. Hmm, maybe we’ll accept that reason. And that’s what we need, I think, to be more concerned about.
Jenkins: You’re saying, don’t get distracted by the fight over the climate science. That fight is very clear. It’s this legal argument that this isn’t an air pollutant because it’s not a local air pollutant, it mixes globally with all the other CO2, and we can’t, you know, each class of cars is a tiny contributor to that, and so we shouldn’t worry about it —
Freeman: And much of this is a replay, or a rehash of arguments that the George W. Bush administration lost in Massachusetts vs. EPA. So a lot of this is like, let’s take another run at the Supreme Court.
Mentioned:
The EPA Says Carbon Pollution Isn’t Dangerous. What Comes Next?
The EPA on its reconsideration of the endangerment finding
Jody’s story on the change: Trump’s EPA proposes to end the U.S. fight against climate change
Jesse’s upshift (and accompanying video); Rob’s sort of upshift.
This episode of Shift Key is sponsored by …
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Music for Shift Key is by Adam Kromelow.
Since July 4, the federal government has escalated its assault on wind development to previously unimaginable heights.
The Trump administration is widening its efforts to restrict wind power, proposing new nationwide land use restrictions and laying what some say is the groundwork for targeting wind facilities under construction or even operation.
Since Trump re-entered the White House, his administration has halted wind energy leasing, stopped approving wind projects on federal land or in federal waters, and blocked wind developers from getting permits for interactions with protected birds, putting operators that harm a bald eagle or endangered hawk at risk of steep federal fines or jail time.
For the most part, however, projects either under construction or already operating have been spared. With a handful of exceptions — the Lava Ridge wind farm in Idaho, the Atlantic Shores development off the coast of New Jersey and the Empire Wind project in the New York Bight — most projects with advanced timelines appeared to be safe.
But that was then. In the past week, a series of Trump administration actions has presented fresh threats to wind developers seeking everyday sign-offs for things that have never before presented a potential problem. Renewables developers and their supporters say the rush of actions is intended to further curtail investment in wind after Congress earlier this summer drastically curtailed tax breaks for wind and solar.
“I don’t think they even care if it’ll stand judicial review,” Erik Schlenker-Goodrich, executive director of the Western Environmental Law Center, told me. “It’s just going to chill anyone with limited capital from going to [an] agency.”
First up: The Transportation Department last Tuesday declared that it would now call for a national 1.2-mile property setback — that is, a mandatory distance requirement — for all wind facilities near railroads and highways.
When it announced the move, the DOT claimed it had “recently discovered” that the Biden administration had “overruled a safety recommendation for dozens of wind energy projects” related to radio frequencies near transportation corridors, suggesting the federal government would soon be stepping in to rectify the purported situation. To try and support this claim, the agency released a pair of Biden-era letters from a DOT spectrum policy office related to Prairie Heritage, a Pattern Energy wind project in Illinois, one recommending action due to radio issues and a subsequent analysis that no longer raised concerns.
Citing these, the DOT stated that political officials had overruled the concerns of safety experts and called on Congress to investigate. It also suggested that “33 projects have been uncovered where the original safety recommendation was rescinded.” DOT couldn’t be reached for comment in time for publication. Pattern Energy declined to comment.
Buried in this announcement was another reveal: DOT said that it would instruct the Federal Aviation Administration to “thoroughly evaluate proposed wind turbines to ensure they do not pose a danger to aviation” — a signal that a once-routine FAA height clearance required for almost every wind turbine could now become a hurdle for the entire sector.
At the same time, the Department of the Interior unveiled a twin set of secretarial orders that went beyond even its edict of just the week before, requiring that all permits for wind and solar go through high-level political screening.
First, also on Tuesday, the department released a mega-order claiming the Biden administration “chose to misapply” the law in approving offshore wind projects and calling on nearly every branch of the agency to review “any regulations, guidance, policies, and practices” related to a host of actions that occur before and after a project receives its final record of decision, including right-of-way authorizations, land use plan amendments and revisions, and environmental and wildlife permit and analyses. Among its many directives, the order instructed Interior staff to prepare a report on fully-approved offshore wind projects that may have impacts on “military readiness.” It also directed the agency’s top lawyer to review all “pending litigation” against a wind or solar project approval and identify cases where the agency could withdraw or rescind it.
Then came Friday. As I scooped for Heatmap, Interior will no longer permit a wind project on federal land if it would produce less energy per acre than a coal, gas, or nuclear facility at the same site. This happens to be a metric where wind typically performs worse than its more conventional counterparts; that being the case, this order could amount to a targeted and de facto ban on wind on federal property.
Taken in sum, it’s difficult not to read this series of orders as a message to the entire wind industry: Avoid the federal government at all costs, if you can help it.
What does the future of wind development look like in the U.S. if you have to work around the feds at every turn? “It’s a good question,” John Hensley, senior vice president for markets and policy analysis at the American Clean Power Association, told me this afternoon. The challenge is that “as we see more and more of these crop up, it becomes more and more difficult to move these projects forward — and, somewhat equally important, it becomes difficult to find the financing to develop these projects.”
“If the financing community is unwilling to take on that risk then the money dries up and these projects have a lower likelihood of happening,” Hensley said, adding: “We haven’t reached the threshold where all activity has ground to a stop, but it certainly has pushed companies to re-evaluate their portfolios and think about where they do have this regulatory risk, and it pushes the financing community to do the same. It’s just putting more barriers in place to move these projects forward.”
Anti-wind activists, meanwhile, see these orders as a map to the anti-renewables Holy Grail: forcibly decommissioning projects that are already in service.
On the same day as the mega-order, the coastal vacation town of Nantucket, Massachusetts, threatened legal action against Vineyard Wind, the offshore wind project that experienced a construction catastrophe during the middle of last year’s high tourist season, sending part of a turbine blade and shards of fiberglass into the waters just offshore. The facility is still partially under construction, but is already sending electrons to the grid. Less than 24 hours later, the Texas Public Policy Foundation, a conservative legal group tied to other lawsuits against offshore wind projects, filed a petition to the Interior Department requesting that it reconsider prior permits for Vineyard Wind and halt operations.
David Stevenson, a former Trump adviser who now works with the offshore wind opponent Caesar Rodney Institute, told me he thinks the Interior order laid out a pathway to reconsider approvals. “Many of us who have been plaintiffs in various lawsuits have suggested to the Secretary of the Interior that there are flaws, and the flaws are spelled out in the lawsuits to the permit process.”
Nick Krakoff, a senior attorney with the pro-climate action Conservation Law Foundation, had an identical view to Stevenson’s. “I’m certainly not aware of this ever being done before,” he told me, noting that the Biden administration paused new oil and gas leases but didn’t do a “systematic review” of a sector to find “ways to potentially undo prior permitting decisions.”
Democrats in Congress have finally started speaking up about this. Last week four Democrats — led by Martin Heinrich, the top Democrat on the Senate Energy and Natural Resources Committee — sent a letter to Interior Secretary Doug Burgum arguing that the secretarial orders would delay any decision related to renewable energy in general, “no matter how routine.” A Democratic staffer on the committee, who requested anonymity to speak candidly about the letter, told me privately that “fear is where this is headed.”
“They’re just building a record that will ultimately allow them to not approve future projects, and potentially deny projects that have already been approved,” the staffer said. ”They have all these new hoops they have to go through, and if they’re saying these things aren’t in the public interest, it’s not hard to see where they are going.”