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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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A conversation with Mary King, a vice president handling venture strategy at Aligned Capital
Today’s conversation is with Mary King, a vice president handling venture strategy at Aligned Capital, which has invested in developers like Summit Ridge and Brightnight. I reached out to Mary as a part of the broader range of conversations I’ve had with industry professionals since it has become clear Republicans in Congress will be taking a chainsaw to the Inflation Reduction Act. I wanted to ask her about investment philosophies in this trying time and how the landscape for putting capital into renewable energy has shifted. But Mary’s quite open with her view: these technologies aren’t going anywhere.
The following conversation has been lightly edited and abridged for clarity.
How do you approach working in this field given all the macro uncertainties?
It’s a really fair question. One, macro uncertainties aside, when you look at the levelized cost of energy report Lazard releases it is clear that there are forms of clean energy that are by far the cheapest to deploy. There are all kinds of reasons to do decarbonizing projects that aren’t clean energy generation: storage, resiliency, energy efficiency – this is massively cost saving. Like, a lot of the methane industry [exists] because there’s value in not leaking methane. There’s all sorts of stuff you can do that you don’t need policy incentives for.
That said, the policy questions are unavoidable. You can’t really ignore them and I don’t want to say they don’t matter to the industry – they do. It’s just, my belief in this being an investable asset class and incredibly important from a humanity perspective is unwavering. That’s the perspective I’ve been taking. This maybe isn’t going to be the most fun market, investing in decarbonizing things, but the sense of purpose and the belief in the underlying drivers of the industry outweigh that.
With respect to clean energy development, and the investment class working in development, how have things changed since January and the introduction of these bills that would pare back the IRA?
Both investors and companies are worried. There’s a lot more political and policy engagement. We’re seeing a lot of firms and organizations getting involved. I think companies are really trying to find ways to structure around the incentives. Companies and developers, I think everybody is trying to – for lack of a better term – future-proof themselves against the worst eventuality.
One of the things I’ve been personally thinking about is that the way developers generally make money is, you have a financier that’s going to buy a project from them, and the financier is going to have a certain investment rate of return, or IRR. So ITC [investment tax credit] or no ITC, that IRR is going to be the same. And the developer captures the difference.
My guess – and I’m not incredibly confident yet – but I think the industry just focuses on being less ITC dependent. Finding the projects that are juicier regardless of the ITC.
The other thing is that as drafts come out for what we’re expecting to see, it’s gone from bad to terrible to a little bit better. We’ll see what else happens as we see other iterations.
How are you evaluating companies and projects differently today, compared to how you were maybe before it was clear the IRA would be targeted?
Let’s say that we’re looking at a project developer and they have a series of projects. Right now we’re thinking about a few things. First, what assets are these? It’s not all ITC and PTC. A lot of it is other credits. Going through and asking, how at risk are these credits? And then, once we know how at risk those credits are we apply it at a project level.
This also raises a question of whether you’re going to be able to find as many projects. Is there going to be as much demand if you’re not able to get to an IRR? Is the industry going to pay that?
What gives you optimism in this moment?
I’ll just look at the levelized cost of energy and looking at the unsubsidized tables say these are the projects that make sense and will still get built. Utility-scale solar? Really attractive. Some of these next-gen geothermal projects, I think those are going to be cost effective.
The other thing is that the cost of battery storage is just declining so rapidly and it’s continuing to decline. We are as a country expected to compare the current price of these technologies in perpetuity to the current price of oil and gas, which is challenging and where the technologies have not changed materially. So we’re not going to see the cost decline we’re going to see in renewables.
And more news around renewable energy conflicts.
1. Nantucket County, Massachusetts – The SouthCoast offshore wind project will be forced to abandon its existing power purchase agreements with Massachusetts and Rhode Island if the Trump administration’s wind permitting freeze continues, according to court filings submitted last week.
2. Tippacanoe County, Indiana – This county has now passed a full solar moratorium but is looking at grandfathering one large utility-scale project: RWE and Geenex’s Rainbow Trout solar farm.
3. Columbia County, Wisconsin – An Alliant wind farm named after this county is facing its own pushback as the developer begins the state permitting process and is seeking community buy-in through public info hearings.
4. Washington County, Arkansas – It turns out even mere exploration for a wind project out in this stretch of northwest Arkansas can get you in trouble with locals.
5. Wagoner County, Oklahoma – A large NextEra solar project has been blocked by county officials despite support from some Republican politicians in the Sooner state.
6. Skagit County, Washington – If you’re looking for a ray of developer sunshine on a cloudy day, look no further than this Washington State county that’s bucking opposition to a BESS facility.
7. Orange County, California – A progressive Democratic congressman is now opposing a large battery storage project in his district and talking about battery fire risks, the latest sign of a populist revolt in California against BESS facilities.
Permitting delays and missed deadlines are bedeviling solar developers and activist groups alike. What’s going on?
It’s no longer possible to say the Trump administration is moving solar projects along as one of the nation’s largest solar farms is being quietly delayed and even observers fighting the project aren’t sure why.
Months ago, it looked like Trump was going to start greenlighting large-scale solar with an emphasis out West. Agency spokespeople told me Trump’s 60-day pause on permitting solar projects had been lifted and then the Bureau of Land Management formally approved its first utility-scale project under this administration, Leeward Renewable Energy’s Elisabeth solar project in Arizona, and BLM also unveiled other solar projects it “reasonably” expected would be developed in the area surrounding Elisabeth.
But the biggest indicator of Trump’s thinking on solar out west was Esmeralda 7, a compilation of solar project proposals in western Nevada from NextEra, Invenergy, Arevia, ConnectGen, and other developers that would, if constructed, produce at least 6 gigawatts of power. My colleague Matthew Zeitlin was first to report that BLM officials updated the timetable for fully permitting the expansive project to say it would complete its environmental review by late April and be completely finished with the federal bureaucratic process by mid-July. BLM told Matthew that the final environmental impact statement – the official study completing the environmental review – would be published “in the coming days or week or so.”
More than two months later, it’s crickets from BLM on Esmeralda 7. BLM never released the study that its website as of today still says should’ve come out in late April. I asked BLM for comment on this and a spokesperson simply told me the agency “does not have any updates to share on this project at this time.”
This state of quiet stasis is not unique to Esmeralda; for example, Leeward has yet to receive a final environmental impact statement for its 700 mega-watt Copper Rays solar project in Nevada’s Pahrump Valley that BLM records state was to be published in early May. Earlier this month, BLM updated the project timeline for another Nevada solar project – EDF’s Bonanza – to say it would come out imminently, too, but nothing’s been released.
Delays happen in the federal government and timelines aren’t always met. But on its face, it is hard for stakeholders I speak with out in Nevada to take these months-long stutters as simply good faith bureaucratic hold-ups. And it’s even making work fighting solar for activists out in the desert much more confusing.
For Shaaron Netherton, executive director of the conservation group Friends of the Nevada Wilderness, these solar project permitting delays mean an uncertain future. Friends of the Nevada Wilderness is a volunteer group of ecology protection activists that is opposing Esmeralda 7 and filed its first lawsuit against Greenlink West, a transmission project that will connect the massive solar constellation to the energy grid. Netherton told me her group may sue against the approval of Esmeralda 7… but that the next phase of their battle against the project is a hazy unknown.
“It’s just kind of a black hole,” she told me of the Esmeralda 7 permitting process. “We will litigate Esmeralda 7 if we have to, and we were hoping that with this administration there would be a little bit of a pause. There may be. That’s still up in the air.”
I’d like to note that Netherton’s organization has different reasons for opposition than I normally write about in The Fight. Instead of concerns about property values or conspiracies about battery fires, her organization and a multitude of other desert ecosystem advocates are trying to avoid a future where large industries of any type harm or damage one of the nation’s most biodiverse and undeveloped areas.
This concern for nature has historically motivated environmental activism. But it’s also precisely the sort of advocacy that Trump officials have opposed tooth-and-nail, dating back to the president’s previous term, when advocates successfully opposed his rewrite of Endangered Species Act regulations. This reason – a motivation to hippie-punch, so to speak – is a reason why I hardly expect species protection to be enough of a concern to stop solar projects in their tracks under Trump, at least for now. There’s also the whole “energy dominance” thing, though Trump has been wishy-washy on adhering to that goal.
Patrick Donnelly, great basin director at the Center for Biological Diversity, agrees that this is a period of confusion but not necessarily an end to solar permitting on BLM land.
“[Solar] is moving a lot slower than it was six months ago, when it was coming at a breakneck pace,” said Patrick Donnelly of the Center for Biological Diversity. “How much of that is ideological versus 15-20% of the agencies taking early retirement and utter chaos inside the agencies? I’m not sure. But my feeling is it’s less ideological. I really don’t think Trump’s going to just start saying no to these energy projects.”