The Scene
On Thursday, the top climate diplomats from the world’s two most polluting countries are meeting in Washington, D.C. John Podesta, America’s climate envoy, and Liu Zhenmin, China’s climate envoy, will hold their first formal session and lay the groundwork for the United Nations climate conference in Azerbaijan later this year. They will discuss, among other topics, boosting climate finance and making further cuts to methane emissions, according to Axios.
Both men are new to their posts, with their predecessors John Kerry and Xie Zhenhua having each stepped down in the past year. That could prove important. Kerry and Xie could draw on their long personal relationship in their negotiations: During the UN climate conference in Glasgow in 2021, their friendliness seemed to hold the talks together.
Now, Liu and Podesta, who is also overseeing the Inflation Reduction Act’s implementation, must forge a new bond. And they must do so in an environment where vastly every climate-related issue — electric vehicles, coal power, industrial potency, and trade — has gotten caught up in the deteriorating relationship between the two superpowers.
The Backdrop
Does it make sense to talk about the economy, climate change, and national security as separate issues anymore? Some of the same issues that have complicated America and China’s political and economic relationship — the former’s rising tariffs, the latter’s alleged “overcapacity” — are inextricable from their climate policies. In a way, the questions that Podesta and Liu will confront all come down to one idea: What kind of world can we all live in?
I recently attended the Hewlett Foundation’s Common Sense conference outside San Francisco, a gathering of thinkers, scholars, and journalists from the right and left who are trying to find a “post-neoliberal” ideology, something to replace the dogma of free trade and unfettered markets that has reigned since the days of Ronald Reagan and Margaret Thatcher.
Rana Foroohar of the FTnoted last year that the Hewlett conference aims to become a kind of post-neoliberal “Mount Pelerin Society,” the midcentury ensemble of economists, philosophers, historians, and business leaders who first plotted what later became neoliberalism. I’m not sure about that — there weren’t too many business leaders in California last month, and not every attendee adhered to the post-neoliberal school of thought — but it was a fascinating few days of discussion, and some big names, including Rep. Ro Khanna and Sen. Chris Murphy, appeared onstage. (I was there to moderate a climate policy panel.)
I agree with the central thesis, though: Look around and you can see a new school of political and economic thought come into view. At its best, this post-neoliberal ideology sees markets as onetool of many to organize prosperity and human effort. Its adherents believe that markets are created and organized by governments — and that, therefore, governments have a right to shape markets to achieve more societally harmonious ends.
Under Biden, the Federal Trade Commission and the Justice Department have investigated tech companies and blocked high-profile corporate mergers, a trend that could continue under Trump. There is an emerging bipartisan interest in industrial policy, even if Democrats and Republicans can’t always agree on how it should be used. Biden is the most pro-labor president in a generation, and even a few Republicans now sympathize with unions. (Perhaps most importantly, last month the United Auto Workers successfully organized a Volkswagen factory in the right-to-work South.) Lawmakers and officials talk about the economy not as a self-balancing marvel, but as a set of interlaced supply chains and industrial processes, which can sometimes be managed at the source. The government can distribute vaccines, subsidize solar panels, and contract for the production of heat pumps.
But at its worst, this new ideology seeks to seed the economy with protectionist institutions in the name of political expediency. Unconstrained, such a tendency could, for instance, degrade the American car industry, filling the roads with bloated and expensive gas guzzlers. It could make housing and healthcare even more expensive for Americans while justifying new patronage networks, autarky, and the politicized persecution of companies or industries.
Whether good or bad, though, something is coming. “I believe we’re in the seventh inning stretch of consolidating a successor to neoliberalism,” Jennifer Harris, a former White House official who now runs the Hewlett Foundation’s Economy and Society program, said at the conference’s opening. Innings one through three were just about “jumping up and down and saying the word neoliberalism a lot,” she added, but now a more complete ideology is forming. Call it a liberalism that builds, productivism, or something else: Policymakers are approaching the economy in a new way.
And, well, cheers for that — not three, though. Maybe two. Here at Heatmap, we try to cover that new way of thinking about economics and society in part because climate change is a big force driving that change in the first place. The challenge of decarbonization is leading policymakers to think about the real economy in new ways. You can see this in Biden’s approach to remaking the American economy: He has rejected the old climate orthodoxy that governments should price carbon and let the market do the rest in favor of a more experimental, sector-by-sector scheme of tax credits, grant programs, and public investments.
But I can only go so far in saluting this new paradigm, because the other factor driving the change is the deteriorating geopolitical environment. If the United States government is taking the reins of its economy, that is because it fears what the Chinese government might do in the near future. This anxiety, too, you can see across economic policy. Under Biden, the government’s most forceful bipartisan intervention in the economy — the CHIPS Act — stemmed from anxieties over a Chinese invasion of Taiwan. Even the Bipartisan Infrastructure Law has been justified by citing the Chinese threat. Senator Joe Manchin’s decisive support of the Inflation Reduction Act, too, was rooted in the fear — now partly realized — that China would dominate the clean-energy future.
That must lend an air of melancholy to our post-neoliberal moment: If economic policy is getting better, it’s because the world is getting worse.
The Stage
One more thought to complicate the Podesta-Liu talks: The two forces driving this phenomenon — the urgency of decarbonization and the rise of a menacing Sino-American relationship — coexist with great difficulty in U.S. policy. But in China, they fit more easily.
Over the past few months, the American and European press have come to terms with just how exceptional China’s electric-vehicle and battery industries have become. This advantage is due in part to China’s large consumer market and its pre-existing proficiency at making electronics of all kinds. (China’s top EV battery maker, CATL, was spun off of a Hong Kong-based company ATL, which manufactured iPhone batteries.)
But policy has played a decisive role, too. China has subsidized its EV industry far more generously than the U.S. or Europe, and its officials have cracked down on internal-combustion vehicles to a degree not seen in the West. Why have China’s leaders leaned so much into EVs? And why has China become so skilled at manufacturing solar panels, wind turbines, grid-scale batteries, and other essential decarbonization tech?
The answer lies, in part, in its national security prerogatives. China’s economy depends on oil, of which it has almost no domestic reserves to speak of. It imports more than 10 million barrels of oil a day, and in a hypothetical Sino-American conflict, the U.S. would move to cut off China’s access. So it behooves China to invest in technologies that reduce its dependence on oil and fossil fuels.
Now, is energy security the only reason that China has embraced the energy transition? Of course not. Its political and corporate leaders know that decarbonization presents a massive global market opportunity. They know, too, that climate action is the humanitarianism of the 21st century: It is one of the few things that a country can do that seems to redound to every other country’s benefit.
But note that decarbonization plays virtually the opposite role in the U.S. At least for now, we have vast fossil fuel reserves, while we have to rely on imported minerals and materials to make EVs, many of them from China. Decarbonizing, in other words, does little for our energy security in the short-term — at least until sufficient mining and refining capacity opens in North America.
This is just some of what Podesta must weigh as he sits down with Liu. And it’s a good reminder: During the free trade era, climate was a side issue that could be shunted to its own UN session. Now, in more ways than one, it’s life and death.
IEA