As nearly any six year old would be more than happy to tell you, the problem is never that there is too much ice cream, or too many toys, or too much screen time. Yet adults considering the political and economic challenges of decarbonizing energy systems continue to harp on the downsides of “overcapacity” — in China, specifically — of production for clean technologies, namely solar and batteries and EVs.
As Heatmap’s own Robinson Meyer has
argued, China’s monumental “overinvestment” in clean technologies may lead to trade difficulties with the United States and European Union, which are attempting to stand up cleantech production either inside their own borders or within others they’ve deemed acceptable (a concept that goes by various names, such as reshoring, nearshoring, and friendshoring) and see Chinese competition as likely to strangle these infant industries before they can stand up on their own.
However accurate that view might be, it’s important to remember that China’s investments in solar and batteries are largely responsible for the immense cost declines in these technologies across the globe. Solar is now the cheapest source of electricity the world has ever seen. Inexpensive batteries allow Chinese automakers like BYD to sell electric vehicles for prices well below those traditional internal combustion vehicles.
If anything, these huge investments represent a breakthrough that allows all of us to envision a clean, abundant future. If Europe and the U.S. are sour about not controlling the said future, the developing world will likely be too busy celebrating the end to their energy poverty to care.
Good Clean Energy Is Cheap Clean Energy
As Heatmap readers likely already know, clean electrification is the skeleton key to global decarbonization. It obviously doesn’t solve everything (hello agriculture), but it’s more of a giant leap along the net zero path than a small, first step. Solar, wind, and batteries are its principal components and all have followed
learning curves--with greater production yielding price declines over and over again.
China dominates global cleantech manufacturing today, and it’s investing more in production and deployment than the rest of the world. As for what that means, the International Energy Agency’s recently published
Renewables Report helps fill in the picture:
- First, the world is going to deploy more clean electricity generating capacity in the next five years — in the main scenario, 3700 gigawatts — than has been installed in the past 100. (Note: this rapid expansion still leaves the world short of the UAE Consensus goal of tripling renewables by 2030.) Over 60% of that capacity will be deployed in a single country: China. In 2023 alone, China installed 217 GW of solar (and 76 GW of wind), absorbing a solid share of its abundant production.
- Second, the expansion of solar factories has been so rapid that even under the most accelerated deployment scenario, the world will use only about 70% of the factories’ capacity. This implies further price declines amid a supply glut, and likely some firms going bankrupt. Some of these factories will be downsized or never built. It’s important to remember that overinvestment is mostly a problem for the investors in those plants (including Chinese local governments who have immense debt problems already), not for the world.
The United States has tried to defend its turf by putting
tariffs on Chinese EVs, and the myriad subsidies for clean technologies in the Inflation Reduction Act almost all have restrictions on the country of origin as well as whether components were made by “foreign entities of concern.” The European Union, meanwhile, launched an investigation into Chinese EV subsidies and is in the process of implementing its Carbon Border Adjustment Mechanism to try to put imports on equal footing with its internal carbon pricing scheme.
While China
blasts these actions as simple protectionism, there is a strong argument to be made that maintaining a politically durable coalition in favor of decarbonization inside these countries requires some degree of domestic EV production to provide good jobs. Production of these specific tradable goods takes place in factories where the prototypical good job — union, blue collar — has been located, historically. Whether decarbonization efforts should so heavily emphasize these particular high quality jobs instead of less tradable positions in energy installations, grid maintenance, and efficiency is an open question.
Even if we accept that argument, though, it wouldn’t change the fact that what matters most for the planet is building and deploying lots of clean technologies — and continuing to get better at making and using them.
This matters because the rich countries are not going to define the world’s emissions trajectory for the next 75 years. The
Rhodium Climate Outlook 2023 projects likely pathways of global emissions to 2100. It forecasts emissions will decrease from the equivalent of around 50 billion metric tons today to around 40 billion by 2060, but then rise again to around 50 billion metric tons by 2100. That reversal comes about because Rhodium sees decarbonization as both more partial and more local than it’s often imagined. Only China and the member countries of the Organisation for Economic Cooperation and Development dramatically reduce their emissions over the next 25 years while most of the world merely holds steady — with the exception of Africa, where emissions grow substantially.
All of this is because Rhodium also assumes that getting the final bits of carbon out of the global economy will be much more difficult than picking off the low-hanging fruit, as we’re doing today by moving from coal to gas and increasingly to renewables. Solar is already so cheap that it is showing up everywhere —
in South Africa when citizens are tired of rolling blackouts; in Nigeria, stepping in for generators after diesel subsidies were reduced; even with a random YouTuber rehabbing an abandoned French chateau. Batteries are also getting cheaper and helping grids in stress. Maybe green hydrogen will, as well.
Building clean, resilient electrical grids starting as soon as possible will have immense benefits for the climate. But doing it at scale everywhere in the world is contingent on these technologies being affordable. And to date Chinese prices remain lower than in the rest of the world. Take solar: A December 2023, analysts at Wood MacKenzie priced Chinese modules at 15 cents a watt compared with 40 cents in the U.S., 30 in Europe, and 22 in India.
This isn’t to say that the rest of the world should stop trying to produce more and lower costs — again, more good things are good, and adding resilience and reducing dependence on a single country has real benefits — but rather that we should remember to celebrate a bit how much of a win we’ve already seen. The point, after all, is not to win climate change, but rather to avoid it. How well we manage to do that will depend in no small part on putting rivalries aside.
C3S
