US President Joe Biden would like to be remembered as the Earth-saving president. But upon entering the Oval Office, he recently confronted some inconvenient truths. The bulk of the armoury he needs to deploy to save the environment is now made in China.
China produces 66 per cent of the world’s polysilicon, used in solar panels, 78 per cent of the world’s solar cells and 72 per cent of the world’s solar modules. China dominates the global solar energy supply chain, leaving the US a marginal presence.
Global wind turbine installations grew 59 per cent in 2020, defiant of the economic recession. Out of the world’s top 10 wind turbine manufacturers, seven are Chinese and one is American. The seven Chinese manufacturers contributed 65 per cent of the new global wind power infrastructure in 2020. The US-based company GE accounted for 14 per cent.
While China is the world’s largest carbon emitter, it is also the world’s largest renewable energy enabler. China emits 28 per cent of the world’s carbon and outputs over 17 per cent of the world’s GDP. Its wind and solar energy production capacity is more than twice the current share of its carbon footprint and over three times the economic weighting.
If Mr Biden indeed manages to power the world by harnessing the forces of nature, China stands to receive the biggest economic reward.
China pledged to reach its carbon output peak by 2030 and carbon neutrality by 2060 at the UN General Assembly last September. Hardly a crisis, decarbonisation is China’s strategic opportunity to deliver comprehensive industrial, financial, technological and geopolitical leadership, an opportunity no less significant than its accession to the World Trade Organisation in 2001.
Even less convenient for Mr Biden is that 45 per cent of the global polysilicon production, the raw material for solar energy panels, is made in Xinjiang. Goldwind, the largest Chinese wind turbine maker, which has a market share nearly equal to that of GE, is headquartered in Xinjiang. If the US chooses to sanction Xinjiang's renewable energy production, it will raise the cost of renewable investment in the US and further distance the US from global climate change leadership.
On the carbon-neutral roadmap, China earmarked $15.5 trillion in new energy infrastructure construction alone through 2050. The ambition, laid out by China’s National Development and Reform Commission, supports seven key energy infrastructures. They range from EV charging stations, hydrogen pipelines, high-speed power transmissions, intercity transportation links, 5G and Internet of Things-enablement.
The US needs to deploy $2.5tn to reach carbon neutrality before 2030. A small fraction of China’s, the funding will meet a significantly higher magnitude of difficulty.
Mr Biden compromised on his infrastructure proposal, the American Jobs Act, to $1.7tn, from his original $2.3tn last week. Already excluding energy infrastructure, vast disagreements remain in the proposal. The case for a sequential $2.5tn infrastructure bill to bring the US to carbon neutrality can hardly be argued at this stage.
A zero-carbon world can only be achieved with a high investment model, almost surely led by government investment. No one can expect Tesla to build EV charging stations across the US before the mass adoption of EVs arrives, or Union Pacific to place cross-country high-speed rail networks before population density makes economic sense.
China’s state-led high investment model, by definition, will give China an edge in establishing renewable energy infrastructure necessary for the speedy energy transition.
Meanwhile, China’s national carbon exchange is to debut on June 30. As the world’s largest carbon emitter, China is naturally endowed to create the world’s largest carbon trading market in the future. The power of volume translates into the power of pricing. Future carbon prices will not only be set in China, but increasingly denominated and traded in the RMB.
Carbon trading is one single financial category that may give China the universal financial prowess the country has never reached. It will expedite the internationalisation of the RMB, with wider global usage in the investment arena.
The transition to renewable energy parallels the transition of China’s national destiny. Seventy per cent of China’s oil and 45 per cent of China’s natural gas rely on imports. China’s vital energy security is contingent upon the stability in the Middle East and the stability of its relationship with the US. Should the US seal off the Strait of Malacca in a potential Asia Pacific conflict, about 80 per cent of China’s oil imports would be blocked, a prominent geopolitical risk.
China’s power insecurity is about its power literally. Let’s think about the unthinkable. The world’s largest energy importer will be transformed into the world’s net energy exporter, as China decarbonises. The global energy dynamics, the role of the Middle East and China’s commanding position in the global renewable energy supply chain will usher in a new global order. China’s energy revolution can be the single biggest fate-turner for the oil-producing countries in the Middle East, as much as for China itself.
China’s carbon neutral strategy, different from the developed world, is not in response to any public outcry. It is strategically conceived and delivered by the government, from the top down.
Mr Biden singles out climate change as an area of co-operation with China. With China’s lofty ambition and the massive financial resources it is willing to deploy to back it, the wheel of fate is indeed turning. It is time that Mr Biden ask himself whether he is really the one saving the Earth.
Dr Shirley Yu is a political economist and nonresident fellow at Harvard University's Kennedy School of Government