Blocking China’s green energy boom would be a disaster

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The author is an FT contributing editor and writes the Chartbook newsletter.

Since the Biden administration passed the Inflation Reduction Act of 2022, we have been worried about a race for green industrial subsidies. Talk of Chinese “overcapacity” has perpetuated this narrative. Competing subsidies could waste real resources and taxpayer money. Tariffs on solar panels and electric vehicles could escalate into a broader trade war.

But what if, in the next 12 months, the three main players — the US, China and the EU — call it off? While it is sustained by massive technological innovation and falling costs, the green energy boom may turn out to be less robust than many of us hope.

The EU must renew its Next Generation EU commitments after 2026 to prevent support for the Green Deal from drying up. After the 2019 European elections, the political direction was clearly green. After last month’s European elections, with a shift to the right, that is no longer the case. The French parliamentary elections are likely to reinforce the turn against accelerated green policies. Marine Le Pen’s camp is not a climate sceptic like Donald Trump. But one of the Rassemblement National’s surest promises is to lower the price of diesel for the van-driving electorate.

If elected in the US, Trump has promised to cut Joe Biden’s subsidies for the energy transition. Biden’s team anticipated this and made the subsidies so industry-friendly that the business lobby is already rallying to their defense. But the difference between a real energy transition and greenwashing is small. By changing the administrative rules, the IRA could be transformed into a subsidy machine for the oil lobby’s favorite projects, such as dirty hydrogen.

If Biden is re-elected, the US will stay on course. But barring a miracle, there is little or no hope for a congressional majority for new climate legislation. The IRA is the best we can hope for.

But the significance of what is happening in Europe and the US is overshadowed by the decisions Beijing has to make over the next 12 months. China emits more greenhouse gases than Europe and the US combined, and its green energy investment in 2024 is expected to be greater than either Europe or the US. China’s green energy investment in photovoltaics, batteries, new energy vehicles and long-range ultra-high-voltage transmission is the first to reach a scale where it is really starting to transform the entire economic landscape. In 2023, green energy investment was the single largest driver of China’s economic growth, according to a calculation by the think tank CREA.

Between now and spring 2025, China must forge new decarbonization commitments under the Paris climate accords. The question is whether Beijing’s planners have the courage and conviction to back the surprising pace at which Chinese companies are driving the energy transition, or whether they will retreat to a more cautious line.

As Lauri Myllyvirta, one of China’s leading energy experts in the West, has noted, there is a worrying gap between the pace of change actually achieved in the past few years and the vision of the future that Beijing’s top energy officials apparently prefer. While China’s solar and wind industries installed almost 300 GW of new capacity in 2023, its National Energy Agency predicts future expansion at just over 100 GW per year.

To explain its caution, the NEA points to the need for greater coordination of green energy investments and smoother pricing systems to make the renewable system reliable. These are familiar problems in the West. But if they were to stifle China’s world-changing green energy boom, it would be a disaster of historic proportions.

China’s extraordinary pace of investment in green energy in recent years may provoke defensive reactions in the West. But it is our best hope for actually achieving climate stabilization in time to avert planetary catastrophe. Given the urgency of the task, equilibrium thinking is tantamount to a mild form of climate denial. It will make the challenge of achieving neutrality by 2060 even more daunting. And in doing so, it undermines the credibility of a commitment that is fundamental to building a broad coalition around decarbonization.

In 2008-09, China’s stimulus to heavy industry drove much of the world’s growth and pushed global CO₂ emissions to new highs. Decisions taken over the next 12 months will determine whether the country can maintain its momentum for global green growth in the years ahead.