By: admin On: March 28, 2018 In: Uncategorized Comments: 0

WHEN IT COMES to energy, no country generates such bittersweet superlatives as China. It is the world’s largest consumer of coal and the second-largest of oil, after America. It has the largest power-generation capacity, by a wide margin. It also produces more carbon dioxide than any other country.

China is hoping to deal with this over-dependence on fossil fuels partly by rebalancing the economy away from energy-intensive industries. But it also leads the world in clean energy. In recent years, through a combination of subsidies, policy targets and manufacturing incentives, it has spent more on cleaning up its energy system than America and the EU combined. Last year alone it shelled out $132bn, according to Bloomberg New Energy Finance (BNEF), a consultancy.

The International Energy Agency (IEA) says China has one-third of the world’s wind power, a quarter of its solar capacity, six of the top ten solar-panel manufacturers and four of the top ten wind-turbine makers. It sells more electric vehicles than the rest of the world combined. It also leads the world in construction of nuclear power plants. In December it gave the go-ahead for what is expected to be the world’s largest carbon-trading scheme.

Given China’s thirst for energy, the combined impact of these advances in renewables is still relatively small. Non-fossil-fuel energy, chiefly hydro and nuclear, accounts for only 12% of its total energy mix. And China is far from self-sufficient. That is why, for the next decade at least, China’s main energy-related geopolitical concern will be the need to secure fossil fuels.

This is already evident in the plethora of deals that its state-owned companies are doing with oil and gas producers in the Middle East and Russia, both to finance new projects and to help develop them. But China is also reaching out to America.

Zou Ji of the Energy Foundation, a think-tank, says the immediate priority for China’s energy policymakers is to curb the dirtiest uses of coal, especially heating urban homes with it. For this, America’s shale revolution may be a blessing, he says. By adding large quantities of liquefied natural gas (LNG) to global markets, it has made it cheaper and easier for China’s coastal areas to switch from coal to gas. Last year the country’s LNG imports grew by 50%.

Increasingly China is looking to America to help it diversify its sources of supply. In February China National Petroleum Corporation, a state behemoth, signed the first ever long-term contract to buy LNG from an American supplier, Texas-based Cheniere Energy. Mr Zou says that more energy interdependence between China and America, particularly in the LNG market, could be good for relations between the two superpowers, especially if it helps reduce America’s trade deficit with China.

Eventually, China’s increasing production and use of renewables, batteries and electric vehicles (EVs) are also likely to have geopolitical consequences, even if that is not the government’s primary aim. China could benefit in three ways.

All power to the yellow emperor

First, by being able to produce more of its own energy, it will reduce its reliance on fuel imports that may be vulnerable to global instability. Second, its “soft power” will be strengthened. This is already evident in its leadership role in the Paris climate agreement. Third, and perhaps most important, the development of clean-energy technologies—especially batteries and EVs—could put it firmly in the vanguard of the energy transition, ahead of America and Europe, and provide a new impetus for economic growth.

Currently the race is wide open. No country has an unassailable lead. Whether clean-energy technology becomes a source of healthy competition or geopolitical friction will depend largely on global trade. If it becomes bogged down in protectionism, trade wars and cyber-crime, everyone will lose. But that need not happen.

So far, many in the West have been sceptical about China’s role in renewable-energy technology. The country’s solar industry is thought to have piggybacked on Germany’s generous renewable-energy subsidies and has benefited from massive government support. In 2012 the European Commission launched anti-dumping and anti-subsidy investigations of Chinese solar-panel imports. The following year the two sides reached a settlement, followed by the imposition of minimum prices. In 2014 America slapped import duties on Chinese solar-panel imports. In January the Trump administration imposed more tariffs on imported solar panels, most of which come from China.

The Chinese have bungled some of their own renewable-energy policies, building large-scale projects in remote locations without the transmission lines to support them. Some Western experts argue that China lacks adequate regulatory structures for a smooth transition to clean energy. And in 2010 the Chinese authorities halted most exports of rare earths, raising fears about their stranglehold on the supply of minerals critical to green-energy technology (see article).

However, such criticisms risk underplaying the sheer entrepreneurial zeal that the Chinese put into clean energy, and their growing ambition to decentralise as well as decarbonise the energy supply. Both may give China a dominant position in developing the energy technologies of the future.

For instance, the world’s biggest solar-panel manufacturer, Shanghai-based Jinko Solar, is a relative newcomer that started only 11 years ago. Since 2013 it has quintupled global production to a mighty 10 gigawatts (GW) a year and doubled its global market share to 10%. Gener Miao, its head of sales, explains that the firm has succeeded by internationalising its marketing efforts and relentlessly investing in technology. Support from the Chinese government now mostly goes on early-stage research projects, he claims.

Another case in point is one of China’s biggest wind-turbine developers, Envision, also from Shanghai. It has invented turbines that operate at low wind speeds so they can be placed close to urban centres, rather than in the country’s remote northwest. But the company views the turbines merely as a cash cow for a bigger ambition: to create a global “energy internet”, or operating system, that helps companies manage locally produced, or “distributed”, energy assets such as turbines and solar panels, electric vehicles, battery storage and commercial electrical appliances. Launched in 2016, Envision says the system already manages more than 100GW of renewable assets globally (more than America’s entire wind capacity).

China is also upgrading its regulatory structure. Sophie Lu of BNEF says that distributed solar energy accounted for almost one-third of the 53GW of new solar capacity installed in China last year. This surprised everyone because until recently all renewable energy had been installed in remote areas on a utility scale. The aim is to spur reform of China’s gargantuan power company, State Grid. “The government is using technology, innovation and power-market reform to break the monopoly of the grid,” says Ms Lu.

In future the main bone of contention may be the new technologies developed to make renewable energy and storage ever more cost-competitive. Some American experts fret that by giving a low priority to renewable energy, the Trump administration may put America’s industry at a disadvantage in relation to China’s. Since President Trump decided to pull out of the Paris agreement, he appears to have jettisoned America’s pledge to double the $6.4bn the government is due to spend on energy innovation by 2020. China pledged $7.6bn, so it may soon take the lead. Equally telling, research by Devashree Saha and Mark Muro of the Brookings Institution, a think-tank, shows that patents and venture-capital investment in clean-energy technologies in America recently peaked. Patenting, they said, was increasingly done by foreign firms, especially Chinese ones.

If China’s growth in clean-energy technology leads to more protectionism, along the lines of the Trump administration’s move in January against imports of solar panels, clean tech could become a trade battleground. The same could happen if China denies Western energy technology a meaningful place in its markets (as it has done with American internet firms) or restricts access to its rare earths. But technology also provides scope for collaboration. If America, the EU and China can build that into the transition to renewables, energy geopolitics will start to look a lot more promising.

This article appeared in The Economist‘s Special Report Section