China’s green tech surge could turn global climate politics on its head

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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.

To bring home the enormity of the task of addressing climate change, I often think about the following. Humanity has only changed the main source of energy powering societies and economies a handful of times in our history, and each energy revolution has been, well, just that. But never before has the change taken place as a result of a conscious, collective decision that this is what we should do, with intentional policies to make it happen, rather than as simply the effect of scientific discoveries and technological breakthroughs (eg the internal combustion engine). But that is the case for the shift we are trying to make from a fossil fuel-powered economy and society to one running fully on renewable electricity.

It’s best not to dwell too long on this fact as it makes the challenge look even more forbidding. Most climate-related news seems to be that we are failing and running out of time, because both the economic transformation and political change we need are far too slow. So today let me bring at least one case for optimism — which focuses on the good news inherent in what many regard as economic threats from China.

Shouldn’t Beijing want to push others to decarbonise more?

The overall prospects for the Chinese economy remain clouded. Free Lunch has long held the view that getting back to sustained strong growth any time soon will require forceful balance sheet restructuring, although for now, Chinese authorities seem determined to repeat the mistakes western countries usually make after real estate crashes. (Its demography doesn’t look too hot either.)

But there can be no doubting how Beijing’s currently favoured sectors — green tech and renewable energy infrastructure — are raging ahead.

The fast-expanding capacity in electric vehicle manufacturing has caught everyone’s attention, especially as Chinese-made EVs are now starting to enter the EU market in earnest. (If you missed it, make sure you read my colleagues’ Big Read on the Chinese EV industry from two weeks ago.) And that follows China’s previous effort to dominate global production of photovoltaics and other renewable energy equipment.

What is perhaps less appreciated is how much difference this is making to the decarbonisation agenda — in China and the world as a whole.

The International Energy Agency estimates that China more than doubled its solar generation capacity and added two-thirds to its wind generation capacity in 2023. Our sister FT newsletter Energy Source (sign up here!), discussing the IEA’s latest report, highlighted these key points about China: “The country deployed as much solar capacity last year as the entire world did in 2022 and is expected to add nearly four times more than the EU and five times more than the US from 2023-28 . . . Two-thirds of global wind manufacturing expansions planned for 2025 will occur in China, primarily for its domestic market.”

There is evidence — reported by my colleague Edward White at the start of the year — that China’s economic and political structure of centralised (indeed dictatorial) political power and an economy dominated by state-owned enterprises have been used to good effect to shift the country into the green tech future. Renewables have reached 50 per cent of power generation capacity, and transport is rapidly being electrified. The much-decried “overcapacity” in both sectors suggests China’s decarbonisation drive could accelerate some more.

All of this is, of course, a bit speculative. But for what they are worth, these speculations suggest several policy-relevant predictions that are rather striking.

One is that the attention — and subsidies! — Beijing has been lavishing on renewables and green tech will have their greatest impact not on competing markets such as the EU, but on China itself. Sooner than being flooded with Chinese EVs, the EU could see itself overtaken as the world’s fastest-decarbonising region by a China flush with EVs on its own roads and solar and wind farms in its own fields. Add in the huge capacity in battery manufacturing, and you can see the prospect for an unprecedented use of electricity storage to manage short-term intermittency in renewables. So amid the hand-wringing that China keeps building new coal plants, leave some room for the possibility that it could also quickly be making them obsolete.

Another is that this reinforces western climate policies often criticised as aggressive and protectionist by China and others, above all the EU’s Carbon Border Adjustment Mechanism. This carbon tariff, the FT’s excellent reporting shows, is making Chinese producers of the affected sectors work hard to reduce their carbon footprint so as not to be locked out of European markets. Here are two important observations about that. The huge resources Beijing has sunk into green tech should make it a lot easier for its companies to adapt to policies such as CBAM. Meanwhile, on the EU side, the fact that the policy works — both in protecting green EU industry from being undercut by dirty competitors and in encouraging decarbonisation efforts elsewhere — will make it easier to expand CBAM to downstream products. The political and economic logic for this to happen is after all undeniable: it doesn’t do to protect green but expensive steelmaking while ignoring that carmakers, say, still face being undercut by producers using cheap and dirty steel.

The third potential consequence would be the most monumental change of all. If China does indeed accelerate and, as a result, finds itself moving towards the front of the race towards net zero, how will that affect its stance in global climate politics? Add in the increasing likelihood that it will find not just that it can decarbonise at ever lower cost, but that others’ efforts to decarbonise will sustain huge and growing markets for products that it excels in manufacturing. It seems inevitable that Beijing will sooner or later find that it is in China’s interest to raise the pressure on the rest of the world to decarbonise faster — which means taking the lead in global climate politics instead of its current foot-dragging role. For the sake of the world, it had better be sooner. And for the sake of western policy planners, they had better assume it will be.

Other readables

• The time to consider a grand bargain in the next EU budget is now, I argue in my latest FT column.

• Vienna’s housing policy is increasingly looked to as an example for how to have enough affordable housing. Last weekend, the FT’s House & Home section looked at its subsidised co-generational housing projects.

• Donald Trump has been charged under the same laws that were written to combat the Ku Klux Klan — that is just one of the many illuminations provided by Sidney Blumenthal’s essay.

• The pressure group Patriotic Millionaires has polled dollar millionaires from around G20 countries — and a majority of them support wealth taxes on the rich.

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