USA, China, Europe and the clean energy “arms race”

Rating: High school and post-secondary

Summary: Markham interviews Barbara Finamore, senior attorney and Asia Director at the Natural Resources Defense Council, about her Oxford Energy Institute article, “Cleantech innovation in China and its impact on the geopolitics of the energy transition.”

Related links:

1. Cleantech innovation in China and its impact on the geopolitics of the energy transition

2. Time for the United States to compete with China in global clean energy finance – anchor story interview with Dr. Johannes Urpelainen, Johns Hopkins University

3. China rises and America is nervous – anchor story interview with Reuters energy columnist John Kemp

4. China to launch subsidy-free solar, wind power – Energi Media article

5. China’s e-bus stock to surpass 1 million mark by 2023 – Energi Media article

6. How global tech executives view U.S.-China tech competition – by Christopher A. Thomas and Xander Wu, Brookings Institute blog post

This interview has been lightly edited.

Markham Hislop: Welcome to another episode of Energi Talks, the podcast where we discuss global energy issues and trends with experts from around the world. On this episode, I’ll be talking to Barbara Finamore, a senior attorney and Asia director at the Natural Resources Defense Council. She recently wrote a paper for the Oxford Energy Institute titled, “Clean tech innovation in China and its impact on the geopolitics of the energy transition.”

Can you explain why you wrote the study? 

Barbara Finamore: Sure. I was asked by the Oxford Institute for Energy Studies to participate in a special issue that they just published in February about the geopolitics of the energy transition. And they gave me a few topics to choose from. And I chose the topic of clean energy innovation because it really interests me. I’ve been working in China for over 30 years and have watched the growth of innovation in China, as well as the challenges. And given the renewed interest in clean energy innovation in the United States with the Biden administration. I thought it would be really interesting to examine what is going on in China right now, as well as in the US and in Europe on clean energy innovation and that competition that is really heating up right now.

Markham Hislop: I ran across your essay for Oxford Energy Institute and it reminded me of a paragraph from the Biden climate plan that I read before the November election. I’m going to read it because it’s germane to what we’ll be talking about today. So here’s what the plan says.

“Unfortunately, today the Trump administration is allowing America to fall behind in the clean energy race for the future. In 2017, China invested $3 in renewable energy for every dollar in America, giving China an edge on the technologies of tomorrow that will generate well-paying jobs. By 2030, the Biden administration will put the United States back in the driver’s seat, making America, the world’s leader in clean energy research, investment commercialization, manufacturing, and exports.”

That is exactly what your paper was talking about. The competition between China, the US, and you added Europe.

Barbara Finamore: That’s correct. It’s a sea change, as you can imagine, from the last four years under the Trump Administration when every effort was made to roll back funding for research and development and put tariffs on solar panels and impede the growth and innovation of clean energy in every single way possible.

Markham Hislop: Now I have an observation. We’ll see if you agree with it. There is a faction in the oil and gas industry worldwide, but it’s particularly strong in Canada in the United States which really believes that the energy transition is driven by ideology. It is not a thing that is driven by technology and capital and markets, and always driven by the ideology of the radical eco-activists. And if that is true, then its ideology turned into green politics, which then get turned into green policy.

So if you can go back and you can unwind that and change the politics, you then get control of the government levers, and you can change the policy and stop the energy transition and effectively preserve the fossil fuel status quo. And that I think essentially what was going on during the Trump Administration.

What do you make of that?

Barbara Finamore: The fossil fuel industry is going to have to evolve if they want to survive in this net-zero carbon world. There are over 120 countries that have already adopted these net-zero energy goals, either for climate neutrality or for carbon neutrality. And that includes China. I don’t know if you can argue successfully that the announcement by President Xi Jinping, that China will become a climate-neutral country by 2060 results from pressure by the radical environmental left. I think countries around the world are increasingly realizing that climate change is real and that it’s happening now.

I mean, we just finished a year that was tied for the warmest year on record with 2016, we just ended the warmest decade on record. There was $260 billion of damage worldwide from climate-induced, severe weather impacts, threatening food, security, water security, and people’s health all over the world.

That is real. It’s not just something that’s going to happen. Climate change is real and it’s happening now.

Markham Hislop: Serendipitously President Biden and Prime Minister Justin Trudeau of Canada made an announcement yesterday that is directly applicable to your paper. And what they agreed on was this: a comprehensive approach to a climate plan and clean energy. And there is clearly an attempt here and the intent by the Biden Administration to bind Canada closer to the US in terms of supply chains and markets. If you’ve got a European bloc, now you’ve got a North American bloc.

I’ll give you just a few examples of what they talked about. So they agreed to work together to build the necessary supply chains, to make Canada and the United States, global leaders in all aspects of battery development and production. And you mentioned in your paper that China currently leads [in battery production], but Europe is right on its heels and has every intention of taking the lead. And here you have Biden clearly getting and I guess Trudeau gets it.

This seems like a response to the challenge from China and Europe.

Barbara Finamore: This is an example of a virtuous cycle in competition because countries want blocs. Like you say, North America now wants to control the new technologies of the future. And the supply chain is a key element of that.

China already controls virtually every aspect of the supply chain of lithium-ion batteries. And it has the potential to restrict access to those minerals to other countries if it wishes. In fact, just recently, China announced that it is considering restricting access to rare earth metals that are a key part of the supply chain for many clean technologies, restricting access to those to the US in retaliation for sales of military technology to Taiwan.

This could really put a wrench in the energy transition. So it’s not surprising that countries are really starting to think about how they can ensure their own supplies of the critical minerals and metals that are needed for batteries and other technologies.

Markham Hislop: Now, it just occurred to me that if you consider Biden’s decision around the Keystone XL pipeline – because of course, he cancelled it as he promised, he would – you can see his attention shifting away from the integrated fossil fuel energy system that the US and Canada created over the last 60 or 70 years. And now it’s almost as if there’s going to be another integrated industry that’s around clean energy.

I think you mentioned there’s hydroelectric power coming from Quebec into your state where you live, in Maine. Manitoba and other hydro-rich provinces are also sending exporting clean energy to the USA and that’s a big part of this agreement as well.

Barbara Finamore: That’s very good news. I think it makes sense. I think it’s a win-win proposition for both countries and for the climate. There are in my mind, every country has its own competitive advantage. And you’ve just mentioned a number of ways in which Canada has a competitive advantage.

I remember also when fuel cell vehicles first became popular about 20 years ago, it was Ballard in Canada that was really leading the way. I led some study tours for Chinese experts to Canada to visit Ballard and learn more about what they were doing on fuel cell vehicles. So Canada’s interest and dominance in this technology are quite well recognized. And in fact, China, as you may know, has determined that it is going to put a lot of resources into developing its fuel cell vehicle industry right now.

So I feel like there doesn’t have to be blocs. However, Markham. There is room for all countries to not just compete with each other, but to find ways that are of benefit to everyone, into accelerating our energy transition.

Markham Hislop: Well, that leads me to, it’s a couple of questions ahead of where I was going to ask you about that, but let’s go there because you make a point in your conclusion. And I thought this was really insightful is that the blocs or the countries will definitely compete. They’re setting themselves up to be competitive, but at the same time, it’s very important for there to be strategic cooperation.

That would mean [multilateral] agreements. That would mean diplomacy. That would mean global institutions like the world trade organization that all have to be respected and made to function properly for this to work optimally.

Have I summed up your conclusion correctly?

Barbara Finamore: Yes, you have. I do believe it’s essential to have strategic cooperation as well as competition. And there are so many ways in which that can happen. You mentioned a number of them that are really important on the global level international institutions, but even bilaterally and multilaterally, a lot of countries and States and provinces are starting to issue targets for phasing out the internal combustion engine vehicle.

For example, now, if countries can coordinate those types of high level targets that sends a signal to the automobile industry, that it’s in their interest to increase their investment in zero energy vehicles because the markets are harmonized and you don’t have to develop certain kinds of vehicles for one market and others for another.

And that type of thing is well within the interest of every country to coordinate and harmonize.

Markham Hislop: Would you say that in fact in terms of electric vehicles that that has already taken place, it may not have taken place formally though. You may have a different view on this. A lot of it has taken place in the marketplace and in the industry because all of these automakers are working in those three big markets

Barbara Finamore: It’s already starting to take place. And I think one of the policy decisions that China made has really made an enormous difference because China is the largest automobile market of any kind in the world. And a few years ago, they issued a regulation that said that any foreign automaker that wished to produce or sell their vehicles in China had to meet a certain percentage quota of what they call new energy vehicles, which could be all electric, hybrid or fuel cell vehicles. Otherwise they would not gain access to the world’s largest market.

And almost immediately you saw all of the major auto manufacturers announce new investments, new lines, new types of new energy vehicles, they are developing. So, yes, it’s already happening right now, but a lot more can be done.

China was considering an outright ban on internal combustion engine vehicles by 2035, as you’re seeing in some other jurisdictions, but they stopped short of that. And if they were to coordinate such announcements with other countries, I think that you would see the percentage of these zero energy vehicles just explode.

Markham Hislop: What do you think the odds are that China, Europe and North America will announce that type of strategic cooperation in the near future?

Barbara Finamore: I think not in the near future, we’ve got a situation where the United States has only just rejoined the Paris Agreement. It is not on track to meet its climate commitments under the Paris Agreement. The US, I think, has a long way to go to reestablish trust in its pledges and to reestablish its climate leadership before it can get other countries to work together.

That said, China president Xi Jinping has said numerous times that he believes in global environmental governance that he believes in multilateralism. So I do think that the chances of such an announcement for example, are greater, if it is with a number of countries, including the EU and not just the US- China, which was so fruitful in the past, but maybe not right now.

Markham Hislop: Let’s talk about four key areas of innovation that you flag for watching as the race heats up

and they are solar power, offshore wind, batteries, and hydrogen. And what make you choose those?

Barbara Finamore: Each of these technologies is key to the global energy transition. Number one, number two China has led by far the world in the first generation of each of these technologies. They lead the world. They have 40% of all solar installed capacity, over third of all wind global installed capacity. They lead the world by far over half of all the electric vehicles in the world, and also the largest producer of hydrogen.

But these are first-generation technologies, and they’re going to need breakthroughs if the cost is going to continue to go down, if they’re going to need breakthroughs to resolve some of the challenges that are inherent in the first-generation technology. So that’s why I chose those four, also because the US and Europe recognized their importance in the next stage of the energy transition. And they’re all clamoring to take the lead.

Markham Hislop: Well, let’s talk about another area where China, the U S and Europe will compete and that’s finance and manufacturing. And I interviewed professor Johannes Uperlinen from Johns Hopkins university a couple of months ago. And he talked about how the US had fallen behind China in terms of green financing – the financing of solar power and wind power, those kinds of projects – but it was imperative that it regained that lead.

And it looked like in his opinion, that Biden had correctly identified that as an issue. And I think there was an announcement of a green bank that’s coming, or some kind of green funding institution. How important is access to finance for the Americans and Canadians to catch up to China?

Barbara Finamore: China has made it very easy or relatively easy I should say. For companies to get access, to financing for solar and wind, they’ve also developed a very comprehensive, or at least the beginnings of a very comprehensive green finance system, which is includes things like green bonds, green loans, green investments, and so forth.

And there’s really like so many other things in China due to the influence of one person. We often think of China as a monolithic country, where decisions come from faceless bureaucrats.

There is one fellow named MaJune who really has led the way in development of a green finance ecosystem in China. The US does have a long way to go to catch up.

I was very pleased to see that last December, even before the Biden administration took office, there was an omnibus spending bill passed by Congress that extended tax breaks for solar power and wind.

And this has been one of the key problems is that these incentives are only issued for one or two years at a time. And that’s not enough of a time period to really galvanize the levels of investment that are needed. And other types of incentives can be included as well.

Like for hydrogen, if you look at Biden’s climate plan, what he wants to do is develop energy storage. For example, at one-tenth the cost of lithium-ion batteries, he wants to lead the world in hydrogen development. Well, coming up with tax incentives like that, and green financing mechanisms, it’s going to make a huge difference because financing you are right financing for clean technologies has been quite a struggle in the United States to date.

Markham Hislop: Let’s talk about the second one (manufacturing) because you make the point in your paper that China is the factory to the world. I think it was 60% of all goods, if I remember correctly, are manufactured in China. And what that means is that the United States and Canada are behind in terms of their manufacturing capacity. And this gets back to the Biden, Trudeau announcement mentioning supply chains, which are absolutely critical in terms of supporting growth in manufacturing.

What are your thoughts on that?

Barbara Finamore: This is a complex issue, Markham, because manufacturing and mining and processing minerals for clean energy technology causes huge environmental impacts. And I believe that one of the reasons that China has attained dominance in supply chain mining, manufacturing – processing even more so – is that it’s willing to accept those environmental risks. There used to be more of that manufacturing and mining going on in the United States, but those environmental impacts are not as tolerated, which is a good thing.

And so my question is, number one, how realistic is it for the United States to catch up to China in manufacturing with its strict environmental regulations, which believe me, I think China should have, and must have in order to make this sustainable in the future.

Secondly, how is the USA going to catch up with China in for example, solar panel manufacturing, when the average solar panel manufacturing facility in China is four times the size of the United States, and even developing the mines for critical minerals, how long is it going to take for the US to catch up to China in its ability to provide a cost-effective, cost-competitive source of these minerals?

I’m not sure that that’s possible. And that leads me to wonder whether we have time for this type of clean technology decoupling, where every country tries to develop its own source of the supply chain, its own manufacturing facilities. Do we have time for that given our climate emergency?

Or, should we consider the comparative advantages of each country and find ways for them to cooperate in developing those clean technologies? In this respect, I would argue that it’s the West that has led and still has a considerable lead in innovation, in the development of the new technologies, but it’s China that has that ability to manufacture at scale and also to innovate in the manufacturing process in a way that brings down the cost of these still very expensive next generation technologies.

Is there a way to combine the strategic advantages of different countries in a way that’s going to allow us to reach net-zero in time? I think you’re going to need things like a very, very strong intellectual property system or intellectual property insurance mechanism. That’s going to make it possible for that level of cooperation and given our political situation right now, it’s going to take some doing to get there.

Markham Hislop: Does the world have the institutional framework to foster the kind of cooperation that you are talking about?

Barbara Finamore: Not right now, not right now, but it’s possible. I think there was a clean US China clean energy research center under the Obama administration that fostered collaboration between researchers, scientists, and companies in the US and China in three areas of technology carbon capture and storage, building efficiency and electric vehicles. And the very innovative part of that collaboration was that the two countries developed a mechanism for sharing the intellectual property of the technologies that were developed.

So, it can be done. That was at a rather small scale, but it does show that this type of collaboration can be done and it was quite successful.

Markham Hislop: Let’s get to your conclusion. I want to read some excerpts from it. One of which is that Europe and the US are now racing to take the lead in developing next-generation technologies. And if they’re racing, is China likely to catch up in that innovation race? Or is, as you say, China’s role likely to bein the manufacturing and Europe and the U S leading innovation.

What’s your take?

Barbara Finamore: Well, what we’ve seen over the years in those first-generation wind and solar and electric vehicle technologies is that China basically acquired the new technologies from the West. And whether that was from a licensing or, you know, buying the technology or acquiring it through forced joint ventures or intellectual property theft, whatever they took those technologies and then they brought them to scale.

It’s not clear to me. I think that’s a good model with given those strong intellectual property protections I talked about, but I’m not sure whether that type of collaboration is possible now. So you’ve got something like the electrolyzers for producing green hydrogen from renewable energy. China already leads in the traditional alkaline electrolyzers but those are not as effective as the PEM electrolyzers in producing green hydrogen. The West already has that technology, but it’s extremely expensive because nobody’s manufacturing it at scale.

But if China is considering trying to develop that own technology internally, it’s going to take a lot of time because even though China is growing in its ability to innovate it still lags behind the West. And similarly, the West wants to become its own manufacturer of hydrogen, but I doubt that it’s going to be able to get to the requisite scale in time and to be able to bring down the cost.

So, that’s why in my paper I said I wasn’t sure who’s going to win this race and how long it’s going to take.

Markham Hislop: We talked earlier about how there has to be competition and strategic cooperation at the same time. And I think it’s fair to say that the Trump administration’s approach to multilateral relationships, trade diplomacy, was not conducive to resolving the issue that we’re dealing with today.

Are things so damaged that it will take years and years and years to fix?

Barbara Finamore: It will take time to fix. I do not think it will take years and years to fix. Biden appointed Senator John Kerry to be his international climate Envoy. Kerry gave a speech very recently in which he said, he believed that despite the tensions between the US and China, both countries share an interest in collaboration on climate change. And that type of discussion should proceed independently of all other discussions and diplomacy in areas where the two countries differ.

The trouble was the next day, the Chinese foreign minister disagreed. And he said, no, you cannot separate out climate change from all these other issues, they have to be considered together. But what I’ve seen in my 30 years of working in China is that the views of the foreign ministry are often more hard-line than that of the government agencies and the researchers and others on the ground.

And so I suspect that you’re going to find ways in which you’re going to see ways in which this cooperation does begin perhaps as more of a bottom up way. And Biden himself has announced that he’s going to have an international climate meeting hosting it in April on earth day. And hopefully that will begin the process of bringing the countries back together on climate and finding areas of mutual interest. And it may be that it’s the multilateral approach that’s more effective.