China is leading the global transition to clean energy, but the government’s rapid advancements within the energy sector—which have been developing for the past two decades—are masking the country’s underlying global ambitions.
An impressive architectural feat emblematic of glory, unification, and peace, The Great Wall is one of the seven wonders of the world. Yet China is going bigger and bolder with a far more gargantuan structure: The Great Wall of Solar. Built in Ningxia in Northwest China, the Tengger Desert Solar Park is the world’s largest solar power plant in terms of size and production capacity, providing renewable energy to more than 6,000,000 lakh households. Yet the solar park does more than just power homes: it’s evidence of China’s eagerness to wean its economy off of fossil fuels, reflected in its plan to use renewable energy as a tool to fulfill its global ambitions. Spurred on by exponential population growth, climate catastrophes, and diminishing fossil fuel reserves, countries are voraciously exploring other outlets to quench their economy’s thirst for energy. Not only is China among those seeking economically-viable green alternatives, but the so-called Asian Giant is leading the global transition to clean energy.
Through a combination of technological investments, policy incentives, and a well-developed manufacturing system, China revolutionized its renewable energy industry. In an increasingly competitive, multi-polar world, absolute—or near-absolute—control over a critical energy supply is paramount. While China’s leadership in clean energy will foster global development and help tackle the climate crisis, monopoly power over a key resource can also distort the clean energy market, create unequal partnerships, and increase the frequency of disruptions of the global energy supply.
Meanwhile, the Belt and Road Initiative (BRI) has been less successful in convincing skeptics given its expansive and non-transparent nature. In Sri Lanka, for example, the government transferred ownership of the Hambantota Port to China after years of Chinese financial assistance to build up the port failed to come to fruition. In the context of renewables, such an act raises an important question: Are the underlying motives behind Chinese energy initiatives less benevolent than they claim to be?
China’s Economic Transition
As China trod on the path of a classic command economy in the mid- to late-twentieth century, the Mao Zedong government possessed complete control over national industries and closely regulated them according to the country’s Five-Year Plans. The plans—a series of social and economic development initiatives aimed at bolstering China’s national industrial and agricultural output—required state-owned energy enterprises to comply with any listed regulatory measures.
These plans gave rise to China’s official debut in the renewable energy sector, which was marked by the passage of the Renewable Energy Law in 2005 that sought to optimize the production and utilization of renewable energy to meet rising domestic demands and reach long-term sustainable development goals. As a testament to their long-term commitment to clean energy usage, China delineated clear and specific goals in its 12th Five-Year Plan in 2011, where it identified renewable energy as a strategically important industry for the first time. In the recently launched 14th Five-Year Plan, the Xi Jinping government unveiled its latest set of energy goals, which included setting an 18 percent reduction target for CO2 emissions and increasing the non-fossil fuel share of energy consumption from 15.8 percent in 2020 to 20 percent by 2025. China’s goals reflect the transition from a consumption-led renewable energy system to one that is simultaneously determined by regional incentives and geopolitical forces.
By setting such lofty targets, China is also establishing itself as a strong ally to international organizations in the fight against climate change—a move that will lend the country both the voice and credibility required for holding influential positions in multilateral organizations. At the same time, China is pursuing its underlying secondary goals, such as building coal plants overseas with BRI-led funding. More often than not, China’s energy goals and projects escape international scrutiny, particularly aspects relating to transparency, environmental impact, and debt sustainability.
The magnitude of China’s recent strides in clean energy technology will not only have enormous impacts on the renewable energy market, but also on geopolitics. In 2013, China surpassed the United States in terms of electric power generation capacity. In just four years, China emerged as the primary destination for renewable energy investment, amounting to 45 percent of the global total. Assuming that wind, solar, and hydroelectric power continue to grow rapidly, renewables will account for 40 percent of China’s electricity by 2040.
Pursuing renewable energy sources—which originally began as a response to curbing greenhouse gas emissions—is now a veiled means to consolidate China’s economic and political power. Given Xi Jinping’s desire for China to stand at the helm of the global transition to clean energy, geopolitics will surely experience commensurate changes sooner rather than later, as alliances shift and new countries enter the renewable energy market.
A Strategic Middleman
China’s ascendance within the renewable energy sector is hardly surprising, as its accomplishments are indicative of a government cognizant of its unique position in the critical materials supply chain. The country’s near-monopoly of the rare earth elements market—90 percent of which is concentrated in China—and its inevitable role in extraction and mining processes ensures the dependency of other states. Although these elements are also found in significant quantities in the United States, Australia, and Russia, China is predominantly the final destination for mining and processing due to its relatively cheap procedures and a manufacturing sector modernized by new technologies.
This unique advantage raises the possibility of the creation of a powerful energy ‘cartel’ spearheaded by China. Countries such as India, Brazil, and Australia have already started exploring investment opportunities in rare earth elements, thereby providing China with a plausible reason to cooperate with them. If that happens, the market for renewable energy will undergo a massive transformation, allowing China to leverage its unique position as a geopolitical middleman to alter global supply chains.
“Pursuing renewable energy sources—which originally began as a response to curbing greenhouse gas emissions—is now a veiled means to consolidate China’s economic and political power.”
A China-style dominance, however, is not confined to leveraging its natural strengths alone—it also involves building leadership in other aspects. For instance, China is again ahead of the world on renewables in two respects: technology and innovation. In 2016, Chinese companies held the world’s largest number of renewable energy patents. Between 2018 and 2019, start-ups in China accounted for 81 percent of all renewable energy patents filed. While fostering much-needed innovation in the energy sector, renewable energy patents also provide market power to patent holders. Undoubtedly, Chinese innovation is essential to prioritizing climate action domestically and globally. However, China’s colossal share in renewable energy patents could also crowd out other players in the energy market, giving it the power to control the future of a critical sector.
According to the U.S. Energy Information Administration, by 2040, 65 percent of the world’s energy consumption will come from developing countries such as India and China. With China at the forefront of clean energy innovation, countries listed among the top emitters that should transition to renewable power sources will see immense potential to collaborate with China in technology research and development—such alliances could change the face of geopolitics farther afield. These alliances typically involve an element of danger, as China does not enter into formal investment partnerships without imposing conditions and prerequisites.
Usually, partnering with China means allowing Beijing greater market access to a commodity or resource that the partner country holds in exchange for Chinese assistance and knowledge-sharing. The success of China’s future projects, however, will increasingly hinge upon their transparency and sustainability. This calls for three changes: partnerships based on clearly defined terms and conditions, transparent rules and regulations, and government actions that are less arbitrary. Complementing these should be credible data that is publicly available.
Additionally, Chinese-based companies are now pulling ahead of the United States in terms of their share in the total venture capital value. Venture capitalists tend to eye start-ups that are at an early stage of development, marked by high and rapid growth. As more emerging energy companies receive investment and support, China is able to create and supply them with cutting-edge technology such as smart grids and Ultra-High Voltage (UHV) lines. These help in delivering coal-fired and renewable power to megacities in China, transferring power from one region to another over thousands of kilometers.
While the UHV lines are built to transfer bulk power across the country with minimum energy loss, they also serve the purpose of transmitting energy from the area of production to the area of shortage in a cost-effective manner. On a continental scale, such a system could encourage more countries to adopt renewable energy while deepening the relationship they share with China.
Thanks in part to superior supply-chain management and economies of scale, China’s other notable accomplishments include generating low-cost solar and wind power. For instance, Chinese solar panels are manufactured at a 20-percent cost advantage compared to their American counterparts. China is also instrumental in driving down global solar photovoltaic prices. The combination of high research and development expenditures and unique control over critical technologies grants China greater leverage in the global tech race, which will inevitably alter their relationship with Russia and countries in the MENA region that seek to engage more competitively in the technology market.
Regardless, many of China’s renewable energy companies are state-owned. This (coupled with an ambiguous regulatory climate) helps explain the low level of foreign direct investment in the renewable energy sector in the past. In response, the Chinese government opted to explore the use of various bilateral platforms, such as the U.S.-China Clean Energy Research Centre and the Energy Efficiency Action Plan, to facilitate trade and investment in clean energy and collaborative research on critical technologies.
Bilateral platforms can serve as an alternative for countries at a disadvantageous position to participate in multilateral discussions in which they otherwise cannot engage. These platforms can also be used to coerce countries into behaving in ways that align with China’s priorities in multilateral forums. If China used such strategies, it could significantly influence the direction of trade in green energy technologies and electricity, giving rise to new geopolitical conflicts in those markets.
China’s Renewable Energy Strategy
In 2015, China unveiled its plan to build supergrids that transcended national borders. State Grid, China’s state-owned electric company, is the leader behind the transcontinental supergrid, Global Energy Interconnection (GEI). The GEI, coupled with the BRI, forms the foundation of China’s energy strategy.
The BRI focuses on building infrastructure by providing financial support through the Silk Road Fund, China Construction Bank, Bank of China, and other lending institutions. Recently, green energy projects under the BRI are multiplying, particularly in the Middle East. In 2017, Dubai’s Electricity and Water Authority and Saudi Arabia’s ACWA Power launched the largest Concentrated Solar Power project in collaboration with Shanghai Electric. The Industrial and Commercial Bank of China—the lead broker for loans along with Bank of China and Agricultural Bank of China—all played a crucial part in financing the megaproject.
China’s green pursuits in the region are likely to affect the Middle East’s relationship with the United States and the European Union (EU) as their primary oil suppliers. On one hand, the global push for renewables and the increased number of renewable energy projects in the Middle East—led by China—can ease geopolitical conflicts around oil and petroleum. On the other hand, it can strengthen diplomatic ties between China and countries in the Middle East.
The BRI and GEI initiated green projects for two reasons: first, to expand China’s economic and political influence; second, to reduce the reliance on energy imports flowing through chokepoints such as the Straits of Malacca and the South China Sea, as these are strategic entry points that China will safeguard at all costs.
The GEI in particular offers a golden opportunity for China to flex its geopolitical might. By supplying critical and cutting-edge technologies such as UHV and smart grids, China is revealing its aspirations to become the backbone of the supergrid power system. Once China manages to exert dominance over the system, it can use the threat of electricity cut-offs as a foreign policy bargaining chip. Should disputes arise, countries that enjoy close ties with China and importer nations in a more vulnerable position might side with China in fear of retaliatory attacks on their energy sector. In doing so, China could end up mandating the rules and standards that govern renewables in a way that adheres to its own wishes.
More Renewables, More Fossil Fuels
Despite their goal to achieve carbon neutrality by 2060, China is inadvertently increasing carbon dioxide emissions in an effort to gain ground in the renewables industry. To rectify that, President Jinping reiterated China’s commitment to reducing the burning of coal and other fossil fuels. By portraying itself as a global leader in climate action, China masks the fact that it’s increasing its imports of crude oil from other countries while continuing to invest in coal plants. In 2019, crude oil imports skyrocketed to 506 million tons, marking an unprecedented increase of 9.5 percent from 2018.
“If China’s current energy strategy follows through, it could erode traditionally strong alliances, such as those between the United States and Saudi Arabia, or the EU and North Africa.”
A more troubling development, however, is China’s construction of efficient coal-fired power plants beyond its borders. Between 2003 and 2017, China invested $12 billion in coal projects in Southeast Asia—namely Bangladesh, Indonesia, Pakistan, and Vietnam—as well as Turkey and South Africa. In doing so, China essentially unloaded its pollution on other countries, many of which are developing nations that should ideally be moving towards cleaner energy sources.
In addition to bearing China’s “pollution burden,” these countries are becoming increasingly dependent on the Asian nation. Soon, these developing countries might turn to China for sustainable renewable energy supply, clean technologies, and finance, thereby strengthening their relationship with China and further distancing themselves from the United States and the EU.
The Rise of a Renewable Energy Superpower
China’s milestones in renewable energy are largely a result of a government-led regulatory and incentive-based system coupled with timely investments in technology and R&D. In its infancy, the Chinese government introduced feed-in-tariffs, tax exemptions, and subsidies to businesses in the renewables industry.
Most recently, regulators tightened the laws and rules governing renewable power supply to ensure maximum efficiency from local grid firms and reduce renewable energy waste. China is also gradually withdrawing subsidies, opening local firms to competition, and approving new projects based on their transmission capacity. China is already bearing the fruit of these new regulations: the country reported a 2.4-percent reduction in energy loss in the solar power sector in the first half of 2019.
There is a range of international factors that directly or indirectly contribute to China’s rise as a renewable energy superpower. The former Trump administration’s disregard for climate change and uncooperative attitude towards international organizations all worked in China’s favor as Beijing tried to level the energy playing field by maintaining close partnerships with oil-producing countries.
But this backdrop is gradually shifting under the new Joe Biden administration. With a firm commitment to gradually phase out carbon dioxide emissions, Biden’s vision for America is built on clean energy-led development and energy-efficient systems. Domestic energy goals are complemented by promising steps on the multilateral front, such as the United States’ recommitment to the Paris Climate Accord.
How the United States or any other country decides to engage with China with respect to energy will decide how things pan out in the future. If China's current energy strategy follows through, it could erode traditionally strong alliances, such as those between the United States and Saudi Arabia, or the EU and North Africa. China’s rise as a renewable energy superpower will introduce new hubs of geopolitical power and create new winners and losers on the international stage. As much as China’s leadership in clean energy is appreciated and welcomed, world leaders must be aware of the political motives underlying China’s strategies. It will take strong regulatory mechanisms, the proactive participation of all countries, and greater scrutiny of green projects to reap the benefits of China’s renewable energy initiatives.
For countries to be successful in countering Chinese political objectives, they will need to take swift and decisive action. The first step is to diversify the critical materials supply chain. This involves increasing domestic manufacturing and processing and facilitating technology transfers among countries like the United States, Australia, Brazil, and India. Last year, the European Commission took a step toward reviewing and communicating the EU’s critical raw materials resilience, echoing its commitment to the circular use and recycling of raw materials. This provides a good starting point for countries to initiate research, innovation, and large-scale investments considering the existing information gap on building alternate technologies from a mix of critical and non-critical materials.
Such innovative and sustainable alternatives will help draw support from China in the form of finance and capacity-building. While the ultimate goal is to ensure the sustainable use of critical materials, the immediate step is to build individual capacities in order to diversify the players providing downstream services in the supply chain over which China currently holds leverage.
The second step is to provide a counterbalance to China’s growing influence in global energy finance with the twin goals of steering emerging countries from fossil fuel projects and facilitating the free flow of money and technological know-how. For instance, the United States and members of the EU can provide loans on low interest rates to execute clean energy projects in more oil-dependent nations.
“If history is any indication, isolation and disengagement only attract unnecessary retaliation from Beijing.”
However, that is just one of the many ways in which renewable energy projects can be supported—terminating public financing for coal and oil projects is another. In a recent executive order, Biden announced his plans to end financing of fossil fuel projects overseas, although the decision to do so comes far after similar policies were already implemented in the United Kingdom, South Korea, and Japan.
As developing countries find more funding options for clean energy projects, the price of renewables will likely fall, thereby lowering the demand for fossil fuel. A study by the UK-based research firm Wood Mackenzie concluded that by 2030, renewable power in India will cost 56 percent less than energy derived from coal. Renewable energy technologies have a unique advantage over fossil fuel—the former follows learning curves.
That is, every time the cumulative installed capacity is doubled, the cost of renewables decreases by the same proportion, which can incentivize countries to adopt more renewable energy initiatives. That way, promoting clean energy projects over time can turn competition into cooperation in energy finance by partnering with China-supported financial institutions such as the Asian Infrastructure Investment Bank and the China Development Bank. That will not only help augment the finances required to scale up clean energy investments, but also monitor many of China’s energy projects executed under the BRI.
A prerequisite to the above-mentioned steps is the efficient utilization of multilateral platforms such as the G20, the international platform on sustainable finance, and the International Solar Alliance. Through these platforms, standards for clean energy projects, dispute settlement mechanisms, and avenues for cooperation can be decided.
If history is any indication, isolation and disengagement only attract unnecessary retaliation from Beijing. Creating sustainable alternatives in the renewable energy market signals a forward-looking approach rather than a desire to replace Chinese leadership in the field—that should be enough to convince China to cooperate and reign in its unsustainable increase of fossil fuel initiatives.
All views expressed in this article are solely those of the author, and do not represent the views of The International Scholar or any other organization.
Photo Credit:
Wind farm in the People's Republic of China by Asian Development Bank, CC BY-NC-ND 2.0, https://www.flickr.com/photos/asiandevelopmentbank/9663210284/