Progress and Prospects of the Clean Energy Industry Competition by the United States with China
Since the 2020s, major economies have actively promoted the development of clean energy industries, which are represented by solar photovoltaic (PV) and wind power generation and electric vehicle (EV) industries. These industries have increasingly become key areas of technological and industrial competition among major countries. The mix of policies implemented by major economies create reinforcing effects between climate and energy policies, which trigger technological innovation, restrict polluting activity, promote green growth, and ensure just energy transition. Compared with China, the supply chain of clean energy industries in the United States, especially the production capacity of raw materials and other links, is significantly insufficient. This deficiency limits the ability of the United States to control the industries and utilize their benefits as well as limit its influence on international climate politics. After the Biden administration took office, it vigorously promoted the development of the domestic clean energy industry and upgraded the competition and confrontation with China in this industry. This policy tendency of the United States has exerted an impact on cooperation in the clean energy industry between China and other countries. Meanwhile, many factors constrain the competition policy of the Biden administration toward China. By leveraging its advantages in the domestic supply chain and continuously exploring emerging markets, China can play a positive role in maintaining the stability of international cooperation in the clean energy industry and promoting global low-carbon transition.
Policy Focus
Only by gaining comparative advantages in its clean energy industry can the United States transform its leadership and discourse power in international climate politics into real economic benefits. The Biden administration is attempting to build a leading position in the development of the global clean energy industry by strengthening domestic clean energy industry and improving the control of the supply chain of the global clean energy industry.
I Relying on industrial policies to promote the development of the domestic clean energy industry
Developing the clean energy industry is not only the foundation for a green transition but also an important breakthrough in boosting economic growth in the face of global recession. Notably, heavy state intervention has become widely accepted in the United States. The strategy of green transition, which involves state planning to meet targets for emissions, EVs, and renewable energy, revives one of the forms of state intervention that is most reviled by neoliberals. The Biden administration has made clear its goals for the clean energy industry and promoted the development of industries, such as EVs, through government financial support and tax incentives. On August 16, 2022, President Biden signed the Inflation Reduction Act (IRA) into law. The IRA is the most meaningful climate bill ever passed in the United States. Provisions of the legislation pertaining to climate change mitigation, clean energy, and energy innovation dominate the headlines. The $369 billion earmarked for initiatives for clean energy and climate change mitigation as per the IRA represents an unprecedented level of support from the US federal government for the transition to sustainable energy. The Act is expected to reduce the greenhouse gas (GHG) emissions of the United States to approximately 40% by 2030 compared with its levels in 2005. Without the enactment of the IRA, the United States was on course to reduce its GHG emissions to only 26% across this period compared with its 2005 levels. Based on such legislation and related policy initiatives, the Biden administration has promoted the energy transformation of the United States, which focuses on solar and wind power in the field of electricity generation and the EV industry in the field of energy utilization.
The US government has enhanced its support for renewable energy in the EV industry through official subsidies, tax incentives, and government procurement. In total, the new investments and re-authorization as cited in the Infrastructure Investment and Jobs Act (IIJA) provide $89.9 billion in guaranteed funding for public transit over the next five years, which is the largest federal investment in public transit in history. The legislation will invest $7.5 billion to establish a national network of EV chargers in the United States. The IRA also provides funding and tax credits for clean energy industries such as EVs.
In addition, on June 6, 2022, President Biden issued a presidential decree that bestows the US Department of Energy with the authority to utilize the Defense Production Act to accelerate the domestic production of five key energy technologies, namely, solar energy, transformers and electric grid components; heat pumps; insulation and electrolyzers; fuel cells; and platinum group metals.
At the same time, the Biden administration is gradually increasing funding for the domestic solar PV industry and taking offshore floating wind power projects as a new investment and growth point for the wind power industry. By promoting the domestic wind industry, the Biden administration is attempting to improve the supply chain of key raw materials for wind power equipment. With the support of the American government, investors announced $2.2 billion in new funding in 2021 alone, which includes commitments to develop nine major manufacturing facilities for the production of foundations, towers, cables, and blades for offshore wind turbines. Supplier contracts to provide materials and services to offshore wind projects more than doubled. On June 23, 2022, the White House joined 11 governors across the East Coast to launch a new federal-state Offshore Wind Implementation Partnership that will accelerate the growth of the offshore wind industry. As the first step of this Partnership, the White House and governors announced commitments to collaborate on expanding the key elements of the supply chain of the offshore wind industry. The administration also announced steps for advancing a National Offshore Wind Supply Chain Roadmap. In promoting domestic wind projects, the IRA and the IIJA contain provisions for boosting the production of minerals critical to the clean energy industry such as rare earth metals. The Biden administration is also using the bill to invest more than $200 million in the supply chain for these metals to rebuild the domestic supply chain of permanent magnets used in wind turbines (and in electric car engines) by 2025.
II Strengthening policy coordination with allies
The climate topic has shifted the geopolitical winds toward a complete restructuring of the future global economy. A multilateral order is being challenged with a new era of green energy competition that spans over greater geographic and economic spheres and is driven by rapid technological change and advancement.3 In response to the increasing competitiveness of the clean energy industry in China, the Biden administration has sought to advance its clean energy agenda by leveraging allies and partners, because the United States lacks sufficient influence in industries such as solar PV and wind power.
The Biden administration is actively expanding policy coordination with European allies on the clean energy sector through platforms such as the EU-US Energy Council and the EU-US Trade and Technology Committee. During the ninth US-EU Energy Council in February 2022, the Council reiterated the commitment of the United States and the European Union to provide trusted connections by promoting infrastructure development globally that is high-standard, transparent, and climate resilient, through US, EU, regional, and multilateral initiatives including the Build Back Better World and the Global Gateway4 Meanwhile, the United States has advanced its clean energy policy agenda through a multilateral framework that includes more Western countries.
In June 2022, the United States established the Minerals Security Partnership, which includes Australia, Canada, Finland, France, Germany, Japan, the Republic of Korea, Sweden, the United Kingdom, the United States, and the European Commission. The partnership aims to catalyze investment across the full value chain—from governments and the private sector~~for strategic opportunities that adhere to the highest environmental, social, and governance standards. Bilaterally, the United States has been advancing cooperation with Canada and Japan in the clean energy industry. In the process, the US government has focused on deepening near-shoring cooperation with mineralrich Canada. Launched in November 2021, the US-Canada Supply Chain Working Group collaborates in eight areas such as EVs and batteries, key minerals, and solar PV technology. By enhancing strategic collaboration with Canada, the United States could gain more control over key minerals and raw materials which are critical to industries such as EVs. Alternatively, Washington is attempting to increase its influence on industry standards by deepening its cooperation with Japan in industries such as EVs. On April 16, 2021, the United States and Japan launched the US-Japan Climate Partnership and the US-Japan Competitiveness and Resilience (CoRe) Partnership. To support the objectives of these two partnerships, the United States and Japan established the Japan-US Clean Energy Partnership, which was expected to accelerate private sector-led investments on and exports of sustainable clean energy in the United States and Japan.2 Under the CoRe Partnership, the two sides have implemented information sharing and collaboration in the supply chain for advanced batteries and have cooperated on international safety standards for EVs, fuel cell electric vehicles, and autonomous driving technologies.
Approaches
In the context of escalating the containment of the technology industry in China, the clean energy industry has increasingly become a key area for the United States to implement the industrial containment of China. The United States attempts to restrict the development of the clean energy industry in China and its overseas earnings through a political slander of the PV industry in China, strengthening the security review of the overseas projects of Chinese enterprises, and upgrading the trade and investment barriers to China to form a US-led supply chain system for the global clean energy industry.
I Politicization of the industry
In the process of upgrading competition in the clean energy industry in China, the Biden administration coordinated with its major allies to politicize the clean energy industry, that is, to fabricate facts to sanction Chinese enterprises in mineral mining and material processing. In this manner, the overseas markets of Chinese enterprises can be compressed, and the development of the renewable energy industry in China can be limited, especially in the solar PV industry. China is the world5s largest country in terms of PV manufacturing and installation. Additionally, China accounts for 72% of polysilicon production worldwide and more than 96% of solargrade silicon production as PV raw materials. Since 2017, Chinese companies have increased the construction of raw material processing plants, such as polysilicon, in western provinces, in which land, power, and labor costs are more advantageous. Among them, the polysilicon manufacturing capacity of Xinjiang accounts for 54% and 39% manufacturing in China and the world.7 In this context, the US government attempts to impose sanctions on silicon-based materials and other related enterprises invested in Xinjiang and prohibit products containing materials produced by these enterprises from entering the US market by fabricating and hyping the so-called forced labor issue in Xinjiang. In this manner, the US government forces western countries to divest their cooperation with China in raw material processing and, thereby, reshape the global PV industry chain. Influenced by the United States, the European Union and a few European countries are also pushing forward the political agenda around the issue of forced labor.
II Hyping the industrial threat in China
Imposing sanctions on Chinese companies on the grounds of the so-called national security has become a common tactic used by the United States to crack down on the technology sector in China, which is also increasingly evident in the clean energy sector. Since its beginning, the Biden administration and the US Congress have constantly escalated the “threat” of China on the issue of the clean energy supply chain and restricted the investment of Chinese companies in wind power projects in the United States on the grounds of national security. This policy tendency has also exerted an impact on its allies.
First, the United States escalated its Chinese threat rhetoric against the dominant position of China in the clean energy supply chain. Since the beginning of the 21st century, the United States has not sufficiently invested in domestic manufacturing due to the decline of its manufacturing capacity and industrial outsourcing, which also lead to the evident absence or weakness of the supply chain of the clean energy industry in the United States. The spread of COVID-19 and indiscriminate imposition of the United States of trade and technology sanctions on other countries have destabilized the global supply chains. However, the United States has blamed China fbr the rising supply chain risks and mobilized domestic resources to build raw material supply chains fbr its clean energy industry. In fact, the provisions in the bill passed by the US Congress regarding the security issue of the clean energy supply chain are highly related to the perception and hype of the political and strategic research community of the United States about the threat posed by China to the resilience of the clean energy supply chain in the United States.
Second, on the grounds of national security, the US government restricts Chinese wind power companies and other clean energy companies from investing in the United States. Since the Obama administration, the US federal government has repeatedly restricted Chinese companies from building and investing in wind power facilities in the United States on the grounds of national security. Under the Biden administration, state governments have also gradually escalated restrictions on investment by Chinese companies in the clean energy industry. For example, the state legislature passed the Lone Star Infrastructure Protection Act in May 2021 to prevent Chinese companies from building wind farms in Vai Verde County, Texas. The bill does not allow companies or citizens from countries, such as China and Russia, to participate in the critical power, telecommunication, and other facilities of the state.8 Such a legislation or policies continue to limit the market opportunities for Chinese investment in clean energy projects, such as wind power facilities, in the United States.
Third, Canada and other US allies, under the influence of the United States, also restrict investment by Chinese clean energy companies on the grounds of national security. For example, on November 2, 2022, the Canadian government ordered three Chinese companies, namely, Sinomine Rare Metals Resources Co. Ltd. (Hong Kong), Chengze Lithium International Ltd. (also based in Hong Kong), and Zangge Mining Investment Co. Ltd. (Chengdu), to divest their investments in Canadian critical minerals by citing national security.2 With the further strengthening of strategic coordination between the United States and key mineral resource countries, such as Canada and Australia, investing in the mining and processing projects of key mineral raw materials by US allies will be difficult for Chinese companies.
Ill Escalation of trade protectionism
Since 2012, China’s wind power and solar PV industries have been subject to anti-dumping and anti-subsidy sanctions by the United States. This scenario has led Chinese companies to shift the establishment of a few of their factories to Southeast Asia. The cost advantage of solar PV products from China and Southeast Asia led US manufacturers to cease the production of PV silicon wafers in 2015, such that bankruptcies among solar cell makers have surged since 2018.3 In March 2022, the US Department of Commerce initiated investigations of anti-tariff evasion into solar products from Cambodia, Vietnam, Malaysia, and Thailand in response to a petition from domestic PV module manufacturers. However, as the United States imports 80% of its PV modules from the four countries, the petition prompted opposition from he Solar Energy Industries Association. Under multiple pressures, the US government announced that it would grant a 24-month tariff exemption on PV modules imported from these four countries on June 6, 2022, which ensures that the United States would have a sufficient supply of solar modules to avoid power system disruptions.
Notably, the EV supply chain in China is the primary target of the tax credit in the IRA, which leaves Chinese electric car makers exposed to US protectionist policies. Meanwhile, the scope of new clean vehicles, as defined by the IRA, excludes those with car batteries made by a foreign entity of concern. The label of foreign entity of concern is tailored to a small number of countries such as China. Under this provision, the United States excludes Chinese EVs and battery products from tax credit.
Prospects
The strategy of the Biden administration for the clean energy industry and its competition orientation toward China will restrict the momentum of cooperation of the global clean energy industry and exert an impact on the internationalization of the clean energy industry of China. However, conflicts among interest groups in the United States and difierences between the United States and its allies will restrict its competition with China. Given the need for cooperation between China and the United States based on their respective resource endowments and market spaces, a broad room exists for cooperation in the field of the clean energy industry.
I The US policy will erode the momentum of global cooperation in the clean energy industry
The clean energy policy of the Biden administration and its tendency toward competition and confrontation with China will exert an impact on the internationalization of the clean energy industry of China. In particular, the United States coordinated with its allies to promote and upgrade the politicization of the clean energy industry, such that the European Union, Japan, and other developed economies may restrict the market space of Chinese enterprises through trade restrictions, industrial boycotts, and other means. Meanwhile, laws and regulations, such as the IRA, support consumers in using minerals and components from the United States and its allies through tax credits, which will reduce the international market space for Chinese PY wind power equipment, and EV enterprises. This scenario will even accelerate the pace of Chinese EV and vehicle battery enterprises who are transferring their production capacity overseas, which, thus, reduces the production capacity and employment scale of the domestic EV and EV battery industries in China.
Notably, restrictions or sanctions imposed by the United States on Chinese companies will inevitably exert a negative impact on companies from other countries in the new upstream and downstream of the industrial chain and exacerbate problems such as the insufficient resilience of the supply chain. For example, US sanctions against Chinese solar PV companies based on the relevant legislation containing the Xinjiang clause will harm the interests of many upstream and downstream companies and weaken the resilience of the global PV industry chain. This scenario will not only disrupt international trade order but also harm the interests of global enterprises and consumers and weaken the global cooperation process for addressing the economic crisis.
In view of this prospect, China will further expand cooperation with countries in the Middle East, Central Asia, and other regions in the clean energy industry and promote the green growth of all countries on the basis of mutual benefit. In this process, China will leverage its vertically integrated advantages in solar PY EY and other industrial chains and invest and construct factories in countries with resource endowments or market demand. This initiative will not only enhance the resilience of the clean energy supply chain but also help counter the attempts by the United States and its allies to distort the clean energy industrial chain and contribute to sustainable economic growth in developing countries.
II The US policy will continue to be constrained at home and abroad
Domestic interest groups and partisan differences, as well as interference from NGOs, will continue to constrain the protectionist policies of the Biden administration and hinder the development of the domestic clean energy industry. This stance would weaken the industries on which the US government rely to strengthen its clean energy competition with China. Moreover, differences in interest orientation between the United States and its allies in containing science and technology in China will restrict the suppression effect of the United States on China in the field of the new energy industry.
First, in the process of the efforts of the Biden administration to improve the domestic supply chain, a divergence of interests exists in the field of trade protection between manufacturers of raw materials/components and integration manufacturers/equipment installation companies in the clean energy industry in the United States. The integration manufacturers/equipment installation companies oppose protectionist measures, such as tariff, on raw materials and components. As the domestic clean energy manufacturing industry, such as PV modules, cannot compete with Chinese enterprises in terms of scale and cost, entirely blocking the market space of Chinese enterprises in the United States through tariff and other measures is difficult for the US government.
Second, domestic partisanship will limit the stability of US policies for developing the clean energy industry and its ability to compete with China. Preserving the fossil fuel industry remains a central focus of the energy policy of the Republicans, and congressional Republicans will be hampered by the efforts of the Biden administration to support the clean energy industry. The coming partisan back-and-forth in Congress is sure to undermine the efforts of the Biden administration to implement clean energy policies.
Third, the diversified interests and internal problems of the US allies will restrict the implementation effect of the US competition policy toward China and help China to expand the space of international cooperation in the clean energy industry. Greater coordination will occur between the United States and Europe in the areas of economic and technological policy dialogs, but European countries will realize that it risks becoming a mere instrument or an expendable partner and foreign policy afterthought in the US5 geopolitical calculations and rivalry with China.
In fact, in terms of competing with China in industries such as clean energy, the diverging interests between the United States and Europe cannot be fully bridged. Take the EV industry as an example. As the Russian war with Ukraine led to higher energy and raw material costs in Europe, electric car makers in the European Union increased their investment in the United States, which undermines the size of the EU car industry and employment. Meanwhile, the requirement of the IRA for the localization of key components, such as batteries for EVs that are eligible for tax credits places the majority of cars assembled in the European Union or using EU-made batteries at a competitive disadvantage in the US market and forces European car makers to plan to construct additional production facilities in the United States. The European Union argues the $430 billion required by the IRA, which will take effect in January, will make the United States a world leader in the EV market at the expense of the European Union. Completely resolving the disputes between the United States and the European Union related to EVs and other industries is difficult; thus, the strategic coordination between the European Union and the United States against China in the field of clean energy industry will be weakened to a large extent.
Ill Opportunities will continue for China-United States clean energy cooperation
Apparent differences exist in the resource endowment required by difierent production links in the clean energy industry such as EVs and PV. Although the United States attempts to significantly reduce its dependence on Chinese raw material processing and component manufacturing enterprises in the clean energy industry, a broad space will remain for cooperation between the two countries in the clean energy industry based on the impact of cost control, complementary advantages, and other needs.
In the process of the United States escalating its competition and even confrontation with China in the clean energy industry, the actual effect of its implementation of industrial localization or friend-shore cooperation will be difficult to meet US expectations. The reason is that building a complete and internationally competitive supply chain for the clean energy industry requires a large amount of capital investment and a large number of skilled and operational workers, such that the process will take a long time. In contrast, the scale, cost advantages, and technology accumulation of China in the production of raw materials and components for solar PV, EV batteries, and other industries provide a broad space for Chinese and American enterprises for implement vertical cooperation in the industrial chain. This scenario leads to a difficulty for the US in significantly reducing cooperation with Chinese companies in the clean energy supply chain any time soon. In the future, the clean energy automobile industry will remain highly complementary for China and United States. In particular, the clean energy automobile industry in the United States has certain advantages in technological innovation and other aspects, and China has advantages in the scale of industry and market and the integrity of industrial supporting facilities. Based on the respective advantages of the two countries, maintaining and expanding cooperation between the enterprises of the two countries in the upstream and downstream links of the industrial chain is conducive for building a sound competitive and cooperative relationship between them in the clean energy industry.
Meanwhile, the prospect of global warming will highlight the urgency of cooperation between China and the United States in the clean energy industry:
As we enter climate’s decisive decade, engaging with the world’s largest emitter of greenhouse gases must be a top priority for any US administration that takes the problem seriously. Learning from our past experiences of cooperating while competing with China will enable the crafting of a bilateral agenda that will benefit US interests and mobilize constructive international climate action.
As the cooperation between China and countries in the Middle East and Central Asia in terms of the construction of clean energy facilities and the promotion of low-carbon economy development achieve initial results, the achievements will further highlight that the confrontational competition of the United States against China in the field of clean energy industry is contrary to the needs of countries worldwide for addressing climate change and for
developing the economy. Accordingly, if the US government adopts a pragmatic and responsible stance on clean energy and even more high-tech industries, reduces confrontation, and promotes expanded cooperation between the two countries in the clean energy industry, then favorable conditions will be created for the healthy development of the global clean energy industry and the steady progress of the international agenda on climate change. This situation is also a test of the great power responsibilities of the United States and the wisdom of its policymakers.