“API Geoeconomic Briefing” is a weekly analysis of significant geopolitical and geoeconomic developments that precede the post-pandemic world. The briefing is written by experts at Asia Pacific Initiative (API) and includes an assessment of burgeoning trends in international politics and economics and the possible impact on Japan’s national interests and strategic response. (Editor-in-chief: Dr. HOSOYA Yuichi, Research Director, API; Professor, Faculty of Law, Keio University; Visiting Fellow, Downing College, University of Cambridge)
This article was posted to the Japan Times on November 28, 2021:
API Geoeconomic Briefing
November 28, 2021
How China became a key player in global decarbonization
Research Associate, Asia Pacific Initiative (API)
In recent months China has been hit by its worst electricity supply shortage of the past two decades.
The severe power shortage has already had a grave impact on the production lines of various major industries and on people’s lives, with power restrictions even imposed on households in some regions.
One of the factors behind the power crunch — in addition to soaring coal prices — was the Chinese government’s moves to restrict the operation of coal-fired thermal power plants under its decarbonization drive.
In September last year, Chinese President Xi Jinping told the United Nations General Assembly that China would aim to achieve carbon neutrality by 2060.
To achieve this target, many provincial governments were forced to impose measures to reduce energy usage. In August, some provinces that were criticized for failing to make sufficient progress stepped up efforts to cut power, leading to the nationwide power supply crisis.
China, with its economic foundation shaken by its forcible decarbonization initiatives, is facing a challenge of how to balance climate strategy with a stable electricity supply.
Xi’s surprise announcement was a declaration to the global community that China — the world’s biggest greenhouse gas emitter, and which had been refusing to make commitments on carbon emission reduction — is finally becoming active in tackling climate change and engaging in climate diplomacy.
In the following month, then-Prime Minister Yoshihide Suga, in his first policy speech in parliament, made an ambitious pledge to cut greenhouse gas emissions in Japan to net zero by 2050.
U.S. President Joe Biden, who had been pledging during the 2020 presidential campaign to have the country achieve net zero emissions by 2050, signed an executive action to reinstate the U.S. to the Paris Agreement just hours after being sworn in as president in January.
Green policy power game
At the recent COP26 climate conference, held in Glasgow, Scotland, countries played power games to take the lead in international efforts to fight climate change.
The European Union’s European Green Deal, the Biden administration’s Green New Deal and Japan’s Green Growth Strategy are all aimed at raising international competitiveness by using the goal of carbon neutrality as a driving force to change the industrial structure.
China holds the key in the moves toward this goal.
The country, which started actively promoting energy saving and the use of renewable energy around 2005, has now become the world’s top producer, exporter and installer of renewables, including wind and solar power.
Clean energy technologies such as solar and wind power generation, storage batteries and facilities for the efficient production of electric vehicles are greatly affecting the future of companies, economies and trade.
China occupies 36% of the global solar photovoltaics market and 39% of the global wind power market in terms of cumulative installed capacity.
With the state-led push to nurture the industries, China emerged as a renewable energy superpower after a decade or so, overwhelming other countries.
Tsinghua University’s Institute of Energy, Environment and Economy said investments needed to meet Xi’s 2060 carbon neutrality goal could total 100 trillion yuan (¥1.6 quadrillion) over the next 30 years.
According to an International Renewable Energy Agency report released in 2019, China occupied a 29% cumulative share of renewable energy patents as of 2016, much higher than 18% for the United States and 14% for Japan and for the European Union.
The report says that countries with renewable energy production technologies and patents will have a geopolitical advantage over those without.
China accounts for approximately 40% of global electric vehicle sales and, according to BloombergNEF’s lithium-ion battery supply chain ranking for this year, the nation also hosts 80% of all battery cell manufacturing capacity.
Japan, the U.S. and Europe are all facing the need to construct reliable supply chains for batteries, a vital component for electric vehicles and drones, for national security reasons.
The EU is accelerating its push to decarbonize the auto industry, with plans to effectively ban sales of all new gasoline and diesel cars — including hybrids — from 2035.
It is also trying to support the growth of companies in the region by avoiding relying on China for raw material and components and introducing stricter environmental requirements to effectively shut out from its markets Chinese products that don’t meet them.
In 2017, EU countries and industries together launched the European Battery Alliance to establish a battery value chain within the region, offering massive financing support to various companies including Northvolt AB, a Swedish battery developing and manufacturing startup.
China’s Belt and Road initiative also plays a significant role in the power game.
In 2019, China and the United Nations jointly established the Belt and Road Initiative International Green Development Coalition, involving more than 20 U.N. agencies as well as the environmental ministries of Belt and Road initiative member states.
While the coalition says it is an open network to promote sustainable development, the U.S. and Europe are concerned that it could be used as a tool by China to expand its hegemonic power.
China is aiming to export to the U.S. products related to renewable energy and decarbonization, but the U.S. cannot accept an inflow of cheap Chinese products.
Climate change is regarded as one of the few areas in which the U.S. and China can cooperate despite their confrontational relationship. Considering the situation, however, it appears difficult for the two nations to work to improve ties even in this area.
If the U.S. and China fail to work together in the field of climate change and continue to fight over technological superiority, it could hamper competition and technological innovations, leading to a rise in costs for environmental measures, discouraging moves towards decarbonization.
What should Japan do to catch up in terms of environmental policies?
Firstly, under the government’s Green Growth Strategy released late last year, Japan must develop unique and non-substitutable technologies and products in order to have bargaining chips in negotiating to partner with the U.S. and EU.
Particularly, from the perspectives of economic security, it is vital for Japan to develop batteries to break away from relying on China’s rare earth metals.
Furthermore, the EU, which is moving ahead of others in the environment sector, is considering imposing the world’s first carbon border tax on imports from countries with looser measures against climate change.
Energy-intensive industries such as steel and cement production in the EU have to hold allowances corresponding to their carbon emissions. Companies in those industries outside the region shipping their products to the EU will be levied if they have not paid carbon fees of the same level at home.
The proposed tax will initially cover cement, iron and steel, aluminum, fertilizers and electricity, but it is likely that other products made from steel or iron, such as cars and electric appliances, will be subject to the levy in the future.
The EU is trying to protect industries and jobs within the region by imposing a tax on imports from countries that do not have carbon pricing programs.
Japan only recently started considering introducing a carbon border tax along with a carbon pricing program. It is necessary for the government to engage in close dialogue with the U.S. and the EU to come up with common rules, before Western nations take the lead to create rules disadvantageous to Japan.
Disclaimer: The views expressed in this API Geoeconomic Briefing do not necessarily reflect those of the API, the API Institute of Geoeconomic Studies or any other organizations to which the author belongs.