How trade friction is slowing down the world’s shift to clean energy

The speed of the green shift will benefit from uninterrupted global trade, while cooperation also depends on trust between countries and regions for a reasonably fair competition.

China is decarbonizing domestically and can play a role supporting decarbonization of other countries through manufacturing and exporting clean energy technologies. However, trade friction and concern over the economic security of green value chains may slow down the shift to clean energy.

China commissioned as much solar in 2023 as the whole of the world did in 2022. Today, China accounts for more than one third of global wind capacity and an equal share of the solar photovoltaic capacity. Shenzhen-headquartered BYD is vying with Tesla to be the largest electric vehicle (EV) manufacturer and China is producing a massive three-quarters of the world’s EV batteries.

DNV’s Energy Transition Outlook China report, released in April, forecasts that its renewable energy installations will grow fourfold by 2050 as it cements its place as the world’s leading investor in green technology.

The scale of China’s energy transition means it is not just of importance in Beijing, it is also catching the attention of policy-makers in Brussels and Washington, who are concerned about subsidies on exported green technology making the price artificially low and distorting competition.

China is not only big in renewable energy. Consuming 26% of all primary energy in the world, it is a superpower in all forms of energy. And the fact it is responsible for one-third of energy-related carbon dioxide emissions means that the rate of China’s decarbonization impacts us all, and its pace of transition is the single most decisive factor for the global emission trajectory.

At 56% of the country’s energy mix, coal casts a shadow over China’s energy use. Coal consumption has been more or less flat since 2014 but increased between 2021 and 2022 and soared further in 2023.

We project that consumption will plateau for the next four to five years before gradually reducing to one-third of its current level by 2050, albeit still representing 44% of global coal use at that time. While coal is mostly domestically sourced, most oil and gas is not. Oil use is likely to peak before 2030 and more than half to 2050, while gas use in 2050 is expected to be about the same level as it is today.

And even if Beijing has put self-reliance at the heart of its energy policy, we expect most of the oil and gas will still be imported in 2050.

Running in parallel to China’s fossil fuel story is the impressive rise of clean energy. The share of renewables in total electricity generation in China will increase from 30% today, to 55% by 2035, and 88% by 2050. And electricity itself will almost double – it is definitely a story of growing and greening the electricity in China.

To put the speed of this transition in further perspective, just 10 years ago wind and solar each contributed less than 1% of power generation. Today solar and wind generate 7% and 8% of China’s electricity and this number will grow to 38% each in 2050.

Nuclear is also growing in China, albeit modestly, and by 2050 we expect absolute production to more than double, but its share is remaining at a modest 5%, dwarfed by solar and wind.

For many years, China has been the manufacturing powerhouse of the world. In a number of areas, it has produced goods for not only what until recently was the world’s biggest population, but for all of us.

For China the energy transition is also an opportunity to continue this trend, including into new areas where it has previously only had a quite modest success, like manufacturing cars with combustion engines. Electric vehicles (EVs) on the other hand, have so far proved to be something of a completely different game, with China producing about 60% of the EVs of the world in 2023.

Since the end of the Cold War, the world has benefitted from growing global cooperation and trade. Achievements and improvements in one region would soon spill over to another, and the effect has been a dramatic price drop on almost all technologies, including the technologies we now need for the energy transition.

The speed and scale of China’s energy transition means that its producers and exporters are well placed to exploit continued cost learning effects driving the costs of technologies down. And sometime generous support mechanisms push the costs even further down.

The latter is not always well received by policy-makers who want to develop their domestic green value chains, industries and jobs, as well as ensuring security of supply of key technologies. In the US, tariffs were earlier this month increased considerably on Chinese EVs and solar panels, whilst the European Union is examining subsidies to China’s wind and EV industries. Possible mitigating measures are likely to increase trade frictions.

Despite some headwinds, China is still dominating global clean energy technology manufacturing and exports. To take solar as an example, China accounts for 80% of exports with Europe as the largest destination. Uptake is also growing in the likes of Saudi Arabia and Pakistan.

This suggests that affordability is a key driver for decision-makers, especially in the face of pressing climate goals and, in the case of Europe, energy security concerns. It is therefore a delicate balance for policy-makers to weigh economic security and climate concerns.

The speed of the green shift will benefit from uninterrupted global trade, while cooperation also depends on trust between countries and regions for a reasonably fair competition. Because in the game now being played out, global climate action and mitigation may slow due to concerns over regional economic security.