How China will run rings around Trump on Green Energy, and Win Big

By Matthew Kahn | (The Conversation) | – –

In mid-November, while Americans were preoccupied with election returns, China sent some of its clearest signals yet that it will continue to pursue an international leadership role on issues including climate. At an international climate change summit in Marrakech, the Chinese government reasserted its commitment to reduce its greenhouse gas emissions. The government announced that its aggregate emissions will peak by 2030 or earlier, and that its emissions per dollar of economic output will decline sharply.

For 25 years I have taught my economics students that climate change represents the ultimate “free rider problem.” To slow global climate change, we need to reduce aggregate global emissions. Yet each individual nation’s efforts are too small to “solve” the problem, so it has only weak incentives to take costly mitigation actions, and strong incentives to “free ride” on the benefits of emission reductions by other countries.

From this perspective, President-elect Trump’s pledges to “cancel” the Paris Agreement and dismantle President Obama’s carbon mitigation initiatives follow standard economic logic. If the United States backs out of commitments to reduce national emissions, it still benefits from other countries’ efforts.

Why, then, is China is pressing ahead with low-carbon initiatives? My research suggests several motives. Chinese leaders want to improve the quality of life in their nation’s cities by reducing air pollution; win large shares of promising export markets for green technologies; and increase China’s “soft power” in international relations. Taking aggressive action to cut carbon emissions helps China in all three areas.

Reducing coal’s cruel impacts

Much of the staggering rise in China’s carbon dioxide emissions in recent decades came from burning coal to produce electricity for the nation’s industrial sector. While this growth has created millions of jobs and wealth for the nation, coal-fired power plants are major sources of greenhouse gases and conventional air pollutants that affect millions of people.

A large body of research, including joint work by U.S. and Chinese scholars, has demonstrated that air pollution in China causes thousands of premature deaths yearly. Coal also provides winter heating in China’s colder cities. Recent epidemiology research has found that coal use for heating greatly increases fine particulate air pollution, which has raised morbidity and mortality rates.

Using data from around the world, economists have found that when countries develop economically they move up an “energy ladder.” As a nation grows richer, it tends to substitute more expensive but cleaner fuels such as natural gas for cheap, high-polluting fuels like coal. A natural experiment that occurred in Turkey as natural gas pipelines were built throughout the nation between 2001 and 2014 showed as people gained access to natural gas, air quality improved and mortality rates declined.

China has more coal than natural gas resources, but as its citizens grow wealthier, their willingness to pay to avoid pollution increases. This trend will encourage substitution toward cleaner fuels. As such, China’s political leaders will likely prioritize policies that substitute natural gas for coal, which should reduce air pollutants and greenhouse gas emissions.

Economic deceleration, industry restructuring, and new energy and environmental policies have slowed the growth of coal consumption in China and are also driving more centralized and cleaner uses of coal.
U.S. Energy Information Administration

Pursuing green and profitable export markets

China’s economic growth has been fueled by manufacturing for export. Now it faces rising competition from other lower-cost manufacturers that produce cheap goods such as sneakers and clothes. In response, China is seeking new export markets. Electric vehicles, solar panels and wind turbines represent promising markets in a world with ample demand for lower-carbon transportation products and power-generating capacity.

Trade economists have posited that there is a home market effect that drives certain large industries to concentrate in countries with large domestic markets. Firms in these industries gain experience in producing low-cost, high-quality products by selling to home markets. After they go through this process of learning by doing, they turn to exporting.

China’s Communist Party (CCP) has offered special incentives, including free land and low interest rate loans, to businesses in the green energy sector. By providing these cost advantages, the CCP hopes to give Chinese manufacturers a first mover advantage. And with the rise of China’s universities, China is now home to a huge number of engineers with the training and expertise to compete with Japan and South Korea in developing new technologies.

Over 21 million new cars were sold in China in 2015. China uses more oil than any other country except for the United States, and is projected to become the world’s top oil consumer by 2034. This outlook gives Chinese leaders a major incentive to develop green transportation.

China’s central government is offering direct subsidies to people who purchase electric cars, and many major cities are offering tax incentives for local automakers to produce and market electric and hybrid vehicles. Such policies have helped Chinese electric car and bus maker BYD become the largest electric vehicle producer in the world.

China is also seeking market dominance in clean energy technology. The nation’s ambient air pollution and its greenhouse gas emissions would both decline if China could produce more electricity using clean renewables rather than relying on coal. It has been the largest producer of solar photovoltaic cells in the world since 2007, and overtook Germany as the nation with the largest installed photovoltaic capacity in 2015.

U.S industrial regulators have accused China of engaging in predation and dumping low-cost solar panels that compete with U.S products. But environmentalists should cheer that potential buyers in importing nations now face lower prices – especially global companies like Wal-Mart which are pledging to shrink their carbon footprints. As the price of renewable power equipment declines, the law of demand predicts that more U.S. companies will go green.

There is a key synergy between electric vehicles and green power generation. As studies have shown, driving an electric vehicle that runs on electricity generated from coal can produce more greenhouse gas emissions than operating a conventional gasoline vehicle. If Chinese exports of electric vehicles and renewable generating technologies lead to their joint adoption by suburbanites, greenhouse gas emissions from both transportation and power generation will fall.

Investing in soft power

For decades, the world’s media have portrayed China as a bully and trade cheat abroad and a repressive power at home. In cutting carbon emissions, the Communist Party seeks to boost its own political legitimacy in the international arena as well as with the Chinese people.

By committing to pursue ambitious environmental goals, Chinese leaders hope to signal to both domestic constituents and international actors that China is an international leader and cares about its own people. A “leading nation” plays an active role in international relations, helps to keep the peace and promotes global public goods. At a time when the United States appears to be stepping back from its leadership role, the CCP may see a chance to fill the vacuum, and make money in the process.

The Conversation

Matthew Kahn, Professor of Economics, University of Southern California – Dornsife College of Letters, Arts and Sciences

This article was originally published on The Conversation. Read the original article.

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Related video added by Juan Cole:

The National: “China’s Green Energy Push”

15 Responses

  1. Long term perspective (China) versus extremely short term perspective (USA).

    China has several big advantages over the USA . . .

    – The culture encourages long term thinking and community perspective. The USA has a very short term, “rugged individual” culture where screwing your neighbor to get a two-cent advantage is applauded.

    – The Chinese government can direct business efforts for the common good. The USA government can only beg (if it cares enough to beg).

    – The Chinese government is not ideologically anti-science. Far too many in the USA government are religiously driven anti-science.

    The bottom line is the Chinese government has accepted that global climate change will devastate its population and to stay in power, the government needs to make a long term changes to minimize the damage.

    Coal (and gas and oil) are finite resources and China needs large amounts of infinite energy for the country to survive and thrive, so harvesting and storing renewable energy is the ONLY long term option. The fact that renewable energy benefits the environment is a bonus.

    After drastically rebuilding the country over the last 50 years, China now has the wealth and talent to develop and manufacture technology to harvest and store renewable energy.

    As the author notes, China’s PRIMARY push for renewable energy is local , but because technology increases in capability and decreases in cost in a near exponential curve, China will rapidly become the dominate renewable energy technology provider on the globe.

    While the USA also has the wealth and talent to be a major player in the next generation global energy technology market, it will not because the culture of the USA actually inhibits this. The nature of the USA governance allows obsolete energy technologies to inhibit the development of the next generation.

    The bottom line is, one day Americans will wake up to discover that they NEED renewable energy and will have to drastically re-write their laws that have inhibited it. Then they will discover that all the best and lowest cost renewable energy technology is produced by China and that USA companies are at a HUGE economic disadvantage unless the USA government is willing to subsidize them with massive amounts of tax dollars (socialism).

    In a sane world, the USA government would not be trying to “save” USA coal jobs, but would be shutting down coal production and subsidizing USA designed and manufactured renewable energy technology. Putting laws in place to discourage all carbon based forms of energy.

    As I noted, the USA culture will not do this, so the USA will stumble into the future where they are subservient to China.

    Sometimes the USA form of governance is the worst form of governance.

    • spyguy – Excellent work on all points but fails to specify by what means the fossil fuel industry has become a significant global threat.

      The current USA form of governance is the worst form of governance for energy and climate change.

      As the current USA form of governance is the source of the problems.

      • well, i’d argue the oil monarchies and dictatorships are the worst form of governance for climate change, but until now they weren’t the same countries that had the best academics who could actually work out the size of the problem and the technology to solve it. Big Oil was smart to target the US voter for its disinformation programs because those voters could put men into power able to punish US universities and scientists for pursuing the truth.

        • “put men into power able to punish US universities and scientists for pursuing the truth.”

          There’s a scary prognostication. But punishment is more likely to come in defense of white Christian “Conservatives” who claim to be under duress from those unlike themselves on college campuses.

  2. It used to be that in stories about pollution in China, you’d hear the bit about how ordinary Chinese people heat their homes with nasty little coal stoves burning brown coal.
    So before we condemn China for still building so many coal plants, or merely converting to natural gas with its own methane-leak issues, we have to understand the need to get citizens to stop burning coal in their own homes. Moving that pollution to more efficient coal plants away from population centers is still an improvement in human safety.

    On the other hand, the Chinese government needed to look for ways to leapfrog past the Western paradigm of natural gas as panacea. Everything happening now is five years too late, because China kept pushing conventional economic development at breakneck speed during the last half of the last decade.

    When you’ve created a gas-powered car industry of 20 million units a year, you’ve waited too long to force EV development. Now Beijing is wading in late with the usual post-hoc solutions. First it used subsidies, and when too many small-time hustlers got into that, it had to start cracking down and forcing consolidation.

    That’s because the ultimate benefit to the world comes not from the Chinese CO2 data, but from Beijing’s goal of creating new higher value added export industries. Creating a world-class exportable car is now a huge technological feat. If Chinese capital is divided between 70 or more brands, then it will produce no cars able to compete in America at all. Nor will it produce an advanced, inexpensive electric vehicle.

    The biggest revolution China could foster is the rejection of the entire centralized-grid model in the poorest corners of the world. However, China is divided. Its electronics companies make the solar panels and low-power devices that could free developing countries of the tyranny of huge loans for dams and power lines and cars and highways by which banks and multinationals enslave them. Yet China is now also the home of giant banks and multinationals. This will be a battle of interest groups within Chinese capitalism, the future versus the past.

    Which vision China chooses to export will determine the fate of the world.

    • Cars are not generally a great thing to export because they weigh a lot and take up lots of volume, although they can generally tolerate a long shipping time.

      The latest quote I have to ship a 40′ container from China to the USA west coast is about US$1800 which implies that a car would cost about US$900 just in shipping.

      This is why non-USA car brands often end up building their cars in wage suppression USA states, using as many robots and as few humans as possible.

      That being said, China will undoubtedly use their laws to skew car production toward EV over gas powered cars in the coming years. Chinese companies do not have heavily entrenched processes like USA and European car brands and have a huge talent pool of engineers, so they will probably produce some excellent EV cars in the near future.

      Given how large the Chinese middle class is (almost as big as the ENTIRE USA population), I would not be surprised to see Chinese car brands ignore the USA market and concentrate just on Asia where lots of customers are.

      Again the USA will lose out.

      • “Again the USA will lose out.” Due to the fact China Does not recognize U.S. intellectual property rights the same as the West, our losses are far more than potential markets to exploit. As you point out.

        We must encourage the Chinese EV vehicle market for the good of our planet. It is doubtful our atmosphere can sustain 200 MILLION additional fossil-fuel burning automobiles tooling around China.

        • Keep in mind that Chinese intellectual property is increasing at a very fast pace due to the Chinese government paying very generously for new research whereas the USA government and USA companies are starving research for funding (eating the seed corn – penny wise and dollar foolish).

          In the long term, USA companies will have to “steal” a lot more Chinese intellectual property than Chinese companies have ever stolen from the USA. BTW – most of the western IP that Chinese companies use was GIVEN to the Chinese by “western” companies, NOT stolen.

  3. I fully agree with spyguy’s thoughtful comment, above.

    “For decades, the world’s media have portrayed China as a bully and trade cheat abroad and a repressive power at home.” Fake news, anyone???

    • China is a repressive power at home. But now everyone else is devolving to that standard. Democracy is in its worst crisis since World War 2.

      As for the bullying, while I want to see China get treated fairly on the offshore island disputes, I can’t prove any country’s case on any of those. And building artificial islands and then slapping a 200 mile territorial waters limit on them would just be bullshit.

      Finally, on the trade cheating, it absolutely is true that everyone cheats on trade when they’re building their economy. Taiwan used to be the world’s greatest intellectual property pirate. Japan wrote the book that East Asia follows when it comes to unfair trade practices. Most of all, America itself was once a great haven of tariffs and copyright piracy and its industrial revolution began with the theft of the design of the spinning jenny, declared a state secret by the British crown. So the media has been completely derelict in covering this issue.

    • Since I have done a lot of business in China, I have seen first hand how skewed the USA media is when it comes to China.

      This is probably more out of ignorance by USA media than something nefarious. Americans are somewhat blinded by their own superiority complex and lack of curiosity about the rest of the world.

      This lack of curiosity means that Americans have not kept up with the very fast 50 year transformation of China from an agrarian society into a world-class technology powerhouse where hundreds of thousands of engineers graduate every year from very rigorous universities. That is, the degrees actually have substance behind them. I have co-developed product with these graduates and they are darn intelligent, but you would never know that from the USA media.

      Also Americans have zero understanding of the 5000 year Chinese culture. Once a person understands that China has had a very vibrant “merchant” class (entrepreneurial middle class) for most of that 5000 years, the current transformation becomes more obvious.

      Sure the Chinese government is more dictatorial, but it also tends to do things that benefit the most people.

      In other words, USA media is stuffed full of long obsolete stereotypes and a complete lack of balance and a total lack of desire to correct the many media faults because doing so would upset far to many Americans who would have to completely re-do their own world views.

      Americans hate to think they are mere humans and that other people on earth are their equals so they hang onto their delusions as hard as possible. We can’t entirely fault USA media for wanting to avoid angering their consumers (and losing revenue).

      So not “fake news,” just pure ignorance and fear.

  4. “unless the USA government is willing to subsidize them with massive amounts of tax dollars (socialism).”

    If we do a tenth of what we subsidize oil we would have solar panel heated lattes out of every starbucks.

  5. We’re at a point where the GOP is more ideological than industry. They sit on their fat tushes; businesses are building electric cars, committing to 100% renewables. Homeowners are putting up solar panels. Benito Trumpelini will get the mount top removal going again in West Virginia and find limited market interest.

  6. I’d rewrite that 2nd last para. myself if I was him – at a US uni. What he really means is that for decades the US has made out China is a bully – “ but finally I, the author, have woken up to the fact that that’s projection & China has been more about soft power since it reached out to the world.”
    (That is not to say they don’t bully at home. But when I was there many years ago they did teach co-operation in pre-school.)
    Wrote this last night, wondering where it got to?
    Ok, it’s a bit sarcastic but really, people in the US are too fond of believing what they hear from official sources, as you, Juan, make quite clear here.
    Spyguy speaks for my view too.

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