By: Michael Megarit
In little more than a decade, China has made itself a world leader in electric vehicles, renewable energy, and energy storage. In response to its own poisoned environment, shrinking workforce, and security fears about foreign dependence, the country has incubated a green industrial policy that is both generous and ruthless.
China did this to solve its own problems—with a lot of help from Japanese and Western companies and investors—but the results benefit everyone. For now, China’s green energy sector remains deeply connected to other, very different, economies in Asia and the West. Washington’s current policy of “decoupling” Western economies from China threatens to disrupt green-tech innovation just when we need it most. The consequence could be a blow to the environment, not just in China but throughout the world.
China became an economic power after 1989 in part because it offered abundant cheap labor, was willing to use dirty manufacturing processes, and opened its doors to global players. Today, Chinese labor is relatively expensive, the country’s environment is toxic, and the Chinese Communist Party is striving to reduce foreign dependence. The remarkable rise of China’s green economy is fueled by all three of these factors.
In the 1990s, China began to build a solar-panel industry, more or less from scratch. Demand for solar panels was surging in Germany at that time—the result of German government policy—and German companies invested in Chinese panel manufacturers, transferring the intellectual property and experts necessary to seed the new industry. Chinese companies took the opportunity and ran with it. Other European countries soon sought to green their economies, and demand for solar panels increased.
China, well aware of its dependence on foreign energy supplies and the dirtiness of its coal-dominated domestic energy industry, then began to cultivate a domestic market for solar power. The state subsidized production, created incentives to spur domestic demand, and drew on Australian academic expertise and Californian venture capital to expand the industry. By the 2010s, China had a huge domestic market for solar panels and dominated the world market. It also brought the price of panels down far enough to stimulate the growth of solar energy markets around the world, including in the United States. With business booming, China began to reduce its subsidies to the solar industry in 2014.
The wind power industry followed a somewhat different trajectory. There is no retail market for wind: turbines are neither cheap nor easy to build, and they need to deliver energy to a grid. In 1994, China began to require state-owned energy grids to buy whatever wind power energy was available as a way to boost the renewables industry. Tax incentives and other encouragements—as well as joint ventures with Danish and German companies—led to rapid growth in the wind power sector. By 2008, China had a little more than 12,000 megawatts in wind power capacity. Soon, the first Chinese-made wind turbine was installed in the United States as part of a joint venture. Today, China dominates the global wind power industry. It generates more power than its grids can integrate, and the state is looking to reduce subsidies.
China’s leading battery maker, CATL, builds storage facilities for such grid-level batteries and has recently entered the U.S. market. The company also makes batteries for electric vehicles. That sector, which includes electric buses and trucks, as well as cars, is the most recent green initiative to take off in China. Between 2009 and 2017, Beijing spent more than $35 billion to subsidize the electric-vehicle industry. The government committed additional billions to building “electric-vehicle towns,” mini-Detroits for the electric era. Once again, China flirted with overcapacity and cut some subsidies in June 2019.
State-owned companies, as well as some private players, are building a nationwide network of charging stations, and the innovation loop from grid-level battery storage to cars and trucks and back again continues to thrive. Major car makers, such as BYD, are also major battery makers. China’s battery industry is now a market leader, as is its battery-recycling sector. Recycling batteries helps reduce pollution and the dependence on foreign raw materials. These green industries are global in scale and volume. And China achieved all this in less than two decades.