Like It or Not, China Is the Green OPEC

For nearly 20 years, since Al Gore’s 2006 documentary “An Inconvenient Truth” panicked the public about climate change, the economies of the West have been wringing their hands about the need to reduce global greenhouse gas emissions. To make this a reality, these countries say, we must build a post-fossil-fuels economy. 

China listened and indicated that it would help, but not by lowering greenhouse gas emissions. (China’s annual carbon dioxide emissions continue to be more than double those of the United States.) Instead, China meant it would help by building solar panels, wind turbines and electric vehicles and batteries. 

In making this push, Beijing took its cue from Brussels and Washington. In the eyes of the Western power centers, the planet was in trouble. We had to reduce our carbon footprint. We found new ways to make steel by melting metal scraps instead of iron ore; BP became Beyond Petroleum instead of British Petroleum; and both the U.S. and Europe started to install equipment to harness wind and solar power everywhere.

For Beijing, if the tools to lay the foundation for a more renewables-friendly energy system were what the Western consumers were demanding, China would be the one to make them.

Western companies also were largely content with giving China the work of producing these new green tools—that is, until Nov. 2016. When Donald Trump was elected president, the “trade war” began, and tariffs were imposed on billions of dollars’ worth of Chinese goods. This included tariffs on solar panels, a market China now completely dominates worldwide. Suddenly, the idea of making such tools at home seemed much more appealing because of those costly tariffs.

Prior to the seismic shift in U.S.-China relations under Trump in 2018, the year tariffs went into effect, American and European companies believed the future of manufactured goods was in Asia. (Our biggest trade deficit ever recorded with China was posted in 2018.) With the trade war, that belief began to change. The onset of the COVID pandemic in 2020 and the resulting rise in geopolitical tensions only bolstered this new feeling.  

But building all these tools domestically isn’t something that can happen overnight—if at all. Today, of the leading solar companies in the world that design and build solar panels, only one is American—First Solar of Tempe, Arizona—and none are European. The top 10 are almost all Chinese. (Even Canadian Solar was founded by a Chinese entrepreneur, and its solar panels are mostly made in China and Southeast Asia.)

In other words, the U.S. and Europe came up with the idea to build a post-fossil-fuels economy while having no one to build it for them—except China. China became something of a green OPEC—the top producer of every major renewable power source in use today. Now the U.S. and Europe are having panic attacks about this dependency, but it might be too late to reverse course.

China’s Solar Dominance

The U.S. and Europe are now worried about China’s manufacturing leadership in the post-fossil-fuels economy. But really, it was the West and its corporations in the renewable energy industries that created this green monster, willing to let China build everything for them until it was too late to be competitive in the market.

Take solar, for instance. The American Recovery and Reinvestment Act (ARRA) of 2009 gave tax breaks to U.S.-based solar companies to help them build local supply chains. ARRA did not come with any tariff protection, so no barricades or restrictions were placed on Chinese solar exporters. Knowing that the U.S. government was giving a 30% reduction in taxes to domestic solar manufacturers, China rightly assumed demand for solar would rise as companies here produced more.

The problem was that, even with the tax advantage for domestic producers, China could still sell at even lower prices. To meet U.S. demand, Chinese solar companies produced breathtaking amounts of solar panels for export. Prices for Chinese solar panels quickly fell, going from $4.40 per watt in 2008 to $2.32 per watt in 2010 and then to $0.79 by 2013. 

Meanwhile, American solar companies struggled to produce solar panels and sell them for a price competitive with Chinese imports. And so one by one, the American companies went broke. Seven of these firms, including the multinational SolarWorld, stopped manufacturing here within a year of ARRA, and SolarWorld became insolvent in 2018.

Fast-forward to today: Section 201 solar safeguard tariffs and antidumping duties against a handful of Chinese solar companies gave American companies the incentive to invest in production again and slowly rebuild. Then the Inflation Reduction Act came along and provided new tax breaks for any domestic-based manufacturers, even more tax breaks than the Obama law. Predictably, Chinese companies like Canadian Solar are setting up shop here to take advantage of those tax incentives. By doing so, they will maintain their status as the world’s leading solar panel providers.

Some American businesses are taking action. Just two weeks ago, seven U.S. solar manufacturers filed a complaint challenging Chinese solar companies’ “illegal and harmful trade practices,” and the Department of Commerce will decide whether to take up the case later this month. In his first months in office, President Biden reversed a Trump-era policy putting tariffs on double-sided utility-grade solar panels, though he is now considering reversing that decision in order to protect local manufacturers.

As progressives push the country to go green, the U.S. government is doing what it can to protect domestic solar, run by American companies. The problem is that their initial push came at a time when the American renewable energy industry was weak to nonexistent and in many cases starting again from scratch. 

The Wind at China’s Back

If the U.S. has any wind turbine manufacturers of any repute, they do not rank in the top 10 globally. General Electric Renewable Energy, for one, is headquartered in Paris, and its turbines are mostly made in Europe. 

Wind is a European thing. We all have images of Dutch windmills in our heads from the art history classes we took in college. But now, wind is a part of China’s renewable energy push, and the country is excelling at this effort. Last year, China’s Goldwind tied Denmark’s Vestas as the top installer of windmills globally.

Next up is Siemens of Germany. Last November, Siemens Energy CEO Christian Bruch said, “We are unable to gain access to the Chinese wind market.” This has long been a way China protects its home market as it seeks to garner expertise and local market share before it ventures abroad. The strategy is to keep foreign rivals away; build know-how, muscle and manufacturing capacity; and then take away the foreign rival’s market share abroad when ready. 

As a general rule, CEOs like Bruch seldom criticize China. They want to play nice in the hopes that they can one day gain access to the Chinese market or expand their business there. Beijing effectively gets free lobbying from these multinationals, who can be counted on to warn policymakers not to go too hard on China or they might risk losing a bid, or force Beijing to tear up some memorandum of understanding that would have led to greater sales. 

But in Europe, patience is wearing thin. Bruch said recently that he now supports tariffs or import limits on “cheap Chinese wind turbines.” 

Another German wind manufacturer, Enercon GmbH, said recently, “The next three years are crucial in fending off China.” Barring tariffs and import quotas, the European wind industry’s days of being the global leader are coming to an end.

The U.S. has no horse in this race. America’s wind industry is basically project engineering (like designing a wind farm) or contract manufacturing for Chinese and European companies. The top wind company names installed here are mostly European. But Goldwind is here, too. Goldwind has at least 11 completed projects, including its large 160-megawatt Rattlesnake Wind farm in Texas and the 109-megawatt Shady Oaks wind farm in Illinois. “Goldwind is well positioned to capture even greater market opportunity in the U.S.,” new Goldwind CEO Zuo Feng said in April. His company will overtake Vestas as world’s largest wind company, so he’s got reason to be optimistic.

American companies might not be worried about the Chinese taking away market share in wind power because they have no market share in wind to speak of. But the Europeans have seen the future. Chinese wind companies had a 66% global market share in 2022, up from 46% in 2021, according to energy consultancy Enerdata.

China Fills the West’s EV Battery Gap

Sadly, the Americans and Europeans are in even worse shape when it comes to electric vehicle (EV) batteries. Sure, Tesla is the No. 1-selling EV in the world. But good luck making one without a Chinese, Japanese or South Korean battery. There is no such thing as an American or European EV battery company with anywhere near the scale required to supply batteries to EV manufacturers.

To grow the post-fossil-fuels transportation sector, the U.S. and Europe are implementing subsidies and tax breaks for buyers and domestic manufacturers of EVs and EV batteries. The problem is mostly on the EV battery side. Despite legislation designed to promote domestic manufacturing such as the Inflation Reduction Act, there are still no American battery companies large enough to ink an agreement with any of the big car companies to mass-produce batteries for them—including startups like Rivian, which abandoned plans to design and manufacture its own battery cells last year. Meanwhile, six of the top 10 EV battery producers globally are Chinese, led by Contemporary Amperex Technology Ltd., or CATL.

Basically, the U.S. and Europe opted to create a new auto industry to solve climate change, without having a single company that can make a sufficient number of EV batteries. It’s not for lack of trying. Tesla has tried making fast-charging battery cells, but CATL is innovating faster, and so the electric carmaker has opted to stick with them instead for the time being. General Motors tried as well with its Ultium battery, but today, it also relies on batteries from a foreign manufacturer, in this case South Korea’s LG Chem.

My guess is that there may never be a U.S. or EU battery maker of any significance without massive subsidies and tariffs against Asian rivals, including LG and Panasonic of Japan. Those two companies already have long-standing agreements with American and European car companies, so they’re unlikely to be rejected in favor of a new domestic player.   

Even if American EV manufacturers someday develop successful battery cells, for now and for at least the near future, they’ll rely on Asia for everything—the cells, the packs and the modules that connect on the flat platform under the car that makes an EV run. Even if U.S. companies do create a better battery cell, will they be able to make it at scale, or will they only produce a few for test drive purposes? Will they still need Asia, led by China, to plug all those batteries into battery packs? I believe the more likely outcome is that an American or European carmaker will design a better battery, keep the intellectual property and contract the big EV battery brands in Asia to make it. For the West, EV independence seems to be a pipe dream.

China’s Overproduction of Renewable Energy

China produces so much renewable energy technology that its companies are the price setters, resulting in a glut of inexpensive products.

Upon returning from her April trip to China, Treasury Secretary Janet Yellen indicated that China’s overproduction of renewable energy goods is problematic for the world. “We’re seeing an increase in business investment in a number of new industries targeted by China’s industrial policy, and that includes electric vehicles, lithium-ion batteries, and solar,” she said. “China is now simply too large for the rest of the world to absorb this enormous capacity. Actions taken by China today can shift world prices. And when the global market is flooded by artificially cheap Chinese products, the viability of American and other foreign firms is put into question.”

And China shows no signs of stopping. Renewable energy is currently part of China’s Five-Year Plan, and will likely reappear as a favorite economic sector of the Chinese Communist Party in its next plan. This means the Chinese government will continue to support the sector with subsidies and other incentives. Provincial leaders, interested in receiving Beijing’s largesse, will get state companies to manufacture the products the central government is favoring, including solar panels, wind turbines and batteries.

This policy is even more appealing if it leads to jobs and the chance to grow exports. Should Washington and Brussels complain to Beijing about too many Chinese companies producing too many solar panels, Chinese President Xi Jinping can tell provincial governors to stop. But the provincial governments, concerned more with local employment than placating the West, will ignore him. It’s no wonder that job creation matters so much: China’s working-age population topped 860 million in 2023. The EU working-age population is about half that, and the U.S. working age population is even smaller, currently around 208.5 million.

A Consortium of One

OPEC is a consortium of oil-producing states, but the green OPEC is a consortium of one. “China’s enormous state support for industry fosters overcapacity that brings prices down so low, no one can compete,” U.S. Trade Representative Katherine Tai told the Senate Finance Committee in a mid-April hearing. “We have to take action. If not, we are going to lose the capacity to produce these things and once you lose that, it is hard to rebuild it.”

In the not-too-distant future, the U.S. will likely try to argue that China is subsidizing its renewable energy companies at home, and for that reason, it should be treated differently from, for example, Japan or South Korea. This might be the only way Washington and Brussels can curb China from dominating solar, wind and EV battery supply chains—at least in their home markets.  

It’s hard to fully blame China for this. That’s because prior to 2018, Western governments were largely fine with making all things renewable in China. America’s corporate leaders and policymakers assumed the green tech revolution would be designed locally and made in China. Chinese entrepreneurs thought a bit differently. They didn’t just want to build products for Western companies and help their corporations grow. They wanted to create national champions themselves, and they have. And where they have not, they have signed joint venture agreements with well-known corporations—for instance, taking controlling stakes in Volvo, which has become a major EV carmaker.

The U.S. and Europe wanted a post-fossil-fuels economy to fight climate change. With the exception of First Solar and Tesla in the U.S. and Vestas in the EU, they have few homegrown companies to take them there. For that reason, China is the biggest winner in the post-fossil-fuels economy. But to be sure, the West has been complicit in making it happen.