Western Nations Compete with China in Clean Energy: Navigating Economic and Environmental Challenges

The United States and Europe are aggressively working to reduce their reliance on China’s dominance in clean energy technologies. To counter China’s leading position, these Western nations are introducing subsidies for local manufacturers and raising tariffs on Chinese imports, reflecting a notable shift towards protectionism.

China’s leadership in the clean energy sector presents a significant dilemma for Western governments striving to achieve their climate goals while safeguarding domestic industries and jobs from the influx of inexpensive imports. The challenge lies in balancing the urgent need to cut down on carbon emissions with the risks associated with over-dependence on a single supplier, as seen with Europe’s previous reliance on Russian gas.

Margrethe Vestager, the EU’s competition chief, highlighted this issue when she announced an investigation into Chinese wind turbine manufacturers. She noted that Europe’s heavy reliance on Chinese solar panels—less than 3% of which are produced domestically—exemplifies the dangers of over-reliance. She stressed the importance of avoiding similar dependency on electric vehicles (EVs), wind turbines, and critical components.

In response to rising global competition, the US and EU have toughened their stances. The US has increased tariffs on a range of Chinese green technologies including EVs, batteries, solar panels, and critical minerals. Faith Birol, CEO of the International Energy Agency (IEA), emphasized that this competition is not just about climate change but also about securing a leading position in future industrial technologies.

Currently, China remains a dominant force in clean energy. In 2023, it accounted for three-quarters of global investment in clean technology manufacturing, though this figure has slightly decreased from 85% in 2022. China is set to invest $676 billion in clean energy this year, significantly outpacing the US’s $315 billion and the EU’s $370 billion investments. This investment has solidified China’s role as the world’s largest and most cost-effective supplier of crucial technologies and minerals for the green transition.

China’s influence extends to the production of EVs, where its carmakers contributed over half of the global supply last year. The country also dominates global manufacturing for EV and industrial batteries, wind turbines, and solar panels. Furthermore, China controls more than half of the global processing of essential minerals like lithium and cobalt and is the sole refiner of graphite and rare earth elements necessary for wind turbines.

China’s near-monopoly over these critical minerals poses risks for the global clean energy transition. For instance, in response to US and allied restrictions on semiconductor equipment exports, China imposed export controls on gallium and germanium—elements vital for semiconductor production—and tightened controls on graphite supplies.

Despite China’s significant role in clean energy, Western nations are wary of the implications of their dependence on Chinese imports. The EU’s recent decision to impose higher tariffs on Chinese EVs is aimed at preventing unfair competition that could harm local industries. However, experts argue that such tariffs could inadvertently hinder the transition to green energy by increasing costs and slowing down the adoption of clean technologies.

David G. Victor and Michael R. Davidson, in a Brookings paper, argue that extensive tariffs can drive up the costs of Chinese imports, making it more challenging for businesses and individuals to access affordable green technologies. They contend that such measures could delay the overall transition to clean energy, ultimately being detrimental to environmental goals.

Pierre-Olivier Gourinchas, IMF chief economist, also warned that rising tariffs and protectionist measures could complicate global efforts to address climate change. A McKinsey Global Institute report highlights that current deployment of low-emissions technologies is only 10% of what is needed to meet the net-zero carbon emissions target by 2050. Delays in achieving these goals could exacerbate the costs of climate change, particularly impacting poorer nations most severely.

As Western nations strive to strengthen their own clean energy sectors and reduce dependence on China, they face the challenge of balancing protectionist policies with the need for accelerated environmental action. The outcome of this competition will shape the future of both global climate policy and the clean energy industry.