Since the Biden administration enacted the Inflation Reduction Act in 2022, concerns about a green industrial subsidy race have arisen.
Discussions about Chinese “overcapacity” have fueled this narrative. While competitive subsidies might lead to a waste of resources and taxpayer funds, tariffs on solar panels and electric vehicles could escalate into a broader trade war.
A Potential Pause in Green Momentum
However, what if the three major players – the US, China, and the EU – decide to de-escalate within the next year? The green energy boom, driven by technological advancements and decreasing costs, might not be as resilient as anticipated.
Challenges in Europe and the US
The EU needs to renew the Next Generation EU commitments beyond 2026 to prevent the support for the Green Deal from drying up.
The recent shift to the right in European Parliament elections raises concerns about the future direction of green policies.
The French legislative elections are likely to further solidify this trend. While Marine Le Pen’s camp is not climate-skeptic like Donald Trump, they prioritize lowering diesel prices for their constituents.
Potential Impact of the US Elections
If Trump wins the US election, he has vowed to dismantle Joe Biden’s energy transition subsidies. The Biden administration anticipated this by making the subsidies appealing to industry, prompting a business lobby to defend them.
However, the line between genuine energy transformation and greenwashing can be thin. With adjustments to administrative regulations, the IRA could be transformed into a subsidy vehicle for the oil lobby’s interests, such as dirty hydrogen.
A Biden victory would ensure the US stays on its green course, but significant new climate legislation is unlikely without a miraculous congressional majority. The IRA remains the best achievable outcome.
The Pivotal Role of China
However, the decisions made in Beijing in the coming 12 months overshadow the significance of events in Europe and the US. China’s greenhouse gas emissions surpass those of Europe and the US combined, and its 2024 green energy investments exceed those of either region individually.
China’s investments in photovoltaic technology, batteries, new energy vehicles, and long-range ultra-high voltage transmission are the first to reach a scale that truly transforms the overall economic landscape. In 2023, according to CREA, a think tank, green energy investment was the single largest driver of China’s economic growth.
Formulating New Decarbonization Commitments
Between now and spring 2025, China needs to define its new decarbonization commitments under the Paris climate accords.
The question is whether Beijing’s planners will boldly support the remarkable pace of China’s business-driven energy transition or opt for a more cautious approach.
Lauri Myllyvirta, a leading Western expert on China’s energy sector, has pointed out a concerning discrepancy between the actual pace of change in recent years and the future vision favored by Beijing’s top energy officials.
While China’s solar and wind industries installed nearly 300GW of new capacity in 2023, the National Energy Agency (NEA) envisions a future buildout of just over 100GW per year.
Balancing Progress and Concerns
The NEA justifies its caution by citing the need for better coordination in green energy investments and smoother pricing systems to ensure the reliability of a renewable system. T
hese challenges are familiar in the West, but if they were to hinder China’s transformative green energy boom, it would be a disaster of immense proportions.
China’s Green Momentum as a Global Opportunity
The exceptional pace of China’s green energy investment in recent years might provoke defensive reactions in the West.
However, it also represents the best hope for achieving climate stabilization in time to avert a planetary catastrophe.
Given the urgency of this task, prioritizing balance or equilibrium is akin to a subtle form of climate denial. It would make the challenge of reaching carbon neutrality before 2060 even more daunting and undermine the credibility of commitment, a fundamental element in building a broad coalition around decarbonization.
China’s Potential for Green Leadership
In 2008-09, China’s heavy industrial stimulus drove global growth but also propelled CO2 emissions to new heights. The decisions made in the next 12 months will determine whether China will lead the charge in global green growth in the years to come.