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How China is winning the GREEN ENERGY race.

How China is winning the GREEN ENERGY race.

In April twenty-twenty-four the US Treasury 
Secretary, Janet Yellen took a week-long trip   to China during which she criticized Beijing’s 
economic policy and warned President Xi and his   colleagues that their current level of 
industrial capacity is very much viewed   by Western nations as a dangerous OVER-capacity 
that could pose a risk to the rest of the world,   by which I think she means the United States and 
Europe, but you know, mostly the United States. The most pressing issue on Secretary Yellen’s 
agenda appeared to be China’s rather irritating   recent habit of building lots of really very 
good quality electric cars and selling them to   the public at prices that average working people 
can afford. Over here in the United Kingdom our   government regards that sort of skullduggery 
as just not cricket you know! And in the two   largest EU economies, France and Germany, 
the prospect of cheap Chinese cars flooding   their domestic markets has prompted something of a 
meltdown among well-established legacy automakers.

And it’s the same problem with other energy 
transition hardware like solar panels,   wind turbines and batteries. The message 
that ordinary folks like you and me are   getting here in the West is that the stirring 
Dragon in the East is one of the great evils   of the modern age, and it needs to be 
put back in its, in its…dragon box? So, we should maybe have a think 
about that, shouldn’t we?
Hello and welcome to Just Have a Think.

China has pledged to reach net zero 
emissions by 2060 at the latest. About fifteen years ago, China’s leaders realised 
that decarbonisation was not only an important   global goal but also an extremely urgent priority 
for improving air quality and public health in   their rapidly growing urban centres. They also 
recognised that the economic revolution that was   enshrined in their five-year plans would probably 
not be helped by building internal combustion   engine vehicles that would struggle to compete 
with already well-established global brands   and would lock the country into decades of 
expensive oil imports. So, China decided   to dive enthusiastically into the development 
of battery powered electric vehicles instead.  Meanwhile, here in the West, despite a very clear 
and obvious directional nudge by Tesla Motors,   the major automotive manufacturers pretty much 
completely ignored the writing on the wall   and elected to stick with old technology that 
they understood and were tooled up to produce.  As a result, China has gained the so-called ‘First 
Mover Advantage’ over its Western competitors.

According to the data website EV Volumes, of 
the fourteen million or so electric vehicles   sold globally in twenty-twenty three, about 
eight and a half million were sold in China,   seventy percent of which were fully electric, 
and thirty percent were plug-in hybrids. And the country is also revolutionising 
most other forms transport too. “I’ve been tracking China’s 
renewables stats since 2014.” That’s Michael Barnard, a global technologist 
who spent decades working for one of the world’s   largest tech consultancy firms operating 
in a hundred and twenty-eight countries,   and who now advises companies and policymakers in 
key markets INCLUDING South-East Asia and China. “They’re electrifying their everything vastly 
faster than the rest of the world combined. “ They have 1.2 million electric trucks and 
buses on the roads, and now 43,000 kilometres   of high-speed, grid-tied electric rail, which 
is displacing enormous amounts of aviation.” By 2022, 27% of the buses on China’s 
roads had some kind of electric   propulsion system. Eighty-four percent 
of that new fleet was pure electric,   and that proportion is rising as the economics 
of hybrids and hydrogen fuel cells continue to   make less sense to fleet buyers.

That’s an 
astonishing rate of adoption. As recently   as 2015 almost 80% of Chinese urban 
buses were running on diesel or gas. According to the World Resources Institute, 
if China stays on its current trajectory,   then greenhouse gas emissions from road 
transport in that country will peak well   before twenty-thirty, ahead of 
the European Union and the USA. And of course, as we’re all hearing so regularly 
in the news nowadays, having honed their craft   and produced a range of extremely high-quality 
products, Chinese automakers now have their   sites firmly set on global expansion.

Chinese 
brands are already commonplace in Australia and   South East Asia, and now they’re making 
a move into Europe and looking for ways   into the United States. And that is definitely 
causing ‘a level of concern’ to put it mildly. At the IAA Mobility auto show in 
Munich, Germany in September 2023,   Renault’s Chief Executive, Luca 
De Meo, 4was quoted as saying… “It’s clear that they are very competitive 
in the electric car value chain. I think   they are a generation ahead of us. We 
need to catch up very, very quickly.” Over in the States, Jim Farley, CEO 
of the mighty Ford Motor Company,   recently said "If you cannot compete 
fair and square with the Chinese around   the world then 20% to 30% of your revenue 
is at risk" over the next several years. A big complaint about Chinese EVs that’s 
often amplified in the western media is   that they’re being kept artificially 
and unfairly cheap by massive state   subsidies. But how accurate is that allegation? According to a recent Bloomberg NEF analysis, 
incentives do exist, both for Chinese producers   and consumers.

EV buyers in China don’t pay any 
vehicle purchase tax for example. And Chinese   automakers have received production subsidies 
over the last decade or so to incentivise   them to prioritise EVs over internal combustion 
engine vehicles. Chinese firms have historically   been allowed to purchase land at discounted 
prices too, and access low interest loans and   research grants from local governments keen 
to attract new industry and jobs to their   regions. America’s response has been to provide 
its own suite of incentives to US manufacturers   as part of the Inflation Reduction Act and apply a 
twenty-eight percent tariff to Chinese EV imports. According to a recent Reuters report, the 
US government is also putting huge pressure   on Mexico to prevent Chinese suppliers 
setting up productions facilities there   to take advantage of the North American 
Free Trade agreement, or NAFTA. Meanwhile,   over here in Europe, in September 2023, the 
European Union launched a formal investigation   into Chinese subsidies, claiming 
that “dumping” unfairly cheap   EVs in foreign countries is in violation of 
international trade rules and anti-free market.

“How exactly is China subsidising stuff today, 
when they created an industrial policy that led   to cheap products that are necessary now, by 
keeping their eye on where the ball would be?  “So, right now, these decarbonisation necessities 
of the future : wind turbines, solar panels,   high voltage direct current, batteries, 
heat pumps, you know, electric trucks,   electric trains, erm it has massive economies 
of scale for all that stuff, because of stuff   that China started doing in the ‘80s and ‘90s.
Their domestic supply chains are very short   geographically. Part of that is, what they 
do is they create clusters for industries.  When I was looking at the electric 
bicycle market prior to COVID,  one district of one city is building a 
third of all the electric bicycles that   China manufactures. One district. Which means 
that purchasing power parity is 40% better   than the United Stated or Europe. That means 
every Yuan you spend, goes 40% further in your   domestic supply chain. Some of that is wages, 
but wages have been increasing substantially.  You know if they need a part, the depot is right 
beside them.

If a small firm gets a big order,   they can assemble five other firms to fulfil 
that order in a way that just isn’t possible   in North America or Europe, where the growth 
was more organic and more dispersed. Europe’s   not going to find significant subsidies 
of these firms in 2024. The investment   by the government and the focus by the 
government was 10, 15, 25 years ago. “Basically we’ve got a situation where Europe and   the United States have taken their eye 
off the ball on fundamental technologies. They lost track of the industrial policies. 
They thought that innovation was funding   start-ups and research, not industrial policy. So, what about the other Elephant in the room 
then – greenhouse gas emissions? One of the   most common questions I get asked is ‘why 
should we bother reducing our emissions in   the West when China is the worst polluter on the 
planet, and it keeps using more coal every year.’ According to a respected data analytics 
organisation called Global Energy Monitor,   or GEM, China currently has just over 1,100 
gigawatts of operational coal power capacity.   That’s a lot of coal! In fact, according to 
this chart from Statista, it’s one and a half   times more capacity than the next nine largest 
coal burning countries combined.

It also has 268   gigawatts of announced new capacity, about 
136 gigawatts of which is in construction. So, there’s no room for complacency here. 
That’s a frightening amount of coal and   it does indeed propel China to the top of the 
global emissions league table. But it’s worth   scratching the surface a little bit here to get 
a slightly more nuanced picture. GEM also tells   us that in the last few years China shelved, 
retired, mothballed or cancelled 775 Gigawatts   of capacity based on old, less efficient 
technology burning dirtier forms of coal.

Those older plants emitted roughly one-point-four 
tons of carbon dioxide per megawatt-hour. Cleaner   forms of coal burnt in new, more efficient 
facilities emit about zero-point eight tons   per megawatt-hour. That’s more than a 
forty percent reduction in emissions. “beautiful, clean coal”

Yeah, I know! I don’t think any RATIONAL observer   is suggesting that going from ‘dirty’ coal to 
‘clean’ coal is any reason for celebration! A   forty percent reduction on a massive number 
is still a very big number, isn’t it?  So, China is working towards energy independence. 
They’ve been very honest about this. They said   20 years ago, 10 years ago, ‘yes, 
climate change is real, it’s serious,   it’s caused by us, and China’s a big 
polluter. But we have hundreds of millions   of people that are living in abject poverty. 
We need to bring them out of abject poverty   before we can fully decarbonise.
“They’ve got their cities built.   They’ve got all their subways built. 
They’ve got all their airports built.

They’ve got all their highways built. They’ve got 
177,000km of highway. Second only to the Unites   States. But that demand curve is flattening 
out. And so, their domestic demand for coal,   for energy for infrastructure is 
going to flatten and diminish.”  And there’s another important detail to take 
into account here. Total system capacity is   NOT the same as real-world operational output.
“China uses its coal plants the way the United   States uses its gas plants. The United States 
is running its gas plants at about 49% capacity   factor. So, 49% of the total possible generation 
from their gas plants is how much they use. And   China’s stats for the coal plants are 
virtually identical. They use coal for   peak demand. United States in its merit order 
uses natural gas for its peak demand. And so,   if we think about them as peaker plants and we 
think about the merit order for electricity which   is – if there’s renewables or low carbon stuff, 
let’s use that first, and then at the end of it,   oh there’s this other stuff, the fossil 
fuels, lets use that last. That’s the   merit order.

And China has one as well.”
In fact, according to David Fishman,   in this article from September 2023, all new 
coal-fired power plants in China now have to   have the technical ability to reduce their 
power output to only 30% load during periods   of low demand. That’s not a profitable way 
to run any kind of power generation facility.  State subsidies will be the only lifeline that 
keeps those plants running as a back-up firm power   source to fill the gaps in intermittency while the 
country continues to build out its wind, solar,   hydropower and energy storage capacity.

But that 
expansion is happening so rapidly that while some   new coal power plants may survive for a couple 
of decades, many will become stranded assets,   and their owners will exit the market at a loss.
So, although the charts look a little alarming   right now, David Fishman’s article concludes that…
“If hydropower pulls its weight and renewables   maintain their blistering growth, it’s likely 
China’s coal consumption will tick upward to   peak in 2023, plateau in 2024, and begin 
its long decline thereafter.” In China,   there’s just been this accelerating 
curve of wind, water and solar in China. While nuclear has flatlined. Even China can’t 
scale nuclear, but they’re scaling wind and   solar at a tremendous rate. So now we’re at 
the point where the IEA is calling for China   to build over the next few years, 30% more 
wind and solar than the rest of the world   combined.” “The three big things. Electrify 
everything. Build lots of renewables. Build   lots of transmission, mostly high voltage 
direct current, and build some storage.” One of the things I looked this year was the 
statistics globally on pumped hydro.

This is   finally getting the attention its due. A gigalitre 
of water – that’s a billion litres of water – at   500 metres difference, is a gigawatt-hour of 
storage. And the ponds are a square kilometre   a piece. The amount of land space used is 
miniscule compared to the energy storage. So, what’s China doing? Is it 
putting in lots of batteries? Yeah,   of course it is. But it has 19 GW of power 
capacity in pumped hydro in operation today. It has 68GW in construction today. And in 
total, planned and in construction, it has 365GW   of pumped hydro in its current plans, and it’s 
expecting to have most of those launched before   2030 and many of them complete before 2030.

That’s 
probably 8 to 15 terawatt-hours of energy storage. This is where China’s going. They’re 
going to grid storage. They’re going   to broad transmission across their space. 
And let’s remind people. Europe is about   10 million sq.km. The United States is about 10 
million sq.km. China is about 10 million sq.km. And so that means they can 
move sunshine from the West to   the demand centres in the East quite 
nicely for the evening demand peaks. And they’re going there very rapidly. They’re 
increasing electrical demand insanely rapidly.   They’re increasing renewables incredibly 
rapidly. But in the meantime, they have   this transitionary backstop of burning 
less and less and less coal every year.” According to a survey by the 
European Investment bank, seventy-three percent of the Chinese population 
regard climate change as a major threat to   society. That means Chinese leadership is 
pushing at an open door when it comes to   the incredibly disruptive changes required to 
rapidly accelerate their energy revolution. Not every Chinese citizen enjoys the same   freedoms though, of course. Political 
opposition is aggressively subdued, and disturbing human rights abuses, particularly 
among the Uyghur community in Xinjiang Province,   have been widely publicised over here in the West.

These are all part of the frustrating 
contradictions that China often produces. I would assert that the biggest advances 
in human rights in the past forty years, has been China bringing 850 million people out 
of abject poverty into the lower middle class and   middle class. China is already strategically 
positioning itself to be able to get credit,   to decarbonise its economy, electrify its 
economy, run everything on renewables,   carbon price everything, so that when it’s 
shipping to the second largest economy in   the world and one of the biggest import economies 
in the world, they’ll still be cost competitive” So, how should the West respond to the Chinese 
juggernaut? Do we ostracize and demonize them   and put up impossible trade barriers that will 
inevitably be reciprocated and might cause more   pain than gain to western economies, or do we 
embrace China’s technological revolution, allow   some of their production to come to our own shores 
to provide well-paid jobs for our own workers, and   cooperate with them commercially and politically 
so that we can continue to apply pressure on   issues that we find to be completely at odds with 
our western philosophy of democratic freedom?   Well, you know what? I’m going to leave that one 
for you to have a think about.

I’m quite sure   there will be extremely strong views either way on 
this one, and I will be fascinated to see how the   consensus view pans out. So, if you’re currently 
itching to offer some of your own wisdom,   then, as always, the place to leave your 
thoughts is in the comments section below. That’s it for this week, though. A massive thank 
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See you next week.

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