SINGAPORE — China is rapidly becoming a global colossus in renewable energy as it seeks to reduce reliance on polluting fossil fuels and establish itself as a leading clean power manufacturer and exporter.
Its rise in some key sectors of the green energy business has been breathtaking. In 1999, China made around 1 percent of the photovoltaic cells that are put into solar panels to generate electricity. A decade later it was the world’s leading producer, with a 40 percent share of the market.
Firms in China are expected to make more than half of all solar panels manufactured this year, as well as nearly 80 percent of solar hot water units. China is also on course to produce nearly half the world’s wind power turbines. It sells them at prices significantly lower than those of manufacturers in the West and is preparing for large-scale exports to the United States and Europe.
Leadership in clean energy manufacturing is shifting from the West to Asia as countries like China, India and South Korea give support to renewable energy. A recent survey by Bloomberg, in collaboration with the United Nations Environment Program, found that China became the largest recipient of renewable energy financing in 2009, attracting nearly $34 billion of the $162 billion invested worldwide in wind, solar, biomass, small hydro, biofuel and marine energy.
While this investment in China last year grew by 53 percent, it shrank in the U.S. by 45 percent. Why? The alleged reasons for the West’s decline and China’s rise to a dominant position have become a new source of friction in Sino-U.S. relations that threatens to add to tensions over trade and currency.
Both Washington and Beijing consider the clean technology sector crucial to energy security and economic growth. However, renewable energy companies in the U.S. have struggled to find investment. They have cut jobs and, in some cases, moved operations to China.
President Barack Obama has said the industry should be a vibrant source of employment and exports for America. In September, he called for “a homegrown clean energy industry.” On Oct. 15, the U.S. Trade Representative’s office announced that it would investigate Chinese government support for manufacturers of wind and solar energy products, advanced batteries and energy-efficient vehicles.
Depending on the outcome, the investigation could be followed by filing formal charges against China in the World Trade Organization. The official probe was the result of a petition from a powerful U.S. union, the United Steelworkers, which has 850,000 members in a wide range of energy-related jobs.
The petition claims that China protects and unfairly supports its clean energy producers in breach of WTO rules. The main thrust of the 5,800-page document is that the Chinese government makes widespread use of cheap loans and land grants to subsidize exports of clean energy equipment.
In an angry reaction to the U.S. probe, Zhang Guobao, head of China’s National Energy Administration, implied that the Obama administration was deliberately courting protectionist sentiment in the campaign ahead of Tuesday’s congressional elections.
Clearly, part of China’s clean energy success is due to the same factors that have made it the manufacturing workshop of the world: low labor and construction costs, expanding universities that churn out lots of engineers and technicians, and improving telecommunication and transport systems.
China has also set clean power targets. By 2020, it aims to have 15 percent of electricity generated by renewable energy (excluding large hydro-power dams), up from just 4 percent today. In addition, it plans to reduce the carbon intensity of economic output by between 40 percent and 45 percent by 2020.
China has overtaken the U.S. as the world’s biggest emitter of carbon dioxide, the main global warming gas from human activity. So Chinese officials argue that they should be praised, not punished, for helping to curb greenhouse emissions at home and combat climate change abroad by selling low-cost clean energy products.
However, the WTO prohibits virtually all subsidies to exporters, to prevent governments from trying to help their companies gain an unfair advantage in world markets. WTO rules permit member states to subsidize goods and services in their home markets, as long as those subsidies do not discriminate against imports.
While the U.S. is spending billions of dollars to subsidize research and development of clean energy, it argues that the intent is to help build President Obama’s homegrown industry, not flood the world with cheap exports.
The United Steelworkers petition accuses China of depressing its currency so that exports of clean energy products will sell cheaply abroad. It also charges that China discriminates against foreign companies and imported goods to protect local manufacturers.
The U.S. Congress last year passed economic stimulus legislation that included a so-called Buy American clause. This obliges firms and local governments receiving stimulus money to purchase only steel and other construction materials, including solar panels and wind turbines, that are made in the U.S. or in other countries that have signed the WTO’s side agreement mandating free trade in government procurement.
Nearly all industrialized economies have signed the side agreement to open their procurement projects to international competition. But China has not yet done so because municipal and provincial governments, particularly in less developed inland provinces, say they are not ready.
If cool heads prevail on both sides, there is still time and scope to defuse the U.S.-China clean row. Beijing could hasten the process by signing the WTO procurement agreement and by shifting subsidies away from exports toward encouraging more Chinese consumers to use clean power, a move that could greatly increase demand for foreign imports of clean energy products and components.
Michael Richardson is a visiting senior research fellow at the Institute of South East Asian Studies in Singapore.