The sun is rising in the East. The wind is blowing from that direction too. And it will change the balance of world power. The fact is that the world’s energy future will be dominated by solar and wind power. They won’t necessarily rule completely: Nuclear power may (and should) have a role, and we’re a long way from completely weaning ourselves off fossil fuels. But a combination of rapidly falling costs for renewables, rapidly rising demand for electricity, and big obstacles to meeting that demand by burning stuff — more on that later — make renewable dominance inevitable. And China will dominate that energy future. It’s arguable that this didn’t have to happen, and Europe may be able to keep some role in wind power. But under Donald Trump, America has taken itself out of the game, and even if sanity eventually returns to U.S. energy policy (and U.S. politics in general), by then we will almost surely be too far behind to catch up. Last week I wrote about the demand side: consumption of renewable energy. On that front Europe still leads by some measures, China by others, while America is a distant third by any metric. Today I’ll tie up some loose ends from that discussion, then turn to the supply side: production of the equipment that harvests energy from sun and wind. At this point China completely dominates the solar power industry. Europe still produces a lot of wind turbines, but China produces almost everything else wind-related. Should we care? Economic success generally depends more on making effective use of new technology than on producing the gadgets themselves. But we live in a world of geopolitical competition among great powers, and it will matter a lot if one of those powers has an effective monopoly on producing crucial goods. We’ve already seen China deploy its dominance of rare earths to great effect in its trade conflict with America. It would be foolish to ignore the implications of its likely dominance of renewable energy. Beyond the paywall I’ll address the following: 1. Further detail on growth in renewable energy 2. Why renewables will dominate energy growth 3. Why China dominates production 4. The future of great power competition The renewable revolution, redux Solar and wind power used to be marginal pieces of the energy picture. As recently as 2009 sun and wind combined generated only 1.5 percent of the world’s electricity. By 2024, however, their share had increased tenfold, to 15 percent. And that share is set to rise rapidly. Between 2019, the eve of the pandemic, and 2024 solar and wind accounted for 63 percent of the growth in electricity production. Since it’s easy to miss numbers when you’re rapidly reading text, let me emphasize this point with a chart: Source: Our World in Data However, when I discuss the future of energy with those who don’t follow the subject closely, I often encounter people who haven’t taken this transformation on board, who still consider visions of a renewable energy future a woke fantasy, propped up only by unsustainable subsidies. In some cases dismissal of the renewable revolution is based on sheer ignorance. Donald Trump, infamously, told the U.N. General Assembly that China sells wind power equipment but doesn’t use any wind power itself. This will come as news to the Chinese: A more sophisticated point I sometimes encounter involves the definition of “renewables.” Some commentators point out, correctly, that when people say, for example, that renewable energy has now overtaken coal as an energy source they’re including hydropower, which isn’t revolutionary. On the contrary, it has been a significant energy source for a long time — think Hoover Dam. In fact, you can see the role of hydropower in the chart above: Even now, around half of China’s renewable electricity comes from dams. But for the past decade, almost all the growth in renewable energy has come from the revolutionary stuff: solar and wind. This is true worldwide, not just in China. That said, a lot of that revolutionary change has indeed been happening in China. By no means all of it. But China’s rush to solar and wind is a large part of the global story: And there are strong reasons to believe that renewables will continue to grow very rapidly, even with the United States taking a great leap backward. Why renewables will rule The rise of renewables was made possible by rapid technological advances that made electricity generation from solar and wind power competitive, or more than competitive, with generation from fossil fuels, combined with radical reductions in the cost of energy storage that alleviate the problem of intermittency (the sun doesn’t always shine, the wind doesn’t always blow). Many people rely on “levelized cost” estimates from Lazard. These are estimates of the average annual cost of generating electricity from a new power plant. There’s a lot of controversy about these estimates, partly because of real uncertainties, partly because think tanks backed by fossil fuel interests constantly throw up objections to Lazard’s conclusions. But the basic picture seems clear: Source: Lazard New coal-fired plants just aren’t competitive with wind and solar, although for the time being continuing to operate existing plants may still pay. Combined-cycle gas plants (which operate all day, as opposed to “peakers” that operate only as needed) are now more or less level with wind and solar, although renewable costs are likely to fall further as a result of the “learning curves” I stressed in the first of these energy primers. However, renewables won’t dominate on the basis of cost alone. There are two additional powerful factors operating in renewables’ favor. First are the effects of fossil fuel generation on the environment. I don’t mean global climate change. Concern over greenhouse gas emissions should be the decisive factor in energy policy, and it has played some role in justifying green energy subsidies. But climate denial is a powerful, durable political force. As far as I can tell, the usual suspects will still be insisting that man-made climate change is a hoax when most of Florida has been swallowed by rising sea levels. But global climate change aside, fossil fuel plants create a lot of local air pollution, which has major adverse impacts on health. If you put a dollar value on these health costs, it’s huge. For example, one study put “the economic value of health impacts from fossil fuel electricity” at between 2.5 and 6 percent of GDP. Coal-fired plants are the worst, but gas can be pretty bad too. The gas turbines Elon Musk put in place to power his new data center in Memphis have seriously worsened smog and health problems in an area already suffering from unhealthy air and high rates of asthma. What this means for energy growth is that we can expect a lot of local opposition to construction of new fossil-fuel generation facilities. Solar and wind aren’t environmentally innocuous, but the complaints against them — they kill birds! They spoil the view from golf courses! — sound, and are, trivial compared with the large death toll inflicted by fossil fuels. Maybe the politics of anti-environmentalism in America will be enough to override these concerns, but on a worldwide basis concerns about air pollution will be a significant obstacle to any growth in fossil fuel-fired electricity capacity, favoring solar and wind as alternatives. A second factor favoring renewable energy, solar in particular, is the way it permits decentralization. Small-scale solar power can bypass the approval process for large facilities. California, famous for the barriers it throws up to development, has been able to achieve rapid growth in solar power — currently 32 percent of its electricity generation — in part because around 40 percent of that power comes from small-scale installations on rooftops etc. Even more important, in much of the world, is the way solar and in some cases wind can make consumers independent from an inadequate or nonexistent power grid. Solar power appears to be experiencing a takeoff in developing countries, from Africa to Pakistan. Who is selling developing countries the photovoltaic panels they’re installing for their solar booms? China, of course. So now, finally, let’s turn to Chinese dominance of renewable energy manufacturing. The Chinese advantage In the modern global economy, the question “Where was this thing produced?” generally doesn’t have a simple answer. Modern manufacturing involves complex supply chains in which various stages of a good’s production take place in different countries. Famously, iPhones are assembled in China, but many of the components come from South Korea, Taiwan, Japan and elsewhere. When it comes to solar panels, however, there isn’t that much complexity. Every stage of production is located overwhelmingly in China, with a few assembly operations carried out in neighboring countries. The United States and Europe barely register in the data. The picture for wind power is slightly less stark. As a recent report from the European Council on Foreign Relations puts it,
However, China “dominates the supply chains of many components and raw materials crucial for wind turbines.” Why is China so dominant in this space? Three reasons. First, China is awesomely competent at manufacturing in general. It has developed an industrial “ecology” — a system of mutually supporting producers — that no other nation can match. China still falls short of the West in its ability to produce extremely high-technology goods. But on anything else, China just has the ability to dominate more or less any industry it chooses. And on renewables, it has so chosen. China long ago rejected Soviet-style central planning, but it aggressively and unapologetically pursues industrial policies designed to push its economy in preferred directions. So it’s hugely important that the Chinese government has decided to make green energy — both its use and the manufacturing that supports it — a priority. This push presumably reflects several judgments. One is that Chinese officials clearly believe that there is a steep learning curve for renewables and that government support can help their nation move down that curve. Another is pollution: Air pollution was a huge issue in Chinese cities not long ago, and the government wants to sustain recent improvements. Finally, it’s clear that China sees dominance of green energy as a source of geopolitical power. More on that in the final section of this post. There’s also a third factor behind Chinese dominance of renewable manufacturing: The size of its domestic market. A brief detour into economic theory: One important insight of the major rethinking of international trade that took place in the 1980s — a rethinking in which, yes, I played a role — was that under some conditions large domestic markets can help promote exports. When an industry is subject to increasing returns — when costs fall as the industry grows, due to economies of scale, learning curves, or both — having a large domestic market for that industry’s products makes the industry more competitive in foreign markets as well. And China is by far the world’s largest market for green energy equipment. Ember, an independent think tank, projects that this year China will account for 66 percent of additions to global solar capacity and 69 percent of additions to global wind capacity. This huge base of domestic sales very much helps China dominate global markets as well. So absent a major push by other economies to change the trajectory, the energy future will belong to China. Why does this matter? The geopolitics of renewable energy The United States is largely or completely dependent on foreign suppliers for many goods. We import all of our bananas, and almost all our coffee. OK, bananas aren’t an essential good, but for many of us coffee is. Yet we don’t consider foreign domination of banana or coffee production a geopolitical threat. Why not treat Chinese dominance in green technology the same way, celebrating the fact that China is providing the world with cheap solar and wind power? There is, in fact, a reasonable case for doing just that. If you’re deeply worried about climate change, as you should be, the faster the energy transition takes place the better, and the fact that it relies on Chinese production is very much a secondary issue. That said, the Pax Americana — the era in which nations could take open markets for granted and dismiss concerns about military conflict, secure in the belief that the global hegemon would maintain order — is clearly over. We’re in the midst of a highly disruptive trade war, and an incredibly bloody shooting war is raging in Ukraine. In that kind of world, one does have to worry about the implications of one global superpower having monopoly control of a crucial technology. As I mentioned at the beginning of this post, China’s dominance in rare earths has given it a lot of coercive power in the current trade conflict. Other nations can and should move to diversify away from rare-earth dependence. But denting China’s dominance of renewable energy, a huge sector, would be much harder, even if the U.S. government weren’t determined to turn its back on the future. And there are less tangible but real issues too. Can the United States claim to be a global leader when it has completely ceded the energy future to China? And how much is U.S. influence in the world diminished now that China has become the “adult in the room” on climate, while we wallow in nostalgia for a fossil-fuel past? Two years ago America seemed to be making at least some effort to stay in the clean energy game. But now we’ve left the field, and there’s no medium-term future I can see in which China doesn’t rule renewable energy. Now, that isn’t necessarily the end of the story, either for energy or for broader questions of prosperity and influence. China may dominate renewable energy for years to come, but it doesn’t have to dominate the world. America remains a highly productive, innovative nation. Also, as I wrote back in September, Europe has a lot more economic strength than many people imagine. If Americans can climb out of the pit of willful ignorance we’ve dug for ourselves and reclaim our democratic values, we can stage a comeback both of our economy and of our alliances. But how to do that will be a subject for another day. |