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Is China playing geopolitics with its green policy?

President Xi’s recent statement that China will aim to be at ‘net zero’ on carbon dioxide emissions by 2060 could be a big game changer. It could also just be an intervention in the US election.

President Xi’s recent statement that China will aim to be at ‘net zero’ on carbon dioxide emissions by 2060 could be a big game changer. It could also just be an intervention in the US election.

Charles Stanley

in Let’s talk about markets


China may be trying to intensify pressure on Donald Trump in the election over the divisive issue of climate change – when China might prefer dealing with Joe Biden in the future. President Xi is good at playing the game of posing as a well-behaved global citizen when he wishes, adopting fashionable international causes, whilst still running an authoritarian state often violating the very rules of the global system that President Xi says he cherishes.

The truth is China is, by far and away, the world’s largest generator of man-made carbon dioxide, accounting for one quarter of the assessed world output. The second-largest producer is the USA, with 15% of the world total. More importantly, China has been increasing its output of gas rapidly as its industrialisation has advanced – and Beijing has invested heavily in coal-fired power stations.

Were the UK to remove all its emissions it would only save around two years growth in China’s output of CO2. President Xi promised to start to reduce the output prior to 2030, without naming the exact year or the profile for future reductions. The world awaits more detail as part of China’s cycle of five yearly economic plans for the proof of how this reversal of trend might commence, and how China expects to remove so much carbon dioxide output over the following thirty years.

Battery power

China has long seen Europe’s preoccupation with climate change as a huge commercial opportunity. Wishing to break into the global vehicle market, where German and other European brands are well established, China determined to back battery technology and to seek to leapfrog access by coming up with the batteries and maybe the vehicles the West would need.

State planning led to the systematic creation of a strong position in batteries, acquiring 60% of global lithium and cobalt output, and a dominant position in spherical graphite, required for the most popular batteries. The strategy led to CATL gaining a supply contract with BMW to supply batteries for electric vehicles. It is now working on cheaper electric cars to promote, as well as securing a major investment by Tesla in China for their domestic market.

China has also been alive to the opportunities to supply windfarm and solar panel products to overseas markets desperate for more renewable power. China itself has invested substantially in solar and wind energy at home, but by 2018 renewables only accounted for 27% of electricity output. Coal-based generation still represents around 57% of power generated, backed by substantial overcapacity.

China has pursued an erratic policy towards the expansion of renewables. Generous subsidies through feed-in tariffs were throttled back when they seemed too successful and as the price of solar and onshore wind generation came down, slowing the increase. Meanwhile China ploughs on with new coal stations adding to its large fleet, based on the proposition that coal delivers reliable power whilst the sun and the wind can let you down.

Subsidy disarray

China’s home enthusiasm for electric cars has also been a roller-coaster ride. Generous subsidies gave it a boost, only to see them cut back with immediate consequences for new car sales. There is some differentiation state-by-state and city-by-city. Shenzen has become a pioneer, where people have to bid for a permit in an auction to have the right to buy a petrol vehicle. China’s interest in green energy and transport does have a very practical incentive, as China has been fighting against very poor air quality thanks to its power stations, factories and older vehicles.

It would be a huge turnaround to end coal power stations, fossil-fuel driven industrial plants and many diesel and petrol vehicles. It is likely the plans when they come will not offer big progress for the first decade, but simply changing the direction of the trend lines will represent a large alteration in favour of green products. If, at the same time, Joe Biden pulls off a win in the US election – suddenly the two largest economies of the world join Europe in taking on King Carbon. There will be an intensification of the work to innovate and change products as they do so. This will be a big global change.

It reinforces the arguments for investment in renewable energy, batteries and new vehicle production, and increases the pressure to write off more of the sunk investment in carbon fuels and the dependent technologies. It would also be wise to maintain some scepticism about how far China can and will go with this transformation, bearing in mind it makes good political sense to talk green and provides plenty of commercial opportunities for China to back the EU’s climate agenda against the cheap fossil fuel energy policy of Mr Trump.

Nonetheless, the switch of the two largest carbon generators to belief in the ‘green agenda’ will have a large impact on the world economy and on patterns of a worthwhile investment.

Nothing on this website should be construed as personal advice based on your circumstances. No news or research item is a personal recommendation to deal.

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