Environmental Overcapacity

In reference to the above illustration, we analyse a prospective scenario where intensified Chinese production of renewables co-transpires with a highly confrontational Western policy towards China. As alluded to, the Chinese bid on renewable energy production is vastly reliant on export and has found itself under jeopardy with projected Western tariffs. Particularly, after the election of Donald Trump as the United States’ 47th President, US tariffs are expected to rise unprecedentedly with Trump’s vow to impose “an additional 10% tariff, above any additional tariffs [on China]”. Both Obama and Trump already imposed tariffs on green-tech, which were later upheld under the Biden administration albeit, never nearly as hefty. Nevertheless, Chinese manufacturers have been finding a way around those restraints by outsourcing their production into other Asian countries. While this has not yet faced American backlash, an analogous response is not unlikely to occur.

The European Union has likewise imposed its own tariffs on Chinese green-tech, picking Chinese EVs as their first target. In addition to the EU’s own incentive to constrain Chinese exports, the world will soon arguably become witness to a Trump attempt at pushing the Union’s hostility towards China to its limits. Upon the backdrop of Russia’s war on Ukraine, Trump will possess an immense bargaining power vis-à-vis the EU, placing military and financial support to Ukraine on the line. Even if not the case, the EU might nonetheless need to engage in some sort of response in order to prevent China’s hyper-competitive goods flooding its markets. Thus, even if not equally as fierce, an EU–China trade war is also not unlikely to unwind, reinforcing a common Western containment policy and leaving Chinese green technology industry over-capable and its products under-exported.

This scenario entails two implications for both China and the rest of the world. First, China will need to seek alternative outlet markets for its overly capable green-tech industry. A destination which could serve as such could be Africa, where China has made major investments in the past years. However, it is uncertain to what extent African countries would be willing to play this role. With 30% of minerals central to global energy transition laying underneath the continent and a desire to take advantage of this capacity, Africa might prioritise a framework in which it plays an active part by developing its own local green-industry, instead of a passive one where it only serves as a safeguard for foreign capital. While some scholars argue that China is ready to invest in an African green-tech industry in such manner, this neither solves China’s overcapacity problem, nor does it safely withdraw China’s bid from the pool.

Second, leaving China’s green-tech capacity unexploited might perplex the global energy transition, which advances us to the next scenario, which will also further hint as to why the European Union might not be overly enthusiastic over the idea of a full-scale renewable energy sources trade war with China. 

Environmental Jackpot

While the US and the EU both have strong industry-driven incentives for a containment policy towards China, there exists another dimension to this issue. Setting aside the languid deployment of its Green Deal Industrial Plan, the European Union is still highly reliant on Chinese clean energy technology, with 98% of extra-EU solar panels imported from there and the solar job market violently dominated by deployment instead of manufacture.  The same concerns the United States, with its green-tech production capacity falling far behind China’s. While the US’ declarations are rather explicit, the EU seems to be trying to seize a more ambivalent and cautious approach—a counterweight of sorts.

The continuous dependency on imports of green-tech from China might evince that the implementation of the ‘industry-friendly’ segment of the Green Deal did not happen entirely as predicted. This means that the EU’s green industry might be coming out as neither as efficient nor as competitive as it was adumbrated and might require additional input from the Chinese industry to keep up with the promises made under the remaining parts of the Green Deal, regardless of how sturdy the US’ behaviour will be in sticking to its narratives, and how consistent it will be in trying to influence the EU’s decisions.

For China, it is a lucky shot. The EU’s betrayal of the US in maintaining a common Western containment policy would ensure that China retains a large, incessant and stable market outlet for its green technology industry and therefore, may escape overcapacity and a lost bid. Evidently, the EU has not yet implemented its Industrial Plan and its effects are thus unknown. However, it is unlikely that the plan would have any tangible outcomes short-term. The European Union has been very vocal on the urgency of a global transition to renewable energy sources. A cooperation with China at the level of renewable energy sources would undeniably facilitate said transition for the European Union, notwithstanding significant political consequences it might face for enabling such cooperation.

Underbid & Outbid

This paper considers the Underbid and Outbid scenarios volatile and highly unpredictable. The former projects China’s withdrawal from its bid in fear of a confrontational Western containment policy with said policy coming out mild in reality. This scenario has three implications: a negative one for China, a positive one for the West, and an ambiguous one for the global transition project. Chinese underproduction vis-à-vis its capacities awards the Western green-tech industry with more stage to thrive. Consequently, the  global transition project simultaneously falls short of green technology with rapid price rise and finds itself in a slow-down, with a perspective for, perhaps, a more just transition with respect to industries. The Outbid scenario, on the other hand, projects China ‘losing some but not all’. This essentially translates to China’s successful withdrawal of its bid from the pool under the Western pressure and escaping overcapacity, while nonetheless bearing the side-effect of under-exploited potential. 

Conclusion

It seems evident that China’s green technology bid was a reasonable and substantively grounded one, at the time of its placement. Nevertheless, the growing economic tensions between China and the West have started shedding a different light on the subject, with the gamble’s fate balancing between two prominent scenarios: Environmental Overcapacity and Environmental Jackpot. Whether China finds itself fortunate and scores the jackpot depends primarily on how the sentiment towards green transformation in the European Union is going to progress, i.e. whether environmental or industrial interests excel within. In particular, a hardly predictable success of the Union’s Industrial Plan may have a significant impact on which path the EU shall follow. As regards the overcapacity scenario, China needs to be prepared for the undesired eventuality of having to deal with an industrial overproduction, and seek potential partners who would be willing to serve as substitutes for European and American markets.