By Majid Ghorbani

China’s dominance of key new energy industries, from electric vehicles to solar power, has been swift and dramatic, taking many of its trading partners by surprise. Meanwhile, President Xi recently pledged to reduce the country’s carbon emissions by between 7-10% below its past peak by 2035, placing China at the forefront of global efforts to reduce the environmental damage resulting from human activities.

Through a unique mixture of entrepreneurial private-sector spirit and targeted government policy, a country once known for its smog-choked cities and mammoth coal consumption is now an indispensable player in the green energy revolution. But how, exactly, did we get here? And what lessons do the remarkable developments in China have for the rest of the world in the struggle against climate change?

How China came to dominate green energy

China has been able to achieve its goals through private sector dynamism, public awareness, and industrial policy, in addition to collaboration with other countries at the state and private sector levels.

China signed its first landmark environmental protection act in 1979. However, like all industrialising countries, China’s increasing demand for coal and other fossil fuels to drive the exponential growth of its manufacturing industry led to severe soil, water, and air pollution. As China stepped back onto the global stage, the country’s leadership and people were unhappy with flagrant pollution but slowing the growth machine was also not an option.

Greener options for the material in products, the production process, and fuel and energy for production were available and had already been implemented by many European countries, however. So, the government introduced newer and more targeted industrial policies to utilise these technologies and raise public awareness.

On the consumption and demand side, the government focused on engaging the public in anti-pollution and littering campaigns as well as modernising waste management systems and ecological restoration. Households and businesses would receive subsidies to purchase environmentally friendlier products. These monetary and developmental incentives were also supplemented with numerous punitive policies, such as banning the burning of coal at the household level. The central government also revised the evaluation system for regional government performance, shifting from focusing only economic growth indicators to also include socio-environmental indicators, a major change in the incentive structure for government officials.

On the supply side, industrial policies were reframed to focus on research and development (R&D) on alternative sources of energy. R&D and implementation of green energy using wind and solar power were priorities as defined by several Five-Year Plans, the strategic blueprints issued by the Chinese government to guide national economic and social development. Chinese companies were able to scale up and capitalise on developed countries’ green technologies and, encouraged by environmental policies and government subsidies, both state-owned and private companies entered green energy-related industries.

Developing alternative energies

This synergy of government policy and investment with public and private companies’ innovation and product development has been an essential element in China’s subsequent development of alternative energies. While China’s global lead in green energy has in part been driven by industrial policy, we must not ignore the role of vision-driven private firms, and the government’s ability to recognise and support these star performers.

Chinese EV manufacturer BYD (Build Your Dreams) offers an instructive example. The company was one of the pioneers in making plug-in hybrids in 2008, batteries for electric buses in 2009, and full electric cars and buses in 2010. Starting in 2009, coincidentally the year China became the largest automobile market, the Chinese government began supporting EV-makers through consumer rebates, corporate tax exemptions, purchase quotas (mostly for SOEs), and relevant infrastructure in the form of charging stations and designated parking spaces, accelerating the rapid expansion of the electric car market.

In addition, around this time several large metropolitan governments announced that they would be putting a stop to sources of pollution such as the manufacturing and movement of internal combustion engine (ICE) automobiles within city limits, to address the air pollution crisis choking Chinese cities. As a result, more firms entered the alternative energy automobile and complementary infrastructure ecosystem, creating a perfect environment in which policies, plans, and the private sector work toward the same objective.

The role of international cooperation

From there, Chinese firms’ growth and internationalisation were facilitated by falling costs of solar panels and the country’s unique ability to drastically scale production. Solar PV panels are now an inexpensive alternative for both consumers and governments with ageing or limited grid capacity in the global south. This has further led to Chinese companies’ dominance in these industries in terms of price, production, and quality. While there are companies in the United States, the United Kingdom, and Germany with better technologies at the higher end of the market, Chinese brands cover 80% of the very competitive global market.

Chinese researchers and firms have not stopped at these green technologies and products and are exploring many other alternative green energy sources. For example, China has been working on the upstream supply of hydrogen and has made immense progress in green and white hydrogen production and safety. Building on progress made by developed countries, China has launched joint projects with several nations aimed at scaling hydrogen extraction, transportation, and storage. On the consumption side, Chinese companies are also working on developing safer methods of storing, transporting, and burning hydrogen.

What Europe – and the world – can learn from China

While China originally learnt from Europe in the field of green energy, there is now scope for these roles to be reversed. Many European countries have long been and remain at the forefront of green energy technology and production, but friendlier policies and “co-opetition” can allow their firms to pivot to the next level. Co-opetition, i.e., collaboration mixed with competition, between the public and private sectors and research centres is important to long-term success. Recently, a hydrogen production plant in Oregon jointly funded by Japan and the US, and another German-funded plant in Europe, exited their countries due to the high cost of producing clean energy. In contrast, China and Saudi Arabia’s joint projects in NOMA and other locations are receiving greater funding from the two countries, and continue to operate.

This demonstrates that government policies which can link the support of public infrastructure with private development, while allowing competition, increase the likelihood of success for green energy projects. Europe has a long history of investing more in green energy than China; however, it is through coordinated effort between China and European countries that green energy projects can reach the scale they need.

Furthermore, countries that can develop friendly approaches in their relationship with China can enjoy the fruits of decades of investment and development in green energy. Most large automakers who wish to enter or expand in the EV market already have joint R&D or production in China, or partnerships with Chinese companies outside of China. But the blocking of access to the EU market for Chinese firms or technologies, as we have seen in recent years, may handicap European firms in developing market-friendly green tech solutions. Isolationist strategies push Chinese firms to invest in friendly countries such as Hungary, not because it is a better location or has better skills or policies, but because they are ‘friendlier” toward Chinese companies.

Through co-opetition with Chinese firms, Europe can develop and catch up with EV technology and work on developing the green technologies needed to stop and reverse climate change. Co-opetition between Europe and China, in both the public and private sectors, can bring about the scaling of technologies that are universally compatible in different regions.

Lack of coordination has real consequences. We should avoid the wastage that we have seen in the past around, for example, different electrical voltages and plugs around the world, obsolete DVDs, and more recently obsolete mobile communication technologies. We should not repeat the same mistakes in green energy production and consumption, where the objective is not only to produce competitive market products but also to reduce pollution.

Challenges ahead

Having said this, countries must also be cautious as they search for the most practical and efficient technologies. While at the forefront of some green technologies, China still does not have the answer to everything, and better solutions may exist in other countries. We have yet to discover or develop the best practices in hydrogen extraction to fuel cells, for example.

The emergence of a dominant technology depends on who can achieve a feasible, affordable, and reliable approach that can be scaled and transferred to other regions. The rule of co-opetition is not to rely on a single partner, but to cooperate and compete at multiple points with many players.

We must also note that, despite their progress, China is still responsible for a lot of pollution and is still increasing its consumption of non-green energy sources, specifically in coal. Scientists have been talking about greener coal production and consumption for decades, yet China and many other countries continue to increase their use of coal energy even as they invest in R&D to reduce or eradicate its environmental damage. We have also been on the verge of achieving carbon capture and storage for a long time, but success is still elusive.

With a unique combination of robust government initiatives, significant investment in clean technology, and private sector dynamism, China is setting a compelling example of how to lead in sustainability. Private firms and consumers, as well as the government, are invested in the national goal of protecting and reversing human damage to the environment. The future of energy is green, and China is paving the way for a cleaner, more resilient world.

Throughout the reform and opening up period, China has consistently met and surpassed its goals before its self-imposed deadlines. If it can do so in terms of its carbon emissions, the world can have a little more reason to hope that the fight against climate change is not yet over. 

Majid Ghorbani is an Associate Professor of Management Practice and Deputy Director of Global MiM CEIBS (Switzerland)-ESCP Double Degree Programme at CEIBS.