The International Solar Alliance’s China conundrum
While Chinese investment and demand in renewables have been critical in the fight against climate change — single-handedly dropping world prices in the solar panel industry by nearly 80 per cent between 2008 and 2013 — there are broader implications of China’s leadership in renewable energy markets.
The inauguration of the International Solar Alliance, a partnership of 121 countries, is intended to harness solar energy for the burgeoning energy demand of developing countries. As an India-led treaty-based organisation, the alliance is as much about access to clean energy as it is about India’s bid for moral and economic leadership in the emerging renewable energy market.
History reveals that securing and leveraging emerging energy sources creates new patterns of wealth and power: Pax Britannica was underwritten by coal, while oil set the foundations for Pax Americana. As renewable energy begins to replace “dirty power”, a worldwide systemic change will gradually take place, with manufacturing strategies, supply chains and investment patterns reorienting towards harnessing green power.
This process will require new governance frameworks, finance, and technology. And whichever country is most capable of meeting this demand will shape the development pathway of emerging economies. It should worry policy makers that this country is China — India’s strategic competitor — which the International Energy Agency has called the “undisputed renewable growth leader.”
In its 13th five-year plan, the Chinese government encouraged indigenous development and innovation in “strategic emerging industries” — this includes green energy. Already, Chinese manufacturers account for about 60 per cent of global solar cell production; they will soon dominate wind and hydro power markets; and have nearly monopolised the supply of rare earth minerals such as cobalt and lithium that are essential for solar panels, batteries and electric vehicles. China also intends to emerge as a key source of funding for green energy, both bilaterally and multilaterally, through the Asian Infrastructure Investment Bank.
Chinese manufacturers account for about 60 per cent of global solar cell production; they will soon dominate wind and hydro power markets; and have nearly monopolised the supply of rare earth minerals such as cobalt and lithium that are essential for solar panels, batteries and electric vehicles.
While Chinese investment and demand in renewables have been critical in the fight against climate change — single-handedly dropping world prices in the solar panel industry by nearly 80 per cent between 2008 and 2013 — there are broader implications of China’s leadership in renewable energy markets.
The first is China’s geoeconomic strategy. In 2010, for example, China suspended the export of rare earth minerals — a critical resource for manufacturing solar panels — ostensibly citing environmental reasons. Experts agree, however, that the move was calculated to coerce renewable energy companies to invest and manufacture in China. China also suspended exports to Japan following a maritime dispute between the two countries later that same year. While the WTO finally struck down the restriction, the move signalled how Beijing could treat such critical resources, over which it holds uncontested monopoly, in the future.
Second, China’s trade strategy employs corporate espionage to weaken competitors and dominate energy markets through theft and pricing arbitrage. In 2013, a Chinese firm was indicted in the United States for stealing proprietary software from an American wind turbine company — costing it jobs and key technology. Similarly, in 2014, American law enforcement agencies revealed that China was hacking into the systems of solar companies to preempt their pricing and marketing strategies, in order to outbid them in global markets.
Third, over the years, China has used generous subsidies, tax rebates, trade barriers, and cheap credit to boost domestic manufacturing at the expense of foreign competitors. While industry groups in the EU and America have successfully lobbied for retaliatory measures against China’s ‘market distortions’ (a move India is considering as well), this complicates their own renewable energy agenda as downstream industries have thrived on cheap solar imports — highlighting the indispensability of China to an interdependent global energy economy.
Finally, Beijing is also making renewable energy a key part of its flagship Belt and Road initiative, with President Xi Jinpings’s promise to “green” investments in the coming years. For example, Beijing intends to commit its overcapacity in solar power generation towards meeting the energy needs of countries along the new Silk Route — many of which are also a part of the fledgling International Solar Alliance (ISA).
China’s leadership in the renewable energy market, then, is a policy conundrum. On one hand, its manufacturing prowess can single-handedly make green energy cost effective. On the other hand, its formidable “all of the government” approach distorts trade relations; prevents competition; monopolises key supply chain resources; and cements its market dominance.
It is this challenge that the ISA, and specifically India, will have to face. Currently, the ISA gives India a proverbial foot in the door to shape a new global environmental governance regime — its partnership with France and European countries allows it to harness new technology and finance; its development aid to Asian and African countries allows it to expand its diplomatic outreach; and the ISA’s multilateral format allows India to help shape procurement, manufacturing, and investment strategies.
Having said that, India’s global aspirations are often at odds with domestic realities: Solar modules manufactured in India account for less than 10 per cent of consumption, and the WTO recently invalidated India’s domestic procurement policies following a US complaint. And like in other countries, a flood of cheap Chinese exports is gutting Indian domestic manufacturers and causing distortions in project pricing strategies, forcing many of them to shut shop because they cannot compete.
Funding is another key concern. India requires nearly US$125 billion to meet its own renewable energy ambitions — with experts arguing that domestic finance will have to account for the lion’s share, as multilateral lending and foreign investments dry up. However, given the ongoing crisis in India’s banks, this is a difficult prospect.
Even if China joins the ISA, as some reports have suggested, the fact remains that it is driven by a strategic interest in developing a new China-led and controlled political economy for global energy systems. Unless New Delhi can sort out its domestic policy, manage trade differences with key partners, and shore up international finance, it faces an unenviable choice: giving China a veto over India’s energy security, technology development, diplomatic outreach, and leadership in clean energy.
Source: orfonline.org
