'Green tech partnership' offers way to de-risk while decarbonizing
Alicia Garcia Herrero and Heather Grabbe
An EV battery production line in Hefei, China: A global green-tech supply chain should not aim at displacing Chinese production. © Reuters
Many Western governments are now wrestling with the dilemma of how to secure the solar panels, batteries and wind power equipment required for their emission reduction plans while also reducing reliance on China, the primary source of many of these green technologies.
This conundrum is not going away, despite U.S. and European attempts to encourage domestic production of green tech products.
China is just too far ahead, not only in terms of controlling needed raw materials and the capacity to refine them, but also in terms of the sophisticated manufacturing techniques and innovations involved in producing green energy systems. Years of state support for clean technology industries make it very hard for any other country to catch up.
All countries need to accelerate decarbonization if humanity is going to have a chance of limiting climate change. Yet the reliance of everyone on supplies from a single country of the equipment needed to build renewable energy and transport infrastructure carries enormous risks.
The one that is most discussed is the potential weaponization of the dependence in case China decides to restrict exports. But there are other risks, like unintended disruptions due to climate-related stresses such as floods and droughts or from pandemics.
Another comes from rapidly growing domestic demand in China for clean tech to meet the country's own decarbonization goals. It is hard to assess whether China can produce enough clean tech to meet domestic requirements and export demand. This is a big a risk to run.
In our view, U.S. and European attempts to bring production onshore will not result in sufficient supplies. Not only are manufacturing costs high in the U.S. and Europe, but both lack sufficient access to critical raw materials and refining capacity.
A better way forward would be for a range of countries with different comparative advantages to create a "green partnership" to which each would contribute in coordinated specialization. Such a partnership could create a supplementary value chain, fostering security of clean tech supplies for the decarbonization of all countries.
Such a supply chain should not aim at displacing Chinese production since global decarbonization depends on plentiful supplies of green tech. But this new supply chain could complement China's by bringing together the markets with the highest demand for green tech -- the U.S. and the European Union -- with resource-rich countries and others that can offer economies of scale and low wages.
Developed countries should provide the innovation and financing needed by those with the resources and the economies of scale to extract, refine and manufacture green tech products. This would enable the developed economies to diversify their sourcing while reducing the need for the reshoring that is now being enabled only by costly subsidies.
The developing economies that take part in this partnership will in turn benefit from diversifying their customer base beyond China as well as obtain opportunities to move up the value chain through the refining of needed raw materials and product manufacturing. Moving up the chain would bring more revenues for the decarbonization of their own economies to supplement the climate financing they will receive from international sources.
For countries such as India, which has potentially large economies of scale in manufacturing, the partnership would offer access to technology transfers from other partners and access to critical raw materials that they may now have difficulty obtaining.
All members, and the world as a whole, would benefit from the innovation involved in reducing dependence on a single supply chain. New green technologies may come to the fore, such as perhaps using sodium or phosphorus in batteries in place of lithium or finding ways to produce solar panels without silver.
More reuse and recycling could create more circularity for all these goods. That would reduce the risk of disruption in the production of green tech due to shortages of critical raw materials and relieve the environmental damage brought by the current race to extract as much of the minerals as possible.
Governance of this clean tech partnership would be a challenge because there is no ready-made format from existing multilateral arrangements for creating new supply chains. Moreover, it is private companies rather than governments that would have to make the needed investments. The key to designing such a partnership would be to align incentives across the public and private sectors of participating economies and to keep the structure inclusive.
The benefits of such an incentive-aligned, green tech partnership would not only be economic but also political. When countries become green tech producers -- not only consumers, as is the case for most of the world now -- it changes the political economy of the green transition.
Decarbonization then becomes a business opportunity, not just a cost. A green tech partnership and the de-risking from excessive dependence on China for the energy transition that it would bring should help create the political economy incentives to push for the energy transition in many more countries.
*This article was originally published by Nikkei Asia at
https://asia.nikkei.com/Opinion/Green-tech-partnership-offers-way-to-de-risk-while-decarbonizing