1. De-risking and decarbonising: a green tech partnership to reduce reliance on China
- Author:
- Alicia Garcia-Herrero, Heather Grabbe, and Axel Källenius
- Publication Date:
- 10-2023
- Content Type:
- Policy Brief
- Institution:
- Bruegel
- Abstract:
- Trade in renewable energy goods is a global public good; all countries gain when others cut emissions, and all suffer from climate change if decarbonisation is delayed. Yet this trade depends on China, which controls most of the world’s production of solar panels and electric vehicle batteries, and some of the global trade in wind turbines. These supply chains are vulnerable to disruption, natural disasters and weaponisation by China, which has already exercised its dominant position in some critical raw materials to put pressure on other countries. Part of the European Union and United States response to reduce reliance on China is reshoring production, but this is economically inefficient given their limited access to critical raw materials and high production costs. Moreover, Chinese firms are far ahead of the rest of the world in green tech manufacturing and innovation, and in extraction and processing. To reduce reliance on China, incentive-aligned governments and businesses should form a green tech partnership. This would produce green tech with the aim of decarbonising faster, while ensuring greater diversification of resources and improving security of supply. Each partnership economy would use its comparative advantage within a new green-tech supply chain. The aim is to supplement, not substitute, the Chinese supply chain, since both will be needed to meet rising global demand for green tech, including in China. Although such international coordination is difficult, the partnership would offers benefits to many different countries. Emerging economies that are rich in critical raw materials and/or have moderate wages would gain economic development opportunities. The US and the EU should share technology and provide financing, as they will gain from reduced dependence on China and from sourcing than is still cheaper than reshoring. China would have more room to use its clean tech to meet its own decarbonisation targets. The partnership could be organised through a combination of trade and investment agreements, together with tech transfer and financial agreements, under some form of inter-governmental oversight. The dependence of all countries on China for green tech is so great that non-market incentives might also be needed, such as subsidies or, preferably, a system of carbon pricing within the partnership.
- Topic:
- Partnerships, Green Technology, Risk, Renewable Energy, Supply, and Decarbonization
- Political Geography:
- China, Europe, and Asia