China’s big bet on green industry – and how it might green the world

After the failure of Durban, a promising plan B to reducing carbon emissions rests upon green development industrial strategies being pursued by individual countries. And here China is in the vanguard.

The gloom spread by the failure of Durban and the Kyoto process generally to set any effective cap on carbon emissions is palpable. But what would have happened if Durban had actually delivered a binding cap on carbon emissions – one that, to be effective, would stop Chinese and Indian industrialization in its tracks?

To pose the question in this way is to answer it. China would never agree to a global enforceable cap on carbon emissions that stopped it expanding its fossil-fuelled industries, which are growing at the rate of one new 1-GW coal-fired power station per week. These power stations are the engine that drives its industrial miracle.

But as Simon Zadek puts it, there is a ‘Plan B’ which is already working as an alternative to the top-down approaches of Copenhagen and Durban. This is an approach to reducing carbon emissions that stems from green development industrial strategies being pursued by individual countries. And here China is in the vanguard. Because as fast as it builds coal-fired power stations, it is also building solar and wind-powered industries, not just by expanding markets but by building the new industries themselves.

China’s 12th Five Year Plan sets out the goals in striking detail. Green energy vehicles, environmental conservation, solar and wind power – all are to be developed, through both technology leverage and leapfrogging. It has been reported that the National Development and Reform Commission (NDRC) in its ‘new energy industry development’ road map foresees a situation where China would be generating 1600 GW of electric power by 2020, of which no less than 500 GW would be coming from renewable energies – 300 GW from hydro, 150 GW from wind, 30 GW from biomass and 20 GW from solar photovoltaic.

By contrast the UK generates around 110 GW in total, of which coal and gas account for 75%, and renewables for less than 10%. Wind power had reached 5.9 GW in cumulative capacity in the UK by 2010, on a par with France.

As China’s green strategies build on themselves, in cumulative S-shaped industrial dynamics, where success builds on success, no less than 30% of electric power generated by 2020 is expected by the country’s leaders to be coming from renewable sources. If nuclear is added to that (reaching probably 70-100 GW by 2020) then non-fossil sources would be generating 600 GW out of 1600 GW – building up an unstoppable industrial momentum (in terms of capital invested in technology, firms, standards, supply chains and markets). This in turn would be expected to translate into export potential, first of renewable energy components, then systems, and finally of technology itself. China is the one country in the world that is promoting both renewables and nuclear – like it or not.

So China is envisaging a ‘black’ and ‘green’ industrial future for itself – with the green strategy overtaking the black as logistic industrial dynamics kick in and China’s green technology sector becomes the basis for global exports of products, then technologies – to be taken up around the world. China’s green development strategy is an industry promotion strategy, rather than a market expansion strategy as has been pursued in Europe through feed-in tariffs. Commentators like Andrew Bowman who see only capitalist shenanigans in China’s rise as a green power, are missing the bigger picture.

But the biggest party to miss the significance of China’s rise as a green power is the United States itself. The Obama Administration sees China making extraordinary progress in building solar and wind power industries and it recognizes, apparently, only unfair trade practices. The simmering trade dispute between the United States and China over solar panels is shaping up to become a major source of international economic tension.

China is now able to produce panels at lower costs than its competitors not just through lower wages and subsidies, but primarily through the benefits of expanded production and falling unit costs – i.e. through economies of scale and the learning curve. Wholesale prices of panels produced in China have been falling from $3.30 per watt installed capacity in 2008 to around $1.00 to 1.20 per watt now. These costs have fallen because of expanding markets. And ‘thin film’ solar cells are increasing market share, where costs are falling because of the learning curve in the semiconductor and flat panel displays industries, where thin film technology was pioneered.

China is using all the tools at its disposal to ramp up its solar panels industry. It is utilizing targeted investment, tax breaks, subsidies and low-cost loans. These have always been the tools of new industry creation, as fashioned in the west, when a fledgling industry is confronted by powerful incumbents in the form of the coal, oil and gas corporations and fossil fuel using electric power companies.

Of course the global impact of China’s strategy will only be felt as consumers switch to buying green products – whether produced in China or in the West. Here again China has an advantage. For China’s policy is an industrial and economic strategy – not a ‘climate strategy’. But it delivers real climate benefits – for China and for the world. China’s model will prove to be extremely attractive for other countries looking to industrialize and join the wealthy nations – without costing the earth.

So China’s development policy could end up greening the world – without the help (or hindrance) of international agreements. Instead of threatening to take Chinese producers to the WTO, the United States could be engaging in intense competition with China to produce photovoltaic cells at lower and lower unit costs, to see which country can make the greatest contribution to reducing the global threat of climate change. Now there’s a Plan B worth voting for.

About the author

Professor John Mathews holds the Eni Chair of Industrial Dynamics and Global Strategy at LUISS Guido Carli University, in Rome.