After decades of globalization and free-trade-oriented energy policies, the West is taking pains to separate itself from Eastern energy markets. The impetus of the market fracture came early last year, when Russia illegally invaded Ukraine and inadvertently kicked off an all-out energy war with Europe. The global energy crisis that followed was a wake-up call for the West, which realized that it allowed itself to become dangerously reliant on a small number of streams of energy production, several of which are headed by volatile and authoritarian governments. It’s a recipe for an energy security disaster.
In the year and a half since the invasion, the European Union has taken painful measures to wean itself off of Russian oil and gas imports. In 2021, countries in the European Union sourced a whopping 45% of their total natural gas imports – about 155 billion cubic meters (bcm) – from Russia alone. Now, in an incredible turnaround, the European Union is on track to meet its goal of ending the bloc’s reliance on Russian fossil fuels before the end of this decade, according to a statement from the European Commission earlier this month.
And now that Russia is taken care of, the West is setting its sights on China. While Europe has been able to wean itself off of Russian fossil fuels in part by building up its own renewable energy sector at a breakneck pace, the pivot has pushed the European Union further into a dependency on Beijing. For years now, Beijing has dominated global clean energy supply chains, with a near-monopoly stake in essential components ranging from photovoltaic solar panels to lithium-ion batteries.
In response to the mounting pressure to lessen dependencies on China and become competitive in the global clean energy market, the United States and Europe have forged bold new strategies to shield their markets from cheaper Chinese imports. In the United States, the Inflation Reduction Act (IRA) has given heavy support to American-made clean energy infrastructure, and new guidance from the U.S. Treasury limits clean energy tax credits to U.S.-based solar developers that produce their photovoltaic cells domestically. Europe, viewing this measure as a protectionist attack not just on China but on themselves, has responded with a new European sovereignty fund “in response to the controversial US Inflation Reduction Act and China’s ‘unfair’ green subsidies,” according to reporting from the Guardian earlier this year.
Chinese subsidies “have long been twice as high as those in the EU, relative to GDP” the Guardian quoted from a leaked copy of the commission’s ‘green deal industrial plan.’ “Europe and its partners must do more to combat the effect of these unfair subsidies and prolonged market distortion.”
But there are two deep ironies undercutting the popular accusation that China’s cheap solar panels are able to out-compete the rest of the global market due to massive government subsidies. First, there is no evidence that such subsidies exist. Second, these phantom subsidies have been used to prop up actual subsidies in the West, which are indeed built on the kind of protectionist politicking that China is being accused of.
“The low cost of Chinese-made green tech isn’t due to anything that the World Trade Organization would consider a subsidy,” David Fickling wrote for Bloomberg this week. “It’s largely a result of the fact that the country’s vast size, along with the environmental targets the WTO’s rules were written to protect, encourage manufacturers to invest on a scale that puts the rest of the world to shame.”
And it is exactly these free market policies that the new protectionist bent of Western trade policy suddenly seeks to undermine. “Staking out spheres of influence and assessing the reliability and trustworthiness of suppliers and countries is the order of the day,” read a recent analysis from Stiftung Wissenschaft und Politik, the German Institute of International and Security Affairs. United States Treasury Secretary Janet Yellen has openly called for a shift from free-market trading to “friend-shoring”, in which countries shift supply chains to “trusted countries” with similar values and political allegiances – in other words, away from Russia and China. The European Commission’s Strategic Foresight Report 2022, too, has called for a similar reconfiguration of trade networks. The moves are plainly reactionary and ultimately based on a falsified origin story of an initial Chinese trade transgression that never happened. For many economists and free-trade supporters, it’s an extremely concerning development.
While diversifying markets and lessening dependence on a single monolith of clean energy manufacturing is inarguably essential for global energy security, cutting off Chinese imports overnight is not only impossible, it would also be an economic and climate disaster. The reality is that climate goals can’t be reached without cheap Chinese solar panels and rare Earth minerals, and even the transition toward home-shoring clean energy manufacturing will depend on the support of Chinese markets. Meeting global decarbonization goals requires unprecedented levels of international cooperation, and siloed energy strategies could be a dangerous step in the wrong direction.
By Haley Zaremba for Oilprice.com
ADVERTISEMENT
More Top Reads From Oilprice.com:
- Biden's Wind Revolution Faces Setback As Major Projects Halted
- How Permian Innovations Propelled U.S. Crude Production To New Heights
- New Roofing Materials Offer An Eco-Friendly Answer To Air Conditioning
