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Jon LeSage

Jon LeSage

Jon LeSage is a California-based journalist covering clean vehicles, alternative energy, and economic and regulatory trends shaping the automotive, transportation, and mobility sectors.

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How U.S.- Chinese Tensions Could Impact Energy Policy

Trump Xi

Tensions between the U.S. and China are escalating, and it could have a negative impact on clean energy policies that the two countries had previously agreed to.

Over the past week, three Democratic party senators backed President Donald Trump’s stance opposing China’s moves on intellectual property and trade relations. Since running for president last year, Trump had taken an aggressive stance on China relations and has since carried it out.

Senate Democratic leader Chuck Schumer wants to see the Trump administration bypass an investigation and go straight into trade sanctions against China.

"We should certainly go after them," said Schumer in a statement reflecting rare bipartisanship in Washington.

Trump is expected to cite the Trade Act of 1974, allowing the U.S. to slap tariffs and other barriers on Chinese products. It would also circumvent World Trade Organization (WTO) procedures for redressing grievances.

Beijing has been taking a “wait-and-see” approach, declining to comment on Trump’s moves.

While the Obama administration had to face trade tensions with China, it had a very successful alliance dealing with concerns over climate change. There was also the growing problem of air pollution in China’s rapidly growing cities that were being filled with more cars and trucks.

In late 2014 after meeting with President Obama, President Xi Jinping committed his country for the first time ever to curbing greenhouse gas output by 2030 and reducing it thereafter. That would include bringing in renewable energy for electricity and increasing the number of “new energy vehicles” — primarily electric vehicles — making it to China’s roads.

The Chinese government has also been very concerned about reducing the amount of oil it has to import from OPEC and other foreign markets. Related: Barclays: Oil Prices To Drop This Quarter

The U.S. and China energy policy agreement took a negative spin on June 1 when President Trump announced the U.S. would not be signing the Paris climate accord.

China recommitted its position on supporting the Paris accord, and saw an opportunity to take a lead over the U.S. on global energy policies with economic implications.

California Governor Jerry Brown had previously scheduled a trip to China before Trump’s announcement, but took advantage of it during his visit in early June.

California is forging an alliance with China to move forward on zero emission vehicle technology development, batteries, and new energy vehicle sales increases. Governor Brown and California Air Resources Board chair Mary Nichols met with officials from China’s leading automakers and battery manufacturers to expand cooperation and accelerate deployment of zero-emission cars, trucks, and buses. Related: Shale Producers Hedge At Much Lower Prices

A new working group was formed through the China-US ZEV Policy Lab at UC Davis to expand cooperation with Chinese vehicle and battery makers. The lab comes from a partnership established in 2014 between UC Davis Institute of Transportation Studies and the China Automotive Technology and Research Center. Brown and Nichols have been touring China that week as the nation prepares to adopt the state’s ZEV policy with credits for automakers to purchase and trade for meeting emissions rules.

The Chinese national government had given generous subsidies to automakers to sell new energy vehicles in the market - and for consumers to buy them. That turned China into the world’s largest electric vehicle market.

Those incentives are starting be cut as the government prepares to adopt a mandate requiring automakers to sell a certain percentage of electric vehicles in the near future - based on California’s zero emission vehicle policy.

Automakers and technology companies like Apple had set up production plants in China in recent years to comply with the country’s strict requirements supporting local Chinese companies. They’ve taken joint ventures with Chinese automakers, and Tesla may do the same to set up shop in China. Its steep import tariffs require Tesla to significantly raise its sticker prices, which hurts sales in that market.

Trump is expected to continue backing away from China. He’s also expected next year to cut U.S. fuel economy and greenhouse gas emissions rules.

The relationship between California and China could be a bridge keeping some of Xi Jinping and Obama’s energy goals in place.

By Jon LeSage for Oilprice.com

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