 "The green tech tug-of-war between China and West: Lessons for India")
Green energy has emerged as a significant battleground in international trade, particularly with China’s overcapacity in producing green energy products like solar panels, electric vehicles (EVs), and batteries. This situation has raised concerns in the EU and the West about the potential dumping of these products, leading to market distortions and unfair competition. The scepticism toward China’s aggressive export strategy has prompted protective measures, such as EU investigations into Chinese EV overcapacity, signalling a broader trend of rising protectionism.
The Inflation Reduction Act in the United States, with its focus on boosting domestic green energy production, also reflects this shift towards safeguarding local industries against foreign competition, particularly from China. Treasury Secretary Janet Yellen’s recent criticisms of China’s green energy production practices as unfair and distorting global prices further illustrate the growing tension between the pursuit of green energy objectives and the principles of fair trade, leading to a more protectionist stance.
Janet Yellen’s warnings about China’s clean energy dumping are tied to broader concerns about the concentration of critical clean energy supply chains. Yellen emphasized the need for diversified supply chains, highlighting that production of key clean energy components like batteries, solar panels, and critical minerals is heavily concentrated in a few countries, notably China. She pointed out that this concentration risks economic security and could lead to supply disruptions.
Yellen’s remarks underscore the importance of building resilient and diversified supply chains to mitigate these risks and safeguard economic security. The Inflation Reduction Act (IRA) is part of the strategy to encourage investment in the American clean energy sector, thereby reducing dependency on foreign sources like China.
Impact Shorts
More ShortsChinese green products are deeply embedded in global markets, making the idea of decoupling a major concern, especially for the EU and the US. China’s lead in producing renewable energy technologies like solar panels, wind turbines, and electric vehicle batteries means that many countries rely on it for their green transitions.
For the EU and the US, who are trying to meet ambitious climate goals, this reliance is a double-edged sword. While Chinese products are essential for their shift to renewable energy, it also leaves them vulnerable to supply chain disruptions and geopolitical tensions. Decoupling from China’s green tech market could lead to supply shortages, increased costs, and delays in meeting climate targets.
But a question remains, how did China manage to secure such a dominant position in the green energy market? Today it is the most dominant player in the global polysilicon, ingot, and wafer market, controlling 95 per cent of global manufacturing. There are several reasons for this. First, the Chinese government allocated billions in subsidies, significantly reducing production costs and allowing Chinese firms to offer products at prices considerably lower than international competitors. For instance, from 2010 to 2012, China invested approximately $30 billion in its photovoltaic sector, contributing to rapidly expanding production capacity.
Second, substantial investments in research and development have enhanced technological capabilities and production efficiencies. China’s spending on R&D in the photovoltaic industry has increased by more than 20 per cent annually over the past decade, leading to significant advancements in product quality and reductions in waste and energy consumption.
Third, developing infrastructure and logistics in China tailored to the PV sector has been pivotal. The country has developed over 200 industrial parks for renewable energy, facilitating efficient transport and logistics for polysilicon, ingots, and wafers. Regulatory measures further supported domestic dominance, with export controls ensuring a stable, low-cost supply for Chinese manufacturers while constraining foreign competition.
The concentration of production in China has led to vulnerabilities for other countries, such as potential disruptions from geopolitical tensions or natural disasters affecting global supply. For instance, during the Covid-19 pandemic, polysilicon prices soared by over 300 per cent due to production halts in key Chinese factories.
The Chinese market strategy significantly impacted the PV manufacturing industries in the EU and US. Before China’s market dominance, the EU and US manufacturers held a combined market share of approximately 50 per cent in the global PV industry. However, post the market shift, this share plummeted to less than 5 per cent by 2012. In the United States, about 25 PV manufacturers filed for bankruptcy or underwent significant restructuring between 2011 and 2012 due to the inability to compete with the influx of low-cost Chinese products.
Same is also true for the EV and lithium-ion battery manufacturing. It commands approximately 80 per cent of the global raw material refining for lithium-ion batteries, 77 per cent of cell production capacity, and 60 per cent of component manufacturing. From 2015 to 2020, China invested over $100 billion in its EV sector, affecting global market dynamics. Leading battery manufacturers like CATL, with a 32.5 per cent market share in 2021, and substantial investments in battery technology R&D, which grew at an annual rate of 15 per cent from 2010 to 2020, have positioned China at the forefront of technological advancements. With control over 50 per cent of global lithium production and 80 per cent of cobalt refining, China ensures a stable supply chain for battery production. China’s influence in the EV market is strong, accounting for 50 per cent of global sales in 2020 and hosting over 800,000 public EV charging stations, over half the global total. This dominance presents challenges, including risks of market manipulation and supply disruptions amid geopolitical tensions, prompting a call for strategic global responses to diversify and strengthen local manufacturing to mitigate the influence of China’s market control.
The situation is particularly precarious for the EU, which finds itself more vulnerable than the United States. Europe’s economic situation is fraught with challenges, both from within and outside its borders. Internally, the continent is struggling with stagnant growth rates, compounded by the energy crisis that has followed Russia’s invasion of Ukraine. This crisis has not only inflated energy costs but also disrupted supply chains, placing additional strain on industries that are already struggling to compete with the influx of cheap Chinese imports. Moreover, Europe’s demographic profile, characterized by an ageing population and hefty regulatory frameworks, further complicate its economic resilience and capacity for rapid industrial adaptation.
Externally, Europe is at risk from the destabilising effects of cheap Chinese products flooding its market, which could exacerbate social and industrial unrest. The potential for increased trade tensions with the United States, especially with the prospect of Donald Trump’s return to the presidency and his penchant for imposing tariffs, adds another layer of uncertainty.
This has lessons for India. The shift towards green technology represents both a challenge and an opportunity. As a major player in the renewable energy market, India must prioritize the local manufacturing of green technologies to reduce dependence on imports and strengthen its economic sovereignty. However, more than manufacturing is required. India needs to significantly boost investments in research and development (R&D) to foster innovation and ensure it remains competitive in the global green tech industry.
For India, the transition to green technology offers a lucrative opportunity for the private sector, emphasizing the strategic importance of investing in research and development (R&D). With India’s vast and growing market for renewable energy, private companies stand to gain significantly by pioneering more efficient and advanced green technologies. Investing in R&D aligns with the global sustainability trend and positions these firms to capitalize on the increasing demand for renewable solutions within and outside India.
Aditya Sinha (X:@adityasinha004) is OSD, Research, Economic Advisory Council to the Prime Minister. Views expressed in the above piece are personal and solely those of the author. They do not necessarily reflect Firstpost’s views.
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