The United States and China: the big comeback in the green economy

The challenges linked to climate change and the development of green energies are increasingly sensitive and urgent for the planet. In accordance with the promise made by Joe Biden before his inauguration at the White House, on February 19, 2021, the United States officially reinstated the Paris Agreement on the Climate, which aims to limit the increase of average temperature on Earth caused by human activity to below 2 ° Celsius. Will this return to the fold of the 189 other countries to have ratified this treaty sealed in 2015 have a lasting influence on these major issues? Will it accelerate the changes already initiated by China, still the world's leading polluter just ahead of the United States, but who has ambitious goals?

"The leading producer of green energy, China wants to be a leader in the fight for climate change."

Chief Economist for Asia-Pacific at Natixis, Alicia García-Herrero is currently professor at Hong University of Science and Technology Kong and Advisor to the Research Branch of the Monetary Authority of Hong Kong (HKIMR) and the Asian Development Bank. From her office in Hong Kong, she shares with us her analysis of Chinese position on the green economy.

How is China aiming for carbon neutrality? 

On September 22, 2020, President Xi Jinping surprised the General Assembly of the United Nations by announcing that China is setting itself a goal of carbon neutrality by 2060. Compared to the European and American objective of reaching carbon neutrality by 2050, this ten-year gap seems huge. However, one must be realistic: the objective of carbon neutrality by 2060 is difficult to achieve. China is a major player in this change but it has a huge challenge. It remains the main emitter of CO2 with an ever-increasing emission. In a nutshell, the Chinese are doing their best, but it is extremely difficult for such a big country to accelerate its energy transition. It is also a major consumer and exporter of green energy. The mix energy of China is 62% coal, 19,5% oil, while hydroelectricity and natural gas are accounting for less than 20%. China is trying to move away from its dependence on these energies. Its five-year carbon neutrality plan with short-term goals is also an encouraging sign. Furthermore, this country is now committed to make efforts before 2030, and not “around” 2030, which can be interpreted as a move to the Paris Agreement on climate change.

What is China’s strategy about energy?

China is a major exporter of nuclear energy. Today, it controls the entire production chain of nuclear power plants. It exports nuclear technology around the world, especially in Pakistan, Romania, and even Russia. Chinese government recently approved the construction of five new nuclear reactors with 4.9 gigawatts capacity, accounting for nearly 10% of the total nuclear capacity of the country, bringing China’s total nuclear capacity to 200GW by 2035. China is finding many competitive advantages in exporting green energy. This exportation strategy is a double-edged sword: China lacks energies for its own purposes. Through its proactive policy, the central government encourages the creation of infrastructure, but the demand does not follow within the country, because the energy produced by solar energy and wind turbine is still considered too expensive.

Can green energies fit into new Silk Road?

Absolutely, yes. China thinks it should do everything better than the rest of the world. The first reason is that it must provide an income to the entire population. Another reason is that China is willing to cut ties from importations. They are already the main world providers of lithium ion batteries, solar panels, and wind turbines. One must know that it also has the greatest market share in Electrical vehicles. Being competitive lies in its DNA, be it rice, soybeans or high technology. It exports photovoltaic energy everywhere, especially to Europe because its prices are the most competitive. The export of energy to Russia and Europe is one of the major axes of the "Silk Road".

Do the Chinese care about change climate issues?

Attitudes are evolving. For them, climate change is not the only priority. They are also worried about their income, their health, their safety etc. However, shifts can happen very quickly, not from the consumers side, but thanks to government’s policy. President Xi Jinping frequently refers to an ideal "sustainable civilization" and urges local leaders to act on it. For him, this means that China must achieve international leadership on these environmental issues, thanks to spearheading innovative industries. To this end, strength lies in numbers and the support of the rest of the world and the United States is key. China is further bonding with France and Germany ahead of the next Cop26 which will take place in Glasgow (Scotland) in 2021. For the environment, the challenges are global, all countries must work hand in hand. Hopes are high that China will further strengthen its international cooperation and internal transition in green economy in the months to come.

"Nuclear power could play an important role in the development of carbon-free energies."

Joseph Lavorgna is a recognized expert in macroeconomics in the United States. From his New York office, he leads economic research for the Americas platform and promotes cross-asset research (rates, credit, foreign exchange, commodities and equities) for Natixis.

How is green economy awareness evolving in the United States?

Energy, as you know, is a strategic part of economy. We need energy to heat our homes and our offices, to run our vehicles, for public transportation, for national security and to ensure a reliable independent power source. In the United States, policies are still unsettled. But, beyond these divisions, the two main parties have found common ground, in order to set up sources of green energy. Even if they don't use the same words, the intentions are the same. The Democratic Party highlights green technologies and climate change, and the Republican Party talks about cleaner combustion and more reliable, efficient and cheaper sources of energy, such as nuclear power.

Is nuclear energy already an important part of the mix energy in the United States?

Of course, fossil fuels still dominate the energy mix of the United States. Their share in electricity production reached 62% in 2019, including 24% for coal and 38% for gas. To date, nuclear energy represents less than 20% of the energy mix and the renewable energies 18%. The Trump administration has sought to develop the nuclear sector, which has few negative externalities associated with the emission of CO2. President Joe Biden and the Democratic Party have also taken an historic stand by asserting their support in nuclear power during the Democrat Convention Meeting in Wilmington on August 28, 2020. Nuclear power could play an important role in the development of carbon-free energy. Most people in the United States believes that this power source is very reliable.

Are Americans aware of the challenges of change climate?

The United States is bound to experience a period of transition. The states which are heavily dependent on fossil fuels, will not 100% adopt wind and solar power overnight. Every state has a different level of awareness. The climate emergency is, for instance, significant in California. Since the 80s, fires have multiplied, fogs and smoke prevent people from using solar panels on their roofs. The state is very committed to the fight against climate change, and is leading, for example, a very strict policy to restrict gasoline vehicles. On the opposite, states that produce oil and gas, or even corn - that allows the production of ethanol, do not bother to set up an incentive policy in favor of green energies. The United States counts fifty States. Different regions, origins, many cultures. It is very difficult to put everyone on the same wavelength, and this is the reason why, if you really want to get things done, you have to adapt your proposals to the specificities of each state. The government can propose incentives, but the sensitivity really depends on where you live.

What about the wind farm in the United States?

Wind power is not a very reliable source of energy in the United States because the winds are generally variable and weak. In addition, many Americans refuse to have a wind farm near their home, they judge these farms too large, noisy, difficult to recycle. The winds are over powerful in the ocean, which could encourage the development offshore wind turbines. For this latter, the relatively recent technologies must still gain in reliability and become cheaper.

Can the United States become a major player in sustainable development in the coming years?

The United States has many companies capable of developing so-called "green" or "clean" technologies, which places them in good stead to become one of the world's leading producers. This will be in line with the policy initiated by the government. This requires that both major parties find compromises. The government should also encourage manufacturers to adopt cleaner, more efficient standards for developing the use of LEDs, for example. Ethanol produced from corn is another very interesting sector, especially for states that produce it a lot. The United States is a very large country so there is not just one, but many technologies to explore.

Since the One Planet Summit in Paris, has the United States and Europe relationship changed?

The United States and Europe are, more than one might think, on the same wavelength on the preservation of the environment. Both share similar interest. The key is to find a reliable source of energy that is low-cost. Companies which boost their efficiency limit their negative externalities. I am convinced that both parties will find common ground, certainly on the nuclear industry. The new technologies can certainly create opportunities and jobs. In the meanwhile, the hurdle lies in the transition period.