Hastening The Energy Transition Requires Strong US-China Relations

Hastening The Energy Transition Requires Strong US-China Relations

The meeting between Presidents Joe Biden and Xi Jinping last week was an important moment ahead of the upcoming COP28 in Dubai. Accelerating the global energy transition is dependent on leadership and as the two powerhouses of the global economy, a willingness to cooperate on decarbonization is essential to push the world towards net zero.

Both Beijing and Washington can find reasons to cast the other side as the villain of the energy transition. Why should America decarbonize when China is building more and more coal burning power stations? Why shouldn’t China power its economic development with fossil fuels when that is exactly what America has done? Even if both perspectives represent a simplified view of the world, there is an amount of credibility in both views.

How fair is it to cast China as the great polluter in the global energy transition story? China accounts for 26% of global primary energy demand and it is responsible for a third of global energy-related CO2 emissions. At the same time, they produce goods for the rest of the world, and last year, nearly half of the world’s low-carbon transition spending was in China. China’s battery companies have more than 60% global market share, and China alone accounted for 35% of global EV exports in 2022.

As impressive as many aspects of the Chinese energy transition are, it is sullied by coal. China’s primary energy supply has nearly tripled over the last two decades. The strong increase came first and foremost from coal, which in 2022 accounted for 58% of primary energy use in China and 54% of global coal consumption. It is concerning that coal (and oil) use will increase in the next few years. In 2022, 87 GW of new coal-fired power plant capacity was approved compared with only 19 GW in the previous year. It is therefore encouraging to read that the statement released ahead of the meeting in San Francisco made specific reference to accelerating the replacement of fossil fuels with renewable energy.

China wants to be energy independent and the switch to renewables and nuclear will help Beijing achieve that. That means coal use in China will ease off this decade and then drop sharply, but not before another half-decade at sustained record levels.

And can the U.S. present itself as the global clean energy champion? The Inflation Reduction Act is turbo charging the country’s energy transition and technologies like hydrogen and direct air capture will scale sooner thanks to the progressive policy. We forecast that fossil fuel demand in North America (which includes Canada) will fall 60% by mid-century and coal will fall some 80% in that time.cont

Whilst the amount of energy required to make every dollar of GDP is lower in the U.S. than in China, the amount of CO2 emissions per capita is much higher amongst American consumers. The U.S. is the birthplace of big oil and it is maybe unsurprising it is the easily the world’s largest consumer of the black stuff. The electrification of road transport in particular will drive down domestic demand but production will be propped up by external demand, including from China. And whilst IRA has boosted renewable energy and CCS technologies, the forces to reduce fossil fuel use are modest, and the U.S. will still fall short of its net zero goals.

The meeting in California and the upcoming COP28 summit are taking place under a complicated geopolitical backdrop which has led to energy security becoming a top consideration of most governments. The intention to keep communication channels open between Washington and Beijing offers hope that the two can work together to accelerate the energy transition.

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