China will dominate the global green tech industry well into the 2030s even as developed nations introduce policies to promote their domestic supply chains to cut their reliance on China. “Despite attempts by the U.S., EU and other advanced economies to spur domestic manufacturing in green technology, China’s lead in many of these areas – particularly solar, wind and battery technology – will see it remain a key supplier for the technologies powering the green transition for at least the next decade,” said Matthew Oxenford, Senior Analyst at the Economist Intelligence Unit (EIU) in a study released this month. The Inflation Reduction Act passed by the U.S. Congress in August last year is widely regarded as a game-changer in global climate policy for not only providing large subsidies for green industry but also for incentivizing domestically sourced raw materials and equipment to secure America’s position as a world leader in the clean energy supply chain. The bill has prompted some developed countries to approve similar legislations to enhance and protect the competitiveness of their own green tech industry, including the Green Deal Industrial Plan proposed by the EU early this year, and Australia’s National Reconstruction Fund passed in March.
The U.S. and its allies’ subsidy programs could catalyze their green tech industry development and boost domestic jobs, but are unlikely to change the current global supply chain dynamics, which China has dominated for so long, Oxenford said. The relocation of businesses locally will inevitably increase the costs of solar panels and other mass-produced green commodities, according to EIU. Incentivizing firms to buy domestic components to access green subsidies will raise the costs of these projects, contributing to producer price inflation and reducing the real amount of infrastructure that can be produced for the given level of funding, it added.
“Unlike semiconductors and artificial intelligence (AI), green tech sectors like solar photovoltaics and lithium-ion batteries are highly commoditized, which means cost is a crucial factor,” said Kevin Kang, Chief Economist at KPMG China. “China has been dominating the supply chain of many of these technologies, so it has the advantage of economies of scale. In the short-term, the costs for the U.S. and EU to develop their own supply chain will remain high.” Sun Huaiyan, Senior Consultant at Wood Mackenzie, said fundamental issues such as raw material capacity and cost competitiveness remain a long and tortuous road for the U.S. and EU to build their local supply chain. “With the support of varying policies, local manufacturing facilities will have the opportunity and possibility to develop during the policy incentive protection period,” Sun said. “But when the policy ends, U.S. production will still face competition in the global market.”
Green manufacturing is disproportionately concentrated in China on the supply side. China accounts for more than 75% of the global electric vehicle (EV) battery production and dominates the entire downstream EV battery supply chain from mining to processing and manufacturing, according to the International Energy Agency (IEA). The country also accounts for over 60% of the global solar PV modules manufacturing capacity and is the largest manufacturing hub for the main wind energy components in the world, according to IEA. On the demand side, China is the world’s largest EV market, accounting for 60% of global EV sales in 2022. The country’s ambitious carbon neutral goal will also support China in leading the global green tech manufacturing supply chain without relying on overseas markets, said Kang. “The dominance of China’s solar supply chain is not only in large capacity and low production cost, but also in the rapid iteration of technology,” said Sun, noting that this would help China widen the gap with overseas production.
However, with more countries releasing policies to protect their domestic industries, and the fast-developing energy transition technologies which could bring rapid changes to the raw materials landscape, other countries could still have a chance to compete in the supply chain. “Given wider diversification in global wind companies and the growing variety of battery technologies, other countries with strong green industrial policies can come to play a dominant role globally,” said Cecilia Han Springer, Research Fellow with the Boston University Global Development Policy Center, the South China Morning Post reports.
