Why is China suddenly leading the climate change effort? It’s a business decision.

Source: By Roselyn Hsueh, Washington Post • Posted: Monday, June 26, 2017

Windmills at the Da Bancheng Wind Farm in Xinjiang, China. After the U.S. decision to leave the Paris climate change agreement, Beijing has suggested that China will take on a leadership role in mitigating global warming. (AP)

China watchers and other commentators debate China’s resolve and capability to fill the political vacuum left by the U.S. withdrawal from the Paris climate accord this month. Why would China be eager to take leadership on climate change? To understand this transition requires looking more closely at the interests and motivations of the Chinese leadership in the rapid growth and development of Chinese renewables.

Unlike political leaders in Europe or former U.S. president Barack Obama, who link moral duty with climate action, China’s leadership is not looking to support collective goals of reducing greenhouse gases. Rather, China will redefine global climate leadership to pursue the government’s immediate goals of national economic development, control of energy infrastructure and global economic competitiveness of Chinese industry.

How China became a global leader in renewables

China is near the forefront of global renewables, from hydro to solar and wind. The development of Chinese renewables began more than a decade and half before China’s 2015 Paris pledge to curb fossil fuels and peak CO2 emissions by 2030.

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Shortly after China’s accession to the World Trade Organization (WTO) in 2001, the Chinese government introduced the Wind Power Concession to attract foreign direct investment (FDI) through installation-based fiscal incentives and government subsidies for wind farm developers, as well as state-owned utilities and grid companies.

By the mid-2000s, after introducing investment and market opportunities for foreign renewables to diversify energy sources and establish an energy infrastructure, the Chinese government re-regulated to promote indigenous capacity in advanced energy. These efforts are part of the larger story of China’s deft use of globalization and industrial policy to develop industrial sectors perceived to be strategic for national security and the national technology base, as I detail in my book.

Here’s a case study: In 2005, the National Development and Reform Commission (NDRC) increased the local content policy from 50 percent to 70 percent for wind turbines installed in China. Foreign wind vendors, such as Danish turbine producer Vestas, built factories in China and instructed Chinese workers and contractors how to fabricate blades, assemble nacelles and build complex electronic controls and generators. By the time the Chinese government dropped local content requirements in late 2009 in the face of a WTO challenge, most foreign turbine makers’ domestic inputs far exceeded the 70 percent obligation.

The Renewable Energy Law, which took effect in 2006, instituted key policies to spur domestic sector development, also championed by China’s 11th Five-Year Plan and the Medium- and Long-Term Plan on the Development of Science and Technology. These included national debt interest subsidy programs, which supported wind farms supplied with domestically produced turbines that received subsidies per megawatt produced.

The Special Fund for Wind Power Manufacturing awarded tens of millions of dollars to wind turbine and components manufacturers. Moreover, the government mandated foreign manufacturers of certain turbine categories to form joint ventures with Chinese partners.

In this institutional context, Chinese wind turbine producers Goldwind, Ming Yang and Envision had an established domestic supply chain, and had purchased Western technology or partnered with a foreign company to enter the market — and emerged among the global top 10 producers. The domestic industry was further strengthened with the government’s engagement of foreign participation in setting technical standards.

A similar pattern of FDI strategy and deliberate government intervention with market and nonmarket mechanisms shaped the development of solar energy and hydropower in China. This “import substitution-cum-FDI strategy,” as I show in a paper on economic policy, “explicitly courts, digests, absorbs, and innovates upon foreign knowledge and technology” to achieve state goals.

Chinese views on climate change also shifted

The fast-paced development of Chinese renewables paralleled the twists and turns of the domestic narrative on climate science. “New left nationalists” and internal government reports alike claimed that a Western conspiracy permeated the 2009 Copenhagen Climate Change Conference. The newly centralized National Energy Administration mandated state-owned grids to deploy wind power and award contracts to domestic manufacturers.

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The 12th Five-Year Plan released in 2011 highlighted targets and policies in response to environmental consequences of economic development. The 13th Five-Year plan of the 2016-2020 period officiated industrial upgrading and indigenous innovation in strategic emerging industries, including renewables, which had been happening.

What are the hurdles in Chinese production of renewable energy?

With Chinese companies making up six of the top global onshore and offshore wind turbine makers, it’s easy to overstate the Chinese presence in the renewables market. But this is because of their dominance in the Chinese market, guaranteed by procurement practices that favor Chinese producers. Vestas’ share of the domestic market was just 1 percent in recent years, compared to 23 percent a decade ago.

Moreover, despite greater capacity than the United States to install wind infrastructure, a recent study finds that China generates less wind electricity in comparison. Low turbine quality is part of the problem. So are delays in grid connection and transmission curtailment by local governments and operators, which favor environmentally unfriendly coal-fired power and coal-to-chemical plants. My research reveals that deregulation and the decentralization of regulatory enforcement in less capital-intensive and less value-added industries, many in high-polluting sectors, allow this situation.

Between 2010 and 2015, the average annual percentage of idle wind turbines was over 15 percent, relatively high compared to the U.S., Europe and Japan. The domestic wind sector faces pressures to consolidate as the central government haltedwind projects in 2016 for the fourth time in five years and planned new grids to hook up new wind projects.

Importantly, the global competitiveness of Chinese renewables varies by sector. Relative to wind and hydro energy, solar is more “plug and play,” with lower costs of entry and less complex industrial coordination. The Chinese solar industry has been able to achieve more technical efficiency at lower costs to gain global market share. Chinese solar companies dominate the global top 10, with a 40 percent share of the whole industry.

What does this mean for Chinese “leadership” on climate change?

The speed and magnitude with which China expanded its wind power base is unsurpassed — in contrast to E.U. or U.S. delays because of financing, grid connections and permit delays. Authoritarian rule allows for deliberate state intervention to take advantage of globalization. Yet in 2017, the Climate Change Performance Index, which tracks countries’ efforts in combating climate change, ranked China 48th among the world’s top 58 CO2 emitters.

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With Chinese renewables controlling the domestic market, the Chinese government promotes these products globally with diplomacy and development finance. The Chinese government established the “South-to-South Cooperation in Climate Change” in 2014. Declining to contribute to the U.N. Green Climate Fund, China promised $3.1 billion to the South-to-South Cooperation to build low-carbon parks, implement mitigation and adaptation projects, and provide climate change trainingin developing countries, including those covered by China’s “One Belt, One Road” initiative, which promotes Chinese investment in Central Asia and Southeast Asia.

With the United States taking a back seat on climate change, if China exerts leadership it would be about enhancing China’s global prestige and economic clout — and diversifying energy sources at home, while managing China’s energy infrastructure. This appears to be a clear win-win scenario for China, although it is less obvious whether the global community stands to gain from any reduction in greenhouse gases.

Roselyn Hsueh is an associate professor of political science at Temple University and author of the book “China’s Regulatory State: A New Strategy for Globalization.” Follow her on Twitter @RoselynHsueh.