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  • Writer's pictureJonathan Wilmot

China's Solar Eclipse

Chinese President Xi’s visit to Europe has been dominated by trade issues, particularly relating to China’s industrial overcapacity in a range of goods vital to the green transition: electric vehicles, solar panels, batteries and wind turbines. The chart below shows how suddenly Chinese supply for these goods has penetrated Europe. Since the pandemic European imports of Chinese solar panels and electric vehicles have surged. Over 95% of the EU’s imports of solar panels come from China.

Many climate economists argue that massive subsidies for clean energy technologies are a key element of a successful climate transition policy, by enabling rapid adoption of cheaper, renewable energy sources once carbon taxes are introduced. So, China’s huge subsidies of solar, wind, battery, electric vehicle and pumped storage technologies should be a boon for the world.

 

Of course, it’s not that simple. On the energy front the EU risks shifting from a dependency on Russia for its gas and oil supplies to dependency on China for the technologies and equipment necessary to ramp up its clean energy supply, and achieve energy independence. China accounts for over 90% of European solar panel imports, and domestic supply is very small. Like it or not, new solar capacity in Europe will be largely dependent on Chinese suppliers for the foreseeable future.


Source: pvxchange.com 


By contrast, imports of Chinese electric vehicles and hybrids are around 5% of total EU 27 car sales and there are of course plenty of domestic producers whose profits, or whose very existence, are threatened by lower cost (and good quality) Chinese competitors. The EU’s anti-subsidy investigation into Chinese electric vehicles is expected to conclude in the next few weeks, and will likely give European car companies some breathing room to catch up (see chart below). But the real dependency here is on batteries and the raw materials needed to make them. As a practical matter, most Western car producers going electric will remain highly dependent on China for batteries and other components in the EV supply chain for years to come.



In short, what’s good for the planet may not be good for EU-China trade relations. Heavy dependence on China for Europe’s Green Transition is a fait accompli and will remain that way unless European governments decide to replicate China’s massive subsidies to domestic producers of critical components like solar panels and batteries.


 

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