Washington and Brussels – In a bid to close the gap with China’s overwhelming dominance in clean energy technologies, the United States and Europe are adopting aggressive measures including substantial subsidies for local manufacturers and increased tariffs on Chinese imports. This protectionist shift reflects growing concerns about economic dependence and the race to lead in the green energy sector.
China currently holds a commanding lead in clean energy supply chains, dominating the production of electric vehicles (EVs), solar panels, wind turbines, and batteries. This position presents a significant challenge for Western governments, which are striving to meet ambitious climate targets while safeguarding domestic industries and jobs from a surge of inexpensive imports.
The European Union’s competition chief, Margrethe Vestager, highlighted the issue earlier this year, noting that Europe’s over-reliance on Russia for cheap gas had previously led to energy vulnerabilities. She emphasized the need to avoid repeating this mistake with clean energy technologies, especially given that less than 3% of solar panels installed in the EU are produced locally.
“The EU’s green transition cannot be based on unfair, subsidized imports at the expense of EU industry,” Vestager stated during the announcement of an investigation into Chinese wind turbine makers.
China’s dominance is underscored by its investment levels and production capacities. Last year, the country accounted for 75% of global investment in clean technology manufacturing, though this was a decrease from 85% in 2022. China is on track to invest $676 billion in clean energy this year, surpassing the US’s $315 billion and the EU’s $370 billion.
China’s substantial investments have made it the largest and lowest-cost supplier of critical green technologies and minerals. The International Energy Agency (IEA) reports that Chinese manufacturers produced over half of all electric cars sold globally last year and control significant portions of global manufacturing capacity for essential green technologies.
However, China’s near-monopoly on certain critical minerals, such as lithium and graphite, poses risks to the global green transition. Recent export controls on rare earth elements and critical minerals by China have exacerbated these concerns, impacting global supply chains.
In response, both the US and the EU have increased tariffs on Chinese clean energy products, including EVs, batteries, and solar panels. The EU’s June tariff increases were intended to protect local industries from what they view as unfair competition from subsidized Chinese imports.
Fatih Birol, CEO of the IEA, noted that the competition for clean energy market position is not solely driven by climate concerns but also by industrial policy objectives. “The competition for position in the clean energy economy is fierce,” he said. “It is driven by who will lead in the next chapter of industrial technology.”
Critics argue that the protectionist measures, including extensive tariffs, may ultimately hinder the global transition to clean energy and raise costs for businesses and consumers. Academics David G. Victor and Michael R. Davidson argue that tariffs can make green technologies more expensive and slow down the shift to renewable energy.
The International Monetary Fund has also warned that rising protectionist measures could complicate global coordination on climate policies.
To address these challenges, experts advocate for diversifying supply chains and focusing investments on innovation rather than subsidizing established industries. Victor suggests that the focus should be on critical technologies and national security concerns rather than broad protectionist policies.
The IEA supports this view, emphasizing the importance of not putting all energy supply “eggs” in one basket and encouraging policies that diversify sources and partners to ensure energy security and competitiveness.
As the US and Europe continue to navigate the complexities of the clean energy race, balancing domestic industry protection with global climate goals remains a critical challenge.