China has been investing large sums of money into clean energy – in fact, more than any other country in the world. The reasons for this are strategic, and can have widespread consequences.
China has a woeful environmental track record, relying heavily on highly polluting coal plants and evading responsibility in international climate change efforts. The logic for this has been that fossil fuels, despite being dirty, are simply the cheapest option and therefore necessary for China’s growth.
But in 2014, China invested over 89 billion dollars into clean energy technologies such as wind, solar, and small hydro energy. This is nearly twice as much as the United States, which was the next biggest investor with only 51 billion dollars.
To understand this development in China’s energy policy, and where it might be headed, it is important to recognize the strategic reasons behind it.
Responding to public concerns
Over the past few years, there have been disturbing accounts of the poor air quality in major Chinese cities. Not only has this deterred some potential tourists, but it has also become a huge issue for the Chinese people.
In March this year, a Chinese environmental documentary became an online sensation, and was viewed over 200 million times within the first week. In reaction, the government was so worried about its disruptive impact on public discourse that they decided to ban it.
Moreover, recent public opinion polls show us that environmental concerns consistently top the list of issues Chinese citizens are most worried about.
Maintaining public support for the one-party system is a top priority for the Chinese state, but also a very delicate balancing act. By focusing on clean energy investments, the government can evade the political risk of mass protests whilst mitigating the health impact of smog-filled skylines.
Maintaining energy security
Not surprisingly, the main reason for spiked pollution levels is simple: China has used a lot of energy to sustain its economic growth. Even though growth is set to slow down somewhat over the coming years (which will help China limit its carbon emissions), China will still need huge amounts of energy to fuel its industry, urbanizing population, as well as its increased military activity.
By diversifying its energy sources and not relying solely on fossil fuels, China can help guarantee that it has enough power to continue its growth in the future.
Likewise, China has reason to be worried about some of its current fossil fuel import partners. While some countries do not sell energy to China for political reasons, many of the countries that do are suffering situations of heightened political risk.
For example, Russia and China have recently concluded extensive energy deals in the context of the Ukraine crisis. But Russia’s economic situation, as well as it’s ability to continue expanding its energy production, comes into question when considering the tough economic sanctions it is facing.
Similarly, other countries that export energy to China – such as Nigeria, Iran, or Venezuela – face economic and political uncertainties of their own. As such, it is only natural for China to focus more on domestic energy production, and clean energy sources can work as an attractive alternative.
Coming out on top
Finally, it is in China’s national interest to be at the forefront of clean energy technology and production. As Li Heju, the Director of the China New Energy Chamber of Commerce recently stated, the next energy battle “is not a competition for resources, but a race to master core technologies”.
Indeed, in a world where fossil fuels are slowly but surely losing out to renewable energy, the country that becomes the world-leading producer of clean energy will have a noticeable advantage.
Furthermore, having a better environmental reputation is a strategic goal in and of itself. Not only can this help to attract investment that is sensitive to corporate social responsibility, but it will also give China a stronger voice in global climate change negotiations.
Into the Future
With such powerful strategic motivations, it is unlikely that China will change its course away from clean energy – even if global coal and oil prices remain low for the coming years. Indeed, China seems to be in it for the long run, and Chinese scientists are even designing a ‘floating solar farm’ that could provide continuous solar energy from space.
To be sure, China’s energy investments will have an impact on the world’s clean energy markets by bringing down production costs, boosting research, and spurring both public and private investment into clean energy projects.
More particularly, we can expect China to enjoy new business partnerships with both companies and countries. This includes two new joint solar projects with Apple (which will provide more power than the company uses in the entire country) as well as an up-and-coming solar technology transfer center with Kenya.
Without a doubt, China’s push for clean energy is helping the world in a vital battle against climate change. Nevertheless, investors should also keep in mind the exciting business prospects that arise when China is committed to clean energy solutions.