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The Big Picture: The New 'Great Game'

Copyright © 2021 Energy Intelligence Group

• A new “great game” is emerging for the energy business, as the US and a rising China compete for position in the political and economic landscape of the 21st century. • The low-carbon energy race will be at the center as it reshapes the global economy. Economic competition, national security and diplomatic clout are the major threads. US President Joe Biden is going in hard on clean energy. Early initiatives made clear that he plans a serious effort to pivot from fossil fuels to renewable power and electric vehicles, driven by the climate issue’s increased importance in today’s Democratic party. But much more is at stake for the US: The low-carbon transition will effectively reshape the global economy with clear implications for the geopolitical landscape. China saw opportunities in this years ago, moving quickly to build new strategic sectors such as solar power and electric vehicles, and is now starting to leverage this into political clout. Under the Donald Trump presidency, the US largely overlooked this aspect, focusing instead on balancing trade relations while doubling down on fossil fuels at home. But Biden now looks set to make a concerted effort to compete head on (EC Jan.29'21). Notably, one of his early, but lower-profile, moves was to sign an executive order putting climate considerations at the center of US foreign policy and national security. The battle will be waged on multiple fronts, but two will stand out -- diplomacy and technology. With Biden rejoining the 2015 Paris Agreement on his first day in office, eyeing a carbon-neutral US by 2050, a clean electricity sector by 2035, and planning a global climate summit in April, China finds itself facing a much more formidable competitor than just a few months ago, when it pledged to become carbon neutral before 2060 (EC Oct.2'20). But Beijing is also playing a different game here, with a different set of levers. While making less of a splash on global leadership, China is using its state capitalism model -- rallying its large network of state companies and increasing its control over the private sector -- to develop key industries. In his first two weeks in office, Biden has rolled out a policy agenda that pivots nearly all focus away from oil and gas and toward low-carbon energy. His strategy also puts a distinct emphasis on US innovation at home and reclaiming global climate leadership -- and adds yet another layer of friction between Washington and Beijing (EC Jun.5'20). “There is a big push by the Biden administration on clean energy manufacturing -- reshoring, in some ways, jobs and industries that are currently dominated by China,” says Nikos Tsafos, at the Washington-based Center for Strategic and International Studies (EC Sep.18'20). Indeed, anticipated climate collaboration with China could be a prickly affair. "China-US cooperation in specific areas is not just 'a flower in a greenhouse.' It is bound to be closely related to the overall China-US relations," Chinese Foreign Ministry Spokesperson Zhao Lijian, noted drily last week (EC Jan.22'21). Biden has also tasked US intelligence officials with crafting a strategy for threading climate change into the US national security and foreign policy framework. That strategy includes directing the US Department of Energy to “intensify” international collaboration to deploy clean energy technologies, shifting overseas development financing from fossil fuels to clean energy, and giving climate czar John Kerry a seat on the National Security Council. Battle of Technology China's strategic investment in renewables over the last 10 years has given it a clear advantage over its US rival, as it threw the power of the state behind the emerging technologies. China manufactures about three-quarters of the world’s solar panels, has captured more than one-third of the wind turbine market, and is expected to account for 42% of new total renewable capacity globally in 2020, according to a December policy brief by the European Council on Foreign Relations. China also leads the world in electric vehicle (EV) sales on an annual basis, and is among the leading manufacturers of EV batteries. Beijing clearly sees an opportunity to leapfrog established automakers in the West, Japan and South Korea after struggling to compete with conventional vehicles. Its cheap EVs could gain serious traction in developing countries, while foreign automakers are lining up to establish a foothold in the Chinese market, including manufacturing. By contrast, the US’ share of solar panel manufacturing capacity has dropped from 30% in the late 1990s to 1% now. Plug-in hybrids and EVs accounted for just over 2% of new US light-duty vehicle sales in December, well behind Europe and China (NE Jan.28'21). But the battle is far from over. The US remains one of the global leaders in auto manufacturing. Innovator Tesla made EVs covetable, tilting the consumer -- and industry -- mindset. General Motors, the US' biggest automaker, last week pledged to eliminate emissions from new light-duty vehicles by 2035, mainly via electric drivetrains. Biden’s role in the 2009 restructuring of the US auto market adds heft to his domestic manufacturing push. Accelerating climate change -- whether floods in China or wildfires in the US -- gives the new great game added urgency. Simmering tensions in the Middle East and a difficult relationship with the US have also made self-sufficiency a critical issue (EC Sep.21'18). Electrification is seen as core for achieving it. “China is now an electro-state,” says Robbie Diamond, CEO of Securing America’s Future Energy. Xi pledged in December to more than double China’s combined wind and solar generation capacity to over 1,200 gigawatts by 2030, from just under 500 GW currently (EC Jan.8'21). China has also established a lead in the clean energy supply chain, including some advantages in strategic materials (EC Oct.30'20). In this new contest, the US election was pivotal. It posed a fundamental choice of direction for the US: Would it continue to pursue oil and gas superpower status under Trump or change tack and challenge China in the new energy economy, focusing on areas such as solar power, EVs, batteries, hydrogen and carbon management technologies? (EC Jul.17'20). The fact that so much is at stake -- in essence, the US’ global standing -- helps explain why Biden is attaching so much prominence to the climate issue. China has a head start, but the US still has a strong hand to play in terms of capital, innovation and a technology-forward, dynamic corporate culture. His election has, in effect, unleashed a contest for dominance of the emerging low-carbon economy. Bridget DiCosmo, Washington, and Maryelle Demongeot, Singapore

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