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Accelerating the energy transition requires strong US-China relations

by SuperiorInvest

The meeting between Presidents Joe Biden and Xi Jinping last week was an important moment ahead of the upcoming COP28 in Dubai. Accelerating the global energy transition depends on leadership and, as two powers in the global economy, the willingness to cooperate on decarbonization is essential to propel the world towards net zero.

Both Beijing and Washington can find reasons to portray the other side as the villain of the energy transition. Why should the United States decarbonize when China is building more and more coal-burning power plants? Why shouldn’t China fuel its economic development with fossil fuels when that is exactly what the United States has done? Even if both perspectives represent a simplified view of the world, both have some credibility.

How fair is it to present China as the big polluter in the history of the global energy transition? China accounts for 26% of global primary energy demand and is responsible for one-third of global energy-related CO2.2 emissions. At the same time, they produce goods for the rest of the world, and last year, almost half of global spending on transitioning to a low-carbon economy went to China. China’s battery companies hold more than 60% of the global market share, with China alone accounting for 35% of global EV exports in 2022.

As impressive as many aspects of China’s energy transition are, it is tainted by carbon. China’s primary energy supply has nearly tripled over the past two decades. The sharp increase came, first of all, from coal, which in 2022 accounted for 58% of primary energy use in China and 54% of global coal consumption. It is worrying that the use of coal (and oil) will increase in the coming years. In 2022, 87 GW of capacity will be approved for new coal-fired power plants, compared to just 19 GW the previous year. It is therefore encouraging to read that the statement released before the San Francisco meeting made specific reference to accelerating the replacement of fossil fuels with renewable energy.

China wants to be energy independent and the shift to renewable energy and nuclear power will help Beijing achieve this. That means China’s coal use will decline this decade and then fall sharply, but not before another half-decade of sustained record levels.

And can the United States present itself as the world champion of clean energy? The Inflation Reduction Act is driving the country’s energy transition, and technologies like hydrogen and direct air capture will grow faster thanks to progressive policy. We forecast that fossil fuel demand in North America (which includes Canada) will fall 60% by mid-century and coal will fall by about 80% in that time.cont

While the amount of energy needed to produce each dollar of GDP is less in the United States than in China, the amount of CO2 Per capita emissions are much higher among American consumers. The United States is the birthplace of Big Oil and perhaps not surprisingly, it is easily the world’s largest consumer of the black stuff. The electrification of road transport in particular will reduce domestic demand, but production will be boosted by external demand, including from China. And while the IRA has pushed renewable energy and CCS technologies, the forces to reduce fossil fuel use are modest and the United States will still fall short of its net-zero emissions goals.

The meeting in California and the upcoming COP28 summit are taking place against a complicated geopolitical backdrop that has led to energy security becoming a primary consideration for most governments. The intention to keep communication channels open between Washington and Beijing offers hope that the two can work together to accelerate the energy transition.

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