'Overcapacity' in China's new energy sector?

By Tang Zhongshi & Yang Pingjian

The European Commission announced on Thursday that it has imposed extra duties of up to 37.6 percent on imports of electric vehicles (EVs) made in China since July 5.

China's solar products have been subject to multiple rounds of additional tariffs imposed by Europe and the U.S. over the past decade. Those protectionist measures reflect Western fears under the influence of anti-globalization thinking towards China's dominant position in emerging industrial chains, as well as an attempt to unilaterally interpret "free trade" through Western-centric thinking. The so-called "overcapacity" is merely a pretext for such fears and mindsets.

On June 25, Liu Zhenmin, China's special envoy for climate change, stated at the Summer Davos Forum that over the past decade, China has made significant achievements in industries such as solar photovoltaic (PV) and wind power, EVs, and batteries. Through its own efforts, China has reduced production costs, improved the efficiency of the industrial chain, and made substantial contributions to world energy transitions and emissions reduction.

The claims by Western countries of China's "overcapacity" in renewable energy are clearly unfounded. In fact, achieving global climate goals still faces a big gap in renewable energy capacity, rather than "overcapacity."

Achieving the 1.5-degree Celsius goal still requires large quantities of new energy products. Currently, there is still a significant gap in world energy transitions to renewable energy. The goal of the Paris Agreement is to limit global warming to "well below" 2 degrees Celsius by the end of the century and "pursue efforts" to keep warming within the safer limit of 1.5 degrees Celsius. According to a report released by the International Renewable Energy Agency in July 2023, under the 1.5-degree Celsius scenario, the share of renewables in electricity generation is expected to reach 91 percent by 2050.

To support world energy transitions, installed renewable power capacity would grow from 2,813 gigawatts (GW) to 33,216 GW from 2020 to 2050, with electric vehicles accounting for more than 90 percent of all road transport stock by 2050. At the 28th session of the Conference of the Parties to the UN Framework Convention on Climate Change in December 2023, countries agreed to triple the world's installed renewable energy generation capacity to at least 11,000 GW by 2030. These goals indicate that there is still a huge need for growth in renewable energy capacity and products to meet climate goals.

Technological advancements in China's new energy products will benefit the world. China has made significant achievements in energy transformation and is ready to share them globally. In recent years, rapid technological advancements in Chinese electric vehicles, lithium batteries, and solar cells have led to cost reductions, significantly enhancing export competitiveness. In 2023, the combined exports of these three products surpassed 1 trillion Chinese yuan ($137.5 billion), dubbed China's new "Big Three" in foreign trade, replacing the traditional "Big Three" of textiles, furniture, and domestic appliances. This change demonstrates that China not only exports affordable consumer goods to the world but also injects momentum into global sustainable development, playing a crucial role in achieving world energy transition goals.

Achieving global climate goals requires massive and rapid expansion of renewable energy. Independent production of renewable energy by individual countries will push up costs, slow down the spread of renewable energy technology, and thereby affect global efforts to combat climate change. With Chinese manufacturers expanding production capacity, economies of scale have led to rapid cost reductions in renewable energy over the past decade. According to BloombergNEF, the levelized cost of electricity from utility-scale solar, onshore and offshore wind has fallen by 58-74 percent over the decade to 2023.

China's leadership in the global solar industry chain has brought substantial cost savings to world energy transitions. Research published in Nature by Gang He from Stony Brook University and his colleagues in 2022 showed that from 2008 to 2020, without the globalization of the solar industry chain, the U.S. and Germany would have spent approximately $24 billion and $7 billion more, respectively, to achieve the same solar installed capacity. If countries were to switch to independent production of solar PV products from 2020 onwards, prices of solar modules by 2030 would be 20 percent to 25 percent higher compared to the scenario under a global solar industry chain.

China assists other countries in achieving energy transition through international cooperation platforms such as the Belt and Road Initiative, collaborating on green energy projects with more than 100 countries and regions. A report released by the International Energy Agency in 2023 stated that Chinese wind power and solar PV products have been exported to over 200 countries and regions worldwide, helping many developing countries access clean, reliable, and affordable energy.

China is not dumping its new energy products. According to Article 6 of the General Agreement on Tariffs and Trade, dumping is considered to occur when a company exports a product at a price lower than the price it normally charges on its own home market or lower than its cost of production. For Chinese products such as electric vehicles, lithium batteries, and solar PV products, their low prices are driven by technological advancements spurred by fierce domestic market competition rather than manipulation.

China ended subsidies for new energy vehicles in 2023. In contrast, the Inflation Reduction Act of 2022 in the U.S. provides subsidies for new energy vehicles manufactured or assembled in North America, while in 2023, 20 out of the 27 EU countries provided financial support for their domestic new energy vehicle industries. Therefore, accusations of China dumping new energy vehicles into Europe and the U.S. are groundless. The same is true for solar products and lithium batteries.

Protectionist measures by Europe and the U.S. against Chinese new energy products entering their domestic markets not only violate the principles of free trade but also undermine world energy transitions and global efforts to combat climate change. The international community should recognize China's achievements in the field of new energy and work together with China to build a fair, open, and win-win international economic and trade system. Through benign competition and cooperation, they can contribute to global sustainable development and climate governance.

Tang Zhongshi and Yang Pingjian, special commentators on current affairs for CGTN, are with the Chinese Research Academy of Environmental Sciences.