China’s cheap low-carbon tech was already pummeling the competition. The Gulf conflict boosts that dominance.
BRUSSELS — America’s allies, stung by soaring energy costs due to Washington’s attacks on Iran, are confronting an uncomfortable truth: The escape route from fossil fuel shocks leads straight into China’s arms.
From the European Union and the United Kingdom to South Korea and the Philippines, numerous countries have responded to the war-driven spike in oil and gas prices with calls to accelerate electrification and the rollout of clean energy infrastructure.
While that doesn’t offer an immediate fix to higher costs, governments see clean, domestic energy sources, such as renewables and nuclear power, as the obvious long-term solution to protect their economies from the ups and downs of global fossil fuel markets.
But there’s also an obvious catch: The faster they move to decarbonize, the more they will have to rely on China to supply the necessary materials. After all, Beijing controls the overwhelming majority of the world’s clean technology and critical mineral supply.
Governments, uneasy about the idea of swapping one dependence for another, are keenly aware of that fact. The question now is whether they’ll put those reservations aside in favor of bolstering their energy security or continue taking measures to protect their economies from China’s dominance.
“How can we explain to our fellow citizens that decarbonization is an opportunity if our batteries are made in China?” the EU’s industry chief, Stéphane Séjourné, asked last month when proposing new legislation that would require the bloc’s 27 governments to spend more taxpayer money on domestically produced green technologies and limit foreign investment by dominant players — a move widely interpreted as targeting Beijing.
The EU has long been cautious about hobbling its domestic industries by allowing in too many Chinese goods: The bloc’s carbon tax is aimed at protecting its industries from cheap emissions-intensive imports like those made in China. Meanwhile, the British government last month blocked a Chinese company from building a $2 billion wind turbine factory in Scotland over unspecified national security concerns.
At the same time, countries seeking to accelerate their green transition — U.S. allies included — have been looking to shore up relations with China.
Germany’s economy minister will head to Beijing next month, shortly after the country’s chancellor and environment minister visited in an effort to woo Chinese investors and learn from the country’s clean tech boom. Spain’s Prime Minister Pedro Sánchez went last week for the fourth time in as many years, with an eye on securing access to critical raw materials. The leaders of the U.K., Canada, Finland and Ireland also made the trip in recent months.
It’s not just Western countries: An Indian business delegation recently visited China to explore green energy partnerships; Emirati Crown Prince Khaled bin Mohamed bin Zayed Al Nahyan discussed closer energy ties with Beijing last week; and Cuba has leaned on Chinese solar panels amid an effective oil blockade by Washington.
André Corrêa do Lago, a senior Brazilian diplomat and president of last year’s United Nations climate talks, said he thinks concerns about dependence on China shouldn’t prevent the widest use of renewables.
“At this stage, and if you believe in the urgency, we have to work as much as possible with renewables, incorporating the realities of who produces and who has the technology, and at the same time continue to try to develop other things,” he said.
For many countries, the war in Iran has served as a painful reminder that as long as their economies run on fossil fuels they will be exposed to uncertainties beyond their control.
Fuel shortages across much of Asia have led to conservation measures, such as four-day work weeks in the Philippines and Bangladesh, or limits on driving. India has capped natural gas use for industry and Cambodia is cutting import taxes for green goods.
Households and industry in many countries face skyrocketing bills, while governments that subsidise fuel are facing a squeeze on their budgets.
“Since the beginning of the conflict 44 days ago, our bill for fossil fuel imports has increased by over €22 billion,” European Commission President Ursula von der Leyen said on Monday after hosting an emergency discussion on the war in Iran. (Her Commission had originally been scheduled to debate relations with China that day.)
The long-term solution is to speed up the phaseout of fossil fuels, she insisted, reiterating a point made by numerous European officials and leaders in recent weeks. “Electrifying Europe means making Europe more independent,” she said.
But there are fears that renewables come with their own dependencies since China is the leading supplier of clean tech and the minerals that go into them.
The country produces nearly 80 percent of the world’s solar panels, and an even greater share of their core electronic components such as cells and wafers, according to the International Energy Agency. Exports of electric and hybrid vehicles from China hit a record 349,000 in March, more than doubling from a year earlier.
China also has a stranglehold on the critical minerals market, refining about 90 percent of rare earths used in the production of wind turbines and EVs, as well as the majority of lithium, cobalt and other metals used in batteries.
That dominance has turned China into the engine of global decarbonization efforts. It has also heightened concerns in some countries that domestic industries could be undercut or that China could use its grip on those materials to its advantage.
Last year, China imposed sweeping export restrictions on several rare earths in response to U.S. tariffs, threatening supply chains. The growing use of Chinese components has also prompted cybersecurity concerns; the U.S. last year found unexplained communication devices in Chinese solar tech, according to reports.
Several countries and the European Union have put tariffs on Chinese electric vehicles and steel to prevent them from flooding the market. The U.S. has a 100 percent tariff on Chinese EVs, and some countries in Asia have introduced tariffs on EVs and their components or local content requirements.
The EU already requires that a certain share of demand for green goods and minerals be met through domestic production by 2030, and the new industrial law spearheaded by Séjourné would introduce a cap on foreign investment from countries that control more than 40 percent of global manufacturing in clean technologies.
These efforts, however, come with trade-offs: Made-in-Europe goods tend to be more expensive than Chinese products, which risks slowing down the energy transition.
“If you tilt too much towards [domestic production], that might come at the expense of the speed of decarbonization. Because using cheap technologies is just what we need to roll out these alternatives,” said Simone Tagliapietra, a senior fellow at Brussels-based think tank Bruegel.
And countries have found that a speedy green transition is near-impossible without some degree of reliance on China.
Pakistan has been a major recipient of cheap solar panels from China, which have helped cushion it from the energy supply crunch stemming from the war in Iran.
Spain, whose renewables boom similarly insulated it from soaring fossil fuel prices, has secured large Chinese investments in its energy sector.
And Canada recently reduced its 100 percent tariff on Chinese EVs and agreed to allow a limited number of the cars into its market in return for the removal of tariffs on billions of dollars in agricultural products.
“We thought that was a great trade for Canada,” Tim Hodgson, Canada’s energy minister told POLITICO on the sidelines of a major energy conference last month. “It created an opportunity for us to bring in electric vehicles that are at a price point that no one was serving today. That helps with affordability.”
Analysts argue that buying a solar panel made in China that will last multiple years is different from continuously paying a country for its oil.
“The dependency on oil and gas flows, which can be interrupted with immediate repercussions on the economy, is very different from dependency on predominant suppliers of some key technologies,” said Tagliapietra.
The EU’s efforts to build out domestic production, Tagliapietra noted, resemble measures put in place by former U.S. President Joe Biden, who similarly sought to loosen China’s grip on batteries, solar panels and EVs during his time in the White House.
Then Trump swept into office and abolished those measures — and any effort to compete with China for a slice of the clean economy.
China’s clean technology exports are now overtaking sales of U.S. fossil fuels, a trend that’s showing no sign of slowing down.
In contrast, White House spokesperson Taylor Rogers said the conflict in Iran had actually underscored the importance of having access to energy produced domestically or supplied by an ally such as the United States.
“The Trump Administration is working with several countries on new oil and gas deals that emulate the President’s energy dominance agenda and enhance their energy security,” she said. “The reality is that countries that tried to transition to renewable energy have failed to break their reliance on the oil and gas that flows through a chokehold like the Strait of Hormuz.”
But Europeans, by and large, don’t see it that way. Increasingly, they are coming to view the U.S. under Trump as a greater threat to their continent than Beijing, and are rallying around a faster transition to clean energy to insulate them from fossil fuel shocks.
The predominant view in Brussels now is that the EU must reduce its dependence while remaining an attractive trading partner for China.
The Trump administration’s pursuit of fossil fuel dominance and its decision to relinquish renewables to China could have lasting consequences, particularly as the war in Iran pushes countries to rethink their energy strategies.
“I think this whole crisis is driving other countries into China’s hands,” said Sen. Brian Schatz, a Democrat from Hawaii. “On the question of energy, they’re leading [in] electric cars, they’re leading in renewable energy deployment, and I think America is fighting Iran and China is winning.”
Séjourné, the bloc’s industry chief, told a POLITICO event this month that the EU would not follow Washington’s isolationist approach when it comes to ties with Beijing and that the bloc “needs” Chinese investment.
At the same event, his colleague Teresa Ribera, the Commission’s executive vice president in charge of the green transition, rejected the idea that phasing out fossil fuels would increase the EU’s dependence on China.
“We can produce clean tech, we can find solutions and we can rebalance the relations with many other players around the world,” she said.
Not all EU governments feel the same, Belgian Prime Minister Bart de Wever warned his colleagues recently that China is “devastating” European economies by threatening the bloc’s industries “through state-driven overcapacity,” particularly in “sectors like steel, chemicals, EVs, and clean-tech,” as well as their “strategic control of critical resources.”
Critical minerals dependence is an area where countries appear less comfortable with China’s dominance, particularly given their multifaceted uses in defense and technology.
Some U.S. officials say they need to invest in their own resources to end that dependence and work with allies willing to invest.
“We’ve talked a lot about energy independence,” said John Curtis, a Republican senator from Utah. “We need to talk more about critical minerals independence.”
Other countries have been more willing to embrace cheap, clean energy supplies from China for now, as they work to build out energy systems less prone to global volatility.
“For us, we don’t care how much we would import goods from China, or any other countries, as long as it’s more efficient for [our] energy transition,” Thailand’s Finance Minister Ekniti Nitithanprapas said at the International Monetary Fund’s Washington headquarters Wednesday.
Thailand imports solar panels from China but also Sweden and elsewhere, he said. Ultimately, Nitithanprapas said Thailand wants to create domestic production using foreign direct investment so it doesn’t have to rely on any particular country.
That’s a common view in much of Southeast Asia, where the creation of local solar manufacturing and EV plants won’t happen overnight.
“In the short term, most countries don’t have a viable alternative to Chinese clean-tech supply chains,” said Vicky Janita, an analyst at Rystad Energy.
Even if they were to buy more supplies from countries like India, which has grown its solar panel manufacturing capacity, those producers still rely heavily on China for wafers and other parts of the supply chain, she said.
That doesn’t mean they aren’t also trying different strategies to reduce that dependence and build their economies. Many countries in Southeast Asia have welcomed Chinese investment in domestic production, through both carrots, such as tax breaks, or sticks, such as Indonesia’s export ban on raw nickel. Similarly, Brazil is imposing tariffs on EVs, forcing Chinese companies to set up local factories.
“The logic is to accept Chinese capital and technology, but capture jobs, tax revenue, and the knowledge of the processes,” said Janita.
“These countries see clean-tech manufacturing as an economic development opportunity, and growing the economy is a major key priority for them,” she added. “The reality is that China showed up with capital, speed, and a willingness to build in markets that Western firms often considered too risky or too small.”
A draft agreement on the bloc’s energy and climate diplomacy is steeped in security and autonomy concerns.
The country’s low power bills are a result of big subsidies.
Katherina Reiche says the bloc shouldn’t stick to a ‘rigid’ climate goal.
Madrid says a renewables boom is shielding its citizens from soaring fossil fuel costs. But that’s not the full story.
