A fellow with the trustee chair in Chinese Business and Economics at the Center for Strategic and International Studies (CSIS), suggests in a recent opinion piece that the new Inflation Reduction Act (IRA) also promotes competition with China in the energy industry.
Although the Inflation Reduction Act (IRA) seeks to increase U.S. domestic production and consumption of green energy materials, Ilaria Mazzocco believes that completely substituting Chinese production of these materials will be a lengthy process.
"Expanding U.S. manufacturing to the point where it will replace Chinese production of technologies central to achieving decarbonization will take time, measured in decades and not months and as a result Washington will have to grapple with China’s importance in global supply chains for years to come," Mazzocco said. "The IRA will likely help the United States come closer to meeting its climate targets and become a stronger climate leader, but global supply chains will likely continue to run through China for still some time."
In her CSIS article, Mazzocco notes that the IRA contains around $30 billion in tax incentives to encourage the domestic manufacture of green energy commodities such as as solar panels, electric vehicle (EV) batteries and wind turbines.
“This historic achievement will create good-paying jobs and further advance U.S. leadership in the development of cutting-edge clean energy technology," U.S. Trade Representative Katherine Tai said in a news release, "The Inflation Reduction Act will also combat climate change, reduce the deficit and provide significant financial relief for Americans by lowering health care premiums and energy costs."
An estimated $30 billion will be given to loans from the Department of Energy to encourage the domestic manufacture of electric vehicles, while an additional $10 billion will be invested in the construction of facilities that will manufacture electric vehicles, wind turbines and solar panels.
Despite this historically significant investment in terms of quantity and duration, China has still outspent the U.S. in these sectors for years and is deeply embedded in the global green energy supply chain.
“China is seeking global dominance of this industry because they recognize the importance of renewable energy and if they achieve their dominance in solar energy this will give them a huge advantage in winning support and loyalty from many other countries around the world," said Jeff Ferry, chief economist for the Coalition for a Prosperous America (CPA) in Washington. "In the game of global geopolitics, control of energy supply is a vital weapon and advantage."
China is currently responsible for 85% of the world's solar cell production capacity, compared to North America's 0.6%.
Considering that solar cells are fundamental to the manufacturing of solar panels, it is likely that solar panels manufactured in other countries will continue to rely on Chinese components.
China also holds the majority of cathode (70%) and anode (85%) manufacturing capacity, which are essential parts for battery production.
According to Forbes, China dominates the global green energy market and is home to eight of the top ten solar companies.
“One of the biggest mistakes the West has done on green policies to cut CO2 emissions and trying to reduce dependence on oil and gas producing nations is that the transition to renewable energy puts the West at the mercy of China,” said energy consultant David Zaikin, a founder of Key Elements Group in London.
Approximately 80% of solar panels sold in the U.S. are manufactured in China.
