The world continues to witness the devastating effects of climate change as weather patterns shift, glaciers melt, and storms increase in intensity. Supply chain professionals have certainly taken notice and are making plans to mitigate the effects and/or adapt to these new realities. The question is: Will climate change inevitably result in the world creating a green economy? The answer to that question has long-term international economic and security repercussions. Journalist Somini Sengupta explains, “In an ideal world, where the clean energy transition was the top priority, [the United States and China] would be on friendlier terms. Maybe affordable Chinese-made electric vehicles would be widely sold in America, instead of being viewed as an economic threat. Or there would be less need to dig a lithium mine at an environmentally sensitive site in Nevada, because lithium, which is essential for batteries, could be bought worry-free from China, which controls the world’s supply. Instead, in the not-ideal real world, the United States is balancing two competing goals. The Biden administration wants to cut planet-warming emissions by encouraging people to buy things like EVs and solar panels, but it also wants people to buy American, not Chinese. Its concern is that Chinese dominance of the global market for these essential technologies would harm the U.S. economy and national security.”[1] The other reality is that the world economy is incapable of making a rapid transition from a carbon-based economy to a green economy.

Is the Green Economy Inevitable?

The goals established by proponents of a green economy are broad. The staff at the United Nations Environment Program notes, “A green economy is defined as low carbon, resource efficient and socially inclusive. In a green economy, growth in employment and income are driven by public and private investment into such economic activities, infrastructure and assets that allow reduced carbon emissions and pollution, enhanced energy and resource efficiency, and prevention of the loss of biodiversity and ecosystem services.”[2] However, as Sengupta pointed out, the primary focus currently is on reducing carbon-related emissions from transportation use and energy production. Transitions are never easy and some alternatives are hard to swallow. The editorial board of The Wall Street Journal, which is always eager to point out faults in green economy efforts, notes that the transition to electric vehicles (EV) comes with a heavy price. The editorial board writes, “Car companies scrap old models all the time as they come out with new ones. But making EVs requires fewer workers than gas-powered cars. … The problem, and the tragedy for the workers, is that such decisions are being driven by government mandates rather than market choices.”[2] Over the years the editorial board has also pointed out shortcomings in relying on renewable energy.

Despite opposition from the oil and coal sectors, there does appear to be a sense of inevitably about the rise of a green economy. Brice Richard, a Director of Corporate Strategy at Samsung, notes, “We can now discern the emergence of a green economy, one that harnesses human invention to tackle existential issues for the planet, and provide the engine for the economic growth and job creation of tomorrow.”[3] Richard is among those who believe a green economy is inevitable. He explains, “Given the market fearful of investing in stranded assets in the twilight years of the fossil fuel era, we’re seeing greater confidence that the green economy, powered by renewables, will now start to evolve and grow.” He goes on to discuss several reasons the green economy is inevitable. They are:

• Global agreements are penalizing traditional and dirtier industries: Richard insists, “It is no longer a matter of if, but when investment relocates to greener sectors.”

• Increasingly cheaper green technologies and innovation: According to Richard, “The cost curves of not only existing renewable energies, but new emerging technologies from carbon capture to integrated water management systems, from hydrogen to smart grid interchanges, are shifting the cost equation of large-scale implementation, creating new demand and markets for green products and services.”

• Rapidly growing financial innovation: Richards believes, “Green finance and sustainable investment mechanisms are playing a critical role as enablers of the green transformation, backed by investor activism and new green financial products.”

He concludes, “Taken together, the direction of travel is clear from any vantage point you adopt.”

Who’s Ahead of the Race to a Green Economy?

Right now, there is a clear winner: China. Sengupta reports, “China dominates the production of solar panels, wind turbines, batteries and electric cars and buses, and also processes most of the minerals that go into clean energy technologies.” The staff at Yale Environment 360 reports, “China is erecting twice as much wind and solar capacity as every other country put together, according to a new analysis of large renewable energy projects. Increasingly, wind and solar are edging coal off the power grid.”[4] In an email, Thomas P.M. Barnett, the Principal Business Strategist at Throughline, wrote, “This is China embracing the inevitable (gotta move down the carbon chain on energy production) while running with the seemingly inconceivable (so why not aspire to drive a global revolution in the process?). That is taking a problem and making it a strength.”

As in most economic arenas, China wants to dominate the green economy space and make entry into that space too costly for others to enter. Li Shuo, Director of the China Climate Hub at the Asia Society Policy Institute in Washington, believes competing with China is a losing battle. He told Sengupta, “It is hard to see how the U.S. will build a whole solar supply chain in time to respond to climate change, or how solar products made in the U.S. could ever be cost-competitive. … [It is not] the fight the U.S. should pick, nor one that it can win.” Barnett seems to believe it’s fight in which the U.S. and its allies must engage. He explained, “[China and the E.U. have] an industrial policy looking to dominate a Green Revolution as it spreads around the planet. America’s in the mix alright, but one spots far greater geopolitical ambition among the competition, yes? Meanwhile, we’ve got governors censoring the words climate change in government publications. Who do you think is going to win and rule this century based on these indicators?” Barnett points to the following chart to underscore his point.

In the area of transportation, China is also leading the pack. Journalist William Gavin reports, “China has put a lot of cash into advancing its electric vehicle industry, which is set to account for 10 million sales this year in the world’s largest auto market. That’s a major achievement — but how much did it cost? At least $230.8 billion between 2009 and 2023, according to new research from the Center for Strategic and International Studies (CSIS). … And here’s the kicker: The CSIS says it’s probably lowballing it. The think tank says its data creates a ‘highly conservative estimate,’ since it doesn’t include a number of factors. That includes rebate programs from local governments like Shanghai and Shenzhen, and low-cost land, credit, and electricity provided for EV companies.”[5] As in many economic areas, China has overproduced the number of EVs it needs for its domestic market and is trying to flood the world with its products. This effort has resulted in significant tariffs being assessed by the U.S. and the European Union. It doesn’t help that the American EV market has slowed significantly.

Concluding Thoughts

The United States faces a conundrum. Sengupta explains, “This new great power rivalry presents two risks for the United States. Shunning a rival’s factories too much can raise costs and slow down the clean energy transition. But relying too much on a rival country’s factories raises national security concerns and can jeopardize American industries and jobs.” There are no clear answers to address these challenges. There are, however, signs of hope.

Journalist Minho Kim reports, “Wind turbines generated more electricity than coal-burning power plants across the United States in March and April [2024], outstripping the dirtiest fuel for two consecutive months for the first time, according to the Energy Information Administration. The crossover in wind and coal generation is the latest milestone in the country’s energy transition as renewables rise and coal declines.”[6] And with AI systems demanding more and more energy, there is also a new push for more nuclear power. Freelance writer Felicity Bradstock explains, “With the demand for power increasing rapidly, tech companies are looking for innovative solutions to meet the demand created by artificial intelligence and other new technologies. In addition to solar and wind power, several tech companies are investing in nuclear energy projects to power operations. The clear shift in the public perception of nuclear power has once again put the abundant clean energy source on the table as an option, with the U.S. nuclear energy capacity expected to rise significantly over the coming decades.”[7] And Barnett notes, “Natural gas is a positive fellow traveler in the Green Rev, so hold off on demonizing it like oil and coal.” That, too, is good news. Journalists Melissa Pistilli and Georgia Williams report, “The US is by far the largest producer of natural gas in the world, representing nearly a quarter of global natural gas production.”[8]

The transition to a green economy won’t be as rapid as some people hope and will be too rapid for others. However, the economic and security implications of not pursuing a green economy — regardless of the pace — are significant. China is clearly further along the road than the U.S. and its allies and they need to ensure that China doesn’t completely dominate the future global economy. The road to a green economy is neither smooth nor cheap, but the toll will eventually have to be paid.

Footnotes
[1] Somini Sengupta, “China Rules the Green Economy. Here’s Why That’s a Problem for Biden.” The New York Times, 8 May 2024.
[2] Editorial Team, “The Real Green Energy Transition: Auto Maker Layoffs,” The Wall Street Journal, 11 August 2024.
[3] Brice Richard, “A new understanding of the green economy,” Arup.
[4] Staff, “China Building Twice as Much Wind and Solar as Rest of World Combined,” Yale Environment 360, 11 July 2024.
[5] William Gavin, “China has spent at least $230 billion to develop its EV industry and ‘flood’ the market,” Quartz, 21 June 2024.
[6] Minho Kim, “Wind Beat Coal Two Months in a Row for U.S. Electricity Generation,” The New York Times, 15 August 2024.
[7] Felicity Bradstock, “Tech Companies Are Racing to Harness Nuclear Power,” Oilprice.com, 18 August 2024.
[8] Melissa Pistilli and Georgia Williams, “Top 10 Countries for Natural Gas Production (Updated 2024),” Investing News Network, 15 August 2024.