Alberta Needs a Plan to Benefit from the Clean Energy Race between China, the US, and Europe

In a previous post we discussed the 2022 US Inflation Reduction Act and its adoption of industrial strategy and policy to narrow China’s huge lead in clean energy manufacturing. The Americans have their work cut out for them.

How did China get so far ahead? They were early adopters of industrial strategy and policy that are similar to what the US and Europe are using now and to what the Alberta Federation of Labour (AFL) proposed in its energy diversification plan for Alberta.

The best example of this approach is electric transportation, especially passenger vehicles.

China Leads the World in Electric Vehicle (EV) Manufacturing

China is home to about 100 EV makers. While several are state-owned auto manufacturers, the rest are privately owned, including BYD, which passed Tesla in late-2023 to become the world’s biggest EV seller.

China’s goal is to dominate the global transportation manufacturing sector, which is a critical contributor to Western economies. How did China’s EV sector become so big, so fast?

Twenty-five years ago, China had a big automobile industry, but its technology was well behind automakers from North America, Japan, Europe, and South Korea. Officials decided that catching up was impossible.

“They realized … that they would never overtake the US, German, and Japanese legacy automakers on internal-combustion engine innovation,” says Sino Auto Insights’ Tu Le in an MIT article.

The decision was made to focus on “new energy vehicles.” China poured money into existing auto makers and startup EV companies. BYD was actually a battery manufacturer (now the world’s second largest), so they had to learn auto manufacturing from the ground up. Buoyed by all that cash, companies quickly learned how to make EVs.

But the national government did more than just throw money at the new sector. It used public procurement policies to create an early domestic market. License plates for gas cars were expensive and difficult to get, but for EVs all fees were waived. Local governments often worked with manufacturers on custom policies to encourage investment.

An important part of the strategy was to force foreign auto companies to enter into joint ventures with local firms in order to sell in China. Many of the big legacy firms like General Motors and Volkswagen invested heavily in China, which has become the world’s biggest auto market. Foreign automakers are now losing market share in China because they have not kept up with the innovative products and low costs of domestic EV makers.

Early EVs were not very good. But the industry kept innovating and improving. Sales were modest by 2010, but by 2020 China was making and buying about half of the world’s battery electric vehicles (BEVs) and plug-in hybrids. Last year was the sales pinnacle of about 8 million, with an estimated 9.7 million likely to be sold in 2024, according to BloombergNEF.

From the beginning, China focused on the low to medium-end of the market. Consumers can buy a Wuling Hong Guang Mini EV for as low as $4,500 USD, and many manufacturers offer models under $20,000 USD.

Cheap, well-built, and technologically advanced EVs have enabled China’s EV-makers to begin exporting to emerging markets in Africa, Latin America, and Southeast Asia, not to mention Europe, where the European Union is considering tariff protection for domestic automakers.

While the most successful EV companies are privately owned, government policy and support has been critical to their success. What worked for transportation has also worked for other industries.

Alberta can Seize Opportunities from the Global Clean Energy Race

What China did in the EV industry it similarly did for other industries. The country now dominates the manufacturing of key clean energy technologies: solar panels (80%-plus), wind turbines (60%), electric cars (57%), batteries (76%), and heat pumps (40%). Dominating manufacturing means controlling global supply chains for minerals, metals, and parts for those technologies.

“COVID opened our eyes to the long-term risk for both the private sector and the American people of this over-dependence on China and the need to rebuild domestic manufacturing and innovation,” US Secretary of Commerce, Gina Raimondo, said in a 2022 speech.

America’s response led to industrial policies like the Inflation Reduction Act of 2022, the CHIPS and Science Act, and Infrastructure Investment and Jobs Act, which together will pour trillions into clean energy adoption and manufacturing over the next 10 years.

The industrial plans from China and the US led to the European Union launching the Green Deal Industrial Plan in early 2023. China, the US, and Europe have effectively kicked off a global clean energy race.

Alberta needs an economic and energy strategy to seize the opportunities (and mitigate the risks) from that race before it is too late. The “Skate to Where the Puck is Goingreport is the AFL’s contribution to that strategy. Unfortunately, Danielle Smith and the UCP government are more interested in protecting the status quo than planning for the future.

Without a change in course, which means pursuing an aggressive energy diversification strategy, Alberta is in danger of losing its economic leadership in the very near future.