Canada and the US Scrambling to Catch Up to China on Clean Energy Manufacturing

In a previous post, we discussed the importance for Canada and Alberta of the new American clean energy industrial policies, which the US adopted in the last two years as it tries to reduce China’s huge lead in manufacturing and deploying clean energy technologies. Just how big is that lead? What does it mean for the pace of the global energy transition?

Late in December, China’s largest refiner, state-owned Sinopec released a startling forecast: demand for oil in the world’s second largest consumer market will peak as early as 2026, no later than 2030.

This is a bombshell for Alberta.

Premier Danielle Smith and the oil sands CEOs are informed by OPEC’s World Oil Outlook 2045, which calls for China’s oil consumption to grow by four million barrels per day until mid-century. Smith has mocked International Energy Agency (IEA) forecasts of peak global oil demand by 2030. If Sinopec is correct, then the IEA’s vision of the future is more likely.

That, in turn, means that the Alberta government’s assumptions behind its energy policies and the oil and gas industry’s view of investments are all wrong.

The reason China’s oil demand is set to decline is the rapid electrification of transportation. China’s national government embraced clean energy in the late 1990s, so the country has a big head start on the rest of the world.

China manufactures over half of the world’s electric vehicles. While competitors focused on premium models, China put more emphasis on affordability. Last August, plug-in vehicles were 38% of new passenger-vehicle sales in China.

Other parts of China’s transportation sector were also electrified. There are around 600,000 electric buses in China, for example. Almost half of two and three-wheelers, which is a huge market in Asia, are now electric.

China’s approach to electric transportation – generous support for manufacturers to increase production and a variety of measures to encourage sales to consumers – was also used to grow the country’s other clean energy sectors.

Take solar panels. China currently has the capacity to manufacture twice as many panels as the entire world bought last year. The sector is massively overbuilt because of government policy support. Scaling up enabled Chinese companies to lower prices to 15 cents per watt. By comparison, India’s costs are 22 cents per watt, Europe’s are 30 cents, and costs for US companies are 40 cents.

Unsurprisingly, China’s installation of solar and wind power is also soaring. The strategy of scaling up manufacturing and adoption at the same time has served China well.

The lesson for Alberta? China is driving the energy transition bus, and it has no intention of relinquishing its lead to the West.

Now, some Albertans will object to this view because China is an authoritarian country with a poor human rights record. Its climate record is spotty, too, with 60% of its electricity supply in 2023 coming from coal.

These facts are unfortunate, but they don’t affect the trends described above. Clean energy technology will increasingly displace demand for Alberta’s oil and gas in the coming years.

This is why Alberta needs to diversify its energy economy now while demand for our oil is still strong. Canadian and American energy workers can see the kinds of gains recently won in negotiations with automakers because North American clean energy industries need to grow fast to try to keep up with China.

Labour organizations like the Alberta Federation of Labour (AFL) will be pushing for gains for workers as the energy economy diversifies.

“Danielle Smith is the worst leader possible at a time like this,” said McGowan. “She doesn’t understand the problem, especially China’s role in accelerating the energy transition, and her energy policies are like driving by the rearview mirror instead of looking out the windshield. Alberta is in for a rough ride if she doesn’t change course soon.”