1.1 Introduction
The global energy landscape is currently undergoing a significant transition, pivoting away from fossil fuels and towards renewable alternatives.Footnote 1 Over the past decade and a half, there have been noticeable global shifts towards green energy sources, although the extent varies across different countries and regions. Notably, the electricity generation capacity for renewable energy sources, such as solar and wind, has expanded significantly. Over the period 2000 to 2022, solar photovoltaic (PV) capacity worldwide experienced a 1,300-fold increase and wind capacity saw a 53-fold increase.Footnote 2 In 2010, renewables accounted for a mere 1.3 percent of primary energy consumption, but by 2022, this figure had risen to 6.7 percent. When other sources of nonfossil fuels, including nuclear energy and hydroelectricity, are taken into consideration, nonfossil fuels’ share of global energy consumption reached 17.8 percent. Although fossil fuels remain prevalent, their portion in the energy mix has notably decreased, from around 87 percent in 2010 to 82 percent in 2022. This shift has been propelled by policies and incentives implemented in numerous countries to encourage the adoption of renewable energy, consequently resulting in a surge of investment in renewable energy initiatives worldwide.
Despite being a global phenomenon, some countries are playing more critical roles than others in this transition. The ongoing energy transition in China, the largest energy user and carbon emitter in the world, is a critical part of the global energy transition.Footnote 3 In 2022, China accounted for over one quarter of global energy consumption, 15 percent of oil consumption, and over 50 percent of coal consumption and emitted 30 percent of the world’s carbon emissions from energy. Over just one decade, however, the share of energy consumption from renewable sources (water, wind, and solar [WWS]) in China increased by 10 percent, from 6 percent in 2009 to 16 percent in 2022, and fossil fuel consumption declined from 93 to 81 percent. Despite a slowdown in pace since 2016, the pledge of the Chinese government to reach peak carbon emissions before 2030 and achieve carbon neutrality by 2060 has added new momentum, foreshadowing an acceleration of the transition over the coming years.
China’s energy transition will have profound effects on the trajectory of the global energy market. As the International Energy Agency (IEA, 2017, p. 25) notes in its World Energy Outlook report, “when China changes, everything changes.” China’s share on many global energy-related indicators has risen continually over the past forty years, and this trend accelerated in the years following China’s entry into the World Trade Organization (WTO) in 2000 (Figure 1.1). China’s share in global primary energy consumption, carbon emissions, and oil consumption all doubled in the ten years from 2000 to 2010, growing from 10.8 to 20.6 percent, from 14.2 to 26.2 percent, and from 6.3 to 11.2 percent, respectively. China’s share of gas consumption tripled, from less than 1 percent to 3.4 percent, while its share of coal-use increased 1.6-fold, from 30 percent to 48 percent. The most rapid growth, however, occurred in the area of renewable energy: China’s share in renewables-based electricity generation increased from 1.4 percent in 2000 to 10 percent in 2010.
Figure 1.1 China’s share of selected global energy indicators.
Figure 1.1Long description
The vertical axis represents a range of values from 0 through 60 percent, while the horizontal axis represents the years from 1980 through 2022. The maximum share is in coal consumption, which are as follows. (2022, 55), (2010, 48), (2000, 30), and (1980, 18). The minimum share is in gas consumption, which are as follows. (2022, 9), (2010, 4), (2000, 2), and (1980, 2). The values are approximate.
This upward trend continued after 2010, albeit at a slower pace. In 2022, China accounted for 26, 15, 9.5, 55, and 32 percent of the global consumption of energy, oil, gas, coal, and renewables-based electricity, respectively. China is now the largest buyer of oil and gas in the global market, the largest producer and user of coal, and the largest supplier of a number of types of renewable energy equipment, including solar panels, wind turbines, and electric vehicles (EVs).
As China’s energy transition proceeds, significant shifts will unfold in its role within the global energy market. Projections from the IEA (2017) indicate a notable transformation. Despite historically driving over 40 percent of global energy demand growth since 1990, China’s share is anticipated to dwindle to less than one-fifth by 2040, a figure even lower than India’s. This transformation aligns with China’s announced plan for energy transition. According to IEA (2017) estimates, China’s coal imports are expected to decrease by over 60 percent in 2040 compared to 2016 levels, and in the global oil market, India will surpass China as the primary contributor to the world’s oil consumption growth.
On the supply side, China’s push for renewable energy will continue to stimulate innovation and drive down the costs of technologies such as solar panels, wind turbines, nuclear energy, and energy storage. Consequently, the clean energy technologies manufactured and exported from China will significantly reshape the global energy supply landscape. However, the impacts of China’s moves towards cleaner energy sources on the global energy market are complex. For example, in the medium term, as China foresees a decline in domestic coal production, its coal imports may rise between 2020 and 2040 (IEA, 2017). During that period, China is also expected to foster greater interdependence with the global natural gas market.
While the impact of China’s energy transition is most conspicuous in the supply and demand dynamics in the international energy market, its ramifications extend to other realms, including the approaches adopted by Chinese energy firms in conducting their international operations, the policies and strategies formulated by the Chinese government to engage with other nations on energy, and China’s role within the framework of global energy governance (GEG). Consequently, China’s shift towards green energy will not only usher in a fundamental transformation of its domestic energy system but also yield profound and enduring effects on its energy relationships with other countries.
This is because national energy systems are highly connected, and so are their transitions. The current energy transition represents a significant techno-economic paradigm shift (Thurbon et al., Reference Thurbon, Kim, Tan and Mathews2023) occurring within an increasingly integrated global economy. National energy systems across most countries have become highly interconnected through trade in energy products, foreign investment, technology transfers, and other forms of global integration, predominantly facilitated by multinational enterprises (MNEs). For example, the trade of energy resources and products has intensified in recent decades. Between 2000 and 2022, international trade volumes for oil, gas, and coal increased 1.6-, 1.8-, and 2-fold, respectively. Energy, being one of the earliest industries to embrace large-scale internationalization, has also remained a focal point of foreign direct investment (FDI). Researchers from the Global Development Policy Center at Boston University (Gopal et al., Reference Gopal, Pitts, Li, Gallagher, Baldwin and Kring2018) underscore that the energy sector, encompassing both fossil fuels and renewables, accounted for nearly a quarter of global FDI between 2003 and 2016. While FDI projects in coal, oil, and gas have waned in recent years, investments in renewable and alternative power sources have surged, showcasing resilience even during the COVID-19 pandemic (Whiteaker, Reference Whiteaker2022).
As energy transitions progress, novel energy technologies and business models, and associated energy companies and industries are emerging, often driven by both global and local dynamics. For example, the advancement of the global PV industry, particularly in its nascent stage, has benefited extensively from market and technological interactions among countries. China, serving as the primary exporter of PV modules; European countries, such as Germany and Spain, as major markets; and the United States and Australia, contributing to technology transfer, have collectively propelled this industry forward (Guitzow, Reference Guitzow2015). Consequently, a robust global interdependence has been formed within the industry (Dunford et al., Reference Dunford, Lee, Liu and Yeung2012). Likewise, the inception and expansion of the Chinese wind turbine industry owes much to technology transfer through licensing from European energy technology firms (Lewis, Reference Lewis2013).
Interactions between national energy systems have intensified further with the ascent of global supply chains in energy-related activities. The global shift towards renewable energy is poised to bring about significant changes in global value chains within the energy sector, potentially leading to new paradigms of international cooperation among energy companies (Meckling & Hughes, Reference Meckling and Hughes2018). The advent of new energy technologies is driving increased specialization in the components of renewable energy products and the vertical disintegration of their supply chains, contrasting with the extraction-oriented nature of the fossil fuel era.
At the policy level, the concept of policy interdependence underscores how a country’s energy policies can reverberate across national boundaries, emphasizing the symbiotic relationship between domestic energy transitions and their international influences (Farrell & Newman, Reference Farrell and Newman2014). Leading nations in global energy transitions, exemplified by Germany’s Energiewende, exert considerable influence on the energy policies of other states through demonstrations and signaling effects (Steinbacher & Röhrkasten, Reference Steinbacher and Röhrkasten2019). Cross-country emulation and shared learning in policymaking serve to reduce uncertainties, sidestepping the necessity for individual trial-and-error processes (Quitzow, Roehrkasten, & Jaenicke, Reference Quitzow, Roehrkasten and Jaenicke2016).
For example, Dechezleprêtre and Glachant (Reference Dechezleprêtre and Glachant2014) highlight that the development of wind technology benefits not only from a favorable renewable energy policy within a country but also from similar policies abroad, and the reduction of barriers to technology diffusion can further amplify the effects of foreign policies. Similarly, Kim and Brown (Reference Kim and Brown2019) note that a country’s patenting in lighting technology significantly responds to a demand-pull policy designed to enhancing energy efficiency in other nations. In Germany’s case, the introduction of feed-in tariffs substantially reduced uncertainties for new renewable energy technologies, fostering the growth of wind and solar R&D and manufacturing activities globally (Quitzow, Roehrkasten, & Jaenicke, Reference Quitzow, Roehrkasten and Jaenicke2016). This led to a faster reduction in the costs of renewables thanks to learning curve effects and economies of scale.
Nevertheless, unintended effects from a country’s energy transition can also emerge beyond its borders. For example, the rapid growth of renewables-based power generation capacity in Germany has reportedly strained its transmission capacity.Footnote 4 Discrepancies between electricity load centers in southern regions and renewable energy suppliers in northern Germany have led to difficulties in channeling excess power into the grid. Consequently, these suppliers sometimes pay foreign facilities to halt power generation to accommodate their surplus electricity. For instance, wind farms in western Denmark experienced 1.2 TWh of curtailment in 2018, largely due to payments made by German power companies to halt their power generation – an example of the negative spillovers from one country’s energy transition to others.
Researchers from a historical institutionalist tradition further highlight two indirect mechanisms of transnational policy change: cross-national policy feedback and relative sequencing (Farrell & Newman, Reference Farrell and Newman2010; Meckling & Hughes, Reference Meckling and Hughes2018). Cross-national policy feedback occurs when green policy in one country prompts the mobilization of interest groups in another country to lobby for changes of policy because of their connections to and interests in related global value chains. Relative sequencing refers to a situation where a previous institutional choice in domestic politics has historical consequences for a state’s international position (Farrell & Newman, Reference Farrell and Newman2010). In sum, strong interdependence exists among countries in regard to their energy policy in the energy transition process.
Energy transitions also wield a profound influence on how nations engage with and contribute to global energy and climate governance. The primary driver behind the current energy shift – climate change – is a global concern. As a pursuit of the global public good, any actions (or a lack thereof) in response to climate change have consequences that extend far beyond national borders. Consequently, the success of the ongoing energy transition in achieving its objective is contingent upon global collective efforts. Conversely, a major obstacle to these collective efforts arises from the ‘free rider problem’ among individual nations. This challenge sets this energy transition apart from previous ones, such as the transition from traditional biomass to coal-based energy that took place in the nineteenth century, or the one in the twentieth century that saw the rise of oil and gas.Footnote 5 These energy transitions in human history primarily evolved through the introduction of new technologies in specific markets before expanding globally due to market forces. In contrast, the contemporary energy transition is substantially shaped by, and shapes, international politics and global governance.
There will be power rivalries and emergent alliances between nations in the process of energy transitions as countries compete for dominance in new energy-related technologies and resources and the establishment of international energy governance and rules (Goldthau et al., Reference Goldthau, Westphal, Bazilian and Bradshaw2019). Indeed, conflicts among nations over energy resources have long been a subject of study within the geopolitics literature (Economy & Levi, Reference Economy and Levi2014; Hogselius, Reference Hogselius2019; Jaffe, Reference Jaffe2018; Van de Graaf et al., Reference Van de Graaf, Sovacool, Ghosh, Kern and Klare2016). However, the ongoing energy transition signals a potential shift, likely eroding the advantages held by fossil fuel superpowers while paving the way for the rise of new renewable energy superpowers (Thurbon, Hynd, & Tan, Reference Thurbon, Hynd and Tan2022).
Global efforts to combat climate change also crucially rely on international negotiations and cooperation. Meckling and Hughes (Reference Meckling and Hughes2018) delineate two primary approaches. The top-down approach, exemplified by the Kyoto Protocol, seeks multilateral agreement on legally binding emission reductions and climate objectives. The establishment of such multilateral agreements requires extensive negotiations that involve the participation of as many countries as possible and the creation of a robust institutional framework. In contrast, the bottom-up approach to energy transitions, evident in the process leading to the Paris Agreement, entails developing and implementing climate-oriented energy policies at the national level, which are subsequently aggregated to form global agreements.
In the context of China’s evolving energy transition, the shift within its domestic energy system from fossil fuels to renewables will have a profound impact on the country’s engagements with others in the energy realm. Specifically, this book critically examines how this impact is manifested in the behaviors of China’s energy companies in international trade and outward foreign investment, the Chinese government’s international energy policies and strategies, and China’s approach to GEG. These effects are also closely linked to changes in international politics. Notably, ongoing geopolitical tensions between China and the West add enormous uncertainties regarding how China’s energy transition impacts its international energy relations (IER). This book explores these implications as a topic of economic, geopolitical, and environmental significance not only for China but for the world at large.
1.2 China’s Ongoing Energy Transition
In this section, I offer an overview of China’s ongoing energy transition to set the scene for the discussions presented throughout the remainder of the book.
While non-hydro renewable energy was virtually nonexistent in China twenty years ago, large wind turbines, massive solar farms, and vast EV fleets are now a common sight in its cities and countryside. The rapid surge of renewables in China’s energy mix is evident in a number of energy statistics. In power generation, renewables-based non-hydro electricity, predominately generated from solar and wind, has grown at an average rate of 34 percent annually, increasing from just over 3 TWh in 2000 to over 1,300 TWh in 2022. Before 2010, renewables contributed less than 1 percent of China’s total electricity generation, while in 2022, their share increased to over 15 percent. This figure rises to 30 percent when hydroelectric power is included within the green energy mix. In terms of total energy consumption, renewables accounted for 8 percent in 2022, marking a substantial rise from the mere 0.5 percent recorded in 2010. Nonfossil fuels, including renewables, hydroelectricity, and nuclear energy, constituted roughly 18 percent of total energy production in 2022.
The capacity of renewable power generation has soared even more rapidly thanks to massive investment in the area. China has maintained its position as the world’s largest investor in renewables over the past decade, reaching a total investment of US$137 billion in 2021, or about 37 percent of the global total (REN21, 2022). From 2000 to 2021, China’s installed PV power capacity grew over 9,000-fold, while installed wind turbine capacity increased more than 900-fold.
Meanwhile, the proportion of fossil fuels in China’s total energy consumption, especially coal, has fallen considerably. Over 70 percent of the total energy supply and over 80 percent of electricity consumption were based on coal in 2009; these shares had dropped to 55 percent and 61 percent, respectively, by 2022.
Internationally, China is ahead of countries such as Australia (14 percent), India (11 percent), and Japan (15 percent) in terms of the share of nonfossil fuels in the energy mix, but behind countries such as Germany (24 percent) and the United Kingdom (25 percent). The share of nonfossil fuels in China’s energy mix is close to the global average (18 percent) and to that of the United States (19 percent).
The World Economic Forum’s (WEF) Energy Transition Index provides a more comprehensive mechanism for benchmarking China’s progress in its energy transition. The Index incorporates two sub-indices. In line with the notion of sustainable development as recognized in the United Nations’ Brundtland Report (UNWCED, 1987), the first sub-index assesses the performance of the national energy system across three key areas: access to a secure and reliable energy supply, the ability to support economic development and growth, and environmental sustainability across the energy value chain. The second sub-index focuses on the enabling environment for the energy transition. It assesses a country’s transition readiness on six dimensions: capital and investment, regulation and political commitment, institutions and governance, infrastructure, human capital and consumer participation, and energy system structure. These two sub-indices are calculated on the basis of thirty-nine indicators. According to the Energy Transition Index, in 2021, China ranked sixty-eighth among the 115 countries under assessment. However, China was identified as among those with the strongest improvement between 2012 and 2021 (WEF, 2021).
Despite this progress, China faces a number of challenges in the pursuit of its energy transition. The independent research organization Climate Action Tracker considered China’s net-zero target evaluation “Poor” in its 2022 assessment.Footnote 6 Its evaluation asserts that although China’s current policies “continue to lead to greater decarbonisation levels than under its NDC [nationally determined contribution],” these policies are still “insufficient” as they are more consistent with a global warming of 3°C.
In recent years, the decline of fossil fuels and energy-intensive industries has been slower than expected. Notably, coal-fired power capacity has increased, from about 650 GW in 2010 to 1,200 GW in 2021, according to the official statistics from the China Electricity Council.Footnote 7 As such, some commentators have argued that the Chinese government took what they called “a middle course approach” in the country’s energy transition in the late 2010s (Sino-German Energy Transition Project, 2020). This middle-course approach saw simultaneous policy support for fossil fuel and energy-intensive industries on the one hand and for renewables on the other (Thurbon et al., Reference Thurbon, Kim, Tan and Mathews2023).
Yet recent developments in China’s climate policies have given the energy transition new momentum. China’s President Xi Jinping announced in September 2020 that the country is committed to achieving carbon-neutral status by 2060. This announcement of carbon neutrality was not only made earlier than those of major economies, such as the United States, Japan, India, Brazil, and Russia, but also set a goal to achieve net-zero emissions for the country ten years earlier than another major developing country, India. On the same occasion, Xi also modified the language regarding the time China would achieve its peak carbon emissions goal from “around 2030” to “before 2030.” In September 2021, Xi further pledged to stop funding new overseas coal power projects (Tan et al., Reference Tan, Thurbon, Mathews and Kim2021b). These pledges are widely regarded as important contributions to global climate action.
These new pledges, especially the goal of carbon neutrality by 2060, make China’s energy transition more urgent. Yet the roadmap towards these goals remains unclear. Carbon neutrality requires carbon dioxide emissions to be completely offset by absorbing carbon from the atmosphere through means such as carbon capture and storage (CCS) technologies or tree planting. Currently, only about 10 percent of China’s carbon emissions are offset by forestry. Technologies such as CCS are nowhere near commercial viability. Therefore, carbon neutrality in China will demand a deep transition not only of the country’s energy system but also of the economy as a whole.
This means that coal-fired power stations, currently accounting for over 60 percent of the country’s electricity generation, will need to be completely phased out. Road services will need to be based on EV and hydrogen fuel cell vehicles, which currently account for less than 2 percent of the total fleet. The country will also need to heavily reduce the production of steel, cement, and chemicals. What remains of these industries will need to be powered by green electricity or green hydrogen. According to one model (ETC, 2019), to achieve net zero in China, most of the country’s steel production needs to be based on recycled steel using electricity as the energy source, while production from iron ore will need to decrease by 75 percent.
Natural gas is currently considered a cleaner energy source than coal and oil, and thus its adoption as a replacement for those two fuels has been encouraged in China. Yet, to achieve carbon neutrality, the use of natural gas also needs to be controlled. Meanwhile, power generation based on renewables and nuclear needs to be developed more rapidly, not only to replace current coal-fired power generation capacities but also to go beyond them because of the large scale of electrification in the transport and heavy industries.
Amid these challenges, certain segments within the policymaking community appear to be advocating for a strategic shift in the timeline. As per the official document released by the State Council (2021), China aims to achieve a 25 percent share for nonfossil fuels in its energy mix by 2030. This implies that the most substantial efforts will be concentrated in the period between 2030 and 2060. Similarly, a study conducted by the Climate Change Research Institute of Tsinghua University, an institution closely linked to climate policymakers in Beijing, outlines two phases towards carbon neutrality, 2020 to 2030 and 2030 to 2060 (He, Reference He2020). This study anticipates a continuous rise in China’s carbon emissions until 2030, followed by a sharp decline necessary to attain the carbon neutrality objective. These proposed timelines and policy frameworks seem to result from political compromises, deferring the heavy lifting required for the transition to a later period due to expected obstacles and resistance to the transformation required within the economic system.
1.3 Drivers and Challenges of China’s Renewable Energy Transition
As in many other countries, the energy transition in China is driven by multiple considerations, including concerns over energy security, climate change, local environment, and industrial development (Energy Research Institute, various years; Wang & Sandholt, Reference Wang and Sandholt2019). On energy security, for example, China became a net oil importer in 1993, and its dependence on imports of crude oil has since increased rapidly, reaching over 70 percent in recent years. The manufacturing of renewable energy technologies at home is seen as an important strategy to help reduce the country’s dependence on foreign oil and to build energy security (Mathews & Tan, Reference Mathews and Tan2014). Other key drivers of the energy transition, including considerations around fighting climate change and improving the local environment, have also been extensively examined in the literature (Andrews-Speed & Zhang, Reference Andrews-Speed and Zhang2019; Korsnes, Reference Korsnes2020).
A more distinctive feature of the energy transition in China relates to the country’s long-established goal to develop internationally competitive industries (Green & Stern, Reference Green, Stern, Song, Garnaut, Cai and Johnston2016; Mathews & Tan, Reference Mathews and Tan2015; Thurbon et al., Reference Thurbon, Kim, Tan and Mathews2023). Unlike many other countries, China views the energy transition as a process of technological catch-up and new industry building rather than just the price for combating climate change. A fundamental shift away from a fossil-fuel-based energy system is therefore seen as a rare opportunity for China to reshape the international technological landscape in energy. This mindset and strategy have produced tangible outcomes. For example, according to the data for 2023, over 80 percent of solar PV (REN21, 2023), 60 percent of wind turbines (GWEC, 2023), and 64 percent of EVs (WEF, 2023) sold in the world were made in China. In 2015, China surpassed the United States to become the world’s largest electric passenger vehicle market. In 2019, electric passenger vehicle sales in China accounted for 53 percent of global sales. China is not only the largest market for, but also the largest producer of EVs, with five Chinese brands among the top ten global brands in terms of sales volume in 2020.
Despite rapid technological development and industrial growth in renewables, China still relies heavily on foreign technologies in some key clean energy areas. Further development of these technologies is therefore considered a critical part of China’s energy transition. For example, battery, electric motor, and electronic control technologies are central to developing the next generations of EVs. Chinese firms, such as BYD and CATL, are among the world leaders of battery technology, which is key to extending the travel range of EVs. However, in the areas of electric motors and electronic controls, China is yet to make major technological breakthroughs. In 2019, Chinese EV manufacturers relied on imports for over 90 percent of its insulated-gate bipolar transistors, a key component in the electronic control systems of EVs (Ren et al., Reference Ren, Lian and Guo2019). China’s EV manufacturing also relies heavily on foreign chips for key components, such as radar, lidar, and data platforms.
China has developed a comprehensive supply chain in wind energy and is currently a major supplier of wind turbine components to the rest of the world, including blades, towers, gearboxes, generators, pitch and yaw systems, hubs, and converters. In some niche markets, such as low-temperature, high-altitude, or low-wind-speed regions, Chinese-made wind turbines are leading the world. The development of the Chinese wind power supply chain is helped by its enormous manufacturing capacity and the rapidly growing domestic market. However, China faces bottlenecks in its manufacturing of wind turbines and relies on imports for key components such as the bearings of large wind turbines and the shafts of step-up gearboxes. Using the primary measure of technological development in wind energy (i.e., the maximum unit size of new wind turbines), Chinese technology is about six years behind the most advanced technology in the world (Zhang et al., Reference Zhang, Wei, Chen and Zhao2020). Similar to some other Chinese industries, China’s clean energy industry performs better in adaptive, incremental innovations than in radical innovations. For this reason, China has a greater gap in technological areas where radical innovations are required, such as offshore wind.
The critical role of governments worldwide in energy transitions is widely recognized in the literature. Their role is critical, first because of the level of urgency. Energy transitions in history were typically long processes, starting with technological advances before proceeding to cost reduction and efficiency gains, leading to large-scale investment and in turn driving the diffusion and upscaling of innovations. Eventually, the old energy technology was phased out and replaced by the new. However, humanity faces an urgent need to reduce carbon emissions to save the planet. The goals and timetables of the current energy transition, such as the nationally determined contributions (NDCs) of the Paris Agreement, depend on the political will of, and international negotiations among, national governments. The intervention of states in energy transitions is also required because of the externalities of the environmental cost of traditional energy on the one hand and those of the environmental benefits of clean energy on the other. In other words, these benefits and costs are not sufficiently reflected in market prices. Therefore, unlike historical energy transitions, the energy transition of our time is purposeful and intentional and requires interventions by national governments and the global community (Geels, Reference Geels2011; Markard, Raven, & Truffer, Reference Markard, Raven and Truffer2012). In sum, states play essential roles in the present energy transition, which cannot be accomplished by market forces alone.
Due to its distinctive political system and special motivations for making the energy transition, including the goal of industrial development, the Chinese government plays an even more profound role than its counterparts in many other countries in driving its energy transition. The strong policy support in China and its impacts on the development of green energy industries in the past two decades are well documented in the literature (Mathews & Tan, Reference Mathews and Tan2015; Shen, He, & Yao, Reference Shen, He and Yao2021; Woetzel & Jiang, Reference Woetzel and Jiang2017; Zhang, Andrews-Speed, & Zhao, Reference Zhang, Andrews-Speed and Zhao2013). Among the major legislation and policies to support renewable energy in the early years were China’s Renewable Energy Law, which was passed in 2005, and the Medium and Long-term Development Plan for Renewable Energy released in 2007. In 2010, the State Council released its “Decision on Accelerating the Cultivation and Development of Strategic Emerging Industries.” This important guideline identified seven emerging industries of strategic importance, including three that are directly related to clean energy technologies: new energy, new-energy-based automobiles, and energy saving and environmental protection. A series of policies were subsequently introduced involving production-, demand-, and investment-based incentives. The specific measures introduced to implement the policies include feed-in tariffs, renewable portfolio standards, investment tax incentives, subsidies for R&D and market promotion, and priority for renewable power in terms of access to the grid. The Chinese government has also extensively used local content requirements to facilitate technology transfer and develop indigenous industries.
Following the developmental state model, the Chinese government has adopted various industrial policies aimed at fostering the growth of strategic clean energy while reducing the reliance on fossil-fuel-related industries (Mathews & Tan, Reference Mathews and Tan2015). The distinctive features of China’s energy transition have been characterized as ‘developmental environmentalism’ in a recent book (Thurbon et al., Reference Thurbon, Kim, Tan and Mathews2023). Compared with other national governments, the Chinese government exercises significant control over resources, such as land, tax revenues, and funding, to advance developmental environmentalism. For example, a recent study examining coal power station closures in Guangdong province identifies a range of push-and-pull mechanisms employed by Chinese regional governments to drive the transition (Tan et al., Reference Tan2021).
Despite the advantages of China’s developmental state in accelerating the energy transition, there are numerous challenges that can potentially impede the transition. A major challenge that is less examined in the literature arises from China’s distinctive political system for meeting competing environmental, economic, and social goals – typically known as the energy trilemma (Tan, Reference Tan2023a, Reference Tan2023b). I shall return to this discussion in Chapter 5.
Another challenge facing China’s energy transition lies in striking a balance between the roles of the market and the government. In recent years, there has been a gradual reduction in – and in some sectors, a phase-out approach to – direct government subsidies for the producers and users of renewables. This shift was, in part, driven by the increasing financial burden caused by the government’s subsidy commitment. Moreover, as the share of renewables in the energy system grew, policy contests between renewables and fossil fuels became more pronounced. This was particularly evident in the context of overcapacity in China’s electricity sector. This conflict further contributed to a decrease in the government’s direct financial supports to renewables. Ultimately, like energy transitions happening elsewhere, China’s energy transition is essentially a political process that inevitably reshapes the distribution of benefits and costs, alters existing power relations, and restructures institutions (Coutard & Rutherford, Reference Coutard and Rutherford2010; Huang & Li, Reference Huang and Li2020). In the face of these challenges, other forms of policy support have been introduced, such as the establishment of a carbon emission trading market and a green certificate system. In the EV industry, for example, a new energy vehicle (NEV) mandate policy was introduced in 2017, requiring every car maker to obtain a certain level of NEV credits linked to its output of vehicles (Thurbon et al., Reference Thurbon, Kim, Tan and Mathews2023).
1.4 The Main Arguments
This book, drawing from the extensive body of international business (IB) and international political economy literature, introduces a novel perspective on the IER of China. It presents a comprehensive analysis of China’s evolving IER within the context of its energy transition and against the backdrop of a dynamic geopolitical landscape. While the intricate connections between IER, the energy transition, and geopolitical shifts may not be immediately evident, this work delves into these complexities by examining China’s IER across multiple dimensions. Specifically, this book explores the impacts of China’s energy transition and geopolitical changes on the country’s IER at three levels, encompassing the cross-border operations of energy firms at the micro level, energy cooperation and statecraft at the state level, and China’s participation in GEG at the global level. Chapter 2 further elaborates on this conceptualization of IER.
Central to this exploration is the following fundamental question: how does China’s IER evolve in response to two pivotal contemporary factors, namely, the ongoing energy transition and geopolitical changes? The book presents three core arguments in response to this query.
First, China’s IER are substantially influenced by its ongoing energy transition; this influence manifests across different levels of its IER. At the firm level, the country’s domestic energy shift brings about significant changes in the IB activities of Chinese energy firms. Notably, shifts in the ownership, location, and internalization (OLI) advantages of Chinese energy firms amid the energy transition may lead to changes in their trade patterns and investment modes. For example, the traditional ownership advantages of China’s major national oil companies (NOCs) may encounter considerable challenges due to the energy transition. Consequently, their appetite and capabilities for overseas investment aimed at fossil fuel resources, particularly oil, may diminish in the short term, and gas in the long term. Conversely, built on their rapidly growing resources and technological competences, Chinese renewable energy industries are poised to expand their international presence.
Moreover, the geographical areas where Chinese energy firms engage internationally may pivot due to evolving advantages in different destinations. The focus of these firms may shift towards regions crucial for critical materials in renewable energy technologies, aligning with both domestic energy transition needs and the global demand for these technologies.
Changes in global and local value chains, catalyzed by the energy transition, will also redefine the internalization advantages underpinning the global expansion of Chinese energy firms. While the global renewable energy value chains appear less integrated compared to fossil fuel value chains, some Chinese FDI will likely arise from the necessity to leverage the synergy between the technological expertise of Chinese renewable energy firms, such as PV producers, and the potential of local markets overseas.
At the state level, the ongoing energy transition is set to reshape China’s international energy policy. This shift will foster the development of new energy resources and capabilities, such as production capacity as the world’s foremost supplier of various renewable energy technologies and equipment, while diminishing some of the country’s traditional energy prowess, such as dominance in fossil fuel consumption and funding for overseas fossil fuel projects. This transformation gives rise to a potential reconfiguration of China’s power position in international politics, prompting a reevaluation of its strategies in energy security and energy diplomacy. Furthermore, new opportunities for energy statecraft may emerge in the era of renewable energy. China stands to leverage its newly established strength to advance broader strategic objectives. In this context, there will be a shift in the government’s strategic focus towards a greater degree of involvement and control of the global supply chains of major renewable energy technologies and resources as a means to enhance China’s energy security and fortify its international competitive edge in new industries. This shift in China’s energy statecraft may, in turn, significantly reshape its energy resources and capabilities, reflecting the dynamic interactions among energy resources, international political power, and energy statecraft.
At the global level, China’s approach to and involvement in GEG is also likely to undergo substantial change amid its ongoing energy transition, contributing to the country’s evolving standing in the global energy landscape. This evolution will magnify certain limitations within the existing GEG system while diminishing the significance of others. More specifically, the nuances of China’s engagement in GEG – ranging from cooperation to constructive and potentially adversarial dynamics – will be substantially reshaped by the energy transition.
Second, the impacts of Chinese domestic energy transitions on the country’s IER are intertwined with shifts in the global geopolitical landscape. China’s integration into the global economy has been a driving force behind rapid globalization over the past four decades. However, China’s ongoing IER face the substantial influence of two contrasting paradigms, one entrenched in globalization and the other centered on deglobalization. Increasing geopolitical tensions between China and the West will significantly shape China’s IER across various levels, impacting the IB activities of energy firms, the government’s strategies and statecraft in international energy cooperation and competition, and the country’s approach to GEG. In essence, geopolitical shifts play a pivotal role in moderating the relationship between China’s energy transition and its IER, weakening effects in certain areas while amplifying them in others. For example, collaborative ventures between China and Western nations in renewable energy technologies may experience a slowdown due to these tensions. Conversely, geopolitical complexities may foster deeper energy cooperation between China and non-Western, oil-rich countries such as Russia, bolstering partnerships that might otherwise have been affected by China’s domestic energy transition. Moreover, geopolitical conflicts are poised to heighten global competition in strategic clean energy technologies, intensifying China’s pursuit of critical minerals and the global promotion of its energy technologies. This could spur an expansion of China’s international engagement in the energy sector, particularly through strategic initiatives such as the Belt and Road Initiative (BRI).
Third, China’s evolving IER are poised to have profound implications both domestically and globally. These changes in its IER may lead to a redistribution of international competitive advantages among Chinese energy firms, with some likely to gain prominence while others recede in influence. Meanwhile, the Chinese state is positioned to gain new strength and power in international economic and political spheres stemming from the development of new capabilities due to its ongoing energy transition. Moreover, China is expected to leverage its augmented position, and, in some areas, dominance, in the global supply chains of renewable energy technologies. This, in turn, will exert considerable influence on global energy transitions and geopolitics.
1.5 Structure of the Book
This book is organized into seven chapters. The first three chapters lay the context and foundational framework, while the subsequent chapters delve into China’s IER through the lenses of firm, state, and global interactions, as conceptualized in Chapter 2. The final chapter ties together the insights gained throughout the narrative.
Chapter 1 sets the scene by examining the context of China’s energy transition, underscoring its pivotal role in the global energy landscape. It delineates the interplay between China’s domestic energy transformations and international engagements, mapping out the drivers and challenges inherent in this transition. This chapter also previews the core arguments that the book will further elaborate on.
Chapter 2 introduces an original framework for understanding IER, dissecting them into three distinctive yet interlinked dimensions: the IB operations of energy firms at the firm level, state energy diplomacy and energy statecraft at the state level, and the country’s approaches towards the GEG framework at the global level. I argue that this conceptualization offers a multifaceted approach to analyzing the complex and nuanced nature of IER.
Chapter 3 focuses on the role of shifting geopolitical landscape, recognized as a critical ‘moderating factor’ that shapes the relationship between energy transition and IER. Here, I outline two contrasting trends – globalization, fostering deeper integration of China’s energy industry into the global system, and deglobalization, prompting a decoupling of China from global energy markets. The chapter presents a preliminary quantitative assessment of China’s evolving energy trade relationships in the context of fossil fuel industries during the last two decades. I end the chapter with an exploration of IER under various geopolitical scenarios.
Chapter 4 delves into the firm-level dynamics within China’s IER amid its ongoing energy transition and geopolitical shifts. Beginning with a review of relevant IB theories, the chapter then focuses on the characteristics of IB activities in the energy sector, spanning traditional fossil fuel and renewable industries. Subsequently, the chapter zooms in on the IB operations of Chinese energy firms, highlighting the key trends and complexities. Utilizing the OLI framework established in the IB literature, I explore how China’s energy transition and geopolitical changes impact the ownership, location, and internalization advantages for the international activities of Chinese energy firms, leading to emergent patterns in their FDI. Three case studies across different energy sectors exemplify these shifts.
Chapter 5 shifts the focus from the firm-level dynamics to the state perspective, offering a critical examination of the Chinese government’s evolving international energy policies. The chapter traces the evolution of China’s international energy policies over recent decades, highlighting recent strategic shifts towards energy security. The chapter introduces the notion of energy statecraft as a conceptual tool to analyze the impacts of the country’s ongoing energy transition and geopolitical shifts on the state’s international energy policy and strategy. It delineates how these forces diminish China’s energy resources and capabilities in certain domains while fostering the development of new ones elsewhere, resulting in a significant reconfiguration of China’s power within international politics. This transition opens avenues for novel energy statecraft in the new renewable energy era.
Chapter 6 explores the implications of China’s energy transition and geopolitical changes on its engagement in GEG, a pivotal aspect and the third pillar of its IER. The discussion begins with an exploration of the current GEG landscape and China’s role within it. Subsequently, I outline gaps and limitations in the GEG structure, viewing them from both international and Chinese perspectives. The chapter then employs the notion of ‘constructive versus destructive’ competition to gauge China’s future interactions within GEG.
Finally, Chapter 7 synthesizes the main findings of the book and reflects on the extensive ramifications of China’s energy transition on the international stage. This chapter provides an overview of how China’s ongoing transition from fossil fuels to renewables, along with geopolitical shifts, is reshaping its interactions with the global energy sector and beyond.
