Place Your Bet On The Future Of Energy: U.S. Or China

The first eight months of the second Trump administration have seen a sea change in energy policy. Previously, under Biden, the federal government had undertaken a blowout of hundreds of billions of dollars of subsidies and incentives for so-called “renewable” energy sources, while simultaneously implementing dozens of regulations and restrictions to suppress the production and use of fossil fuels. President Trump has now reversed all of that.

However, please take note of an important distinction: although Trump and Congress have zeroed out nearly all subsidies and tax credits for wind and solar generation and for grid-scale batteries, they have not enacted comparable subsidies and incentives for fossil fuels. Instead, all sources of energy production now must stand or fall without subsidies, based on their ability to fulfill customer demand and to generate profit. All sources of energy are now on equal footing, and without subsidies.

Meanwhile, over in China, billions of dollars in subsidies have flowed for many years into developing the ability to produce the infrastructure for a wind/solar/storage energy system — things like polysilicon, solar panels, solar cells, wind turbine blades, wind turbine nacelles, and battery cells. As a result, China has become completely dominant in the world in manufacturing these and many related items.

So who is making the better energy bet?

For one possible answer to that question, here is a Wall Street Journal piece from September 21 (probably behind pay wall). You get a clear idea where they are going from the headline, “The U.S. Is Forfeiting the Clean-Energy Race to China.”

In the vision of the authors of the piece (David Uberti, Ed Ballard, and Brian Spengele), there is an international race under way for dominance in “clean energy,” and the United States is in the process of losing it. The problem is that the U.S. is failing to put up the necessary government subsidies for “clean energy” to vie for the lead. Excerpt:

U.S. and China are offering competing visions for the future of energy, representing the next dimension in the showdown between two superpowers vying for global influence and artificial intelligence supremacy. The U.S. renewables retreat goes far beyond the tax bill that is winding down more than $400 billion in estimated subsidies. Federal agencies have tightened rules for new development. The Trump administration recently terminated a multibillion-dollar loan guarantee for a Midwest transmission line, halted a near-complete wind farm off the coast of Rhode Island and canceled $3.7 billion of funding for technologies that could reduce industrial emissions.

China, meanwhile, under the enlightened direction of President Xi, has opened the money spigot to subsidize “green energy” development:

In a meeting with his economic team in 2014, Chinese leader Xi Jinping called for a “revolution” in the nation’s energy system. Renewables were earmarked for special state support as part of Xi’s “Made in China 2025” initiative. By owning the production chain for equipment such as photovoltaic panels and wind turbines, the government bet it could ease its energy-security challenge while creating jobs.

And the result of the massive subsidies? Innovation! 

Even as Chinese companies continued to erect coal plants, billions of dollars of subsidies flowed to such companies as JinkoSolar and the battery maker Contemporary Amperex Technology, also known as CATL. Innovation followed.

So China is racing ahead to dominate the entire clean energy field:

By 2023, a solar module produced in China was 65% cheaper than one made in the U.S., according to the energy consultancy Wood Mackenzie. CATL said it spent more than $2.6 billion on research and development last year alone, with a staff of more than 20,000 people. Caroline Wang, an analyst with the Australian think tank Climate Energy Finance, said the resulting renewables buildout has recently left China’s world-leading coal fleet running at less than half capacity.  “They are just leading the world by an absolutely mind-boggling margin,” Wang said.

It’s mind-boggling! The Journal provides the following chart (sourced to Bloomberg/NEF) of market shares of various green energy components to illustrate how completely dominant China has become:

Wow! There’s not one of those critical components where China’s 2024 market share was less than about 65%. And for some of them, like solar wafers and battery anodes, the market share was more like 95%.

So how are you going to bet? Here’s my bet: The entire idea of an energy system based on wind, solar and batteries will not work and will fail, probably over the course of the next ten years or so, if not sooner. All of the investment will be lost. All of the employees will be laid off.

At least in the U.S. we allow companies to fail and go through prompt bankruptcies, where their assets get re-allocated to more productive uses. In China, where avoiding loss of face for the leaders is the highest value, failed businesses get propped up endlessly, dragging the economy down with them. I guess that we are just blessed with incompetent geopolitical adversaries.

Of course, I could be wrong. But I don’t think this one is a close call. Businesses that need government subsidies to survive are a negative for the economy. It’s as simple as that.