Tariffs: Is Asia’s energy future clean?

The region’s midterm hopes could come down to American obstinance under the current US administration and China’s willingness to jump into the game.

Tariffs: Is Asia’s energy future clean? AFP Photo/Xu Congjun/ImagineChina

Delegates from around the world gathered in Katowice, Poland, in December to discuss how to curb greenhouse gas emissions in order to realize the goals enshrined in the 2015 Paris Agreement. But the world’s largest economy, the United States, does not believe in climate change or the report issued by the United Nations Intergovernmental Panel on Climate Change in October. The report by the IPCC, as it is known, says the world economy will suffer severe damage that could top $54 trillion by 2040 unless carbon dioxide emissions are drastically reduced. To achieve that goal all countries, cities, businesses and individuals will have to change their ways.

As for China and India, despite the US withdrawal from the Paris Agreement, they will continue to disagree with developed countries on some fundamental issues such as financing and the setting of emission targets. In 2015, rich countries pledged to contribute $100 billion a year by 2020 to help developing countries adapt to and combat climate change. China is also becoming greener
than other developing countries, even some developed countries. It is home to half of the world’s electric vehicles. One-quarter of the electricity it produces comes from clean energy sources such as solar and wind, and its cheap silicon panels have driven down solar energy prices worldwide. Now Chinese manufacturers are starting to export EV batteries to automakers in the United States, Europe and Asia.

That will be especially good news if USChina trade negotiations end in positive agreements. But until a temporary truce was reached between China and the United States in December, the White House seemed hell-bent on imposing additional tariffs on Chinese imports, thus robbing the world of the
advantages stemming from the global climate agreement. China has vowed to increase imports from the United States, and although the volume is yet to be finalized, it would be substantial, which in turn would reduce America’s trade deficit with China.

But the White House seems interested in playing other games. It has lifted restrictions on offshore drilling and coal use, and its “pro-growth” energy policies have delighted US industries. In fact, forecasters expect American oil production to surpass that of Saudi Arabia this year. In 2017, the United States produced 19.4 percent more natural gas than Russia.

Having removed itself from the Paris Agreement, the United States now has easy access to more low-cost, high-carbon energy than almost any other industrialized country. 

China is becoming greener than other developing countries, even some developed countries.

As a result, US coal production, exports and employment increased in 2018 after years of decline. Normally all this would have been great news for domestic manufacturers, which rely on energy- intensive aluminum and steel inputs.

Yet despite the low cost of domestic natural gas, US primary production of aluminum has fallen by more than half since 2015, and today China accounts for more than half of the global primary aluminum output, almost a fivefold increase from about 11 percent in 2000. In Europe, where climate policies have pushed up energy costs, natural gas and electricity prices are roughly double those in the United States. And while the European Union’s steel output has fallen 23 percent since 2007, China has increased its steel production by an amount greater than the combined total output of the European Union and the United States. True, the 25 percent tariff the United States has threatened to impose on imported steel would have a big impact on China. But it will be even more destructive for the European
Union than the aluminum tariff because it will pit the United States against its European allies, making it harder for Brussels to pressure Beijing to reduce its production.

Until recently, the European Union and the United States had a shared interest in tackling carbon emissions and the overproduction problem of China. But now the issue is US tariffs, not Chinese overproduction and clean energy transformation. Still, America’s newfound energy leadership could effectively counter the “petro-muscle” flexing by the Organization of the Petroleum Exporting Countries in the developing countries of Asia.

However, if the White House insists on starting a full-blown trade war, it will make American manufacturers less energy efficient and competitive, pushing them to the margins of the international climate and trading systems. In such a case, the world will look to China to lead the fight against climate change by reducing emissions and building low-carbon economies.

The United States should therefore realize that a full-blown trade war and a no-deal at the Katowice climate conference will hurt every country, but the worst hit would be the United States. Let us hope Washington reconsiders it  decision to withdraw from the Paris Agreement following Katowice and returns to the right path of fighting climate change.

Venkatachalam Anbumozhi is senior energy economist at the Economic Research Institute for Asean and East Asia in Jakarta.

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