No, China Will Not Outsmart America’s Energy Renaissance

Imagine a centrally planned economy out-thinking and out-performing a consumer-driven, free-market one.

That is the prognostication, even hope, of Amy Myers Jaffe, director of the program on Energy and Climate Change at the Council on Foreign Relations, as stated in the current edition of Foreign Affairs (“Green Giant: Renewable Energy and Chinese Power”) and in the Houston Chronicle (“Will Clean Energy Push China Past the U.S”).

Jaffe posits an energy future where America’s “short term win” with fossil fuels gives way to China’s win as “the renewable energy and electric vehicle superpower of a future energy world.” She cites that country’s massive subsidization of currently noneconomic energies, such as $47 billion for solar panels, as well as its expenditures of money on batteries, electric vehicles, and other “low carbon” or “clean” energy technologies.

China’s big bets, Jaffe believes, will not only radically shift its domestic usage. The world’s largest country will also promote clean energy “to challenge the U.S.’s leading role in many regional alliances and trading relationships as well as to fashion an international order more to its interests.”

“At some point down the road, [China’s interest] will not be defending coal use,” she continues. “It will be to sell its clean energy technologies free of tariffs (and possibly aided by subsidies) while European, Chinese and other nation’s fees on carbon emissions hamper U.S. oil and gas exports. It could also make Chinese, rather than U.S., standards for green finance, energy product labeling and advanced vehicles the global standard.”

Jaffe’s is an Orwellian energy future, in which governments, not consumers, direct energy markets via manufacturing subsidies and edicts, repriced energy, and international trade restrictions. Ad hoc global government via edicts from 195 sovereign nations replace the free market’s neutrality.

The Failure of Central Planning

The most obvious question for this view is: Why should a centrally planned economy define the future of any good or service rather than the private property, consumer-driven, taxpayer-neutral free market? Why, in the name of economic freedom and prosperity?

Socialism versus capitalism—that debate was won intellectually by F. A. Hayek and the “Austrian” school of economics, as explained by Daniel Yergin and Joseph Stanislaw in The Commanding Heights: The Battle between Government and the Marketplace that is Remaking the Modern World (1998).

In a famous New Yorker piece back in 1989, socialist Robert Heilbroner announced as much. “Less than seventy-five years after it officially began, the contest between capitalism and socialism is over: capitalism has won,” he wrote in “The Triumph of Capitalism.”

The poverty of central planning starts with the knowledge problem and ends with public-choice issues of politics polluting the “ideal” plan. Thus, Jaffe not only has to prove a market failure from decentralized decision-making but also address the probability of government failure in any solution to the alleged problem. With China energy policy, she has done neither.

Social Justice Issues

Jaffe’s imagined (really postmodernist) energy future brings moral issues to the fore.

China’s central-energy planning is a massive wealth transfer from Chinese taxpayers and workers to government-favored industries and a political elite. Such crony socialism should be challenged by the Left on social justice grounds.

Ted Nordhaus of the Breakthrough Institute made this case for scaling back the government-driven climate-change/energy crusade in the same issue of Foreign Affairs where Jaffe’s article appears. “We need to stop trying to balance the increasingly parsimonious carbon emissions budgets [of international climate agreements] on the backs of the global poor.”

Nordhaus concluded:

There is no moral justification for denying those populations the benefits of fossil-fuel-driven development. Lower-emissions levels associated with curtailed development will not provide any meaningful amelioration of climate extremes for many decades to come, whereas the benefits that come with development will make those populations substantially more resilient to climate extremes right now.

More expensive energy, whatever its justification, is a regressive tax on the poor, whether Chinese or American. Higher electricity rates from (intermittent) wind and on-grid solar capacity may not adversely impact the wealthy (they may well reap crony profits from political energy), but price inflation is certainly a burden for the middle class and those below.

Coal Country

China is coal country. In 2016, according to the US Energy Information Administration’s (EIA) International Energy Outlook, coal’s share of electricity generation in China was 70.4 percent, compared to wind at 3.4 percent and solar at 1.1 percent. Most recently (per Reuters): “China’s coal consumption last year picked up for the first time since 2013, the National Bureau of Statistics said on Wednesday, despite Beijing’s push to promote less-polluting energy sources.”

China is in the middle of a coal-plant building boom, which may increase national capacity by as much as one-fifth in the next five years. China is also building foreign coal plants via the state-owned Power Construction Corporation of China, as well as financing dozens more coal projects.

A key aspect of China’s new Clean Heating Plan was a coal-to-coal switch, with pollution-controlled coal replacing uncontrolled coal capacity.

“To many people’s surprise,” explained Xizhou Zhou of Cambridge Energy Research Associates (CERA), “the most important source identified in the new plan was ‘clean coal burning’.” He continued: “This meant large, centralized coal facilities equipped with state-of-the-art pollution controls. The vast majority of China’s coal-fired electric power plants fall into that category today.”

Even mothballed coal plants are being given new life, which reconfirms China as coal country—and the wisdom of the U.S. pullout from the Paris climate agreement.

Conclusion

“Many forces are driving the shift from state control to market consensus,” Yergin and Stanislaw wrote in the final paragraph of The Commanding Heights. “Yet fundamentally it rests upon a recasting of beliefs and ideas—away from the traditional faith in the state and toward greater credibility for the market.”

Unfortunately, too many intellectual elitists believe that government can define and direct energy policy in place of self-interested, energy-reliant consumers—1.4 billion in China, 300 million in the U.S., and billions elsewhere.

China should recast its energy policy for its citizens, and the U.S. should reject central planning schemes at home and abroad. Electric vehicles, wind turbines, and (on-grid) solar panels are the energy past, not the energy future—as determined by what Yergin and Stanislaw refer to as “market consensus.”

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