Categories
China Climate

Climate Trade Wars: China’s WTO Dispute with the E.U.’s Carbon Border Tax

Background

In July 2021, the European Union proposed to implement a Carbon Border Adjustment Mechanism (CBAM), otherwise known as a carbon border tax. The goal of the CBAM is to increase the cost of importing six categories of carbon-intensive goods from foreign nations: steel, iron, cement, aluminum, fertilizers, and electricity generation. This policy was introduced as part of the E.U.’s legislative mandate to reduce 55% of its emissions by 2030 and reach carbon neutrality by 2050[1].

After the announcement, several countries complained that the measure created discriminatory barriers for World Trade Organization (WTO) members to access the E.U. market. The nation most affected is China – the E.U.’s biggest trading partner, and the world’s largest exporter[2].  

When questioned about the CBAM proposal, Liu Youbin, a spokesman for the Chinese Ministry of Ecology and Environment, said that it was “essentially a unilateral measure to extend the climate change issue to the trade sector. It violates WTO principles … and will seriously undermine mutual trust in the global community and the prospects for economic growth.”[3]

If the CBAM enters into force on January 1st, 2023, as is currently proposed[4], China could choose to retaliate by imposing their own tariffs against European goods and sue the E.U. through the WTO’s Dispute Settlement Body to acquire legal relief from complying.

China’s Own WTO Compliance and its Legal Case Against CBAM

Despite valid concerns about the CBAM, China does not have much credibility to levy accusations of unilaterally flouting international trade law. Since joining the WTO in 2001, China’s compliance has been popularly described as “mixed” or “complex.”[5]

Though they have liberalized the economy in some areas, there remain a range of issues where China has not met its commitments, including industrial subsidization, intellectual property protection, forced joint ventures and technology transfer, and market access to the services industries[6]. Between 2009 and 2015, China-related complaints accounted for 90% of the cases brought to the WTO by the U.S., E.U. and Japan[7].

There are three issues where China could allege the CBAM violates the WTO[8], but its own practices also run afoul of those same trade principles.

First is Article I’s most-favored-nation treatment rule, which requires that any advantage granted to an imported product from one WTO member must be granted to all other members.

China could argue that the E.U. is discriminating against them by selectively choosing an arbitrary set of products it must buy emission certificates for based on how dirty its manufacturing process is compared to other countries.

At the same time, China has spent decades selectively treating intellectual property (IP) owned or developed by other WTO members in a different way from IP developed in China. The result is coerced joint ventures with Chinese firms which result in involuntary IP transfer and a siphoning of technology and trade secrets from other countries[9]. A 2019 report found that one in five North American companies had their IP stolen from China just that year[10].

Second is Article II’s tariff schedule which lays out the maximum level of tariffs that a country can apply against another country’s exports.

If the cost of the CBAM emission certificates exceeds the ceiling on customs duties that the E.U. agreed to, also known as the bound rate, then China could argue this would be a violation of Article II. While the final certificate costs have not yet been finalized, it’s likely that the price will rise over time to meet the E.U.’s ambitious emission targets.

However, Chinese tariffs on U.S. imports today already exceed the bound rate on more than 128 products, breaching its obligations under Article II[11]. Moreover, China’s expansive use of subsidies effectively undermines its tariff reduction commitments by offsetting the cost of domestic production.

Last is Article III’s national treatment rule which requires that imported products not be given less favorable treatment than domestic products.

Today, almost 43% of the E.U.’s emission certificates are given for free to the manufacturing, power, and airline industries[12] – sectors which are harder to abate, but whose free allocations are expected to decline and be phased out. European industries are lobbying hard to keep their free allocations, but if they are not phased out before the CBAM goes into effect then China can argue its products are at a competitive disadvantage by paying a carbon price that the E.U.’s manufacturers aren’t paying.

Again, China provides massive subsidies to its domestic industries including semiconductors, solar panels, steel, aluminum, glass, and auto parts. That also provide an unfair advantage to its domestic products. For example, 95% of Chinese technology firms received R&D subsidies in 2015 accounting for almost a quarter of their total R&D investment[13]. Since joining the WTO, subsidies have financed nearly 20% of China’s manufacturing capacity every year[14].

CBAM and China’s Approach to International Law

The contradictions between China’s potential legal case against the CBAM with its own trade practices fits into its larger approach towards international law: a set of norms and practices to be obeyed when practicable and overlooked when they cannot[15]. By accusing the E.U. of doing that which it is also guilty of, China would continue a trajectory of acting as a “selective revisionist” in the international system looking to promote its own economic interests through exceptions and special conditions[16].

If the CBAM is taken to court, the E.U. could seek justification under Article XX’s general exceptions, arguing that the CBAM is “necessary to protect human, animal or plant life or health,” by tackling climate change[17]. But even if the WTO rules in favor of the E.U., China has a long history of either failing to adhere to decisions or creatively interpreting them in way that thwarts thwart the purpose of the ruling itself[18].

In the context of CBAM, this could look like Chinese manufacturers obfuscating or falsifying the total extent of carbon emissions for their products, as has been done before[19], and artificially buying a lower number of emission certificates.  These actions would further reinforce the tension between China’s desire to promote its own interests and its desire to be seen as a responsible member of the multilateral order.

Conclusion

The E.U.’s CBAM would be the first carbon border tax implemented at an international level, but it has already set off discussions in Germany, Japan, the U.S. and Canada about implementing similar policies. In response, it looks likely that China will contest CBAM policies as unilateral actions that violate international trade law, if nothing to buy time as they hopefully push Chinese firms to quickly decarbonize their manufacturing processes.

While China could make a number of valid legal arguments against the CBAM, it will be throwing stones from a glass house. Given China’s complex track record of compliance with past WTO rulings and conditions for entry, many of the complaints China could allege would apply to several of its own trade practices.  

Contradictions notwithstanding, the WTO represents the only arena of international relations where China has agreed to resolve foreign conflicts through an international court[20]. Thus, how the China-E.U. CBAM dispute gets settled will have significant ramifications on the ambition of future carbon reduction policies and the cooperation of the world’s largest trader and carbon emitter to support these efforts.


[1] Council of the European Union, “Council agrees on the Carbon Border Adjustment Mechanism (CBAM)”, March 15th, 2022, https://www.consilium.europa.eu/en/press/press-releases/2022/03/15/carbon-border-adjustment-mechanism-cbam-council-agrees-its-negotiating-mandate/ .

[2] Eurostat, “China-EU – international trade in goods statistics,” February 2022, https://ec.europa.eu/eurostat/statistics-explained/index.php?title=China-EU_-_international_trade_in_goods_statistics.

[3] Muyu Xu and David Stanway, “China says EU’s planned carbon border tax violates trade principles,” Reuters, July 26th, 2021, https://www.reuters.com/business/sustainable-business/china-says-ecs-carbon-border-tax-is-expanding-climate-issues-trade-2021-07-26/.

[4] Ibid. 1.   

[5] Timothy Webster, “Paper Compliance: How China Implements WTO Decisions,” Michigan Journal of International Law, Volume 35, Issue 3, 2014, https://repository.law.umich.edu/cgi/viewcontent.cgi?article=1064&context=mjil.

[6] Stephen Ezell, “False Promises II: The Continuing Gap Between China’s WTO Commitments and Its Practices,” Information Technology & Innovation Foundation (ITIF), July 26th, 2021, https://itif.org/publications/2021/07/26/false-promises-ii-continuing-gap-between-chinas-wto-commitments-and-its.

[7] Mark Wu, “The ‘China, Inc.’ Challenge to Global Trade Governance,” Harvard International Law Journal, vol. 57, no. 2, Spring 2016, https://harvardilj.org/wp-content/uploads/sites/15/HLI210_crop.pdf.

[8] James Bacchus, “Legal Issues with the European Carbon Border Adjustment Mechanism,” CATO Institute, August 2021, https://www.cato.org/briefing-paper/legal-issues-european-carbon-border-adjustment-mechanism.

[9] Ibid. 6.   

[10] Eric Rosenbaum, “1 in 5 corporations say China has stolen their IP within the last year: CNBC CFO survey,” CNBC, March 19th, 2019, https://www.cnbc.com/2019/02/28/1-in-5-companies-say-china-stole-their-ip-within-the-last-year-cnbc.html.

[11] United States Trade Representative (USTR), “CHINA – ADDITIONAL DUTIES ON CERTAIN PRODUCTS

FROM THE UNITED STATES,” May 2nd, 2019, https://ustr.gov/sites/default/files/enforcement/DS/US.Sub1.(DS558).(public).pdf.  

[12] European Commission, “Free Allocation,” https://ec.europa.eu/clima/eu-action/eu-emissions-trading-system-eu-ets/free-allocation_en.  

[13] Ibid. 6.  

[14] Ibid. 6.  

[15] Michael J. Mazarr, Timothy R. Heath, Astrid Stuth Cevallos, “China and the International Order,” RAND Corporation, 2018, https://www.rand.org/content/dam/rand/pubs/research_reports/RR2400/RR2423/RAND_RR2423.pdf.

[16] Ibid. 16.

[17] Gary Clyde Hufbauer, Jisun Kim, Jeffrey J. Schott, “Can EU Carbon Border Adjustment Measures Propel WTO Climate Talks?” Peterson Institute for International Economics, November 2021, https://www.piie.com/publications/policy-briefs/can-eu-carbon-border-adjustment-measures-propel-wto-climate-talks.

[18] Ibid. 5.  

[19] Muyu Xu and David Stanway, “China slams firms for falsifying carbon data,” March 15th, 2022, Reuters, https://www.reuters.com/world/china/china-slams-firms-falsifying-carbon-data-2022-03-14/.

[20]Gregory Shaffer and Henry S. Gao, “China’s Rise: How It Took on the U.S. at the WTO,” Singapore Management University School of Law Research Paper No. 14/2017, March 20th, 2017, https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2937965.

Categories
China Climate

The Geopolitics of China’s Energy Future

Abstract

China is the world’s largest consumer of energy and emitter of CO2 emissions – nearly double that of the United States[i],[ii]. Amidst global pressure to decarbonize its economy, China is concurrently ascending as the world’s pre-eminent industrial superpower. The Chinese Communist Party’s (CCP) 14th Five Year Plan (2021-2025) makes binding directives to shrink carbon emissions while also forecasting new energy requirements for “high-quality” development and economic growth[iii]. China made a monumental 2060 net-zero pledge that stands as an ideal vision rather than a detailed roadmap, with specifics that will take years to formalize, much less implement[iv]. Along the way, China will have to reconcile its pledge with being the world’s largest consumer of coal and second-biggest consumer of oil and gas.

These contradictions in China’s energy strategy are explained by the imperative for China to maintain economic growth in order to sustain the CCP’s legitimacy. The Party set a very optimistic GDP growth target of around 5.5% this year which they seem unlikely to meet[v]. This will continue a trend of year-on-year growth slowing. If China wants to be the world’s dominant power, it needs to continue to grow. And a growing economy, one on pace to become the largest in the world by the next decade[vi], will require much more energy. Indeed, China’s GDP growth remains tightly coupled with its energy consumption which puts pressure on the CCP to acquire as many sources of energy as it can.

Source: Michael Meiden, “Unpacking China’s 2060 Carbon Neutrality Pledge,” The Oxford Institute for Energy Studies, December 2020.

The fundamental constraint for the Chinese today is that they are energy insecure. A near term forecast as indicated by Figure 1 sees the CCP continuing to get these sources from coal, oil and natural gas. China’s energy portfolio today is highly dependent on both high polluting and imported energy sources – a vulnerability that has been well acknowledged by Chinese policymakers for years. This has driven many of China’s flagship geostrategic projects including the Belt and Road Initiative (BRI) which aim to secure maritime trade routes and transportation infrastructure across Africa, Asia, and Europe to guarantee energy access[vii]. However, a green transformation is in the cards over the next 40 years. China’s overall economic diplomacy and foreign policy will increasingly include discussions of energy and can help relieve some of their constraints for relying on fossil fuels.  The government has a familiar playbook of interventions that is used to shore up its actual growth metrics and perceptions of its strengths, using its economic heft for both business leverage and geopolitical gain. 

Thus, this paper sets out to answer the question: how can China’s energy policy help them meet their growth aspirations and achieve energy security while working towards their emission reduction targets? There are four dimensions of China’s current plans for their energy mix that will be analyzed to answer this question along with their geopolitical implications: clean energy, critical minerals, oil and gas, and coal. These represent the principal levers through which China will control their energy future. After framing the current state of these energy sectors, policy recommendations are provided on how best they can leverage the clean energy, critical minerals, and fossil fuel portfolios to achieve their triple aim of energy security, economic growth, and emission reduction.

Presentation


[i] Center for Strategic and International Studies, “How Is China’s Energy Footprint Changing?”, March 17th, 2022, https://chinapower.csis.org/energy-footprint/.  

[ii] Ritchie, Hannah, Roser, Max “CO2 Emissions”, Our World in Data, 2020 https://ourworldindata.org/co2-emissions/.  

[iii] Murphy, Ben “Outline of the People’s Republic of China 14th Five-Year Plan for National Economic and Social Development and Long-Range Objectives for 2035”, Georgetown Center for Security and Emerging Technology (CSET), May 12th, 2021, https://cset.georgetown.edu/wp-content/uploads/t0284_14th_Five_Year_Plan_EN.pdf

[iv] Meidan, Michal “Unpacking China’s 2060 carbon neutrality pledge,” The Oxford Institute for Energy Studies, December 2020, https://www.oxfordenergy.org/publications/unpacking-chinas-2060-carbon-neutrality-pledge

[v] Yao, Kevin and Woo, Ryan “China targets slower economic growth as headwinds gather,” Reuters, March 5, 2022: https://www.reuters.com/markets/asia/china-cuts-2022-gdp-growth-target-around-55-2022-03-05/

[vi] Rapp, Nicolas and O’Keefe, Brian, “This chart shows how China will soar past the U.S. to become the world’s largest economy by 2030,” January 30th, 2022, https://fortune.com/longform/global-gdp-growth-100-trillion-2022-inflation-china-worlds-largest-economy-2030/

[vii] Bassler, Christopher and Noon, Ben, “Mind the Power Gap: The American Energy Arsenal and Chinese Insecurity”, Center for Strategic and Budgetary Assessments (CBSA) , August 25th, 2021, https://csbaonline.org/uploads/documents/CSBA8274_(Mind_the_Power_Gap)_FINAL_web.pdf

Categories
Climate

Managed Retreat from Climate Change

Abstract

Within the next 30 years, the United States can expect to see a one-foot rise in sea levels even if CO2 emissions went to zero overnight[i]. This is because more than 93% of the heat humans have already generated is trapped in the oceans where it will linger for centuries[ii]. Over the next seventy to eighty years, sea levels may go up by 7 feet based on how quickly the warming waters melt the Arctic ice sheets, rates of land loss, and ocean circulation changes[iii].

For every foot of rise, roughly 100 feet of shoreline will be flooded[iv]. The consequences could be catastrophic for many of the 130 million people who live in a coastline community – more than 40% of the U.S. population[v].  They should expect more than ten disruptive flooding events per year by 2050[vi].

A similar fate is in store for communities living in the American West. Almost 60 million homes are within less than a mile of a wildfire-prone area[vii]. Those numbers will continue to grow as the increased intensity and duration of heatwaves and drought conditions create a risk of bigger, more frequent blazes.

These communities can respond in one of three ways: they can resist, accommodate, or retreat. Resist options include hard infrastructure like seawalls, levees, and dikes. Accommodate options include elevating homes, building reinforcements, or early warning systems. Retreat entails physically moving people away from the source of risk, like moving out of forested areas or away from coastlines and further inland to a more elevated surface. While the three options can be complementary, there is little time to act and limited resources.

This paper looks more deeply at the option to retreat. A burgeoning area in emergency response and disaster relief planning is the concept of “managed retreat” or “managed relocation” – the purposeful and coordinated movement of people and assets out of harm’s way.

This concept has been applied in environmental relocations that have occurred throughout American history, including in response to Californian acid spills and flood damage across the Gulf Coast in Florida, Louisiana, and Texas.

I set out to answer the question: what are the most efficient and cost-effective methods to encourage state and local governments as well as at-risk households to proactively retreat?

I begin by characterizing the most common environmental threats posed by climate change that communities will be retreating from and what the barriers are to successful managed retreat. Then I will conduct four case studies of cities or counties implementing managed retreat programs against sea-level rise, coastal erosion, and flooding: (1) King County, Washington, (2) Charlotte-Mecklenburg County, North Carolina, (3) Austin, Texas, and (4) Queens, New York.

A comparative analysis will be done on these case studies to assess their outcomes, cost-effectiveness, and policy tradeoffs. Finally, I conclude with recommendations and next steps for policymakers who are looking at implementing managed retreat policies.

Ultimately, certain areas will be under water or smoldering in ashes no matter what we do. People in those areas are already, and will inevitably, retreat. Whether or not it is done in a managed and coordinated way is a different question. Despite the name, “managed retreat” should not be thought of as accepting defeat. Rather it is a chance to live to fight another day. In the words of Marine Corp General Oliver Smith, “Retreat, hell! We’re not retreating, we’re just advancing in a different direction.”[viii]

Presentation


[i] National Oceanic and Atmospheric Organization (NOAA), “U.S. coastline to see up to a foot of sea level rise by 2050”, February 15th, 2022, https://www.noaa.gov/news-release/us-coastline-to-see-up-to-foot-of-sea-level-rise-by-2050

[ii] Patterson, Brittany. “How Much Heat Does the Ocean Trap? Robots Find Out,” Scientific American, October 18th, 2016, https://www.scientificamerican.com/article/how-much-heat-does-the-ocean-trap-robots-find-out//

[iii] Ibid. 1.

[iv] Albert, Mark. “Why a 1-foot rise in sea level has a bigger impact than you think,” WCVB Boston, February 25th, 2022, https://www.wcvb.com/article/sea-level-rise-forecasting-our-future/39135613#.

[v] National Oceanic and Atmospheric Organization (NOAA), “U.S. coastline to see up to a foot of sea level rise by 2050”, https://oceanservice.noaa.gov/facts/population.html.

[vi] National Oceanic and Atmospheric Organization (NOAA), “Global and Regional Sea Level Rise

Scenarios for the United States”, February 2022, https://aambpublicoceanservice.blob.core.windows.net/oceanserviceprod/hazards/sealevelrise/noaa-nos-techrpt01-global-regional-SLR-scenarios-US.pdf.  

[vii] Sommer, Lauren, “Millions Of Homes Are At Risk Of Wildfires, But It’s Rarely Disclosed,” NPR, October 21st, 2020, https://www.npr.org/2020/10/21/924507691/millions-of-homes-are-at-risk-of-wildfires-but-its-rarely-disclosed#:~:text=Almost%2060%20million%20homes%20were,blazes%20in%20the%20American%20West.

[viii] HistoryNet, “‘KEEP PUNCHING’: SIX MILITARY QUOTES TO GET YOU THROUGH THE WEEK,” March 27th, 2020, https://www.historynet.com/keep-punching-six-military-quotes-to-get-you-through-the-week/#:~:text=%E2%80%9CRetreat%2C%20Hell!,the%20Battle%20of%20Chosin%20Reservoir.

Categories
Climate Essay Review

Can Integrated Water Resources Management Increase Adaptive Capacity to Climate Change?

Climate change is increasing pressure on water systems because of extreme drought, heat waves, melting glaciers, rising sea levels, and ocean acidification. Integrated Water Resource Management (IWRM) is the dominant policy paradigm for all levels of government to manage their water resources. Is IWRM up to the task of adapting to climate change and the stresses on our shared water resources?

I summarize a paper in the Journal of Water Resource and Protection which overviews the history of water resource management, the global norms of water security, how we define “adaptive capacity”, and identify the ways IWRM can improve the resilience of our water systems.

What’s needed is for climate planners to develop an integrated form of sustainably managing water specifically at the river basin scale with multi-stakeholder participation, equitable access, and demand management through quotas, tradable water rights, and user charges. 

Read More:

Categories
Climate Policy Memo

Geopolitics of Hydrogen: Decarbonization and Disruption

Summary

Hydrogen could be the missing piece to solve the clean transition puzzle[1]. It has the potential to substantially decarbonize transportation as well as hard-to-abate industrial, power, and heating processes. Accordingly, more than 30 countries have developed national hydrogen strategies[2] and agreed at COP26 to accelerate the deployment of green hydrogen[3]. As a result, hydrogen could fulfill a quarter of total energy demand by 2050[4].

This anticipated boom carries significant geopolitical implications. New hydrogen export champions will change the geography of the global energy trade, presenting new trade route vulnerabilities as well as potentially new political alliances. Additionally, a new dimension of global energy competition will unfold over the green hydrogen supply chain where China is already leading. To facilitate the growth of hydrogen in line with net-zero goals, nations will have to protect new trade routes, engage in substantive hydrogen diplomacy, and invest in new capacity for critical technologies like electrolyzers and fuel cells.

Hydrogen’s Role in A Decarbonized Economy

Hydrogen has been used as a staple of the chemical and energy industries for decades. Around 120 million tons are produced annually and used primarily as a feedstock in crude oil refining, synthesizing ammonia for fertilizer, and methanol production which goes into a number of products including plastic[5].

Hydrogen’s decarbonization potential centers around transportation, energy storage, power generation, and heating industrial processes. In fuel cells, hydrogen chemically reacts with oxygen to produce electricity without releasing any greenhouse gases. These fuel cells can be used to power trucks and light-duty cars, like the 2022 Toyota Mirai[6], as well as provide onsite power generation for homes and commercial businesses, like is being done by Adobe, Apple, and Microsoft[7]. For policymakers, hydrogen being storable, dispatchable, and potentially a zero-emission source of energy and heat at any time of the day is especially attractive.

Man in China refills hydrogen fuel cell cars

Even more exciting is hydrogen’s potential to clean up hard-to-abate sectors of the economy. Ammonia synthesized from clean hydrogen, known as e-ammonia, can be used to power shipping vessels, effectively decarbonizing 90% of worldwide trade[8]. Hydrogen can also be burned as a fuel to generate heat at extremely high temperatures (greater than 1,000°C) without emitting CO2[9]. This enables it to decarbonize industrial products like steel and cement which account for 15% of all global emissions[10].

However, hydrogen is an energy carrier not an energy source[11]. The significance of this distinction is that it must be produced from another substance, usually by splitting water molecules or fossil fuels. These extraction methods are color-coded to signify how the hydrogen was produced. 95% of today’s supply is “grey” hydrogen, which is produced from fossil fuels through natural gas steam methane reforming or coal gasification[12]. The two most prominent alternatives are “blue” or “green” hydrogen.

Blue hydrogen is simply grey hydrogen, but the emissions are pumped below ground using carbon capture technology. Green hydrogen is produced with an electrolyzer which splits water into oxygen and hydrogen using electricity generated by renewable energy. This process, known as electrolysis, produces no carbon emissions. Green hydrogen represents only 3% of total hydrogen production[13], but is expected to become the dominant production pathway by 2050 as the cost of solar PV and wind continues to decline[14].

How Green Hydrogen Will Disrupt the Global Energy Map

Today, hydrogen consumption is highly localized – nearly 85% of hydrogen produced is consumed on-site, usually at a refinery[15]. But in the last few years more than 30 countries and regions have released or are preparing national hydrogen strategies which is setting the stage for a boom in the cross-border hydrogen trade. The demand for green hydrogen as an internationally traded commodity will spur new investment flows, trade relations, and interdependence between nations that have not traditionally traded energy.

As a result, the geopolitics of the global energy trade will change in four ways: (1) the introduction of new energy export champions, (2) geographic vulnerabilities along hydrogen trade routes, (3) new alliance configurations and the growth of hydrogen diplomacy, and (4) a technology race to secure the green hydrogen supply chain.

New Energy Export Champions

Unlike oil and gas, green hydrogen can theoretically be produced anywhere, but states will benefit from international trade by acquiring it from countries who have a comparative advantage in the availability of renewable energy, freshwater, and necessary export infrastructure. The countries with the biggest advantage in green hydrogen include some new players in the global energy scene, including:

  • Australia: In 2019, Australia released its national hydrogen strategy positioning itself to become one of the top green hydrogen exporters due to its abundance of renewable resources. It has invested more than $1 billion in its hydrogen industry and forged a series of bilateral export deals with Germany, Japan, and Singapore[16].
  • Chile: In 2020, Chile launched a green hydrogen strategy aiming to produce 25 GW of capacity and become the world’s cheapest source hydrogen by 2030 and a top three global exporter by 2040. It’s estimated that it will sell $30 billion in green hydrogen by the end of the decade, taking advantage of its solar and wind resources[17].  
  • Morocco: In 2021, Morocco released a green hydrogen roadmap and is estimating an export market of 10 terrawatt hours (TWh) by 2030[18] on the back of its strong solar industry[19]. IRENA acknowledged the importance of this market by recently signing a partnership to expand Morocco’s green hydrogen investment[20].  
Chile’s national hydrogen strategy aims to make it the world’s cheapest source of green hydrogen by 2030.

Where will this green hydrogen go? The primary nations who have staked their energy future on hydrogen include:

  • Japan: In 2017, Japan was the first to adopt a national hydrogen strategy declaring that it would become a “hydrogen society”[21] . Since then, the government has started building a massive infrastructure to import and distribute hydrogen, including a $670 million investment in 2020 to build nearly a million fuel cell vehicles and 900 hydrogen fueling stations[22].
  • South Korea: In 2019, South Korea instituted a national hydrogen roadmap pledging to use hydrogen to power 30% of cities and towns by 2040. It already has deployed the most fuel cell vehicles in the world at around 10,000 and aspires to reach 200,000 vehicles by 2025[23].
  • Germany: In 2020, Germany unveiled its own national hydrogen strategy, investing 7 billion euros in hydrogen business and infrastructure and pledging to produce 10 GW of power from hydrogen by 2040[24]

Geographic Vulnerabilities Along Hydrogen Trade Routes

Regional and global hydrogen trade is in its early stages. Figure S.2 provides an overview of the potential trade routes from green hydrogen exporting regions in Latin America, Asia Pacific, and Northern Africa crisscrossing around the world to major importers.

Hydrogen can be transported in two ways, via pipeline or shipping. The overseas hydrogen trade will give rise to new important shipping lanes, which will also present themselves as vulnerable maritime choke points, much like the Strait of Hormuz in the Persian Gulf for oil. One prominent green hydrogen shipping route from Australia to Japan would run through the East China Sea which has been prone to territorial disputes between China and Japan[25].

Similarly, transporting green hydrogen via pipeline from northern Africa into Europe will place transiting countries in vulnerable positions much like Ukraine and other critical transit countries in the natural gas market.

These vulnerabilities will inform strategic planning and defense considerations and ultimately could result in new alliances on a bilateral basis centered around hydrogen access and security.

New Alliances and Growth of Hydrogen Diplomacy

As importer nations look to secure access from emerging export champions, hydrogen diplomacy will become a standard fixture of economic and energy diplomacy. Indeed, the Netherlands was the first to appoint a dedicated “hydrogen envoy” in 2019 as part of efforts to ink deals with Chile, Namibia, Portugal and Uruguay as potential suppliers.

Germany has not only established bilateral hydrogen deals with Australia, Chile, Morocco, Namibia, Tunisia, and Ukraine, but set up dedicated hydrogen diplomacy offices in those countries[26]. Japan is engaged in similar diplomacy to establish hydrogen value chains with Australia, Brunei, Norway, and Saudi Arabia. Chile declared that it would use “green hydrogen diplomacy” to attract foreign investment and unleash its export potential.

Profound geopolitical shifts could occur under these new alliances. For example, Germany’s bilateral hydrogen deals could wean its dependence off Russian natural gas. OPEC might find its influence dimming in Japan, which imports nearly 90% of its oil from the Middle East[27], as it opts to substitute oil for hydrogen fuel cells to power cars and buildings.

Technology Race for the Hydrogen Supply Chain

Underlying these shifts will be an intense competition for the green hydrogen supply chain, especially electrolyzers and fuel cells. Europe is currently the largest manufacturer of electrolyzers, but China is vastly beating them on cost with standard alkaline electrolyzers (the most common type) that are 83% cheaper[28]. Moreso, China dominates the access to, and ability to process, raw materials like nickel and zirconium needed to produce electrolyzers and platinum-group metals for fuel cells[29].

China is the world’s largest producer and consumer of hydrogen (almost entirely grey), leads the world in deploying fuel cell trucks and buses, and has placed hydrogen as one of its six industries of the future. This presents a risk that large parts of the green hydrogen supply chain will ultimately be controlled by China, subjecting it to the political volatility seen in other goods caught in global trade disputes and protectionist actions.

Liquified hydrogen storage tank

Although it may be too late to compete with China on cost, Western nations could innovate by maturing solid oxide and proton exchange membrane technologies which are superior to China’s alkaline electrolyzers in utilizing variable renewable energy resources[30]. The market for hydrogen technologies is still relatively small, with upcoming gigafactories for large-scale production of electrolyzers in Australia, France, India, Italy, Norway, Spain and the United Kingdom holding the possibility to drastically change the current manufacturing landscape[31].

Some estimates indicate that by 2050 there will be a $50-60 billion market for electrolyzers and $21-25 billion for fuel cells[32]. Thus, the hydrogen trade will add another dimension to existing geo-economic rivalries and will become a new battleground between major powers and emerging economies for supply chain security and technological superiority.

Conclusion

Green hydrogen has the potential to be a true game-changer in the fight for net-zero. It can power fuel cell electric vehicles, store renewable energy at utility scale, and be burned as a substitute fuel in carbon intensive industrial processes without releasing CO2. As interest in hydrogen grows, new players, alliances, vulnerabilities, and supply chain competition will arise.

While countries like Japan, South Korea and Germany prepare to become significant importers, countries like Australia, Chile, and Morocco stand to gain geopolitical weight as new export champions. But in order to make this vision real, these countries will depend on critical production and distribution technologies that are controlled by China, for now. Hydrogen diplomacy, technology innovation, and new security alliances will be pivotal to ensure that green hydrogen is able live up to its promise of solving a key part of the clean energy puzzle.

About The Author

Chetan Hebbale is currently a graduate student at the Johns Hopkins School of Advanced International Studies (SAIS) in Washington, D.C. focused on international economics, climate change, and sustainability.

Prior to this, he spent over 4 years at Deloitte Consulting working on technology and strategy projects at the CDC and U.S. Treasury Department.

He is a native of Atlanta, GA and attended the University of Georgia.

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[1] Noé van Hulst, “Hydrogen, the missing link in the energy transition,” International Energy Agency, October 17th, 2018, https://www.iea.org/commentaries/hydrogen-the-missing-link-in-the-energy-transition.

[2] International Renewable Energy Agency (IRENA), “Geopolitics of the Energy Transformation: The Hydrogen Factor”, pg.39, 2022, https://irena.org/-/media/Files/IRENA/Agency/Publication/2022/Jan/IRENA_Geopolitics_Hydrogen_2022.pdf.

[3] Cato Koole and Thomas Koch Blank, “COP26 Made Clear That the World Is Ready for Green Hydrogen,” Rocky Mountain Institute, November 23rd, 2021, https://rmi.org/cop26-made-clear-that-the-world-is-ready-for-green-hydrogen/.

[4] International Renewable Energy Agency (IRENA), “Geopolitics of the Energy Transformation: The Hydrogen Factor”, pg. 24, 2022, https://irena.org/-/media/Files/IRENA/Agency/Publication/2022/Jan/IRENA_Geopolitics_Hydrogen_2022.pdf.

[5] International Renewable Energy Agency (IRENA), “Geopolitics of the Energy Transformation: The Hydrogen Factor”, pg. 24, 2022, https://irena.org/-/media/Files/IRENA/Agency/Publication/2022/Jan/IRENA_Geopolitics_Hydrogen_2022.pdf.

[6] Toyota, “2022 Mirai,” https://www.toyota.com/mirai/.

[7] Fuel Cell & Hydrogen Energy Association, “Stationary Power,” https://www.fchea.org/stationary.

[8] Gabriel Castellanos, Roland Roesch and Aidan Sloan, “A Pathway to Decarbonise the Shipping Sector by 2050,” International Renewable Energy Agency, October 2021, https://www.irena.org/publications/2021/Oct/A-Pathway-to-Decarbonise-the-Shipping-Sector-by-2050

[9] International Renewable Energy Agency (IRENA), “Geopolitics of the Energy Transformation: The Hydrogen Factor”, pg. 24, 2022, https://irena.org/-/media/Files/IRENA/Agency/Publication/2022/Jan/IRENA_Geopolitics_Hydrogen_2022.pdf.

[10] Rebecca Dell, “Making the Concrete and Steel We Need Doesn’t Have to Bake the Planet,” The New York Times, March 4th, 2021, https://www.nytimes.com/2021/03/04/opinion/climate-change-infrastructure.html.

[11] Marc Rosen, “Natural and Additional Energy,” THEORY AND PRACTICES FOR ENERGY EDUCATION, TRAINING, REGULATION AND STANDARDS, 2004, http://www.eolss.net/sample-chapters/c08/E3-03-05-01.pdf.

[12] International Renewable Energy Agency (IRENA), “Geopolitics of the Energy Transformation: The Hydrogen Factor”, 2022, https://irena.org/-/media/Files/IRENA/Agency/Publication/2022/Jan/IRENA_Geopolitics_Hydrogen_2022.pdf.

[13] International Energy Agency, “The Future of Hydrogen,” June 2019, https://iea.blob.core.windows.net/assets/9e3a3493-b9a6-4b7d-b499-7ca48e357561/The_Future_of_Hydrogen.pdf.

[14] International Renewable Energy Agency (IRENA), “Geopolitics of the Energy Transformation: The Hydrogen Factor”, 2022, https://irena.org/-/media/Files/IRENA/Agency/Publication/2022/Jan/IRENA_Geopolitics_Hydrogen_2022.pdf.

[15] International Energy Agency, “The Future of Hydrogen,” June 2019, https://iea.blob.core.windows.net/assets/9e3a3493-b9a6-4b7d-b499-7ca48e357561/The_Future_of_Hydrogen.pdf.

[16] International Renewable Energy Agency (IRENA), “Geopolitics of the Energy Transformation: The Hydrogen Factor”, pg. 52, 2022, https://irena.org/-/media/Files/IRENA/Agency/Publication/2022/Jan/IRENA_Geopolitics_Hydrogen_2022.pdf.

[17] International Renewable Energy Agency (IRENA), “Geopolitics of the Energy Transformation: The Hydrogen Factor”, pg. 48, 2022, https://irena.org/-/media/Files/IRENA/Agency/Publication/2022/Jan/IRENA_Geopolitics_Hydrogen_2022.pdf.

[18] Ibid.

[19] Aida Alami, “How Morocco went big on solar energy,” BBC, November 18th, 2021, https://www.bbc.com/future/article/20211115-how-morocco-led-the-world-on-clean-solar-energy.

[20] IRENA, “Morocco and IRENA Partner to Boost Renewables and Green Hydrogen Development,” June 10th, 2021, https://www.irena.org/newsroom/pressreleases/2021/Jun/Morocco-and-IRENA-Partner-to-Boost-Renewables-and-Green-Hydrogen-Development.

[21] Monica Nagashima, “Japan’s Hydrogen Strategy and Its Economic and Geopolitical Implications,” French Institute of International Relations, October 8th, 2018, https://www.ifri.org/en/publications/etudes-de-lifri/japans-hydrogen-strategy-and-its-economic-and-geopolitical-implications

[22] International Renewable Energy Agency (IRENA), “Geopolitics of the Energy Transformation: The Hydrogen Factor”, pg.41, 2022, https://irena.org/-/media/Files/IRENA/Agency/Publication/2022/Jan/IRENA_Geopolitics_Hydrogen_2022.pdf.

[23] Ibid.

[24] Rossana Scita, Pier Paolo Raimondi and Michel Noussan, “Green Hydrogen: The Holy Grail of Decarbonisation? An Analysis of the Technical and Geopolitical Implications of the Future Hydrogen Economy,” Fondazione Eni Enrico Mattei, October 2020, https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3709789.

[25] Fridolin Pflugmann and Nicola De Blasio, “Geopolitical and Market Implications of Renewable Hydrogen,” Environment and Natural Resources Program – Belfer Center for Science and International Affairs, March 2020, https://www.belfercenter.org/sites/default/files/files/publication/Geopolitical%20and%20Market%20Implications%20of%20Renewable%20Hydrogen.pdf.

[26] International Renewable Energy Agency (IRENA), “Geopolitics of the Energy Transformation: The Hydrogen Factor”, pg. 79, 2022, https://irena.org/-/media/Files/IRENA/Agency/Publication/2022/Jan/IRENA_Geopolitics_Hydrogen_2022.pdf.

[27] U.S. Energy Information Administration, “Country Analysis Executive Summary: Japan,” October 2020, https://www.eia.gov/international/content/analysis/countries_long/Japan/japan.pdf.

[28] Thijs Van de Graaf, Indra Overland, Daniel Scholten, Kirsten Westphal, “The new oil? The geopolitics and international governance of hydrogen,” Energy Research & Social Science, Volume 70, December 2020, https://www.sciencedirect.com/science/article/pii/S2214629620302425?via%3Dihub.

[29] Rajesh Chadha, “Skewed critical minerals global supply chains post COVID-19: Reforms for making India self-reliant,” Brookings India, June 10th, 2020, https://www.brookings.edu/wp-content/uploads/2020/06/Skewed-critical-minerals-global-supply-chains-post-COVID-19.pdf.

[30] International Renewable Energy Agency (IRENA), “Geopolitics of the Energy Transformation: The Hydrogen Factor”, pg. 62, 2022, https://irena.org/-/media/Files/IRENA/Agency/Publication/2022/Jan/IRENA_Geopolitics_Hydrogen_2022.pdf.

[31] International Renewable Energy Agency (IRENA), “Geopolitics of the Energy Transformation: The Hydrogen Factor”, pg. 61, 2022, https://irena.org/-/media/Files/IRENA/Agency/Publication/2022/Jan/IRENA_Geopolitics_Hydrogen_2022.pdf

[32] International Renewable Energy Agency (IRENA), “Geopolitics of the Energy Transformation: The Hydrogen Factor”, pg. 59, 2022, https://irena.org/-/media/Files/IRENA/Agency/Publication/2022/Jan/IRENA_Geopolitics_Hydrogen_2022.pdf.

[33] International Renewable Energy Agency (IRENA), “Geopolitics of the Energy Transformation: The Hydrogen Factor”, pg. 12, 2022, https://irena.org/-/media/Files/IRENA/Agency/Publication/2022/Jan/IRENA_Geopolitics_Hydrogen_2022.pdf.

Categories
Climate Short Form

Is Nuclear Our Only Hope or a Waste of Time?

Side #1: Investing In More Nuclear Is A Waste of Time

Building more nuclear power plants doesn’t make sense: they’re too expensive, take too long to build, and are fundamentally unsafe with the safety risks only increasing as the environment deteriorates.

The Cost and Time To Build Nuclear Plants Is Astronomical

Nuclear energy cannot economically compete with wind and solar. The cost of generating solar power ranges from $36 to $44 per megawatt hour (MWh), while onshore wind power comes in at $29–$56 per MWh. Nuclear energy costs between $112 and $189 – more than three times as much.

The Vogtle nuclear plant in Georgia, only the second reactor built in the US since 1996, is estimated to cost $27 billion and has been under construction for almost 10 years. Once fully built, Vogtle will generate about 2,200 MW of power. In comparison, the fully operational Bhadla Solar Park in India took 4 years to build, generates 2,245 MW of power, and cost $1.3 billion. If you had reinvested the remaining $25 billion set aside for the Vogtle plant into solar you would generate nearly 20 times the power and saved 6+ years.

The Bhadla Solar Park in Rajasthan, India is the world’s largest solar farm cost only $1.3 billion compared to $27 billion for the Vogtle nuclear plant and was built 6 years faster to produce the same amount of energy.

Some may argue that learning by doing with nuclear plants will lead to standardization and cost savings. The evidence for that is limited. In France, the country with the most successful and expansive nuclear program covering 70-80% of the country’s electricity, construction costs have actually risen over time rather than fallen . This is due to rising labor costs, more complex reactors, and new regulations imposed after the Chernobyl and Fukushima accidents.

One study has shown that we can get 90% of the way to zero carbon electricity with no new nuclear by 2035 if we double the amount of wind and solar in this decade and triple it in the next decade. Accomplishing this will require substantial investments in battery storage technology, high-voltage transmission lines, and more efficient production methods. Unfortunately, we’ve invested more government R&D support into nuclear than any other type of renewable. If this changes now we could resolve many of the issues preventing real clean energy from being scaled at the level necessary.

There’s No Solution to the Nuclear’s Safety Problems

Radioactive waste remains active for up to 250,000 years. As of today, there is no permanent solution as to where waste can be stored. Right now nuclear plants are employing a temporary solution to store waste on-site in dry casks. The Nuclear Regulatory Commission has said this method is only safe for 60 years.

A permanent disposal site in Yucca Mountain, Nevada, has been surveyed, studied, and debated since 1987 but continually faces political hurdles and may never become a nuclear storage site (or it does and could become a nuclear volcano).

Nuclear waste dry cask storage containers stored on site at a nuclear plant.

Some argue that the elegant solution to the nuclear waste problem is reprocessing. This is where the fission products and unused uranium in spent fuel can be continually re-used to generate additional nuclear fuel rather than being sealed and discarded.

President Jimmy Carter banned reprocessing in 1977 due to fears of the process creating plutonium, which could be used to make nuclear
weapons. But President Reagan lifted the ban in 1981. The problem is that the cost of reprocessing exceeds using the cost of using new fuel as long as the price of uranium remains low. At current prices of uranium, reprocessing increases the cost of generating electricity making it even less competitive against renewables.

The problem with maintaining and cleaning up nuclear waste is not just that it’s incredibly expensive and poses proliferation risks – it will get more dangerous because of climate change.

Nuclear reactors, like this one in Belgium, will faced increased risks from sea level rise and hurricanes as they are located near bodies of water.

Nuclear has to be close to a body of water or coast because of the need to access large amounts of water to cool the nuclear fuel rods before they overheat. These are the same areas that will experience increasing flooding, hurricanes, and sea level rise as the climate crisis worsens. This will increase the risk of meltdowns and release of nuclear waste – like the release of radioactive waste water into the Pacific Ocean following the meltdown of the Fukushima reactor in Japan.


Side #2: Nuclear Power is Our Only Chance To Get To Net-Zero

While nuclear may be expensive right now with potential environmental vulnerabilities, there is simply no other carbon-free electricity source available today that can meet the size and scale of today’s energy demand and what’s needed in the future.

Nuclear Supports An Equitable Transition, Unlike Renewables

Yes, building new reactors is expensive. But this is mostly just true in the U.S. It’s because there is not enough repetition and standardization to get cost savings. China, Japan, India and South Korea have gotten there. South Korea had an average decline in the costs of nuclear of 2%. Small modular reactors promise to transform the speed and cost of bringing new plants online by taking 1/2 to 1/3 as much time with at least 15-17% cost reduction.

The more important point is to look at comparative costs if we didn’t have nuclear at all. Every year 442 global nuclear reactors reduce 1.2 billion tons of emissions. Just keeping existing plants open would be far less expensive than developing and bringing online new renewable technologies to remove the same amount of emissions.

Lastly, the cost of nuclear has multiple layers. Detractors of nuclear focus on one dimension of cost which is the cost per MWh. But there are significant social costs in cities where coal plants are being shut down and entire communities are losing their livelihoods and identity. Nuclear power provides better economic prospects for job-retraining paying 37% more than wind and solar as well as providing long-term jobs not just temporary jobs to install solar panels or wind turbines (which require very little long term operational support).

Jobs in the nuclear industry pay 37% more than the wind and solar energy with longer-term jobs making them a bigger part of a Just Transition as coal plants are retired around the country affecting local communities and economies .
Wind and Solar Cannot Match the Reliability of Nuclear

Nuclear is largest source of carbon free baseload power. Period. It’s the only energy source that can supply electricity throughout the day and night in a zero carbon way. That alone will make it a necessary part of a net-zero economy.

Right now nuclear comprises of nearly 20% of the U.S. electricity supply – more than 10x the amount currently coming from solar. Because of the vast variability in amount sunshine and strength of wind, renewables suffer from a severe amount of unpredictability when it comes to grid management. As a result, on their own they are incapable of meeting current U.S. energy demand necessitating fossil fuels to fill the gap.

But renewables are not only unreliable from an intermittency standpoint – they’re also very vulnerable from a supply chain standpoint. For example, technologies for battery storage and solar panels carry large mineral and mining costs. Nearly half of the minerals and raw materials used for solar cells come from the Xinjiang region of China where there are allegations of forced labor camps being used for production. By contrast, the United States has an abundant domestic uranium supply estimated to last 100-years.

A Chinese worker in Xinjiang inspects solar panels being developed. The solar panel supply chain is highly dependent on China with accusations of forced labor making access vulnerable to shocks.

Lastly, is is the issue global renewable adoption. Other countries don’t have the option of solar and wind because of geographical constraints in terms of how windy or sunny their countries are. For them, nuclear may be the only way to go carbon free. The U.S. only represents about 11% of all carbon emissions in the world, so for the remaining 89% nuclear may be their only way to substantially decarbonize. 

Nuclear’s Safety Issues Are A Solvable Problem

The safety discussion around nuclear is happening on an uneven playing field. In the real world, the safety of nuclear should not be compared to renewables, but to coal. The reality is that solar and wind cannot replace coal as a continuous source of energy supply. If the 20% of the electricity mix from nuclear goes down, it will at least in part be filled by coal and natural gas.

However, the health effects of coal and natural gas plants have been normalized compared to the fear of radiation exposure. The deaths from air pollution and cancer as a result of sulfur dioxide, arsenic, nitrous oxide, and particulate matter exposure coming from coal plants dwarfs the number of people who have died from nuclear power by orders of magnitude. Suffice it to say, nuclear is not causing 800,000 pre-mature deaths every year like coal. Similarly, fracking for natural gas has known links to asthma symptoms, childhood leukemia, cardiac problems, and birth defects in surrounding communities.

Due to the current mix of energy supply, coal will replace nuclear causing much more detrimental health effects compared to potential nuclear radiation exposures.

Coal also releases more radiation than nuclear waste. Burning coal gasifies its organic materials into fly ash which contain radioactive elements like uranium and thorium. Chinese fly ash on its own has .4 pounds of triuranium octoxide/MT.

In fact, the entire amount of nuclear waste created in the U.S. would fill one football field, 10 yards deep. By comparison, a single coal plant generates as much waste by volume in one hour as all nuclear power plants have in their entire history. If we want to comprehensive get rid of coal, nuclear is our best bet.

Aside from the issue of fossil fuel substitution, nuclear plants do not necessarily need to be subject to climate disasters. Following Fukushima, nuclear engineers have created concrete solutions to avoid rising sea levels and hurricane floods. These include relocating the plants 6 miles inland, building 50-foot tsunami walls, using a lead acid battery backup system, and relocating the diesel generators to a higher site.

Lastly, the obvious answer to the waste problem is reprocessing. Nuclear facilities can and should reprocess nuclear fuel and use it to generate additional fuel. Plutonium can be blended with uranium to create mixed-oxide fuel (MOX) that could burn in ordinary reactors and also render plutonium no longer usable for weapons. UK, France, several other EU countries, and Japan have been using MOX for years.

France’s Orano La Hague reprocessing facility. More than 34,000 metric tons of spent fuel has been treated here since the site’s operation in 1976

Frankly, the threat of nuclear proliferation with nuclear plants has had 70 years of data to be proven true. Since the 1950s, 132 commercial reactors in 35 U.S. states have been licensed for operation. Today, 104 remain in operation at 65 sites in 31 states. Globally, 442 reactors are in operation in 30 countries. Where’s the dirty bomb? It hasn’t happened. Terrorists cannot simply just pick up some uranium and make a bomb. This worst case scenario should not be driving our energy policy when the planet is facing more immediate threats.

Conclusion

While nuclear may seem dangerous and expensive, it does provide a major pathway to large-scale decarbonization. However, given the cost and time needed for new nuclear plants to come online and significantly reduce global emissions, putting that money into wind and solar infrastructure and battery storage would likely achieve the same results faster and without the potential environmental draw backs.

Ultimately, even if we starting build more nuclear reactors now they will take an average of 10 years to build, by which time the green energy transition will have to be mostly complete. There’s no guarantee that new types of reactor designs, like small modular reactors, will be quicker to build or financially competitive and there is no time or money to waste.

Rather than investing any more time or money into building new nuclear plants, the existing ones should be kept online with the remainder of R&D investment going towards new solar and wind.

About The Author

Chetan Hebbale is currently a graduate student at the Johns Hopkins School of Advanced International Studies (SAIS) in Washington, D.C. focused on international economics, climate change, and sustainability.

Prior to this, he spent over 4 years at Deloitte Consulting working on technology and strategy projects at the CDC and U.S. Treasury Department.

He is a native of Atlanta, GA and attended the University of Georgia.

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