Navigating Clean Energy Industries and Rivalry in Decarbonisation

Clean energy industries – from mining to advanced manufacturing – are complex, involving thousands of specialist components and niche minerals produced by different sectors around the globe. China is the dominant actor in many of these sectors.

How to ensure the security of production networks while simultaneously decarbonising rapidly and affordably, promoting innovation and maximising local economic benefits, is being debated in Western capitals and many other countries around the world. Now independent of the EU, the UK must find its own way to balance these competing priorities and has some freedom to chart a course that aligns with or diverges from those of its neighbours.

To put together an effective policy programme, a strong understanding of the nature of global clean energy industries is necessary. This includes improved data on the role of different countries and regions in global production networks, an assessment of where growth is most likely in future, and an analysis of how this industrial geography intersects with security and political considerations.

This paper contributes to building this understanding by constructing a set of indices using 2022 UN Commodity Trade Statistics Database (Comtrade) data for a basket of products in clean energy and related industries. The indices provide quantitative evidence about the diversity of these industries outside China, as well as once again evidencing the extent to which China has become critical to supply security.

The indices show that high-income countries are important and already host production capacity in many areas. However, they also show that at various points in the production process, growth in capacity is most likely outside high-income countries. The indices also show that, aside from China, no single country or region is strong across the supply chain.

The indices therefore suggest that onshoring, ‘near-shoring’ or ‘friend-shoring’ could play a role in improving resilience, but that they can only be part of the solution. Such approaches potentially place obstacles in the way of investment in, and integration with, parts of the world with the most growth potential.

This negative potential is already evident in the ripple effect of industrial strategies enacted in the US, the EU and China. Restrictions on US subsidies to countries that are not free-trade agreement partners, or where minerals pass through China, have had immediate political and economic repercussions in countries such as Japan, South Korea and even Canada.

Tariffs and other protectionist measures designed to onshore industry risk stifling markets that are still emerging and may ultimately hamper investment in domestic industries because of the impact on demand, without putting a substantial dent in China’s market share.

Where efforts to diversify are driving those to increase investment in global production networks, producer countries and manufacturers have in some cases benefited from competing interest to drive inward investment. Chile and Vietnam have both had some success with this strategy.

In other cases, pressure from the US to reject or reduce China’s investment in clean energy industries has created tension between security relationships with the US and economic relationships with China. The rise of national security screening of investments has also placed limits on China’s investment in some countries.

Balancing the UK’s competing economic, security and geopolitical concerns in this environment requires careful management of relations with the three major industrial centres – the US, the EU and China – at the same time as identifying ‘win–win’ relationships with other countries. Policies need to provide both adequate incentives for investment in domestic industries and access for UK investors to fast-growing global markets.

The UK should avoid relying on onshoring and friend-shoring as central elements of supply security and aim to forge a role for UK companies in the global industry, while emphasising the importance of relatively open commodity and capital markets, fair competition and diversification. Stimulating demand for clean energy technologies in the UK and elsewhere remains central to diversification by increasing sales volumes and putting upwards pressure on prices, thereby encouraging investment in more marginal producers. This may be supported by regulations supporting diversification but may be hampered should protectionist policies be relied on too heavily.