De-risking and decarbonising: a green tech partnership to reduce reliance on China

Greater alignment of the major economic powers is needed around a collective effort to improve security of supply for decarbonisation goods.

Publishing date: 26 October 2023
Authors: Alicia García-Herrero Heather Grabbe Axel Källenius

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Executive summary

Trade in renewable energy goods is a global public good; all countries gain when others cut emissions, and all suffer from climate change if decarbonisation is delayed. Yet this trade depends on China, which controls most of the world’s production of solar panels and electric vehicle batteries, and some of the global trade in wind turbines. These supply chains are vulnerable to disruption, natural disasters and weaponisation by China, which has already exercised its dominant position in some critical raw materials to put pressure on other countries.

Part of the European Union and United States response to reduce reliance on China is reshoring production, but this is economically inefficient given their limited access to critical raw materials and high production costs. Moreover, Chinese firms are far ahead of the rest of the world in green tech manufacturing and innovation, and in extraction and processing.

To reduce reliance on China, incentive-aligned governments and businesses should form a green tech partnership. This would produce green tech with the aim of decarbonising faster, while ensuring greater diversification of resources and improving security of supply. Each partnership economy would use its comparative advantage within a new green-tech supply chain. The aim is to supplement, not substitute, the Chinese supply chain, since both will be needed to meet rising global demand for green tech, including in China.

Although such international coordination is difficult, the partnership would offers benefits to many different countries. Emerging economies that are rich in critical raw materials and/or have moderate wages would gain economic development opportunities. The US and the EU should share technology and provide financing, as they will gain from reduced dependence on China and from sourcing than is still cheaper than reshoring. China would have more room to use its clean tech to meet its own decarbonisation targets.

The partnership could be organised through a combination of trade and investment agreements, together with tech transfer and financial agreements, under some form of inter-governmental oversight. The dependence of all countries on China for green tech is so great that non-market incentives might also be needed, such as subsidies or, preferably, a system of carbon pricing within the partnership.

About the authors

Alicia García-Herrero

Alicia García Herrero is a Senior fellow at Bruegel.

She is the Chief Economist for Asia Pacific at French investment bank Natixis, based in Hong Kong and is an independent Board Member of AGEAS insurance group. Alicia also serves as a non-resident Senior fellow at the East Asian Institute (EAI) of the National University Singapore (NUS). Alicia is also Adjunct Professor at the Hong Kong University of Science and Technology (HKUST). Finally, Alicia is a Member of the Council of the Focused Ultrasound Foundation (FUF), a Member of the Board of the Center for Asia-Pacific Resilience and Innovation (CAPRI), a member of the Council of Advisors on Economic Affairs to the Spanish Government, a member of the Advisory Board of the Berlin-based Mercator Institute for China Studies (MERICS) and an advisor to the Hong Kong Monetary Authority’s research arm (HKIMR).

In previous years, Alicia held the following positions: Chief Economist for Emerging Markets at Banco Bilbao Vizcaya Argentaria (BBVA), Member of the Asian Research Program at the Bank of International Settlements (BIS), Head of the International Economy Division of the Bank of Spain, Member of the Counsel to the Executive Board of the European Central Bank, Head of Emerging Economies at the Research Department at Banco Santander, and Economist at the International Monetary Fund. As regards her academic career, Alicia has served as visiting Professor at John Hopkins University (SAIS program), China Europe International Business School (CEIBS) and Carlos III University.

Alicia holds a PhD in Economics from George Washington University and has published extensively in refereed journals and books (see her publications in ResearchGate, Google Scholar, SSRN or REPEC). Alicia is very active in international media (such as BBC, Bloomberg, CNBC and CNN) as well as social media (LinkedIn and Twitter). As a recognition of her thought leadership, Alicia was included in the TOP Voices in Economy and Finance by LinkedIn in 2017 and #6 Top Social Media leader by Refinitiv in 2020.
Heather Grabbe

Heather Grabbe is a senior fellow at Bruegel, as well as visiting professor at University College London and KU Leuven. The focus of her research is the political economy of the European Green Deal and how the climate transition will change the EU’s international relationships and external policies.

She is a political scientist who has served as director of the Open Society European Policy Institute in Brussels, and earlier as deputy director of the Centre for European Reform in London. She conducted academic research at the European University Institute, Chatham House, Oxford and Birmingham universities, as well as teaching at the London School of Economics. From 2004 to 2009 Heather was senior advisor to then European Commissioner Olli Rehn, responsible in his Cabinet for policy on the Balkans and Turkey. She has written extensively on the political economy of EU enlargement, the EU’s external and neighbourhood policies, and the evolution of new policy agendas in climate, digital and the rule of law. Her columns appear in the Financial Times, Politico and other quality media.

Heather earned her PhD at Birmingham University, and her first degree in politics, philosophy and economics at Oxford University, where she also had a post-doctoral fellowship. She is fluent in English, French and Italian, with working level German.
Axel Källenius

Axel completed a research internship at Bruegel in the summer of 2023. He worked on the China Horizons project. He is pursuing a Bachelor’s degree in Economics & Mathematics at Yale University, with a particular focus on macroeconomics.

At Yale, he runs an EU policy incubator for fellow students with the aim of fostering discussion about the EU and its transatlantic partnership. His interests lie in the normative extension of European economic and regulatory policy and how economic research can inform European political development.

Axel is a native Swedish speaker, fluent in English, and has intermediate knowledge of French.