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Has the EU Made a Wedding Dress for China Due to the Energy Crisis?

2024-07-15

In recent days, Denmark's lofty carbon neutrality aspirations have hit a snag. Previously, the capital city of Copenhagen had announced a goal to achieve carbon neutrality by 2025. However, this endeavor was thwarted when an environmental company failed to meet the required standards for carbon capture funding. This development not only signifies a setback for Denmark but also raises questions about broader European Union (EU) ambitions.

Adding to the mix, Germany declared in July that it would abandon its target of achieving 100% renewable energy by 2035. This pivot appears to be a pragmatic response to the ongoing energy crisis, opening the door for greater reliance on fossil fuel power generation. Similarly, the Netherlands has adopted a comparable approach, indicating a trend among these EU member states.

Denmark, Germany, and the Netherlands share a notable characteristic: they are all part of the EU, which has championed the concept of carbon neutrality. The European Green Deal, introduced in 2019, explicitly set the objective of achieving net-zero carbon emissions by 2050. Despite a historical commitment to combating climate change, recent actions by these nations seem to contradict their environmentally friendly rhetoric. What, then, has prompted EU countries to take steps counter to energy conservation and emissions reduction?

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To unravel this paradox, one must consider the underlying motivations behind the EU's initial push for carbon neutrality. To begin with, carbon neutrality is not merely a matter of environmental commitment; it has become a means of generating revenue. The narrative that carbon neutrality can serve as a profitable venture is not unfounded. The pioneering electric vehicle manufacturer, Tesla, exemplifies this phenomenon beautifully.

To reach its carbon neutrality goals, countries have implemented restrictions on the production of gasoline-powered vehicles. Consequently, car manufacturers are allotted carbon emission quotas. For every gasoline vehicle produced, automakers must surrender a certain number of "carbon credits." Conversely, producing electric vehicles allows manufacturers to earn "carbon credits."

Those companies primarily focused on gasoline vehicles find themselves in a financial bind, requiring substantial quantities of carbon credits to comply with emissions standards. If they fail to acquire enough credits, they face steep penalties, including the potential suspension of production. This situation compels them to purchase credits from manufacturers with significant surplus, such as Tesla, which holds a vast inventory of carbon credits. Tesla has notably capitalized on this by selling its credits to traditional car companies, reaping substantial profits as a result.

In fact, Tesla generated $1.6 billion from the sale of carbon credits. This amount represents pure profit, as there are no additional costs associated with these transactions. It is reasonable to assert that EU countries could replicate this model. Once they attain their carbon neutrality goals, they can "assist" developing nations in their progress by selling them carbon emission rights. Many developing nations have yet to achieve industrial modernization, necessitating increased reliance on fossil fuels without sufficient investment in emissions reduction technologies. Consequently, these nations may turn to EU member states to purchase carbon credits, mirroring the arrangement between traditional gasoline automakers and Tesla.

This approach could mirror aspects of historical resource exploitation, wherein European nations profited off countries in the Global South. The game plan appears to sustain European economic hegemony while stunting the developmental progress of emerging economies. As these countries strive toward modernization, their dependence on fossil fuels and subsequent carbon emissions becomes a form of restraint, hindering growth efforts. Thus, they find themselves in a paradoxical bind—stuck in a cycle where environmental regulations stall their development. The sentiment often expressed that technology can stifle progress holds true; environmental constraints can similarly serve as shackles on development.

The real objective of EU countries appears to be maintaining control over high-profit sectors, ensuring that emerging economies do not encroach upon their economic supremacy. Limiting access to lucrative industries becomes a central goal, with carbon neutrality emerging as a key tool to achieve it.

However, the carefully crafted plans of the EU have been disrupted by an unexpected crisis—the clean energy dilemma. The abrupt realization that alternative energy sources may not be readily available has thrown the EU’s strategy into disarray. For decades, Russia has served as a primary energy supplier to Europe, with natural gas being critical in this equation. As political tensions escalated and sanctions were imposed on Russia, the EU quickly discovered the severity of its energy dependency, leading to an existential energy crisis.

The halt of projects like the Nord Stream 2 gas pipeline has exacerbated the situation. Compounding the crisis, issues with the already operational Nord Stream 1 have left the continent in a precarious position, with energy supply failing to meet demand.

The repercussions of this reality have manifested in rising energy prices. For many European households, the summer months have meant practice frugality regarding air conditioning and gas usage. Recently, the benchmark electricity price in Germany soared to unprecedented levels, ballooning to over 800 euros per megawatt-hour—up tenfold from the previous year's figures. France has witnessed similar spikes, with costs projected to reach over 1,100 euros per megawatt-hour by next year. If energy prices remain elevated, managing production and sustaining everyday life could become monumental challenges for EU nations.

As the energy crisis deepens, EU countries are reluctantly shedding their environmental pretense. The original objectives of carbon neutrality are now giving way to immediate financial necessities. Countries like Austria, Germany, the Netherlands, and Italy have resurrected coal plants previously shut down, bringing "dirty" energy back into the fold. This scenario serves as a clear indication of the complexities surrounding the EU's carbon neutrality goals and the realities they face.

In contrast, emerging economies like China find themselves in a position where the EU’s misfortunes pave the way for their strategic advancement. Firstly, solar energy presents a promising avenue. Traditional coal power carries environmental burdens, while hydro and wind energies hinge on natural conditions. In contrast, solar technology, with its matured frameworks, could increasingly become a dominant power source in a global energy landscape. By 2050, experts predict solar energy capacity could reach over 8,500 GW, supplying up to 25% of total electricity demand by 2025.

Consider the vast deserts filled with solar installations, perpetually converting sunlight into electricity—a tantalizing vision. China has already emerged as the leader in solar energy, ranking first globally in new photovoltaic installations in 2021, outperforming the combined output of both the United States and the EU.

As the solar industry matures, China reaps substantial rewards, recording an export value of over $28 billion in 2021—a staggering 43.9% growth from the previous year. Dominating energy production equates to global influence, and China is well-positioned to lead in the realm of solar energy.

Secondly, the transition to electric vehicles remains a central focus. Various regions across the globe have declared intentions to ban gasoline vehicles in favor of greener alternatives. For instance, the Chinese province of Hainan recently committed to ceasing the sale of gasoline cars by 2030, becoming the first province on the mainland to establish a concrete timeline. With the automotive industry serving as a defining indicator of manufacturing prowess, the advent of electric vehicles presents a timely opportunity for China to seize this crucial market segment, potentially positioning companies like BYD, NIO, and XPeng to follow the lead of manufacturers like Toyota and Ford in the future.

Lastly, the rise of the renminbi presents an opportunity to emerge as a main currency in clean energy markets. The United States has long maintained its financial hegemony through the dollar's association with oil trading, creating obstacles for alternate currencies wishing to establish themselves. Yet, as the EU has devised its own plans for carbon trading and clean energy markets, could the renminbi carve out a space in this evolving environment? With China's growing influence in solar production, it stands to reason that trading in the renminbi for electricity transactions could become feasible, mirroring how oil-exporting nations often require payment in dollars.

With a dual focus on clean energy transactions and a burgeoning carbon credit market, the renminbi has the potential to emerge as a significant currency alongside the dollar and euro in international trade. We are navigating through unprecedented global changes, facing myriad dangers but also ample prospects. The undoing of the EU’s carbon neutrality aspirations, spurred by unforeseen circumstances, offers a moment of opportunity for countries like China. By technology to navigate evolving circumstances, adapting effectively, and seizing growth moments, China can emerge victorious from this tumultuous transition.

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