The bill has led many developed countries to approve similar legislation to strengthen and protect the competitiveness of their green tech industries, including the EU’s proposed Green Deal industrial plan earlier this year and Australia’s National Recovery Fund, passed in March.
China is the world’s largest manufacturer of wind energy components. Photo: Xinhua
Oxenford said subsidy programs by the U.S. and its allies could spur the development of green tech industries and create more jobs at home, but were unlikely to change the dynamics of current global supply chains long dominated by China.
The EIU said that relocating companies locally would inevitably raise the cost of solar panels and other mass-produced green goods. Encouraging companies to buy domestic components in order to qualify for green subsidies would raise the cost of such projects, leading to producer price inflation and reducing the actual amount of infrastructure that can be produced with a given level of funding.
“Unlike semiconductors and artificial intelligence, green technology sectors such as solar power and lithium-ion batteries are highly commoditized, so cost is a key factor,” said Kevin Kang, chief economist at KPMG in China.
“China dominates the supply chains for many of these technologies and has economies of scale advantages. In the short term, the costs for the US and EU to develop their own supply chains will remain high.”
Sun Huaiyan, senior solar power supply chain consultant at Wood Mackenzie, said fundamental issues such as raw material supply capacity and cost competitiveness mean the US and EU still have a long and difficult road to go in building local supply chains.
“With the support of various policies, local manufacturing facilities will have the opportunity and potential to develop during the protection period of policy preferences,” Sun said. “However, even after the policies end, U.S. production will still face competition in the global market.”
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Chinese scientists try to stop glaciers melting with innovative thermal blanket
Chinese scientists try to stop glaciers melting with innovative thermal blanket
On the supply side, green manufacturing is disproportionately concentrated in China. According to the International Energy Agency (IEA), China accounts for more than 75% of global electric vehicle (EV) battery production and controls the entire downstream supply chain of EV batteries, from mining to processing and manufacturing. China also accounts for more than 60% of the global solar photovoltaic module manufacturing capacity and is the world’s largest manufacturing base for key wind energy components, the IEA said.
On the demand side, China is the world’s largest EV market, accounting for 60% of global EV sales in 2022. The country’s ambitious carbon-neutral goals will also help China lead the global green technology manufacturing supply chain without relying on overseas markets, Kang said.
“The advantages of China’s solar supply chain lie not only in its large production capacity and low production costs, but also in the rapid advancement of technology,” Sun said, noting that this will help China widen the gap with overseas production.
But with more countries announcing policies to protect their industries and energy transition technologies developing rapidly that could bring rapid change to the raw materials landscape, there may still be opportunities for other countries to compete in the supply chain.
“Given the increasing diversity of the global wind energy industry and the growing range of battery technologies, countries with strong green industrial policies may emerge to take a leading role globally,” said Cecilia Han Springer, a research associate at Boston University’s Global Development Policy Center.
While it’s too early to predict specific outcomes as policies and markets continue to evolve, Corey Combs, associate director at consultancy Trivium China, said the IRA and similar policies have significantly changed global investment trends and opened up new possibilities for green technology supply chains in the medium to long term.
“Ultimately, of all the economies currently in this race, even if there was no one to displace China, it seems highly unlikely that China would maintain its current dominance in many critical green technology supply chains,” Combs said.
