Thursday, May 26, 2022

The Development and Geopolitics of New Energy Vehicles in Anglo-American Axis Countries

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By He Jun

While the global development of green energy and industries has been an ongoing matter, the war launched by Russia in Ukraine adds a deeper geopolitical dimension to it. In this shift, the “Anglo-American Axis”, comprising the United Kingdom and the United States, may once again lead the way.

Take the UK as an example. In promoting green energy and green industry, and reducing its carbon emissions, a series of seemingly radical policies have been introduced in the past two years. The UK government released the “Ten-Point Plan for a Green Industrial Revolution” in November 2020, proposing the development of offshore wind power, in addition to promoting the development of low-carbon hydrogen, and providing advanced nuclear energy, accelerating the transition to zero-emission vehicles, among others. It also includes action plans for the reduction of 230 million tons of carbon emissions in the transport and construction industries in the next decade.

In the policy paper Energy White Paper: Powering Our Net Zero Future published in December 2020, the UK has planned for the transformation of the energy system, and strive to achieve the goal of ne-zero carbon emissions in the energy system by 2050. On the conventional energy front, it announced a phase-out of existing coal power plants by October 2024. Focusing on the fields of energy, industry, transportation, construction and others, it aims at reducing greenhouse gas emissions by at least 68% by 2030. Additionally, the UK has also launched the Emissions Trading Scheme (ETS) on January 1, 2021, setting a cap on total greenhouse gas emissions for industrial and manufacturing companies, with the objective of achieving a net-zero emissions target by 2050. In March 2021, it took the lead among the G7 countries to launch the Industrial Decarbonization Strategy, supporting the development of low-carbon technologies and improving industrial competitiveness. The plan is to significantly reduce carbon dioxide emissions from manufacturing companies by 2030 and build the world’s first net-zero emissions industrial zone by 2040.

In terms of public transport, there is the March 2021 National Bus Strategy, and a green transformation plan for the bus industry is proposed. In July of the same year, the Transport Decarbonization Plan is announced, further integrating low-carbon transformation in transportation such as railways, buses, and aviation, and promoting the electrification of public and private transportation. At present, there are more than 600,000 plug-in electric vehicles in the UK, and the production of new energy vehicles exceeds one-fifth of the total car production. In the nation’s new car sales for February 2022, electric vehicle sales accounted for 17.7% of the market, the market share of plug-in hybrid vehicle sales is 7.9%. Adding traditional hybrid vehicles, electric vehicles account for more than one-third of the sales.

On April 8, 2022, the UK government announced the annual development goals for new energy vehicles. It is stipulated that by 2024, all-electric vehicles must occupy 22% of the market. This proportion rises to 52% in 2028 and 80% in 2030. The country’s authority hopes that these mandatory policies will force carmakers to, by 2035, increase the share of electric vehicles in sales every year, when all models must achieve zero emissions. It will then ban the sale of new petrol and diesel cars from 2030 and hybrid cars from 2035, under plans unveiled two years ago.

As the world’s largest automobile consumer, the United States has also put forward the development plan for new energy vehicles. It should be pointed out that the marketization forces represented by Tesla have played a strong and spontaneous role in the U.S.’ development of new energy vehicles. On this basis, the supporting policies introduced by the U.S. government will have greater policy flexibility. After the Biden administration came to power, there are changes in the negative attitude of the Trump administration towards the new energy industry, and an agreement returning to the Paris Agreement has been signed. To achieve the goals of the Paris Agreement, the U.S. government plans to increase the sales of new energy vehicles (including plug-in hybrid, pure electric, and fuel cell vehicles) to 40-50% by 2030.

The government and industry will provide subsidies for the purchase of these vehicles, improve the charging network, invest in research and development, and provide subsidies for the production of the vehicles and their spare parts. On March 31, 2021, the Biden administration proposed to invest USD 174 billion in supporting the development of the U.S. electric vehicle market, which involves improving the U.S. domestic industrial chain. It targets to construct 500,000 charging stations, electrify school buses, public transport, and federal fleets by 2030. In President Biden’s USD 1.75 trillion stimulus bill passed by the House of Representatives that year, there was a subsidy mechanism for new energy vehicles and additional subsidies for traditional American car companies.

Major U.S. domestic and international automakers, United Auto Workers, Alliance for Automotive Innovation, the California government, the U.S. Climate Alliance, as well as other industrial and governmental agencies have issued a joint statement and support the Biden administration to accelerate the development of the new energy vehicle industry, so as to strengthen the leadership of the U.S. in this field. On the basis of marketization, the strong support of the U.S. to the new energy vehicle industry will greatly promote the development of this particular market in the country.

Researchers at ANBOUND believe that the UK and the American strategies and series of policies for the development of new energy vehicles are not merely concerning industry and green development. Instead, they carry profound influence and significance. Chan Kung, founder of ANBOUND, pointed out that the policy signals given by the Anglo-American axis represent the shape of the things to come. The development of new energy vehicles is not a purely industrial or technological issue. It is conspicuous that such a development means alternative ways of energy utilization have emerged, and this energy revolution has its geopolitical implication, where both the UK and the U.S. will further ditch their dependence on Russian energy. If the future industrial system and consumer market are no longer dependent on oil, then Russia, which is highly dependent on oil resources economically, will be hit greatly in economic sense.

It should be pointed out that due to the complexity and extension of the transportation system, this revolutionary policy of energy substitution will also drive the rapid development of other industries, as well as related technological buildout and the manufacturing of new products. It will not take long for a new manufacturing system to emerge in the countries and societies of the Anglo-American axis.

Chan Kung emphasized that it is also worth noting that from a geopolitical perspective, this large-scale new energy policy is also a measure to share geopolitical risks and pressures. In the past, countries and governments had to address issues caused by geopolitical risks, such as rising oil prices and inflation. These in turn, could lead to political instability if the ruling government failed to address them well. However, the rapid development of industries such as new energy vehicles has made a great change in the situation. The pressure on the government was quickly directed to the private sector, industry, and society. To improve the quality of life, people are spending money to buy new energy vehicles. This is tantamount to common people spending money to solve the geopolitical risks of the Anglo-American axis countries and governments. Once this pattern and market system are formed, the Anglo-American axis countries will not only eliminate the pressure of Russia’s weaponization of energy, they can also generate profits from it, even form a new manufacturing system that can scrap their dependence on the manufacturing industry of third world countries and China. From this ideal logic, the development of new energy vehicles can serve multiple purposes for countries such as the United Kingdom and the United States.

Noticeably, unlike in China, the “electric vehicles” or “new energy vehicles” mentioned in the supporting policies of the Anglo-American axis countries do not have any specific type (such as plug-in hybrid, pure electric, fuel cell vehicle, etc.). This is actually a wise decision in the design of public policy. The technology part is a technical issue, not a public policy issue. Separating public policy from technical issues not only distinguishes the functions of policy and market, but also effectively reduces the influence of interest groups.

About the author:

He Jun is an ANBOUND Partner, Director of China Macro-Economic Research Team and Senior Researcher. His research field covers China’s macro-economy, energy industry and public policy.

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