Uncovering policy lessons from the rise of clean energy industries in China

I grew up in China during a period of tremendous social and economic changes in the early ’80s and ’90s. At first, more and more people were able to feed themselves. Then they had enough money to buy things such as bicycles, cassette recorders, then TVs, and then motorcycles. 

At the same time, I noticed the natural environment was changing: The forest near where I lived disappeared, and the air began to smell as new sugar mills and textile factories popped up. 

These changes did not disturb me much back then, as I assumed they were just part of the normal process of economic growth. But now, as I try to examine the causes and consequences of sustainability challenges, I have questioned what alternative paths of economic growth could look like, and more importantly, what they could mean for other emerging and developing economies entering similar stages of economic growth.

Economics gave me a framework not only to analyze the tradeoffs between economic growth and environmental quality, but also to identify alternative growth paths and cost-effective policies that better protect the natural environment.

I had originally chosen economics as a major because the economy and wealth felt like important things, and it promised a path to a good career. Later on, I discovered economics is not actually about making money at its core, rather it’s a framework for us to think about the choices that individuals make and societies face together. 

The process of energy transition as a way to address climate change is a big part of my research. In particular, some of my research has focused on the dynamics of electric vehicle markets across the world; for example, trying to understand why the EV adoption rates vary so dramatically across countries and regions, and what policies worked well and what did not work as well in promoting EV adoption.

We have compiled comprehensive data across major EV markets, including data on vehicle sales and product attributes for different EV models in different countries over the last decade, as well as major policies implemented in these markets. We then use economic models to understand consumer adoption decisions and automakers’ incentives to produce different types of EVs, and to analyze the impacts and cost-effectiveness of different policies.

For example, one policy comparison we did was on EV purchase subsidies versus charging station subsidies. To promote EV adoption, directly subsidizing consumer purchase of EVs was the most commonly used policy instrument. But our analysis shows that at least in the early stages of EV diffusion, a much more cost-effective way to increase EV adoption would have been to spend government dollars on the side of charging infrastructure. 

With the same amount of government funding, investing in charging infrastructure could yield three to four times as many EV sales as direct purchase subsidies. We found this result to be quite robust based on data from both the U.S. and China. 

Going forward, I’m most excited to decipher the key drivers behind the emerging dominance of China in clean energy industries during the last decade. By 2024, China produced over 60% of wind turbines globally, 70% of EVs, 80% of solar panels. If you look at the global EV stock, 60% of them are on the road in China. 

But mass-market EVs were first introduced to the U.S. around 2011, and much of the technology was developed earlier in Japan and the U.S. China wasn’t an early leader in wind or solar either. But it has since caught up and now holds a commanding lead in both production and adoption of these technologies. 

How did this happen? One common narrative is “this is mainly driven by Chinese subsidies.” In this framing, some people argue that other countries should impose a tariff on Chinese EVs or solar panels to counter their unfair comparative advantage and “level the playing field.”

If you talk with Chinese policymakers and industry leaders, they will credit their success to market forces. They argue that these markets within China are super competitive, with many firms competing head to head to invest in R&D, to cut cost, and to improve product quality. You have to figure out a way to survive in this really tough and competitive environment. They would also point out that China has many advantages, from their robust supply chain to their engineering workforce to their production know-how. My research team is trying to analyze and quantify the role played by each of these factors. 

More importantly, we are working to understand how lessons from China’s experience may inform the energy transition process in other countries.

– As told to Josie Garthwaite