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McKinsey On The Case For Playing Nice With China

A recurring source of anxiety among op-ed writers lately is the fear that China is winning some sort of clean-energy race. Earlier this month, venture capitalist John Doerr and GE head Jeffrey Immelt took to The Washington Post to fret that Chinese cars were 33 percent more efficient than U.S. cars, that China was investing ten times the fraction of its GDP on clean energy that the United States was, and that China was on track to generate five times as much wind power by 2020. "We are clearly not in the lead today," they concluded. "That position is held by China, which understands the importance of controlling its energy future."

As a plea for stronger U.S. action, this has a lot of merit. There's no compelling reason why China should be investing vastly more in green tech than the United States, which, last I checked, was still the richer, more technologically advanced country. But framing these efforts as some sort of zero-sum competition, in which only the winners benefit, isn't quite accurate. The entire planet will benefit from cheaper, better sources of clean energy, and it's not as if we'll somehow "lose" if China makes a massive push to mop up its emissions. Even more critically, as Jonathan Woetzel argues in this month's McKinsey Quarterly, many clean technologies will only ever make it to adolescence as a result of intensive cooperation between the two countries. Take electric cars:

If the majority of vehicles on the world’s roads by 2030 were hybrids and battery-powered vehicles, they would generate 42 percent fewer emissions than if all cars continued to run on today’s gas and diesel engines. But such reductions won’t occur—won’t even come close to happening—unless China and the United States lay the groundwork to make it so. ...

Private companies in China and the United States will most certainly compete to make the products, including electric-drive (or hybrid) vehicles, batteries, charging stations, and so on. But the two governments can no doubt create the conditions for both of them to succeed—for example, by setting coordinated product and safety standards across the two markets, funding the rollout of infrastructure, sponsoring joint R&D initiatives in select areas (such as new materials for car parts), ensuring that trade policies support rather than hinder the development of a global supply chain for the sector, and providing consumers with financial incentives to buy the new models.

This new sector will require scale to succeed—more scale than could be found any time soon in either country alone. Electrified vehicles may one day become a viable market within both nations, but that day will arrive much more quickly if the two countries collaborate to create a market that is bigger and more attractive.

Similarly, Woetzel contends that concentrated solar power—a potentially significant future source of carbon-free electricity—"might not even have a future without joint action by China and the United States." To its credit, the Obama administration has been making a concerted push to partner with China on a variety of major energy technology initiatives. Still, as Woetzel discusses, there are a huge range of murky issues—from intellectual-property protections to financing agreements—that remain unresolved, and this is one of those prosaic issues that rarely gets as much attention as it should.

(Flickr photo credit: North Sullivan)