China: EV's climate change and geopolitical advantage
China does seem to have the best alignment for positive policies with respect to climate change. With its domestic oil and gas production falling rapidly behind demand (and their shale production forecasts being reduced repeatedly) any increases in conflict with the US will increase the incentives to cut sea-borne oil imports as quickly as possible.
A move to EV's, even if predominantly powered by coal, will create a net reduction in emissions. The cut off for a benefit is 80% coal share of electricity generation and China is at less than 60% coal share and falling. So a switch from imported oil for ICEs to electricity for EV's using even the current electricity generation mix will produce many, many benefits:
- A reduction in sea-based oil imports vs trend:
- As most Chinese cars are net new additions to the fleet, ie not replacing older ones, an
absolute reduction will take somewhere close to 75%+ EV share together with other ICE
efficiency gains. If there are incentives for high consumption users (taxis, buses, trucks),
plus strict ICE efficiency improvement rules (perhaps even "cash for inefficient clunkers"),
then an absolute reduction could be reached a lot sooner.
- A reduction in GHG emissions, providing China with increased national prestige (especially against the climate unfriendly US). Add in the energy efficiency and low-carbon energy targets in the latest Chinese 5 year plan and emissions could be peaked within a few years - much earlier than the 2030 target.
- Increased dominance in the clean energy industrial realm: EV's, batteries, related electronics etc. An area where China is capable of leaving the US behind given US policies. Also increases Chinese prestige as a "clean economy" with advanced future technology, when added to their solar, wind and other high tech industries, plus high speed trains. China starts to become the epitome of a "future economy" that the US was in the 1950's.
- With VW (40%) and BMW (50%) selling such a high proportion of their cars in China they would be forced to go EV even faster, impacting an EU market which is predominantly a replacement one and therefore directly reducing oil demand. Apart from Tesla, the big US car manufacturers are not well placed and the cost of scrapping current ICE manufacturing facilities would be immense. Japan, currently a direct competitor to China, is also not well placed with respect to EV's.
- With oil having an inelastic production response to changes in demand (ie production tends to be "sticky" given a number of states reliance on oil revenues - they have to keep pumping at lower prices), a relatively small drop in demand creates a big drop in prices. The high cost "swing" producer is the US (plus Canada Tar Sands and Deep Sea), so will impact them the most. At the same time the Chinese oil import bill drops, freeing up revenues for internal demand/investment. The negative is the effect on China's ally Russia.
China ICE Free After 2025 Announcement
If China announced that the last sale of ICE's in China will be at the end of 2025 it would produce absolute chaos in car manufacturing and oil sectors, probably crushing the shares prices of the US oil majors (based on downward forecasts of future oil sales), and greatly benefitting Chinese manufacturers who have much less ICE capacity to scrap and will get government support for the transition (industrial policy).
Chinese EV market share will probably be between 8% and 10% at the end of this year, so 100% in 2026 is actually a doable target (40% growth in 2020, then 30% declining to 20% by 2025). Currently ~95% of EV's sold in China are made by Chinese manufacturers, so they have an incredibly strong position vs. foreign manufacturers. Any drop in car imports (the majority of ICE cars are imports) benefits the trade balance - helps negate the effect of less exports to the US (tariff trade war) and causes significant problems for the US (and Japanese) car and US (and Canadian) oil industries.
Sidenote: in this scenario Canada (my country) is completely f**ked. Oil price below Tar Sands operating break even, no natural gas sales to China (replaced with gas from Russia, the "Stans" and Iran), and China probably trying to import as little as possible from an avowed strong US ally who illegally (under international law) detained a senior Huawei executive and daughter of the Chinese elite. Oh, and then of course there are the remaining auto plants in Ontario ... Canada needs to go back to Daddy Trudeau / Chretien and practice balancing between superpowers but thats a whole other dissertation.