China's green tech dominance creates dilemma for Western climate goals

A report from the University of Manchester has laid bare the contradiction at the heart of Western climate policy: the technologies needed to decarbonise are overwhelmingly made in China, yet governments in Europe and the United States are actively trying to reduce their dependence on Chinese supply chains.

The study, released on Monday by the university's Sustainable Consumption Institute, finds that China now accounts for 70 percent of global electric vehicle production, 80 percent of lithium-ion batteries and 80 percent of solar photovoltaics. Those shares have been built over more than a decade through state-backed industrial policy that the report estimates delivered 7.2 trillion yuan (US$1 trillion) in domestic subsidies to green industries in 2025 alone.

The numbers behind Chinese dominance

The scale of China's lead is not marginal. In solar photovoltaics, Chinese factories produce roughly four panels for every one made elsewhere. In batteries, the gap is similar. The International Energy Agency calculates that the current solar supply chain, dominated by Chinese manufacturing, could reduce global emissions by 15 percent by 2030 if deployment continues at its present pace. That figure assumes the world keeps buying Chinese panels at Chinese prices.

James Jackson, the report's lead author, put the problem bluntly: "China's dominance of green technology presents a fundamental dilemma for governments. The world needs these technologies to decarbonise, but efforts to compete with China risk making the transition more expensive and more difficult." His team argues that the subsidies Beijing deployed have had a global spillover effect, lowering costs for every country installing solar farms or buying electric buses.

Western responses are raising costs

The European Commission has opened anti-subsidy investigations into three Chinese electric vehicle makers, BYD, Geely and SAIC, arguing that state support distorts the single market. Provisional duties were imposed in 2024 and definitive measures are under consideration. In Washington, the Inflation Reduction Act ties its most generous clean-energy tax credits to sourcing requirements that exclude components from "foreign entities of concern", a definition that captures Chinese battery and critical-mineral supply chains.

Both approaches share a logic: strategic autonomy requires domestic or allied production. But the Manchester researchers warn that replicating China's manufacturing depth will take years and vast capital. In the interim, higher prices for batteries and solar modules mean fewer installations per euro or dollar of public spending. The report cites modelling suggesting that a 20 percent tariff on Chinese solar modules could delay deployment by three to five years in Europe, pushing the continent's 2030 renewable targets out of reach.

Europe's own industrial policy is still taking shape

The European Union has responded with the Net Zero Industry Act, which sets a benchmark of meeting 40 percent of annual deployment needs from domestic manufacturing by 2030. The Strategic Technologies for Europe Platform (STEP) and the European Battery Alliance are channelling funds into gigafactories across the continent. Northvolt in Sweden, ACC in France and Germany, and several Spanish projects have received state aid approval. Yet most remain years from full capacity, and several have faced financing delays.

A senior official at the European Commission, speaking on background, acknowledged the tension: "We cannot decarbonise without trade, but we cannot accept trade that destroys our industrial base. The balance is the hard part." That balance is currently being tested in the EV anti-subsidy case, where the Commission must decide whether definitive duties, potentially as high as 35 percent on top of the standard 10 percent tariff, are proportionate to the injury found.

The United States is further along in decoupling

Washington has gone further. The Inflation Reduction Act's foreign entity of concern rules, finalised by the Treasury in late 2024, bar vehicles with battery components from Chinese companies from receiving the $7,500 consumer credit. The same guidance excludes critical minerals extracted or processed by Chinese entities. The effect has been immediate: Korean and Japanese battery makers are restructuring supply chains to qualify, while Chinese firms such as CATL are licensing technology to US partners rather than exporting cells directly.

The Manchester report notes that this restructuring has a cost. Battery pack prices in the United States remain 15 to 20 percent higher than in China, according to BloombergNEF data from the first half of 2026. For a country aiming to electrify its vehicle fleet rapidly, that gap translates into billions of dollars in additional public subsidy or slower adoption.

Developing countries face the sharpest trade-offs

The dilemma is most acute outside the wealthy world. Countries in Southeast Asia, Africa and Latin America have been buying Chinese solar modules and electric buses because they are the cheapest option. When Western lenders attach procurement conditions to climate finance, as the World Bank and several European development banks now do, those countries face a choice between more expensive Western equipment or less finance. The report argues this dynamic could slow the global transition more than any single tariff.

At COP29 in Baku, the issue surfaced in negotiations over the new collective quantified goal on climate finance. Developing-country negotiators pointed out that restrictions on Chinese technology effectively raise the cost of their nationally determined contributions. The final text urged "cost-effectiveness" in technology transfer but stopped short of naming China.

China's subsidies are not purely altruistic

The Manchester researchers are careful not to portray Beijing's industrial policy as a gift to the world. The 7.2 trillion yuan in 2025 subsidies served domestic objectives: employment in inland provinces, technological self-reliance, and export revenue in a slowing economy. Overcapacity in solar and batteries is real; Chinese firms are exporting at prices that European and American producers say are below cost. The Commission's investigation found evidence of preferential loans, cheap land and below-market electricity for the three EV makers examined.

But the report argues that the global climate benefit exists regardless of motive. If Chinese overcapacity lowers the levelised cost of solar electricity in Spain or Texas, that is a factual reduction in the price of decarbonisation. The policy question is whether Western governments are willing to accept that benefit while building their own capacity, or whether they will foreclose it in the name of security.

The next decisions will shape the decade

Several concrete deadlines loom. The European Commission must publish its definitive ruling on Chinese EV duties by late 2026. The US Treasury will update its foreign entity of concern guidance annually, with the next revision due in December. The UK, outside both regimes, is consulting on its own carbon border adjustment mechanism and EV industrial strategy. Japan and South Korea are negotiating critical-mineral agreements with Washington to secure IRA eligibility for their battery makers.