Rio Tinto CEO and others urge Western governments to speed up clean energy transition, citing exemplary Chinese achievements.

Though the Western world may not agree with China's political and international trade policies, Beijing saw the writing on the wall nearly two decades before the rest of the world and took major steps to be the first and greatest power in the green energy transition – both as a buyer and supplier of critical minerals and as a top maker of key energy transition tech components.

Peeling away the shiny top layer of Chinese success reveals corruption, predatory economics, and a host of human rights violations and environmental travesties. Can the U.S. ramp up its own electrification quickly without cutting corners and greenwashing activities that could stand to be more sustainable – in short, can the West go green while keeping its hands clean?

"One of the unforeseen consequences of decades of globalisation has been the decline of manufacturing in the West," said Rio Tinto CEO Jakob Stausholm in his address at London Metal Exchange (LME) Week. "If we take aluminium production as an example. Western smelting capacity has fallen dramatically over the past 20 years."

According to Stausholm's presentation, U.S. aluminum smelting capacity has dropped by 77% since the turn of the millennium and Europe by 22%.

The Rio Tinto executive called out policies like the U.S. Inflation Reduction Act (IRA).

"While it's still too early to tell what the outcome of policies like the IRA will be, we haven't yet seen any significant increase in output. There is currently not enough evidence to suggest western re-industrialisation has taken hold," Stausholm said.

"It is still unclear whether Western economies are succeeding in their mission to bring blue-collar work back to where the consumer is," he added.

Picking up the pace

Enacted by the Biden administration in 2022, the Inflation Reduction Act (IRA) is the largest climate law in U.S. history and has been integral to boosting clean energy developments and domestic manufacturing – investing billions into new projects and providing subsidies and tax incentives for products like EVs.

While the IRA has inspired record highs of manufacturing construction investments across the country, as recorded by the U.S. Census, validating the potential for these laws to foster significant economic growth, the second anniversary of the legislation has passed with nearly 40% of the investments announced since its adoption facing delays. Among these is Albemarle Corp's lithium refinery in South Carolina, which was halted in less than a year due to a collapse in global lithium prices and slowing demand for EVs.

Though miners are used to playing the long game, thinking in decades rather than years, the rising concern among companies like Rio Tinto and Albemarle is whether these setbacks represent the usual temporary obstacles or indicate systemic challenges that could hinder Western efforts to return to a leading position in global manufacturing.

While some delays are common in any large-scale industrial effort, extensive overproduction, poor market conditions, and the number of postponed projects have affected high-profile names like Alcoa, BHP, Teck Resources, and Freeport-McMoRan, companies unable to access promised funds contingent on specific milestones and regulatory requirements.

Critics of this "government-enabled, private sector-led" legislation allowing market forces to drive changes argue that this model still leaves companies exposed to the uncertainties of today's record-breaking economic volatility and historically fierce global competition. In light of this, Stausholm has called for a larger commitment by Western powers to shore up domestic manufacturing and encourage domestic production of critical resources.

"Much of the world is not progressing fast enough on electrification, and in the U.S. and Europe there is virtually no growth in electricity production," the Rio Tinto CEO said.

China as a test case

zihao

China, which has developed the capacity to build solar cells fast and cheap, installed the same amount as the rest of the world combined in 2023.

China has been a critical partner for Rio Tinto with decades of successful cooperation, and Chinese aluminum giant Chinalco is the company's largest shareholder, owning 11% of its shares. Most recently, Rio Tinto has a joint venture with China Baowu Steel Group Corp to develop an iron ore mine in Western Australia.

The Rio Tinto chief executive suggests that Western countries "can learn from China's example of replication at scale, delivery at speed and a tightly integrated supply chain with supporting infrastructure."

For example, the price of iron ore for steelmaking rose 10% due to Chinese stimulus measures the previous week. Those measures, which included reducing the cost of household mortgages and introducing a $114 billion lending pool for capital markets, also propelled the Chinese stock market to its best week since 2008.

In an interview for the World Economic Forum, historian Adam Tooze listed three key developments China got right: starting early, developing the capacity to build solar cells fast and cheap, and blanketing the countryside with them. (In 2023, China installed double the amount of solar power it did in 2022, which was already the same amount as the rest of the world combined.)

While Beijing struggles to wean itself from coal consumption, its exponential solar and wind power growth promises to do just that. (Wind and solar energy already account for more than a third of China's power capacity and may surpass coal capacity as early as this year.) Beijing also invested in battery and EV technology and production early on and commands product sales in every price range, from scooters to luxury vehicles.

Tooze calls the energy transition "the greatest opportunity since the industrial revolution" and says Chinese businesses, policymakers and innovators "recognized the scale of this opportunity" early and got a head start on the rest of the world.

China is also up against a massive reversal in fossil fuel consumption to achieve carbon neutrality in time, and just behind it, the U.S.

"It's a huge ask, and one of the reasons why it's so urgent to entrench ambitious goals as soon as possible is the longer you delay this, the harder it gets to make that transition," said Tooze. "The difference is huge. A fast Chinese energy transition leaves China consuming 17-18% of the remaining carbon budget to stabilize at two degrees. A slow Chinese transition – still getting to net zero by 2060 but doing so at the last minute by some crash program – consumes closer to 29%. So that is the scale of the swing here. Into that difference between 17 and 29 you can fit the entire energy consumption of Africa."

Globalization hasn't always been a dirty word. The lure of low prices has clouded judgment and caused consumers to overlook worker rights and environmental protections, or undermining competition and stripping domestic jobs and supply chains with no sense of the long-term. The same goes for developing a sustainable green transition.

China's progress toward net zero, be it quick and dirty or slow and steady, has already been defining the global energy transition. Through resistance or cooperation, the West is responding to China's lead in the dance.