I was recently forwarded this article from ZeroHedge regarding the Biden administration’s infrastructure proposal. In short, the author contends that the infrastructure proposal is focused on ivory-tower, green new deal politics that will “destroy the productive industrial powers and living standards of the nation” while China and Russia have built an “OPEN” system that embraces green tech and fossil fuels. The author doesn’t much support his arguments outside of using caps lock and bold print, however we can still examine the merits – or lack thereof – of the article. The article seems to have a few major contentions:
- “Biden’s Green New Deal is shaped by Central Bankers’ Climate Compacts”
- America is abandoning fossil fuel technology which will bankrupt the country
- “China…has simultaneously committed to building green energy systems without deluding itself into thinking that fossil fuels, nuclear or hydro could be taken out of their energy baskets.”
Is it true that “Biden’s Green New Deal is shaped by Central Bankers’ Climate Compacts” as the author contends? It isn’t clear what the author means by ‘Green New Deal.’ In some examples ‘Green New Deal’ refers to the infrastructure proposal and in others it refers to climate change related financing. It is worth noting that there are no Central Bank climate compacts in the administration’s infrastructure proposal. It is true that in December, the Fed joined the Central Banks and Supervisors Network for Greening the Financial System. Is this group nefarious? Is it a coalition of “ivory tower technocrats” set out to destroy financing to the fossil fuel industry? No. It is a group of 90 member central banks and 14 observer central banks. Look who was already a member:
The Russian economy is dependent on its energy sector. Its not like China, who is exporting carbon abroad, would have any interest in joining this ivory tower technocrat club as well. Wait…
China and Russia were both already members. The Fed joining a large body of international central banks doesn’t constitute a policy change; it simply means the United States has a seat at the table for international discussion that is occurring and will occur whether the United States is there or not. Total investment in renewable-energy projects, electric vehicles and other green efforts exceeded $520 billion last year, a record, according to Bloomberg New Energy Finance, which tracks green investments. Spending was up 12% from a year earlier and nearly 60% from 2015, Bloomberg data show. I, for one, am glad America is showing up.
The author also jeers, “Many people couldn’t help but laugh when Biden told the Boris Johnson on March 26 that the USA and it’s NATO allies should create ‘an infrastructure plan to rival the Belt and Road Initiative’ post haste. What would such a program look like? How would it be funded when the USA is so embarrassingly bankrupt?”
The United States doesn’t have large telecommunications companies that develop and build 5g infrastructure, so how can the US counter Chinese infrastructure investment? The US is coordinating loans and financing (something the US is good at) for emerging markets to not use Huawei and ZTE (Chinese companies) products in their infrastructure. The US and UK recently teamed up to secure a contract in Ethiopia. In the past two decades, Ethiopia has developed commercial bonds with Beijing, signing loan agreements with Chinese lenders that total $13.7 billion between 2000 and 2018, according to the China Africa Research Initiative at Johns Hopkins University. Ethiopia, meanwhile, is also an important U.S. strategic ally because of its location near the Red Sea, on the Horn of Africa. The U.S. has tried to neutralize terrorist groups, including al Qaeda and Islamic State, in the region. There is also an ongoing conflict in Tigray. It seems like there, indeed, is a market for NATO allies to rival the Belt and Road Initiative. Someone should tell ZeroHedge that this is how the program looks, it is funded through USAID, and it is advantageous for the region.
The crux of my disappointment is the wrongheaded writing about China. The author writes, “The irony about all of this is that China and Russia are increasingly adopting a system of political economy which is fundamentally OPEN and driven by scientific and technological progress without any supposed limits on its potential for improvement.” No.
First, China isn’t content exporting emissions abroad. During debt negotiations between Bangladesh and China in February 2021, China informed Bangladesh’s Ministry of Finance that it will “no longer consider projects with high pollution and high energy consumption, such as coal mining [and] coal fired power stations.” Also, in 2020 more than half of Belt and Road initiatives went to green projects.
Second, while Chinese institutions have driven the financing of coal projects, four American banks—JPMorgan Chase, Wells Fargo, Citi, and Bank of America—remain the largest financiers of fossil fuels projects overall, having collectively financed more than $800 billion in such projects worldwide since 2016.
Third, for all the writing about how “USA is so embarrassingly bankrupt,” you would think the author would know that China has extreme debt problems stemming from a closed political economy. Exporting fossil fuel technology abroad isn’t a sign of strength; it is a sign of China’s local government state owned enterprise’s inability to recalibrate. Chinese debt is over 300% of GDP. Most of China’s local government debt, one of the most regular issuers of domestic debt, is held by state-owned or state-controlled financial institutions. For decades, China’s local governments have relied on off balance sheet borrowing through local government financing vehicles (LGFVs). Many of these borrowings are not recorded and transparency is opaque when it comes to how the funds are used. Such hidden debts are estimated to be between 30 trillion yuan (US$4.2 trillion) to 40 trillion yuan by Standard & Poor’s. China issued 4.55 trillion yuan (US$703 billion) in new local government bonds in 2020, data from the Ministry of Finance showed. Most of these borrowings are held by domestic investors such as commercial banks, followed by policy banks, which are state-owned banks whose investment and lending practices support government policies, such as issuing bonds to raise funds for infrastructure investment and insurance companies.
Why are Chinese state owned energy enterprises trying to export their products abroad? BRI’s focus on coal is driven by local excess Chinese capacity. China is the world’s largest coal producer, accounting for 46 percent of global output in 2019. China’s BRI investments in coal-fired plants help create new markets for Chinese coal. They also allow Chinese firms, squeezed by environmental regulations at home, to recoup some losses abroad. In one notable case, an unprofitable Chinese coal plant was entirely disassembled and then shipped and reassembled in Cambodia.
It is factually wrong to say China is open. It is a country dominated by provincial state owned institutions. It is communist. I was in China during the winter of 2017 when, in a bid to stop North China’s air pollution, Beijing banned coal and tried to move to gas resulting in millions of people being left without heat. China is not balancing new and old technology; China is a communist country struggling to change from old growth models, doing everything it can to kick the can down the road to save its state owned enterprises- even if that means boxing facilities up and shipping them to Cambodia.
Environmental degradation isn’t a joke in China. Energy and climate indicators are included under “new progress of ecological civilization”, which is one of the six overarching economic and social development goals of China’s 14th five year plan (formally adopted on March 11th of this year). Chairman Xi is staking his name next to improving China’s air, water, and land. Chairman Xi has become the most powerful Chairman since Mao, because he must be. He must effectively transfer wealth from provincial state owned enterprises to Chinese people. State owned enterprises will not relinquish power easily; they will attach themselves to national policy like the BRI to export excess capacity abroad. Xi will have to break that.
America, and the Biden administration broadly, isn’t failing in energy policy; democracy functions differently than communist five year plans. Take this example of how we get to a sustainable world from the Wall Street Journal. Do you agree? Disagree? Great! Talk about it. Write a senator. Take up your civic duty. Vote.
I don’t pretend to know what ZeroHedge’s intentions were when writing their piece. I only know that there is very little veracity to the piece. ZeroHedge makes a living instilling fear. “America is falling apart! Make sure you tune in tomorrow for the latest scoop!” Being cynical and selling recession pornography is not a substitute for good-faith, informed discussion.