Will U.S.-China Climate Deal Prove a Breakthrough for Green Energy?

The United States and China declared on Wednesday that they had reached an agreement in which both sides committed to working together to reduce global warming. The agreement between the countries was a surprise, which the European Union and United Nations described as an encouraging and essential step.  

Will this change the race between fossil fuels and green energy sources? According to Matthew Boyle, the manager of worldwide coal and Asia power analytics at S&P Global Platts, as of November 3, power generated from coal and gas outpaced that from renewable sources. Will new cooperation between the two countries, who are also the biggest polluters, boost the prospects of green energy? In 2019, China released more than 10,065 million tons of CO2, while the United States emitted 5,416 million tons of CO2.

Will Energy Companies Shift Investments?

Will energy companies now invest in green energy at the expense of fossil fuels? GE misguidedly invested in fossil fuel when the world was turning toward green energy. That mistake is forcing the American former industry leader to break its company into three different entities. 

However, last quarter, the big oil companies posted their highest cash flow in 13 years, after crude topped $80 for the first time since 2014. Perhaps it is no coincidence that cooperation between the two superpowers on energy comes at a time when spiking energy prices are causing global inflation. US consumer prices, published on Wednesday, rose at their fastest rate in three decades in October, and China’s factory inflation grew at a record pace due to the sharp rise in energy costs. Just yesterday, President Joe Biden said in response to the U.S. inflation data that lowering energy costs is one of his administration’s top priorities. 

How Will the Agreement Impact the World’s Biggest Green Energy Companies?

Companies like Iberdrola (IBE.E), Jinko Solar (JKS), Canadian Solar (CSIQ), and Sun Power (SPWR) were among the ten biggest renewable energy companies in the world as of December 6, 2020. Will they be positioned to pave the way to a world run on green energy? Considering that they are among the world’s largest green energy companies, there is an argument to be made that yesterday’s breakthrough agreement will benefit them.

The sudden agreement between the world's two largest economies may have been unforeseen as the two have a long history of conflict. A little over a week ago, opinion writers were talking of war between the two countries. At the time, U.S. Secretary of State Antony Blinken and Chinese Foreign Minister Wang Yi were confronting each other about the status of Taiwan.

This was but the latest in a long string of disagreements that have arisen between the two countries as they both vie for global leadership. With this complicated background, some believed that America faced a choice of challenging China on either human rights issues or the climate but not both. This difficulty may have been underscored by the fact that China is the world's biggest carbon emitter, by a wide margin.

The ongoing trade war between the two countries has already become characterised as a cold war by the Carnegie Endowment for International Peace, as well as other sources. Could this breakthrough agreement on climate control herald a more significant thaw in relations between the two countries, which are not just the world's biggest polluters, but also its two biggest economies? How might such a breakthrough impact the world’s largest green energy companies, such as the ones mentioned above?