Role of the State in the Energy Transition: The Case of China and Lessons for the United States

The energy transition hinges on the uninterrupted supply of critical minerals for low-carbon products such as electric vehicles. China currently dominates the supply chains of minerals required for the rechargeable batteries used in electric vehicles. How can we explain China’s dominance in the critical minerals industry? Delving into historical state records and planning documents dating back to the 1980s, I find the answer lies in state-driven industrial policies. Using a novel dataset of mining-related acquisition deals, I study various tactics used by China for capturing mineral supply chains. These tactics include i) offering premium bids, ii) directly purchasing majority stakes, iii) providing debt relief to distressed economies, and iv) investing in foreign energy, mining, transport, and infrastructure projects. While many of these tactics of Chinese corporations may appear to be market-driven, the state has laid the foundations for them by establishing strong links with mineral-rich nations. I also analyze data on state funding and innovation and show how China has outpaced its competitors. The Chinese state has created an environment in which private corporations can harness technological innovations and adapt them for practical use. In this paper, I also present policy proposals for the U.S. to reduce its current dependence on China for critical minerals, advocating for the U.S. state to heighten its role in shaping domestic industrial policy and promoting international cooperation.