How the US and China can seal the energy deal of the century

How the US and China can seal the energy deal of the century

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BY NEIL AUERBACH, OPINION CONTRIBUTOR - 03/30/17

When President Trump and China’s President Xi Jinping meet in April, Mar-a-Lago could become the idyllic setting for the energy deal of the century.

The U.S. trade deficit with China approached $350 billion in 2016. At the meeting, President Trump is likely to press President Xi on narrowing the massive trade deficit between the countries. Rather than steer the relationship into deeper peril by focusing on areas of division, both leaders can accelerate economic growth in their respective economies by focusing on areas of obvious overlapping commercial benefit. One such area is energy.

Notably, over the past several years, the United States has emerged as the world’s leading energy producer, a trend that President Trump wishes to continue. Despite China’s economic slowdown, it remains the world’s largest energy consumer. The United States is quickly turning into a net energy exporter, while China appears destined to remain a net energy importer. At present, however, U.S. energy exports to China are meager at best.

The United States needs to find new markets for its newfound wealth of oil and gas resources. Demand for domestic energy has declined. According to the U.S. Energy Information Administration, increased economic growth is unlikely to reverse that trend. The coal industry, whose sagging fortunes President Trump has vowed to reverse, owes most of its troubles to a more powerful foe than the Obama administration’s Environmental Protection Agency: the shale gas revolution, which has displaced domestic demand for coal with a cheaper and cleaner alternative.

The most natural place to find new customers for our abundant supply of oil, natural gas, and coal is China. China’s fossil fuel imports are in excess of $200 billion based on current commodity values and are expected to rise. Winning a sizeable share of that import pie could mean hundreds of billions of dollars for the U.S. economy over the next decade. Spread among all three fossil fuel categories, a major trade deal between the United States and China could create massive economic benefit for U.S. domestic energy producers, particularly the hard-hit coal industry.

President Trump should place a bilateral energy deal squarely on the table at the meeting. Linking the two largest economies and global superpowers more closely would enhance interdependence and hence global security. Tighter economic cooperation would favor compromise and collaboration over conflict, as nations economically intertwined are more likely to pursue a more benign foreign policy toward one another. For China, embracing the United States as a long-term energy supplier could advance its interests in at least three ways.

Avoid a looming trade war that would contribute to losses

Although both the United States and China would be sure losers in a trade war, the Chinese would likely suffer larger losses due to greater reliance on U.S. exports to stabilize a relatively fragile economy. While agreeing to substantially increase imports of U.S. fossil fuels, China should demand that President Trump end threats to impose unilateral tariffs on Chinese imports.

Soften U.S. opposition to the Paris Climate Accord

For China, investing in the low carbon economy has become very big business. Today, it occupies a pole position among nations in clean energy installations and leads all others in manufacturing clean-energy products, such as solar panels and wind turbines — collectively hundreds of billions of dollars a year. Just as importantly, China must transition to a low carbon economy as a matter of public health. With dense smog hovering over its largest cities, China views the Paris Accord as an essential part of its strategy to reduce reliance on fossil fuels. President Xi should press the United States to remain committed to the Accord, while allowing the Trump administration to claim credit for “improvements” to it.

End the solar trade war started by the Obama administration

The Obama administration’s decision to launch a trade war against Chinese solar panels was ill advised at the time and is more so today. Today, solar is the leading energy source for new U.S. power installations — and our second-largest domestic employer among energy subgroups. We imports billions of dollars in solar panels from Chinese suppliers every year, and those suppliers either pay tariffs or navigate around them. China should insist that the trade war end. The United States should happily agree, in exchange for enhanced tariff-free trade between the countries in fossil and renewable energy.

President Trump is the master of “the art of the deal.” Let’s hope he puts his energy into this one.

Neil Auerbach is founder and chief executive officer of private equity firm Hudson Clean Energy Partners and executive chairman of Sunlight Financial. He has traveled extensively to China during the past decade and works closely with Chinese clean energy companies. He was a member of the U.S. delegation to the first clean energy bilateral summit convened in Beijing by Presidents Obama and Hu Jintao in November 2009.

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