Climate change policy has entered a new era. The growing row between the United States and the European Union over the impacts of the new American green subsidy regime makes that all too clear. Yet in many ways, this story is ultimately about China.

For the last 20 years, developed countries have used three main types of policy to cut their greenhouse gas emissions. Renewable energy mandates have required electricity generators to invest in solar, wind, hydro and geothermal power. Emissions trading schemes for energy and industrial businesses put a price on carbon. And energy efficiency standards have been progressively improved on a whole range of products from vehicles and white goods to homes.

Applied across Europe and North America, this policy toolkit brought notable success. Developed countries’ emissions fell sharply, even with economic growth. Green technologies – from wind and solar to electric vehicles – fell in cost and improved in performance as demand for them rose.

A virtuous circle followed: climate policy increased demand for green technologies, which reduced costs, which allowed policy to be tightened, which stimulated demand and innovation further.

The rub

There were two problems, however. First, much of the economic benefit went to China. From 2010 onwards China rapidly became the world’s primary supplier of wind and solar technology, along with underpinning minerals like lithium, cobalt and rare earths.

China’s dominance reduced everyone’s costs. But it also meant that, as industrial jobs were lost in developed countries, they were not replaced by equivalents in the new energy sectors.

Second, climate policy began to create political opposition. As emissions targets tightened, countries started to see the costs reflected in consumer prices.

The most dramatic response emerged in France in 2018, when a relatively small increase in fuel duty led the so-called gilets jaunes (yellow jacket) protestors to block roads across the country for over a year, even after President Emmanuel Macron withdrew the tax. In the US, congressional opposition stymied President Barack Obama’s plans for a climate bill – including a modest carbon pricing scheme – for the whole of his presidency.