Moves to Bolster Clean Energy Supply Chains Aimed at Reducing G7 Dependence on China

By Shota Mizuno and Hiroyuki Tanaka / Yomiuri Shimbun Staff Writers

9:00 JST, April 15, 2023

WASHINGTON — Efforts to strengthen clean energy supply chains to reduce the dependence on China and counter Beijing’s hegemonic moves were among issues discussed at a Group of Seven meeting of finance ministers and central bank governors in Washington this week.

Making supply chains more resilient will also be on the agenda at the G7 Ministers’ Meeting on Climate, Energy and Environment in Sapporo this weekend.

At a press conference after the G7 meeting in Washinton on Wednesday, Finance Minister Shunichi Suzuki stressed that making supply chains stronger would lead to stability in the global economy and also ensure greater economic security. Having supply chains excessively concentrated in one nation is “undesirable,” Suzuki said.

Although Suzuki did not mention any country by name, his comment was aimed at China, which has emerged as a dominant player in the renewable energy field.

A number of nations are responsible for the “upstream” stage of the supply chain — the mining and extraction of minerals such as lithium and cobalt, and rare earths essential for clean energy-related products. China’s share increases in the “midstream” stage — refining and processing of materials — and the “downstream” stage, in which the final products are manufactured.

According to the International Energy Agency, raw materials used in electric vehicle batteries are mined in various countries. For instance, Australia supplies a lot of lithium and Indonesia is a major producer of nickel. However, China is responsible for at least 30% of processing in the midstream stage and just under 80% of battery cell production capacity.

The G7— which groups Japan, Canada, France, Germany, Italy, the United Kingdom, the United States and the European Union — is attempting to break free from the reliance on China, but efforts so far have been halfhearted.

If an emergency situation involving China were to occur and Beijing took steps such as using its market dominance as a weapon to cut off supply chains, the manufacturing of high-tech products and other items could be thrown into turmoil.

Also concerning are reports that the administration of Chinese President Xi Jinping is considering banning the export of technologies used to produce high-performance rare earth magnets.

There is one main factor behind China’s ability to seize the lion’s share of the refining stage of key minerals, according to University of Tokyo Prof. Kazuto Suzuki, an expert on international political economy.

“The refining process generates toxic substances, but China has loose regulations and can do the work at the cheapest cost,” explained Suzuki.

The G7 joint statement adopted on Wednesday featured policy guidelines for building resilient supply chains.

As this year’s G7 chair, Japan played a central role in compiling the document.

In mind are tax incentives, financial support and other assistance for nations that mine minerals necessary for the production of items including solar panels and electric vehicle batteries. Close cooperation with the private sector to transfer know-how on refining and processing technologies is also expected.

G7 members aim to enable nations mining these resources to also contribute to later steps in the supply chain, which would reduce China’s powerful grip on the midstream stage.

“Mining alone offers very little added value and isn’t very profitable,” a source told The Yomiuri Shimbun. “The G7 aims to build a framework through which it will be able to support the efforts of more nations to get involved in the refining stage, thereby contributing to those countries.”

According to Reuters, French Finance and Economy Minister Bruno Le Maire sided with Japan’s proposal to diversify away from China.

Le Maire said the G7 needed to be “more independent” when it came to the production of “electric batteries or other strategic goods.”

An Indonesian government official also welcomed a shift away from the reliance on China. “Making our supply chains more diversified also could boost our own bargaining power in talks with Beijing,” the official said in an interview with The Yomiuri Shimbun.

However, many emerging nations are reluctant to become entangled in a confrontation between major powers.

“The Global South is weighing up [their options] between China and the West,” University of Tokyo Prof. Kazuto Suzuki said. “The G7 will need to constantly make efforts to ensure that emerging and developing nations understand that they also stand to benefit economically.”