How the US-China Relationship Determines Our Energy Future

In this episode we explore the complex relationship between the US and China in the context of climate change, technological innovation, and geopolitics. Our guest, David Victor, shares insights on supply chains, energy systems, and the future of international collaboration.

Let us know what you think at podontherise@gmail.com!

00:00 Introduction
10:32 Personal Experiences in China
14:37 Are China and the US the two indispensable nations for climate action?
17:37 What is the Carbon Border Adjustment Mechanism?
22:28 The US vs China
29:18 Using the Cold War to understand the US China relationship
35:09 What are the different energy strategies used by US and China?
41:08 Planning Systems: China vs. the US
46:38 David's Final Thoughts
49:07 Outro

Keywords: climate change, US China relations, energy transition, innovation, geopolitics, supply chains, decarbonization

Show Credits:
Vishrudh Sriramprasad, Producer
Claire Davis, Theme Music (Long Gone, Get It Right) | @clairedavismusic

Kheya Patel, Art | https://kheyapatel.com/

Contact: podontherise@gmail.com

Transcript

SPEAKER_00 0:00

When I was a in college and graduate school, we were in the tail end of the Cold War, uh, the other Cold War with the with the with the Russians and Soviets. And during the Soviet Cold War, there were very clear lines of demarcation. And frankly, the innovation systems outside a few areas, a few parts of geology and some some cybernetics and and so on, the innovation systems weren't intertwined. The economies weren't intertwined. You know, we bought some oil, they bought some grain, we had conflicts over chicken, like, but it was basically not central to the economy. And for me, it was a very formative experience for me that in the middle of my graduate training, I spent a summer, just before the wall came down in Vienna at an institute that had been set up during the Cold War as a place where the American scientists and the Russian scientists could get together and work on apolitical research topics. And so I got exposed to all of that, and it was to me striking how totally disconnected, you know, down to the way we designed our cars. That's not today. Today is the exact opposite. The two economies have been deeply intertwined, and there's this gain from collaboration. We talk about winning and losing. I'm writing an article right now, and this is how China wins. So the language of winning and losing is powerful, but the whole idea of a real innovation is joint action.

SPEAKER_03 1:25

Hello everyone, welcome to the On the Rise podcast. I'm your host, Marcus Extavor. In today's episode, we're going to China. That's right, we're talking about the relationship between China and the United States and why this particular relationship is so important for working on climate issues and energy and a whole host of other things. These two nations are often described as fierce rivals. In this episode, we also speak about how do we balance that competition with collaboration. Now look at China and the United States are important for a million reasons, but the most obvious is that they are the two largest geopolitical powers in the world right now. From the perspective of climate and energy, the United States has arguably the most mature energy system, whereas China has probably the most dynamic and energy system that is changing the fastest. The other thing that's interesting about these two countries is that they are the two biggest emitters. The United States is by far the biggest historical emitter. If you add up all the carbon emissions up to today, the United States is in first place by a mile. But if you ask who is emitting the most at this moment, the answer is China. So these are the two biggest emitters, two biggest powers, and the two biggest movers and shakers when it comes to the world of energy. A lot of folks in the Western energy world are looking at this relationship with a bit of curiosity, and they're looking specifically at China with, I think, a little bit of envy or maybe even fondness, which is a very interesting thing. It's not that I think people have forgotten completely about authoritarianism and the rule of law and individual rights and human rights. But when folks think about clean energy manufacturing or China's ability to make a plan and seemingly stick with it, the differences in our political systems, even looking at China and thinking, how do they just have the ability to just do it like Nike? Whereas here we're always squabbling and fighting and trying to muddle through our democratic process. I'm not saying I agree with these sentiments, but I am saying these are out there in the world. And a lot of folks that care about clean energy, decarbonizing, solving climate problems are looking at China thinking, huh, what is going on over there? And should we order a little bit of what they have and can we look off their test paper? You know, things like this. I have two guesses for where these sentiments are coming from. The first might be that Westerners are starting to realize that China is a peer. They're not your little sibling anymore, they're a peer. This might be a bit of a stretch, but I can I remember the time when I used to fight with my one of my younger sisters all the time, and then at some point I couldn't really beat her in an argument anymore. All of a sudden I sort of lost my taste for arguing with her, and I became quiet. You know, I was basically a sore loser older brother. I wonder if there's a little bit of that sentiment of like, huh, that other nation that some of us who are not as informed were used to thinking of it as a little pet now are thinking about as unequal. But there could be something else here. It could be less about what is actually happening in China and more about what's going on in the West and specifically the United States. There are three reasons that folks in the United States are a little bit on the back foot with clean energy right now, or certainly suffered some psychological blows over the last couple of years. So here they are. The first is the new administration in the United States. The federal government is not a fan of renewable power. They're taking active steps to undermine it, to try to undo deals, and to make it as difficult as possible for renewables to progress. There are also broader attacks on science, state scientists, and this doesn't feel very good in the community because most people that think about clean energy, think about climate solutions, think that we can become more prosperous and healthy by decarbonizing. Most of those folks like science. They respect science, they think it's a good idea, they think it's valuable in our society. So that part hurts. And I would say just general muscular rhetoric, you know, having the president say that wind turbines are ugly, like I don't care if people think winter vines are ugly or not, but having him actively undermine some of our best solution ideas doesn't feel great. Second idea is the AI thing. Not just the AI thing, but specifically the idea of expanding the power grid. This is new in this part of the world. I've mentioned before that I used to work at a power utility. The idea that the power grid needs to grow and expand, or that we need more power stations or just more electricity in the society, that has not been how the United States has run for the last one or two generations. It's actually been decades since we were actively expanding the grid and growing new numbers of power stations or active generation more than around 1% a year. Same in Canada, same in Europe, same in many high standards of living countries. All of a sudden, people are now, because of the rush of AI and the demands on power, people are talking about expanding the grid. We need more power plants. Where are they gonna go? What about the transmission lines? What about the costs? So that conversation is in the air is a good thing, I think. But whenever you talk about electricity and the hardware and software of electricity, most of that stuff is made in China. And guess where the grid has been actively expanding for decades in China and frankly, many other parts of the world. So this is another reason I think folks are looking to China because it seems like the action, at least on expanding new forms of electricity, is happening there. The third reason, I think this sentiment may be bubbling up that how come China has all the fancy things these days, and in the West we don't have them anymore. I think it may come from the fact that we're living in a tariffs world right now. That means all nations, many countries, many governments, many organizations, many businesses, many families and communities are thinking about supply chains. Yes, this is a very dorky insider word, but where do we get our stuff from? Where is it made? People are reconsidering trade relationships. Maybe we should have this trade partner, not that trade partner. And specifically, because people are starting to think maybe we should build more stuff at home. Sometimes it's called reshoring or onshoring, domestic manufacturing, national sovereignty. People use all kinds of phrases, but the basic idea is maybe we should make more stuff, do more stuff inside our own borders. Okay, fine. And then that means you're naturally thinking about manufacturing. Where do you get the skills? Where do you get the parts? Where do you get the equipment? Where do you get the raw materials? Guess who has all that stuff? China. China has been the manufacturer of record for the world for many years now. Not just cheap plastic toys or cheap toasters, which are sort of a miracle of supply chain engineering, but advanced products as well, things that we don't think of as simplistic or easy to do. I'm not saying any of those things are easy to do, by the way. It's all quite sophisticated, but the point is, manufacturing to first approximation generally does not take place in the United States, in Canada, in Europe. It takes place in China and in Asia and many other places. So a little bit of manufacturing envy, I think, may explain some of this fondness or curiosity about looking at China. To help us unpack the relationship between the United States and China and what it all means for clean energy and climate solutions, I'd like to introduce today's guest, David Victor. David Victor is an important voice in this field and a professor at the University of California, San Diego. That's his day job. His main interests and writing areas and thinking and focus areas are in public policy and innovation and energy and decarbonization and how these things can all flow together. David and I are actually colleagues at the National Academies of Sciences in the United States, where we're both specifically working on a review of the part of the Department of Energy in the US that focuses on innovation, which is called ARPA E. So I've got to know David pretty well through that process and through and get familiar with a lot of his thinking up close and personal that way. And if you're a nerd for energy innovation in the United States, the ARPA E National Academy Report is supposed to get published later this year, I think late summer or early fall. So watch out for it. Now, just before we turn over to my conversation with David Victor, there is one last concept I want to introduce and frame for you very quickly. It'll help set up the rest of the conversation. That is an electrostate versus a petrostate. These are words that you hear about in the dorky energy press. You're even now starting to read about it in popular media. A petrostate is a country or a nation or a society that's fundamentally organized around oil and gas. All the energy comes from oil and gas, everyone uses oil and gas, all the manufacturing is oil and gas based. Arguably, every country in the world is organized this way today, since 80% of all the world's energy comes from oil and gas. Electrostate is an emerging thing, maybe, of the future. People often describe China as an emerging electrostate. And in the name, you may be able to guess what it means. It means the energy of the nation, the manufacturing, and the use of energy and services is fundamentally provided by electricity. So think electric vehicles, not combustion vehicles. Electric motors in factories and pumps, not diesel-based motors and pumps. You get the idea. The dichotomy is not perfect, but they are two ways of organizing a society with the energy lens on. And again, I'm introducing it because you hear these phrases more and more. Without any further delay or introduction, here is my conversation with David Victor. Have you ever spent any time in China? And when? I've I've been once for like I had one month-long trip. It was sort of a business trip. I went to a bunch of cities. So one very long visit. But that's it. And that was six years ago. I'm curious, like, have you spent a lot of time traveling there and where? Is it something you've done continuously over time?

SPEAKER_00 10:49

Yeah, I've probably been 30 or 40 times. Um, so I've never gone as a tourist except in Hong Kong.

SPEAKER_02 10:56

Yeah.

SPEAKER_00 10:56

Um, I've been a lot around Beijing and Tianjin. Yeah. Um, I've been a lot around Shanghai, around the industrial production facilities, um, inland from Shanghai, uh, Guangzhou, um pro uh um and the the the kind of Shenzhen area. Yeah I remember Shenzhen when it was almost nothing. Um and I remember when I first went to Beijing, you know, which was a long time ago, like 2003 maybe, that I would do a morning run through Tiananmen Square, like that was a normal thing to do. Um and then the pollution came and nobody and all kinds of other things came, and then nobody was running through Tiananmen Square, and there were bicycles all over the place and so on. And then the pollution has been cleared up. People still don't I I don't do a morning well, probably I don't do morning runs anymore, but um so things have changed very ra very rapidly. It's like industrial development on steroids. And then I've been to Hong Kong a lot and have watched it change less on the physical side and more on the cultural side.

SPEAKER_03 12:00

Hong Kong is a place I've never been.

SPEAKER_00 12:02

One of the most extraordinary cities in the world. And dying of the city. I'm a huge fan of water. I like being on water, that's what I like to do when I'm not you know sitting on my desk. And one of the joys in Hong Kong is to be able to approach the middle area called Central by ferry. So you can go by tunnel and you can go by subway and and and and all kinds of other conveyances, but I always go by ferry because the being on the water and seeing the center part of the city approach you is just a magical sight.

SPEAKER_03 12:34

Yes, it is definitely on my list. I was the when I was there, it was this five-city tour because I was um I was managing a bunch of field visits and engineering performance tests at CO2 remediation technology facilities spread around the country. And so that's why I was bouncing around. So I was basically like with a bunch of technical contractors that I'd hired, with a technical translator, which you know was my lifeline. I was really there to sort of supervise while the technical contractors would do their audit work. But I was in a series of unheated warehouses and factories uh all over the place, but also a lot of sort of more polished meetings, uh academic institutions and stuff. But it really interesting, it was we were in Chiang Chun, which I had never even heard of before the trip. Uh I was in Hangzhou, I was in um Suzhou, Shanghai. Uh anyway, really it just made me think like I want to come back here.

SPEAKER_00 13:36

Um, one of the many things I find so impressive is the attention to the celebration of what's going on in the industrial facilities. So you go there and you're in a factory, and it used to be as a factory that you know might be low-tech, but they were producing a whole bunch of stuff, basically inputting a huge amount of labor and some capital and producing but there was an amazing center that told you what you're doing. Now you visit a car factory and you're visiting basically a whole bunch of robots, almost entirely made in China, some made in Germany. Uh, and then you still go to this amazing center where people show you what they're doing. And so the attention to the story about Chinese industrialization, both at the political level and at the level of the individual firm or industry, is is just extraordinary. And I don't uh you don't see that really anywhere else in the world to some degree, you certainly see some of that in the in the great in Indian institutions. But it it it's an extraordinary it's an extraordinary effort to tell the Chinese story.

SPEAKER_03 14:36

Uh I have some thoughts and questions about some of the mythology about the nature of innovation and technology and manufacturing in China versus the United States, you know, many other places, but let's use those two. And it's often described as a result of the cultural and political choices. And I'm not sure that's true. Anyway, I don't want to I don't want to get into it now, but just hold that thought. The point is like I was smiling to myself. I'm trying to imagine what would it look like for public reference of technology innovation in the United States? It's actually kind of hard for me to imagine that because that's not really part of our experience. Um but anyway, hold that thought. Okay, look, we uh, David, I think some of the things that we have in common is we care deeply about climate change. We think about it in terms of risk, we think about it in terms of solutions, we think about it in terms of broadening the conversation, maybe, and seeing that there's not just one single way to get at this, but probably several different ways. And a lot of those ways maybe we're not always looking at as closely as we should. Um, we've become colleagues through the National Academies, serving on the board of energy and environment systems there. Uh, we've also both been uh recruited into the ARPA E review panel. I know you've done a lot of that kind of consensus study work on other topics in the past. Um but I really wanted to chat with you when I was thinking about this idea of US and China competition and collaboration, if we could say that word, and what it all means for the climate file. Mish and I were chatting um before we jumped on the recording today, that there's so much conversation about USA versus China in a geopolitical context. And the but I don't hear a lot of that in the in climate discussions. And you're one of these people that I know straddles both of those things. And so what I'm hoping to do today is just get into it and start with uh a little bit of the background on um do you think it's true that China and the US are, let's say, the two indispensable nations when it comes to climate action? Um let's start with that question. True or false? Are those two the two indispensable nations?

SPEAKER_00 16:40

Well, you know, I have to worry about binary answers, but I'd say it's mostly true. You know, like the character and the Princess Bride, the Billy Crystal character, mostly dead.

SPEAKER_02 16:49

Yeah, yeah.

SPEAKER_00 16:50

Mostly true. Uh-huh. Um, it's hard to see how you, just in terms of the emissions, how you solve the climate problem without these two big emitters. They're not the only two big emitters. India's a big emitter, all of Europe to some degree is a big big emitter, although those emissions are are are shrinking. Not just because the emissions, the the quantitative emissions matter, but also because these are the two largest economies. So it's just not sustainable for the rest of the world to run off and start squeezing water from a stone at significant cost. Some sectors, as you know better than I, costs of think about steel or cement and something, the costs are gonna be high. Maybe they'll come down a bit, maybe they won't. And so this the and you see the response to that already in the form of the carbon border adjustment in Europe, which is a direct effort to not just get other countries to do more things, but to try and deal with the competitive effects of costly policies and regulations and so on.

SPEAKER_03 17:41

Aaron Powell Can you just for a second explain what the carbon border adjustment is? I think some people listening will be all too familiar with that and are probably rolling their eyes. But for other people, like they're not used to hearing the phrase like C BAM. Just very quickly, what is that?

SPEAKER_00 17:53

Yeah. Well, now I want to get the people who are very familiar to roll their eyes because they're like, this guy's explaining this thing and he's gonna explain it. He's a little bit, but but uh uh with that caution, I'll launch. Um so the Europe has consistent since the early 1990s, the consistent leader on climate change action has been the Europeans. Until the early 1990s, it was actually the United States on all international environmental issues. The US was a leader. If the US wasn't there, nothing was happening. Now, if the Europeans aren't there, nothing gets started. You might need other countries, indispensable countries like the United States, China, and India, but the Europeans get things going and they keep things going. And as part of that, they for a long time have had a cap and trade system inside Europe, meaning they put a cap on most emissions, not all, but most emissions, and then they've allowed people to buy and sell the right to pollute under that, called a cap and trade system. I'd say that the economic evidence suggests that a tax is better than a cap and trade system because a tax always sends a clear price signal and so on. But the genius of the European approach is they adopted this cap and trade system because it was easier to treat it as an environmental measure, which is easier to pass in European law than a fiscal measure, which requires essentially unanimous vote. And so they passed this thing as an environmental measure. It's a cap and trade system, and then what they're doing is managing it, they're managing the flow of credits into and out of the system the way a central banker manages the money supply, in effect. And they are in effect managing prices. So they've created a tax in Europe that's now applying to a growing fraction of emissions, all industrial emissions for a long time now, airline emissions and so on. The problem in that is it only applies to Europe. And so if a European steel operation, aluminum operation, airline is competing with somebody on the outside, they face higher costs in Europe than their competitors. Some of these are commodity businesses, and so that shows up immediately in the bottom line. The solution to this is to start with the big emitting commodity sectors, big metals and so on, heavy manufacturing, and to require anybody anybody who makes a product outside Europe to, in effect, face a tax that equalizes the cost if they had been inside Europe. And the accounting problems are Legion and it's a full employment program for consultants, so bravo consultants. That said, it politically is responding to this growing pressure inside Europe, reflected, for example, there's a big report last fall by Mario Draghi called the Draghi Report, which lays out all of these problems that European industry has in competing. And one of the solutions, one of many solutions, is to try and get European costs under control, or at least more equalize the outside world. And the border adjustment mechanism or the carbon border adjustment mechanism, CBAM, that's a response to those pressures.

SPEAKER_03 20:28

Just one more on that. Thanks for laying that out. I always think about carbon border adjustment mechanisms, again, mostly looking at Europe, which is sort of where it's happening now and the it's being discussed in many other places. I think about that, you know, I'm gonna use the other T-word. We're living in tariff land now. I think of it as quite similar to tariffs in the sense that it's basically an import tax or a duty, and the person that pays it is the person that wants to import the thing. Um is that your understanding?

SPEAKER_00 20:54

Yeah. Um, with a big difference between current tariff land and um and the way the CBAM and the European track cap trade system are designed, which is the current tariffs, at least the ones that revolve around US policy, are basically a bunch of cowboys doing stuff. So they're upset about this, they're upset about that. There's a tariff here, then you get up to the deadline, and then it's relaxed, and so on. So you have no idea what's going on. There's a the quite often when people analyze these things, they think about uncertainty. And so we've got uncertainty. So, how do you manage uncertainty? You have a portfolio of actions where you assign the probability of the different outcomes and so on, and then you can have a weighted portfolio, and depending on how well you manage that, you can do better or worse than somebody else. Fantastic. The problem with current tariff land is it's not uncertainty, it's chaos. You don't know how to assign the probability to different kinds of outcomes, and so you don't really know what to do. And in since everything that's interesting in cutting emissions, deep decarbonization, people call it often, everything that's interesting in cutting emissions is capital intensive. If you're living in chaos land, then you just sit on your hands, and that's we're seeing a huge amount of evidence. The European System, for all its faults, for all the things the Draghi report lays out quite accurately, and you know, there's a lot of kind of self-flagellation going on in European industry about all the competitiveness problem. For all of those faults, at least you know what the rules of the road are. And they're clear, and there's and you have a sense of who's making what shots and why. And so your capacity to manage uncertainty is much greater, and your exposure to chaos outside what's happening in the rest of the world, especially in the United States, your exposure to chaos is much lower.

SPEAKER_03 22:32

Okay. So on that, on that theme, um, I want to pick up on the idea of chaos and predictability. And just I want to paint what I think is the typical uh picture that we hear about China when it comes to technology innovation, and you know, maybe see if that's as accurate and useful as we get into climate. But here's what I think we hear a lot of. We hear a lot of uh from this part of the world China is the enemy. Why? They're the enemy because they have a different political system, it's not good. Um, and in particular, they are always copying and stealing technology bad. Therefore, we are in some kind of arms race for technology in AI and manufacturing and rare earth metals and all these other things. And actually, that's why I think there's these this is connected to the climate file. But we think of you know, China, whether they're a huge country, far away, culturally far away, and we're told that China is a gigantic enemy. Um how much of that, I know those are huge questions, but how much of that and this I the ideas of we have freedom, we have democracy, that's why we're good at innovation, whereas they have uh control, but they have central planning, and so that's really great for their development of, let's say, new metals or aluminum smelting, or you know, that heavy capital-intensive stuff that you need to decarbonize. I think some of those are myths, some of those are true. I'd like you to help us unpack that a little bit. And I know one of the things that we had chatted about before we started, maybe you can get to this too, is what are what are some of the things about existing relationships that China has that we probably don't know about or think about too often, or the average person here might not think about too often.

SPEAKER_00 24:06

Yeah, so a lot of questions. Let me start and go back and forth. First, I think the arms race concept is the right metaphor. I mean, some of it literally is an arms arms race. There's no question that China's a rising power. Uh the United States is not a declining power, but power is diffusing in the international system. And as a general rule, when power is diffused across many different centers, um, the world is often dangerous, you know, unless you have a skilled balancer of power, as we saw for some parts of European history. But for the most part, the diffusion of power and the lack of clear authority is is um uh leads to a rough neighborhood. And we're we're leaving a period when the neighborhood was relatively stable and ordered into a period where we've got more fragmentation, uh uncertainty, uh, less clear authority, and then you add to this all the chaos that's going on, and and that's a that's a very, in many respects, a scary world. It's also a world where you know there can be lots of innovation. What we're seeing in terms of firms is is firms and governments trying to create these pockets of stability. And I think that's important for those of us who think about innovation, because innovation is a patient, complicated, long-time horizon process, uh, and you need those pockets of stability. And where you can find those pockets of stability, which might be in parts of the US, and they're gonna be in parts of China, and they're gonna be in Norway, and on those are the pockets that are gonna all have more in common with each other than the territorial, than than the than the territorial boundary. And yet the politics are more or less organized in territorial terms, and that's where the arms race comes in. Um I find the AI stuff to be particularly interesting. I'm I'm a consumer of the AI world. I'm not a you know frontier AI researcher, but I'm consuming very, very quickly, like all of us, and realizing that everything you consume changes. But one of the things I found to be most interesting metaphorically is the race to artificial general intelligence. So this AGI race. And I don't know whether to know whether that's the right way to think about it or not. It feels mostly wrong to me. It feels like this idea that there's a bright line binary point where once you're there, you AGI has been reached and there's a lot of art and there are lots of losers, which is the way some of the podcasts refer to it. Um uh I I all that feels wrong to me. I don't have the qualifications to say no, that's not right, but it all feels basically wrong to me that there's going to be variations of getting over finish line. But to me, what really matters is its political impact. If you believe that everything is about getting to AGI first, then nothing else matters. The impact on the democracy, the impact on the military structure, the like none of it matters because once you get to nirvana, then you can change all the rules for all the non-nirvanas, and then boom, you're in AGI and you won. And since the premise of all that feels wrong to me, I find it sociologically interesting, but deeply worrying as an analyst because you see so much of the enterprise now being oriented in one way or another around that arms race to AGI. And it also means that a lot of what really matters in innovation, which is collaboration, including collaboration across borders, you know, joint scientific papers, joint patents, cross-licensing, joint ventures, like all the stuff that doesn't get talked about when we talk about tariffs, which are literally border measures, but joint ventures are ways that you move IP across borders. It's it's all the stuff that's making that harder right now that worry me the most. And when you start to see, you know, joint papers uh uh between Chinese and American scientists, the number of joint papers go down. You see the just chaos we have in the university world about Chinese students not coming or going home, you know, the the retention rate, the the staying rate has dropped significantly. It's still much greater than 50%. Like all that tells me that the two systems are are decoupling to some degree. But one last comment on this and then pause. Take a breath. Um When I was in college and graduate school, we were in the tail end of the Cold War. Okay. Uh the other Cold War with the with the with the Russians, with the Soviets. And during the Soviet Cold War, there were very clear lines of demarcation. And frankly, the innovation systems outside a few areas, a few parts of geology and some some cybernetics and and so on, the innovation systems weren't intertwined. The economies weren't intertwined. You know, we bought some oil, they bought some grain, we had conflicts over chicken, like, but it was basically not central to the economy. And uh for me, it was a very formative experience for me that in the middle of my graduate training, I spent a summer, just before the wall came down in Vienna at an institute that had been set up during the Cold War as a place where the American scientists and the Russian scientists could get together and work on apolitical research topics. And so I got exposed to all of that, and it was to me striking how totally disconnected, you know, down to the way we designed our cars. That's not today. Today is the exact opposite. The two economies have been deeply intertwined, and there's this gain from collaboration. We talk about winning and losing. I'm writing an article right now, and this is how China wins. So the language of winning and losing is powerful, but the whole idea of a real innovation is joint action.

SPEAKER_03 29:23

You you talked about your experience about uh sort of tail end of the Cold War, or I mean, I can't believe we have to call it the other Cold War. Uh, but that sounds appropriate. Well, you know, we're now name numbering financial crises. Well, that's the thing, yeah. Uh it'll be like the um, well, this is morbid, but it'll be like this storm naming system, right? Yeah, no, exactly. We should have a Cold War naming committee. Yes. Maybe trade wars too. Yeah. Um when I was a graduate student, so I was you know thinking about lasers and optics and photonics, and there was almost like a running joke. Whenever we would be discussing one of the really deep sort of theoretical advances in that field, condensed matter physics as well, like material semiconductors, you know, this is the stuff that led to electronics, basically. And it's the stuff that will lead to quantum computers, this is the stuff that will lead to high temperature superconductors if that ever becomes a thing. It was the foundational science of that. And but especially in lasers, right, which are everything from weapons to innocuous scanners at the grocery store to eye surgery tools. There was a joke which was, yeah, whatever American or Canadian or Western scientist had invented something, the Russians would claim that it had already been invented, but we just didn't know about it because they published it a few years before in Russian journals. So the point was there was a time when no one in the English-speaking world, certainly nobody here in this part of the world was trying to learn Russian. In retrospect, it sounds ridiculous. Um, but there was a real sense of there were just two worlds. You know, growing up in science, you're sort of taught that it's one of the most global things and you can really communicate with other people through this language. Um it was interesting to hear you talk about that from then. And then you also said that is not the case now because with respect to AI, I feel like we were at least being told that there are two systems. Like, remember when Deep Seek came out and everyone lost their minds? It's like, where did this come from? We were so caught off guard. So I mean, do you still stand by the statement that you really think things are um a lot more integrated than they were in the past? Uh, and certainly during the Russia-US Cold War?

SPEAKER_00 31:23

By comparison with the Russian system. I mean, I look at my own experience. So I I if anything, my education was heavily biased in the direction of knowing, of knowing a lot about Russia and spending a lot of time there. Okay. Um, learning the language. I I I don't speak, I understand a fair bit of Russian. I was married for a while to to an amazing Russian scientist, too, and she had two two great kids. I was their stepfather. I mean, uh I there are all kinds of reasons why I sh why I'm already biased in the direction. And in graduate school, I went to MIT in the um uh in the public science department. But the real reason I was there in the public science department is we had an amazing defense and arms control program with Jack Rowena and George Rathjins and Karl Kazan and a whole bunch of other people who knew a lot about the Soviet Union and people who were fluent in Russian, we studied the Russian system, we we all studied and looked at how many scientists were on the Politburo. And so all of that, despite all of that, the first time I went to Moscow was in 2005. There was just no reason to go. And it was hard. Whereas the moment I started working on things, energy-related things, that implicated the Chinese economy and the Chinese electric power system, I went to China. And now I've been to China dozens of times. So I don't speak Mandarin, but um I'm paying a lot of attention to the debates there and to collaboration, and I'm on a bunch of papers with Chinese co-authors. So it's a really, really the first time I tried to collaborate with a Russian scientist is while I was a graduate student, and I was at YASA, International Institute for Applied Systems Analysis, in Vienna, south of Vienna. The Austrians at the time they were a neutral country and third man and spooks and cloaks and daggers and wiretaps, and it was great, really interesting. And the first time I tried to collaborate with a Russian scientist was a Russian political scientist at the Russian Soviet Academy of Sciences, then Russian Academy of Sciences. We were studying the backgrounds of arms control negotiators and how the backgrounds might have affected the way they negotiated and the outcomes of arms control negotiations. It was a dumb study. It had all kinds of methodological flaws. But I was 27 and I'm gonna cut myself some slack. It was a stupid study, but it was interesting. Here we are doing this thing. I'm sitting in my office one day, the phone rings. It's the American Embassy. Okay. And there's some officer in the American Embassy grilling me, saying, Why are you doing this research? And do you know that you might be releasing secrets? And they said, Well, we're just talking to people like on the public. Well, you should stop this work. Like these guys were bonkers. Who called you? Like, or not the person, but like what part of the what part of the government? It's like the the security at the U.S. Embassy in the United States. Interesting. Okay. And I don't remember the person's name. I thought the whole thing was amusing. It seemed like that was going to be a barrier to getting access to the U.S. delegation at that point. Word was out. But um, you know, you hear more stories about this. Now, of course, we're having this in terms of national security, and there are real areas of conflict and threat between the United States and China. And yet at the same time, until we begin to see this unraveling that just happening now, the the collaboration between the two scientific enterprises is is truly extraordinary. And as you say, the Russians were way ahead of us. Some of this is hyperbole, some of it's real, we're not entirely sure all of it, but they were way ahead of us, or they were defining the world in a bunch of areas, including areas relevant to climate research. You know, they were a key part of the International Polar Year and the Geophysical Year and the Measurements Program. And yeah, we were doing measurements in part because we wanted to know where to put the submarines, you know, under the ice. Of course we were doing that. There were dual use for this, but they were they were right out there, and the the the Soviet scientific enterprise in some areas was was very impressive. All right.

SPEAKER_03 35:15

Okay, so we're we're starting to sort of map out some of the background and collaboration and some of the challenges that are coming up, some of the very significant and serious ones, some of the other cultural ones. Um I'm very worried that this trade war uh and the tariff regime, and generally the idea that the United States and China are uh geopolitical adversaries, I'm very worried that this is gonna lead to bad outcomes for climate risk, that it may delay decarbonization, that it may delay or stymie cooperation. Um and that's why, and I wanted to talk about this. It's it's very interesting to think about those countries more generally, but I'm thinking about that. So before we kind of dive right into that, do you think you could lay out for us, just at a really high level, for somebody that doesn't think about this every day, are there different the question is are there differences between the basic strategy of attacking climate and energy and agricultural issues in China and the US? Is there a difference? And roughly, if they are different, like what are they? Just in a couple of sentences for each.

SPEAKER_00 36:21

Yeah, sure. There are some differences. The role of state enterprises in the Chinese economy is much greater.

SPEAKER_03 36:29

So if you have product So hold on, when you say state enterprise, this would be like a state-owned company. Yeah, it's a state-owned company. Essentially, all electric power grid is owned by state. This is in Canada, we have several public-private organizations. Like I used to work at a power company that appears to be a private company, but the chairman of the board is the elected energy minister. So it's kind of a creature of the government. But I don't think this is a pretty com a very common thing in the United States, right?

SPEAKER_00 36:55

No, in fact, this is this so I a lot of my research is about industrial field of what's called industrial organizations. So it's the interaction of technology and policy or regulation, how it changes the structure of industry. Like are firms big or are they small? Okay. Is it easier for new firms to enter into the marketplace or not, which affects terms of competition and incentives for innovation? So that's that's kind of a big part of the research that I do. And it's interesting to teach that to Americans about the global energy system because the Americans are at a tremendous disadvantage because instinctively they have almost no experience with state-owned enterprises. Well, what do we have? We have TAA, we have Bonneville, we have LADWP, the Los Angeles Power and Water Company. US Postal Service? Is that would you consider that a lot of yeah, and and their experience with the Postal Service is let's just say not a positive DMV, you know, and and so there they don't think that that the state can be competent, and they don't think that the state is in the middle of making profound decisions, even though in fact some of our state companies, like LADWP, are often doing that. We rely on private enterprise in various ways, or private enterprises regulated, like most of the electric companies. The big electric companies in the U.S. are mostly privately owned and then regulated. Smaller ones are co-munis and co-ops owned locally. Then you've got this, you know, more than 3,000, this kind of soup of different kinds of companies and and so on. But it's very hard to teach Americans about how the heavy iron of in of energy works in most of the world because when they think of a big oil company, they think of Chevron or Exxon or BP or whatever, which are actually small oil companies compared to Saudi and Ramco or ADNOC, the Abu Dhabi company.

SPEAKER_03 38:32

I'll just say too, I want to I I think I cut you off, but I um the idea that the state is just a bunch of bumbling idiots and that the private sector specifically is always more efficient. That's such a natural American idea. We hear it all the time, every day. Um I remember when the uh when Obamacare, the Affordable Care Act, was being voted on and passed into law. You know, the way to attack that was to say, do you really want to turn the doctor's office into the DMV? Because every American, you know, the idea is every American will roll their eyes when they hear DMV because it's like, the lines are long, it's annoying, why do I have to fill out this form? Blah, blah, blah, blah, blah. Anyway, you you were saying that China has a lot of state-owned enterprises.

SPEAKER_00 39:11

Yeah, so so and but the contrast is already revealed. The American image of our system. Our actual system is yes, there is a big role for private companies. There's often a big role for public-private partnerships and doing research. There are a bunch of enterprises that are that are co-funded, basically co-funded research in one way or another, or you have state, you have government-funded research that then is passed on to private companies. The Baidol Act made that much easier and has been really profoundly important for biomedical and computing and a bunch of other innovations where the IP can move very quickly, uh, and that helps private enterprise uh scale things up. But the idea that the myth that the American enterprise and the and and the American industry and government is somehow incompetent, that myth is, of course, also completely false. There's huge variations, and there's growing evidence that some parts of our innovation system, like those backed by philanthropy, are better at taking risk than other parts of government. Um so it's a it's a very complicated mix. That's the American system. The Chinese system is quite different because the role of the state is much more omnipresent. It doesn't always mean that they're more efficient. You they've got all kinds of problems where the government decides we need to be big into batteries, and next thing you know, or solar, and next thing you know, you've got overproduction, excessive capacity, all kinds of bizarre political interests that could keep overproducing and dumping these products on global markets. That produces trade conflicts and trade wars, and then you have something like the current situation where you've got there's a real story there about excess capacity that's been subsidized in China, and then also a real story about incredible innovation and productive capacity and technical skills there in China. And disentangling the two is almost impossible, and thus, whatever, it's like one of those inkblot tests, whatever whatever butterfly or demon you want to see in that story, you can find the data to try and to try and make that. But the but the the really big difference is is the difference in the role of the state.

SPEAKER_03 41:12

We often hear that uh people in this part of the world, I think let's say anyone that wants to see things like large infrastructure built. Let's say you're a fan of, I don't know, geothermal electricity. Okay, that takes a lot of money, it takes time, planning, permitting, community involvement. It's not something you just do three people in all you know in your basement. Um bridges and airports, roads, pipelines, whether it's for water or natural gas, should we build this or that mine, that kind of stuff. Um people here that are frustrated by the slow pace of the building or the access to capital or whatever, whatever issue they may be dealing with. They will look maybe fondly at China and say, oh, look at them with their five-year plans. Wouldn't it be great if we could just get our shit together, make a plan, stick to it? Uh I never really know what to make of that because I'm not as familiar with the Chinese political system as you. Do you think that is roughly true or a little bit true, or maybe a misnomer? How do you think about should we be jealous of this five-year planning cycle or not?

SPEAKER_00 42:12

No, I think it comes with huge costs as well. First of all, it's it's a completely hypothetical activity. So we could imagine we were excited about the five-year planning system and the huge allocation of capital according to the five-year planning system. Uh, if you think that's gonna happen here in this country, I don't, then I want some of whatever they're smoking inhaling. I mean, it's just like that's not gonna happen. Yes, that is meant to be. And in that sense, it actually gets in the way of serious analytical thinking and and policy analysis. All that said, let's talk about it for a moment. Interesting. So the the the the planning system makes it easier to set internal goals and also makes it easier to reorient things the state has a lot of control over toward those outcomes. Land, capital, people to some degree. And so when the when the state is very powerful and wanting to do create these national missions and back and back them, it can do a whole lot with the five-year uh planning system. But I'll say two things about that. One is it can also make a whole lot of mistakes. Um and it can excessively allocate capital to various kinds of projects and not realize it for a long time, and then you have all this excess capacity, and then what do you do with that? You try and dump it on global markets, and so the you know, the China shock is a mixture of China joining the world trading system and this competitive engine, and then also periodically with excess capacity, and including labor in some cases, just dumping that into the global system and creating uh shocks locally that had then political reverberations that we're all that we're all that that we're all talking about. So, one caveat in all this is the problem of error. People look at the planner and they selectively look at the outcomes where the planner seems to have done a good job, which may or may not be true. I'll talk about that in just a moment. And then they say, wow, the Wizard of Oz is there, and the Wizard of Oz has been pulling all these levers, and the steam's been coming out of the machine, and the capital's been going to the right place, and so on. Let's do more Wizard of Oz. And in reality, um, the Wizard of Oz is making all kinds of mistakes. The Wizard isn't really a wizard, and on and on and on. So that's one big caveat here. The other caveat is we have to think about this, although we're interested in climate and energy, we have to think about where and how the Chinese government is doing this with reference to its own political ambitions. There's one of the most interesting books to teach to master's level students who are studying politics and policy analysis analysis and so on. It's a book called The Logic of Political Survival. It's all about how autocrats or Democrats obtain and hold on to power. And the reason democracy is what it is, is because the Democrats lose power regularly, and the party has to figure out how to attract people, which requires sending, doing things that produce benefits to a lot of people also known as voters. Whereas the autocrats got a really different story, because the autocrat can r uh obtain power with a relatively small group, a small group winning coalition, a selectorate, in the in the language of my colleague Susan Sherk, who's a China expert, is no accident that the concept of a select.

SPEAKER_03 45:17

Wait, say that word again, I don't know what selectorate.

SPEAKER_00 45:19

A selectorate is the subgroup of the population that controls who gets power. The group who selects, I'm with you. And so in China, the selectorate more or less is the party, and under Xi, the selectorate has become a subset of the party, which is Xi aligned. Why do we care about this? We care about this because if the state is all about allocating benefits and costs in ways that keep the party firmly in control in a in a very autocratic, Xi-like way, then the state's gonna be very aggressive around these kinds of five-year planning systems and so on, but they're disproportionately gonna be selecting things that generate political benefits back. Whereas the kind of lighter touch version of Chinese autocracy is the state gonna try to create some national champions here and there, and then is allocating quite a lot of authority to the different provinces who can go off and do stuff. That was the Chinese economy before Xi rose to power, and that's the part of the Chinese economy that has a blend of more private-like things or private activities connected to government, getting benefits like free land and so on. And so you've got these different methods of autocratic control in China intersecting with the um with the system of planning that has this really big impact on when and how they're very good at certain technologies that affect what we care about, which is the climate.

SPEAKER_03 46:38

There are a lot of these threads I think we could go deeper on. We had talked about sort of a top five game, uh, top five things the average climate curious person around here should know about China, but probably does not. We may not have time to go through the full thing, but just in closing, I'd like to offer you the chance to either um, like for instance, the thing that the idea that rare earths are not rare. That was one of my top five. Like, I don't think people know this for obvious reasons, it's in the name. They're not that rare. We can get them, we can totally develop them. Canada has a huge deposit, we're trying to develop so far nothing, maybe one day. Um any closing thoughts about things that we really don't know about that we need to know more about as we think about China, US collaboration, and the energy transition. Um but I'll also invite you to share maybe some of those top five things if they fit under that.

SPEAKER_00 47:27

Sure. Let me say two things. Or maybe three, inflation's back. Um first, this is not our grandfather's China. Across a wide range of topics, the Chinese are at the technological frontier to an even more profound degree than was the case in working with the Soviet Union. So the gains to us from collaboration are big, and they are both ways. Um second, there are things we can do to collaborate that the Chinese and the Americans on both sides want to do. Think of these as safe zones for science. Three senior American scientists and three senior Chinese scientists wrote an essay in Nature in January, laying out a vision for how you could collaborate in time in time in tough times. And you have to be very strategic. You have to identify things that both sides are good at doing, and there's a gain from trade, and that aren't going to blow you up politically. That's exactly what was done during the Cold War with the Soviets. And it was very, very pr pr productive. So I think that second point is is uh is really important. The third one is I'll say we're actually very exposed. We are much more exposed in this country than we recognize. Our entire innovation system in many fields depends critically on international trade in mind. Uh and it they're they're graduate students, they're young scholars, um, and they are disproportionately from China. And if you look anecdotally at what Chinese mothers are hearing about the experience of their children coming to this country, they're not so excited about sending their kids to this country. That could radically transform the American innovation system over a period of even months. And where some telltale science is already beginning.

SPEAKER_03 49:11

That does it for part one of my conversation with David Victor. Now, if you enjoyed this conversation, please be sure to check out part two. David and I shift gears in part two to thinking about climate risk. I give my pitch for a mental software update to think in terms of climate risk. David and I also get into rare earth elements, something I used to work in heavily and something that he knows quite a bit about. And the last concept we get into is insurance and risk and resilience. All really important and topical concepts when we think about climate risks, but also climate solutions. We love hearing your feedback on this episode and any episodes. You can always reach out to us at podontherise at gmail.com. That's pod on the rise at gmail. We love hearing from you. Thank you today to our producer, Vish, for putting this all together. Thank you to David for participating. Thank you for your feedback. And here, as always, is the music of the great Blair Davis. Let us know. More soon, y'all.