The big worry about China on the energy patch

As American and Chinese energy officials and scientists meet in Chicago this week, the trick for the U.S. is how to collaborate in the battery laboratory without spilling any secrets.

Two years ago, U.S. President Barack Obama and Chinese leader Hu Jintao (pictured above last January) pledged to develop energy together — to collaborate on how to sequester the carbon emitted from big coal-fired power plants, and bring the Chinese up to speed on how to develop shale gas, in addition to cooperating on how to make better advanced batteries.

But these are not all the same thing. Carbon sequestration and shale gas are one matter — here are areas where both countries have much stock in sharing. The battery part of the equation has been thorny from the start — both countries have singled out batteries as the potential enabling technology of gigantic new industries and are seeking a big breakthrough that, for example, finally makes electric cars economically comparable with the internal combustion engine. So neither side is going to reveal its secrets to its chief rival.

So it is that a final agreement on how to collaborate on advanced batteries will exclude discussion of intellectual property, said Khalil Amine, a leading battery scientist at Argonne National Laboratory, where the U.S.-China meeting will be held tomorrow and Friday. "I am not going to tell anybody what I am doing to develop advanced materials because we have the opportunity of patenting them," Amine told me. Instead, the two sides for instance will try to share tools that help to characterize and diagnose problems both face in the lab, he said.

With the stakes so high, energy has grown as a flashpoint between China and numerous countries. Is this irrational alarm? One can say with certainty only that all sides appear to be exceedingly cautious and protective.

At the Wall Street Journal, Patrick Barta and Cris Larano forecast more tension between China and its neighbors over oil drilling in the South China Sea. The Philippines and Vietnam are at odds with China over their oil exploration near disputed islands. Now China’s CNOOC is going to start drilling too, using a $1 billion offshore rig capable of working in deep water under typhoon conditions. The WSJ quotes Lin Boqiang of the Center for Energy Economics Research at Xiamen University in China: "It’s a race. This [sea] is disputed, it has a resource, and whoever can get more of it can get more," he told the paper. Since other countries are drilling, "why wouldn’t China?" At the Council on Foreign Relations, Joshua Kurlantzick writes that China is still "demanding almost the entire body of water."

Then there is the continuing friction over China’s restrictions on the production and export of the 17 so-called rare-earth elements, which are vital for hybrid and electric cars, wind turbines, and semiconductors for some solar cells.

The restrictions have been at issue since last year, when Beijing halted exports to Japan and elsewhere over what appeared to be a simple fishing dispute in the East China Sea. Since then, the question has appeared to be more complex, involving Chinese interest in developing home industries that use the elements and in earning more money for the rare earths that it does sell. As part of its industrial policy, Beijing is cracking down on black-market miners and sellers who have defied state quotas and shipped rare earths to Japan anyway.

Yesterday, Minmetals, a state-owned rare-earths processing and trading firm, said it is halting its rare-earths operations as of this month and called on everyone else in the country to follow suit, Reuters reports. Minmetals said the state’s annual production quota of 93,800 tons of rare earths has already been reached. The state is considering regulations to further tighten the market, the WSJ writes.

Coming right around to end use, Chrysler CEO Sergio Marchionne told an industry group today that big carmakers must begin planning today for how they will compete with Chinese car models that he thinks will inevitably begin penetrating the global market, reports David Shepardson at the Detroit News. Marchionne said:

Even assuming China were to export only 10 percent of what it produces, the risk we face in our home markets is enormous. We cannot afford to be unprepared for the ascent of China, reassuring ourselves of our invincibility. The excuse that we did not understand or that we underestimated the scale will serve no purpose.