US cannot rely on allies to meet climate goals, warns Mitsubishi

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The Biden administration’s plan to rely on domestic manufacturing and supplies from allied nations such as Japan will “probably not be enough” to meet US climate goals, a senior executive at Mitsubishi Heavy Industries has warned.

Takajiro Ishikawa, chief executive of MHI America, the US arm of one of Japan’s biggest conglomerates, warned it would be “tough” for the US to secure the parts needed for a clean energy boom sparked by President Joe Biden’s Inflation Reduction Act (IRA).

“Onshoring, friendshoring, that alone is probably not enough,” Ishikawa said, referring to the administration’s strategy of reorienting supply chains to allies. Asked if the US would still need cleantech imports from China this decade, he said: “I don’t want to answer that directly. But I think America needs all supply sources to fulfil its goals.”

“For America to build and produce everything that it needs domestically, I think that’s tough,” said Ishikawa, adding that the US faced a “chronic shortage” of labourers.

The comments from Mitsubishi’s US boss come as the Biden administration embarks on a mission to compete with China in a clean energy arms race while also halving American greenhouse gas emissions and rejuvenating its industrial heartlands.

Ishikawa’s comments also echoed alarm from executives in other sectors over the US move to replace established manufacturing supply chains. On Monday, the CEO of US weapons maker Raytheon told the FT that “decoupling” from Chinese supply chains would be “impossible”.

Last week the Brookings Institution think-tank warned that clean energy should not become the “next victim” in a deepening geopolitical rivalry between the US and China, adding that collaboration between the two largest economies was “vital” to fight the climate crisis.

The IRA, passed last summer, offers $369bn in subsidies for clean tech manufacturing and deployment and has sparked a rush of investment into the US. Some of the tax breaks depend on manufacturing taking place domestically or without sourcing materials from “foreign entities of concern” such as China.

But China remains by far the world’s biggest cleantech producer and exporter, manufacturing most of the world’s solar panels, batteries and electric vehicles. It also dominates supply chains for lithium processing and mining of other critical minerals.

Ishikawa also expressed concern that the manufacturing boom fuelled by the IRA would put further pressure on an already strained labour market.

“In our factories here in America, we are having a chronic shortage of people,” he said. “We can’t hire enough people . . . to maintain our production to our full satisfaction.”

MHI operates 12 factories in North America that make products including gas equipment. It recently signed a deal with ExxonMobil to supply the oil major’s customers with carbon capture technology.

The company has also invested in US hydrogen projects, including a green hydrogen facility in Utah backed by a Department of Energy loan.

As relations with China have soured, the Biden administration has pursued a trade policy of “friendshoring” — an effort to redirect trade flows to allies. In March, the US signed a critical minerals pact with Japan and is talking with the EU about a similar deal.

But manufacturing capacity in allies such as Japan is also diminishing, Ishikawa said.

“When you think of a country like Japan, our population is declining every year. There is going to be a point in time where Japan is not going to be a manufacturing base as well for the rest of the world,” he said.

Meanwhile, the MHI boss urged the US not to abandon fossil fuels in the rush towards clean energy.

“America’s biggest asset is having access domestically to all the oil and gas it needs,” Ishikawa said. “America can also use conventional fossil fuel combined with carbon capture technology instead of installing lots and lots of climate change technology, which America does not have the capacity today to produce on its own.”

US fossil fuels would remain essential to Japan’s energy security, one of the world’s biggest buyers of liquefied natural gas. “America is already one of the most important sources of LNG for our country. I don’t think that’s going to change,” Ishikawa said.