Emerging Order

Renewables to define the new energy geopolitics

By Dolly Khattar

The world today is drawing more and more of its power from the sun, wind, water and biomass fuel, as the cost of power generated from these resources continues to decline. At the current pace of growth, renewable energy sources would account for as much as one-third of the world’s energy consumption by 2040. In fact, a recent Bloomberg New Energy Finance analysis projects that renewables will account for 64 per cent of the total electricity generation worldwide by 2050. Electricity storage, too, is becoming more affordable. As a result, electric vehicles (EVs) are expected to achieve price parity with conventional automobiles by the end of the next decade. Meanwhile, regulatory developments, such as bans on the sale of gasoline- and diesel-powered cars in the UK and France after 2040, will help ensure the growth of electric cars in key markets.

On the one hand, the transition to renewable energy is expected to bring about important social and economic benefits, and on the other, this low-carbon shift will result in greater geopolitical focus on renewable-rich regions and increase the importance of technological and financial innovation in gaining global influence. Past experiences in energy transition – including the US’s shift from wood to coal in the late nineteenth and early twentieth centuries, and the French adoption of nuclear power on a wide scale in the 1980s – provide useful insights for the analysis of this trend. Such transitions have been triggered by factors ranging from market upheaval to technological innovations, with technology being the key driving force.

In a 2019 report launched by the International Renewable Energy Agency (IRENA), the Global Commission on the Geopolitics of Energy Transformation states that the geopolitical and socio-economic consequences of a renewable energy age may be as profound as those of the shift from biomass to fossil fuels two centuries ago. These include changes in the relative position of states, the emergence of new energy leaders, more diverse energy actors, changed trade relationships and the emergence of new alliances. The commission’s report, “A New World”, suggests that the energy transformation will change the energy statecraft as we know it. Unlike fossil fuels, renewable energy sources are available in one form or another in most geographic locations. Access to abundant energy will strengthen energy security and promote greater energy independence for most states. At the same time, as countries develop renewables and increasingly integrate their electricity grids with those of neighbouring countries, new interdependencies and trade patterns will emerge. The analysis states that oil- and gas-related conflict may decline, as will the strategic importance of some maritime choke points. Further, large investments in renewable energy technologies will strengthen the influence of some countries. Fossil fuel exporters may see a decline in their global reach and influence unless they adapt their economies to the new energy age.

The IRENA report is not the first to ponder over the impact of a low-carbon energy scenario on geopolitics. A recent book has taken a deeper look into the geopolitics of renewables; Harvard’s Belfer Center has formed a group to tackle similar questions; Nature, the journal, featured a piece on low-carbon policy risks; and a recent paper offers some important conceptual insights into the fate of oil producing economies, which are in a precarious position. Despite what the new literature is beginning to indicate, many leading energy industry players and analysts are seriously underestimating the speed and depth of this transition. Several factors can explain the consensus among forecasters regarding the transition. These include “group think”, a safety-in-numbers mentality, and the efforts of international oil companies to retain the confidence of their shareholders. In contrast, the financial community seems far more aware of this transition, launching global campaigns in support of divestment from fossil fuels and persuading companies to reduce their hydrocarbon use.

Disrupting the status quo

Much of the geopolitics of the twentieth century was shaped by the location of energy supplies. The Middle East became the market leader with most of the world’s oil reserves located in the Gulf region. Other countries such as Russia, Angola, Nigeria and Venezuela also have vast oil or gas reserves, or both. Since the Second World War, the US has acted as the guarantor of global oil supplies, protecting its own national interests in the process. It has formed alliances with the Gulf states to stabilise global energy flows and has been the leader in safeguarding maritime choke points in the Middle East and Asia. The result is a globalised oil, coal and natural gas market with international oil trade conducted in US dollars.

Many would like to believe that renewable energy will not result in the same kind of international oligopolies as renewable energy sources are practically universal. Few places in the world lack wind, sunlight, water and bioenergy of any kind. Further, as compared to traditional fuels such as natural gas and coal, renewable energy sources have a much higher potential for decentralised generation. That said, with the ongoing transition to renewable energy, some countries will definitely fare better than the others in the course of the transition. For instance, Germany and the US are well positioned to leverage renewables due to their leadership in technology. For the US, the sheer size of the market also offers a big advantage. China is even better off. The country has enhanced its geopolitical standing by taking the lead in the clean energy race over the past decade to become the world’s largest producer, exporter and installer of solar panels, wind turbines, batteries and EVs. It is also the world’s biggest miner and supplier of rare earth materials, biggest developer of renewable energy capacity and biggest market for EVs. The country has acquired large lithium and cobalt mines abroad to power its renewable energy expansion, while also investing in electric utilities around the world, including Europe, Africa and South America. More recently, it has proposed an ambitious initiative to integrate electricity markets throughout Asia with up to 3,000 km of long distance, high voltage transmission lines.

While they stand to benefit the most from the global shift towards renewable energy, China, Germany and the US will not be the only winners. India, too, may be able to secure a place in the renewable energy market. Though the country does not have a well-developed domestic renewables industry at present, compared with China, the US or Germany, it is one of the world’s largest markets for renewable energy. With the aim to position itself as a global player in the renewables domain, India has launched a joint initiative with France, the International Solar Alliance, which aims to build and finance affordable solar power infrastructure in developing countries including states in sub-Saharan Africa. This will enable India to improve its position among the low-income countries. Smaller countries such as Sweden, Denmark, Uruguay, Nicaragua, Morocco and Kenya could gain regional influence as a result of the transition by exporting renewable energy and technology.

For many countries though, the rise of renewables will be a huge loss. Traditional oil exporters such as Venezuela, Kazakhstan and the Gulf Cooperation Council states will be hit hardest by the gradual transition away from fossil fuels. While states like Saudi Arabia can harness their abundant sunshine to become major solar power producers, they would not enjoy the same geopolitical prominence that they did in the oil-dominated world of the past century. Likewise, Russia may lose some of its clout in the renewables-rich world of the future, though not all of it, if enough states turn to nuclear energy to combat climate change. Furthermore, the country will remain a significant exporter of natural gas to markets in Europe and Asia for decades to come.

In sum, the geopolitics of oil over the past 120 years has played a key role in international relations. In fact, geopolitical rivalry over access to, and control of, oil supplies has been the source of much of the conflict witnessed in the twentieth century. The rise of renewables could well change this scenario. Renewables are widely used and produced, and currently, their availability is constrained neither by the agendas of dominant fuel suppliers nor by the threat of physical disruption to the strategic transit routes along which traded resources are typically shipped. There are, however, issues pertaining to regional technology concentration and supply constraints associated with some minerals required for renewable energy technologies, which will eventually define the new energy geopolitics.

As countries develop renewables and integrate their electricity grids with neighbouring countries, new interdependencies and trade patterns will emerge.

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