Over the past two centuries, fossil fuels have played a fundamental role in shaping the global geopolitical map, given their significant impact on the global balance of power and international relations.
Traditional energy sources have been an integral part of numerous international and regional conflicts for decades. However, as environmental issues gain prominence globally in tandem with the acceleration of climate change, the signing of the Paris Agreement in 2015, and a plethora of international pledges to reduce carbon and methane emissions, world leaders have turned their attention to renewable energy sources, which are now at the center of the global energy scene.
This energy transition -i.e. from carbon production and consumption to renewable energy sources- will have gradual geopolitical implications for international alliances and the energy trade map. These geopolitical shifts are attributable to the fact that renewable energy sources are fundamentally distinct from conventional energy sources in terms of their non-concentration in specific geographical locations and dependence on earth minerals and storage technology. The International Renewable Energy Agency (IRENA) has warned that the transition from fossil fuels to renewable energy will have far-reaching repercussions, much like the earlier switch from wood to coal and oil did two centuries ago.
Renewable Energy: The Energy Mix’s Fastest Growing Component
With the advent of new technologies and the reduced costs of production, renewable energy sources have been expanding at a faster rate than any other source of energy, causing them to earn a prominent place on the global energy scene. Wind and solar energy now account for 6 percent of global electricity generation capacity, up from about 0.2 percent in 2000. As can be seen in figure 1, in contrast to all forms of fossil fuels, renewable energy sources showed growth in 2020.
Source: British Petroleum’s Statistical Review of World Energy 2022.
Figure 1 show that the generating capacity of renewable energy increased by about 16.22 percent in 2021 on an annual basis, with a decade-long increase of about 302.64 percent, from 908.3 TWh in 2011 to 3657.2 TWh by the end of 2021, which is the fastest pace compared to that of coal, oil, or natural gas. Perhaps this increase can be attributed to several factors, including:
• Low Cost of Renewable Energy: With the help of technological advancements and an influx of new investments, the price of renewable energy technologies has dropped, giving them a competitive edge. Since 2010, the average cost of electricity generated from solar energy and wind energy has dropped by 73 percent and 22 percent, respectively. According to IRENA projections, the average cost of electricity generation from onshore and offshore wind farms, concentrated solar energy technologies, and solar photovoltaics will fall by 26 percent, 35 percent, 37 percent, and 59 percent, respectively by 2025.
• Exacerbation of Climate Change: Problems caused by fossil fuels have led governments and peoples to recognize the need to decarbonize the global economy. The World Health Organization (WHO) has placed air pollution as the fourth leading cause of death worldwide, killing an estimated 7 million people each year. The Paris Agreement and the Sustainable Development Goals will not be met unless immediate action is taken to decarbonize the energy sector.
• International Pledges to Cut Carbon Emissions: Countries around the world are trying to abide by their pledges to reduce carbon emissions. In this respect, 179 countries have set targets for increasing the use of renewable energy and 57 have laid out plans to decarbonize the electricity sector. Furthermore, due to a lack of reserves of traditional energy resources, many countries have turned to renewable energy sources as part of their efforts to decrease reliance on energy imports.
• Technological Innovation: Accelerating the adoption of renewable energy sources in the electricity sector has been made possible by improving technological innovation in renewable energy technologies, such as improving the efficiency of solar photovoltaic systems and wind turbines. Further, the rise in patents in this industry indicates that clean energy technologies have experienced more technological advancements than conventional energy and fossil fuel-based technologies. New energy-related technologies have also opened up new opportunities for renewable energy, assisting in increasing its efficiency and accelerating its use in electricity generation and distribution systems, as well as developing new technologies for the fluctuating wind and solar energy storage.
• Civil Society Influence: Governments are coming under increasing pressure from civil society organizations to put a price on carbon, end subsidies for fossil fuels, and phase out thermal coal power, towards reducing air pollution and carbon emissions. As consumer preferences are shifting in favor of buying goods and services with a lower carbon footprint, public opinion can also be a strong force for change.
Globally, the renewable energy sector is led by the Asia-Pacific region. As shown in figure 2, the region accounts for approximately 46 percent of total renewable energy generating capacity, followed by Europe, which ranks second with a rate of 25.8 percent until the end of 2021.
Source: British Petroleum’s Statistical Review of World Energy 2022
In effect, the current geopolitics of energy is determined based on just two main sources: oil and natural gas. However, this is expected to change as various regions take the lead in renewable energy generation in comparison to fossil fuels. Several other factors, such as the availability of technology, power transmission lines, rare earth materials, and patents, may influence the energy geopolitical map in the far future. It’s also possible that the shift to renewable energy will cause countries to rethink their alliances, potentially weakening those based on fossil fuels in the process.
The geographical concentration of oil, natural gas, and coal reserves has aided certain countries in safeguarding their national interests and maximizing their economic and political influence. Countries lacking these assets, however, have been exposed to global risks. Therefore, countries with advanced renewable energy generation technologies stand to benefit from the energy transition, albeit slowly and over the long term, in view of the following points:
Mineral Exports Weaponization: Countries that export oil and natural gas have historically played a significant role in international politics through their control over energy exports and the price range. Now, countries controlling the supply chains of earth minerals —a crucial component in the generation of renewable energy— are expected to play a similar role. Speaking of the significance of minerals to the renewable energy industry, it is interesting to note that more minerals are needed for the development of solar parks, wind farms, and the production of electric vehicles than for conventional energy sources. For instance, the production of an electric car needs six times as many minerals as a conventional car, while an onshore wind farm needs nine times as many minerals as a natural gas station. Accordingly, the energy sector’s demand for minerals is anticipated to triple by 2040.
Nearly three decades ago, China realized the strategic value of rare metals, which allowed it to maintain tight control over their production, processing, refining, and export. China’s rare-metal market dominance is attributable to several factors beyond just “the geography of reserves”, including the country’s relatively low-cost workforce and lax environmental laws, which give the country an edge in the global market, let alone the substantial investments made in this industry, the creation of a network for the refinement of raw materials, the localization of the rare mineral deposits industry, and the signing of agreements for the exploration of these minerals in countries with abundant reserves with a view to their eventual extraction, processing, and export to the rest of the world.
For China, the monopoly of mineral supply chains is a crucial element of its energy security strategy, which has given it geopolitical clout and allowed it to militarize the export of these minerals. Beijing has consistently hinted that it may use minerals as a weapon to resist any political and economic pressures from Western powers, which has alarmed many major countries. What’s more, it has repeatedly threatened to halt the export of these minerals to other countries, which could have a negative impact on those countries’ economies that are heavily dependent on modern technological industries. While these countries are not lacking in minerals, the production process is fraught with difficulties, such as high costs and environmental concerns associated with the establishment of this type of local industry.
• Fierce Competition over Battery Manufacturing: Batteries play a crucial role in the energy transition due to their capacity to maintain supply and demand equilibrium in the energy sector. China, realizing this, has also endeavored to dominate the battery industry. As of now, Beijing is home to 93 of the world’s largest factories dedicated to producing lithium-ion battery cells, and if current trends continue, that number is expected to rise to 140 by the year 2030, while Europe will be home to only 17 and the United States to only 10. The Chinese Contemporary Amperex Technology Limited (CATL) controls approximately 30 percent of the global electric car battery market.
China’s success in this area can be attributed to its enormous domestic battery demand and its control over 80 percent of global raw material refining and 60 percent of battery component production. According to figure 3, the Asia-Pacific region will likely dominate the battery market over the next five years.
Chinese monopolization of mineral and battery supply chains has raised alarm bells in the West. For that, the United States and Europe aim to reduce their dependence on China for electric car batteries through more than $160bn new capital spending by 2030. According to Goldman Sachs, the demand for finished batteries could be met without China within the next three to five years
• Creation of New Trade Patterns: In the long run, the transition to renewable energy may result in a decrease in the volume of trade in fossil fuels in exchange for an increase in trade rates in other areas such as renewable energy-related commodities and technology. Furthermore, the energy transition is likely to contribute to a shift in the bilateral trade map between countries. For instance, Portugal and the Netherlands decided to expand their bilateral energy cooperation in recent years after the former’s government authorized the export of green hydrogen to the latter. Germany is also considering a deal to purchase hydrogen from Morocco. Beyond Morocco, green diplomacy has become a crucial tenet of Germany’s Gulf policy in the wake of the Ukrainian conflict. The EU’s rethinking of its energy policy has led to new partnerships with Gulf countries, and the bilateral nature of these agreements suggests that renewable energy will play an increasingly important role in future economic ties.
While clean energy will help strengthen bilateral relations between some countries, it will be a source of contention between others, such as the United States and China, which are seeking to control the geopolitical landscape of renewable energy. Recently, US President Joe Biden extended tariffs imposed on solar energy equipment imported from Beijing for an additional four years. This escalating trade conflict between the United States and China is happening despite their alleged agreement to separate the climate change file from the ongoing trade war between them, given the inability of the global economy to meet climate goals without intensified carbon removal efforts by the United States and China, the two largest emitters of carbon dioxide.
Clearly, the energy transition is likely to bring about new alliances among countries that share a similar vision for their climate policies. Examples of such alliances include the International Solar Alliance and the Global Energy Alliance for People and Planet (GEAPP), which was launched at COP26 with the goal of accelerating investment in green energy and renewable energy solutions in developing and emerging economies over the next decade. It cannot be argued that these alliances will be as powerful and influential as OPEC Plus, given the widespread expectations that fossil fuels will continue to play a significant role in the world’s energy mix. However, as more governments become aware of the need for collaboration to accelerate the rate of dependence on renewable energy, such alliances may eventually have a real impact.
Briefly stated, as countries work to uphold the terms of the Paris Agreement, the pace of the transition to renewable energy generation is accelerating compared to other energy sources. Despite the advantages energy transition brings, it has geopolitical implications, including the emergence of new international alliances and bilateral relations, as well as the conflict shifting from traditional energy sources to minerals and storage technology.