The Geopolitics of the Global Energy Transition

This chapter discusses the implications of the energy transition for the European Union (EU), by looking at the key strategic energy and climate policy issues facing the next five years, and also elaborating on how the EU energy and climate policies may be shaped, and what are their global implications.

As the world’s second-largest emitter of greenhouse gases (GHGs), the United States is a vital part of any effective global response to climate change. U.S. efforts on climate and clean energy will likewise have important implications for the country’s geopolitical interests. At present, the United States is struggling to develop and implement national policies that provide climate solutions with sufficient speed, scale, and durability. The U.S. Administration of President Donald Trump has shown skepticism about, and even hostility toward, the need for a clean energy transition. Many of the 50 U.S. states and even more municipalities, meanwhile, have continued to focus on reducing their energy-related emissions through a variety of policies and measures. Whether and when the current national political divisions over climate can be overcome is not yet clear. In a time of complicated geopolitics, the country’s global standing will be materially affected by the answer to that question, as will its ability to work with international partners on other global challenges.

China’s emergence as a global economic power and energy consumer has shaped global energy production and trade flows. In the fossil fuel world, though, China was a price taker. In the energy transition, China is likely to play a vastly different role. Government-supported efforts to spur innovation have coincided with growing environmental awareness at home. As such, Chinese companies have become global leaders in the technologies underpinning the energy transition. Beijing has also been able to capitalise on these gains to become a global leader on climate. Yet, China’s track record is extremely mixed. It remains the largest consumer of coal globally and is also the fastest growing renewables market globally. Similarly, in its overseas investments, China is fuel-agnostic and technology-agnostic, willing to finance and sell both coal-fired power plants and clean energy equipment and solutions. The scope and speed with which China chooses to pursue its own energy transition will remain a key variable in the global energy shift. Indeed, China is unique in its efforts to decarbonise before it has fully industrialised. As such, China could electrify its energy use before it decarbonises power. As the gulf between the US and China deepens, these contradictions will become increasingly visible. China may look to slow its shift away from coal while also accelerating its efforts to become a global leader in clean technologies. Indeed, China already controls some of the infrastructure and commodity supply chains critical to the energy transition.

The chapter provides Russia`s regional insight, aimed at analysing the geopolitical implications of the global energy transition on one of the world’s leading energy-producing countries, as well as an overview of Russian energy policy in the context of the global energy transition. Russia, which ranks fourth in the world in terms of primary energy consumption and carbon dioxide emissions, is adhering to a strategy of “business as usual” and continues to rely on fossil fuels. Energy export is critical for the state budget, for the key energy companies and for many regions in the country which strongly rely on hydrocarbon revenues. But the changing global environment and decarbonization agenda pose an existential threat for all the key Russian stakeholders, challenging the very sustainability of the economic (and political) system in the country. Despite the fact that in September 2019 Russia joined the Paris Agreement, domestically decarbonization of the energy sector is not yet on the agenda: a sceptical attitude to the problem of global climate change prevails among stakeholders. GDP energy intensity remains high, constrained by relatively low energy prices and high capital costs. The share of solar and wind energy in the Russian energy balance is insignificant and, according to official forecasts, it is not expected to exceed 1% by 2035. The challenge for Russia in the coming years is to develop a new strategy for energy sector development (at least for energy exports), even in the absence of a significant domestic climate change agenda, in the face of increasing global competition, growing technological isolation and financial constraints.

The Middle East and North Africa (MENA) region is a critical one in the global energy transition, because of its core role in producing, using and exporting oil and natural gas. As international policies on climate change become more stringent, and new energy systems gain in competitiveness, its economic and political systems face the twin challenge of falling resource rents, and the global geopolitical and geoeconomic shift towards Asia. Regional countries are to different degrees implementing policies to retool their domestic hydrocarbon industries, introduce renewables and other new energy technologies, realign towards new markets and diversify their economies. Regional unrest and conflict, climate change, and geopolitical competition between the US, Russia, China and other local and international powers complicate the diplomacy and energy security challenges of the MENA energy transition.

This chapter discusses how the ongoing low-carbon energy transformation could reshape geopolitics within Africa and between the continent and the rest of the world. The chapter first attempts to define what ‘transition’ means in African contexts and if the concept applies at all to African dynamics. It then delves into the drivers and modalities of Africa’s alleged shift to finally explore geopolitical dynamics, questioning whether Africa is still the locus for the global supply of natural resources, introducing patterns of engagement between Africa and international/regional actors, and finally presenting the socio-economic implications of the shift. We conclude that while the venues and sources of geopolitical interest might change in the new geopolitical order that the transition to renewable energy implies, the content and modalities of interaction may see a continuity with the past, namely, dependence on external financing and technology. With yet at least one novelty: increased relevance of regional interdependencies.

The availability of reliable, affordable and mature technologies is at the basis of an effective decarbonization strategy, that should be in turn supported by timely and accurate policies. Due to the large differences across sectors and countries, there is no silver bullet to support decarbonization, but a combination of multiple technologies will be required to reach the challenging goal of decarbonizing the energy sector. This chapter presents a focus on the current technological solutions that are available in four main sectors: power generation, industry, transport and buildings. The aim of this work is to highlight the main strengths and weaknesses of the current technologies, to help the reader in understanding which are the main opportunities and challenges related to the development and deployment of each of them, as well as their potential contribution to the decarbonization targets. The chapter also provides strategies and policy recommendations from a technology point of view on how to decarbonize the global energy systems by mid-century and of the necessity to take a systems approach.

Energy security and affordability have represented for a long time central issues for all countries in the world. Nevertheless, the continuing increase of energy use, the related CO₂ emissions and air-quality problems have spurred additional concerns over the way that countries produce and consume energy. Many governments are taking actions to steer away from fossil fuels and to move towards a clean energy future. The path towards this goal is often referred to as clean energy transition. However, our current path is still not in line with the ambitions. Economics and markets can play a role, but policymakers will play the central role. Energy policies have been effective in several sectors and countries to deliver some important results so far – e.g. for cars, appliances, lighting, wind and solar PV in power – but much more needs to be done. Trucks, petrochemicals, aviation, coal power reduction and phase-out, renewables in heat and transport, energy efficiency in industry and buildings, CCUS are some examples of next steps and actions to take. Not leaving behind the good efforts done till now, that need to be continued and stepped up. With a strong focus on renewables and energy efficiency, this chapter looks at the different types of policies that have been effective in delivering these goals and provides examples for the way forward.

This chapter analyses how China and the UK have implemented policies transitioning away from fossil fuels to renewable energy. The UK pioneered renewable energy incentives and various government policy instruments have been applied, including direct subsidies, green certificates and feed-in-tariffs. The country now looks to move away from government incentives towards greater corporate involvement. Policies have also been introduced in transportation and other sectors, to decarbonise the economy by 2050. China represents an example of a government-led, top-down approach to energy transitioning building the world’s largest installed capacity of hydropower, solar PV and wind power. In other sectors such as e-mobility, decarbonisation policies and initiatives by local and central government are driving a shift in favour of the use of electric vehicles.

The alarming threats globally in recent times reinforce the fact that it has never been more critical for countries and economies to collectively address the transition to a low carbon energy industry in the context of meeting global sustainability targets. Some recent progress, such as the Paris Agreement, Kyoto Protocol and United Nation’s Sustainable Development Goals, demonstrates a strong global commitment from most countries to achieve sustainability globally. The challenge, however, is the enormous investment required which is estimated between $5 trillion and $7 trillion per year and channelling these investments. Governments and public funds simply cannot meet these astronomical investment requirements making the role of the capital markets and private sector instrumental in bridging the gap. Some of the leading global asset managers are already championing sustainability in their investment decisions and business practices. Recent studies indicate that the new generation of investors with changing mindsets seek for positive environmental, social and governance impact which is set to drive sustainability in investment decisions. These trends, together with the superior returns potential from sustainable investments compared to traditional investments, emphasise a likely strong match between financing requirements and investors. As this chapter illustrates, there is also a role for governments in developing countries to develop their capital markets and gradually internalise the direct and indirect subsidies from which the fossil fuel industry derives an unfair advantage. Only when these various change factors come together will it be possible to scale the sustainable energy transition.

Minerals and metals will play a key role in the transition to a low-carbon economy. As the demand for green energy technologies—including solar panels, wind turbines, electric vehicles and energy storage—continues to increase, so too does the demand for the minerals required to develop and deploy them. This growing demand should serve as an economic boon to those countries that are home to the principal reserves of strategic minerals for the transition, including cobalt, lithium and rare earths. However, in countries struggling with political instability, where governance for the mining sector is weak, the extraction of these minerals could be linked to violence, conflict and human rights abuses. This chapter, adapted from the report Green Conflict Minerals: The fuels of conflict in the transition to a low-carbon economy, explores the conflict and violence implications of the low-carbon transition for mineral-rich, fragile states. It builds on extensive desk-based research, stakeholder consultations, case studies and a mapping analysis. It seeks to understand the extent to which increased demand for the minerals critical to green energy technologies could affect fragility, conflict and violence in producing states, and explores what would be required of the international community to mitigate these local and national threats.

Two conflicting narratives are frequently heard in connection with the economic impact of the energy transition. The first has it that the transition is a great opportunity to revitalize economic growth and increase employment. The second, in contrast, estimates that objectives like reaching carbon neutrality by 2050, as pledged by the European Union, would be “too expensive.” Which is right?

The global energy transition, that is the full decarbonization of the world energy system until 2050, is attracting growing attention in global policy debates.

An effective and efficient governance is key for the global energy transformation. We argue that the process under the Paris Agreement, its ‘rulebook’ and the nationally determined contributions (NDCs) will have to be accompanied by focused and tailored governance mechanisms in the energy realm. The energy sector itself is key to limiting global warming to two degrees centigrade compared to the preindustrial level, because it is responsible for over two-thirds of global greenhouse gas emissions. Yet, neither the energy transition nor energy governance start from scratch. Energy governance is already happening on many levels: the local, the national, the regional and the global. These multi-level governance structures are necessary to enable, facilitate, and accelerate the energy transition(s) on the ground. They have to be adapted, however, to the changing and transforming energy world as we argue in the conclusions. In a first step, we conceptualize the notion of ‘energy transition’ and relate it to the concept of ‘energy transformation’. We argue that it is necessary to firstly move beyond the normative and target-driven idea(s) behind ‘transition’ and to secondly bring in the systemic aspects of energy transformation. Moreover, energy security, economic efficiency, sustainability and climate neutrality have emerged over time as the guiding paradigms, forming a strategic quadrangle, as opposed to a strategic triangle, traditionally used to define energy security. In a second step, we present an overview of the current international energy governance system where multilayered governance structures have developed over time. We argue that the existing architecture is stemming from the past and is neither fit for governing the energy transition, nor even reflecting the proccesses underway in todays’ world. In a third step, we highlight that the energy transformation has and will have tremendous techno-economic, socio-technical and political (Cherp et al. 2018) effects that have both internal and external dimensions. Moreover, the transformation comes with (geo)political effects as it changes the political economy of energy on all levels: the global, the regional, the national and the local. In the final step, we look at ways forward. We argue that it is necessary to preserve existing multilateral institutions and to strengthen them. Moreover, we assume that governance approaches towards and inside regions will have to be re-shaped or even created from scratch. We conclude that the crumbling of the global liberal order and the crises of multilateralism are complicating the approach to a better governance of the energy transition on the global level. Moreover, we witness the emergence of illiberal tendencies in the Western democracies as well. Climate and energy are playing into the polarization of societies as the two topics emerged as a major cleavage and a conflict line. We emphasize that a just and inclusive energy transition, both on national and international levels, is necessary to keep countries and the world on a sustainable energy transformation path. The challenge faced by the planet is indeed systemic.

The global energy landscape is currently shaken by tectonic shifts. We witness dramatic changes in energy geopolitics, the formation of the global system of energy governance, a huge wave of massive technological innovations, global markets are undergoing a radical transformation embracing a fast multiplication of new sources of energy, new products, new producers, and suppliers, coupled with the development of the vast and sophisticated infrastructure and an increasing efficiency in energy use. Each and every component of the system is touched upon by a wind of change that brings about the contours of a new energy global order.