A recent report from IRENA examines how the energy transformation is expected to change the world geopolitics of energy. With an increasing electrification and a progressive switch from fossil fuels to renewables, the international balance of powers could significantly change. But how deep is this report?
In January 2018 IRENA launched a Global Commission to address and analyse the issues related with the geopolitics of energy in the context of the energy transition toward a decarbonised system. One year after its establishment, the Commission published its first report, where the many different aspects of the geopolitics of energy in this new era are described.
The facts: current trends reshaping the world
According to the report there are three main ongoing trends of the global energy transformation that are redrawing the geopolitical map of the 21st century.
- Energy efficiency, which means doing and producing more using less energy resources, till eventually arriving at a decoupling between growth and energy needs.
- Renewables, which have become the fastest growing energy source, in particular in the electricity sector.
- Electrification, which means an expected increasing share of electricity in the final energy consumptions. Starting from 2016 there have been higher investments in the power sector than in the oil and gas upstream.
Those changes have been driven by: the decreasing costs of the related technologies; pollution and climate change concerns; renewables and energy efficiency targets to decarbonise the economy and strengthen the energy security while reducing energy dependency; the opportunities that technological innovation (from more efficient solutions, to digitalisation, research in new materials…) is opening up; the actions of corporations and big investors, which are recognising the risks in investing in high carbon solutions; public opinion and the choices of increasingly educated and aware consumers.
Renewables VS fossils fuels… what’s the geopolitical difference?
Unlike fossil fuels, renewable energy sources are available, in one form or another, in most areas of the world. And, unlike fossil fuels, renewables are flows; they might be difficult to stock but we won’t run out of them, and they are difficult to disrupt. Renewables can be deployed at different scales, they don’t always need huge and costly infrastructures; they can thus much more easily empower local communities and support energy independence and development. Renewables basically have zero marginal costs, so that the profit must come for somewhere else… like technology.
What could happen?
“Having control over and access to significant energy resources and markets is an important asset because it enables states to protect vital national interests at home, and leverage economic and political influence abroad.” As a result… the extensive deployment of renewables all over the world can alter the power and influence of some countries.
Countries and regions like China, India, Japan and the European Union, which today are net importers of fossil fuels, can definitely benefit from the energy transportation at least in terms of energy security/independence, as well as trade balances.
In some net fossil fuels exporting countries, where fossil fuel rents in many cases amount to over 10% of GDP, the energy transformation can be a destabilising factor, if they are not sufficiently prepared and/or they have weak governance.
Some highly exposed countries (where the rents typically account for more than 20% of their GDP), like Libya, Angola, Republic of Congo, Timor-Leste and South Sudan, are in a risky position because of low per capita GDP and limited financial buffers. Other highly exposed ones, like Gulf states, should have the capacity to relatively quickly adapt thanks to their much higher income and different internal socio-political conditions.
In particular when the rents are used to subsidise the internal welfare, a sudden change of wind can lead to social/political turmoil and potentially fracture the state’s legitimacy. For these economies diversification of investments is then essential, and in particular preserving internal wealth transforming subsoil assets (such as oil, gas and coal) into reproducible surface assets (such as human or physical capital).
New opportunities & actors
Countries with high potential for renewable energy generation and willing to invest in that direction could become net exporters of electricity, at least at local/regional level (some examples are Australia, Brazil, Chile, Norway, Laos and Bhutan). Other countries rich in minerals, such as Bolivia, Mongolia, and the Democratic Republic of Congo (DRC), can have a pivotal role for the worldwide development of new technologies, provided they put the right policies and governance frameworks in place.
But first and foremost, technology leaders could be the real winners in the energy transformation, exporting their innovations/patents all over the globe. And China seems to be well set to become the world’s superpower of energy transition. A possible risk is that a high degree of concentration and consequent low competition could impair innovation and distort markets, although “renewable energy leaders are unlikely to gain the degree of market dominance that fossil fuel leaders have enjoyed, due to the ubiquitous nature of renewable energy.”
The nature of renewable energy and related new technologies also entails opportunities and empowerment for new actors, like citizens (“prosumers”), cities or local communities (isolated places as well as mega-cities) and corporation at all levels. This is possible thanks to the decentralisation of power generation and digitalisation of the energy system. And, as a consequence, developing economies will have the opportunity to leapfrog fossil fuel based systems and centralized grids, which could “be a powerful vehicle of democratization”.
Following the energy transformation, historical alliances and relationships based on fossil fuels could weaken, while new initiatives are emerging to promote multilateral cooperation and boost specific renewable technologies. Thanks to the shift to renewables new trade patterns will raise, based on the trading of: electricity, new technologies, and new fuels. “Unlike trade in fossil fuels, trade in renewable energy technologies would be shaped by ‘normal’ rather than ‘natural’ comparative advantages”.
What a wonderful world! But…
… the key possible geopolitics of energy changes related to renewables and new technologies for the energy transition… are not really discussed and/or addressed.
The use of rare earths and “conflict minerals” is, and will probably be for a number of years to come, a pivotal struggle and the darkest side of modern technologies and energy transformation.
There are undergoing efforts to find alternative materials, as well as undergoing attempts to increase the transparency and accountability of the whole supply chain, and to reuse and recycle the materials.
But… where are we now with these alternatives/solutions? What if we failed in finding them? How long will it take to solve the severe socio-economic problems related with these materials? And, how will the geopolitics of energy change? Are we just shifting the conflicts and power to new regions and hands?
More in general all the possible threads and changes coming from the new geopolitics of energy are just quickly discussed in the report. There seems to be an underlying assumption: the energy transformation will lead to a more balanced, peaceful and fair world. This might definitely happen with the right policies and efforts put into place, but it might as well not happen just considering how things are going on today.
We might be technically able to change the course of things in just few years and meet the Paris Agreement goal… but… which will be the hidden costs, and who would suffer them?
These aspects deserve to be better analysed by the Global Commission to really be able to discuss how the geopolitics of energy will be affected by the energy transformation.
remains to be seen if coming reports will properly address these evident shortcomings!
 The discussion about the unsustainability of never-ending growth based on an increasing exploitation of natural resources and about the sustainable development concept is not addressed in the report.
 Nuclear energy, the other main low carbon source beside renewables, has seen a decline in the last few decades, although countries like China, India, Russia and UAE are building a number of new reactors.
 Defined as the difference between cost of production and market price of fossil fuels
 Such as Saudi Arabia, Qatar, Kuwait, and the United Arab Emirates (UAE), and Brunei Darussalam
 Natural comparative advantage is based on the availability of natural resources, while normal comparative advantage is based factors such as technology, relative price (of labours as well as capital), and cost of transport.