Power Shifts: On the Geopolitics of the Energy Transition

To effectively address the massive threats arising from climate change, globally, much bolder steps are needed towards decarbonization. Yet, since the energy transition substantially transforms socio-economic models, trade patterns, and global power dynamics, the path towards net zero itself comes with a huge potential for disruption. For both challenges – stepping up efforts to mitigate global warming and managing risks arising from the energy transition – international cooperation is needed. However, as both climate and energy increasingly become an arena of geopolitical competition, enhanced collaboration is facing massive challenges.

At the G7 Summit in Cornwall, climate change was again at the top of the agenda. The world’s richest countries reaffirmed their commitments of limiting global warming to no more than 1.5 degree and supporting developing countries in tackling climate change. However, only few concrete steps were agreed upon. The Summit therewith followed an old pattern: although 131 countries, responsible for 73 percent of global emissions, have been announcing ambitious net zero targets for around 2050, a substantial implementation gap persists. Despite unprecedented opportunities offered by the Covid-19 stimulus packages, governments have so far largely failed to address this gap and to align economic recovery measures with environmental sustainability.

Moreover, as green expenditure has been heavily concentrated  in economically strong countries, the clean energy investment gap between developed and developing countries is widening. This is amplified by the fact that wealthier countries have so far failed to meet their financial commitments to supporting poorer countries in mitigating and adapting to climate change. This has dire consequences for the Global South, depriving it of sustainable growth perspectives, cementing inequality, and weakening resilience to climate change.  From a global perspective, this gap hampers efforts to mitigate global warming, especially since emerging and developing economies are set to account for the bulk of emissions growth in the coming decades, as shown in a recent report by the International Energy Agency.

In addition to the threats arising from an energy transition that is both too slow and highly unequal, the transition itself leads to multiple security challenges. Concerning potential domestic risks, particular attention should be paid to the following two aspects.

First, the path towards net zero could destabilize countries that heavily rely on the income from fossil fuels. Accounting for more than 90 percent of revenues in states like Iraq or Kuwait, the hydrocarbon industry constitutes the backbone of these countries’ economic and social models. As the social contract in petro-states is based on compensating for citizens’ lack of representation with pay-outs from fossil fuel revenues, a declining income from hydrocarbons could lead to fractures in society and political instability. Adapting to the new socioeconomic realities and diversifying the economy comes with huge challenges for all fossil fuel states. Yet, the countries that are most at risk are those with high production costs, low fiscal space, and high political fragility – states like Nigeria, Chad, and Iraq.

Second, while the green energy transition offers huge opportunities for those states that are rich in renewable energy or in metals and minerals needed for green technologies, the surging demand for these resources also comes with challenges. Since raw materials such as lithium, cobalt, and rare-earth elements are strongly concentrated in countries with weak governance structures and high levels of fragility, rising competition over the control of green economy resources risks to fuel conflicts, to foster corruption, and to increase inequality and democratic deficits. In addition to these threats, there are significant concerns about severe  human rights abuses and environmental degradation in the mining industry.

Besides the potential for increasing state fragility, the path towards decarbonization is accompanied by significant power shifts and changes in trade patterns between states. The energy transition has thus also profound implications for the relationship between states.

One example is the rising competition for leadership in the green economy. Given that low carbon technology constitutes a key factor for countries’ future prosperity, it has been described by some analysts as the “geo-economic battleground of the future.” As the role of clean energy technologies for global power competition is rising, so are the West’s concerns about the leading position of China in this field. For instance, the current US climate envoy John Kerry warned in 2019 “that it would be folly to replace a world order too dependent on Middle Eastern oil with one that’s too dependent on Chinese technology.”

It is not only the pole position of the Peoples’ Republic in the market supply shares of clean technologies like solar modules and electric vehicles that alarms Western countries, but in particular the Chinese global stronghold in the supply chains of minerals and materials needed for their production. For example, China accounts 50% to 70% of global lithium and cobalt refining and dominates the whole rare earths value chain. This strong market position of Beijing in the rare earths industry has been at the center of the attention of China’s competitors. In 2010, the Peoples’ Republic used export restrictions on rare earths as geopolitical levers amidst a territorial dispute with Japan. More recently, it threatened to do so in a case of a trade conflict with the West. As China “appears to recognize the strength of its critical minerals supply chains as geopolitical leverage,” access to them has become a key strategic issue. While China’s competitors have begun to diversify the mining of rare earths following the Japan incident, Beijing has cemented its strong position in their processing. According to current figures, it accounts for 85-90 percent of the world’s capacity to convert mined rare earths into metals and magnets.

As China and the US are the world’s two largest emitters and major economic and technological powerhouses, their “full-throttle” engagement is needed to move towards net-zero. Concerning Sino-American cooperation, two developments seem promising: first, the recent signs that both countries are willing to work together on climate; second, the potential of the competition for clean energy and climate leadership to inspire a “race to the top,” spurring green investment and fostering bold climate action. Yet, in an environment of fierce geopolitical competition and a profound lack of trust, substantial climate cooperation between China and the US seems unlikely. As a first step, Washington and Beijing should thus seek to prevent adverse effects of their rivalry on climate policies, for instance by avoiding that economic tensions also affect the low-carbon technology sector and lead to higher costs and disruptions of clean energy supply chains.

As global climate cooperation is set to remain difficult and as states are facing substantial obstacles in decarbonizing their economies, different multilateral coalitions and collaborative frameworks will be needed to foster climate action. Concerning climate cooperation between states, a strong joint transatlantic climate approach, as also envisaged in the EU-US Summit Statement, could play an important role in advancing the fight against climate change. Beyond bold domestic climate policies and comprehensive bilateral cooperation, for instance on clean hydrogen, Europe and the US should work towards deepening their climate and green energy relations with the Global South and should push for stronger international regulations, including on green trade and the responsible sourcing of critical minerals. Beyond states, subnational actors like cities, civil society, and businesses have become key actors for tackling climate change. On the global path to net zero, their contributions – and thus the move toward what the UN Secretary-General termed as “inclusive multilateralism” – will also play a crucial role.

Julia Hammelehle is a Policy Advisor with the Munich Security Conference (MSC). Before joining the MSC, she studied International Relations in Dresden and Boston and pursued a Master’s degree in EU Politics at the London School of Economics and Political Science (LSE). During her studies, she gained work experience in, amongst others, the House of Commons, the German Bundestag, the State Parliament of Baden-Württemberg, and the Max Planck Institute for Comparative Public Law and International Law.