The Transition to Green Energy
The past decade has witnessed mounting support for a green energy transition, with many demanding a shift away from the current fossil fuel based energy infrastructure currently supplying the majority of the globe’s energy demand. These systems, which account for about 60% of all energy usage, are highly unsustainable and have caused growing discontent. Greater awareness of climate change’s harmful impacts to the planet have led to various agreements and climate commitments, including the Kyoto Protocol, the Paris Agreement, and the United Nations Framework Convention on Climate Change (UNFCCC). Governments have enacted legislative requirements and targets for renewable power standards, as well as a range of government funded invectives (such as the US Inflation Reduction Act) in efforts to implement green power procurement and meet net zero targets. The energy sector, which accounts for over two thirds of global greenhouse gas emissions, remains a primary focus in the struggle to tackle climate change and has been the subject of much discussion. Environmental advocates, policymakers, state leaders, company executives, academics, and many others have joined moves to advocate for the global economic turn towards green energy. Attempts to restructure the current fossil fuel-based system are ongoing, as its decarbonization is essential to meeting Paris climate targets. This process has and will continue to have significant implications, especially in the geopolitical sphere.
Global energy markets are a huge undercurrent of the global economy, with oil and gas having contributed significantly to our current world order. Energy’s necessity has allowed many resource-rich countries to profit greatly off the use of fossil fuels to power the globe. However, new net zero targets, green policy initiatives, and a fast-evolving regulatory landscape has necessitated massive changes in the sector, with governments often struggling to keep up. The transition holds huge economic potential: the market has a projected value of $12 trillion by 2050, and its ability to inform geopolitical dynamics is significant. Those who fail to adapt run the risk of being left behind, with competition to develop advanced and efficient clean energy systems becoming a sort of arms race. With renewables expected to become the largest source of power generation by 2025, countries have much to gain from ramping up renewable energy production and bolstering supply chains. This means that the global transition to green energy, while intimately tied to the collective fight against climate change, is also a deeply political process.
Oil rich countries, such as Russia and Gulf states in the Middle East have been some of the most vocal in their concerns over a global energy transition, having a vested interest in maintaining the prominence of oil and gas in global markets. Most recently, the race to develop green energy has become a prime battlefield for ongoing tensions between the United States and China and has sustained anti-Chinese rhetoric in the West. China remains the unquestionable leader of the current transition to green energy, with Beijing dominating almost every stage of supply chains. Its achievements are copious, so much so that discussions of green energy can rarely be had without the mention of China. It is the global leader of both solar and wind energy, electric vehicle (EV) production, EV battery production, and rare earths refinement and production. China currently produces more than 70% of all solar photovoltaic panels, half of the world’s EVs, and a third of its wind power, and is rapidly increasing production. Beijing is expected to reach its target of 1,200 gigawatts by 2030 five years early, with a current wind and solar project pipeline of over 750 gigawatts. It is also the prime manufacturer and producer of rare earths, which are essential minerals used in the production of green energy systems, such as EV batteries. Currently, China controls 87% of global rare earths refining capacities and has extensive expertise on the complex process. However, its success in this realm is not new—China has invested significant energy into clean technology and energy systems, having made these a core pillar of its economic strategy. The continued state support, highly integrated supply chains, strong local competition and advanced innovation and technology has ensured China’s continued success. However, China’s transformation has been met with growing discontent by the West, where it is viewed as yet another attempt by China to impose a revised world order in opposition to the current Western-led world order. In response, both the United States and Europe have imposed knee-jerk protectionist laws, such as anti-dumping tariffs, sanctions, investigations into labour violations during production, and injections of huge amounts of capital into their own green energy development schemes.
Evaluating deglobalization and protectionist efforts in the energy space is difficult—in some cases increased production in the West may be viewed as a positive in that it can serve as a new source of supply to meet mounting demand. Chinese production is also still available in many other markets, and a boost in Western production does not necessarily mean constrained production. However, some argue that protectionist policies that seek to decrease Western reliance on a dominant China only curb the globe’s ability to meet net zero targets and long-term transition goals. This could also have a domino effect in Europe, where players are getting nervous about a growing U.S. market and could lead to further geopolitical tensions.
While the West’s reluctance to a growing shift towards the East is unlikely to fade in the short-term, China remains more or less essential to the entire green transition, and protectionist laws will only lead to greater deglobalization in the energy sector at a time when dynamic cooperation is vital. For any meaningful talks to take place on climate change and the green energy transition, China must be included, and continued attempts to wrestle market share away from Beijing will only be harmful in the long-run. It also feeds domestic troubles in the United States, where voter opposition to the green energy transition is largely party driven and bolstered through anti-Chinese sentiments and fears.
Also important to note is the lack of attention paid to the Global South and its role in the green energy transition. Currently, over 80% of the population is located in the Global South, and the region is expected to witness a huge surge in demand for energy over the next decade, making it critical in any effort towards a green energy transition. Moreover, it is grossly underprepared for a widening gap between energy supply and demand as it holds only 18% of total power generation capacity. This is a product of long-term underfunding in the region, highly regulated power markets, and lack of capital. With green energy investments already yielding low returns at about 6%, investors are reluctant to tap into emerging markets. This, in addition to a lack of government incentives, high interest rates, and foreign exchange risk, has meant that the region has been vastly underfunded and is ill-prepared for any radical green changes to the existing energy infrastructure. For any meaningful long-term solutions to our current energy practices, neglect of the Global South must first be addressed. A lack of private funding in the region means that governments must revise current energy practices to align with varying models and markets, and any inability to do so will prove hugely harmful in the long-term effort towards a green energy transition. Rather than engaging in tit for tat petty protectionist laws, major players in the energy sphere should focus attention on addressing supply chain issues, the widening gap of supply and demand, and the development of clean and smart energy solutions.
Image courtesy of Tony Webster via Wikimedia, ©2014. Some rights reserved.
The views and opinions expressed in this article are those of the author and do not necessarily reflect those of the wider St. Andrews Foreign Affairs Review team.
