The Geo-Politics of Renewable Energy

Right now the world stands on the edge of great change, the rapid fall in cost of renewables driven by more efficient solar and wind technologies along with the realistic prospect of industrial scale electric batteries means that I believe the age of renewables is dawning and the time of fossil fuels is coming to end.

Presently the dominance of coal, oil and gas is so profound that this might seem like a crazy proposition, but now the cost of renewable energy has fallen to a level that makes them truly competitive with fossil fuels (and promises to fall further) and the world’s politicians and business leaders are increasingly aligned in their direction the rise of clean energy will be unstoppable.

While this energy mega-trend has been much discussed its impact on world politics has been much less so. The geopolitics of oil has been a constant theme of the 20th century, resulting in the colonisation of the Middle East, followed by years of instability punctuated by outside military interventions.

At the same time the world’s most valuable resource has primarily enriched elites in oil producing countries but has led the same countries to become dependent on oil unable or unwilling to diversify which has stifled their economies and created conflict within and between countries as factions vie for control of a valuable resource. This looks set to change as the advent of renewables will transform the geopolitical landscape in new and unpredictable ways:

Lithium and other rare metals are key components in electric car batteries, if these continue to replace combustion engines then the supply of these metals will become an important political and economic consideration the same way the supply and production of oil is today. The production and supply of oil is what makes the Straits of Malacca (where much of world’s oil is shipped through) or Saudi Arabia and the Gulf region (the world’s key oil producing region) such politically sensitive areas.

While China is currently the world’s biggest producer of lithium and the largest electric vehicle battery maker, countries like Bolivia and Chile are also major producers of the metal; could this make them the future Saudi Arabia’s of electric batteries – the world dependent on their supplies of the metal? Maybe, but it is also likely that as demand for lithium and other metals rise so will the search for, discovery and mining of these resources, increasingly and diversifying the global supply of the metal.

The other wild card is an environmentally friendly one, the potential for recycling these metals is yet largely untapped, Apple has committed to using only recycled lithium in the future, this trend could continue as demand rises and concerns about the effect of lithium mining and the damage caused by discarded batteries increases. All this could yet ruin Bolivia’s dream of becoming a lithium powerhouse.

The fall of the fossil fuel producers

As reality bites the producers of oil, coal and even gas could suffer new crises, already prone to political instability the authority of the House of Saud, the Gulf monarchies and many African dictators could crumble as their main source of revenue dries up and with it their ability to support key institutions like the army.

This may come sooner than people realise, even if fossil fuels remain dominant for a long time but renewables look more favourable in the longer term companies will realise that the oil and coal reserves have a fast declining long term value and could soon become stranded assets.

Producers may also rationally try to cut production and increase prices to order to gain higher revenues in the short term, but this would of course make renewables look more attractive. These oil dependent nations should in the longer term benefit from these changes, many Gulf countries can become solar power giants in their own right and the move away from resource dependency will create more diverse economies and perhaps even transform their political climates for the better.

Technology Rules

Renewables are fundamentally different from fossil fuels in that first and foremost they are technology based, while they depend on environmental conditions such as wind and sunlight they do not require the movement of tonnes of oil, gas and coal from a mine or well.

Instead what matters is which country can manufacture the most efficient and cost effective solar modules and wind turbines, this means that the quality of intellectual property, patents and production centres will determine the winners of the renewable age.

Right now European countries arguably have an edge on technology but Chinese firms are ahead in terms of raw scale production and have incentivised its firms like BYD to become world leaders in the battery storage sector.

Of course that is not the only part of the story, countries can easily buy renewable energy components and set up a network based on overseas technology, but many like Turkey and Brazil feel that this would place them at a long term disadvantage and have enacted laws which determine that a certain percentage of renewable energy installations have to be built within the country, the idea being that this will help create local production centres even if it means increasing the construction costs of renewable installations in the short run.

This has already led to conflicts as countries like the USA seek to restrict cheap Chinese solar module imports to in order to protect its own manufacturers, however for producers and users of energy, cheap Chinese imports are preferable as they keep costs lower.

Perhaps the most important geopolitical impact of renewables is if and how quickly they replace fossil fuels, the sooner this happens the more likely catastrophic climate change will be prevented. Climate change will profoundly change the world in an unpredictable manner, but widespread crop failure, water shortages, uninhabitable cities and extreme weather will certaintly lead to mass migration and widespread conflict and will throw the geo-political framework we know and understand now into chaos.



Categories: climate finance, Geo-Economics

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