Geopolitics of the Energy transition (I)

Foreword

Seminar 2021-2022

“Politics is the art of making what is necessary possible”

Cardinal de Richelieu

Comité Médicis working group led by Yves Barou and Jean Jouzel

The group’s previous work analysed the contradiction between climate and social issues (see the 2021 report on the Comité Médicis website): on the one hand, the climate, the current energy mix and its evolution, on the other hand the social dimension, in the sense of curbing inequality, fostering inclusion and addressing the content of development.
The fact is that the social dimension can considerably slow down the necessary energy transition. Only a just transition can meet the challenges by being sufficiently effective to prevent irreversible disasters.
Let us be clear, the energy transition will happen in any case, but at what cost? If it is unfair and unequal, if it leaves out the developing countries, if it fails to guarantee access to energy for as many people as possible, there is a strong risk that it will be too slow in the race against global warming.
It is our collective capacity to act that is at stake.
For the first time, humanity is facing a common existential challenge. But each country, each region, is adopting a specific approach to best meet the requirements of its traditions, its social model and its energy mix. Global governance, despite the considerable contribution of the IPCC and the COPs, will not suffice to meet the challenge.
Understanding the geopolitics of the energy transition therefore appears a necessity to identify how a common path can be traced.
International events – from the consequences of Covid to the war in Ukraine and its impact on energy resources – have put geopolitics back in the spotlight.
Already global warming has introduced an unbearable amount of stress and turbulence into societies that were already struggling with poverty, inequality, corruption and other ills. It is also causing crises and migration, and will thus profoundly affect international relations. It is not only an environmental issue but also a development, equity and security issue.

A tripolar world

The United States or the lifestyle barrier

The United States is facing a crisis of climate leadership, and this goes far beyond the Trump episode and the withdrawal from the Paris agreement. The United States, however, was one of the frontrunners in the formalisation of global warming and remains the leading power in terms of research and innovation, with the full gamut of transition technologies at its disposal. In addition, some parts of the US are and will be particularly affected by the effects of global warming.

However, the United States has not really engaged in the energy transition and the American position in international climate negotiations has always oscillated, depending on the administration, between cautious determination and frank scepticism. The country has thus exacerbated the contradiction between social and climate issues, even though Americans have one of the highest standards of living in the world. Today, once again, the radicalisation of the political battle between Democrats and Republicans is holding the climate hostage.
There are two reasons for this blockage: a historical reason, the ideological resistance of the American consumerist model, and a social reason linked to the state of American society impoverished by deindustrialisation.
The first barrier is the American way of life, a contradiction that can be summarised by G.H. Bush’s words at the Rio Earth Summit in 1992: “The American way of life is not negotiable”. Consumerism has grown steadily since the 1950s and has become so important to American society that it has become part of the national identity.

The American way of life is one of the most carbon intensive in the world. In geographic terms, the United States built itself on cheap energy, the maintenance of which became one of the strategic focuses of America’s foreign policy, from the Quincy Pact to the Iraq war. This vision has become part of the mentality and is also reflected in the typical American city, made up of residential buildings and large commercial areas. Moreover, neoliberal ideology has encouraged this American consumerism through the development of consumer credit and debt. It has been accompanied ideologically by a shrinking of the state, whose legitimacy to intervene in the economy has been reduced, particularly at the federal level.
The second blockage is the crisis in American society and the social fractures linked to deindustrialisation. American society has become more fragile – debt, deindustrialisation, unemployment, basic necessities accounting for an increasing share of expenditure – and this is reflected in the rise of populism and climate scepticism.

Paradoxically, increased competition for energy and the effects of global warming are leading to an increase in the weight of fossil fuels in the US energy mix. This dependence on fossil fuels – and therefore the delay in implementing the transition – is further accentuated by the abundance of fossil fuels in the US. The post-2008 oil and shale gas revolution has thus enabled this model to survive. In a way, this restored America’s power after the 2008 crisis (return to growth, partial rebalancing of the trade balance) by making the US a fossil fuel exporting power. This gives it greater resilience and autonomy in the event of a cyclical shock such as the war in Ukraine, and even structurally in a context of global energy shortage linked to a scissor effect: drop in production linked to the transition, continued increase in demand.
The United States is thus currently going against the trend of the global transition, making a comprehensive approach very difficult. The contradiction between the social issue and the climate issue is so strong that it is currently blocking any significant developments, despite the numerous initiatives of the American economic fabric. The response to climate change is seen primarily as a cost to the economy.
On the other hand, the United States remains the most advanced country in terms of technological innovation and could therefore be a leader in transition technologies. That said, in order to fully mobilise its tremendous potential for creativity, the result of networking between businesses and universities, priorities must be reversed. Innovations that could facilitate the transition for all countries around the world therefore hinge on the evolution of American lifestyles.

For a long time now, Europe has been asserting its ambition to be a climate leader, an ambition defended by the Member States but above all by the European Commission. This process is linked to the strength of environmentalist movements in the major European countries, in particular the northern countries, Germany and France. Since the Kyoto Protocol, Europe has called for a multilateral approach to the climate within the UN framework. Today, this leadership is provided by the Commission’s very proactive action: Green Deal, Fit for 55, EU taxonomy, non-financial standardisation. Moreover, the European Union’s Global Gateway strategy announced on 1st December by President Ursula von der Leyen is a recognition of this interaction and of the need for large-scale investment, capital flows to support the energy transition, and a new way of thinking about relations between the EU, Africa, Asia, Latin America and especially China.

Within Europe, German’s position is hegemonic but singular, since it turned its back on military nuclear power very early on and, by contamination and political calculation, also on civil nuclear power. The country has developed renewable energies massively while remaining heavily dependent on coal and gas. The automotive industry is one of Germany’s weak points, with a head
on confrontation between the German industry and the Franco-Italian industry. Generally speaking, the fact that Europe banked on cheap energy based on Russian gas, combined with the “bazaar” economy set up with Eastern European countries and a strong trade dependence on China, has considerably weakened Europe’s autonomy and its climate commitments.

Germany’s target of carbon neutrality by 2045 is not very credible at the moment, as the Constitutional Court has pointed out: maintaining the energy-intensive industrial base while providing energy to cities whose density and therefore energy efficiency are low seems extremely challenging. Germany is thus dependent on transitional energies and, more fundamentally, on an economic model based on growth.
For Germany, the success of its exports is linked to social inequalities with an elite and professional manual workers who are the beneficiaries. In this context, as elsewhere, the rhetoric asking everyone to make sacrifices, to change their lifestyle, without tackling inequalities, is devastating.
In this way, German contradictions amplify European ambiguities.

All things considered, Europe is neither an energy power nor a climate power. Unlike the US, Europe is not an energy power and has no resources of its own, which sheds a cruel light on the question of its dependence: it is subject to higher energy costs than elsewhere and is dependent on critical materials, foreign technologies and Chinese producers. It is currently highly uncertain, contrary to the Commission’s assertions, whether the energy transition will be accompanied by a reduction in the continent’s dependence and strategic autonomy. That said, the total weight of emissions remains relatively low compared with the US or with the large emerging countries such as China or India.

All in all, the proactive European transition, by being too little concerned with social and strategic constraints, may result in further deindustrialisation and energy insecurity, leading to protest movements opposing the transition. Moreover, a strategy that cannot be applied elsewhere, with high carbon leakage and limited contribution to innovation, may ruin European efforts to chart a globally feasible course and thus further reduce its global impact in a tripolar world. Does this mean that Europe is not justified in its climate leadership project? The answer needs to be qualified because Europe still has strong assets: the level of European savings, which could be invested more massively in the Green Pact, significant know-how, the capacity to experiment with negotiations and balances which could then be exported, and its long-standing ability to combine social and development issues.

China or the desire to secure its resources to defend its growth model

Growth has been a priority in China and has helped to eradicate poverty, but this has come at the cost of dependence on fossil fuels. China now burns more than half of the world’s coal production and has been the largest emitter of CO2 (30% of total emissions) since 2006. This helped to drive the emergence of the middle class by offering them access to a consumerist and modern lifestyle, modelled on that of the West, thereby stabilising the political regime.
Without coal, Chinese coal, China would not be the world’s second largest economy. Coal was virtually irreplaceable (58% of the energy mix in 2019!).

The contradiction between the social dimension, and therefore growth, and the climate issue is even stronger than elsewhere. The power cuts of 2021 are a clear example of this. As the economy and the world’s workshop restarted, more electricity was needed. Rationing measures were put in place and some industries had to be shut down, which affected notably Apple and BASF.
But the problems of pollution, flooding and water stress have become a growing concern. More generally, China will be strongly impacted by climate change.

China now presents itself as the responsible leader of the emerging countries : the G77 and the BASIC group (made up of Brazil, South Africa, India and China). It does so by seeking a balance between development and responsibility: it multiplies its commitments in favour of the climate (peak CO2 emissions by 2030 at the latest, and carbon neutrality by 2060, end of funding for coal
fired power stations); and it also defends the pursuit of a right to development, considered as non negotiable. In this fragile balance, it announced it would drop coal-fired power plant projects along the Silk Road.

Even more than Germany, its growth model is based on the need to supply energy to its industrial sector and to export, hence its obsession with energy security. Unlike the US, China relies heavily on imports for its energy security. With one exception, however: it has abundant coal resources that it uses massively in all ways: electricity production, oil synthesis. The only way of limiting the use of coal would be to secure international relations, but clearly this is not on the agenda today. China has a very strategic approach to the transition: it has been able to exploit the opportunities it offers and take control of the energy industries of the future (control of rare earths, integration of the battery and photovoltaic sectors, use of dumping rules, investments concentrated in critical technologies).

By way of illustration, 75% of the global production of batteries for electric vehicles is in China. ATL is by far the biggest company in the world, even though (far behind) there are some Koreans and Japanese. The entire value chain, including commodities, is controlled by China; it is at the centre of gravity of commodity production after having taken control of mines in Africa, in Congo, Mozambique, and Tanzania. It controls 80% of the refining of all the commodities needed to build batteries: for example, 66% of anodes and cathodes and 73% of fuel cells. Of the 200 mega battery factories in the world, 150 are in China.

For solar panels, the figures are equivalent. The production of solar panels amounted to 110 GW in 2019, for a global total of 144 GW.
More generally, this is leading to targeted takeovers in technologies critical to the transition, while China has already made acquisitions of or gained access to arable land in Africa and elsewhere. If China were to face food security problems in the future, it might well want to buy all the agricultural production of countries in which it has land investments.

China thus has a clear objective and is acting in a very determined manner in line with this objective: to use the energy transition in order to emerge as a winner and ensure its global leadership.
Its weaknesses, however, are significant: relatively weak technological innovation, energy dependence, strong impact of climate change…

Read more (Part II)

Emerging countries

 India and the affirmation of the right to development

If you look at India’s situation, it is one of the great climate giants. India is the world’s third largest emitter after China and the United States. Together, these three countries account for half of global CO2 emissions. In terms of per capita emissions, however, India is more comparable to Africa. Like China, the country has abundant coal resources (10% of the world’s reserves) to fuel its future growth, which promises to be strong. Given its population and the availability of fossil fuels, India looks set to follow an emissions trajectory similar to that experienced by China. This abundance of coal transforms the question of development: how can India be provided with the means to develop in a decarbonised way?
At present, the share of coal in the Indian energy mix is significant (about two-thirds of total energy capacity). The country has made strong commitments to the energy transition, aiming to halve the share of coal within ten years. To achieve this transition, India needs a large influx of capital. The country does not have as much domestic savings as China. For the transition to 2030 to be possible, climate finance needs to increase from $642 billion to $3 trillion or $4 trillion per year.

In international negotiations, India and China are therefore putting pressure on developed countries to achieve a transition that is fair to their interests. COP26 showed that India is developing a strategy with China for the two countries to become the “authorities” of the climate agenda. Their intervention to remove coal from the final agreement is a case in point. An important part of the solution to the climate issue comes from the solutions that will be developed to prevent these countries from using their coal resources.

Brazil and the Amazon question

In terms of resources for implementing the energy transition, Brazil has many advantages. In the aftermath of the first oil crisis, the country embarked on a policy to increase its energy autonomy by drawing on the many advantages of its territory. The Alcohol Plan launched in 1970 enabled Brazil to become the world’s leading producer of agrofuels, sugarcane alcohol and biodiesel, thanks to the vast amount of arable land available. The country also has extensive hydraulic potential. Today, about half of the energy produced in Brazil is from renewable sources, with the share of renewables rising to 80% for electricity generation. The presence of oil deposits has also enabled the country to move from being an importer to an exporter since the 1980s, an advantage that could make Brazil one of the great champions of the energy transition. The Amazon rainforest has huge potential for carbon capture in Brazil. The country has abundant mineral resources that enable it to position itself advantageously in the key sectors of the energy transition. This is the case for the battery sector, as Brazil has abundant lithium resources. Brazil has successfully developed a domestic wind and solar industry by protecting its domestic market. Finally, gas and oil resources provide opportunities for the production of blue hydrogen.

All of this means the country enjoys favourable sustainable development prospects. It is possible to make transition scenarios towards carbon neutrality in which the country manages to maintain a positive growth rate and an overall increase in household living standards. However, such a trajectory requires an end to deforestation in the Amazon (currently 20% of the Amazon forest has been destroyed) and the introduction of a carbon price, albeit a relatively low one, to encourage economic agents to change their behaviour. Furthermore, Brazil is a major contributor to a highly carbon-intensive and totally obsolete global agricultural model, which is itself a key factor in the deforestation of the Amazon.
Social and political acceptance is a major issue in Brazil. The issue of inequality as well as a high level of corruption among political elites accentuates the social tensions that run high in the country. The country is experiencing violent strikes, notably by Brazilian truckers who are demanding a reduction in the price of fuel. Jair Bolsonaro’s policies have significantly undermined the prospects of achieving sustainable growth, instead promoting intensive, short-term resource exploitation and accelerated deforestation.
Other limiting factors exist: like India, Brazil suffers from a domestic savings deficit and needs external capital to finance the transition. With regard to the financial component, it is important to create financing with countries in the North and the South in order to have the right conditions to reduce risk perception and encourage investments.

Africa lying in wait

After the very severe drought that hit the Sahel countries particularly hard in the 1970s, Africa, particularly sub-Saharan Africa, is increasingly experiencing the effects of extreme weather events. Regardless of whether or not these events of fifty years ago are attributable to climate change, the fact is that this region, due to its socio-ecological fragility, is experiencing an early manifestation of the expected effects. Africa is thus a sentinel of the world, with numerous phenomena already observable that are likely to become more severe, sometimes encouraged by behaviours:

– Variability in climate and rainfall patterns, leading to both drought and flooding
– Spatial climate variability and rural and urban migration
– Number of heat waves (“unlivable days”) increasing and expanding
– Significant reduction of wetlands and of water quantity and quality
– Insufficient level of dams, insufficient regional coordination and tensions over water resources
– Salt water upwelling and reduction of biodiversity
– Deforestation and land degradation, expansion of the desert
– New diseases
– Uncontrolled growth of new aquatic plants and algae, blocking irrigation and drainage channels
– Land degradation and expected decline in yields
– Ocean heat waves and difficulties for fishing industry
– Sea level rise and degradation of coastal areas through weakening of the coastline and salinisation of the soil

According to recent scientific reports, and in particular those of the IPCC, all these phenomena could be amplified by an increase in temperatures above the global average. They will clearly compromise food self-sufficiency and, more generally, the prospects for development and improved well-being of the population.
In this general equation, the question of energy is central because it is one of the causes of climate change, one of the responses to it and an absolute necessity for development or simply for improving people’s living conditions. In the African context, it is most often addressed from the perspective of access (to energy). This concept can be ambiguous and subject to several interpretations; it should be understood as “energy for development”.

Access to energy has often been limited to providing lighting through solar kits in a village and/or disseminating improved cooking stoves in rural and urban areas. These initiatives are welcome, but they are far from relevant in addressing the critical needs and development aspirations of African countries. The central energy issue in Sub-Saharan Africa, unlike in Europe or emerging countries, is to build decarbonised or low-carbon energy systems from scratch rather than replacing or upgrading existing ones towards zero carbon as soon as possible. For Sub-Saharan Africa, however, the most urgent energy transition is to move away from the use of wood and charcoal for cooking towards a decarbonised option. Africa’s development should be designed on a more sustainable trajectory and take into account the climate constraint, while the energy infrastructure remains to be built. The continent should replicate in the energy field what it did with the development of mobile telephony, where it skipped the phase of development and expansion of landlines, and work towards the emergence of new flexible, scalable, modular, local and prefabricated energy systems, using technological and social innovation.

This technological leapfrogging, particularly in the field of energy, could enable it to innovate with solutions that combine isolated, decentralised and centralised systems, depending on the context. This approach could also inspire Europe to a certain extent (e.g. no need to go through the hybrid car stage to go electric), as well as solutions based on the social economy, on traditions of solidarity, on the circular economy. Ultimately, the concept of “energy transition” is rather convenient but limiting; the actual goal is low-carbon development.

An African response is currently hampered by the difficulty of mobilising the investments and funds needed to build the foundations of future-oriented smart energy systems; by contrast, in the North, there is a plethora of savings, the energy infrastructure has been in place for a long time, and the carbon return on each euro invested is much lower. The commitments made by the North to the South within the framework of the COPs are hardly ever kept, breeding further mistrust in the South towards the North and hindering the transition. In 2009, as part of the Copenhagen Accord, developed countries pledged to contribute $100 billion per year from 2020 onwards to combat global warming and adapt to its consequences in developing countries.

Read more (Part II)