The geopolitical jigsaw of the energy transition

The global shift towards renewable energy is not just an environmental imperative; it represents a seismic shift on the global geopolitical chessboard. As nations compete over scarce resources to pave the way for their energy transition to net zero, the geopolitical landscape is being redrawn, presenting a host of new risks and trends. Manas Chawla, CEO, London Politica, speaking at upcoming SuperReturn Global Infrastructure, highlights three key risks: resource nationalism and critical mineral supply chains, the geopolitical ramifications of energy independence, and the socio-political instability triggered by the transition.

Resource nationalism and critical mineral supply chains

The energy transition is heavily dependent on critical minerals like lithium, cobalt, and rare earth elements, which are essential for green technologies like batteries, wind turbines, and solar panels. Unlike fossil fuels, which are widely distributed, these critical minerals are concentrated in a handful of countries, often at the crossroads of entrenched political rivalries.

For example, the Democratic Republic of Congo (DRC) supplies approximately 70% of the world's cobalt. This concentration has led to concerns over resource nationalism, where countries might leverage their control over critical minerals for geopolitical gain. China's dominance in the rare earth market is another example. With over 85% of the global rare earth processing capacity, China has overwhelming influence over global technology supply chains. China has also demonstrated its competence in weaponizing supply chains for geopolitical gain: in 2010, China temporarily cut off rare earth exports to Japan over a maritime dispute, an event that still features in Japan’s security calculus today.

The reliance on a few countries for critical minerals increases the risk of supply chain vulnerabilities. Political instability, such as that seen in the DRC, can lead to supply disruptions, impacting the global rollout of renewable technologies.

Geopolitical ramifications of energy independence

The transition to renewable energy offers the potential for countries to achieve greater energy independence, reducing their reliance on imported fossil fuels. This shift has profound geopolitical implications, particularly for countries that have historically wielded significant influence through their control of oil and gas supplies.

Middle Eastern countries, such as Saudi Arabia and Iran, have long been pivotal players in global geopolitics due to their vast oil reserves. As the world moves towards renewable energy, these countries face the dual challenge of economic diversification and a potential loss of geopolitical influence. Saudi Arabia's Vision 2030 initiative is a direct response to this challenge, aiming to diversify its economy away from oil dependence.

Conversely, countries that are net importers of energy, such as many in the European Union, stand to benefit from increased energy security and reduced exposure to global energy price volatility. The European Green Deal, which aims for climate neutrality by 2050, is partly driven by the desire to reduce dependence on external energy sources, particularly from Russia.

This trend towards energy independence could also lead to new forms of geopolitical competition. For instance, the race to dominate green technology markets, such as solar and wind power, could create new economic rivalries. Countries that succeed in becoming leaders in these technologies will have an upper hand in the emerging multipolar global order.

Socio-political instability triggered by the transition

While the energy transition promises long-term environmental and economic benefits, it also poses significant short-term socio-political challenges. The shift away from fossil fuels threatens to disrupt industries and communities that have long been dependent on oil, coal, and gas production.

Consider, for instance, how West Virginia in the United States, which has historically relied on coal mining, is already experiencing economic and social upheaval as the demand for coal declines. This transition contributed to economic stagnation for working class voters, fueling political discontent and resistance to climate policies. The "yellow vest" protests in France were partly sparked by fuel tax hikes aimed at reducing carbon emissions, illustrating the potential for climate policies to provoke social unrest.

Moreover, the global shift towards renewable energy may exacerbate existing inequalities between developed and developing countries. Developing countries, which often rely on fossil fuels for economic development, currently have nowhere near the funding and technical assistance they need to decarbonize at the same pace as the developed world. The Green Climate Fund, established to assist developing countries in their climate change mitigation and adaptation efforts, is a step towards addressing this disparity, but significant challenges remain. Even the Loss and Damages fund established at COP28 only promises some 700 million out of the 400 billion dollars required by the most climate vulnerable nations: a drop in the bucket.

Conclusion

The energy transition is reshaping the geopolitical landscape in profound ways. The concentration of critical minerals in a few countries, the shifting dynamics of energy independence, and the socio-political instability triggered by the transition are key trends that need careful navigation. As nations forge ahead with their green agendas, understanding and mitigating these geopolitical risks will be crucial to ensuring a smooth and equitable transition to a sustainable energy future. The future of global politics will be significantly influenced by how well the world manages these emerging risks and trends.