The new energy order

21st July 2022


Russia’s invasion of Ukraine has added urgency to the net-zero transition as countries renew their focus on energy security and the geopolitical landscape changes forever. Chris Seekings reports

On the eve of World War I, Winston Churchill decided to convert the fuel used by the Royal Navy from domestic coal to imported oil, and ever since, energy security – the uninterrupted supply of affordable energy – has taken on strategic global importance. Around 80% of the world’s population live in countries that are net importers of fossil fuels, according to the UN, meaning that six billion people are dependent and vulnerable to geopolitical shocks.

Vladimir Putin’s onslaught in Ukraine has brought this into focus, with the war not only resulting in thousands of needless deaths, but also sparking a global cost-of-living crisis as energy prices rise. However, the situation has also added urgency to the renewable energy transition as countries rush to end reliance on Russian fossil fuels and ramp up production of clean domestic power.

The shift could ultimately diminish Russia’s influence on the global stage, with neighbouring nations no longer having to bow to ongoing threats around limiting gas supplies. “We must become independent from Russian oil, coal and gas,” European Commission president Ursula von der Leyen said earlier this year. “We simply cannot rely on a supplier who explicitly threatens us.”

Imagine a world of interconnected, regional electricity grids in which countries can independently generate renewable energy, and we can see how the net-zero transition may also be a driver of peace. However, with the EU currently relying on Russia for around 40% of its gas, this is not going to happen overnight, and fresh conflicts could arise as old alliances and trade flows are reconfigured in a new world order for energy markets.

The immediate threat

The UK and US have announced plans to end their use of Russian fossil fuels this year, while the EU aims to do so by 2030. The problem is that the EU assumed it would manage the transition using cheap Russian gas. “Now the challenge is figuring out how Europe accomplishes the energy transition without that,” says Joseph Majkut, director at the US-based Center for Strategic and International Studies’ Energy Security and Climate Change Program. “That means introducing stricter efficiency standards and higher goals, accelerating the deployment of renewable technologies, and building a massive hydrogen industry in a very short timescale. That is going to be hard to do.”

Liquefied natural gas exports to Europe have risen by 75% since March compared to 2021, while US exports have nearly tripled. Majkut expects this to continue, with many US exports shifting from Asia to Europe. “Europe and the US now have to make sure that that capacity build out doesn’t violate long-term climate goals or lead to adverse climate outcomes. That’s going to be a tricky challenge involving a variety of technical interventions.”

Parts of North Africa and the Middle East, particularly Qatar, could also come to the EU’s aid if Russia was to ‘turn off the gas’, and rationing may be an option in an emergency. However, these are not long-term solutions, and there were already holes in the bloc’s climate plans before the invasion of Ukraine. In Germany, for example, planning permission for commercial wind power production can take more than five years. “If Europe is going to build in line with its climate targets, that’s an unacceptable timeline,” Majkut says. “It was unacceptable before February 24, but the energy security imperative has forced these challenges forward in policymakers’ minds.”

Rewiring the world

Once the dust settles on the Ukraine-Russia war and energy prices stabilise, it may be possible to look back on this year’s events as a net-zero catalyst. When trying to predict which countries will be the big winners from the clean energy transition, the International Renewable Energy Agency suggests considering three factors: potential for renewable energy generation, mineral richness, and technological innovation. In a report, it states: “Control over the production of and trade in oil has been a key feature of 20th-century power politics – a transition from fossil fuels to renewable energy could transform global power relations no less than the historical shifts from wood to coal and from coal to oil.”

The energy trade will move from fossil fuels to minerals and products, such as batteries and solar cells, and countries that have enjoyed geopolitical influence due to their oil and gas supply may see this influence decline unless they reinvent their economies for this new era.

China has already established itself as a leading exporter of clean energy technology, creating a balance-of-trade advantage. Indonesia also stands to profit, since it has the world’s largest reserves of nickel – a key element for batteries – while India’s prime minister Narendra Modi has said that green hydrogen could help his country make a “quantum leap” to energy independence by 2047. “We’re seeing countries try to position themselves for influence in the world, whether that’s through investing in the building blocks of a hydrogen economy or through mining for critical elements, such as with the cobalt industry in the Democratic Republic of Congo,” Majkut says. “But we can’t just look at places with natural resources, because the energy transition is going to be one that involves high technology systems integration, so every part of the value chain is going to matter.”

Broadly speaking, energy dependence is likely to shift from global markets to regional grids, and countries that import oil from the other side of the world today will look to develop renewables and integrate their grids with those of neighbouring countries. Advancements in ultra-high-voltage transmissions could, however, help to enhance trade in electricity over longer distances.

A new battleground

Unfortunately, a world of interconnected electricity grids still presents opportunities for friction via the new dark arts of statecraft. Some argue that nations which dominate electricity grids may exercise control over their neighbours, and that inter-state electricity cut-offs will become a foreign policy tool, applied strategically in the same way that oil and gas sanctions are used today. The proliferation of technology and interconnected electricity grids could also present a key battleground for cyber warfare. Authorities recognised these threats in 2016 when national security justifications were invoked to prevent China’s State Grid from purchasing shares in Australia’s electricity distributor AusGrid.

“We’re seeing countries wanting to own parts of this new energy economy, and that’s going to introduce trade disputes”

The clean energy race could also result in technology dominance, as we have seen in mobile technology, where a few companies – such as Samsung and Apple – compete for global leadership. “We’re seeing countries wanting to own parts of this new energy economy, and that’s going to introduce trade disputes,” Majkut says. “It’s not necessarily going to be all sunshine and roses.”

Meanwhile, old alliances between nations based on fossil fuels, such as the one between the US and Saudi Arabia, could fail. It is also impossible to rule out conflicts over minerals. Latin America has huge reserves of copper, iron ore, silver, lithium, aluminium, nickel, manganese and zinc, while Africa is rich in platinum, manganese, bauxite and chromium. However, evidence links conflicts to oil more robustly than to any other natural resource.

“Production of some minerals for the energy transition will need to increase by a factor of three to 44 to meet targets established by the Paris Agreement,” explains Nina von Uexkull, associate professor at the Department of Peace and Conflict Research at Uppsala University. “Some of these minerals can be mined artisanally and this may lead to challenges related to internal conflict and governance issues in fragile states.

"However, there is little to suggest that increasing demand in resources needed for an energy transition will lead to so-called ‘resource curse’ dynamics associated with oil production that tend to beset major producers. The resources needed for decarbonisation only constitute a minor share of the local economies and are more diverse.”

The peace dividend

When considering the wars that have been driven by oil, it is possible that the pivot to renewables could reduce conflict by alleviating competition for natural resources, thus delivering a peace dividend. Cross-border electricity trading will create opportunities for regional co-operation, and electricity trading tends to be more reciprocal than trade in fossil fuels. Whereas oil and gas flow from exporter to importer, the trade in electricity flows both ways.

“Long-term, I think the overall impact of the transition away from fossil fuels would be positive for global peace,” Von Uexkull says. “Oil and natural gas are linked to conflict in various ways, but none of the resources needed for the energy transition will likely have the same dynamics, since they both have a smaller share in government’s income and can partly be recycled. It is crucial to see the overall societal benefits of, not only avoiding dangerous climate change, but also reducing the harmful effect oil production has on global peace and security.”

However this plays out, renewables should allow most countries to achieve energy independence, providing greater energy security and freedom over energy decisions. At a local level, the transition may also reshuffle political and economic power, because renewables tend to decentralise and democratise energy systems. Due to the falling cost of solar PV and wind power, as well as smart distribution systems, anyone with a rooftop or land can produce electricity for self-consumption or the grid. In the words of former US president Jimmy Carter: “No one can ever embargo the sun or interrupt its delivery to us.”

Image credit | Shutterstock

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