‘Winning’ the Energy Transition: Looking Beyond Resources
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Commentary

‘Winning’ the Energy Transition: Looking Beyond Resources

Laima Eicke
|
Silvia Weko
04 aprile 2022

The transition to low-carbon energy systems has the potential to shift geopolitical power, as it will create winners and losers across countries. The clean energy business is certainly lucrative for its winners: the IEA estimates that the transition would create a $1.2 trillion market for clean energy. Although there have been vivid debates in the past years among policymakers and scholars alike, the factors determining who will win and who will lose are still hotly debated[i]. Many scholars see physical resources as important, from solar radiation levels to critical materials. We argue that what matters for ‘winning’ transition processes are political and economic factors, such as investments in renewables and technological development, as well as relative timing of transition processes.

 

Green investments on the rise… but not everywhere

Overall, fossil fuel producers are expected to lose out in the energy transition. In order to reach the Paris Agreement’s goal to limit global warming to 1.5°C until 2100, 60% of oil and fossil gas, and 90% of coal must remain in the ground[ii]. Recent projects from the IEA – typically rather conservative on these topics – see the potential for fossil fuel use to peak by 2025. Even in scenarios where countries fail to implement their climate pledges, fossil fuel use is meant to peak soon and then flatten until 2050. These dynamics may only pick up speed, as Russia’s invasion of Ukraine the geopolitical and moral implications of our dependence on fossil fuels.

The long-term structural shifts in global energy markets away from fossil fuels can impact global south countries if they fail to diversify their economies. Those with national oil companies could face financial shocks from stranded assets, with severe consequences for political stability, as the social contract depends on resource rents. In addition, states without fossil reserves may still be impacted by stranded assets because these extend to infrastructure (Seto et al., 2016), and power purchasing agreements.  

In contrast, the installment of renewable energy has grown exponentially over the past decades. New investments in renewables grew even during the pandemic:  in 2021, around 70% of spending on new generation capacity was in renewables. These technologies can be used almost anywhere, although certain zones are more conducive to offshore wind (costal areas) vs solar, in equatorial zones. However, the countries with the highest potential for renewable energy are not seeing a high degree of installment. Investment still largely flows towards countries of the ‘Global North’ and China, rather than the developing world. Only around 12 percent of renewable energy finance went to developing countries beyond China and India in 2017. Since COVID-19, existing problems such as a lack of investment and energy access on the African continent have worsened.

 

Technology leaders are frontrunners in the transition

These patterns suggest that clean power generation potential does not make countries energy transition ‘winners’. Rather, we see technology leadership and relative timing as more important for the geopolitics of the green race. 

Because energy systems based around renewables need technologies to transform and use sun and wind, the ability to design and create them is a clear competitive advantage in the ‘green race’. Therefore, technology leadership may be a key factor in determining gains from the energy transition. Whereas wind value chains are more regionally dispersed, the global market for solar technologies is much more globalized and saw the rise of China as a clear champion across the past two decades, after relocations of solar PV manufacturing from Europe. In terms of research and development the majority of patenting activities are concentrated in North America, Europe, and China. This global division of labor has resulted in falling costs for technology, especially solar PV[iii]

 

A widening gap between transition leaders and laggards

At the same time, we can observe countries competing for market share on behalf of industry – sometimes with unintended consequences. Tensions between the EU, US, and China over the renewable energy industry spilled over into trade conflicts and trade barriers[iv]. Attempts from other countries to replicate China’s success in green industry-building have been less successful, for example in India and South Africa[v]. For these reasons, a ‘green race’ has the potential to result in positive competition in terms of supporting transitions[vi]; but neo-mercantilist strategies may also increase trade disputes and thereby the costs of installing renewables.

In analogy to the green race metaphor, the relative timing of energy transition process across countries also matters for gains and losses. Whereas transition leaders might economically benefit from technology leadership in renewable energies, transition laggards face increasing financial risks and face decreasing economic competitiveness[vii]. The introduction of the European carbon border adjustment mechanism (CBAM) exemplarily depicts how countries with lower shares of renewables and therefore higher carbon footprints of their exports might decrease their economic competitiveness[viii]. Once countries fall behind, feedback mechanisms make it increasingly difficult for countries to catch up[ix].

Furthermore, this gap between transition leaders and transition laggards has been further deepened since the start of the COVID-19 pandemic in 2020. During lockdowns and economic downturns, countries saw decreased demand for energy and, in some cases, increased shares of renewables. But while ‘leader’ countries such as Germany used the pandemic to foster further investments in the sector with green recovery packages, these effects where less visible among transition laggards: in some countries, carbon lock-in deepened as a result of subsidies for fossil fuel use and extraction[x].

 

The importance of political consideration

The past month has thrown into stark relief for EU countries additional moral and geo-economic consequences of relying on fossil fuels, and the need to accelerate the energy transition. As the ‘green race’ picks up speed, we see the need to consider that its outcomes depend on politics and economics, not only energy resources. Gains and losses may be unequally distributed across the globe, as first movers aim to maintain their competitive technological advantages and countries without clean energy finance fall behind. We see the potential for these developments to intensify debates on climate and energy justice, which are already a contentious issue at the UNFCCC. Technology transfer and financial support have been promised to developing countries, and are clearly necessary to avoid political divisions between ‘winners’ and ‘losers’[xi], as well as geopolitical tensions.

 

REFERENCES:

[i] Blondeel, M., Bradshaw, M. J., Bridge, G., & Kuzemko, C. (2021). The geopolitics of energy system transformation: A review. Geography Compass, 15(7). https://doi.org/10.1111/gec3.12580; IRENA. (2019). A New World. The Geopolitics of the Energy Transformation. Global Commission on the Geopolitics of Energy Transformation. https://www.irena.org/-/media/Files/IRENA/Agency/Publication/2019/Jan/Global_commission_geopolitics_new_world_2019.pdf; Overland, I., Bazilian, M., Uulu, T. I., Vakulchuk, R., & Westphal, K. (2019). The GeGaLo index: Geopolitical gains and losses after energy transition. Energy Strategy Reviews, 26, 100406; Scholten, D. (2018). The Geopolitics of Renewables. Springer; Vakulchuk, R., Overland, I., & Scholten, D. (2020). Renewable energy and geopolitics: A review. Renewable and Sustainable Energy Reviews, 122, 109547.

[ii] Welsby, D., Price, J., Pye, S., & Ekins, P. (2021). Unextractable fossil fuels in a 1.5 C world. Nature, 597(7875), 230-234.

[iii] Helveston, J., & Nahm, J. (2019). China's key role in scaling low-carbon energy technologies. Science, 366(6467), 794-796.

[iv] Hughes, L., & Meckling, J. (2017). The politics of renewable energy trade: The US-China solar dispute. Energy Policy, 105(C), 256-262; Meckling, J., & Hughes, L. (2017). Globalizing Solar: Global Supply Chains and Trade Preferences. International Studies Quarterly, 61(2), 225-235. https://doi.org/10.1093/isq/sqw055 

[v] Bazilian, M., Bradshaw, M., Gabriel, J., Goldthau, A., & Westphal, K. (2020). Four scenarios of the energy transition: Drivers, consequences, and implications for geopolitics. Wiley Interdisciplinary Reviews: Climate Change, 11(2), e625; Behuria, P. (2020). The politics of late late development in renewable energy sectors: Dependency and contradictory tensions in India’s National Solar Mission. World Development, 126, 104726. 

[vi] Meckling, J. (2018). The developmental state in global regulation: Economic change and climate policy. European Journal of International Relations, 24(1), 58-81. 

[vii] Eicke, L., & Goldthau, A. (2021). Are we at risk of an uneven low-carbon transition? Assessing evidence from a mixed-method elite study. Environmental Science & Policy, 124, 370-379. 

[viii] Eicke, L., Weko, S., Apergi, M., & Marian, A. (2021). Pulling up the carbon ladder? Decarbonization, dependence, and third-country risks from the European carbon border adjustment mechanism. Energy Research & Social Science, 80, 102240. 

[ix] Eicke, L., & Goldthau, A. (2021). Are we at risk of an uneven low-carbon transition? Assessing evidence from a mixed-method elite study. Environmental Science & Policy, 124, 370-379. 

[x] Quitzow, R., Bersalli, G., Eicke, L., Jahn, J., Lilliestam, J., Lira, F., Marian, A., Süsser, D., Thapar, S., Weko, S., Williams, S., & Xue, B. (2021, 2021/04/01/). The COVID-19 crisis deepens the gulf between leaders and laggards in the global energy transition. Energy Research & Social Science, 74, 101981. https://doi.org/10.1016/j.erss.2021.101981;   Weko, S., Eicke, L., Quitzow, R., Bersalli, G., Lira, F., Marian, A., Süsser, D., Thapar, S., & Xue, B. (2020). Covid-19 and Carbon Lock-In. Impacts on the Energy transition [IASS Study]. IASS. https://publications.iass-potsdam.de/rest/items/item_6000187_6/component...

[xi] Eicke, L., Weko, S., Apergi, M., & Marian, A. (2021). Pulling up the carbon ladder? Decarbonization, dependence, and third-country risks from the European carbon border adjustment mechanism. Energy Research & Social Science, 80, 102240. 

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Versione stampabile

AUTHORS

Laima Eicke
Institute for Advanced Sustainability Studies (IASS), Harvard Kennedy School and University of Erfurt
Silvia Weko
Institute for Advanced Sustainability Studies (IASS) and University of Erfurt

Image credits: Lloyd Wilson (CC BY NC ND 2.0)

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