Research Institute for Sustainability Helmholtz Centre Potsdam

The geopolitics of renewables. A new but messy energy world

22.01.2019

Laima Eicke

Laima Eicke

laima [dot] eicke [at] rifs-potsdam [dot] de
A street in Jeddah, Saudi Arabia: As the world decarbonizes, it does not necessarily become more democratic.
A street in Jeddah, Saudi Arabia: As the world decarbonizes, it does not necessarily become more democratic.

Exhibiting the fastest growth among all fuels in the electricity sector, renewables are about to fundamentally change the energy system. This change is hoped to bring about important social and economic co-benefits, including sustainable and affordable energy for all, green job opportunities, and increased human health and wellbeing. But there may also be some fundamentally political implications of the low carbon shift. This is what a high level group of global leaders was tasked to look into, the result of which was published in their recent report titled A New World The Geopolitics of the Energy Transformation, published by IRENA, the international renewable energy agency.

To be sure, the IRENA report is not the first one to ponder the geopolitics of the low carbon transition. For example, a recent book took a deeper look into the geopolitics of renewables, Harvard’s Belfer Center put together a group to tackle similar questions, Nature, the journal, featured a piece on low carbon policy risk, and a recent paper offers some important conceptual insights for the fate of oil producer economies whose business case might wither away. But the report by the Global Commission is the first one which comes close to representing a political document. So what do we learn from it?

The rise of renewables does not automatically lead to a simultaneous decline of the fossil industry

To be upfront about it: the report asks the right questions and highlights a number of important aspects, including the risk of stranded assets, the challenge facing fossil fuel exporters in adapting to the new energy world, and the fact that countries must prepare for the transition ahead. Yet, the report relies on several key premises which seem questionable.

First, it falls into the trap of equating the rise of renewables with an inevitable decline of the fossil industry. Indeed, a dominant narrative in the energy transition debate posits that falling unit costs for clean energy technology, in conjunction with high innovation rates and strong market mechanisms will end up pushing renewables into the energy mix. Costs for PVs, for example, have come down by more than 70 percent over the past 10 years, a function of economies of scale and rapid advances in technology. This, however, does not mean renewables will smoothly take over. In fact, the fossil fuel system has proven remarkably resilient. States tend to cling to their fossil energy infrastructure, for it secures jobs, votes and economic rents – both in resource rich countries and in the OECD world. As the costs and benefits of a low carbon transition are distributed unevenly, political decision makers will not always focus on the Pareto optimal outcome that is best for the nation (and secures a clean long-run energy transformation). Instead, they prioritize the short-term gains for incumbent industry, inefficient but well-organized (and vocal) business sectors and vested interests. As a testimony to this, energy subsidies for fossil fuels amounted to $300 billion in 2017, roughly twice the amount that went into supporting renewables. In short: it is political economy that matters, not unit costs.

Clean tech is an uneven playing field

Second, clean tech, which is crucial to the transition process from a high to a low carbon economy, is all but subject to a global level playing field. To the contrary, states have made low carbon tech the subject of their industrial strategies, with the Global North (i.e. by and large the OECD world) and China leading the way in securing patents and ring-fencing their clean tech industry. The report indeed acknowledges that. Yet, with the zeitgeist shifting toward economic nationalism rather than Ricardian free trade, we can expect this trend to only gain further traction, with deep implications for the global low carbon technology value chain. Moreover, as clean tech leaders seek to secure their economic advantage, developing countries, whose access to crucial energy technology is limited, risk dropping out of the global division of labor in a low carbon economy for good. Similar risks exist for low carbon finance: out of $279.8 billion invested in renewables globally in in 2017, only $33 billion found their way into the developing world other than China, India and Brazil. The Global South risks getting stuck in a fossil economic pathway whilst the rich world goes happily green. It also runs the risk of new structural dependencies arising between low carbon leaders and laggards.

Third, while there are important geopolitical benefits of reduced fossil fuel import such as lower dependency on politically dubious countries, some of the key challenges remain unchanged. A case in point are currency fluctuations and balance-of-payment problems which will not disappear because of a shift from molecules to electrons. To the contrary, these risks are inherent to trade imbalances and could also come into play when trade in renewable energy or even low carbon technologies picks up as envisaged. So whilst the low carbon transition might do away with some of the energy geopolitics of old, the geoeconomics of it are likely there to stay.

Low carbon shift may be used to safeguard autocratic leadership

Finally, while the low carbon shift promises to improve human health and security, it does not necessarily bring about more democracy. The transition process from a high to a low carbon paradigm can indeed be managed as a participatory process, empowering citizens and communities. However, as the examples of China’s low carbon efforts or Saudi Arabia’s Vision 2030 drive home, this process does not necessarily lead to more empowered citizens. Instead, it may well end up being a tool to keep intact existing social contracts and to safeguard (autocratic) political leadership against the challenges arising from a fossil system coming under pressure. Couple this with the large amounts of data collection required to make grids smarter and more efficient, a not unlikely outcome is higher levels of political control and repression. It is also not inconceivable that rising internal political pressure will make petrostates a potential source of regional conflict. Energy-related conflicts will therefore not necessarily become less likely, contrary to what the IRENA report suggests.

Where does this leave us? Overall, the importance of the report of the Global Commission lies in the fact that it puts the geopolitics of the energy transformation on the political map. Where it falls short is when it comes to the implications of that transformation, i.e. the question around the winners and the losers, which systemic risks characterize in the transition to a low carbon world, and how can we anticipate them so that it will be a success. The real work starts now.

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