The Uncomfortable Geopolitics of the Clean Energy Transition
Matt Ince, Erin Sikorsky Wednesday, December 13, 2023, 9:58 AM
A rapid shift to clean energy requires managing disruptions to global power dynamics and new instability risks.
Every time UN Secretary General Antonio Guterres speaks about the climate crisis, he ups the ante with his admonishments—and rightly so. In September, when he said “humanity had opened the gates of hell,” it was at the end of a summer of unprecedented flooding, including in Libya, China, and the United States, and record-breaking fires in Canada and across European Union nations. Persistent heat waves had also raised temperatures above human survivability in some parts of the world, as well as triggering agricultural productivity losses and higher food prices across several regions. The summer of 2023 was the warmest on record, and multiple reports released ahead of the U.N. Climate Change Conference in Dubai (COP28) warned of immense costs to human livelihoods and economic security by the end of the century if action is not taken.
Against this backdrop, the urgency of the need to transition to clean energy has never been more apparent. Staving off such impacts demands a rapid reconfiguration of the global energy system—a challenge at the heart of the ongoing COP28 negotiations. Global fossil fuel demand, the International Energy Agency (IEA) has concluded, needs to fall by a quarter by the end of this decade to limit the rise in the global temperature to 1.5°C, while global renewable power capacity must triple.
But delivering change at this scale and within the required time frame also carries geopolitical risks, many of which are not being routinely accounted for by governments and businesses within strategic planning and decision-making. Such risks include a rebalancing of power among oil-producing states that favors those that can produce cheaper lower-carbon oil, an increase in leverage for states in the Global South that have large deposits of critical minerals, and growing cracks between the haves and have nots over financing a clean energy transition. Each of these risks could lead to instability or even conflict in certain geographies.
The New Era of Imbalance
Despite record levels of investment this year in oil and gas production, growth in demand for such fossil fuels is anticipated to decline before the decade’s end. Use of oil for transport fuels, in particular, is estimated to drop after 2026 as the growth of biofuels and clean energy technologies like electric vehicles lower consumption. This overhaul of global energy markets will help to avoid the worst effects of climate change. The transition is, however, unlikely to be smooth.
As demand for fossil fuels declines, oil and gas production is to become more concentrated in a smaller number of states. The most dominant suppliers, particularly those within the Middle East, are likely to see their market shares increase. New IEA projections suggest this region is set to see its overall share of production rise from 25 percent today to 40 percent in 2050. This is because many Gulf petro-states can generally produce oil and gas for less and at a lower rate of greenhouse gas emissions than most others can. And because other major producers—among them the U.S. and Norway—are more likely to curb their own outputs in line with firmer climate policies.
This situation will probably see states such as Saudi Arabia, which currently accounts for 13 percent of global oil production, provide an even greater share of the oil consumed globally in the medium term. As Riyadh’s market share increases, so too would its geopolitical clout as others become more reliant on it, at least until global oil use peters out. Increased influence is likely to provide Saudi Arabia with more opportunities to shape regional affairs and pursue diplomatic initiatives that contribute toward regional stability—such as its recent conflict mediation efforts in Sudan. But increased economic leverage may also embolden Saudi leaders to pursue more assertive policies, such as providing increased support for proxy groups in regional conflicts, that could compound existing tensions and rivalries with other regional powers such as Iran, increasing the risk of armed confrontation in an already war-torn region.
For those countries whose share of dwindling oil and gas markets is set to shrink and whose fossil fuels are likely to become stranded assets, reduced government revenues will have wide-ranging implications. For some states, this will undermine social contracts with populations, limiting their capacity to respond to other security challenges and increasing livelihood pressures, heightening the risk of civil unrest.
In sub-Saharan Africa, for example, several fossil fuel-producing states are likely to struggle with declines in oil and gas demand. This includes Angola, Chad, **on, Nigeria, and Sudan, which, according to one study, will each experience annual average revenue shortfalls ranging from 69 percent (Nigeria) to 87 percent (Sudan) over the next two decades in a low-carbon scenario, compared to the five-year period from 2015 to 2019. The net impact will probably be increased volatility in this coup-prone region, where more than a dozen conflicts are ongoing.
Any increase in political instability within this strategically important region as a consequence of the energy transition would almost certainly threaten the national security interests of the United States and its allies—including by creating conditions more conducive to violent extremist groups expanding their operations. Such instability would also potentially create openings for hostile states such as Russia to increase their regional foothold, by providing support to affected governments in the form of mercenaries and private military contractors such as the Russian state-funded Wagner Group. Countering such threats is likely to require greater investment in security and development activities in Africa, at a time when some Western governments had sought to reduce their regional military and diplomatic footprints—notably the departure of French troops from the Sahel—to enable increased engagement elsewhere, including in the Asia-Pacific region.
A Risky Rush for Resources
As this shift in global energy supply and demand dynamics progresses, appetite for critical minerals will also soar. At the top of the long list of minerals that most countries currently consider essential for their energy transitions are cobalt, graphite, lithium, nickel, and rare earth elements—each a vital enabler for most renewable energy technologies.
Growing requirements for such resources are nevertheless likely to outstrip readily available supplies, contributing to more intense geopolitical competition as states scramble to secure access. The IEA now warns that despite a 30 percent increase in capital spending in 2022 on critical minerals, announced mining projects are unlikely to be sufficient by 2030 to keep the world on track to achieve net zero by 2050.
Conflicts, instability, and additional environmental risks now seem more likely in key source countries as demand for energy transition minerals climbs. The vast majority of these minerals are extracted in states that have weak governance and are prone to experiencing armed disputes. This includes the Democratic Republic of Congo, which supplies 70 percent of the world’s cobalt and has almost half of the total known reserves. Here—as is also the case in other resource-rich countries, such as Mozambique, Myanmar, and South Africa—increased mining, transport, and trade of minerals can amplify disputes over land and fuel corruption and criminality.
Another area of risk relates to the identification of new deposits of such minerals. For example, last year the Indian government announced the discovery of nearly 6 million tons of lithium in Jammu and Kashmir state, an area contested with Pakistan and stripped of its semiautonomous status by the Indian government in 2019. As Tom Ellison argues, this “economic gift and environmental burden come at a dangerous time in a dangerous place.” He goes on to explain how exploiting such a discovery could amplify internal tensions in the region and exacerbate risks of conflict between India and Pakistan.
Tensions between states, and the potential for civil unrest, are very likely to grow in the next few years over the environmental risks that are being exacerbated by heightened demand for critical minerals. A recent example of this is the tens of thousands of demonstrators who took to the streets in Panama in October to protest a controversial mining contract given to the local subsidiary of a Canadian mining company to extract copper. Media reporting suggests that opponents of the project believe it would contaminate drinking water and devastate surrounding rainforest. Moreover, according to the International Renewable Energy Agency (IRENA), over a third of energy transition mineral projects are on or near Indigenous territory or farmers’ land that is affected by one or more of the following geopolitical risks: water risk, conflict, and food insecurity.
Unwanted Dependencies
For fossil fuel producers with lower “break even” rates and those states that can dominate critical minerals production, increased geopolitical influence appears all but certain. Such states are likely to have a greater say in how the world responds to shared challenges—such as climate change—and the setting of rules and norms. These dynamics will also lead to greater policy uncertainty in other seemingly unrelated areas.
China is already using its dominance within various critical mineral supply chains to exert economic pressure on other countries, and will probably continue doing so as the transition continues. As well as being home to the world’s largest electric vehicles fleet and battery manufacturing capacity, China dominates the downstream refining process for cobalt, lithium, graphite, and rare earths. In October, China’s commerce ministry announced plans to introduce new export controls on graphite on national security grounds. The measure—which follows the imposition of similar export controls, in July, on important semiconductor materials gallium and germanium—risks undermining the ability of non-Chinese manufacturers to meet growing demand for electric vehicles. Beijing is likely to make such a move again with other minerals as wider strategic competition with the U.S. intensifies.
In response, some countries are spearheading new resource alliances aimed at promoting a rules-based approach to critical minerals and shifting supply chains away from China. The U.S.-led Minerals Security Partnership, launched in June 2022, is likely to attempt to counter Beijing’s dominance within the supply chains of minerals needed for clean energy technologies and push mineral-rich countries to adopt higher environmental standards. To date, the partnership, which includes all Group of Seven (G7) countries, plus Australia, India, South Korea, and several Scandinavian countries, has been most active in Africa—where China’s influence is rising—and has involved projects spanning mineral extraction, processing, and recycling.
Members of the recently expanded BRICS grouping, which accounts for 72 percent of the world’s rare earths and comprises key mining countries for several other critical minerals, appears particularly well positioned to benefit from this new rush for resources. South Africa alone currently accounts for 89 percent, 74 percent, and 35 percent of iridium, platinum, and manganese mining, respectively, all key ingredients for clean energy-related technology applications, including for electric vehicle batteries and electrolyzers. Individual export restrictions or collective sanctions imposed by this bloc on selected minerals would probably result in global supply chain disruptions and shortages, impacting national security and energy security.
As the pursuit for dominance in the renewable energy industry quickens, geopolitical competition is likely to rise in regions rich in deposits. Disputes could extend beyond traditional hotspots like the Arctic and involve the governance of large-scale deep-sea mining for battery minerals, an activity not yet permitted under international law. The eastern Pacific in particular could become a breeding ground for conflicts among fishers, deep-sea miners, and environmental advocates worried about potential harm to marine ecosystems given the potential future overlap between key fisheries and deep-sea mining interests within the region.
Building Resilience in an Uncertain Future
Such an upending of established power dynamics, hollowing out of government coffers, and heightened potential for unrest in some states will have far-reaching implications for geopolitics and global stability. Yet it seems very unlikely in the current global economic and security climate that high-income countries are sufficiently able or willing to prepare for and manage such risks. For instance, neither the G7 nor G20 groupings—which consist of the world’s richest nations—are offering to provide affected petro-states with meaningful levels of financial compensation to keep their fossil fuels in the ground.
The fact that the clean energy transition will be messy and create new geopolitical risks is not an argument for inaction. Quite the contrary. Approaching the clean energy transition with a clear-eyed understanding of the risks is essential to tackling the climate crisis. Thriving in such an uncertain world will require a commitment to building more resilient and flexible strategic planning and governance approaches, and a willingness to invest more money today to buy down future risk. Many of the key ingredients that states need in order to weather this period of high uncertainty have co-benefits across a range of threats facing states. Focusing on building stronger sociopolitical cohesion, inclusive governance mechanisms, and a focus on trust-building between government, the private sector, and the population will pay dividends for managing not only the risks of the transition but also the risks of climate hazards.
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