The Geopolitics of Renewable Energy

Summary

For a century, the geopolitics of energy has been synonymous with the geopolitics of oil and gas. However, geopolitics and the global energy economy are both changing. The international order predominant since the end of World War II faces mounting challenges. At the same time, renewable energy is growing rapidly. Nevertheless, the geopolitics of renewable energy has received relatively little attention, especially when considering the far-reaching consequences of a global shift to renewable energy. The paper starts with a discussion of seven renewable energy scenarios for the coming decades: the IEA’s World Energy Outlook 2016, the EIA’s International Energy Outlook 2016, IRENA’s REmap 2016, Bloomberg’s New Energy Outlook 2016, BP’s Energy Outlook 2016, Exxon-Mobil’s Outlook for Energy 2016 and the joint IEA and IRENA G20 de-carbonization scenario.

Some of these are forecasting while others are backcasting scenarios. While all the forecasting scenarios envisage growth in renewable energy, none anticipate a revolution in which renewable energy use surpasses consumption of any of the fossil fuels in the next several decades. In contrast, the backcasting scenarios posit a future in which the world employs a radically different energy mix where consumption of renewables eventually surpasses that of fossil fuels. In all three backasting scenarios covered here, the share of renewables of total primary energy reaches 30-45% in 2035 or 2040 and 50-70% in 2050.

The paper then discusses seven mechanisms through which renewables could shape geopolitics.

Critical materials supply chains. As the transition to renewable energy accelerates, cartels could develop around materials critical to renewable energy technologies. Even if these cartels are unable to achieve the kind of impact that OPEC did in the 1970s oil market, they might be able to exert influence over consumers of these materials. Rare earth elements are widely used in clean energy technologies, including solar panels and wind turbines. Although rare earths elements are found in many countries around the world, they are usually found in dilute concentrations and are often difficult to extract. Today almost all mining, production and processing of rare earth elements takes place in China. Lithium, cobalt and indium are also widely used in clean energy technologies and might in some circumstances present opportunities for cartelization.

Technology and finance. In a world in which renewables are the dominant source of energy, capital for investment and technology may increasingly become sources of international cooperation or rivalry. First, increased tensions between developing and developed countries could develop over the transfer of technology. Second, conflict over renewable energy infrastructure could develop, especially if new asymmetric dependencies arise between major producers and consumers of renewable energy. Finally, it is
not clear whether the expansion of renewable energy will involve a shift to more decentralized and distributed energy generation (similar to farming) or to larger companies with the financial and scientific clout to keep pace in an intense global race to continuously improve technology and cost-cutting (similar to mobile telephone manufacturing).

New resource curse. The prevalence of the resource curse could be affected by a rise of renewable energy in at least three ways. First, as oil and gas lose their dominance in the energy mix, petro-states will lose access to the high rents associated with the resource curse. Second, there is the question of whether countries that produce large amounts of renewable energy are likely to become subject to the resource curse, just as major oil and gas producers have been. However, it is also possible that countries producing
renewable energy for export may actually end up with more diversified economies than they would otherwise, as the requirements for developing renewable energy resources are quite different from the petroleum sector.
Third, there is potential for a new resource curse in countries rich in rare earth elements.

Electric grids. Renewable energy technologies may lead to greater electric interconnections between nations, more widespread distributed energy generation or both. The potential geopolitical implications are complex. On the one hand, greater cross-border trade in electricity could create geopolitical vulnerabilities for electricity importers. On the other hand, greater electric interconnection could increase interdependence among nations, reducing risks of conflict. Renewable energy technologies will affect the vulnerability of electric grids to cyber attacks, potentially creating new vulnerabilities while at the same enhancing resilience with more widespread microgrids and distributed energy technologies.

Reduced oil and gas demand. To the extent that renewable energy reduces demand for oil and gas, there could be significant geopolitical consequences. For oil and gas producers, the decline in revenue generated from fossil fuel energy exports can provide an impetus for political reform and economic diversification. However, a decline in petroleum revenue could also lead to political instability, especially in the short to medium term. Consumer countries would improve their trade balances and their room to maneuver in the international system. The development of renewable energy is already a game changer for Chile, Jordan, Morocco, and several island states in terms of energy security.

Avoided climate change. Reduced greenhouse gas emissions as a result of expanded use of renewable energy should logically reduce the risk of conflict and instability that climate change would otherwise generate. One region where large-scale deployment of renewable energy may have significant geopolitical consequences is Africa.

Sustainable energy access. Access to modern forms of energy is one of the preconditions for achieving sustainable development. The geopolitical impacts of access to energy are important, as such access can contribute to lasting solutions to instability and conflict. It is possible that renewables not only have an impact on geopolitics but that geopolitics, particularly in risky and institutionally unstable environments, can also influence investments in renewable energy by increasing the cost of capital.

These categories do not offer a comprehensive assessment of the ways in which renewables affect geopolitics. The purpose of this paper is to provide food for thought for a broader discussion on the ways in which greater renewable energy and geopolitics intersect. Accordingly, the final section (Section III) suggests areas and directions for future research.