The United States has officially rejoined the Paris Agreement this year. 190 countries have now agreed to limit global warming to well below two degrees Celsius. As an attempt to contain climate change and to stick with the Paris plan, countries are rushing to curb the use of fossil fuels and turn to cleaner energy. The energy system changes, so will those countries’ economies and energy politics.

History has taught us that there is a strong tie between energy economics and geopolitical power. Oil had the power to create alliances and to trigger war. Now that the shift to clean energy has become the focus of attention, we can assume that the winning players will be those who will master clean technology and be able to export green energy. Things are evolving very fast, much faster than expected. A 2019 report from the International Renewable Energy Agency (IRENA) even mentioned than “a new class of energy exporters may emerge on the global scene.”

In its simplest form, the energy transition can be defined as a shift from oil and gas to electricity, or “from carbon to electrons”. The use of electricity continues to climb, and electricity is expected to provide 50 percent of all energy needs by 2050 according to the IRENA if no country deviates from what they committed to. There is evidence that countries like Norway – which has already managed to cut down electricity prices, Bhutan and France are in an early lead. However, at this stage, it is still too early to predict which country will end up ahead in the long run.

According to the Paris-based International Energy Agency (IEA), while the energy demand in general followed a downward trend amid the pandemic, the demand for clean energy was the only component of the sector that had growth last year.

Renewables set to outperform coal by 2025.

Renewables were “immune to COVID-19,” IEA expert says. The era of coal and fossil-fuel domination will come to an end by 2025. This will be a hard hit to countries such as the Middle East whose economies rely on oil and gas exports, and a significant blow to oil and gas companies.

Unlike oil and gas, renewable power – wind, solar, biomass, hydropower, ocean energy, geothermal – is available in most countries, and those who are resource-rich will make the most of the energy transition. The IRENA report found that to come out winner in this new game, countries will need either to export electricity or green fuels, or to control the raw materials used in clean energy, or to make progress in technology. In this race, Chinese companies did a great job, and the result is a foregone conclusion: “China wins” – which seems awkward when the country is still the world’s leading emitter of greenhouse gases and electricity production largely depends on coal. China is “the” supplier of solar panels, batteries, and critical minerals that rich countries need in order to meet their net-zero goals.

However, it is no secret that trade disputes persist between China and the US and EU. The US does not seek to depend solely on Chinese suppliers to support its energy transition. The US still serves as the “mastermind”, but China intervenes in the large-scale production, at least in the short term. Another awkward situation: countries like the US, Japan and those of the EU highly invest to reach the net-zero goals and all the economic benefit goes to China!

What is going on in Europe? The UK aspires to become “the Saudi Arabia of wind” by exploiting the “windy” North Sea with Norway. The European Union has set up plans for green recovery to support the development of clean energy technologies and is now about to adopt a carbon border adjustment tax. In the meantime, many bilateral trade relationships are being forged across Europe.

Can clean energy be as powerful as oil and gas were in geopolitics? Opinion is divided! Some are convinced that countries will not depend on their peers in terms of oil-producing, and that will significantly reduce the risk of conflicts. The world would be heading towards peace. Others argue that the race to power and control will persist, but the stakes are not as high as before for the winners.

Fossil fuels producers are expected to show signs of resistance. Obviously, oil and gas will not be banished from the energy sector before long. However, the cost of oil and gas will progressively decline. Clean energy is set to follow the same path as coal and oil. The world is in the energy transition, and the cards in this market are being reshuffled!

Source: Financial Times - Natural Resources Defense Council (NRDC)