Watershed moment: As renewables rise, world must brace for era of disruption

The renewables revolution could lead to political upheaval, social fractures and economic crises if states fail to take bold decisions and cooperate with each other.

Renewables and geopolitics
More than just a shift from one set of energy sources to another, the renewable energy transition will have implications that will go well beyond the power sector. Image: James Armbruster via Pixabay

A new world is emerging from the global shift to renewables, and it is poised to upend societies and economies that have been powered and shaped by fossil fuels for two centuries.

Unless the world prepares for these imminent fundamental changes, states reliant on oil rents, industries built on conventional technologies, and communities that dig or drill for fossil fuels for a living could soon face major social, economic and political disturbances, according to leading experts from the worlds of politics, energy and economics.

Speaking at a session on the geopolitics of the energy transformation at the tenth assembly of the International Renewable Energy Agency (IRENA) in Abu Dhabi in January, experts said the transformation that renewables brought about was such that it altered the geopolitical fabric of the world, with fundamental changes for trade, politics and people.

Nations, they said, must strengthen international cooperation and align their economic strategies with the clean energy switch to steer away from the risks arising while benefiting from new opportunities.

“We are entering an age of disruption, and it is not just happening in the energy industry, but across the board,” Adnan Amin, former director-general at IRENA, told the audience. “On balance, the social and economic outcome will be beneficial to the global economy as we move into an era of low-carbon and low-cost energy, but that is not to say that it will be a smooth path.”

Falling costs of technology will not deliver the energy transformation by itself. Countries have to be willing to share the benefits of the transition. International cooperation is essential to its success.

Christine Westphal, senior research associate, German Institute for International and Security Affairs

Oil-rich states are set to be hit the hardest. These nations have accumulated considerable wealth and leveraged significant influence abroad, but once oil demand peaks, they could sink into economic crisis and face social fractures, said Daniel Scholten, associate professor at Delft University of Technology in the Netherlands. In Asia, such states include Brunei and Mongolia.

Weak governance and pervasive poverty further magnify such risks, in highly populous oil-rich nations to an extent that domestic turmoil could spill across national borders and cause regional instability, reads a recent IRENA report on the issue.

In conventional industries, unemployment ranks among the biggest concerns. The coal sector alone employs 9 million people globally, making it the most labour-intensive form of fossil fuel extraction, and mine shutdowns could spark social dislocation and violent protests, says the report.

Another case in point is the automobile sector, which faces disruption from electric vehicles, putting the industry under pressure to transform its business model. “We are beginning to see fear among some of the big players who have not anticipated this change to happen so fast,” Amin told Eco-Business on the sidelines of the event.

“If carmakers fail to keep up with the pace of change, millions of people manufacturing internal combustion engine vehicles will lose their jobs,” he continued. “This has become a major social flashpoint, and countries affected will need to be very careful about how they deal with these issues.”

New opportunities, new risks

Driven by technological advances, falling costs and global efforts to slash climate-wrecking emissions, renewables have grown at unprecedented rates over the last decade.

According to a new IRENA report, clean energy has become the world’s primary source of new power capacity, outpacing all other forms of new generation put together, and covered 26 per cent of the global power mix last year.

As new opportunities and risks arise from the clean energy transition, bold decision-making is needed to steer nations in the right direction, said Amin.

Fossil fuel exporters, for instance, could avert political upheaval by diversifying their economies, while not holding on to coal mines, oil wells, power stations and pipelines for too long could save asset managers and energy firms from financial ruin.

Coaching workers to fill millions of new clean energy jobs expected to spring up across the planet in the coming years could help countries and industries avoid mass unemployment, while adequate taxation and policies can ensure the financial burden that the clean energy switch entails is not borne disproportionately by those who can afford it the least, he told Eco-Business.

Worldwide, the clean energy sector employed 11 million people in 2018, up from 10.3 million in 2017. As countries ramp up policy support for renewables to battle climate change, this steep rise is set to continue, offering new job opportunities for fossil fuel workers.

In states previously barred from progress, renewables offer new avenues for growth. Clean energy technologies require certain minerals such as cobalt and lithium for their production. And as mineral demand skyrockets, mineral-rich countries can benefit from the transition by becoming an important part of global value chains, said Scholten of Delft University of Technology.

Stakeholders must be mindful that clean energy technologies require large shovels at the beginning of their life cycle.

Francis Fannon, assistant secretary of energy resources, state department, United States

The problem is that many key metal reserves are largest in weak states with poor governance, where mineral extraction risks coming at the expense of local communities and the environment. Most of the world’s cobalt supply, for instance, originates in the Democratic Republic of the Congo, where mining is mired in human rights violations and destructive environmental practices.

Francis Fannon, assistant secretary of energy resources at the state department of the United States, said that issues surrounding conflict minerals could only be tackled through internationally regulated and transparent sourcing.

“Stakeholders must be mindful that clean energy technologies require large shovels at the beginning of their life cycle,” he said. “We must work together to ensure sound mining governance and resilient supply chains that safeguard human rights, advance environmental protection, and support local communities.”

Power shift

Historically, nations lacking fossil fuel resources have depended on imports from others that have them. But, said Olafur Grimsson, former president of Iceland, as more countries harness their clean energy potential to achieve energy independence, oil-exporting nations will see their global reach decline.

This will reduce the ability of fossil fuel exporters to use oil and gas as “geopolitical weapons” to further their foreign policy goals, making political tensions arising from power asymmetries less likely to occur, he said.

Beyond achieving energy independence, states can also seize new economic opportunities by exporting green power to neighbouring countries, as Laos and Bhutan do.

Such cross-border energy trade not only helps nations handle renewables’ intermittent and volatile energy output, but it also puts them on par with each other if energy flows two ways and grids link several states, said Amin. That’s because power trading partnerships are less exclusive than traditional fossil fuel trade relations. Should conflict brew, governments can import it from a variety of alternative sources, or even generate more renewable energy themselves.

Hurtful competition

In a world powered by renewables, economic success will no longer depend on fossil fuel stocks but on clean energy technology innovation, the experts observed.

A race for renewables leadership has already started. But while boosting technological research and development, it may ultimately result in harmful geo-economic rivalry that risks undermining the energy transition, warns Christine Westphal, senior research associate at German Institute for International and Security Affairs.

Today, the United States, Europe and Japan are big players in the renewables market. None of them, however, can keep up with China, which has emerged as the world’s largest producer, exporter and installer of solar panels, wind turbines, batteries and electric vehicles, according to IRENA.

If such a small number of players dominate markets, they could stifle competition and suppress innovation, making countries that do not control technologies dependent on the few that do, Westphal told the audience. Fair trading systems are needed to avoid such technology dominance, she said.

Likewise, monopolies in mineral trade threaten to smother material flows, which could ultimately slow down the shift to renewables. A 2012 ruling by the World Trade Organisation may have dismantled China’s attempt to restrict rare earths supply to foreign buyers for now, but the case showed that recent fears that states endowed with critical materials may use them to exert pressure on others aren’t entirely unjustified.

Westphal said if short-sighted nation-first policies stood in the way of faster renewables deployment, states risked defeating the purpose of the transition: to tackle climate change.

“If the pace of the shift is slow, climate change will not be dealt with in a timely manner, leading to excessive risks and multiplying existing threats,” she said.

She added: “Falling costs of technology will not deliver the energy transformation by itself. Countries have to be willing to share the benefits of the transition. International cooperation is essential to its success.”

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