The geopolitical fight to come over green energy
- March 5, 2021
- Helen Thompson
The struggle for sustainable energy will soon put China, the US and Europe on a geopolitical collision course. But moving away from fossil fuels is a Herculean task, and a greener politics will not transcend tragedy.
The world is cornered in a Janus-faced energy crisis: one generated by the speed with which it is necessary to replace fossil fuel energy to stop global temperatures rising, and one around oil, on which in three decades’ time, even if carbon neutrality is achieved, the world economy and everyday life will still depend. For all the hope often expressed that the acute problems facing the oil sector are a vindication of the seismic shift in green ambitions over the past couple of years, there is in reality no escape from either side of this predicament.
An oil crisis was first evident in the middle years of the 2000s when stagnant supply and sharply escalating Chinese demand sent oil prices soaring to an eventual peak, in real terms a third higher than their previous apex during the early part of the Iran-Iraq war. Since early in the last decade, the shale oil boom has prevented a repeat price shock. But it will prove a temporary lull on the supply side. A report HSBC published in 2017 suggested that more than 80 per cent of existing conventional liquids production – non-shale and tar sands oil – is in decline. Once Saudi Arabia reacted to shale’s ascent by inducing a price slump in late 2014, oil companies severely cut their investments. In 2019, oil production fell for the first time in a decade, even as consumption rose by almost one million barrels per day. Now, having stood for nearly a decade between the world economy and energy-driven recessions, the shale oil industry is in some trouble, savaged by the pandemic shock to demand, low investment, and high debt costs.
Meanwhile, the climate crisis has escalated. Extreme weather events are increasing in number; last summer floods deluged much of east and south Asia; this winter disruption to the polar vortex left Texas freezing. Politically, climate has moved centre-stage. Inspired by Greta Thunberg’s school strike, a mass climate movement emerged on the world’s streets. In April 2019, Emmanuel Macron established a Citizens’ Climate Convention, made up of 150 randomly chosen civilians and experts, asked to ascertain ways France could cut carbon emissions. Two months later, Britain became the first large state to legislate for a legally binding net zero emissions target. By the end of that year, the EU too had committed to carbon neutrality by 2050 and declared its intention to decouple economic growth from resource use. Last September, Xi Jinping announced to the United Nations that China aimed to achieve net zero by 2060.
Changes in capital flows tie prospects for oil supply and the recent political momentum together. ESG (environmental, social and corporate governance) investing has seen many large pension funds committing to achieving carbon-neutral portfolios by 2050. Against this backdrop, share prices of American and European oil companies fell in 2019 and crashed in 2020. The big European oil companies are trying to re-invent themselves: BP, Total, and Shell all have carbon neutral aims, and Eni has said it will reduce emissions by 80 per cent by 2050. By contrast, American companies have been more reluctant to change, and look in even more immediate difficulty. The market cap of ExxonMobil, the single biggest heir to Standard Oil, is now around 300 per cent lower than its peak in 2007. In August last year, the company lost its near-century-long membership of the Dow Jones Industrial Average. After activist investor groups targeted the company by trying to gain seats on the board, Exxon scrambled to push a five-year emissions reduction plan.
But if the drive to invest large sums to decarbonise reflects the change in political consciousness around climate, moving away from fossil fuels is a Herculean task. When the first UN Climate Change Conference was held in Berlin in 1995, fossil fuels constituted 86 per cent of the world’s primary energy consumption. By 2019, that proportion had fallen by just two per cent. In 2018, the increase in fossil fuel production was more than three times higher than the increase in renewables. The following year, the annual increase in fossil fuel energy consumption was slightly under that of renewables. The primary difference was that 2019 had the slowest growth in the world economy for a decade.
The ‘energy transition’ tag is a misnomer. Radically reducing fossil-fuel energy will represent an energy and an economic revolution. The difficulty is not a matter of political will or money, but physics. As the Czech-Canadian environmental scientist Vaclav Smil – the one energy realist that techno-optimist Bill Gates takes absolutely seriously – has repeatedly pointed out, a green energy revolution would be qualitatively different than any energy change in human history because it involves moving from more concentrated to less concentrated energy, rather than in the opposite direction.
However much companies and governments promise dramatic and rapid change, their deeds and small-print rhetoric point to the hard consequences of this reality. BP may be heralding a low carbon energy future, but its own 2020 annual report presumes the world will still be using between 80 and 100 million barrels of oil a day in 2040. The same report says that ‘significant levels of investment are required for there to be sufficient supplies of oil to meet demand in 2040.’ It takes some cognitive dissonance to believe this oil could still be produced whilst investors shut capital out of the privately-owned oil industry; that is, unless it is accepted that all future oil comes from Russia’s Rosneft and the Middle Eastern state-owned oil companies and is so expensive as to act as an impediment to growth. Still owning 19.75 per cent of Rosneft, BP has clearly hedged how it thinks the energy future will play out.
Decarbonising the electricity sector is easier than replacing oil in transportation and petrochemicals, but, as with fossil fuels, geography ensures that not all states are equal in the options available. Germany began its Energiewende early. But Germany has among the highest electricity prices in the world. In a speech in January 2020, Angela Merkel admitted ‘it is unlikely that it will be possible to achieve a 100 per cent share of renewable energies in electricity generation … because the efficiency with which we can generate electricity from the wind and sun isn’t very high. There are regions in the world where this works much better.’
Securing political consent to any changes that necessarily lower economic activity or threaten existing lifestyles is its own further Herculean task. The EU only agreed its European Green Deal in December 2019 by giving coal-heavy Poland an opt-out. In June 2020, Macron said he accepted all but one of the proposals generated by the Citizens’ Climate Convention only to water them down when presenting them to parliament. Fearful of the voters not represented at a convention dominated by those passionate about the green cause, and with spare time to pursue it, he protested: ‘You can’t say that because 150 citizens wrote something, it’s the Bible or the Koran! I’m really very angry at those activists who helped me at first but are now saying – “you need to adopt it all.”’
The geopolitics is little better because it involves a reckoning with China’s power. During Donald Trump’s presidency, this problem was frequently brushed aside. Trump’s repudiation of the 2015 Paris Accord turned climate politics into a symbol of abandoned multilateralism. But the Paris Accord was deeply unpopular among establishment Republicans too, and not just because many Republicans in Congress take donations from fossil-fuel energy companies. For Republicans, the Paris Accord was a matter of China policy, since it allowed China’s emissions to continue to rise until 2030 whilst America’s were supposed to fall by more than a quarter by 2025. The agreement also did nothing to stop China financing coal power stations abroad as part of the Belt and Road initiative. In practice, China’s own emissions did decline in 2016. But, in another illustration of the current relationship between fossil fuel energy and economic growth, 2016 was a troubled year for China’s economy. When it recovered in 2017, emissions began rising again.
The American return to Paris cannot take climate out of the geopolitical realm. Less oil and gas means the United States giving up the partial energy independence procured by shale. More renewables yield economic advantages to China since it dominates in solar energy manufacturing and materials. They will also drive a frenzied competition in mineral mining and control over land where essential components of batteries like lithium and cobalt lie. If the Green New Deal is supposed to also act as an industrial strategy for America to compete with China in these areas, then the latter will likely intensify its commitment to Made in China 2025.
In Europe, renewables may appear to be a chance for a geopolitical reset, an escape from the present world in which Europe is burdened by high external energy dependency and an entrance into one where European firms become world leaders. But thus far this ambition has meant the EU hugging China closer at a time when it is ending Hong Kong’s autonomy and systematically suppressing the Uighurs. In Merkel’s January 2020 speech, she described working with China on climate as a ‘tremendous opportunity’ and envisaged connecting Europe’s carbon trading system to China’s ‘to serve as an example.’ Her implicit point of contrast was the United States. Yet during the Trump years American emissions fell and China’s sharply rose. Xi appears well aware of the strategic opening the European projections on climate politics gives China. By conceding the Comprehensive Agreement on Investment to the EU at the end of last year, just a few months after offering his commitment on carbon neutrality, Xi has made it likely that when green energy manufacturing becomes central to Sino-American trade conflicts, Germany and France will be disinclined to ally with Washington.
This emerging green geopolitics is entirely predictable. Energy has been central to geopolitics since the industrial revolution. Oil-fuelled American industrialisation induced frenzied fears in Europe. From the 1870s, the conjunction of American oil resources allied to a continental single market and a high-tariff customs union drove a European scramble for energy resources and land empires in Africa. After the discovery of oil in the Middle East at a time when the US was moving to an oil-based navy, Britain, France, and Germany competed over the crumbling Ottoman empire. Britain’s victory in that competition – helped by its ability to project land power from India into the Persian Gulf – left it with a Middle Eastern empire that was a pivotal feature of the Eurasian map until the late 1960s. Germany’s defeat was central to the Nazis’ expansionist ambitions. From the mid-1920s, Hitler became obsessed with American mass car society and the domestic oil supply that fuelled it. In retaining Ford and General Motors’ presence in Germany, Nazi industrial strategy used short-term technological dependency on the United States in order to bring American-level mass automated production to Germany. In Hitler’s geopolitical fantasy, the autobahns German producers had learned to build would stretch out across Eurasia under German control. During the Second World War, he conceived Operation Barbarossa as the German equivalent of the conquest of the American West, since Russia was where on Europe’s immediate borders there were large quantities of oil.
If large-scale energy change invites disorder, the fact that this energy revolution constitutes a reversal in energy density will also have historically singular consequences. When, in 1908, Henry Ford transformed car production and car ownership with his Model T, Standard Oil was already using large quantities of gasoline in its own machinery. Although Ford’s new cars could run on either oil or alcohol-based ethanol – and Ford himself later became an advocate for alcohol fuel – the rise of the Model T and the ascendancy of Standard Oil are part of the same story. Now, electric car manufacturers do not have a scalable energy source immediately available to replicate internal combustion engines. Nor can they yet solve the issue of battery longevity, since the electricity to charge batteries needs to come from non-carbon primary-energy. This energy revolution is a medium to long-term bet on technology in mass storage capacity that does not yet exist.
So far as large-scale electrification in transportation is achievable, it will almost certainly lead to reduced energy consumption. Merkel has observed that this attempted energy revolution ‘means turning our backs on our entire way of doing business and our entire way of life.’ In its 2019 ‘Clean Growth’ report, the House of Commons Science and Technology Committee noted ‘in the long-term, widespread personal vehicle ownership does not appear to be compatible with significant decarbonisation’.
This scenario is likely to have profound political implications. Elon Musk may talk about Tesla’s Model 3 being for the mass market, but Henry Ford could sincerely vow that he was ‘democratising the automobile.’ Indeed, the Model T was in part Ford’s response to the risk of political disorder the arrival of cars created. Two years before his factory began churning out vehicles, future American President Woodrow Wilson warned ‘nothing has spread Socialistic feeling in this country more than the use of automobiles.’ The first cars let loose a romantic idea of freedom for a few that most people could not enjoy. This is memorably captured in the story of Toad of Toad Hall. Published in the year of Model T, 1908, The Wind in the Willows portrays the arrival of an ‘exceptionally powerful motor car’ for the rich and aristocratic Toad as an agent of chaos around the river bank, transforming its owner into ‘an Object which throws any decent-minded animal that comes across it into a violent fit.’ Now, the direction of travel may well be back to the world the Model T began to end.
The economic and political narratives that dominate collective life in Europe and North America leave us ill-equipped to deal with the energy troubles ahead. Many professional economists do not take energy seriously as a fundamental economic problem let alone a political one. Some climate activism is divorced from the energy conditions of human existence, its proponents unwilling to grant that the laws of physics apply to energy prospects as much as to the climate.
To think about the energy-origins of western prosperity opens up difficult truths about the place of European empire and the United States’ Middle Eastern wars in the economic history of the twentieth and early twenty-first century. Part of climate idealism contains a desire to leave this unpalatability behind, replacing fossil-fuel imperialism with climate justice. But after the Second World War, western economic life depended on the oil that came out of the Persian Gulf, through the Suez Canal, and into pipelines running to the Mediterranean. The counter-factual that eliminates past wrongs takes a lot else with it, including that which most people in western democracies have little inclination to forsake. Given that battery production presently relies on cobalt mining done in grim conditions in the Democratic Republic of Congo, sometimes with child labour, and much of the solar-grade polysilicon used in solar panels is produced in Xinjiang, green energy will bring less ethical relief than often supposed.
Our cognitive struggles with energy matters extend to our concepts of historical time. Both the dread of a coming apocalypse and a faith in endless human innovation and moral improvement appear hardwired into western culture, first from Christianity, and then its secular offshoot the Enlightenment. When confronted with collective existential questions, western minds reach rather easily to millenarian fears and hopes. Christianity began, after all, with the expectation of an apocalypse and the imminent arrival of God’s kingdom. Although the Roman Catholic Church made Latin Christianity worldly, and Augustine slammed down millenarianism as delusional, the original Christian spirit lingered, readily available as a lens to give moral meaning to past sins in times of social and economic crisis. The apparent ideational clarity of the apocalyptic moment now permeates radical climate activism, captured in Extinction Rebellion’s name, as well as the movement’s performative, and at times itinerant, political style.
But the temptation to make energy a Manichean struggle either between good and evil or science and unreason is decidedly unhelpful. There are Enlightenment optimists who cannot entertain doubt that technology will, God-like, prevail in establishing a new energy paradigm, regardless of the relationship between their certainty and physics. There are moral optimists who trust that, as human beings move from using dead sunlight to living sunlight, collective life will be ethically regenerated. These cannot be the stakes. The choices are much harder than either belief allows: to ask what might have to be sacrificed in dealing with China to try to stop it building more coal power stations is to recognise that a greener politics will not transcend tragedy. The stakes are also not so monumental: to recognise that, at least for the time being, continued fossil-fuel inputs are not going to end human life.
Western democracies need practical strategies to accelerate technological innovation in renewables, batteries, and carbon capture as well as to address the coming problems around the supply of oil. They also need political strategies to contain the distributional consequences of reduced long-term energy consumption. That what is necessary pulls in opposite directions is one of the great burdens of our times; it cannot be simplified to what our material aspirations and political imaginations can bear.