If humans manage to break their addiction to fossil fuels and avoid climate catastrophe, trade patterns will change profoundly. The new geopolitics of energy will reshape world power.
Reducing net greenhouse gas emissions to zero is such a daunting task that one is disinclined to think about the side effects of success. But these have to be considered. Ditching fossil fuels will have a dramatic impact on world trade and geopolitics.
In order for the world to limit global warming to two degrees Celsius, global greenhouse gas emissions should reach net zero by around 2085, and emissions should already start declining this year, in 2020. (In the 2010s, they rose at a rate of 1.5 percent annually.)
In the process, oil and gas, the source of most emissions, will become less important as tools of foreign policy. In the past, both importers and exporters have used energy as a foreign policy lever, implementing embargoes or sanctions (OPEC against Western states in 1970s, many states against apartheid South Africa, the P5+1 against Iran), playing pipeline politics (Nord Stream 2), and offering benefits to friends (Russia’s discounted oil deliveries to Belarus).
The New Map of World Power
Alliances built on fossil fuels, e.g. that between the United States and Saudi Arabia, will weaken in a decarbonizing world, according to a major new report from the International Renewable Energy Agency (IRENA). In the eyes of the major powers, smaller petro-states like Azerbaijian will lose relevance. Oil and gas will cease to be at the center of quite so much conflict and disagreement in places like Libya and Iraq, to name just two currently in the headlines.
With the scrambling of alliances come new geographies of trade―electricity is a regionally traded commodity, whereas oil is shipped all around the world. Sources of renewable power are also less geographically concentrated than oil and gas fields, so energy production will become less concentrated in states blessed (or cursed) with hydrocarbon deposits, and strategic oil choke points like the Strait of Hormuz will become less crucial to world trade.
As a report from the Belfer Center at Harvard University points out, there is a risk of political instability for fossil fuel exporters that are unable to maintain government spending and standards of living. Look at Venezuela, where falling oil prices have contributed to the country’s recent economic and social collapse. Or Nigeria, where fossil fuel reserves make up 40 percent of the country’s total assets.
The flip side of this is that today’s energy importers will save money. The EU, for example, expects to significantly reduce the €266 billion it spends annually on importing fossil fuels.
To Zero, To Hero
The EU will likely be the first of the major powers to achieve carbon neutrality, making it an interesting test case. It hopes to decarbonize by 2050.
2050 is 30 years away, not a long time compared to previous energy transitions. These are, as the great energy historian Vaclav Smil has written, “gradual, prolonged affairs”; it tends to take 50 to 75 years for a new resource to capture a large share of the global energy market. Humans used traditional biofuels (mostly wood) and animate energy (horses, oxen, biceps and hamstrings) from the discovery of fire until about 1800, when coal power started to become significant and humans began to enjoy the modern industrial world.
It took coal until 1900 to become the dominant energy source, a position it retained until the 1960s, when oil overtook it. Since then, the major trend has been not the takeover of solar and wind power but rather the rise of natural gas, which is now about as important to world energy as oil and coal. In 2017, low-carbon sources, including all types of renewables and controversial nuclear power, provided only 28 percent of primary energy consumption in the EU. That leaves a lot of fossil fuels to transition away from.
Nevertheless, 30 years is long enough that EU fossil fuel demand will decline gradually. The International Energy Agency (IEA) projects that, if the world undertook a “major transformation” of the energy system to tackle climate change, European oil demand would decline by 61 percent from 2018 to 2040. Even though the IEA tends to underestimate the growth of renewable energy, it appears that Europeans will still be buying loads of oil in 20 years.
Meanwhile, European gas demand is expected to decline by 38 percent from 2018 to 2040, though analysts expect gas imports to actually increase in the short term as domestic production declines and coal power plants are shut down. A great deal of the previous progress towards decarbonization is thanks to the switch from coal to natural gas, which emits about half as much carbon dioxide per unit of released energy as does coal.
The (Slow) Death of the Salesmen
One country’s savings are another’s lost business. What will happen to the EU’s fossil-fuel salesmen?
Russia and Norway sell more hydrocarbons to EU customers than any other countries, and thus have the most to fear from EU decarbonization. It’s a real problem for both; no country could simply shrug off the loss of its biggest customer in its biggest industry. Most Russian gas and oil is sold to the EU, and fossil fuel sales provide about 40 percent of Russian federal budget revenues. Fossil fuels are also the backbone of the Norwegian economy.
Norway is “highly resilient” against decarbonization, according to the IRENA report. Being rich helps: Norway’s sovereign wealth fund has about $200,000 for every person in the country. But Norway is also shoring up its defenses. Bård Lahn, a researcher at the Norwegian climate think tank CICERO, says there is “an increasing awareness that Norway needs to prepare for a decarbonized Europe and reduce its exposure to oil and gas market fluctuations.” A government-appointed commission recently recommended stress-testing the economy against declining fossil fuel demand. But so far, “oil and gas policy focuses on maximizing production and exports. In particular, the Norwegian government and oil industry association has made considerable efforts to persuade Brussels about the advantages of natural gas as a ‘bridge fuel.’”
Russia is less resilient. Tatiana Mitrova, a senior research fellow at the Oxford Institute for Energy Studies, says the country is “not well prepared for decarbonization, especially EU decarbonization.” In fact, most stakeholders regard it as an “existential threat” to Russian hydrocarbon export revenues.
However, Russia is still less exposed than some other petrostates. Andreas Goldthau, a professor at the Willy Brandt School of Public Policy at the University of Erfurt and Associate Fellow at the German Council on Foreign Relations (DGAP), says that this is in part because Russia’s fossil fuels are comparatively cheap to exploit. “Russia has relatively low lifting costs for oil, so it is likely to stay competitive even in a market that is set to turn softer against the backdrop of decreasing demand for hydrocarbons.” Russia is also expanding petrochemical production and diversifying its gas exports, in particular by betting big on China. It recently began shipping gas to its mega-neighbor through the Power of Siberia pipeline, the largest gas project in Russian history.
Can I Interest You in Some Hydrogen?
Even if energy exporters can’t sell as much oil and natural gas to the EU in the future, they won’t just give up on the energy trade. At present, the EU imports 55 percent of its energy. In its 2018 long term climate strategy, the Commission projects that this “energy dependency” figure will fall to 20 percent by 2050. Those 20 percent will still represent a lucrative market.
What will future EU energy trade look like? “Member states decide on their own energy mix,” a Commission spokesperson said, while also pointing out that official EU documents give a pretty good idea of what the remaining imports might be. (The usual caveats about predicting anything 30 years from now apply.)
The 2018 EU strategy assumes some residual imports of fossil fuels in 2050. Much of these fuels will be for industrial use, like the natural gas used as a feedstock by the chemical industry. Some fossil fuels will be imported to power long-distance ships and planes, which are hard to decarbonize. The EU will try to offset these emissions with negative emissions elsewhere.
Some share of future energy imports will be low-carbon. A decarbonizing EU will continue to import biofuels, like wood, or diesel derived from plants, though these will be a small part of overall consumption. More significant is the possibility of importing electricity from countries than can produce cheap renewable power, like the sunny nations of North Africa. With EU support, member states are laying power lines across the Mediterranean to the Maghreb.
Hydrogen is the most promising low-carbon energy source for Norway and Russia to pivot to. According to Goldthau, even a decarbonizing EU will likely keep importing energy from Russia. At first, it would be “blue” hydrogen made from natural gas, where the carbon emissions are stored underground or reused. Eventually it should be “green” hydrogen, made by using renewable electricity to split water molecules into hydrogen and oxygen atoms.
Lahn says that some Norwegian industry actors are getting more interested in hydrogen exports, though it remains “an experimental idea.” One advantage here is that hydrogen could be delivered through existing natural gas infrastructure, and Norway and Russia would have a climate-friendly use case for their large natural gas reserves.
Full of Energy
Humans will still need enormous amounts of energy to get through the day in a decarbonized world. But they will no longer be able to take advantage of all the energy stored in plants and animals that died hundreds of millions of years ago and became oil, coal, or gas through exposure to heat and pressure. (In the end, almost all energy is solar energy.)
Decarbonization will reshape foreign affairs; and yet in some ways the new geopolitics of energy will resemble the old one. There will continue to be major trade in energy, whether hydrogen or electricity or biofuels. There could be new resource curses, not with fossil fuels but with rare earth metals essential for clean energy technologies. New inequities will arise as major powers hoover up clean energy patents. Countries will still have balance-of-payments problems with regard to energy imports.
Of course, this will only happen if humans are able to break the mold of previous energy transitions, not merely adding new fuel sources but breaking their addiction to the old ones, thus avoiding catastrophic climate change. These geopolitical developments would be the side effects of success.