The interplay between the energy transition and geopolitics

The energy transformation leads to serious geopolitical upheavals. The International Organization for Renewable Energies (Irena) already showed these consequences in 2019 in the groundbreaking report “A New World”. The transformation will, on the one hand, devalue oil and gas, on the other hand, it will add value to renewable energies and the raw materials required. In addition to the site conditions, the availability and use of technologies are crucial. As a result, not only are global trade flows fundamentally shifting, but also the international balance of power.

However, the energy transformation will not only trigger geopolitical processes; conversely, geopolitical developments will also shape the course of the transformation.

The rise of China and the strategic rivalry with the old superpower USA are increasingly shaping the new world (dis) order. In addition, rivalries between regional powers develop under the bipolar tension pattern. Since the restructuring of the energy system is very uneven and time-shifted around the world, energy regions are formed that are set up very differently, which increases the fragmentation and regionalization.

The USA will continue to benefit from its diverse energy abundance in the future and use the resulting large room for maneuver. Their key position on the American continent guarantees a natural influence there.

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Even China, as its great strategic rival and competitor, can not only rely on the abundance of raw materials and the availability of land, it also weighs in its central position in Asia and its sheer market size. Beijing began early on through its Belt and Road Initiative to bind adjacent spaces via supply chains and infrastructures.

Is there a threat of a confrontation between the energy blocks?

Geopolitics is shaping the new energy relationship patterns. The fact that renewables are widely distributed creates more opportunities than in the old energy world, when the geological availability of oil and gas determined the structure. An example of the intensified cooperation with selected partners are national power grids: The decision to network creates “power communities of fate” in which risks and opportunities are equally distributed among everyone. In Eastern Europe, however, the EU and Russia are competing for influence on energy networks and markets, which could lead to an energy bloc confrontation.

Geopolitics also leads to decoupling. Supply chains and trade relationships are viewed less from the focus of efficiency than increasingly through the lens of dependency and vulnerability. This “securitization” plays an important role, especially in the relationship between China and the USA. In a world of increasing complexity and competition, security dilemmas arise, but these are also underpinned by real delivery difficulties on the one hand and hybrid threats on the other.

Today we see that power competitions are less militarily fought than interstate conflicts are increasingly being shifted to the fields of economy, finance, technology and society. On the one hand, economic means serve to achieve political goals; on the other hand, states also use political instruments such as sanctions, trade barriers or cyberattacks in order to achieve political and economic dominance as well as technological supremacy.

The world is sliding into an economic security dilemma

When technologies, key components and asymmetrical dependencies in networks become central currencies of power, the world slides deeper and deeper into an economic security dilemma. Isolation, relocation and autonomy are given priority to the detriment of global goods, cost efficiency and division of labor. A “green globalization” and a “big green deal” are falling behind in the face of particular and short-term benefit searches and zero-sum games.

Those countries that develop technologies and lead markets can boast economic strength. New playing fields in the international competition arise through the setting of standards and norms. Whoever sets the rules has at least one pole position and determines the game for a while. China is pursuing this strategy with its programs “Made in China 2025” and “Standards 2030”. US President Jo Biden is also directing his policy towards jobs, innovation and the modernization of infrastructure in his own country. Where can Europe find its place here?

The EU Commission has linked a geopolitical claim with the goal of making Europe the first climate-neutral continent by 2050. The “Green Deal” is not only associated with the gradual substitution of coal, oil and gas imports. Rather, innovations and technologies are needed to decarbonise Europe’s industry and build sustainable welfare on it, but also to preserve Europe’s ability to act in order to pursue foreign and climate policy goals.

As a geographical neighbor in Europe and a supplier of raw materials, Russia is involved, even if it is changing from a strategic partner to a strategic rival. The fault lines and conflicting interests are becoming increasingly clear in the energy sector. Russia’s fossil-based export model underpins the Putin system. Moscow is therefore turning towards Asia, which, in line with the “green paradox”, could benefit from low gas prices for a longer transition period and could temporarily play out a competitive advantage over Europe.

Europe must focus on strategic integration and a balance of interests

The EU will only be able to assert itself if it weighs in on its market power and size. In terms of energy policy, this is evident: Europe needs imports of green electricity and molecules. Europeans lack the space and social acceptance to provide their needs on their own.

In this competitive international environment, the EU will have to rely on strategic integration and a balance of interests. The EU’s soon-awaited “Global Gateway Strategy” is a response to China’s Silk Road Initiative. In addition, a balance between maintaining the location and economic cooperation is a requirement. If climate-neutral electrons and molecules are not available quickly enough and in sufficient quantities, there is a risk of added value being shifted. Before this leads to chain reactions and entire industries migrate, stable and sustainable supply relationships should be established with partners in a balanced way. The steel industry, once at the cradle of European unification, is now back in focus.

Last but not least, the EU must overcome the structural asymmetries vis-à-vis China and the USA. This not only includes state support for corporations. The political decision-making processes in the EU are also comparatively lengthy and difficult. The new federal government will have to show drive to quickly forge a viable and inclusive consensus in the EU, to reverse the trend in greenhouse gas emissions and to reorganize the economy in a socially acceptable and sustainable manner throughout Europe.

The author: Kirsten Westphal is project manager at the Science and Politics Foundation (SWP) in Berlin and a member of the National Hydrogen Council.

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