Geopolitical dynamics are crucial to our thinking about the future of energy and the pursuit of net zero. In this article from our publication On Resilience, Professor Matthew Paterson explores the complexity of alternatives to fossil fuels, the impact of renewables on our energy security, and how policymakers can reduce exposure to the geopolitical risks of the clean energy economy.
- The benefits to the UK, and elsewhere, of accelerating transitions away from fossil fuels have been made stark by the invasion of Ukraine.
- ‘Clean energy’ alternatives to fossil fuels also have their own geopolitical dynamics. The locations for energy resources are already becoming sites of intense geopolitical competition.
- Action on climate policy has the potential to play a significant role in improving the UK’s energy security, if policymakers can focus on elements that minimise geopolitical risks.
The war in Ukraine has underscored how crucial geopolitical dynamics are to thinking about the future of energy, particularly regarding the pursuit of net zero to respond to the climate crisis. It has underscored a key rationale for weaning the global economy off fossil fuels. Such a transition would undermine a fundamental justification for geopolitical interventions in the pursuit of control over fossil fuel resources, which have driven international conflict for much of the last century.
But the reality is much more complex. Weaning the economy off fossil fuels entails all sorts of dilemmas in terms of who wins, who loses, who has the power to block or accelerate it, and the inherent inertia of large complex energy systems. The acuteness of the war in Ukraine, and the natural gas-fuelled inflation that it has intensified, combined with the ever-shorter timeframes needed to rapidly reduce emissions to limit warming to 2oC – or ideally 1.5oC – make all these general dilemmas even sharper.
This complexity is precisely because the ‘clean energy’ alternatives to fossil fuels also have their own geopolitical dynamics. Various critical minerals – lithium, cobalt, copper, and so on – are crucial to clean energy transitions. They are central to wind and solar electricity technologies, as well as to the batteries essential for the electrification of transport. The locations of these resources are already becoming the sites of intense geopolitical competition between major powers just as the location of oil, and more recently natural gas, have been since the early 20th century.
Taking our foot off the gas
The benefits to the UK, and elsewhere, of accelerating transitions away from fossil fuels have been made stark by the invasion of Ukraine. The UK has gone further than any industrialised country in transitioning away from coal, which now provides less than 2% of the UK’s electricity, down from around 75% in 1990. There is much to say about the history of this transition, but it means in the current context that there is no pressure, and probably capacity, to respond to the Ukraine crisis by increasing coal consumption in electricity (as has happened in Germany, even with the Greens in government).
Natural gas prices were already rising for several months prior to the invasion of Ukraine, and skyrocketed after that. At the same time, use was increasing because of the rapid economic reflation after the COVID-19 lockdowns. In the electricity system, when electricity consumption goes up, only natural gas can fill the demand in the short term. This is the effect of this particular stage of the UK’s energy transition, having more or less entirely eliminated coal from the system. Along with the tradition of light regulation by UK governments, and decided reluctance to impose windfall taxes on companies reporting historically unprecedented levels of profits – despite taxes imposed by many other industrialised countries – consumer prices have risen extraordinarily fast and high, generating considerable energy insecurity for large sections of society unable to pay rapidly rising bills.
The economic case for renewables
Isabel Schnabel of the European Central Bank has coined the term ‘fossilflation’ to capture the current character of inflation. The immediate driver of inflation is very clearly the rapid rise in natural gas prices, alongside the invasion of Ukraine. Natural gas price rises have fed directly through into other sectors which depend on gas as an energy source or feedstock, such as fertiliser. The war in Ukraine has also produced other specific price rises in supply chains disrupted by either the invasion itself – notably sunflower oil, grain, and computer chip components – or due to sanctions against Russia.
However, even prior to the price rises starting in 2021, it was already the case that solar and wind electricity were often substantially cheaper than gas and coal. Therefore, an electricity system still dominated by fossil fuels is now intrinsically more expensive than a potentially renewable-centred system, a rapid reversal of the situation even 15 years ago. Accelerating decarbonisation of the electricity system, and the electrification of sectors using fossil fuels directly (for example, transport, home heating, and cooking), makes increasing economic sense. This comes with the additional benefit of lowering the vulnerability to geopolitical manipulation, notably through Russian domination of European gas supply. The German Minister of Finance called renewables ‘freedom energies’, and many UK politicians have made similar arguments.
The ‘fossilflation’ argument is much more convincing than the case made by net zero sceptic politicians looking to undermine climate policy. There is a kernel of truth, however, in the sceptics’ arguments around cost and the impacts on social inequalities. While a renewable energy system would be overall cheaper to run, and limit exposure to geopolitical risks at least in the oil and gas sectors, there are significant upfront costs. This is the case for example, regarding installing heat pumps across around 22 million homes in the UK; switching from a petrol car to an electric vehicle (EV), although this cost differential is rapidly declining; creating a fully-fledged EV charging infrastructure; and updating the grid for a renewables- dominated system. How these are to be paid for, and who would immediately benefit, are crucial questions.
Historically, the UK has paid for the upfront costs of renewable energy largely via fiscal subsidies of various sorts. These can only incentivise households with significant amounts of savings to take advantage of them, and therefore fiscal subsidies will never be adequate to reach large sections of society. Policy designed to roll-out these transformations more widely needs to be radically different – effectively a public works programme, with much more direct state involvement than has been the case in the past.
More aggressive climate policy by the UK government has the potential, in the medium term at least, to play a significant role in improving energy security – both in terms of national security and in terms of the security of individual citizens. But as implied above, the energy transition raises its own questions for future geopolitical dynamics and conflict. To mitigate these risks, a range of strategies and policies are needed:
- Measures that reduce energy demand are needed to maximise the potential for weaning the UK economy off natural gas, and thus mitigating the price volatility induced by geopolitical crises.
- Decarbonising housing through heat pumps and electric cooking will be key. The policy design for this needs to be similarly rethought to reach its full potential: fiscal subsidies will never be adequate to reach large sections of society.
- In transport, policy design should provide additional support for shifting away from private cars towards active travel and public transport, to reduce the exposure to the geopolitical risks of the clean energy economy.
- Additional investment in road transport electrification is required to minimise exposure to oil price volatility. The EV transition is already underway, but more funding is needed for charging infrastructure, as well as for solving specific issues like charging in households without off-street parking.
- Domestic renewable electricity generation must be accelerated. In the last 10 years, this has focused largely on offshore wind, which has expanded dramatically. But there is significant untapped potential both for onshore wind and solar, which have largely been hampered by regulatory blockages that need reversing.
These measures combined would keep the UK’s transition to net zero on course and enhance climate policy ambition, while focusing on those elements that minimise geopolitical risks – both from continued fossil fuel dependence, and from the new energy economy centred on renewables and electrification.