The business and geopolitical history of the 20th century was written in oil…black gold…Texas tea. Indeed, the need to secure abundant energy supplies has been an essential plot line of international relations ever since the Industrial Revolution. Some historians argue, for example, that the expansion of the British Empire was largely driven by the need to secure refueling stations for the British Navy—in that case coal, although admittedly the observation has a certain chicken-and-egg-ness about it. A failing President Franklin Roosevelt returning from the Yalta conference in 1945 met with the King of Saudi Arabia, in large part, because of the looming strategic importance of the Saudi oil reserves. And indeed, the oil-rich Middle East became one of the most important battlefields in the Cold War between the U.S. and the Soviet Union.
Today, declining oil and natural gas prices are messing with the plans and strategies of several countries such as Russia, Iran, and Venezuela. But those are today’s problems. Oil and natural gas have long been the world’s most volatile commodities, which is to say that clever speculators are already placing long bets on when the price of oil will once again explode upwards. But another more provocative and more significant narrative concerning fossil fuels lurks behind the daily stories of price volatility: The era of fossil fuels is coming to a close.
Or to put it in a more positive way: The era of renewable energy has begun. Everyone has been worrying about peak oil supply while what we’re witnessing is peak oil demand.
At the G7 summit this summer, Western leaders agreed that the world should phase out fossil fuels by the end of the century, and, according to press reports, some leaders argued for a target date of 2050. Investment bankers Goldman Sachs last year advised that the renewable energy sector was at a transformational moment, declaring it to be a compelling and attractive investment. Most experts say we’ll be lucky if renewables can meet one third of the world’s energy needs by 2050, but even under the more modest projections, the era of renewable energy is likely to produce some significant new global dynamics.
Location, location, location! There’s a tendency to think that renewable sources of energy mean that the geopolitical implications of energy policy will fade. Don’t all countries have access to wind and solar in roughly equal amounts? Well, actually, no. Countries vary in their solar and wind energy endowments. Solar energy is a boon for Africa and large parts of Central Asia. But China and East Asia actually have, at best, mediocre solar potential. Australia’s solar endowment is impressive but, at present, hardly usable beyond its borders. The southwest region shared by Mexico and the United States is another solar hotspot.
The Persian Gulf States will be hit hard by the planet’s declining need for oil, but they too have significant solar potential. The entire North African and Middle Eastern region could produce much more solar energy than it would ever need, the likely customer for such output being Europe. The DESERTEC Foundation has plans for an ambitious solar electric grid that would permanently connect Europe and North Africa. As uncomfortable as it may sound to many already worried about Europe’s relations with the Middle East, a common energy framework is another factor that may bind their futures together.
The best areas for producing wind energy are coastal waters, particularly along the northern hemisphere, and inland high plains areas. Yet again, Asia does not have the best wind potential, nor does South America. The ideal outcome is for countries to have good access to both solar and wind energy given how the two sources can complement each other in electricity production. The U.S. and much of Africa are well situated. Russia, Canada, and northern Europe are not.
Rare competition. The production of solar energy and advanced batteries requires rare earth minerals. Lithium is in particular demand. China has its supplies, as does the U.S., mostly in Nevada where Elon Musk is building his super battery factory. But the largest known reserves of lithium are in the Atacama Desert shared by Chile and Bolivia. Currently, their reserves are difficult to access, but the incentive to do so will grow, as battery storage becomes an essential part of the renewable energy grid. Bolivia’s lack of access to the Pacific Ocean might again become an issue (for more than just Bolivia, of course). Chile and Bolivia presumably have the potential over the long term to exercise monopoly control over lithium prices, another explanation for China’s growing interest in South America.
New power relationships. Much is made today of the alliance between Russia and China, but in a renewable energy world, Beijing won’t be needing Moscow’s gasoline stations. Productive relations with the U.S., given our serious research on solar, wind, and battery power, would be of higher value. And the benefits would likely go both ways given China’s growing investment in renewable energy technologies. At worst, renewable energy technologies will become the next arena for U.S.-China tensions over intellectual property rights and cyber hacking. But both governments should want something better: a realistic business partnership that can accelerate the transition away from fossil fuels.
Collateral impacts. A transition to a new energy regime for the planet is a big deal. And some countries may suffer from its secondary impacts. For example, a significant move to electric cars has the potential to disrupt the automotive industry. Japan and Germany, whose economies are led by their automakers, would have to navigate difficult transitions. For Russia, whose economic potential is suffocated in part by its energy reserves, the transition away from fossil fuels might end up a blessing if it finally prompted economic diversification.
We’ve only just begun to examine the possible consequences and permutations of the era of renewable energy. In the 19th century, the rise of the fossil fuel economy contributed to the development of great economies and thus great powers. It’s a good bet that an entirely new energy regime will have impacts of similar magnitude. Some experts predict it will lead to less centralized economies, as local energy grids serve smaller areas. Others expect it to facilitate new forms of capitalism, such as the sharing economy. Many businesses will take advantage of it; many others will be overwhelmed. But you can’t say you haven’t been warned.
