Today's Editorial

Today's Editorial - 14 October 2023

Energy and Geopolitics

Source: By Govind Bhattacharya: The Statesman

Clean energy is becomes world’s new obsession to limit the use of fossil fuels are leading nowhere. The war between Russia and Ukraine has once again proved that oil and gas can be weaponised to the advantage of nations that have reserves they can cause havoc to economies the world over. As Jason Bordoff and Meghan O’Sullivan point out in an article in Foreign Affairs, transition to clean energy will also bring in significant geopolitical changes across the globe, replacing old tensions with new ones and reconfiguring the international political system prevailing since World War-II.

It is in this context that the recent discovery of lithium reserves in Degana, Rajasthan, estimated to be the second largest in the world after Chile’s, coming just three months after the discovery of 5.9 million tonnes of inferred lithium reserves in Reasi, Jammu, needs to be considered. Known as ‘white gold’, lithium is a priority element for the entire world without it, the transition to a green economy will almost come to a standstill.

Lithium-ion batteries are used in wind turbines, solar panels, and electric vehicles (EV), all of which are crucial for the green economy. The ‘lithium triangle’ of Bolivia, Chile and Argentina contains half the world’s known lithium reserves, but it is China that controls 77 per cent of the global lithiumion battery manufacturing capacity and is home to six of the world’s 10 largest manufacturing companies.

India currently imports all of its lithium from Australia and Argentina and 70 per cent of its lithium-ion cell requirements from China. Thus, if the discovery of lithium reserves and their perceived sizes prove to be correct, India may well overtake China in lithium stockpiling, and fulfil the government’s ambitious plan of 30 per cent EV penetration in private cars, 70 per cent in commercial vehicles, and 80 per cent in two and three-wheelers by 2030, besides strengthening India’s National Mission on Transformative Mobility and Battery Storage. India is committed to increase its non-fossil energy capacity to 500 GW, or 50 per cent by 2030.

Lithium belongs to the Rare Earth Elements (REE) which are essential components of a wide range of high-tech consumer products like smartphones, computer hard-drives, flat-screen monitors, TVs and EVs. It is also used for military application guidance systems, lasers, radar etc. In 1993, 38 per cent of world production of REEs was in China, 33 per cent in the USA, 12 per cent in Australia, and five per cent each in Malaysia and India. By 2011, China accounted for 97 per cent of world production of REEs. Critical mineral dependencies constitute a major geostrategic concern, and a high level of dependence on China poses huge risks for energy security for nations, a fact that not only India but most of the world is now realising. And not only lithium, there are several critical metals which are also essential for transition to the net-zero energy systems.

Seventy-two countries, accounting for around 80 per cent of global emissions, have committed themselves to net-zero targets by 2050. A carbon-neutral world in 2050 will need 35m tonnes of green metals a year, which is likely to create a huge supply crunch. An IMF working paper estimates that for the world to reach net-zero emissions by 2050, revenues for lithium, copper, cobalt and nickel producers could raise four-fold to $13trn between 2021 and 2040. This has the potential to reorder the geoeconomic and geostrategic realties in our world. The focus will turn to Latin America.

Mexico is the world’s biggest producer of silver, which is used in wind turbines and solar panels. Chile and Peru alone produce almost 40 per cent of the world’s copper used in solar photovoltaics and also wind energy turbines, cables, and transformers. Brazil has a fifth of the world’s known reserves of nickel, used in EV-batteries, though Indonesia is its largest producer. The Democratic Republic of Congo ~ one the ten poorest countries in the world and a failing state, holds more than 70 per cent of the world’s reserves of cobalt, another metal used extensively in EVs. Another critical metal for greening is aluminium, of which China and India are the world’s largest producers. Estimates by the International Energy Agency (IEA) show that while transitioning to net zero goals, by 2040 itself, the demand for these materials will rise sixfold. If the demands remain unmet, the transition will not happen.

Energy is the key to development and use of a particular kind of it is a marker for human civilisation. The energy system underpins both the global economy and the geopolitical order. Of course, complete transition to clean energy is a chimera and will take many more years, but even a modest change in our energy basket may cause upheavals the world may not yet be prepared for. The net zero goal may also produce unintended geopolitical consequences that the world may not know how to handle; besides net zero may not mean the end of fossil fuels which will continue to be used at a reduced scale for a very long time. Even in the clean energy regime, it will remain the driver of the global economy and determinant of the new political order.

Volatility in fossil fuel prices today benefits the petrostates, mainly OPEC members who now control most of the world’s spare capacity and can create artificial scarcities whenever they choose to make wind-fall gains for themselves. In the clean energy regime, this dominance will pass on to the countries that control the supply chain for minerals critical for green energy technologies, and they will start exercising significant influence over geoeconomics and geopolitics. But just as the oil shock of the 1970s drove the world to search for new sources of oil, the same phenomenon may be seen again.

Another determinant of the new dominance would be the ability to cheaply manufacture components for new technologies, like China that manufactures two-thirds of the world’s polysilicon today and 90 percent of the semiconductor “wafers” used to make solar power cells. A country can become a clean energy superpower by producing and exporting low-carbon fuels like hydrogen and ammonia which are critical in the transition to a net-zero worlds.

IEA’s “net zero by 2050” scenario anticipates trading in hydrogen and ammonia to rise to a third of all energy-related transactions, which today are practically zero. This will benefit the Petro-States in the Gulf which have vast quantities of cheap solar energy to transition into “Electro-States” by using solarpowered electrolysers to split water into hydrogen and oxygen to produce green hydrogen at much lower costs. The same goes with “blue hydrogen”, made from natural gas using carbon capture technology to reduce emissions. Countries such as Qatar and the US, which have cheap gas and good carbon dioxide storage capacity may become the top exporters of blue hydrogen or ammonia, wielding larger geopolitical influence in the new world.

A decarbonized world will rely more on electricity ~ total electricity use is likely to increase manifold. Electricity is harder and more expensive to transport over long distances and also hard to stockpile and store to protect against-supply disruptions. Thus, most of the decarbonised electricity is likely to be produced locally. Getting to netzero world may thus accelerate the current trends of de-globalization and protectionism being witnessed across continents. Governments are already wresting back control of critical elements in their countries one by one.

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