The geopolitical race for resources: Navigating the path to a successful energy transition

The current energy transition differs significantly as it is primarily driven by the urgent need to achieve climate targets, address environmental challenges, and decarbonise the global energy system. Image: Shutterstock

In the past decade, climate change has emerged as the most pressing issue humanity has faced thus far. In response to this challenge, the energy transition has gained widespread attention globally. However, the momentum was briefly disrupted due to the Covid-19 pandemic. Despite this setback, we successfully combated the pandemic and are ready to confront an even more significant challenge. Over the past year, the energy transition has experienced a considerable interest surge, as evidenced by Google Trends. It reached a popularity score of 100 in November 2022, coinciding with the United Nations Climate Change Conference, also known as COP27 or the Conference of the Parties of the UNFCCC.

Energy transition exhibits higher search interest in developing nations, with decreased popularity observed as we move towards more affluent regions. The energy transition has historically involved shifting from less economically viable and efficient energy sources, such as wood/biomass, to more efficient and financially favourable alternatives like coal, oil, gas, and nuclear power. Commercial incentives primarily motivated these earlier transitions, which fostered economic growth and improved energy accessibility for a wider population.

However, the current energy transition differs significantly as it is primarily driven by the urgent need to achieve climate targets, address environmental challenges, and decarbonise the global energy system. According to International Renewable Energy Agency (IRENA), renewables have been the dominant source of capacity additions in the global power mix in recent years. In 2020, adding new renewable capacity accounted for 82 percent of the total installed capacity, marking an increase from 73 percent in 2019 globally.

Unearthing the Environmental Challenges of Energy Transition

The energy transition necessitates the utilisation of non-fossil fuel sources such as solar and wind power. The construction of technologies like solar panels, windmills, and batteries is essential to harness energy from these sources. However, the production of these technologies requires extensive mining of non-renewable materials, surpassing the scale of current mining operations for coal or other minerals. In essence, our path to sustainable growth involves significant environmental excavation. Acknowledging that mining can have severe consequences for local ecosystems and populations is essential. The crucial question pertains to the extent and locations of the required mining activities and their implications for climate security and geopolitics.

History demonstrates that power dynamics also transform when the dominant energy source changes. Countries that can leverage energy transformation to their advantage gain economic and political superiority, positioning themselves at the forefront of the global order. Consider the United Kingdom's dominance through coal or how oil propelled the United States to become a global superpower. This illustrates that access to and control over energy resources directly translates into the ability to shape geopolitical power dynamics. We face the challenge of implementing human history's most significant energy transition while racing against a ticking climate clock. A new power generation is emerging, with critical materials at its core, enabling decarbonisation and digitalisation.

What is the current situation regarding these materials? On the demand side, we are witnessing the initial stages of an exponential growth curve. If we consider lithium as an example, a vital component for batteries, global production has already surged by nearly 300 percent from 2010 to 2020. Isn't this positive news? It signifies that the process of decarbonisation is underway. The downside to our envisioned "clean" future is that it will require significantly larger materials than before. To exemplify this, the International Energy Agency (IEA) conducted a study revealing that, at the present level of innovation, an electric car necessitates six times more mineral resources than a traditional car. And this is merely the beginning, according to the World Bank. To meet the clean energy technologies demand by 2050, the expected global production of minerals like graphite and cobalt will increase by 500 percent.

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Geopolitical Shifts: Energy Transition's Resource Race Unveiled

Now, let's shift our focus to the supply side. The entities currently involved in mining and processing minerals and the location of future deposits to meet rising demand provide insights into how the energy transition will reshape geopolitics. For instance, countries such as Chile and Australia dominate lithium extraction, the Democratic Republic of Congo is a major player in cobalt extraction, Indonesia and the Philippines hold significant control over nickel extraction, and China is the dominant force in rare earth minerals extraction. Moreover, China also has a strong position in processing these minerals. Consequently, the global balance of power is undergoing a significant restructuring due to this natural progression of the energy transition.

China is actively pursuing access to additional mineral resources through its Belt and Road initiative. On the other hand, the US and EU are considering reshoring critical mining and processing activities and redirecting their international partnerships to ensure access to a more excellent supply of minerals. Japan is exploring its oceanic marine reserves to establish strategic accounts. While Russia's invasion of Ukraine may seem unrelated to the developments above, it is worth noting that Ukraine possesses significant mineral wealth. Additionally, Ukraine was one of the two countries that had partnered with the European Union to diversify and develop supply chains for critical raw materials, specifically to support the EU's decarbonisation efforts and foster closer political and economic integration with Ukraine. Eight months after the partnership was established, the invasion occurred. While mineral resources may not entirely explain the conflict, they cannot be disregarded when analysing the events. The race for critical raw materials is leading to a new competition for resources, with major players focusing on countries abundant in mineral deposits.

Interestingly, many of these countries are primarily in Africa, Latin America, Central Asia, and Indo-Pacific. The International Institute for Sustainable Development (IISD) has created a map that depicts the geographic distribution and deposit sizes of the various materials required for decarbonisation. Notably, a significant number of these deposits are situated in countries that exhibit relatively high levels of corruption, according to corruption indices.

The Nexus of Climate Vulnerability and Resource Exploitation

The Notre Dame Institute has published another map highlighting the correlation between countries vulnerable to climate change and those rich in natural resources. Additionally, many crucial ecosystems that must be safeguarded and restored to stabilise the global climate, reboot the hydrological cycle, and protect biodiversity are in the same fragile countries mentioned in the IISD map. These countries also happen to possess vast mineral deposits. Disrupting or destroying these ecosystems through mining, deforestation, or other activities would undermine ecological integrity. This raises an important question: Does the fight against climate change inadvertently lead us down a more dangerous path for the environment and humanity? Our modern economies have progressed and expanded over the past two centuries with a glaring blind spot, namely the exploitation of fossil fuels and the unintended consequences that ensued.

The critical lesson is that we must consider the potential unintended consequences before shifting to alternative energy sources, technologies, and materials. The stakes are incredibly high, as they encompass our future and extend to encompass our humanity and nature. Decarbonisation is unquestionably the path we must pursue. There is no doubt about that. However, this path also requires us to envision a future beyond decarbonisation. A climate-safe lot is necessary for peace, but achieving such a future necessitates peace among us and the environment. To establish peace, we must bring about significant changes in international politics and how we conduct business and economics.

Also read: How GE plans to pitch a tent in India's renewables story

Redefining Innovation: A Sustainable Energy Transition Perspective

Science can provide crucial information on where it is environmentally safe to conduct mining activities and where it is not. In areas deemed unsafe for mining, we should act as if those minerals do not exist and establish protected areas where no mining licenses can be granted. Where mining does occur, we can integrate socioeconomic and ecological regeneration into business models.

If decarbonisation is essential for human survival in the global public good regime, then the materials required for decarbonisation should be collectively managed under a worldwide public good administration. The alternative is conflict and the breakdown of our planet. While we work towards designing this regime, countries at the centre of the resource competition should receive competent and coherent support to address the common challenges of geopolitical competition and climate disruptions. Investing in conflict resolution, fighting corruption, and fostering context-specific resilience should be top priorities during the global energy transition.

Merely switching from one energy system to another is insufficient. Instead, we need to reduce our energy and material demands. This begins with significant public and private investments in circular economic models prioritising recyclability and material substitution. Additionally, developing ecological assessments for supply chains that consider greenhouse gas emissions, as well as water, soil, biodiversity, and overall material and energy footprints, is crucial.

Shifting our perspective on innovation is essential. Innovation in our era revolves around bringing our economic activities within the boundaries of our planet. Anything that aligns differently from this goal, even if it seems innovative, is business as usual. So, a successful energy transition entails a regime that can engulf everything under social, political, economic and, most importantly, environmental security.

Anil Mehta works as Principal – Yield and Service Delivery with Secure Meters Limited. He is a student of the Advanced Management Programme in Public Policy at the Indian School of Business.
Anjal Prakash is an Associate Professor (Research) and Research Director- at the Bharti Institute of Public Policy at ISB. He contributes to IPCC reports.

[This article has been reproduced with permission from the Indian School of Business, India]