Energy interdependence is here to stay

25 July 2022

Delegates to a major Indo-Pacific energy summit held in Sydney this month celebrated the promise of enhancing international stability by realising the shift from fossil fuels to clean energy. US Secretary of Energy Jennifer Granholm noted that no country’s access to the sun or wind had ever been weaponised, and that, “therefore, our move to clean energy globally could be the greatest peace plan of all”. Granholm’s Australian counterpart, Chris Bowen, echoed these sentiments. He argued that “the one supply chain no geopolitical crisis can disrupt is the supply of sun to our land and the supply of wind to our country’s coasts and hills”.

These are timely claims in the context of Russia’s war in Ukraine, which has again highlighted the complex interdependencies sustained by trade in oil, gas, and coal. They are also valid in light of recent assessments which have found that most countries have at least the geophysical capacity to meet most of their clean energy needs via tapping domestic renewables, such as solar and wind; deploying adequate energy storage, to overcome intermittency challenges; and investing in the electrification of end use sectors, to reduce dependence on emissions-generating combustion. This would in turn reduce their exposure to hydrocarbons that are either imported from autocratic suppliers or traded in markets in which these countries most influence prices.

The timing is currently ideal for democracies to accelerate clean energy cooperation and ensure more benign future relations among themselves and the wider world.

The net long-term effect could very well be enhanced energy security and reduced interdependence with problematic actors. There is, at the same time, a risk of oversimplifying the alternative strategic dimensions of the energy transition and its final, net zero, destination. Granholm’s address indeed included a familiar paean to the potential for states to achieve ‘energy independence’ by abandoning fossil fuels. This overlooks several key dynamics that will invite continued, often geopolitically fraught, cross-border interactions in the clean energy space.

New drivers of interdependence

The most prominent of these dynamics is the already intense need to sustain new patterns of trade and investment in the materials that underpin clean energy systems. The most important of these include ‘critical minerals’ such as lithium, rare earths, nickel, cobalt, and copper, and the technologies they are deployed in, including solar panels, wind turbines, batteries, and electric vehicles. Some states will also have a continuing need for trade in clean energy resources, including renewably generated electricity and fuels such as hydrogen and ammonia. Future cross-border attention could focus on accessing ‘green’ industrial goods, such as steel and aluminium produced with clean energy rather than fossil fuel inputs.

Geo-economic competition to obtain strong positions in the supply and value chains for these materials is rising in concert with trade and investment activity. So too is the need to ensure inclusivity of states participating in evolving energy markets, as well as governance of associated economic, political, environmental, and other dynamics. This is particularly important for ensuring the stability of developing states, which might otherwise struggle to adapt to new dynamics. Far from basking in a newfound sense of self-sufficiency, democratic governments will need to work hard to ensure that new clean energy interactions align with their interests.

The Sydney Energy Forum, where Granholm and Bowen spoke, was itself the product of these evolving impulses. It has its roots in a growing clean energy work stream within the Quad grouping of Australia, India, Japan, and the United States. Like other Quad activities, these efforts are distinctly strategic in nature. The goal is to sustain new commercial opportunities and intergovernmental relationships in the emissions-intensive Indo-Pacific region, which is the critical theatre for global decarbonisation. As is again typical, the bloc’s actions are heavily focused on diversifying economic and political relationships away from China.

Challenging Chinese dominance

China is currently the Indo-Pacific’s, as well as the wider world’s, undisputed clean energy champion. Chinese enterprises dominate the domestic deployment and international supply of numerous energy transition minerals and technologies. This includes controlling 70 per cent of solar modules and 90 per cent of lithium-ion battery manufacturing. China also enjoys strong prospects in emerging clean energy sectors such as hydrogen and green industrial goods. Beijing has implemented a supportive international ecosystem to advance its positions, through its Belt and Road Initiative infrastructure and connectivity drive.

Chinese contributions have helped to dramatically reduce clean energy costs and increase the deployment of key technologies across the world in the past decade. However, their scale and heavily subsidised nature has also denied other states opportunities for fair and equitable participation in related supply and value chains, and has introduced a high degree of fragility to the energy transition’s progress. In addition, reports of poor labour, environmental, and other governance standards in Chinese mining and manufacturing are rife. The threat that Beijing might weaponise some energy ties, in the manner of autocratic fossil fuel suppliers, also cannot be ignored.

Challenging China’s clean energy dominance is critical to global decarbonisation, and the broader strategic priorities of democratic states. However, the task of decoupling from China-dominated supply chains — or achieving independence, as it were — will not be easy. The need for a careful balancing act is clear enough in recent White House deliberations about the tariffs that it has imposed on Chinese solar panels. Presidents from Obama through Biden have had valid concerns about Beijing’s trade practices harming American manufacturers, yet the higher costs that have resulted from these impositions have impeded the growth of US renewables. The Biden administration acknowledged this reality in June this year, when it waived duties on solar panels coming from four Southeast Asian countries with suspected Chinese value chain involvement.

Aligning the clean energy supply chain diversification drives of democracies is thus crucial. This can help leverage complementarities of clean energy needs and abilities, achieve scale, and set standards. Activity in the Indo-Pacific critical minerals space already shows some signs of the necessary approach. Major consumers such as Japan, major producers such as Australia, and ‘prosumers’ with interests in both sides of the market, such as the US, have adopted national strategies and formed partnerships to connect needs with abilities. Washington has leveraged the Defense Production Act to boost domestic supply and has directed its finance agencies to invest in new Australian mines. Similar clean energy partnerships are emerging in technology sectors such as solar and batteries, as well as in the provision of clean energy resources (particularly hydrogen), and the development of, and potential trade in, green industrial goods.

Maintaining a clean energy future that is geopolitically favourable will also require expanding engagement on partnership formation and the provision of technical and financial assistance. Developing new multilateral channels of advancing clean energy activity would ensure adequate inclusivity of both parties and issues pertinent to the energy transition. Many developing states might otherwise struggle to access clean energy supply chains or exploit assets that are of value to them. This would be particularly damaging for those who currently fund much of their development via revenue derived from fossil fuel markets. Timor-Leste, for example, currently generates more than 45 per cent of its GDP from oil and gas rents. States that do possess clean energy assets — for example, high volumes of critical minerals — might experience the opposite problem. They could struggle to manage the economic, social, environmental, and other implications of exploiting newfound wealth.

Turning the energy crisis into opportunity

The timing is currently ideal for democracies to accelerate clean energy cooperation and ensure more benign future relations among themselves and the wider world. The energy market fallout from Russia’s war in Ukraine has sparked some short-term backsliding on decarbonisation commitments, as governments address acute shortages and price spikes, yet it has also helped consolidate clean energy’s affordability and accessibility advantages in many areas. Strong and synchronised policy responses could accordingly enhance decarbonisation, energy and geopolitical stability, and economic and strategic advantage simultaneously.

Responses to the current volatility should adopt the lessons that were key to overcoming past energy crises, principally the 1970s oil shocks. These events first sparked Washington’s, and other like-minded governments’, ongoing interests in energy independence, yet the most successful responses to them were based on enhanced interdependence. This included a problematic need for Washington and others to engage more intensely with Middle Eastern geopolitics in order to ensure the smooth flow of oil to the global market. It also incorporated more benevolent outcomes, such as the formation of the International Energy Agency and its collective energy security mechanisms. These include the maintenance of national oil stockpiles that can be collectively released to address supply-demand imbalances.

The shift to clean energy systems will invariably provide opportunities for independence from fossil fuels and their associated geopolitics, yet it will not alleviate the requirement for states to work together to connect energy needs and abilities. Nor will it eradicate the task of managing autocratic influence on markets or of stability risks arising in developing states. Democratic governments should, therefore, acknowledge that energy interdependence is here to stay and continue working to ensure it serves their interests.

DISCLAIMER: All views expressed are those of the writer and do not necessarily represent that of the 9DASHLINE.com platform.

Author biography

James Bowen is a Policy Fellow at the Perth USAsia Centre. He is the author of the new report ‘Reenergising Indo-Pacific relations: Australia’s clean energy opportunity’, published by the Perth USAsia Centre and Australia’s Climate Council. Image credit: Flickr/Land Rover Our Planet.