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Live Encounters Magazine April 2023
Navigating new energy transitions in old ways by Dr Cauvery Ganapathy
Green energy transitions are commonly positioned as a model of transformation restricted not just to energy systems but to the very calculations that animate contemporary international relations, as well as a likely panacea to the problems inherent in the use of hydrocarbons. These problems skim the domains of social inequities, affordability, accessibility, and environmental pollution or degradation, among others. Another feature, prized enormously, with regards to clean energy systems, and their accompanying transitions, is the possibility of reducing the rancour that permeates the international system due to the unequal distribution of hydrocarbon resources which has quite naturally fortified hierarchies of influence and power among countries.
While the need for this transition is non-negotiable, and the enthusiasm relating to its phenomenal promise is heartening, perhaps equally germane to this discussion is the consideration of whether some of the issues that plagued conventional energy systems could appear- or, have already appeared- on the firmament of this new form of energy transition.
One among these issues is the issue of monopolies- monopoly control that countries develop over resources that are intrinsic to the green energy systems or monopoly control that a group of countries could develop over the international order by curating and codifying a regulatory system that represents more their interests and concerns than a mutually beneficial schematic of global rules, or even simply monopolies that commercial entities can develop over crucial technical inputs that this system needs. Monopolies are singularly inhibitive and destructive in every ecosystem, regardless of whether they exist in pockets of the economy or of the polity, and regardless of whether they are national or transnational- and they are an insidious legacy of the old system that is very effectively creeping into this new one.
The nature of the green energy system being formulated and worked towards presently, unfortunately, in many ways, appears poised to repeat the unlearnt lessons of the history of the hydrocarbon economy. While the two supposedly contradistinguishing features fundamental to the entire idea of green energy transitions are decentralization and a self-dependency expected from its localized production systems, worryingly, there is plenty within the systemic moorings and the growth trajectory of green energy systems presently which could commend themselves to the creation of entirely new and dangerously entrenched monopolies.
One of the areas this potential is most significant in is in that of the rare earths which are the principal constituent raw material for the technologies/engineered products that the green energy transformations are dependent upon- a mind-boggling array which spans from the ubiquitous symbols of clean energy systems, viz., the wind turbines and the EVs to the grander projects with semiconductor enablers and precision-guided munitions.
Among the most visible symbols of green energy transitions are the ongoing and projected changes in the automotive sector. India as a country that has committed to ambitious renewable energy targets and as one largely and worryingly deficient in the most basic raw materials needed for batteries, for instance, is a good example to consider when discussing the existence and implications of possible monopolies in the field.
Central to India’s ambitious target of achieving 500GW of renewable energy by 2030, for instance, is the transformation that is expected from the domain of Electric Vehicles (EV). Under the commitments in this specific domain, India expects for nearly 70% of all commercial vehicles, 30% of private cars and about 80% of 2/3 wheelers to be EVs by 2030. Due to the significant position India occupies in the climate change and green energy transition narrative by sheer dint of its size, it is necessary to consider the kind of insecurity and vulnerabilities that New Delhi would be faced with if monopolies over these rare earths such as lithium, critical to the EV plan, were to become more entrenched and institutionalized in future.
There is in India, today, as in many countries, a recognition that the rare-earths supply chain are most certainly going to be susceptible to power politics through the monopolies that some countries enjoy.
The pandemic and the Russian invasion of Ukraine, amplified the vulnerabilities of supply chains and the dangers of resource nationalism in ways that governments had not planned for, much less anticipated. Alarming academic prognosis relating to how the world may have to contend with transnational threats born out of intentional or accidental supply chain disruptions were aplenty pre-pandemic- to no avail, in hindsight, unfortunately- and they have only grown now. Governments, world over have taken notice, yes, but there remains a nagging concern about whether the justifiable alarm is grossly belated, and if the vulnerabilities have already been consolidated in a manner that cannot be reversed.
Much beyond the green energy systems, the abject insecurity that emanates from any country holding a monopoly over elements such as terbium or dysprosium which are integral to the production of propulsion systems of jet engines and missiles, creates a strategic nightmare that countries such as India and the US have to now continuously grapple with, given that China, a country that has known predilections towards creating discomfort for both New Delhi and Washington, is the world leader in rare earths processing capabilities standing close to 87%, and has more than 70% of rare earths deposits, both of which lie at the heart of the entire green energy transformation edifice.
China need not explicitly threaten a disruption to the rare earths supply chain for this issue to feature most prominently in the risk assessments that countries such as the US and India would be expected to conduct, simply because strategic prudence is to prepare for one’s defense based not on the imagined nor calculated ability of an adversary to attack but in fact, on the capability of the potential adversary to mount such an attack.
So far as that remains the metric, Beijing possesses the most alarming monopoly that could corrode any hopes of a newer and less acrimonious international energy system free of the liabilities of the previous one, green or not. Objectives could be fluid, and may also keep changing, but capability takes years to build, and China has prudently invested in building that capability. It would take a mammoth, incredibly well-strategized and efficiently implemented whole-of-government approach by any country now to be able effectively counter any efforts by Beijing to harness the full potential of the obvious monopoly it enjoys in the field of rare earths to advance its global agenda and ambitions.
This should not be interpreted to mean that countries are not making efforts to counter the expected ill-effects of possible monopolies in rare earths. After the Minerals Security Partnership in June of the same year, in December, 2022 Washington spearheaded the creation of the Sustainable Critical Minerals Alliance- an initiative that is central to the efforts to not allowing a country or a group of countries to hold the rest of the world hostage due to their contribution and prominence in the rare earths supply chain. Significantly, however, the constitution of this voluntarily group which naturally does not include China or Russia, is again reminiscent of the clear delineations of old vintage reflecting the battle-lines between the OPEC and the non-OPEC parts of the world.
Now, the composition of this grouping is entirely justified and self-explanatory. The reason it is being flagged in this commentary is to substantiate the hypothesis that although the ways and means may have morphed, and the actors on either sides of the divide may have changed, there is nevertheless a divide that is as clearly inherent in green energy transitions as they were in the hydrocarbon economy with a clear marking of territory, thereby negating any hopes of this new form of energy system gradually bringing an end to the era of high politics and vicious bargaining that oil politics is marked by- politically and economically.
The history of the hydrocarbon dependent economy is replete with struggles that local populations have waged against the exploitation of natural resources or the environmental impact such extractions have or both. While the US, Spain, Greece, Portugal and some of the Nordic countries have been known to have deposits of rare-earth that are profitable to mine, the political systems within these countries are founded on that inalienable principle of democracy which allows for populations to agitate when they believe their interests are being compromised.
As such, in deference to the objections and protests of local populations, these countries have chosen not to exploit these local rare earth deposits due to the proven adverse environmental impact that such mining has. This right to protest is not, however, a universal privilege, and just as hydrocarbon wealth did not translate into equitable political, social or economic benefits, so too there exist countries today where the extraction of rare earth minerals continues in complete disregard for human rights and best practices in the process of extraction or any respect for possible anxieties of local populations that are left to suffer the environmental impacts of such extraction.
The Democratic Republic of Congo (DRC) which enjoys a monopoly over Cobalt reserves, an essential raw material in the production of batteries, is notoriously lax with its human rights, labour rights and environmental regulations. The scourge of child labour has also been proven to be a part of the entire cobalt mining enterprise of the DRC, and yet the country remains a valued member of the international supply chain and countries and international actors who prize the value of human rights continue to do business with the DRC despite all the violations in order to propel their own green energy transformation agendas forward.
More than 3 decades ago, the Chinese leader Deng Xiaoping had famously declared that what oil was to the Middle East, Rare Earths would be to China. With all its inherent systemic flaws and abominable travesties in the social, political and economic spheres, China offers one valuable lesson.
While it is true that China has an abundant reserve of these rare earths, and the lead-time for developing alternative sources of raw materials in this field is prohibitively high- thereby, making it difficult for any country to compete in the near future- it is equally true that the country’s primacy in the global value chain of green energy systems is tied more to the processing capacity that it has built over the decades, than to the reserves it is endowed with. So robust is this capability presently that there is very little likelihood of any country matching, much less rivalling, Beijing for it for at least the next decade.
Success, then, as a country is not an accident of nature or geography – which is what having the deposits of rare earths is. It is, instead, a painstaking enterprise built on implementing a strategic vision of domestic economic growth and consolidation with the objective of internal stability and capability which could then be leveraged towards its global ambitions.
There are multiple other reflections of the old system that will gradually but certainly emerge in the transformation that the green energy transition brings in its wake, but perhaps the most ironical part of its identity is the fact that in order to fulfil the clean energy agenda that the world is trying to commit to, China will remain the most important actor and supplier- at least over the next decade, if not for longer. Effectively, this would tantamount to the rest of the international community helping perpetuate the monopoly that China enjoys in the field, if they wish for their own green energy commitments to be fulfilled.
The levers of power that define geopolitics keep adapting to new realities born of, among other parameters, the world’s changing demand for certain ideas, assets or commodities. Those that spun silk were prized once, just like the ones that harnessed energy from oil were priced later; those that learnt how to harness power from steam engines were higher up in the critical-to-the-world hierarchy once, just like those that make nano-chips are today; those that learnt the art of guarding their own territorial waters while projecting the naval prowess abroad held a near monopoly over international affairs for centuries just as those that managed to somehow trace their provenance to inexplicable but effective symbols of religion indemnified their monopoly in international calculations.
Examples such as these abound in human history, and are particularly plentiful over the last two centuries when the advances in technology have been far more rapid and paradigm altering than before. The dubious commonality that undergirds all of these examples- and the multiple others that have not been listed here- is that the ability of one country to maintain a monopoly or establish a leadership in a particular domain has been as much a function of their own ability as the inability of other countries to act in time. Green energy transitions, which in principle, could in fact be a panacea in most regards, may prove to be the new battleground for this story to be retold.
© Cauvery Ganapathy
Dr. Cauvery Ganapathy is a strategic affairs analyst and currently works as a Strategic Risk Management Consultant. She has been a Research Associate with the Office of Net Assessment under the US Department of Defense previously. As a Fellow of Global India Foundation, she has presented and published at various national and international forums. She has been a recipient of the Pavate Fellowship to the University of Cambridge as Visiting Research Faculty and a recipient of the Fulbright-Nehru Doctoral Fellowship to the University of California, Berkeley.”