The new world order

In his book The New Map: Energy, Climate, and the Clash of Nations,Daniel Yergin — a renowned expert on the political implications of the energy industry — describes both the enormous economic and geopolitical consequences of climate change around the globe.

Yergin outlines this new world order in The New Map. The short summary: "China is poised to be the big winner, Russia and Middle East oil exporters the big losers. The U.S. is likely to fall somewhere in between."

The same is likely to be true for Europe, as a study by the European Council of Foreign Relations (ECFR) shows. With its market power and pioneering role, Europe could deliver global standards for the green transition, but at the same time, it would replace the current dependence on fossil energy suppliers (i.e., Russia) with a new dependence on the raw materials needed for the energy turnaround. These come in large part from China, a country that, like Russia, sees itself as a systemic competitor to the West. Another risk factor for Europe is the destabilization of its neighbors if energy exporting countries such as Algeria, Saudi Arabia or Russia fail to develop new business models.

Switching to renewables would make China the new Saudi Arabia of a climate-friendly world.

There is a certain irony in the fact that China, which currently refuses to strive for more ambitious climate targets, could become the biggest winner in the energy transition.

Yergin notes that while China has a robust oil industry — it's the world's fifth-largest oil producer — its production is far below what it needs to keep the world's second-largest economy running, and must import some 75% of its oil.

Switching to renewables

Since the Korean War, those in power in Beijing have considered this a strategic vulnerability, which for several years has been referred to as the "Malacca dilemma": Oil tankers from the Middle East or Africa must cross the straits near Malaysia and Singapore (a.k.a. the "Strait of Malacca"), which means the Chinese industry could easily be cut off from its main fuel in the event for war — for example, by the U.S. Navy.

Switching to renewable power would reduce this vulnerability, and at the same time make China the new Saudi Arabia of a climate-friendly world. This is because China is the Earth's most important producer of lithium, currently the irreplaceable raw material needed for making batteries like those used in e-cars, e-bikes and e-scooters.

According to the ECFR report, the EU sources more than 60% of the critical raw materials needed for a move toward net-zero emissions from China. The country also currently dominates the production chain for these products: For example, according to Yergin, 80% of batteries worldwide are produced in China, and so are 70% of solar cells. That's what a dominant market position looks like. So despite its refusal to move quickly on its own energy transition, Beijing is well positioned to lead the developed world down this path first.

For Europe, the transformation of its energy economy also offers opportunities. The most important is to become less dependent on Russia — at least in the medium term. As the authors of the ECFR report write, the amount of oil and gas Europe will buy from Russia until 2030 is unlikely to decrease because the EU needs solutions to phase out even dirtier coal.

But after 2030, there should be a rapid reduction in imports from Russia. It is also possible that the EU will switch from Russia to Saudi Arabia for oil imports "because oil production there releases only half the carbon of that in Russia," according to ECFR.

Building new green business models

Thus, dependence on energy exports is an increasingly urgent strategic problem for Moscow. In normal, non-pandemic times, "the energy industry provides 40 to 50% of Russia's state budget and is responsible for 55 to 60% of Russia's export revenues and 30 percent of Russia's gross national product," writes Yergin.

Europe is one of the most important customers for Russian energy exports. And if demand falls, this will leave a clear mark on the Russian budget and economy. Moscow has therefore been trying for some time to open new markets in Asia, such as China. But even if it succeeds, declining world demand for fossil fuels will cause prices for them to plummet, which in turn will mean that new deposits will not be developed if the cost of doing so is higher than the prices that can be obtained on the world market.

Moscow's strategic weight will therefore decrease and the aggressive foreign policy that Russia is currently pursuing will no longer be so easy to finance. This is good for the EU. However, the authors of the ECFR report expect that the EU will face significant resistance to the Green Deal from the major exporting countries, as they have the most to lose.

Moreover, the energy transition could destabilize Europe's neighbors, not only energy exporters like Russia and Saudi Arabia, but also countries in North Africa whose economies are unilaterally focused on commodity revenues. Take Algeria, for example: The country is the EU's third-largest gas supplier. Their energy exports accounts for 95% of total exports and provides 60% of the state budget. If that were to disappear in whole or in part, there could be uprisings or movements of flight to, for example, Europe.

Climate change presents the EU with major economic and foreign policy challenges.

The forced energy transition is compelling these countries to quickly build a new business model. And it seems advisable for Europe to at least help solar-rich countries in North Africa and Middle East with this transformation. The sun, for instance, could be used to produce electricity or green hydrogen, which could also be exported to Europe. After all, even in the new green world, the continent is dependent on energy imports.

So climate change presents the EU not only with enormous economic problems if the competitiveness of European companies is to be maintained, but also with major foreign policy challenges as it will dramatically change the world's power structure. And this will not happen without geopolitical upheavals.