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Cop26 – global climate cooperation or green-technology competition?

  •   Topical   •  Maya Sainani

At a glance

  • For decades, climate policy has been seen through the lens of environmental policy. However, in recent years, it has increasingly also translated into industrial and innovation policy. As a result, climate policy now concerns global economic competition, and who will play what role in the green economy of the future.
  • Many countries are joining the ‘green race’, placing green technologies and infrastructure at the centre of economic development. In a world of clean energy, international power structures will likely change. The energy transition will not only cut emissions: it will redistribute power.
  • While countries are cooperating to achieve carbon neutrality, where industrial interests are concerned, competition will prevail over cooperation.

COP26

Next week, world leaders will descend onto Glasgow for the UN climate change summit – COP26. COPs happen annually and bring together 197 nations and territories. The COP26 summit provides a unique opportunity for countries to come together and plan what action needs to be taken to turn the tide on the climate crisis while recovering from the pandemic in a sustainable way. According to the official COP26 website, the main goal of the COP26 is to  accelerate action towards the goals of the Paris Agreement and the UN Framework Convention on Climate Change. Almost every country has joined the Paris Agreement on climate change, which calls for keeping the global temperature to 1.5°C above pre-industrial era levels. If countries continue to produce emissions that cause climate change at their current rate, then temperatures will continue to rise beyond the 1.5°C limit, which threatens lives, livelihoods and biodiversity globally.

Shift in climate policy

A number of countries are making commitments to achieve carbon neutrality or ‘net zero’ emissions within the next few decades. The European Union, Japan and UK, along with more than 110 other countries, have pledged carbon neutrality by 2050. China says it will do so before 2060. The planet’s major advanced economies, including the EU, China, the UK and USA are entering into a dynamic of cooperation to achieve carbon neutrality. For decades, climate policy has been seen through the lens of environmental policy. However, in recent years, it has increasingly also translated into industrial and innovation policy. In order to reach carbon neutrality, countries must develop, manufacture and export low-carbon technologies such as photovoltaics (PV), wind power, electric vehicles, among others.[2] Hence, the same nations that want to achieve carbon neutrality are also looking to transform their economies in the process, creating a competition to gain ‘first-mover advantage’. As a result, climate policy now concerns global economic competition, and who will play what role in the green economy of the future. Many countries are joining the ‘green race’, placing green technologies and infrastructure at the centre of economic development (incl. the EU’s green deal, South Korea’s Green

New Deal and the Biden administration’s 10 year 2 trillion climate investment plan). Andrew Forrest, chairman of Fortescue Metals Group, explains: ‘You’ll see change everywhere… Any country which does not take green energy very seriously, but clings to polluting energy, will eventually get left behind’.

Energy transition

At its most basic, this new transition is an energy shift, from oil and gas to electricity from renewable sources. The former president of Iceland and chair of the Global Commission on the Geopolitics of Energy Transformation – Olafur Grimsson – says that this ‘energy transition’ will create a new form of politics, explaining: ‘As fossil fuels gradually go out of the energy system… the old geopolitical model of power centres that dominate relations between states also goes out the window’. In other words, in a world of clean energy, international power structures will likely change. The energy transition will not only cut emissions: it will redistribute power. Some see it as a clean energy ‘space race’. Countries that produce and export green energy or import smaller amounts of fossil fuels are likely to gain from the new system, while those that rely on exporting fossil fuels (e.g. countries in the Middle East and Russia) could see a decline in power. The question of which countries will end up ahead is still unclear. Nonetheless, there is a broad consensus that change is happening. Pascal Lamy (the former head of the World Trade Organisation) goes as far as comparing the shift from one energy system to another with the industrial revolution: ‘If you compare the world today with the world 18 months ago, the big difference is that… only 25 percent of the world had a decarbonisation horizon. Today, 75 percent of the world economy has a decarbonisation horizon. This is a major shift’. We can already see this change happening: last year, new renewable power hit a record 200 gigawatts, while the rest of the energy sector shrank.

The Irena report (outlining a path for the world to achieve the Paris Agreement goals) defined three ways for countries to have influence in the ‘new energy system’. One is by exporting electricity and green fuels. The second way is through controlling the raw materials used in clean energy (e.g. lithium, cobalt). The last way is by gaining an edge in technology (e.g. electric vehicle batteries).

Leading nations in the green race

Increasingly, governments are coming to view climate change action as an economic race. Where industrial interests are concerned, according to Simone Tagliapetra (a research fellow at the Brussels-based Bruegel think tank) ‘competition will prevail over cooperation’.

China

China is the world’s biggest emitter of greenhouse gases and is heavily dependent on coal, which supplies 58% of all its electricity. However, Chinese groups are ahead in almost every area of green technology. China produces more than 70% of all solar photovoltaic panels, half of the world’s electric vehicles and a third of the world’s wind power. It is also the biggest electric battery manufacturer and controls many of the raw materials crucial for green-tech supply chains, such as cobalt, rare earth minerals and polysilicon, a key ingredient in solar panels. This means that while China is the world’s biggest polluter, its companies are going to benefit greatly not only from the domestic energy transition but from growing demand for clean-tech products around the world. As other major economies look for ways to reach their net-zero commitments, they will have to buy more solar panels, batteries and critical minerals. Currently, the main supplier for all of these is China. As Leslie Hook (the Financial Times Environment and Clean Energy Correspondent) puts it: ‘making an electric vehicle without involving China is almost impossible’. This is worrying for nations such as the EU and US, who will make a costly transition in order to reach their net zero commitments, while the economic benefit of that is reaped disproportionately by China.

European Union

Germany’s Green political movement was the first to gain widespread international credibility when it ran for its first election in 1980. As such, environmental considerations have been an important political topic in Germany (and indeed throughout Europe) for many years. The EU is, undoubtedly, a global leader when it comes to green innovation, and even more so in innovation that is both green and digital – despite the US leadership in most digital domains. For example, according to the European Investment Bank the EU registered 50% more patents in green technologies than the United States, with China even further behind. Moreover, the EU registered 76% more patents that combined both green and digital technologies than the US, and four times more than China.

While the EU is in a good position right now to be a leading force on the ‘new energy market’, it needs to innovate its approach continuously and rapidly because they are in a race with other big economies around the world. The EU now has the opportunity to build on its leadership in green technologies to recover from the pandemic, reach its climate commitments and maintain its ability to compete in the global technology race. Europe’s response to COVID-19 (the block centred its €750bn fiscal European Recovery Fund on promoting a Green recovery) suggests that it is committed to staying ahead when it comes to the green competition.

It is important to highlight that despite the EU’s seemingly good position in the climate race, according to the European Commission, the gap between the EU’s climate objectives and actual climate investment is growing. Investments in the continent’s energy system would need to rise from an average of 1.3% of GDP per year over the last decade to 2.8 of GDP over the next decade if the EU is to meet its goal of cutting greenhouse gas emissions by 55% by 2030.

United States

After years of environmental inaction under Donald Trump’s administration, the US has re-entered the Paris Agreement under Joe Biden. While this is good news, Europe is worried about being outcompeted and outspent. The European Green Deal, which among other things aims to reach net zero by 2050 and make Europe the first climate neutral continent, has given the EU a policy lead. However, Biden has promised to inject 2 trillion dollars into clean energy during his four-year term, almost double the size of the EU budget for 2021-2027. This raises worries that the actions of the Biden administration will overshadow the EU’s own efforts. The European Commission President Ursula von der Leyen expressed that ‘The US return is great news… It is further reason for Europe to speed up its efforts to keep moving, and to keep the first-mover advantage…’. ‘I like competition’ – she added – ‘it’s good competition, positive competition when it comes to the green economy’.

For the EU, US and China as well as for other nations around the world, the COVID-19 recovery is an opportunity to get ahead in the race to dominate energy transition industries and create new jobs. All three countries mentioned above have included significant green commitments in their stimulus packages, though the US and EU outpace China in this regard (green stimulus is at 30% in the US, 20% in the EU and 5% in China).

Conclusion

At first glance, the COP26 represents global cooperation to reverse climate change. However, when looking closer at the relationship between big global economies, it becomes clear that global climate cooperation has created a ‘green race’, where major economies compete to gain advantage in the new energy market. It is not yet clear who the winner (or winners) of this green race is (or are). This is something that only time will tell.

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