The exit of President Donald Trump of US and entry of Joe Biden is bringing the world back to a semblance of shared global order and predictability, essential economic and political factors that were missing in the previous four years. In respect of climate change agenda, Biden’s European tours last week strengthened the coalition of western nations (US, EU, and UK) which share unambiguous commitment for energy transition milestones.
This is the group of countries that controls most of global capital destined to energy investments and development. It is also the group that, through government policies and corporate strategies, is directly and indirectly influencing the pace of renewable energy technology development, while determining the extent and speed of fossil fuels (coal, oil, gas) abandonment.
As previously expected, Biden has over the past five months of his presidency firmly brought US back to climate action. He continues to reverse policies, laws and regulations that favor fossil fuels dominance, while enabling transition to renewable energy. Specifically, he has increased spending in technologies and infrastructure to broaden supply and use of renewable energy. In US and across the world, expected pushback by fossil fuel stakeholders will put brakes on the pace of global energy transition. Further, absence of a globally synchronised transition strategy is likely to result in untimely reduction of oil and gas investments, at a time replacement renewable energy capacity is not ready.
Absence of a smoothly coordinated energy transition will definitely result in occasional oil supply shortages and price increases, a situation that may already be pushing up oil prices. In fact, availability and prices of minerals and metals essential for renewable energy technologies (solar, wing, electric vehicles, storge batteries…) are already emerging as a major global impediment to smooth energy transition. Of major concern to the US and its green energy allies is the fact that China is hogging the value chains of these critical resources. And going forward, control of supply for these minerals and metals will be a major political and investor pre-occupation. Countries like Democratic Republic of the Congo (DRC) that hold huge unexploited resources of these minerals will definitely assume global significance.
China falls in a category of countries that I call climate ‘opportunists’ who though officially committed to climate agenda are seeking to prolong their use of local and imported fossil fuels as long as these are cheap and provide employment. This is so while simultaneously seeking to pursue the highest possible global market share for manufacture of renewable energy equipment (EVs, storage batteries, solar and wind). For China, control of value chains for critical minerals and metals used in renewable energy technologies enables the country to control renewable energy markets. As the western climate coalition pushes the climate agenda, there are the oil producing nations, which will be working towards prolonging the lifespan of oil and gas supply and demand.
These are the countries whose national budgets are heavily dependent on oil exports and revenues. The Opec plus Russia will continue to play the game of maximising value for their oil as long as demand for oil lasts. They will continue to control oil supply to influence prices, and as long as there is marginal under-supply of oil, prices will reign high. High oil revenues will permit the oil producers time to shift their economies away from oil dependency while also adjusting to renewable energy. With US back in the climate agenda, the energy transition can be expected to gain steady forward momentum.
Critical political and economic challenges will however need to be addressed along the way. Global investor capital for energy transition is vibrant and is gathering momentum. And this includes selective abandonment of oil projects. However, this shift should be smooth to ensure global energy price stability. Kenya is caught in an energy transition web that is a bit complicated, mostly by various energy interest groups. However, priority should be to maximise local renewable resources (geothermal, solar, wind, hydro etc). Further, we should not accept outright that our Turkana oil and Kitui coal are stranded resources. With controlled carbon emissions technologies, these can be part of our energy mix.