This photograph was taken near Nufenenpass above Ulrichen on Sept. 2, 2022.FABRICE COFFRINI/Getty Images
John Rapley is an author and academic who divides his time among London, Johannesburg and Ottawa. His books include Why Empires Fall (Yale University Press, 2023) and Twilight of the Money Gods (Simon and Schuster, 2017).
Europe’s plan for a green new deal to rival U.S. President Joe Biden’s was set back last weekend when radical-right parties, which oppose climate policies, made big gains in the EU elections.
This is the current trend in Western countries. ESG investing, all the rage a couple of years ago, has gone out of fashion as politicians demand a pause in the renewable energy transition, saying strapped consumers can’t afford it. Donald Trump says he’d reverse it altogether should he win the November election. Seemingly anticipating this new reality, Toyota recently announced it will reorient its plans back to internal combustion engine (ICE) cars from EVs, whose sales it thinks will soon level off.
That may be a mistake. While a pause in the energy transition might bring short-term relief, any country doing it may soon regret the decision. That’s because outside the West, the energy transition is now picking up speed, with potentially profound implications for the world economy.
Until recently, led by a handful of North European countries, the developed world has dominated the energy transition. But whereas developing countries had hitherto used cheaper carbon-based energy to industrialize, the falling cost of new energy technology is changing that quickly. Last year alone, China built as much solar capacity as exists in all of Europe. This March, India installed more than 10 times as much renewable capacity as it did the year before. After years of chronic power cuts, South Africa largely ended the problem after the government created tax breaks for households to put solar panels on their roofs, triggering a boom in solar-panel installations.
Developing countries now accelerating their energy transitions are doing it for the same, prosaic reason: to save money and secure supply. When Russian President Vladimir Putin travelled to Beijing hoping for a pipeline deal to replace Russia’s lost sales to Europe, he went home empty-handed. China wants to reduce its import dependence, and renewable energy ends its dependence on anyone. Besides, unlike with carbon-based energy, the marginal utility of green energy is zero: once installed, you have no more fuel bills.
Given that the future growth of global demand will come increasingly from the developing world, whose economies are growing faster than ours, what’s going on there should interest us. Ethiopia’s recent decision to ban imports of ICE cars may be a sign of things to come. Having ramped up its renewable electricity generation, the country wants to switch to an EV fleet, thereby reducing its hefty reliance on imported fuel to free up money for other uses.
But it’s not just on the demand side of the equation that decarbonization in the developing world will pose a new challenge. As developing countries switch to cheaper renewables, their competitive advantage in labour costs will get a further boost from cheaper energy, hurting Western laggards. Take Germany. Not only will demand for its ICE cars drop, as has already happened in the crucial Chinese market, but the other outputs of the country’s manufacturing-intensive economy may get comparatively expensive, further losing it global market share.
So if we leap off the decarbonization train, it will just continue on without us. Driving that is basic economics. Whereas further gains in the efficiency of carbon-based energy generation are incremental, the cost of producing renewable energy has plunged. The same is true of battery technology, which is improving so rapidly the intermittency problem in renewable energy may soon be solved: We’ll be able to store energy for long periods and drive all day on a single charge.
As happened when Western economies originally transitioned from animal power into the carbon age, eventually a point will come that network effects kick in to make the old technologies more costly. For example, as the number of ICEs drop and gasoline demand falls, service stations will close and drivers of ICE cars will have to go further afield for refills.
In addition, the political interests invested in the old technology will lose power. Although Mr. Trump says he’ll roll back Mr. Biden’s green new deal, he’ll run into major corporate interests, including in the oil industry itself, which have taken advantage of Biden subsidies and would now defend them in a Trump presidency. Tellingly, during his term in office, Mr. Trump’s pro-carbon energy policies failed to stem the tide toward renewables in electricity generation, for the simple reason that they’d become more profitable than coal. Just look at Texas. It may be the heart of oil country, but it’s also the epicentre of America’s green transition.
The same changing balance of political forces will then apply to countries. As more of the world decarbonizes, carbon-intensive countries will grow weaker in international negotiations. Past a certain threshold, therefore, the energy transition will attain escape velocity, leaving the snails behind.
Which is to say that like Hemingway’s line on bankruptcy, the energy transition, having begun slowly, will come quickly.