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Global Commission Describes New Geopolitical Power Dynamics Created by Renewables

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Political and business leaders from around the world have outlined the far-reaching geopolitical implications of an energy transformation driven by the rapid growth of renewable energy. In a new report launched today at the Assembly of the International Renewable Energy Agency (IRENA), the Global Commission on the Geopolitics of Energy Transformation says the geopolitical and socio-economic consequences of a new energy age may be as profound as those which accompanied the shift from biomass to fossil fuels two centuries ago. These include changes in the relative position of states, the emergence of new energy leaders, more diverse energy actors, changed trade relationships and the emergence of new alliances.

The Commission’s report ‘A New World’ suggests that the energy transformation will change energy statecraft as we know it. Unlike fossil fuels, renewable energy sources are available in one form or another in most geographic locations. This abundance will strengthen energy security and promote greater energy independence for most states. At the same time, as countries develop renewables and increasingly integrate their electricity grids with neighbouring countries, new interdependencies and trade patterns will emerge. The analysis finds oil and gas-related conflict may decline, as will the strategic importance of some maritime chokepoints.

The energy transformation will also create new energy leaders, the Commission points out, with large investments in renewable energy technologies strengthening the influence of some countries. China, for instance, has enhanced its geopolitical standing by taking the lead in the clean energy race to become the world’s largest producer, exporter and installer of solar panels, wind turbines, batteries and electric vehicles. Fossil-fuel exporters may see a decline in their global reach and influence unless they adapt their economies for the new energy age.

“This report represents the first comprehensive analysis of the geopolitical consequences of the energy transition driven by renewables, and a key milestone in improving our understanding of this issue,” said Commission Chair Olafur Grimsson, the former President of Iceland. “The renewables revolution enhances the global leadership of China, reduces the influence of fossil fuel exporters and brings energy independence to countries around the world. A fascinating geopolitical future is in store for countries in Asia, Africa, Europe and the Americas. The transformation of energy brings big power shifts.”

“The global energy transformation driven by renewables can reduce energy-related geopolitical tensions as we know them and will foster greater cooperation between states. This transformation can also mitigate social, economic and environmental challenges that are often among the root causes of geopolitical instability and conflict,” said Adnan Z. Amin, Director-General of IRENA.

“Overall, the global energy transformation presents both opportunities and challenges,” continued Mr. Amin. “The benefits will outweigh the challenges, but only if the right policies and strategies are in place. It is imperative for leaders and policy makers to anticipate these changes, and be able to manage and navigate the new geopolitical environment.”

The Commission says countries that are heavily reliant on fossil fuel imports can significantly improve their trade balance and reduce the risks associated with vulnerable energy supply lines and volatile fuel prices by developing a greater share of energy domestically. With energy at the heart of human development, renewables can help to deliver universal energy access, create jobs, power sustainable economic growth, improve food and water security, and enhance sustainability, climate resilience and equity.   The report was launched by the Commission at IRENA’s ninth Assembly in the presence of ministers and senior policy makers from more than 150 countries.

IRENA

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Study Finds Ways To Boost Intra-African Trade and Build Resilience

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On 1 January 2021, the African Union launched the Africa Continental Free Trade Area (AfCFTA), the world’s biggest free trade area and Africa’s most ambitious and recent effort to liberalize trade. The World Economic Forum’s Connecting Countries and Cities for Regional Value Chain Integration – Operationalizing the African Continental Free Trade Area (AfCFTA) released today analyses the impact that COVID-19 has had on Africa’s supply chains.

Developed by the World Economic Forum’s Regional Action Group for Africa in partnership with Deloitte, the report provides policy advice for accelerating the expansion of regional value chains in emerging manufacturing economies such as the automotive industry.

The paper is part of a series investigating five ways to drive economic recovery and build resilience in the context of the AfCFTA Agreement, namely:

  • New financing models for rapid recovery
  • Unlocking manufacturing to mitigate global supply chain risks
  • Leveraging integration and regional value chains
  • Revitalizing infrastructure and connectivity
  • Scaling up digital transformation and inclusive innovation

“The African Continental Free Trade Area holds immense potential for the social and economic development of Africa. Renewing the rules of trading will facilitate better cooperation to boost growth, reduce poverty and broaden economic inclusion,” said Børge Brende, President of the World Economic Forum. “This timely report of the Regional Action Group for Africa presents detailed insights and recommendations on how to advance public-private collaboration on regional integration, with a view of deepening and strengthening regional value chains.”

“It is perhaps the most ambitious free trade project since the creation of the World Trade Organization itself. Actively promoting trade liberalization to encourage new areas of growth is a pragmatic response to the reduction in global trade due to the COVID-19 pandemic and will position Africa as an enhanced destination for investment from multinationals”, said Martyn Davies, Managing Director of Emerging Markets at Deloitte Africa. “Although the continent can do little to counter the global forces inclining towards deglobalization, it can embrace a self-supportive regionalism through enhanced intra-African trade.”

Insufficient and inert inter-linkages between African economies have exacerbated the impact of the COVID-19 pandemic on the continent’s supply chains. Yet, from local production of essential products to improving port and customs efficiencies – often flagged as a challenge in Africa – the response to the pandemic illustrated how meaningful impact is created through collaborative efforts. Successfully implemented, current efforts by the African Union will stimulate trade as well as deepen and create new regional value chains in Africa. Lessons learned should be applied to improving production capabilities in other industries so that economic and trade benefits can be realized.

The paper places emphasis on the automotive sector as a case study as advances in that industry have the potential to set the tone and pace for other sectors to mobilize and create stronger integrated regional value chains. The industry is on the cusp of an evolution, with advances in electric and autonomous vehicles and transformations in mobility, but as Africa builds its automotive industry, it should focus on development that promotes innovation and drives adoptions that will be sustainable for the growth and development of the sector.

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Health, Jobs and Environment Top Personal Risk List

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A new World Economic Forum/Ipsos survey found most adults are optimistic about accessing technology, digital tools and training in the next 12 months, but have serious concerns about the state of the climate, job market and global health. These findings ahead of the Davos Agenda week highlight the importance of leaders across the public and private sectors coming together to address the changes needed in a crucial year ahead.

According to the survey, the percentage of those expecting the availability of digital tools and technology to improve in 2021 exceeds the percentage of those who think it will get worse across geographies. This is most of all the case in Saudi Arabia (by 57 points), Peru (55 points), and India (48 points). Italy is the only country where, while the proportion of optimists is greater than that of pessimists by 3 points, the difference is not statistically significant.

Significantly larger proportions of people expect opportunities for training and education to improve in 2021 than to get worse in 12 countries — most of all in Saudi Arabia (by 45 points), Peru (44 points), Mexico (36 points), and China (36 points).

Image: IPSOS/World Economic Forum

However, there are global concerns with deteriorating health, loss of income or employment, and more frequent weather-related natural disasters – each perceived as a real threat by three out of five adults across the world.

Pessimists outnumber optimists on the other five issues measured: The pace of climate change (by 20 points); Employment opportunities (by 15 points); General health conditions (by 5 points); Inequality (by 4 points), and Relations between one’s country and other countries (by 2 points).

Expected Change in 2021 Image: IPSOS/World Economic Forum

The pandemic has accelerated systemic changes that were apparent before its inception. The fault lines that emerged in 2020 now appear as critical crossroads in 2021. The Davos Agenda will help leaders choose innovative and bold solutions to stem the pandemic and drive a robust recovery over the next year.

In regards to the Davos Agenda, Professor Klaus Schwab, Founder and Executive Chairman of the World Economic Forum said: “In the context of the COVID-19 pandemic, the need to reset priorities and the urgency to reform systems have been growing stronger around the world. Rebuilding trust and increasing global cooperation are crucial to fostering innovative and bold solutions to stem the pandemic and drive a robust recovery. This unique meeting will be an opportunity for leaders to outline their vision and address the most important issues of our time, such as the need to accelerate job creation and to protect the environment.”

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Key Trends Shaping the Global Economy in 2021

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Accelerating inequality, remote work and greater tech market dominance are among the pandemic’s emerging trends that are likely here to stay for some years. Beyond managing the pandemic and vaccine rollout, these trends could shape a new era of fiscal, monetary and competition policy, as well as bigger government. Deglobalization is seen as the least likely of current trends to continue in the longer term; particularly as international coordination is key to resolving global challenges such as vaccine manufacturing and distribution. These are some of the findings of the World Economic Forum’s Chief Economists Outlook, published today.

The latest edition of the Forum’s Chief Economists Outlook is the outcome of consultations with leading chief economists from the public and private sectors. The report outlines the global economic outlook and lays out the priorities for policy-makers and business leaders to chart a post-pandemic recovery agenda that is fair, inclusive and sustainable.

Chief economists are impressed at the speed and scale of fiscal policy measures taken in the wake of the pandemic. However, as the global vaccination campaign picks up pace, they see the second half of 2021 as the optimal time to begin transitioning from general emergency spending to more targeted spending on future growth sectors. A majority suggest that taking action to pay down the significant national debts accumulated in the past year can wait until 2024 or beyond.

With central bank financing of public debt through quantitative easing now at the core of monetary policy in response to the crisis, chief economists believe this could lead to less central bank independence over time. Many also suggested that central banks should be pursuing environmental objectives directly through their asset purchases, which would represent a significant departure from past practice.

Most chief economists expect a brighter outlook as the vaccine helps accelerate the recovery, and as a new US administration contributes to tackling short-and long-term challenges, both domestically and globally, through revived multilateral institutions. However, most of those surveyed see virus mutations as the biggest risk for 2021, slowing efforts to contain the pandemic and leading to new lockdowns. Another concern relates to poorly calibrated policy responses that risk failing to differentiate between the deep structural impact of the pandemic on some sectors and the temporary halting of activity in other sectors.

“This report makes clear that precisely calibrated and coordinated fiscal, monetary and competition policy hold the key to global economic recovery and transformation. As the roll-out of vaccines picks up pace, there won’t be a better time for governments to work together and invest in a fair transition to a greener, more inclusive economy,” says Saadia Zahidi, Manging Director at the World Economic Forum.

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