Jan 19 • 1HR 5M

Volts podcast: Jason Bordoff & Meghan O’Sullivan on the geopolitics of clean energy

It's not going to be as smooth as you'd like.

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David Roberts
Volts is a podcast about leaving fossil fuels behind. I've been reporting on and explaining clean-energy topics for almost 20 years, and I love talking to politicians, analysts, innovators, and activists about the latest progress in the world's most important fight. (Volts is entirely subscriber-supported. Sign up!)
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In this episode, international scholars Jason Bordoff and Meghan O’Sullivan discuss the geopolitical tensions that could be caused or exacerbated by the clean-energy transition, including supply constrictions in oil and gas and the geographical concentration of key clean-energy minerals. This episode is a great antidote to the notion that clean energy is going to make for smooth sailing in geopolitics.

Full transcript of Volts podcast featuring Jason Bordoff and Meghan O’Sullivan, January 19, 2022

(PDF version)

David Roberts:

When one contemplates the thorny geopolitics of oil and gas — with its century-long string of crises, conflicts, and moral compromises — it’s easy to think that the transition away from fossil fuels to clean energy will usher in a saner and more peaceful world.

And that may happen, in the long term, once the transition is complete. But the road from here to there, over the course of the next few decades, is likely to be bumpy. Policymakers need to start planning for the predictable disruptions headed our way.

That is the message of a recent essay in Foreign Affairs by Jason Bordoff, director of the Center on Global Energy Policy at Columbia University, and Meghan O’Sullivan, longtime foreign policy operative and professor of international affairs at the Harvard Kennedy School.

Jason Bordoff & Meghan O’Sullivan

Bordoff and O’Sullivan outline a number of risks the world faces in the short- to mid-term as it endeavors to ramp up clean energy and ramp down fossil fuels.

Investment in fossil fuels could decline faster than demand, which would perversely strengthen the position of Gulf states sitting on the cheapest oil. Production of the minerals needed to build clean-energy technologies is highly concentrated, often in countries with unstable politics and poor or no labor standards, like the Democratic Republic of Congo.

Processing of almost all clean-energy minerals is heavily concentrated in China, giving it enormous leverage and exposing world markets to economic or political upheavals there. Trade sanctions or tariffs could slow the spread of innovations. The US’s inability to get its act together could sour relations with the EU, which is moving ahead with ambitious, coordinated policy.

And so on. Clean energy will eventually diminish the sway of fossil fuel geopolitics, but the transition will create its own geopolitics, its own tensions, disputes, and chokepoints. I’m eager to talk to Bordoff and O’Sullivan about some of those risks and what might be done to prepare for them.

Jason Bordoff and Meghan O'Sullivan, welcome to Volts. Thanks for coming.

Jason Bordoff:  

Great to be with you. Thanks for inviting us.

Meghan O'Sullivan:  

Thank you, Dave.

David Roberts:   

I want to begin by quoting your great piece in Foreign Affairs. You say: “Talk of a smooth transition to clean energy is fanciful. There is no way that the world can avoid major upheavals as it remakes the entire energy system, which is the lifeblood of the global economy, and underpins the geopolitical order.” 

In a sense, the whole piece is addressed at a naive view of what the clean energy transition is going to involve. A lot of people think there's all this messy, nasty geopolitics around oil and gas, and if we just subtract that, then you have a world that's running smoothly and at peace. Can you, at a high level, describe why people have that naive view and why you think it's wrong?

Jason Bordoff:  

You describe the motivation for the piece very accurately. I recall sitting a few years ago at a round table at the Munich Security Conference, talking about Nord Stream 2, a pipeline very much in the news these days as the US and Russia try to see if we can prevent conflict in Europe. There was a comment that I remember: “Why are we spending so much time on this? It won't matter soon anyway, because the geopolitics of oil and gas is simply going to fade.”

That struck me — and Meghan as well, because we've talked a huge amount about it — as simplistic. The geopolitics of energy since at least the Arab oil embargo in the early 1970s, probably much longer, has largely been about oil and gas, whether it's the concerns about OPEC’s control over oil markets, or Russia's gas supply into Europe, or anything else. So it's a hopeful vision to say, when we decarbonize and move away from oil and gas, those geopolitical risks will become a thing of the past. 

We were making two points in the piece. One is that, that end state of beyond oil and gas is pretty far away. There's a multi-decade period when you have the new geopolitics of clean energy layered on top of the old geopolitics of oil and gas — and even a net-zero world is not zero oil and gas, necessarily. 

But also, there will be new risks created by the emergence of clean energy, from critical minerals, to trade conflicts, to new zero-carbon fuels like hydrogen and ammonia that might move around by ship — a range of new issues that we want to make sure people are thinking about, because our concern is that those geopolitical and national security risks, if we're not addressing them, might actually undermine our ability to move as quickly as we need to to decarbonize.

Meghan O'Sullivan:  

Intellectually, in the foreign policy and climate communities, when we first started talking about geopolitics, there was this focus on “what does success look like” — imagining a world, say it's 2050, where the global economy is fully decarbonized. I was part of that effort, along with some of Jason's colleagues from Columbia, and focused on painting that picture. Jason and I both agree that it's feasible, when the world is fully decarbonized, that maybe the geopolitics of energy will be more copacetic. 

But what the piece does, and the focus of Jason’s and my work these days, is to say, that almost feels theoretical. What matters for the short and medium term — not discounting the long term — is what is going to happen in between. Here we're going to have, not the geopolitics of oil and gas gradually and incrementally giving way to the geopolitics of new energies, we're going to have them, as Jason said, layered on top of each other. 

November/December was a great example of this, where you have the COP, and all the enthusiasm and energy around faster decarbonization and how important it is for the world, at the same time where you had an energy crisis unfolding in Europe, where Russia was playing the same old cards in the old geopolitics of natural gas. This is going to be the screenplay of the next couple of decades, where both of these things happen simultaneously.

David Roberts:   

One of the risks you bring up is that, due to social pressure in the developed world and changing social mores, there's a lot of pressure to shut down [fossil fuel] production in some countries. There's a risk that production could decline before demand declines, which will have the effect of empowering those countries that are still producing. Say a little bit about what that might look like in the short term.

Jason Bordoff:  

We're seeing it right now. There is a lot of concern that in the next several years we're going to go through a supercycle of commodity prices — in part because of underinvestment, not entirely because of the energy transition and social pressures, but that's certainly part of it. Also, the pandemic and how quickly you can ramp up investment and supply chains and all the rest. 

We had the IEA tell us very clearly in their landmark Net Zero report that if we were on a pathway for net zero by 2050 — which sadly, we're not, but if we were — we would not need investment in new oil and gas supply. Those broad messages, along with social pressures and divestment pressures and everything else, have some impact, along with the uncertainty over, what is the outlook for oil demand? When is it going to peak and start to decline? That pulls back capital, or maybe raises the cost of capital. 

But oil demand is still going up each and every year. Natural gas demand is still going up each and every year. If you look at the data, the last two years we have been investing as much in oil and gas as we should be if we were on track for net zero by 2050. The problem is, if we were on track for net zero by 2050, we should be investing more than three times as much in clean energy as we are. So we are not investing enough in energy to meet demand. 

Ideally, we would do that not by dramatically ramping up oil and gas spending, but by dramatically ramping up clean energy spending. But it's hard to scale it that quickly, especially if the policy support is not there. So there is a risk that underinvestment could lead to energy crunches and price spikes. 

Again, you see the political response in Europe where there's an energy crisis this winter, in high gasoline prices in the US and the need for the administration to feel it has to release the SPR in response to oil prices that weren't even that high, $80 a barrel. That kind of public concern about higher energy prices risks undermining support for stronger climate policy, I fear.

David Roberts:   

Not just passively undermining. We're seeing this today: every time there's one of these fluctuations or disruptions or price spikes, there are a lot of people out there who want to blame it on the clean energy transition.

Meghan O'Sullivan:  

I’ll add something to Jason's response about the real problem of underinvestment and how this could create some of these imbalances. Your question was about empowering old producers. The underinvestment story is the big story there, but there's also a wrinkle that doesn't get as much attention.

When we look at the scenarios, including the IEA’s net-zero 2050 scenario, they all acknowledge that there will still be some role for oil and gas, even in a fully decarbonized global economy — those carbon emissions should be taken care of by carbon removal or some other technologies that still need to be developed. But that's generally part of the picture. 

So the reality is that there are going to still be some oil producers — a smaller number, collectively producing a smaller amount of oil — in the future. Who are those producers going to be? It's likely going to be those producers that have the lowest-cost production; the oil that has the lowest carbon footprint. Those tend to be the big producers in the Gulf: Saudi Arabia, the United Arab Emirates, maybe even Iraq.

So even in a fully decarbonized world, those countries are still probably going to have some geopolitical influence, because they're going to be producing a larger share of a much smaller pie.

Jason Bordoff:  

You made an important point, Dave: you're right that often people do point to dislocations and energy crises and attribute everything to the clean energy transition, and that's not right. The Texas energy crisis was blamed on wind, and we know with post hoc analysis it was mostly about failed natural gas production and infrastructure. Some of that's true in Europe as well. 

But I do think there's a broader harbinger of risks that may be to come. A point we make in the piece is that it's hard to imagine why we think it should be smooth to take the global energy system, which is something at massive scale, and turn it on its head almost overnight. Vaclav Smil's work and everything else tells us a quarter century to get to a net-zero economy is really fast by standards and energy history. 

We're going to make missteps. We're going to get policy shifts — we go from Obama, to Trump, to Biden. We're going to get certain technologies wrong. There's not a master planner, so we have individual decisions by individual utilities, individual investors; we build parts of the grid, and then maybe we retire parts before the system's ready to handle it.

We have to think about how to build more tools in to smooth volatility, because we're going to get some things wrong in this transition. To the extent we get them wrong and that leads to price spikes or geopolitical risks, again, that's going to undermine our climate ambition.

Meghan O'Sullivan:  

To underscore the point that Jason just made, one of our concerns is that the geopolitical impacts are not sufficiently understood and that there is risk that these geopolitical impacts end up being the greatest risk to a successful transition. People thinking that high oil prices are because of the clean energy transition haven’t been very accurate thus far, but the perceptions often shape the policy. 

We think about how trade became such an incredibly divisive political issue here in the United States. A lot of the job displacement was actually because of technology and automation — but that doesn't really matter. When we're looking at transition, that's going to be dominantly driven by policy. We want to try to make sure that doesn't happen.

David Roberts:   

Let's pause for a moment and talk about Russia. I can imagine the role the rest of the world plays in the clean energy transition and a happy ending for them at the end of that story. But with Russia, they're totally dependent on gas for their geopolitical power and influence. They're already actively involved in trying to undermine the Western democratic order. As this transition proceeds, it seems like it's going to get pretty existential for Russia. There's a lot of potential for bad things to come out of that: a new Cold War, or for Russia to redouble its efforts at undermining other countries. I can almost figure out how to handle any other country, but what do you do about Russia?

Meghan O'Sullivan:  

This is a good point, and it's particularly apropos today, when we have the US and Russia meeting about geopolitical tensions. If you ask anyone who is likely to be a loser in the energy transition, Russia is always at the top of that list, and there's good reasons for that. 

As you mentioned, the dominance of oil and gas in Russia's economy has only grown since Putin became president. It's been pretty stark, and there is very little indication that the Russian leadership, Putin and the oligarchs around him, have any aptitude for doing the tough reforms that would be required to accommodate Russia to the new energy reality. The power structure now has a lot to do with oil and gas, and that's likely to continue. 

But I'd say there are two important caveats. The first is, as we just discussed, that in the long run this looks pretty bad for Russia — there are a lot of things that we might want to plan for in terms of contingencies — but in the short-to-medium term, it's not necessarily looking so bad, because of the continued need for natural gas and because of Russia's ability to supply that gas at cheap prices. 

The second is that Russia is not like some other countries that we might talk about. It does have areas where it could become quite important and influential in the energy transition and have it be lucrative and also have it be geopolitically influential. The two that come to mind are, first, hydrogen. Russia could become a hydrogen power; it would require a lot of strategy and investment.

The second is nuclear, where Russia already plays an outsized role in global development. Clearly, if the energy transition is going to be successful, there's going to have to be greater use of nuclear power around the world. Russia could find that to be economically useful, and also geopolitically useful. 

To answer “what do we do” directly: the base case that I would plan for if I were still a policymaker would be to game out and prepare for Russia being a spoiler of the energy transition going forward. We saw that when we were looking at the shale gas unconventional boom in the US and the interest in Europe in recreating it there — Russia deployed a lot of tools to undermine the chances of countries in the EU developing their own shale gas. I imagine that, seeing this as existential, Russia would go to even greater lengths.

Jason Bordoff:  

I agree with what Meghan said about nuclear power. I wrote a column in Foreign Policy just a few days ago about why nuclear may finally be having its moment. Part of that is we need all zero-carbon tools on deck, and even then, it's going to be incredibly hard to get where we need to get to. 

But also a foreign policy consideration, which is that if the US doesn't exert more leadership in nuclear power, China and Russia are building the world's nuclear power plants, and that is a national security risk. Meghan’s point that Russia stands to be a loser and therefore will perhaps try to stand in the way of the transition is borne out by history and how it's participated in international climate negotiations and COPs in the past. 

The only thing I'll add is oil. Russia gets more revenue from the sale of oil than it does from the sale of natural gas. We wrote in the piece about why the potential for underinvestment — if that underinvestment in supply gets ahead of demand, you could see more price volatility, more price spikes — could mean we may need OPEC more before we need it less, to manage the energy price spikes that are harmful economically and politically. 

One of the interesting developments in the last several years has been Russia's stepping into a leadership role, where Saudi Arabia and Russia are now positioned as the head of the so-called OPEC Plus alliance — OPEC and a bunch of new member countries. That means if we want OPEC to help at certain points put more oil in the market, which is what the Biden administration has called for in the last year when energy prices went high, you're not only calling Riyadh; what happens in Moscow matters too.

David Roberts:   

This is almost the scariest possible answer: that Russia will be empowered in the short-term and mid-term and fearful of the long-term. That's a recipe for trouble. 

That's a good segue to the next broad topic. One of the things you write about is that the transition to clean energy is going to create new energy powers on several metrics. The first one you mention is one that people maybe don't think about very often, which is the power to set standards for the clean energy economy. Say a little bit about what this means and why standard-setting is a form of power.

Meghan O'Sullivan:  

This is an area where the Chinese have been very forward-looking and active. The United States only recently came to appreciate the power that comes in setting the standards, which is somewhat ironic, because the US has set so many of the standards globally. Maybe it just took it for granted that it could stay in that position. 

Setting the standards in the clean energy revolution has to do with compatibility, safety, materials — there are all kinds of examples we could use. But if we think about electricity and transmission grids and connectivity: around the world, there are many places like the United States that are going to have to revamp their energy architecture, but there are many countries that are going to be building energy infrastructure for the first time. In doing so, depending on what country or what body is governing that infrastructure buildout, and who is most influential in the setting of those standards, you could see how one country may get a competitive leg up. 

This could be a commercial advantage, but it could end up having political advantages as well, if it puts a country — say China, being potentially the most obvious — in a position of denying that country certain inputs that it needs for its energy infrastructure. It could go so far as cyber connectivity and allowing one country to harvest the data of another country. When we think about the clean-energy transition, we obviously are thinking about societies that are even more electrified than the societies we live in today.

Jason Bordoff:  

We highlight one place where it's particularly important; it’s part of the reason we would be concerned about Russia and China building the world's nuclear power plants, setting the norms for nuclear nonproliferation, setting the operational and safety standards. So that matters a lot. 

We know that in the clean-energy transition we're going to have a much more digitalized economy, a range of digital tools that help optimize the electric grid; we're going to need more demand-response tools. There could be commercial advantages if certain firms develop the standards and others have to play catch-up. There's also, of course, a host of cybersecurity implications as we see a much more interconnected grid.

David Roberts:   

The second form of power in the clean-energy economy is minerals and materials supply chains. Right now, countries who happen to be sitting on a lot of oil and natural gas get a lot of geopolitical power out of that. But when we transition to clean energy, we're going to need a few key minerals and materials: lithium, cobalt, copper, etc. 

Currently, supply chains for those minerals are highly concentrated; I think 80 percent of cobalt comes out of the Congo. China dominates the supply chain for lots of minerals, but also dominates the early processing of minerals; 80-plus percent of processing of all those minerals takes place in China. 

What's the danger? What do we worry those countries could do with that power?

Jason Bordoff:  

It's not just clean energy, of course; those critical minerals are essential in lots of technology and electronics applications. We've seen this with semiconductors before. China's embargo on the export of critical minerals to Japan in 2010 tells us what could happen. 

Global trading of critical minerals is going to skyrocket. In IEA’s scenario of what net-zero 2050 looks like, global trade in critical minerals goes from about 10 percent of all energy-related trade to about 50 percent. We're going to need a lot more of all those minerals you just talked about, and they're much more concentrated, so that's important to keep in mind.

As much as we worry about the role of Saudi Arabia or Russia in the oil market, the top three oil producers — the US, Saudi Arabia, and Russia — each produce about 10 percent of the world's supply. When it comes to lithium and cobalt and rare earths, the top producer in each of those produces more than 50 percent of the world's supply. And as you said, the refining and processing is even more concentrated, namely in China. 

So in that sense, you worry about what that kind of dominance of a necessary input to clean-energy technologies could do if there was a conflict. We’re worried about what China might do in Taiwan in the years to come — if there was a conflict of that sort, if they were to cut off that supply, what implications it would have for the global supply chain. It's a real worry. We acknowledge it. 

It is different from oil, however, in a few important respects. One is that these critical minerals are not the daily flow of fuel without which the heat in your house turns off and you freeze in the cold, or your car doesn't work; it's an input to a finished good. So if we didn't have a supply of lithium, it would cause the market for new electric car sales to slow, it would be bottlenecks in the supply chain and everything else; it wouldn't affect your ability to get around today. It's not the electricity your EV needs, it's something that building the next EV needs. So you don't derive the same geopolitical influence from that. 

Also, whereas oil is to be found in certain places, geologically, there are a lot of these critical minerals around the world. It does take time, it's not easy. It's a 10- or 15-year process to develop new mines. But over time, you can diversify the supply chains, build refining capacity elsewhere, the technology to do recycling is getting much better. 

My engineering school colleagues at Columbia and elsewhere are pretty optimistic that the technology is going to improve where you can use much more plentiful minerals to develop batteries. So maybe our dependence on these things will decline over time as well. But if we get on track for net zero or anything close to it, the amount of clean energy that we have to deploy is so massive that we're going to need a lot more of these minerals and materials to come.

Meghan O'Sullivan:  

What we've written about, and the answer that Jason just provided, should bring down people's blood pressure about this in the medium- to long-run. I would underscore in the short- to medium-term, China does have a pretty significant advantage in terms of its dominance of supply chains of these minerals. I do think that is something that is rightly getting the attention of policymakers; it’s going to be a tougher challenge before it becomes an easier challenge. 

The one thing I sometimes hear that we can probably discount a bit is this idea that there's going to be an OPEC, a cartel of these countries that have these kinds of resources. There may be market conditions which could allow for that, but a cartel is also underpinned by common political objectives. So if you think about lithium, what do Bolivia and Australia have in common in terms of, what are they going to bound together on and hold the global economy hostage? It's hard to imagine exactly. 

Secondly, it's interesting to think about countries like the Democratic Republic of the Congo, which produces more than 70 percent of the cobalt in the world today. I don’t imagine the Congo is going to challenge the United States directly, but it probably will be able to use that reality to shine a light on some of its needs and problems, to up its priority in terms of where resources from the rest of the world go when they go to Africa, the attention given to the conflict there. Those things are likely to happen.

So they are going to influence foreign policy, but maybe not in the hostage-taking kind of way that our instinctive reflection back to 1973 makes us think about.

David Roberts:   

When you think about the history of oil and gas, the history of colonialism is highly related. We've seen poorer countries who discover oil or gas basically become resource colonies for the West — they get terrible governance and poverty and we get the resources. If you look at something like Democratic Republic of Congo with 70 percent of the cobalt … seems like a pretty good prediction that we're just going to create a new set of resource colonies. Are there ways in advance to head that off?

Meghan O'Sullivan:  

That is a legitimate concern. I don't have the numbers on the tip of my tongue, but I seem to recall that from what we can discern, the terms of the contracts of the Chinese investment in the Democratic Republic of the Congo for the cobalt there are really, really unfavorable to the people living in the DRC. So there's legitimate concern for that.

There's another thing that warrants even more concern and it's directly related, and that is this whole idea of the resource curse. Some of the resource-curse material has to do with foreign powers coming in and taking advantage of countries that are less well positioned to negotiate on behalf of themselves. But it turned out that, over time, the resource curse experience and literature focused a lot more on the huge influx of foreign currency that comes suddenly to a country, and their inability to be able to absorb it. Just because of the nature of foreign exchange into many of these economies, which don't have very developed industrial sectors, it creates all kinds of havoc in the economy. 

A lot of it is exacerbated when the country has a large population working in agriculture, or there's a history of conflict, all of these things that many of these countries actually do have. This phenomenon is called the Dutch disease. It's possible that a lot of these countries will be unable to handle that. 

To answer your question about what we might be able to do about that, I would say in the last 20 or 30 years, there's a lot more awareness of the fact that it doesn't have to be a resource curse, that there are a whole series of policies that a government can adopt to mitigate these negative effects. The problem is that it comes back to governance, and a lot of these countries don't have sufficiently well-developed institutions, governments that are willing to create constraints on their own behavior. That's what is needed in order to ensure that these kinds of economic dislocations don't happen.

David Roberts:   

The influx of a bunch of money also reduces domestic pressure to build a more diversified and stable economic base.

Jason Bordoff:  

It's the risk a lot of petrostates face now, trying to think about what a world where they can rely less on petrodollars will look like. They're trying to diversify their economies and as we're seeing, that's hard to do — the resource curse issues, the human rights issues. 

You can hopefully develop global standards. Maybe the best example of this is the Kimberley Process for diamonds. If you have standards and some oversight — that's hard to do — we can avoid some of those issues. 

The other piece of critical minerals is not just the human rights and colonialism concerns, but also the environmental impacts. This is mining, and it does have environmental impacts, and we have to do it at such a larger scale. When you look at how much lithium we need, it is hard to do that level of extraction without environmental impacts.

David Roberts:   

Another source of possible concentration of power is the manufacturing of the components of the clean energy economy. You say in the piece that this is a less-firm sort of power, since manufacturing can and often does spread out, and lots of countries are pursuing their own domestic manufacturing right now.

But it made me wonder whether we know any historical precedent about this. Is it going to be a natural process for the manufacturing of these clean energy components to spread out and become a diverse global market? Or do you think there will in the end be manufacturing superpowers that have some geopolitical power as a result of having a lock on manufacturing?

Meghan O'Sullivan:  

There are a couple of interesting and important aspects to this. If we thought of a world where it was just about competitive edge and what was going to advance the energy transition the most quickly, you probably would have countries that would emerge — I don't know if you would call them manufacturing superpowers, but I think the best example is solar panels and China's dominance of that market. 

Now, if we didn't care about politics and we didn't even care about economics, we just cared about the energy transition, that wouldn't necessarily be such a problem. But there are going to be — we're already starting to see them — political efforts to try to ensure that countries are not reliant on one producer or one manufacturer of particularly critical inputs or elements of the clean energy technologies. 

A pertinent example of that is India. Starting this year, India is putting high tariffs on anything solar that comes from China. The purpose of this is twofold. One, India is incredibly sensitive about its geopolitical relationship with China, particularly after the hot war that threatened to erupt on their border in the last year or so. Secondly, India also wants to build a manufacturing base. It wants the jobs that it perceives will go along with that. 

So what we'll have is maybe more manufacturers, but it'll be less efficient and more expensive and will likely make the energy transition slower than it would otherwise be. Again, it's balancing these two things.

David Roberts:   

The one other source of power you mention, which I thought was intriguing, is that everyone anticipates a huge explosion in the market for zero-carbon fuels derived from hydrogen. You anticipate the emergence of “electrostates” that dominate the production of hydrogen fuels. 

What everybody wants to see is a transition to green hydrogen, which is hydrogen derived from renewable energy. So you might look to states with copious renewable energy to get into that. But the easier and cheaper route into hydrogen is through so-called blue hydrogen, which is made from natural gas, with the emissions allegedly captured and buried. 

I worry about countries with copious natural gas getting into the blue hydrogen game, making plentiful, cheap, blue hydrogen, and then having both economic and political incentive to delay the transition to green hydrogen. How do you see all that playing out?

Jason Bordoff:  

I find this particular dynamic interesting, because you do have to bend your mind a little bit to think about the world, not today, but in the future. Hydrogen is a topic du jour; you couldn't walk five feet at the COP in Glasgow without tripping over a hydrogen display or a new hydrogen company. Because we know that we have to electrify a lot of things, but some things are going to be hard to electrify: steel and shipping, maybe some other things like heavy duty trucks, we'll see if batteries win there. 

Again, I'll just refer to the IEA net-zero scenario, which finds global energy-related trade in hydrogen ammonia going from almost zero today to about a third. We need a lot more. We need fuel — molecules as opposed to electrons — but then we need those fuels to be zero-carbon. That's where you talk about hydrogen and ammonia, both blue and green. 

A big part of what we were trying to do in this piece is deconstruct how an end state of net zero might look vs. the pathway to get there, and how it could be different and how it could be rocky. In zero-carbon fuels, it comes into play in at least two ways. 

One is, you're talking about the emergence and development of a fairly nascent market. The analogy we gave — and it's not perfect, it bears some resemblance — is the early days of the liquefied natural gas market in the 1960s and 70s. When it was just getting off the ground, you had a few dominant producers, a few dominant buyers, and there was a lot more leverage than you have today in a much more integrated and flexible market. There’s a lot of suppliers, a lot of buyers; if someone threatens to cut off your supply, you go buy it somewhere else. 

In the early days, Japan has said it's going to be a big buyer of green ammonia; well, what if Saudi Arabia or Chile or just one or two countries supply that? If your entire steel sector depends on shipments from that country, that's a lot of leverage, and we could see some geopolitical risk there. 

The second is the one you raise, which is the focus on blue hydrogen today. Of course, if we're going to do that — natural gas combined with carbon capture — you have to make sure the oversight is strict, the capture rates are high, the methane leaks are low. You have some states, Qatar and others, that we could see focus on gas as a way to create hydrogen and then either move that fuel around as the fuel, like ammonia, or maybe just build the production facilities to turn the gas into hydrogen ammonia — in which case you still might have a lot of global trade in gas, you're just doing different things with it, you're turning it into a fuel as opposed to putting it in your power sector. 

I do think over time green hydrogen is going to end up winning, just because the costs will come down dramatically. You're right that states may try to stand in the way. To make green hydrogen work, you need a lot of improvements in electrolyzer costs, improvements in efficiency, and then you need really, really cheap renewable energy, and you need a lot of it. You need a lot of electricity. There are only certain places in the world where you have that much cheap renewable electricity, and those could become some of the dominant states producing low-carbon fuels in the years to come.

David Roberts:

Those could be not your usual suspects, right? Like Chile or countries in Africa. They have a lot of sunlight down there.

Meghan O'Sullivan:  

We would be looking at different countries emerging as potentially big actors on this side. Chile is certainly one of them. You need the things that Jason mentioned in terms of having a lot of cheap, renewable energy, but you also need water. Not every place on the earth has those two things in great abundance.

Jason Bordoff:  

We talked about the resource curse. We do talk in the piece about tensions between developed and developing economies, which were on full display at the COP in Glasgow and I think will be next year at the one in Egypt. When you talk to African leaders, who are worried about the impacts of climate and about not getting the support from developed economies they need to transition — some would like to develop their own hydrocarbon resources and monetize them. So what are the sources of revenue that could come from zero carbon rather than oil and gas? You're identifying one, obviously: lots of good renewable energy resources to produce their own energy, which hopefully will grow as they become wealthier. But it's hard to export electricity as electrons; maybe you can export it as fuels. 

The other thing that's interesting is, we just saw this Climeworks project in Iceland, the carbon-removal project. Why Iceland? They have cheap, zero-carbon energy in geothermal, and they have good geologic storage capability. A lot of African countries have that too. 

I was wondering whether you could imagine a source of revenue for some of the developing economies in the world where they are basically building the manufacturing capacity to pull carbon dioxide out of the air. The largest emitters, who are responsible for this problem historically, are sending revenue to those countries — a wealth transfer from rich to poor countries, in part to remove carbon dioxide.

David Roberts:   

When most people think about the future, they imagine increasing globalization of trade in these resources. But there's also a section of your piece about trends and forces working against further globalization in the clean-energy space. One of them is, as you just mentioned, electricity.

The energy game is going to turn to electricity, mostly; electrification is going to be the primary tool against climate change. Every country is going to be trying to electrify, and thereby using more electricity, and therefore electricity is going to be a bigger part of this energy picture. 

As you note, electricity is not really a globally traded commodity. Very little electricity crosses country lines. I've been thinking about that a lot: as more and more of your energy processes are internal to your country, does that reduce the prominence of geopolitics? How do you see that playing out? There are some other trends working against globalization too, if you want to mention them.

Meghan O'Sullivan:  

We can imagine the 2050 world, the fully decarbonized world, being one where a lot of forces favor globalization, because of the need for robust trade in energy technologies and clean energy inputs. But in the interim, and to some extent looking even beyond that, there are several factors that are going to pull away from globalization. Electrification, as you mentioned, is one of the greatest ones. 

We have two statistics in the piece that underscore the point you made. In 2018, less than 3 percent of global electricity was traded across borders. That's compared to two-thirds of oil supplies in 2014. So there's this huge discrepancy. The reasons are simply that it's hard to transport electricity; it's hard to store it and it's hard to ship it.

Jason Bordoff:  

And it’s a much greater security risk, too. You can store oil in salt caverns, you can buy oil from a different supplier. If you depend on your neighboring country to send you electricity to keep the lights on, that country has a lot of power over you.

Meghan O'Sullivan:  

Right. But on the question about to what extent this is going to change things, I think there is going to be an element that's going to be more inward-looking. So if a country is providing more of its own energy sources from within its own borders, it won't have to be accounting for those shipments of oil and gas coming from afar. 

However, it does create some other new concerns. Those have a lot to do with cyber security and the manipulation of electricity grids. Some of these electricity grids will be all contained within countries, but others will cross borders — not in a global sense, but in a sense that may foster more regionalization. 

So if you think about the Northeast of the United States, we get a lot of our electricity from hydro sources in Canada. You can imagine small countries — think about some countries in Latin America — that if they're going to build electricity grids that are reliant on renewable energy, it probably makes sense for these grids to be large enough to serve more than one country. So suddenly, the politics of your neighbors and your relationship with your neighbors are going to be potentially even more important than they were in a world where you were getting your energy sources from halfway around the world. 

There will be a lot of effects like that. The other factors that we mentioned have to do with the protectionism that we've started to see go hand-in-hand with some clean-energy technologies. I gave the Indian example, but there are others. 

David Roberts:   

It's worth noting: lots of protectionism in the Build Back Better Act, right? The Biden administration is actively pursuing that.

Meghan O'Sullivan:  

Exactly. 

Jason Bordoff:  

One other striking statistic, to the original question you framed: we were talking about some of the ways global energy-related trade shifts in the IEA net-zero scenario away from oil and gas to critical minerals or hydrogen. But the other finding is that total energy-related trade in a net-zero world is only 38 percent, a little more than a third, of what it would be if the world were to stay at its current trajectory.

It's not surprising, but it is striking that you have much more localized energy. The geopolitics of energy will wane in the long term for some reasons. There'll be new risks created too, but part of that is just electricity is inherently more local and less globally traded across borders. That's just going to reduce the importance of energy as a factor in geopolitics.

David Roberts:   

Let's talk about China. So vexing.

On the surface, one of the conclusions of your piece is that some countries are well-positioned to benefit from the clean energy transition and others are not, and two of the countries that are positioned to be winners are the US and China. You might think the US and China then have enormous incentive, being the two biggest economies in the world and the two potential winners here, to cooperate on accelerating this transition. There's a pot of gold at the end of the rainbow for both of them. Yet an outbreak of cooperation is not what we seem to be witnessing. 

China is such a black box to a lot of Americans, including me. What do you see as their posture on this? Why aren't they going faster? Why aren't they cooperating more? Why isn't it in their interest to go gangbusters after this?

Jason Bordoff:

I do think that China takes climate change seriously; there are not a lot of climate deniers in the Chinese government. At the same time, when climate ambition or environmental concerns generally — it's not just climate, it's local air pollution throughout China, which in some major cities has been getting better, partly because of less coal, partly because they've shifted coal to other parts of the country where there are fewer people, which doesn't help the climate — but when that comes into tension with economic growth, economic growth usually wins. 

So there is this dynamic playing out within China about how quickly they're going to move and what technologies they're going to use. Of course, they use half the world’s coal, so there's no solution without China to dealing with climate. It was encouraging to see their announcement about not financing coal plants overseas — hopefully that will prove to be true. 

One of the reasons for the difficulty in US-China cooperation on climate — even though there are many reasons; this is the ultimate tragedy-of-the-commons problem, it doesn't matter where a ton of carbon dioxide comes from; if one country does this, it's not going to matter if we don't work together — is whether you can segment the issue of climate from the rest of the US-China relationship, which is incredibly contentious and at its lowest point in many decades. 

That was the hope, and that was what John Kerry as climate envoy said the goal would be. It's unclear whether China wants to segment climate, whether it says, well, if we're going to act on climate, we have these other concerns with Taiwan, or human rights, or intellectual property, or anything else. 

It was encouraging to see at the 11th hour an agreement at the COP in Glasgow that the US and China would commit to work together. But the last year would have been better if they'd actually been working together and had something to show for it. Hopefully that will change moving forward. 

The other factor in this is, if some countries are not moving as quickly as one might hope — and by the way, the US may be in that category; we'll see what happens in Washington in the coming weeks and months — increasingly you are going to see certain countries or groups of countries like the European Union either encourage or try to compel other countries to do the same. 

The starting point for that, of course, is the European Union saying it's going to put carbon border adjustments in place. But it's easy to imagine those extending beyond a tool to level the playing field on imports of carbon-intensive products to your country, and turning into coercive measures not that dissimilar from sanctions. If you roll the clock forward and say where could this go, those could be applied against China or, if we don't get our act together, maybe against the US one day.

Meghan O'Sullivan:  

On the point about the bilateral relationship, I do think that the Biden administration, with the appointment of John Kerry, came to this issue thinking: it's so important, we're going to be able to deal with it separately. And the Chinese have resisted that pretty firmly — you're not going to be able to be aggressive on issues like Taiwan, the South China Seas, the Uyghurs, and then expect a kumbaya relationship on climate. 

That's been a disappointment to lots of us, in the sense we hoped that climate would be this island of cooperation in the otherwise contentious relationship, and also because many of us struggle to imagine how the world is going to successfully transition to a zero-carbon economy if there isn't cooperation between the US and China. 

David Roberts:   

Do you interpret that posture of China’s as a rational way for them to balance climate against their other interests? Or do you think that the rational course for China would be to cooperate on climate where there's cooperation available and segment these other issues? In other words, are they angry and that anger is extending to climate? Or are they, do you think, being rational on a bigger scale? 

Meghan O'Sullivan:  

I think it’s twofold. First, China's looking at this relationship and thinking, “where do we have leverage in this relationship?” One of the areas is in climate. The US is really, really keen for China to decarbonize, and even moreso in a Biden administration, because we all know if China doesn't do it, it doesn't really matter who else does it. 

So it would seem to def realist strategic thinking to say, “we're going to separate this area where we know we have a lot of leverage from all these other issues which we see as more existential.” They see Taiwan and other things as more existential to the survival of the Communist Party; climate is important, but not the same as Taiwan. So that is probably what has been going on.

I'm sure there are people within the Chinese government arguing that they need this cooperation as a strategic leveling point in the relationship. This has always been one of the reasons I've thought cooperation is important, even apart from what it means for the climate. If there's one area where two rivals can work together, it is helpful for all kinds of reasons for the rest of their relationship. 

Now we're all faced with the reality that we need to envision a successful global transition and not assume that US-China cooperation is going to underpin it. That doesn't mean there can't be some areas of cooperation — the efforts that produced what was produced in Glasgow were are all worth it — but the reality is, this is going to be an area of intense competition, like many other areas of competition between the US and China.

Trying to figure out how we can compete our way to success rather than compete our way to stalemate is the challenge going forward. That competition is going to be in technology and talent, inputs and markets and standards, it's going to be across the board. Maybe it can be a force for a quicker transition. I certainly hope so.

David Roberts:   

With a lot of these dynamics you're talking about, we're framing the long-term promise of a clean energy-based global energy economy vs. the short- to mid-term bumps and difficulties and frictions getting there. On that note, I have been thinking a lot about what it's going to look like if Trump and the Republicans take power again in 2024. 

We know enough now to have a pretty good sense of what their global posture is going to be. Trump loves Russia, loves autocrats, loves fossil fuels, and has a view of the energy transition which basically says those of us who still have oil and gas should exploit the hell out of it. 

It seems to me, in terms of solving the climate problem and the clean energy transition, Trump and Republicans taking power would result in the US basically being a rogue nation, an impediment on almost every front. I wonder if either of you have had the stomach to think about what that might look like and how to avoid the worst of it.

Jason Bordoff:  

I'm sure we've all thought about what the consequences of that would be. The overall future of the republic and our democratic institutions is perhaps even more concerning to me than what it would mean for climate change. But you're right, it would certainly be a massive setback for the United States on the global stage and put us in the category of countries that would be the target of these sorts of coercive measures. Others would reap many of the economic benefits of leading in clean-energy technology, trying to do the right thing by climate change. 

I don't want to sound Pollyanna-ish or naive, but I'm hopeful that increasingly you do see more on the Republican side of the aisle — and I wouldn't put Trump in this category, but others — who recognize this is a real problem, or recognize that climate change is real and are trying to talk about what the solutions might be, even if those solutions are certainly not at the scale of what they should be.

I guess I'll put it this way. Even in that scenario you talk about, the impacts of climate are going to continue to play out in years to come. I work with students every day on a campus, so does Meghan; I know how passionate they are about these issues, I know how much higher it is on their priority list in terms of what they care about when they go to the ballot box — even if elected leaders for periods of time don't demonstrate that. 

We have this huge gap now between ambition and reality when it comes to climate change. The ambition is getting stronger, not weaker — 2 degrees, well below 2, 1.5, driven by the science — but the reality is not changing: emissions are going up each and every year, pandemic aside. 

So that gap between ambition and reality has to reach a breaking point. One of the two has to give. Either we're going to wake up one day and say, “this was just too hard, we thought we could do it, but guess we'll just be fine with 3 degrees” or whatever it happens to be — I find that hard to believe, given what we are seeing every day and what we know we're going to see in the years to come, and that sense of urgency that particularly the younger generation has. 

Then the reality has to change. The longer you wait to get started, the more disruptive it has to be. That's why we try to talk about some of the economic and geopolitical implications of that disruption — we have to manage them, or you're going to lose support for moving as quickly as we need to.

David Roberts:   

Is there a power out there that could realistically step in if the US basically gives up its leadership role entirely? Does the EU have the geopolitical clout to be the center of leadership on the transition in the way that you would hope the US would be?

Jason Bordoff:  

The EU has been leading in many respects, and it's a pretty sizable amount of global emissions. So if it works collectively, it can do that. I think other countries, like perhaps China or others, might step in as well. 

I do want to say that even in the scenario you describe — which is in many respects a worst-case scenario, from my standpoint at least, for US politics and climate ambition — even if that does not happen, we're still pretty far behind the ball. 

If we pass Build Back Better in DC, which is uncertain right now, that will help a lot; it certainly doesn't get us all the way to being on a pathway to meet our NDCs. We saw just in the last couple of days, the Rhodium Group analysis and some others, emissions and how much they went up last year. So even if it’s not a Trump 2024 scenario, but a Republican more in a traditional model or a Democrat were to win, we're still not doing what we need to do. That has to be addressed too. That's going to catch up to us as well.

David Roberts:   

This is extraordinarily difficult to answer, but: in the long term, if you are viewing the clean energy transition from a purely foreign policy realist perspective — that is to say, you don’t care at all about global welfare, the interests of the US are your top concern — do you think the US is going to benefit from the clean-energy transition? It's pretty well-positioned in a fossil fuel world: it's a giant producer, it's got a giant military, it's got long-term relationships in the Middle East. If you're just trying to talk to a foreign policy realist, do you think the US will be better or worse off in the world in a clean-energy future?

Meghan O'Sullivan:  

As you said, it's a very hard question to answer, because it depends how many things we're going to set aside. But my impulse is that the US is better in a clean-energy future. 

I'm assuming, but you can tell me otherwise, that the counterfactual to your counterfactual would be a world where there is extreme climate change, and that in itself, as we already know, is going to produce all kinds of national security ramifications. One estimate by the World Bank, which is actually a couple of years old so I imagine the estimate has only gotten larger, is that in 2050, there'll be 143 million climate refugees. That is compared to the world today, where there's something like 25 million refugees. 

So we're talking about this exponential increase in just that one area, which is obviously consequential, but that would have huge implications for the US, its security, its borders, its well-being, its global relationships, all of those things. So I definitely think a world where America has been a leader in climate change is good in terms of peace and security if we're talking about imagining 2050 or beyond. 

But I also think, domestically, that it can be good for the United States. There is a piece which we started with, which maybe some people find an inconvenient truth, but in a clean-energy future, there's still some role for oil and gas. So position it in a way that this isn't necessarily a fossil fuel world vs. a clean energy world, that it's a world against carbon emissions. When we frame it like that, there's a lot more scope for people to be contributors to a solution rather than detractors. So there are lots of good reasons why this is in the interest of the United States.

David Roberts:   

I can definitely see why it's in our absolute interest; solving climate change alone is enough. I guess my question was more about our position and power relative to the rest of the world.

Jason Bordoff:  

Meghan made the most important point; it's hard to disconnect your question from a world that suffers the worst impacts of climate change. Would there be people who lose more than the US in the Global South? Yes, but it's going to be pretty painful for everyone, including the US. 

To the extent there's been discussion of national security and climate, it has to date often been about the national security impacts of not doing something about climate change, suffering the impacts of climate change, and then the view is, “if we get our act together and have a successful clean energy transition, geopolitics of energy will be a thing of the past.” That's what we were trying to address: actually, it could be rockier than you think. But certainly the consequences of inaction would be much worse. 

You're right, the US is one of the largest oil and gas producers in the world, it derives a lot of economic benefits from that in states like Texas and others. But it has good resources to lead in a clean-energy economy too. There's no reason the Gulf Coast can't be a leader in global supply of hydrogen and ammonia. We have some of the best capabilities for innovation and new technologies here in the US; there are going to be lots more companies at the scale of Tesla and much bigger. We talked about nuclear as another technology. I think the US is well-positioned in many.

Again, in our piece, we talked about the fact that part of dominance in clean energy is not going to come from the geologic trove you happen to have in the ground like oil and gas, but what you can manufacture cheaply, like a solar panel. There are countries that can manufacture things more cheaply than the US, but nonetheless, the US has a lot of assets, a lot of attributes, with good renewable energy resources, manufacturing resources, ports, geologic storage capability for carbon dioxide capture, that could position it to lead in a clean-energy economy too.

David Roberts:   

It might also be nice for the US to resume a pro-social leadership role in the world; that might also redound to our benefit in terms of gratitude and better relationships. 

Jason Bordoff:  

I wrote a piece on that in Foreign Policy a year or so ago, about the case for green industrial policy. Part of that was some of the economic benefits you could derive at home by leading early in these technologies, like bringing down the cost of green steel, things that have a high green premium today. 

But it is also a form of climate leadership, because it's just not reasonable to expect some of the poorer parts of the world that are growing their emissions at the fastest rate, like Southeast Asia, eventually Latin America, Africa, to pay three times as much for the concrete and steel they need to build cities. If we can build those industries here and we can help drive the cost down because we're investing early, then that also makes that technology more affordable to others. 

I do want to say, though, that again, we shouldn't be Pollyanna-ish about this. We should recognize that there are losers to the transition: not just nation-states, but workers and states and certain industries. We do need a just transition. That phrase means a lot of things, but included in that is, we do need to think about people who work in the oil and gas sector in the US, not to mention countries that are dependent on these revenues, making sure that there are public policies in place to help those communities transition and capture some of the benefits of the kind of economy we could grow in the future. That's really important. We don't take that seriously enough sometimes.

David Roberts:   

Well, thank you two so much for taking all this time. I really appreciate it. I have a feeling this topic will only get more and more prominent and of interest in coming years, so maybe we'll talk again in a few years and see how things are shaping up.

Meghan O'Sullivan:  

Excellent. Thank you very much, Dave. It's great to be on your show.

Jason Bordoff:  

Yes, I love listening to it, so it's great to be on. Thank you.