Energy crises, geopolitical tensions set stage for explosive climate talks

Emerging geopolitical fault lines and skyrocketing energy prices have only raised the stakes for success at COP26

Around 25,000 people from around the world will gather in Glasgow this coming week for the crucial climate negotiations. The COP26 is being seen in several quarters as one of the most crucial editions of the nearly three-decades-old negotiation process, with operationalisation of the historic Paris agreement at stake. 

In the run up to the conference, the UN, this week, delivered a damning assessment of global climate action in its annual Emissions Gap Report. As per the UN Environment Program’s findings, the world is currently on path to 2.7°C increase in temperatures with GHG emissions poised to grow 16% over the next decade. The growth projection in emissions stands in sharp contrast to the requisite 30% cut by 2030 required to keep temperature increase under 2°C. For the more ambitious target of limiting warming to 1.5°C, the cuts need to be far steeper at 55% by 2030.

The Emissions Gap report was preceded by the UNEP’s Production Gap report, which added more details on how far the odds are stacked against achieving such drastic cuts. According to the survey of major fossil fuel companies, production of fossil fuels by 2030 is projected to be 110% more than the required levels to limit warming to 1.5°C, and 45% more than required for the 2°C warming target.

While there is no end in sight for fossil fuel production, several countries in Europe and Asia, and now also the US, have been grappling with major energy shortages and lingering supply chain disruptions over the past month. According to energy analysts, the current situation smacks of an energy crisis, the likes of which hasn’t been seen since the 1970s. Meanwhile, as the UK prepares to host the much-anticipated climate conference COP26 in Glasgow, due to commence next week, the fast-evolving crisis in energy has added another layer of uncertainty to the conference, already strained by a lack of trust between negotiating power blocs and frictions over finance flows.

The crisis of power

As the world pressed on with the post-COVID economic recovery, the world’s largest emitter, China, began to witness a widening gap between its coal inventory and daily coal consumption in April this year, around the time the country announced its 2060 net-zero emissions target. as it ramps up its climate ambitions. By September, the shortages had evolved into a full-blown crisis, as the country witnessed its worst power outage in a decade. China reported reserves of just over 10 million tonnes of thermal coal, compared to the 3 billion tonnes it consumes annually, as several factories and millions of households experienced severe power shortages. By the second week of October, China had ordered miners to boost coal output, contrary to the country’s medium- and long-term decarbonisation goals.

The ramifications of Chinese energy shortfalls were quickly felt across the world. While reduced factory outputs in the country meant disruptions in the global supply chains for many goods, it also increased competition in the energy market, pushing up prices dramatically. 

Asia’s second-largest economy, India, too, has not been immune to the energy supply shortages. In the face of international calls to increase its climate ambition, reserves of coal, from which about 70% of India’s energy is derived, plummeted in September and October to critical levels. The paucity of coal has created massive energy shortfalls across the country and triggered fears of widespread outages. While the country has largely staved off these fears thus far, it is far from smooth sailing. An extended and erratic monsoon has further hindered the transport of coal in the country. India’s thermal power plants currently have reserves that will last less than a week as the coal ministry scrambles to shore up supply across the country over the next month.

The effect of the stretched energy market, however, has been most pronounced for Europe, which has been bracing for a tough winter. 

The energy shortages in China translated into aggressive buying on the international spot markets for gas and coal. While China imported coal from Indonesia, Mongolia and Russia, which pushed up prices, a gas-buying spree from Russia ensured a supply shock in the global gas market as well. With the EU relying primarily on Russian gas for electricity and heating during winter, the pinch was most severely felt in member nations of the bloc. 

Across the EU, prices of electricity were reported to be as much as 2-3 times higher than normal as the continent scrambled to secure the required reserves, sparking widespread protests by residents. COP26 host, the UK, has been particularly hard hit following a summer of poor wind output. In an effort to rein in public discontent, several European countries such as Spain, Greece, Italy and the UK have rolled out subsidies for energy producers and price-caps on supplies. A similar story has played out in Germany as well, where high electricity prices and power shortages are bringing renewed attention to the country’s decision to scale back coal and to the politics surrounding the Nord Stream 2 gas pipeline being built to bring Russian gas to the EU. 

Gas prices in Europe finally broke its upward climb this week following reports that Russian state-owned oil and gas company Gazprom shall increase supply to Europe. Russian President Vladmir Putin is reportedly vested in bringing down gas prices by about 60% from the current benchmark prices of over $1000/cu.metre to about $300-400/cu.metre, which is seen as critical in order for Russia to maintain its monopoly on Europe’s energy requirements. This, however, has come with its own set of political implications. Putin has placed the blame for the skyrocketing prices this year squarely on European politics and poor energy planning by the EU, which he claims overtly relies on spot markets rather than long-term contracts.

Across the pond from Europe, in the US, too, natural gas and coal prices have steadily climbed over the past year. The supply crunch and rising prices have sparked fears of a repeat of the EU energy debacle as the White House struggles to find enough support to pass an infrastructure bill, which has long been touted as a central pillar of American climate ambition.

For the time being though, the global oil producing cartel also known Organization of the Petroleum Exporting Countries (OPEC), seem largely to be happy keeping production low, and prices high, despite pressure from the likes of the US, India and Japan to increase supplies. Coincidentally, and somewhat hypocritically, the campaign to persuade OPEC to increase oil and gas production to relieve prices comes just days before the commencement of the climate change conference.

The geopolitical game

As if the situation surrounding global energy markets were not tenuous enough, a different kind of power struggle is also playing out between economic and military superpowers. The realignment of allegiances in the Asia-Pacific regions as a buffer to China’s growing influence has provoked ire from the East Asian powerhouse, which has been eager to team up with Russia.

Tensions between the West led by the US and China, which had remained hidden until recently, have begun bubbling at the surface. The formation of security partnerships such as the AUCKUS and ‘QUAD’ in the Indo-Pacific, and the West Asian QUAD is a clear attempt at shoring up a global counterweight to what is being seen as hegemonic tendencies on the part of the Chinese. The first flashpoint in the new power tussle has been the disputed island of Taiwan, the vicinity of which has seen an increasing number of military drills.

The teetering government of Afghanistan, formed by the Taliban literally days after the withdrawal of American forces, is the other flashpoint in Asia. While the new Afghan government has, to a large extent, sought to realign its allegiances with the emerging Sino-Russian power bloc, there are still large apprehensions on how long the Taliban government will be able to stave off collapse. The country is currently in the throes of economic uncertainty and deep food insecurity, while also witnessing the emergence of new militant threats. The developments in Afghanistan, which holds one of the largest lithium reserves in the world, has been of particular interest to Russia, which has been conducting war games with Tajikistan mere kilometres from the northern Afghan border. Russia’s long-standing feud with NATO has come to the fore in recent weeks with border tensions with Europe also simmering again.

What does all of this have to do with climate action? Quite a lot actually.

China’s Xi has on more than one occasion made it clear climate negotiations shall no longer be held in silos, but will be a part of the larger fabric that includes discussions on security and trade. In Europe, there are rising concerns that Russia is “weaponising” its gas supplies in attempt to strongarm smaller European nations like Moldova, which are completely reliant on Russian gas. Russia has already used its military and energy in order to cleave Eastern European Belarus away from Europe. Both Xi and Putin have indicated that they will not be attending the climate conference in Glasgow.

Knives out for climate action, but renewables still clearest path to energy security

The coincidence of calls of increased ambition for climate action, and announcements from China and the EU to pursue carbon neutrality targets, with the increase in energy prices has not escaped the attention of critics.

Among the first to question the role of progressive climate action in raising energy prices was controversial Hungarian head of state, Victor Orban, who squarely blamed the EU’s eagerness for carbon taxes and fixed carbon prices on the surge in energy prices. Next came remonstrations from Poland, which has sought a revision of the EU’s climate plans, which includes carbon pricing and border taxes on carbon, in light of the current energy shortfalls and high prices. The argument has gained traction in other parts of the EU, too, where Spain and France (both of which have been facing prolonged popular protests against rising energy costs) to express opposition to plans to revamp the bloc’s carbon pricing system. Critics have also pointed to the UK’s reliance on wind energy as the reason for the energy crunch in the country.

A similar situation is currently playing out in China, too, where ambitious climate action has been blamed for the coal shortages, which have crippled several economic sectors. The current energy crunch is being seen as the biggest reason for the country resisting demands for enhanced climate ambitions.

In the US, the White House’s infrastructure plans, which include increased spending on renewables and transport electrification has also attracted the ire of critics, who claim the US is on the path to repeat the EU’s “mistakes.”

But while those opposing increased climate action have pointed to the evolving crisis as a sign of the implications of increased ambitions, in reality, the situation points to the dangers of relying heavily on global energy supply chains. The volatility in prices of oil, gas and coal, although concerning in the immediate term, indicate the progress of transitions away from fossil fuels. According to new modelling by the UN’s International Agency for Atomic Energy, high gas prices might actually prove to be optimal for the shift away from fossil fuels.

Advocates of climate action have underlined that energy transitions, while renewables and energy storage capacities are ramped up, are likely to be accompanied by violent price action on the international energy markets. 

In the wake of massive supply chain disruption due to the global COVID-19 pandemic, several regions of the world have moved towards protectionism to power their economic recoveries, particularly with regards to manufacturing and production. It would come as little surprise if the current energy crisis provokes a similar protectionist response, in an effort to shore up domestic energy production capacities and reduce dependence on volatile global supply chains.

While this could hold potential devastating consequences as far as new oil and gas explorations go (particularly in the North Sea and the Arctic Circle), the clearest path so far for most of the world to secure their current and future energy needs is still offered by a combination of renewables and storage. 

There is little doubt that the frothy energy and geopolitical situations currently evolving around the globe will bring strong undercurrents to Glasgow’s COP26. World leaders, however, cannot afford for myopia to derail negotiations that will likely determine chances of averting climate catastrophe. The stakes are simply too high.

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Shreeshan V

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