International Energy Agency Confirmed last week What many already know: The world is undergoing a massive transformation in global energy markets. Fossil fuels are running out and renewables are on the rise.
Much of the focus has been on what this means for Australia, given that the International Energy Agency has announced that it could be there There are no new fossil fuel projects If global temperature rise is to be kept below 2 ℃.
But what was missing from the discussion is how the switch to renewable energy will also change the geopolitical environment in Australia. For a country that loves to see itself as an energy superpower, it is time for us to start paying attention.
Australia must seize the opportunity to become a renewable energy powerhouse. If we do not act now, with the acceleration of the global energy transition, Australia may be exposed to a hostile international energy environment with profound economic, security and diplomatic consequences.
The New Energy Geopolitics
The International Energy Agency’s announcement that new fossil fuel projects must end now contradicts the federal government’s plans for a gas-led economic recovery, and its recent announcement of $ 600 million in financing A major new gas-fired power plant.
But the International Energy Agency is not the only reliable body making this claim. Most scenarios for global energy transition Expect a peak in fossil fuel demand this decade and explosive growth in renewables, before a prolonged decline in fossil fuel demand in the following decades.
The International Energy Agency has developed a roadmap to bring the planet to net-zero emissions by 2050. In fact, under this net-zero scenario, oil demand has reached its peak in 2019 and will decline approximately 75% between now and 2050. The demand has reached Coal is peaking, too, and it’s going to drop 90% faster. The gas outlook is slightly better, with a 55% decline through 2050.
No wonder Australian financial regulators continue to do so Warning about stranded assets.
The Geopolitical consequences From this transformation will be profound. To varying degrees, the changes occurring in the energy markets will rearrange the patterns of cooperation and conflict between countries.
At one end of the spectrum, some nations will emerge as renewable powers – think Chile With its large solar resources in the Atacama Desert, or China by its superiority in renewable technologies.
At the other end of the spectrum, some countries will experience political instability from declining fossil fuel revenues – think countries like Saudi Arabia and Kuwait, where oil and gas revenues make up more than 40% of their GDP.
The transition to clean energy will have huge benefits for Australia. But let’s start with the downsides, because the International Energy Agency has highlighted them.
Our international influence will soon disappear
Successive federal governments have declared Australia an energy superpower.
One of the reasons is our exports of coal and gas. Take LNG (liquefied gas) for example. at 2019, Australia overtook Qatar To become the largest exporter of LNG in the world, with total exports of 48 billion Australian dollars, which represents 22% of global exports.
The International Energy Agency says this must end if the world is to have any hope of avoiding the worst effects of climate change. If the message hasn’t reached the gas industry yet, the IEA has some scary news.
As the chart below shows, under the net-zero emissions scenario by 2050, Australian gas exports will have to peak by 2025 and then downhill in the following decades. The picture for coal is even worse.
The economic implications are clear. As a political leader might say, “jobs and growth” will be hit the hardest.
But this also has geopolitical implications. Australia has always depended on the economic strength we derive from being a dominant exporter of coal and gas to shape our bilateral relations with countries such as Japan and South Korea.
This influence will soon disappear and will force Australia to rethink how it engages with many countries and international organizations.
For example, potential disruptions to oil shipping lanes are likely to become less significant. Countries may also compete to control supplies of rare metals that are vital to a range of technologies required for the transmission of clean energy, such as batteries and wind turbines.
What should Australia do?
First, Australia should harness its renewable resources. Solar radiation in Australia annually around 10,000 times greater than our total energy consumption. If these resources were tapped, Australia could become energy self-sufficient while at the same time, reducing its vulnerability to energy supply disruptions, such as international conflicts.
Second, Australia should seek export dominance. The rise of renewable energy sources will open up significant opportunities for Australia to become one of the leading exporters of clean electricity, hydrogen and important minerals.
For example, the increased demand for electricity in Asia combined with improvements in high-voltage direct current cables could lead to Australia exporting electricity to countries in our region, such as Indonesia and Singapore.
Third, Australia should take advantage of its energy advantage. Countries with significant renewable resources that become energy self-sufficient and achieve dominance over exports are likely to be a “geopolitical winners”.
In other words, the economic strength derived from Australia’s renewable energy advantage will open up opportunities to influence other countries and shape intergovernmental arrangements, such as those governing the future of international trade in hydrogen.
Achieving energy self-sufficiency will also insulate Australia from the risk that other countries will seek to coerce it by disrupting energy supplies.
This opportunity will not last forever. Countries moving first will gain an advantage in new industries, technologies, and export markets. Those who wait may never catch up.