Net zero = peace + trade

It wasn’t long ago that every country and region was faced with a singular threat, one to which the solution – the development, production, and distribution of COVID-19 vaccines – was realised via multinational cooperation.

Lockdowns slowed economies, reducing demand for energy and thus the corresponding greenhouse gas emissions. Simultaneously, many governments saw net zero as a way to enable economic recovery from COVID-19. In 2020, both Europe and China released their respective net-zero targets, with Europe setting 2050 as its deadline and China 2060. That same year, EIC tracked a significant jump in energy transition projects around the world, including hydrogen and carbon capture projects. In September 2020, the UN’s climate change division announced that the number of net-zero emissions commitments by local governments and businesses worldwide had roughly doubled in 2020.

Today, though, the world is in a different place. Russia’s invasion of Ukraine; rising living costs and the resurgence of right wing isolationist politics in the West; fears over China’s threat to cybersecurity and concerns about our dependency on the country for critical materials; the conflict in the Middle East – these are all preoccupying governments. It is little wonder that transitioning energy systems and economies to net zero in order to mitigate climate change – something once seen as a unifying global aim – has fallen down the list of priorities. 

But without disparaging or playing down today’s challenges, unaddressed climate change will result in mass migration as people move across borders to reach less hostile temperatures and climes. Food security and other strategic resources will also be impacted – which is likely to inflame geopolitical tensions.

A recent report by Wood Mackenzie highlights that, as half of the global population heads to polls in 2024, “political realities and climate scepticism in the major emitting countries, such as the US and Europe, could reduce the support for the transition as voters seek economic security and price stability”. The consultancy has modelled a scenario of a five-year delay to the energy transition that could see the global average temperature rise to 3°C above pre-industrial levels.

The worst effects of climate change can only be averted if leaders around the world quickly acknowledge the interdependency of peace, trust and trade, all of which are critical if net zero is to be achieved. In a less safe world, there is less trust. Trust is what allows friendships and business relationships to flourish, which leads to trade. If trust is lost, so is trade.

Few countries have the luxury of their own natural resources and local political stability to deliver their net-zero commitments without collaborating with other countries – buying technologies, materials, minerals, capacities and skills at competitive prices to offset their local shortcomings. Trade is collaboration in its most commercial and legal form. Without trust, there is no trade, no collaboration and no net zero.

Few countries have the luxury of their own natural resources and local political stability to deliver on their net-zero commitments without collaborating with other countries

An unsafe world threatens the energy trilemma

Energy affordability, the energy transition and energy security are all threatened by an unsafe world. A more conflict-riven world reduces countries’ ability to import and trade resources and technologies for energy production. This will put the brakes on net zero while driving up energy costs, and will also limit countries’ ability to ensure that they have sufficient access to energy.

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Stalled progress means net-zero policies are more critical than ever 

Achieving the Paris Agreement by 2030 is now unrealistic, but every effort should be made to reduce the impact as much as we can because every degree of warming matters. Just because we are far from meeting our ambition, we should not relent but should instead double down and put in place policies and incentivise the technologies that will empower us to achieve a cleaner and greener future.

Viken Chinien, Head of Department, Markets & Risk, Energy Systems Region UK & Ireland, DNV 

Urgent transformation action needed to meet climate goals and energy demands

This COP marks the first global stocktake since the Paris Agreement, and its conclusions are not in doubt. We are way off track. The bottom line is this: the world needs to cut emissions by 43 per cent in the next seven years to keep 1.5°C alive.

“In the course of those same seven years, the global population will exceed 8.5 billion and is on its way to 10 billion by 2050. Meeting the scale of the world’s fast-growing energy needs, while dramatically reducing emissions, is one of the most complex challenges humanity has ever faced. Nothing short of transformational progress will do across mitigation, adaptation, climate finance and loss and damage.

Dr Sultan Al-Jaber, COP28 President, speaking at a special roundtable in Paris hosted by the International Energy Agency (March 2023).

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Global cooperation is key to achieving net zero

Achieving net zero will require expansion of renewable sources of power, such as wind, solar hydropower and geothermal, and low-carbon sources such as nuclear, whether to supply demand for electrification or to convert to molecules to make hydrogen. Achieving net zero will require more flexibility, provided by batteries at scale and interconnectors.

Very few countries have enough renewable resources or the capacity to make all the wind turbines, solar panels, batteries, substations, cables and other components needed to totally decarbonise their energy systems. Every nation has its own natural resources, policies and trading relationships. Some have minerals. Some see nuclear as viable, others do not. Individual countries will need to see what technologies are available to them, how much of the journey is achievable under their own steam and how much of it will require help from others.

Germany, at the heart of Europe, has energy demands that exceed its domestic renewable production capacity. This has led it to push clean hydrogen heavily, and to start tapping countries such as Canada, Denmark, Scotland and the UAE.

Japan has limited potential to generate clean energy from renewables due to space constraints on its land, and harnessing its offshore wind resource relies on commercialising floating wind at scale. Without nuclear, and requiring energy security, it relies heavily on coal supplied by Australia, and of course, gas.

The lowest possible cost solution to solving technical and supply chain issues is open borders for trade.

Brexit was a self-inflicted wound. It wasn’t good for trust or friendship with our nearest neighbour, but we still have trade, and we still have open and strong trading relationships all around the world.

Trust and trade are critical to competitive supply chains

Countries with strong, trusting and open trading relationships also have highly competitive supply chains. They can access technologies, raw materials, labour, and funding and finance at the lowest cost of capital rates. They can scale up more quickly, so they can become more competitive. When a country loses trust and friends, it is no longer competitive.

Nuclear is a case in point. At COP28, 25 countries pledged to triple nuclear capacity to meet climate change targets. However, in this industry, only a handful of countries can deliver the reactors, technology and fuel. One of these, Russia, is no longer a viable option for many Western governments. China is one of the few countries in the world that can build nuclear reactors at the scale required to meet demand – but that is only one part of the equation.

Russia has historically been a key supplier of nuclear fuel enrichment. Now that many countries, including those with nuclear ambitions, have cancelled their trade with Russia, they are faced with the question of whom to turn to. Step forward the UK, where Urenco, which is one third-owned by the UK government, is to build an enrichment facility. This will come online in time to supply reactors being built in the UK and in Europe.

We need to start prioritising diplomacy again, acknowledging that peace leads to trust, which nurtures trade, which leads to the cooperation and competition needed to deliver net zero

Speaking on Radio 4’s Today programme, Urenco CEO Boris Schucht said the UK government worked with Urenco to get a fuel production facility in place in Cheshire, observing that the UK is unique as being one of the few countries, aside from Russia, with the nuclear fuel cycle skillsets.

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The importance of UK-Sino relations for net zero

The UK is fortunate in that it has lots of options, lots of capabilities but not the supply chain capacity. This is true of net-zero technologies like offshore wind turbines. Peace with China and keeping trade open is necessary.

China is the only country to have industrialised nuclear energy production due to the scale and frequency required to deliver new reactors. Few other countries can achieve the economies of scale, the cost efficiencies that China has with its supply chain and these benefits can be passed on to other countries.

EIC President Campbell Keir

Threats to global trade

International trade began weakening following the 2008 financial crisis. More recent events have exacerbated it, such as Russia annexing Crimea in 2014, more isolationist policies in the US under Trump and the more recent onshoring focus of Biden’s Inflation Reduction Act. But it was COVID-19 that exposed the fragility of supply chains and how countries are reliant on just a few hubs to obtain materials and components, a good example being Taiwan for semiconductors, an integral technology.

“The just-in-time model is being replaced by the just-in-case model, which focuses on ensuring supply chains are resilient for energy security as well as other areas. Geopolitical tensions and climate change, which is leading to more extreme weather events, are highlighting the fragility and the risk of relying on a single source for critical components, materials and technology. 

Viken Chinien, Head of Department, Markets & Risk, Energy Systems Region UK & Ireland, DNV 

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Time for a global net-zero mission

Chang’e 6’s recent mission to the other side of the Moon has been heralded as a rare example of constructive international collaboration. The Chinese-built probe is carrying instruments contributed by France, Italy and the European Space Agency, while a small satellite from Pakistan is aboard the orbiter. Further cooperation between China and other countries has been pledged in the context of lunar and deep space exploration.

We need to make net-zero a global mission of the highest priority, but let’s be realistic: we need cooperation to do it. It is easy to work together and solve problems in the fastest, most cost-effective way if countries work well together. Government-to-government trust, exemplified through good diplomacy, good relations, good common understanding and good structural agreements, paves the way for companies to collaborate to solve problems, whether they are customer-related problems or policy-related problems such as net zero.

The need for global stability

If the largest nations in the world are engaged in conflict, either direct or threatened, then we all fail – and averting climate change through achieving net zero becomes impossible to achieve.

Trust needs diplomacy, long-term stability and the ability for people to move freely across borders. It requires financial stability and stable currencies, and fewer military threats. We need to start prioritising diplomacy again, acknowledging that peace leads to trust, which nurtures trade, which leads to the cooperation and competition needed to deliver net zero.

The pandemic showed what can be achieved when countries work together to overcome a global threat. COVID-19 treatments and protective measures relied on global supply chains, a multinational logistics network and frictionless trade, especially with China. And it was during the pandemic that major economies, governments and businesses around the world coalesced around net zero.

We need to acknowledge that net zero rests on global stability, so countries and economies can start to collaborate in earnest to achieve it.

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Path to net zero: Peace and trade as foundations

Peace and diplomacy Essential for trust and collaboration

Trade and open borders Critical for affordable and efficient supply chains

Energy transition Requires global collaboration on renewable technology

Economic cooperation Necessary for funding and scaling up green initiatives

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Global stability through peace and trade is the foundation for a sustainable future

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Image credit | iStock | Shutterstock