The upcoming COP28 global climate conference, which follows U.S. Climate Envoy John Kerry’s recent visit to China, has renewed the narrative of climate change as a catalyst for cooperation. However, rather than being a benign area of engagement, it has become apparent that the energy transition is ushering in a new era of geopolitical rivalry. The race to decarbonize economies can be seen as the equivalent of the Cold War-era space race as countries seek to one-up each other in the development of technologies vital for the energy transition while simultaneously reducing dependence on countries of concern.
At the heart of this is a competition to secure critical mineral supply chains. According to the International Energy Agency, the demand for minerals to power the energy transition has doubled over the last five years, and six times more metal and minerals will be required for clean energy technologies by 2040 to meet net zero targets. This includes critical minerals (including rare earths), as well as other metals, including copper, steel, aluminum, and titanium.
This is creating a new geoeconomic rivalry that will bleed into the domains of traditional security as the energy transition exacerbates existing and creates new geopolitical fault lines.
Green Protectionism
Economic security has become the catchphrase of this competition. This has entailed a two-pronged approach: industrial policy at home and green development initiatives abroad. The former entails “whole of government” and often non-market-based approaches to strengthen a country’s competitive position and supply-chain resilience in critical and emerging technologies. This involves expanding local production of critical resources and key technologies through a combination of supporting national champions, strengthening rules of origin and local content requirements, and funding for research and development.
China has led the way in this through its state capitalist model, encapsulated in its “Made in China 2025” and more recent “dual circulation” strategies. This has become the template for other countries to follow as they have sought to “out-China China.” The United States has the Inflation Reduction Act to encourage the indigenous production of green technologies and the Defense Production Act to boost domestic mining and processing of critical minerals; the European Union unveiled the Net Zero Industry Act earlier this year and has loosened state aid rules to encourage investment in green technologies; and India has imposed taxes on the import of solar components and employed production-linked incentives to encourage the indigenous development of several technologies, including in the green tech space.
Meanwhile, countries that are key suppliers of raw materials to the energy transition are pursuing their own form of green protectionism. Canada forced Chinese companies engaged in lithium projects to exit the country on national security grounds in November. This year Indonesia followed its earlier restrictions on the export of unprocessed nickel by placing similar bans on exports of raw cobalt, bauxite, and tin. It has also called for establishing an OPEC-style cartel for nickel while the countries comprising Latin America’s “lithium triangle” (Argentina, Bolivia and Chile) have proposed doing the same. This will of course be far easier said than done given China’s overwhelming dominance in refining and processing raw materials.
There have been parallel efforts to work with likeminded countries in establishing “critical minerals buyers’ clubs” while moving production away from so-called unfriendly countries. This “friend-shoring” has manifested through such initiatives as the U.S.-led Mineral Security Partnership, the U.S.-Canada Joint Action Plan on Critical Minerals Collaboration, the Canada-led Sustainable Critical Minerals Alliance, and the trans-Atlantic Global Arrangement on Sustainable Steel and Aluminum.
At the same time, the energy transition has become “securitized” as forums focused on traditional security issues have embraced supply-chain resilience and climate as a core issue. NATO unveiled a Climate Change and Security Action Plan that refers to climate change risks as a “threat multiplier”; the Quad, which has its origins in issues of maritime security, established the Critical and Emerging Technology Working Group; and the Five Eyes group, which has its roots in intelligence sharing, has proposed pooling critical mineral resources in order to reduce dependence on China. Securing supply chains was also a key topic at this year’s G-7 Summit, where host Japan added economic security as a new workstream aimed at tackling China’s coercive economic activities.
All of these initiatives have a common theme: to de-risk supply chains by reducing dependence on countries of concern (namely China and Russia). In the process, these coalitions are creating new winners, such as Australia and Canada with their large raw material supplies, and Mexico, Vietnam, and India, with their low-cost labor advantage and industrial capacity.
Alongside efforts to re-/near-/friend-shore production, there has also been an emphasis on recycling, stockpiling, and research and development of substitute resources and technologies. This includes LFP cathodes that do not require the cobalt and nickel used in conventional NMC (nick manganese cobalt) cathodes, which are subject to ESG concerns (being sourced from countries like the Democratic Republic of Congo and Russia); solar panels based on thin film rather than polysilicon sourced from China; synthetic graphite or silicon-based anodes that reduce dependence on natural graphite sourced from China; and reducing (and potentially removing) the content of rare earths in permanent magnets (required for wind turbines and EV motors).
Japan’s experience has been particularly instructive in these efforts as a relatively resource-poor country. It was also one of the first countries to suffer the wrath of Chinese acts of economic coercion after Beijing imposed an embargo on rare earth exports in 2010, which followed tensions over their maritime territorial dispute in the East China Sea. This prompted Japan to lead the way in efforts to develop a circular economy and forge partnerships with resource-rich countries. The country also established an Economic Security Ministry in 2021 and the 2020 International Resource Strategy mandates a critical mineral stockpile target.
Beyond state actors, the private sector is also a key enabler of the “Green Great Game.” Companies have sought to strengthen the security of supply of key inputs to green tech supply chains through a combination of diversification, re-shoring, and regionalizing their supply chains, as well as pursuing vertical or upstream integration. This has been particularly pronounced in the automobile sector, where electric vehicle (EV) companies have partnered with raw material suppliers in securing long-term offtake agreements in order to gain control of end-to-end supply chains.
In addition to strengthening self-sufficiency at home, major powers are also pledging to deploy resources abroad. Technology transfers, climate financing, and standard setting are the key tools in this competition. Beyond the altruistic goal of addressing climate concerns, these efforts are being driven by an emerging geopolitical rivalry to secure market access while simultaneously denying market share to others. This is a key consideration behind such initiatives as China’s Global Development Initiative, the U.S.-led G-7 Partnership for Global Infrastructure and Investment (previously known as the “Build Back Better World” or B3W initiative) and the EU’s Global Gateway strategy.
Emerging markets are key stages of competition given their resource endowments and market size. For example, Latin America holds more than a fifth of the global reserves of five critical minerals, including almost 60 percent of the world’s lithium. Meanwhile, more than 40 percent of Africa’s mineral exports and a third of its ore and metal exports go to China.
Despite a climate of renewed protectionism, economic nationalist impulses have fueled a flurry of free-trade negotiations aimed at securing access to critical raw materials. For instance the recent EU-CELAC (Community of Latin American and Caribbean States) Summit concluded with an agreement with Chile on establishing sustainable raw material value chains.
The U.S. IRA also offers tax credits for new electric vehicles where the minerals are extracted, processed, or recycled in the U.S. or a country with which the United States has a free-trade agreement (FTA). U.S. FTA countries notably include Australia and Chile, which are the world’s largest lithium producers, and Morocco, which has the world’s largest phosphate reserves. Where countries lack an FTA with the United States, carve-outs are being discussed for friendly countries, such as Japan, with which the U.S. concluded a targeted agreement on critical mineral supply chains.
Following the conclusion of an FTA between India and Australia in 2022, both countries are seeking to cooperate in the area of critical minerals with the conclusion of a Critical Minerals Investment Partnership.
Again, China has a first-mover advantage in these efforts. Taking the example of the Global Development Initiative, this appears to be aimed at repackaging China’s outbound investment into a more benign format with a greater emphasis on greener, cleaner, more sustainable investments. The Chinese government has alluded to this by stating that the GDI will be aligned with the United Nations’ Sustainable Development Goals with the aim of promoting global development that is “stronger, greener and healthier.” The origins of this can be found in President Xi Jinping’s address to the United Nations in 2021 in which he noted that China would end its role as “lender of last resort” for overseas coal projects while supporting the development of green and low-carbon energy. So just as China led the way in hydropower projects in Southeast Asia, it may come to dominate the development of solar, wind, and other green technologies in emerging economies.
Rhetoric vs. Reality
This alludes to the fact that there remains a gap between the statements and substance of policies aimed at decoupling or de-risking supply chains away from China. This will be far easier said than done, given China’s overwhelming dominance in the mining and processing of critical minerals required for green tech supply chains.
China now leads the world in most non-hydrocarbon based energy production, including wind, solar, hydropower and nuclear power, as well as battery and EV production. Undergirding this is China’s dominance in the refining and processing of raw materials for green technologies, including cobalt (65 percent), lithium (58 percent), aluminum (60 percent), copper (40 percent), nickel (35 percent), manganese (90 percent), and most notably, rare earths where China dominates both processing (90 percent) and mining (70 percent).
China recently restricted the export of gallium and germanium – used for solar panel production – as well as considering export controls on technologies required for refining rare earths. This can be seen as a shot across the bow of Beijing’s efforts to weaponize its dominance in the mining and processing of key raw materials required for the energy transition and a reaction to U.S. sanctions and export controls aimed at China. The recent introduction of an outbound investment screening mechanism by the United States may lead to further tit-for-tat actions, including Chinese export controls on critical raw materials.
China also plays a dominant role through its investment in countries that dominate reserves of key commodities, including the Democratic Republic of Congo (which accounts for almost 70 percent of global cobalt production), Indonesia (which accounts for almost half of nickel production), Chile (which accounts for 28 percent of copper production), and Bolivia (which holds the world’s largest proven lithium reserves). Lax environmental and human rights standards in some of these countries makes it difficult for Western companies to penetrate these markets while China faces less apprehension in doing so.
This means that China will remain integral to green tech supply chains for the foreseeable future. At present, the United States maintains only one operational rare earths mine, the Mountain Pass mine, which has been reopened and kept operational with support from the U.S. Department of Defense, although processing is still taking place in China.
Initiatives like the European Raw Materials Alliance and EU Critical Raw Materials Act aim to make Europe more resilient in critical raw materials, with mandates that 40 percent of critical mineral processing, 15 percent of recycling, and 10 percent of extraction take place within the EU by 2040. But despite several European countries holding sizable raw material deposits – Sweden has Europe’s largest rare earth deposits and Portugal has the continent’s largest lithium reserves – progress remains slow. Mining regulations fall within the jurisdiction of member states, where there are significant variations in permitting requirements and local community opposition remains a key challenge.
While tax and policy incentives may shift the production of wind turbines and the construction of giga-factories away from China, it will not be easy to reduce dependence on China for raw materials mining and processing. This comes amid strong NIMBY (“not in my backyard”) sentiment and tightening ESG (environmental, social, governance) regulations, which make it difficult to construct mining and processing facilities in Europe and North America. Moreover, building factories is easier than building up the human capital required to operate them. An example of this can be seen with the labor shortages facing efforts to expand semiconductor production in the United States despite supporting legislation like the CHIPS and Science Act.
The push to friend-shore production is also not necessarily disentangling supply chains away from China. Rather, China is becoming an indirect supplier as it ships intermediate goods to third countries for assembly before the finished products reach their final destination in the United States. Beijing is also relocating production to third countries in order to circumvent U.S. trade control measures: this has become evident in the solar space with Chinese companies relocating production to Southeast Asia to evade U.S. tariffs.
Moreover, the push to re-shore or friend-shore production, while strengthening supply chain resilience and encouraging reindustrialization (and job creation) at home, is creating its own challenges by fueling market distortions and inefficiencies. This has manifested in the form of increased costs arising from duplication or overproduction, an increased compliance burden (arising from the growing use of trade control measures) and reduced innovation (arising from increased barriers to entry and reduced cross-border collaboration). This creates inherent contradictions between the push to decarbonize economies and decouple from China.
New Frontiers
The “Green Great Game” will touch every aspect of global geopolitics. It threatens to exacerbate traditional fault-lines while creating new ones. Afghanistan is an example of the former, where the longstanding threat of the country as a hub for Islamic extremist activity has been supplemented by the country’s importance as a hub for mineral resources that are critical for the global energy transition. To be sure, rhetoric of the country as the “Saudi Arabia of lithium” has been somewhat exaggerated, as exploiting these resources will be easier said than done (as illustrated by the slow progress in developing the Aynak copper mine project). But if one of the catalysts of Afghanistan’s instability and deprivation is recurring intervention by foreign powers, then the country’s resource deposits threaten to fuel this further. This has been illustrated by Beijing’s interests in Afghanistan, which are rooted not only in efforts to stabilize China’s western borders, but also in a desire to gain access to the country’s resources.
Similarly, a major lithium discovery has been uncovered in Kashmir, a territory that has been the focal point of over seven decades of tension between India and Pakistan. Once validated, this lithium deposit could be the fifth-largest nominal reserves globally. Ukraine, in the midst of an ongoing struggle for survival, is also a major producer of titanium and has large deposits of graphite, lithium, and rare earths. This demonstrates how the race for raw materials to fuel the energy transition is adding an additional layer to longstanding geopolitical flashpoints.
At the same time, new theaters of competition are emerging. While mining in outer space still seems far-fetched, another area on the horizon that seems within the realm of imminent possibility is deep-sea mining. This entails mining the seabed floor for deposits of polymetallic nodules that contain key raw materials required for the energy transition. This is an under-regulated industry – the deadline for finalizing regulations recently passed without agreement – with the International Seabed Authority lacking the resources and governance to regulate deep-sea mining activities. However, despite these bottlenecks and debates over the pros and cons of the environmental impact of deep-sea mining, the lure of meeting the vast demand for resources required for the energy transition is overwhelming. Combined with an effort to reduce dependence on China, this has driven the momentum of this nascent industry.
In this context, the Pacific has acquired growing strategic significance as a renewed theater of geopolitical competition between major powers. During a recent visit to the region French President Emmanuel Macron warned against a “new imperialism” by “predatory big powers.” The immediate reason for this renewed interest in the region is China’s conclusion of a security agreement with Solomon Islands in 2022 and efforts to conclude similar agreements with other countries in the region. This triggered a flurry of activity by several countries, including the United States, Australia, and India to reaffirm their political and security linkages with the region.
While ostensibly about China’s growing strategic presence in the region, there is also an energy angle to this competition. As the energy transition accelerates, a competition is brewing in the Pacific for access to natural resources. For example, the Clarion-Clipperton Zone in the Pacific is estimated to hold three times the world’s land-based reserves of nickel. Meanwhile, licenses for deep-sea mining are held by “sponsoring states,” many of whom are small Pacific Island states that are prone to manipulation by major powers.
Fissures and Fault-lines
There is a tendency to conflate the benefits of the green transition with a stable global order without taking account of the possibility that the energy transition may actually exacerbate geopolitical instabilities. The upside of the “Green Great Game” is that it is a race toward a cleaner, greener, and more sustainable future. However, the energy transition and a more stable international order do not necessarily go hand-in-hand.
The “Green Great Game” has multiple fault-lines. The most obvious one is between advanced and emerging economies over the methods and timeline to fulfill their climate commitments. This became apparent during the COP26 climate conference in 2021. Advanced economies emphasized climate mitigation efforts (with a focus on upgraded nationally determined contributions and net-zero carbon emission targets), while the focus of emerging economies was on adaption (with a particular emphasis on climate financing and technology transfers as part of ensuring a “just transition”).
This will become even more pronounced in the run-up to the COP28 climate conference in Dubai in November as the bad blood between the West and the rest grows in the midst of global inflationary and recessionary pressures, which have been worsened by the Russian invasion of Ukraine, COVID-19 pandemic, and growing climate shock events. This became evident during a recent G-20 meeting, where members failed to reach consensus on climate targets.
Supplementing the fault-line between advanced and emerging economies, a more intense rivalry between the United States and China is brewing over control of key supply chains that will drive the global energy transition. The Biden administration’s decision to re-join the Paris climate agreement in 2021 fueled speculation that climate could emerge as a potential area of cooperation in the China-U.S. relationship. However, these hopes were quashed by China’s decision to suspend climate talks with the United States following then-House Speaker Nancy Pelosi’s visit to Taiwan in August 2022. Beijing has resisted efforts to compartmentalize the climate issue from other contentious areas in the increasingly confrontational China-U.S. relationship.
Despite the hype following Kerry’s meeting with his Chinese counterpart, Xie Zhenhua, no joint statement was issued. While Kerry stated that climate should be a “free standing” issue, China’s top diplomat, Wang Yi, reiterated that climate cooperation “cannot be separated from the overall environment of U.S.-China relations.”
In this context, China’s dominance of green-tech supply chains exposes a key vulnerability to the global energy transition. If the breakdown in relations between Russia and the West triggered by the Russian invasion of Ukraine upended the global market for “old energy” (hydrocarbons), a future conflict between China and the West threatens to do the same for “new energy” (renewables). The rapid decoupling of companies from Russia and efforts to reduce dependence on Russian hydrocarbons (particularly in the West) has raised concerns about the potential for a similar decoupling from China in the event of a rapid deterioration in China-U.S. relations (over a conflict in the Taiwan Strait, for example).
This is not to say that the “Green Great Game” is detrimental to the global energy transition: It may actually accelerate it, just as the Cold War accelerated the development of the military-industrial complex in the United States and erstwhile Soviet Union. Ultimately, tackling climate change may not be achieved through benign goodwill and calls for global cooperation, but rather through a more competitive (and confrontational) dynamic embedded in the “weaponization” of the green transition.
Either way, the rivalry for access to raw materials to facilitate the energy transition will turn the “Green Great Game” into one of the defining geopolitical features of the 21st century.