Connectivity is key in green energy
The geographic location of energy sources and the extraction sites of raw materials for green energy is not distributed according to the principles of equality and justice.
Connectivity is key in green energy
New Sustainable Economics

Connectivity is key in green energy

Photo: AFP/CFOTO/NurPhoto
Máté Litkei 02/05/2024 09:00

The geographic location of energy sources and the extraction sites of raw materials for green energy is not distributed according to the principles of equality and justice. For those countries that are not able to achieve full self-sufficiency, only diversification - a strategy in which the buyer has more supplier options, thus improving its bargaining power - can provide a solution. This requires good economic and diplomatic relations with potential supplier countries.

The European Union and some of its key member states are currently pursuing an ideology-driven foreign policy, which is leading to a bloc formation on the market, an inevitable deterioration in economic relations and, at the same time, a narrowing of the scope for manoeuvre for countries in a buyer position, increasing their vulnerability. In contrast, the strategy of connectivity, i.e. building mutually beneficial economic relations on a rational basis, creates new opportunities for countries. Few economic areas illustrate the dangers of bloc formation and the benefits of connectivity better than the energy sector. The experience of the past years and decades shows that we can only succeed if we can build diversified and stable economic relations. It is no coincidence that the energy sector of the world's two leading superpowers is also characterised by connectivity.

China has a diversified range of energy suppliers. Its largest supplier of LNG is Australia, followed by the United States until the Russo-Ukrainian war. China's oil imports are also diversified, coming from almost all OPEC members in recent years, and following the US sanctions, China has become the largest destination for Venezuelan oil and the largest buyer from Iran. In addition to being the world's leading domestic coal producer, China is also the world's largest coal importer, benefiting in particular from cheap coal imports from neighbouring countries such as sanctions-hit Russia.

The Eastern superpower is not only deeply involved in world trade in fossil fuels. It also has large and developed supply chains in renewable energy and battery production. China produces roughly 75 percent of the global supply of solar panels and batteries, and around 60 percent of key components for wind turbines. The raw materials for manufacturing, such as 68 percent of nickel, 40 percent of copper, 59 percent of lithium and 73 percent of cobalt, are extracted from mineral ores in China or by Chinese-owned companies through a successful foreign policy and a global network extending from Inner Africa to South America.

The United States, with the world's largest economy, follows a similar strategy in its energy policy. Although the US is one of the world's largest exporters of LNG, it meets a significant part of its own gas needs from Canada in the form of pipeline gas. The situation is similar for oil: in 2022, the United States imported around 8.33 million barrels of oil per day from 80 countries and exported 9.52 million barrels of oil per day to 180 countries. In terms of nuclear fuel, the US could have the production capacity until the fuel is produced, but it still buys 20 per cent of its enriched uranium from Russia.

Unfortunately, the European Union is the antithesis of a successful foreign policy based on connectivity. Following the outbreak of the war in Ukraine, the EU's political reactions have taken the form of economic sanctions, which have also hurt the European economy, and it wants to minimise economic relations with China in the name of so-called 'de-risking'. The question of what will improve the competitiveness of European economies rather than mutually beneficial economic connectivity is not adequately answered by the proponents of bloc formation.

The author is an adviser at the MCC Climate Policy Institute

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