The New Geopolitics of New Energy
Energy and geopolitical influence have long gone hand in hand. As renewable energy and decarbonization begin to disrupt existing energy systems, the geopolitics of energy will shift accordingly.
MacroPolo’s “New Energy Geopolitics Index” (NEGI) aims to track, rank, and visualize that geopolitical shift. Covering 25 countries, the NEGI gives a score for each country’s potential geopolitical influence as a result of the global transition from fossil fuels to renewable energy.
The NEGI is a unique index that currently covers the 2011-2019 time period. It will be updated as new data becomes available (see methodology).
The Race to Quadrant IV
Hover over the bubbles to see the country name, its NEGI score, and the respective capability and independence scores that make up the final NEGI score. Click “Play” to see changes over time and click “Reset” to restart.
The energy transition has just begun in earnest but some trends are already emerging. Certain nations are racing steadily towards Quadrant IV—which represents an ideal position in which countries have attained high capability and high independence. But no country in our sample has reached that quadrant so far, and some have even regressed in some years.
Select NEGI Scores from 2011-2019
Why the NEGI?
The geopolitics of energy have always been centered around competition over natural resources. For centuries, a country’s endowment in fossil fuels—and other countries’ dependence on such resources—affected its geopolitical leverage and influence.
The influence of OPEC and the clout of countries like Russia over its trading partners exemplified the geopolitical power associated with natural resources wealth. Natural resources are certainly still needed to produce climate technologies, but what a country has in the ground will no longer be the main determinant of geopolitical influence in the coming renewable energy era.
That era is looking increasingly within reach. Countries accounting for some 70% of global GDP are now committed to achieving carbon neutrality. As they deploy renewable energy to reduce their carbon footprint, the traditional geopolitics of energy will be disrupted.
But as geopolitical influence flows away from fossil fuel producers, new sources of influence will increasingly depend on a country’s manufacturing capabilities, innovation capacity, and trade. Energy leadership, and therefore the potential to exert geopolitical influence, will shift from owners of natural resources to owners of value chains and the associated trade.
The nature of that influence itself will also change, as countries that deploy more renewable energy will become less reliant on fossil fuels to power their economies and gain more energy independence. Exports of climate technology products will likely matter more than exports of traditional commodities like oil.
The New Energy Geopolitics Index (NEGI), then, is an effort to measure the energy transition’s effect on geopolitical influence.
In our index, geopolitical influence is determined as a function of a country’s capability in the production and export of three key climate technologies (wind turbines, solar photovoltaics, and lithium-ion batteries) and its relative independence from fossil fuels—or conversely, the pace of transition toward renewables.
In our sample of 25 countries, we included all G20 members with the exception of the European Union to avoid double counting when breaking out major European countries. The remaining six countries (Spain, Netherlands, Denmark, Malaysia, Chile, Vietnam) were selected because they hold important positions in the climate technology trade and value chains. African countries are underrepresented in our sample largely due to poor data availability (we hope to correct this in the future).
To our knowledge, this is the first index to track annual change in a country’s geopolitical influence based on both energy independence resulting from increasing renewables deployment and strength in value chains in climate technologies.
This index should be useful to decision makers and market participants grappling with the geopolitical implications of the energy transition, whose importance will only grow over the next decade.
For a more detailed breakdown of the NEGI and our approach, see the methodology. We welcome all queries, feedback, and comments on how we can improve the index.
NEGI is composed of two main variables: 1) capability in the climate technology value chain; 2) independence from fossil fuels.
The capability score is estimated based on several indicators that reflect a country’s current and potential capacity along three segments of the value chain: natural resources, manufacturing, and innovation. It also includes climate technology exports, because that is also a proxy for a country’s capability.
The independence score is simpler, derived from estimating a country’s relative share of renewables in the energy mix, which is a proxy for the reduction in fossil fuel consumption.
The capability variable is composed of four indicators, represented in the tree map below. Toggle between the categories to view each country’s capability across the four indicators. Each box represents the relative strength of the country in that indicator category.
Some highlights on the capability front include the importance of Malaysia and Vietnam in the trade of the three technologies. The manufacturing indicator shows Germany’s importance as the home of several major original equipment manufacturers and as an overall manufacturing powerhouse of climate technologies. The United States, South Korea, and Japan, however, out-perform other countries when it comes to innovation—the only category in which China does not lead.
Hover over each of the 25 countries to see the independence score which equals the share of renewables in its primary energy consumption. The map also shows current climate commitments and targets for increasing renewable energy.
The independence variable proxies a country’s level of autonomy from fossil fuels. For many countries that rely on energy imports, the deployment of renewable energy facilitates more energy independence.
More established renewable energy sources like hydropower and biomass play a bigger role in many countries, which explains why a country like Brazil ranks high on independence. Over the next decade, however, solar and wind are projected to grow in importance and are forecast to power most of the world by 2050.
By including current country-level climate commitments, the map offers some indication of where renewable energy is likely to be deployed most rapidly.
This isn’t to suggest that all countries will meet their long-term commitments. But, ceteris paribus, countries with long-term political commitments are likely to achieve higher levels of renewable energy penetration, and thus higher independence scores, compared to those with no such political commitments.