Energy transition

Russia/Ukraine War Puts the Energy Transition in Danger

As the world tries to shift to renewable energy, the war in Ukraine has underscored the struggle for the minerals and metals required. The conflict illustrates that nations that pursue net-zero strategies will have to contend and account for “greenwalls,” energy-transition deterrents created by crises or geopolitical events.

Ukraine map graffiti green splats on green wall
Source: iconeer/Getty Images

OPEC’s response to the Yom Kippur war of 1973 upended the oil markets, weaponizing oil and disrupting the supply of fuel for internal combustion engine (ICE) vehicles. Currently, the Russian/Ukrainian conflict is disrupting minerals and metals (energy-transition commodities) used for electric vehicles (EVs), as well as affecting oil prices for ICE vehicles. Thus, EV and ICE vehicles are on different sides of the same coin; they depend on commodities that are vulnerable to crises and exposed to geopolitics. For example, a month after Russia invaded Ukraine, Tesla’s CEO said the cost increase for materials is affecting the company. Shortly thereafter, the price for Tesla’s entry-level sedanrose by more than 20% compared with February 2021, a rise that can be attributed to energy transition commodities.

Moreover, this recent conflict illustrates that nations that pursue net-zero strategies will have to contend and account for “greenwalls.” Greenwalls are energy-transition deterrents created by crises or geopolitical events and leading to substantially increased prices for energy transition commodities. For nations pursuing green economies, these deterrents create hurdles with green upcharges (price point increases), which extend to renewables and clean technologies that depend on metals and minerals.

EVs require far more metals and minerals than ICE vehicles, furthering their exposure to greenwalls and, in the process, hampering the scalability and adaptability to greener mobility. For example, used Tesla’s saw a price increase in March 2022, which placed the price for a used Tesla at $65,000. Such a price is associated with luxury vehicles and can create an affordability barrier and be a deterrent for potential EV buyers.

The Green Premium and the Paris Agreement Revisited
Before the Russian/Ukrainian war, the concept of the green premium was used to describe nations and their citizens paying a higher price for greener technologies to lessen atmospheric emissions. The appeal of a green premium lessens, however, when energy affordability and security demand a higher cost, effectively creating a greenwall. This is exemplified by nations that signed the Paris Agreement now sidestepping the green-premium concept as they make a renewed push for fossil fuels (in what can be viewed as an effort to counterbalance the greenwall effect), as reflected by the US and UK. The former is courting nations to increase their fossil fuel production to curve high oil prices (to offset inflationary pressure), while the latter is now making a push to produce indigenous fossil fuels in its offshore sector (to lessen dependence from Russia), despite having signed a net-zero law in 2019.

For context, the green-premium concept recently gained prominence in 2021, in large part due to Bill Gates. Although the concept was identified in the contemporary net-zero era, data show that nations were not accelerating their push for renewables. This is reinforced by the fact that renewables only account for 5.7% of the global energy mix in 2020, according to BP’s 2021 Statistical Review of World Energy (fossil fuels account for 81% of the mix). That 5.7% level is a benign energy milestone considering that coal reached 5% in 1840 (Fig. 1).

Fig. 1—Uptake of energy technologies.
Source: Vaclav Smil

Had nations made an aggressive push with renewables, leading to a pronounced increased in their market share of the global energy mix, this would have undoubtedly exacerbated the Greenwall effect. How so? By creating additional supply pressure, before and after the start of the Russian/Ukrainian war. The result: A scenario with higher and more volatile prices for metals and minerals. As such, should nations decide to pursue renewables aggressively to lessen emissions, that very act would increase supply pressure for metals and minerals by creating the potential for additional greenwall scenarios that are susceptible to geopolitical flashpoints. Because of this, the energy transition will have to manage a delicate balancing act.

Nations Abandoning Decarbonization Efforts
On one hand, in times of extended peace, the greenwall may lower, but the risk of the wall will remain unless green economies diversify their material and energy mix. On the other hand, nations may abandon the Paris Agreement because of the effects of greenwalls. Importantly, the Kyoto Protocol of 1992—predecessor to the 2015 Paris Agreement—is a clear example of nations disbanding from taking climate action. This can result in lower prices for minerals and metals, but it does not curb emissions.

In 1992, when the Kyoto Protocol was signed, China understood the power of its natural resources, as shown when Deng Xiaoping said that “the Middle East has oil; China has rare [earth metals].” This brings us back to geopolitical events that cause nations to coalesce to exert control over a commodity and weaponize it on the market, as reflected by OPEC and oil. In 2010, China flashed how metals can be weaponized to advance geopolitical objectives, as occurred with Japan. Nations openly coalescing to control metals and minerals in the following decades would invariably amplify greenwalls; OPEC’s behavior in the 1970s is a prime example. Now, Deng’s remarks acutely reverberate in the age of the energy transition and greenwalls that stand in the way of an affordable energy transition.