“Energy dominance” is shorthand for President Donald Trump’s agenda to use fossil fuels as a tool of international leverage, with the energy transition a casualty along the way. Its unintended consequence will be to strengthen the foundations of that transition, outside of the US anyway. Because even if environmental, social and governance thinking is cancelled in Trump’s America, his blending of energy policy with a chaotic realignment of US foreign policy brings to the fore an ESG favourable to the transition: Economics, security and geopolitics.
Oil became the world’s biggest energy source during the post-1945 era of increasing globalisation backed by US military muscle. Countries that might have been otherwise reluctant to base their prosperity on a fuel produced in remote, often volatile neighbourhoods like the Middle East could draw comfort from the world’s biggest navy policing the oceans on everyone’s behalf. It helped that most of the big economies outside Moscow’s orbit were US allies and that Washington’s stake in this arrangement increased along with its own oil import dependency.
The end of the Cold War and America’s later shale boom upended all that (see this). These days, the leader of the free world lauds Russia and picks fights with Canada.
Insecurity can initially seem bullish for fossil fuels as governments scramble to shore up energy supplies. But it breeds a desire to break consumption habits, and the global trade in those fuels that grew up under the Pax Americana will not escape its demise unscathed.
Absent safe, dependable free trade, fossil fuels’ geographic concentration divides the world into haves and have-nots. About three-quarters of humanity lives in countries that are net importers of fossil fuels, spending $1.8 trillion a year on them, according to a recent report, “Energy Security in an Insecure World,” published by Ember, a UK-based energy-transition think tank. China and India, for example, are already far more dependent on oil imports as a share of demand than the US ever was.
Fossil fuel producers have long regarded this situation as essentially unchangeable, with developing nations bound to raise demand toward Western levels. Chris Wright, Trump’s fossil-forward energy secretary, has mused about this implying a doubling of global oil production to roughly 200 million barrels a day. It is the sort of fantasy math that might flit through an oil executive’s mind just before they drift off contentedly to sleep. Yet, besides implying a carbon gusher, this would mean much of the world paying high and volatile bills for their energy. A quarter of the world, including large economies such as India and South Korea, already spends 5% or more of GDP on net fossil fuel imports, Ember calculates.
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Now layer on the security dimension in a world where the US has become the top producer of oil and gas and is using its “dominance” to extract concessions from friend and foe alike. Then there’s the added wrinkle that the shale boom itself is likely within a decade of plateauing and declining, handing more power to that well-known guardian of the common good, OPEC+. Taken altogether, these offer much of the world a powerful rationale to limit their exposure to traded fossil fuels. The ravages of climate change represent an additional, multi-front security threat, particularly to the many developing economies bounded by the Tropics.
Speaking recently with Jigar Shah, who ran the Department of Energy’s Loan Programs Office during the Biden administration and now runs Multiplier, an advisor to green startups, he opined that “in an era of uncertainty, the only certain thing is the development of new technology.” We have witnessed this play out in energy markets not just in the continuing, astonishing advancements in cleantech but also during prior periods of upheaval, most notably when the oil crises of the 1970s forced industrialised countries onto a crash diet of efficiency and diversification.
Today, electrification offers a path away from excessive dependence on imported fuels. Electricity is mostly generated within borders or traded in limited amounts with trusted, and synchronised, neighbours. China offers the most pertinent example, having taken a strategic decision to diversify its energy options and prioritise domestic sources — which very much include wind and solar. The impact on cleantech cannot be overstated. Last year alone, China installed a net 358 gigawatts of wind and solar capacity, roughly equal to Japan’s entire grid. China hosts roughly half the nuclear power capacity under construction around the world. Meanwhile, its auto industry has taken a commanding lead in EVs.
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Yet 58% of China’s electricity last year came from coal; down from 72% a decade before but a new record in absolute terms. This messy mix of black and green is why Kingsmill Bond, a strategist at Ember, delineates between cleantech and what he terms “electrotech,” or an energy system centred on the inherent efficiency and versatility of electricity.
While we generate much of our power from burning fossil fuels today, that proportion has been declining for over a decade, demonstrating electricity’s capacity to foster decarbonization. An internal combustion engine will always and ever only burn petroleum products, but an EV currently powered by a mostly coal-fired grid can run on cleaner power as the grid evolves. Beijing is playing the long game, “looking to build a robust and flexible, low-carbon system that will be competitive globally on both cost, and over time, on a lower emissions footprint,” according to testimony given by Michal Meidan, who heads China energy research at the Oxford Institute for Energy Studies, to a Congressional commission in May.
Importantly, she noted that Beijing’s strategy reflected the new ESG, with the fraught international environment pushing it to prioritise “resilience and flexibility in its energy system over economic efficiency and emission reductions.” Still, China is laying an essential foundation for decarbonization anyway. By helping reduce technology costs, it enables their deployment around the world, where there are many more ‘haves’ when it comes to solar and wind potential. This is not a silver bullet for net zero, and a fragmenting world means higher costs and slower progress than might otherwise have happened. China’s own form of energy dominance in cleantech and critical minerals puts other countries on guard, too. Jason Bordoff, founder of Columbia University’s Center on Global Energy Policy, says he came away from recent ministerial-level meetings in India sensing that the country’s attempt to balance energy security, affordability and decarbonization would involve a lot of coal and solar power — and angst about dependence on Chinese supply chains.
The dynamic of states working to limit the leverage of foreign powers and preserve their own freedom of action, however, ultimately favours electricity taking market share in end uses of energy at the expense of fossil fuels, thereby widening the opportunity set for cleaner sources. The end result of Trump’s dominance-plus-deglobalization agenda is a pathway, imperfect as it is, toward decarbonization — provided one’s leaders can grasp that, of course.
