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trueHUE® Water cooler stories
A looming transition that in the decades ahead will shift the world away from using oil, natural gas and coal. The transition will have an enormous global economic impact, but it will also bring about major changes in the map of global power. China is poised to be the big winner, Russia and Middle East oil exporters the big losers. The U.S. is likely to fall somewhere in between.
History shows that energy transitions don’t happen quickly. The key moment in the first major transition—from wood to coal—was in January 1709, when an English metalworker named Abraham Darby figured out how to use coal in order, he said, “that a more effective means of iron production may be achieved.” But it took two centuries before coal overtook wood and waste as the world’s No. 1 fuel. Oil was discovered in western Pennsylvania in 1859, but it was not until a century later, in the 1960s, that oil replaced coal as the world’s top energy resource.
China stands to gain the most from the energy transition ahead. Though China has a robust oil industry and is in fact the world’s fifth largest oil producer, its output falls far short of what it needs to fuel the world’s second largest economy. China imports about 75% of its oil and has become by far the world’s largest oil importer.
China will gain still more from an energy transition, having carved out a leading global position in what it calls “new energies.” More new cars are sold every year in China than in the U.S., and if they run on gasoline, that means both oil imports and pollution will rise. As Wan Gang, the country’s former minister of technology, said, China needs to seize “the strategic window for developing electric vehicles,” and that it has done, in part through his own efforts. Thanks to aggressive government promotion, China now possesses half the world’s electric cars.\
By using electric cars to leapfrog ahead, it can overtake the established auto makers and gain leadership in global markets.
China already dominates in lithium, the necessary ingredient for batteries for electric cars. Though lithium is mined in a number of countries, China stands atop the entire supply chain, with over 80% of the world’s battery manufacturing capacity.
Russia’s energy might, built on oil and gas, is key to its global presence and a major element in its growing bonds with China. These resources make Russia a major player in the world economy.
Russia’s dependence on earnings from exporting oil and natural gas is also, however, a strategic vulnerability. The revenues provide the financial foundation for the Russian state and Russian power—in normal times, 40% to 50% of the government’s budget, 55% to 60% of export earnings and an estimated 30% of GDP.
Oil exports are responsible for 70% of Saudi Arabia’s government revenue and 40% of the country’s GDP, according to the International Monetary Fund. Moreover, says the IMF, “non-oil activity is highly dependent on government outlays financed by oil revenues.”
Meeting the goal of net carbon zero by 2050 will require breakthroughs and innovations in chemistry, physics and materials science, as well as advances in carbon capture, hydrogen fuel, digitization, manufacturing, artificial intelligence, robotics, software, data analytics and other technologies.
The U.S. has big advantages in these fields thanks to its unique and dynamic energy-innovation ecosystem—consisting of the Energy Department’s 17 national laboratories, the country’s universities and research institutes, and countless established companies and startups. Add to this a culture that encourages people to take risks and a financial system that can mobilize capital. There are today, for instance, over 60 private-sector advanced nuclear energy projects in the country. The U.S. Energy Department spends over $6.5 billion a year on research in the basic sciences that will be the foundations of tomorrow’s technology—far more than any other country.