Oil Dependence and Transmission to Renewable Energy - Gökberk Bilgin


With the increasing concerns on the environment, the governments are looking for the energy resources that harm the nature less. While the oil consumption levels in the developed countries are beginning to decline, the investments are more directed in the renewable energy sector. Of course, this shift, whether it is real or it is an intention, has impacts on the way if we think about geopolitics, economics, and international relations. In this paper, first, we will focus on the declining oil dependence and its implications on both political and business level and then analyze the transmission process to renewable energy by providing real-world examples.


In the article, The challenges of decreasing oil consumption, Yetiv, and Fowler claim that in 2009, the Obama administration in the United States had decided to act more responsibly towards the global warming problem. Of course, the price of oil, that was around $145 and the burden of the Global Recession, also might be motivating this policy, but the official concern was the environment.


The problem of oil dependence in the United States had different dimensions. One of them was the excess usage of personal vehicles that increased U.S. oil consumption enormously. To solve this problem, the United States invested in hybrid cars that can use both gasoline and electricity as fuel. Introduction of Tesla to world played an exciting role in this transmission, and many major car companies such as Toyota, Volkswagen, BMW began to produce hybrid cars. However, the transmission process is not as easy as it seems because, as the number of hybrid vehicles grows, the electricity demand also rises. The existing infrastructure of the electricity capacity is not ready to support this transmission alone. So, significant renovations policy in the electricity sector is also required for Americans to use more environment-friendly vehicles. When it happens, the primary concern will be the source that is used for generating electricity. If they choose to use coal plants for electricity production, which is a growing sector in the United States since the Trump administration took office, then the transmission would not generate the expected outcome.


Furthermore, even though the United States decreases oil or other carbon fuel consumption, other countries will still use these products in their vehicles. The growing demand for cars in China might eliminate American efforts to decline pollution levels as well. In 2009, these two countries signed an agreement on cooperation in electric vehicles. The U.S.–China Electric Vehicles Initiative aims at accelerating the deployment of electric vehicles to reduce oil dependence, cut greenhouse gas emissions, and promote economic growth. However, the approach to environmental concerns of these two countries is slightly different. For China, the main goal is to build and sustain the biggest economy in the world. Therefore, any additional cost that would slow down this mission is unacceptable for them. In that period, their loan agreements with countries that are oil exporters like Russia and Venezuela provided them high amounts of oil. As the oil prices declined, they received even more oil and fed their economy by building industrial zones, highways, and other significant infrastructures. Therefore, they established their dependence on oil. On the other hand, investments in different oil fields around the world decreased the economic burden of this dependence. Of course, the Chinese government also made significant investments to renewable energy in this period as well. Some parts of the economic surplus spent in this area to ensure alternative energy sources for the Chinese economy. Despite the accusations, Germany, for technical information theft on these products, by 2016, China managed to control the renewable energy sector by becoming the primary producer, consumer, and exporter of the wind turbines and solar panels. China also has a clear lead in terms of the underlying technology, with well over 150,000 renewable energy patents as of 2016, 29% of the global total. The next closest country is the U.S., which had a little over 100,000 patents, with Japan and the E.U. having closer to 75,000 patents each.



Lithium Mine in China

The main advantage of China is to have critical material sources in their lands. Since they have environmental and labor laws that are less concerned with human life compared to the developed countries, they can extract these mines comfortably, and it affects their production capacity. While it increases their power in the global energy sector, it also creates negative externalities on the environment. Therefore, even though renewable sources such as wind turbines or solar panels offer environmental-friendly energy, the production of these products is another concern for nature. Today, the main interest in renewable energy is decreasing the cost, and from 2011, the prices declined more than 50%, and it is expected to go down in the upcoming years as well. In the future, decreasing the negative externalities on the production of these tools will be the main problem.


Among China and the United States, many other countries are also working on developing renewable energy technologies as well. According to Bayülgen and Ladewig’s study, political systems that have fewer political constraints have fewer access points through which powerful status-quo veto players can slow the progress of clean energy reforms. Therefore, the stance of the governments and the major companies of the country play a significant role in determining the incentives for renewable technologies. For example, in Germany, between 2005 and 2015, investors poured over €150 billion into renewable energy. Energy companies and utilities, households, farmers, energy co-operatives, municipalities, banks, and institutional investors all provided capital to renewable energy projects, relying upon a policy that offered reliable revenues, attractive returns, and certainty. Since the cost of renewable energy was often higher than energy from more conventional energy sources, the policy was needed to plug the gap between renewable energy costs and the prevailing market price for electricity. However, the German economy was in good condition, and the government was able to finance the project. In 2012, they were giving a solar subsidy of 55 Eurocents per kilowatt-hour, which was way above the actual cost, and it helped companies to work comfortably on developing their technologies. As the prices began to decline and the structure of each renewable sector began to shape, the subsidies began to decrease, and it is now 12 Eurocents per kilowatt-hour. Therefore, the lack of political constraints helped Germany to become a key actor in renewable energy.


China also used the advantage of less bureaucracy in this area. They used their comparative advantage in the manufacturing sector and became the critical producer country in the world by developing many technologies, as we discussed above. These two were the supporting examples for the Bayülgen’s approach. However, one additional element would be supportive of developing the strategy from a political level. It is that being able to do reforms is not the guarantee of developing effective policies. For example, in Turkey, the Turkish government that ruled by one dominant political party implemented an incentive mechanism called YEK-DEM to support the producers. Like Germans, the Turkish government also gave incentives well above the market price, and many companies decided to go to this sector. The profit was highly expected, and even textile companies that suffered low profits chose to go in geothermal and wind turbine businesses. However, they were not working efficiently, and most of the Turkish companies used the capital to import the materials from countries like Germany and China and implemented their system to Turkey. With this operation, the role of renewable energy in Turkey increased, but when we think about the decreasing costs of producing these tools, we spend much more than we should. In the next year, according to the agreement, like Germany, Turkey will also decrease the incentive amounts, and now the companies are eagerly demanding to extend the current conditions for a few years more. According to their statement, many of them will be out of business if the government would not continue to support at the current level.


On transmission to renewable energy, I will lastly discuss the geopolitics side of the story. According to Paltsev, the rise of renewable energy may also create new centers of geopolitical power. He claims that as renewable resources become widely distributed, the supply-side of geopolitics is expected to be less influential than in the fossil-fuel era. From my perspective, this argument can be both right and wrong. First of all, if the world can build an energy grid system that connects every country, then we would be able to buy our energy from any selling country and sell if we have excess supply to one that needs. However, this can only happen if there won’t be any power struggle between states, and that has never occurred in history before. Paltsev approaches to issue from the following way: instead of focusing on oil and natural gas, low-carbon energy geopolitics may depend on many additional factors such as access to technology, power lines, rare earth materials, patents, storage and of course unpredictable government policies. Here, I think the rare earth materials will be as much necessary as oil and natural gas in the future. The countries that they have these materials will have leverages against the buyers. As it is stated in the article, lithium prices increased from $7000 to $20000 in one year countries that can provide these materials will have the upper hand and geopolitical importance. Even though after implementing the system, it would provide clean energy but, the maintenance of these tools will create additional costs and demand for these products so that it will be a different type of energy dependence.


Overall, we see that with the growing concerns on the environment, the countries perceive oil as a problematic product for nature and try to direct their sources to renewable energy materials. However, the political, economic, and technical aspects of this transmission create new problems and questions for humanity. I believe that this progress will have a massive impact on 21st-century politics, and the technological improvements will determine which location to be geopolitically important.


References

Bayulgen, O., & Ladewig, J. W. (2017). Vetoing the future: political constraints and renewable energy. Environmental politics, 26(1), 49-70.

Bazilian, Morgan D. “The mineral foundation of the energy transition.” The Extractive Industries and Society 5.1 (2018): 93-97.

China Is Set To Become The World’s Renewable Energy Superpower, According To New Report. Accessed November 7, 2019. https://www.forbes.com/sites/dominicdudley/2019/01/11/china-renewable-energy-superpower/#6680197a745a.

Colgan, J. D. (2014). The emperor has no clothes: The limits of OPEC in the global oil market. International Organization, 68(3), 599-632.

Paltsev, S. (2016). The complicated geopolitics of renewable energy. Bulletin of the Atomic Scientists, 72(6), 390-395.

Nelson, David, Matthew Huxham, Stefan Muench, and Brian O’Connell. “Policy and Investment in German Renewable Energy,” 2016, 12.

Yetiv, S. A., & Fowler, E. S. (2011). The challenges of decreasing oil consumption. Political Science Quarterly, 126(2), 287-313.

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