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Solving Europe's energy crisis with Norway's power
Europe's energy security hinges on Norway and its transition from fossil fuels to renewable sources. That has big geopolitical implications for Ukraine and NATO.
On GZERO World, Ian Bremmer delves into Europe's urgent quest for energy independence and the broader geopolitical shifts that could redefine the continent's future. With the specter of reduced US support for Ukraine after November’s election, Europe's resilience, particularly in energy security and military capabilities, takes center stage. Norwegian Prime Minister Jonas Støre joins Ian to discuss Norway's critical role in this transition, emphasizing the need for a swift move from oil and gas to renewables, a monumental task that Europe and Norway are determined to undertake in a remarkably short timeframe. “Norway will transition out of oil and gas. When we pass 2030, there will be declining production, and then we want to see renewables transition upwards,” Prime Minister Jonas Støre tells Ian.
Their conversation delves into the ramifications of the US election outcome on NATO and Ukraine, underscoring Europe's precarious position should American support wane. The discussion reveals the continent's vulnerability to fuel crises and the imperative for a robust energy strategy that lessens dependency on external forces, notably by severing ties with Russian fossil fuels in response to the invasion of Ukraine. “Europe's ability to assist Kyiv on the battlefield will hinge not just on military capabilities but also Europe's own energy security,” Ian explains.
This is a moment of transformation for Europe as it navigates the complexities of energy transition and geopolitical uncertainties, highlighting the interconnectedness of sustainability, security, and solidarity in facing the challenges of the 21st century.
Catch GZERO World with Ian Bremmer every week online and on US public television. Check local listings.
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Graphic Truth: Global fossil fuel subsidies on the rise
In 2022, the International Monetary Fund crunched the numbers and found that governments were spending a whopping $7 trillion on fossil fuel subsidies. The colossal sum spent on these grants and tax incentives was largely driven by the war in Ukraine and its ripple effect on energy prices. But it wasn’t an outlier; the trend had already been on an upward trajectory as economies surged in the Global South, which suggests it is likely to continue unless there is a global transition to green energy.
To put these numbers into perspective, government backing for fossil fuels represents over 7% of the world's GDP, dwarfing other crucial budget items like education spending, which amounts to a mere 4.3% of the global GDP.
According to the IMF, curbing these subsidies could not only realign humanity with climate goals but also save 1.6 million lives annually and boost government coffers by $4.4 trillion.
Can the world run on green energy yet? Author Bjorn Lomborg argues that's very far off
Renewable energy technology like solar power, wind turbines, and battery storage have made exponential advances in the last decade. But is it enough to address the climate crisis?
On GZERO World, Danish author Bjorn Lomborg sits down with Ian Bremmer to discuss his controversial views on climate change and his belief that current climate technology is nowhere near where it needs to be to move to a net-zero world truly. He acknowledges the price of things like solar panels has gone down, but argues renewable tech is still being propped up by government subsidies.
Scaling up renewable energy technology, even in wealthy countries, is still a huge challenge.
Lomborg says that solar and wind power are intermittent energy sources that can’t provide enough power to keep most places running 24/7. And while prices have come down significantly from where they were a decade ago, the price of lithium-ion batteries needs to be 99% cheaper for them to be a real, practical solution for reliable energy storage.
“We are just far, far away from this actually being something that will scale even in rich countries, and certainly not in poor.”
Watch the full interview on GZERO World: Climate change: are we overreacting?
Catch GZERO World with Ian Bremmer every week at gzeromedia.com/gzeroworld or on US public television. Check local listings.
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Subsidy game could hurt Canada-US relations
Jon Lieber, head of Eurasia Group's coverage of political and policy developments in Washington, DC shares his perspective on US politics.
What is happening with US/Canada relations?
Well, I'm headed up to Toronto, Canada, just about a week after President Biden made his first trip to America's neighbor to the north, which is also the US' second largest trading partner. A very important, deeply ingrained relationship between these two North American economies. And a major source of tension right now between the US and Canada is over industrial policy. The US over the last several years has started to deeply subsidize infrastructure development, semiconductor manufacturing, and in the Inflation Reduction Act, green energy production, electric vehicles, and the components that go into this.
Now, the automobile industry is obviously a very major component of US/Canada trade and has been that way since the mid '90s when NAFTA was signed. The renegotiated USMCA has created a new set of playing rules for governing US/Canada trade, and there have been several long-standing disputes between the two countries that have not yet been worked out. And now with the introduction of the US' new subsidies, the Inflation Reduction Act is causing major concerns in Canada who are worried about losing green energy investments to the United States where there are tax preferences, loan programs, and other direct form of subsidies in order to get that manufacturing into the US.
Canada last week responded with its own budget, laying out billions of dollars in new subsidies to help compete with the United States and hoping that it can attract some of that investment over the northern border. Canada has several very attractive elements that the US does not have, including lower costs of construction, more flexible immigration policy, allowing them to take in higher skilled labor from around the globe, that is set specifically around set of criteria having to do with how qualified and educated immigrants are. This exists in the US but to a much lesser extent, and now Canada's getting into the subsidy game.
So this could be an ongoing source of tension between the two countries. It means that if you're looking to build a manufacturing plant for green energy or EV, electric vehicles, or for batteries, there's going to be this race to the top that the US is trying to push. Where Canada, the US, the EU, are all looking at different ways they can get these manufacturers into their markets. And going forward, these types of tensions could be an important part of the US/Canada relationship.
Both leaders are incentivized to keep things friendly between the two countries. Canada has a lot to lose if they could cut out of the US market. And from the US perspective, Canada is sort of like a very large state where English is the primary language, there's very little trade barriers, a highly educated workforce that's competitive across many of the same areas that the US economy is, and the US is also deeply incentivized to get along well here with Canada.
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A view of solar panels at the green hydrogen proof-of-concept site in Vredendal, Western Cape, South Africa, in November 2022.
How to recharge Africa’s electrification dreams
Africa’s dreams of providing universal access to electricity by 2030 are in jeopardy thanks largely to a change in tune from China. The pandemic’s impact on the Chinese economy, years of debt-sustainability concerns, and plenty of bad press have zapped China’s ability and willingness to fund African power projects.
How did Africa come to rely on China? Over the past decade, some African leaders argued that conventional lenders and Western countries were not dependable partners. They urged countries to look instead to China to fill funding gaps to power the continent’s energy infrastructure goals.
As a result, China’s contribution to Africa’s power sector has been enormous: The International Energy Agency estimates that the amount of generation capacity from China’s 2010-2020 contracts in the region was around 17 gigawatts – projects mostly financed with Chinese loans and, to a lesser extent, equity, grants, and blended finance.
But today, Chinese investment in African power projects is declining sharply, leaving governments exposed to a potential shortfall in energy funding over the coming decade.
The scale of the problem. China is by far the largest bilateral lender in Africa and is very active in the power sector. But the story is changing rapidly. According to Boston University’s Global Development Policy Centre, Chinese investments in Africa’s power generation fell from an all-time high of over $4.7 billion in 2017 to about $570 million in 2020 – an 88% drop.
At the 2021 Forum on China-Africa Cooperation meeting in Dakar, Senegal, China watchers were surprised by the reduction in China’s investment commitment – from a 2018 pre-pandemic level of $60 billion to $40 billion. It also placed emphasis on lending to African financial institutions as opposed to bilateral lending, which is most likely a response to the challenges many African countries have faced post-COVID with debt sustainability.
Angola and Zambia have benefited enormously from big-budget Chinese power projects. Angola’s 2,172MW Caculo Cabaça hydropower plant project received $4.5 billion in funding through a syndicated loan from the Industrial and Commercial Banks of China, the Bank of China, the China Construction Bank of Beijing, China Minsheng Bank, Ping An Bank, and the Bank of China’s Shanghai Pilot Trade Zone Branch.
The Zambian government also contracted a 750MW hydroelectric power project in 2017 with $1.5 billion in funding from the Export-Import Bank of China and the Industrial and Commercial Bank of China Ltd.
But in late 2020, Zambia became the first African country to default in the COVID era – and as one of China’s top debtholders, gave Beijing reason to be wary. Then, in 2021, Angola, China’s biggest debtholder in Africa, entered into a three-year debt relief agreement with its Beijing lenders, deferring payments from 2022 to 2023.
In turn, Chinese creditors are becoming more risk-averse. Zimbabwe and Kenya, where China has pulled funding for coal projects, are two examples of Beijing’s new approach.
Zimbabwe’s 2,800MW Sengwa Power project was put on hold in 2021 when the Industrial and Commercial Bank of China reportedly pulled out of the $3 billion dollar project. This came after the ICBC canceled a similar coal power project in Lamu, Kenya. The Lamu project was plagued by litigation and environmental protests, which caused the Chinese financier to abandon it altogether.
African electrification needs diverse funding sources. The African energy sector was struggling to attract investment even before the onset of the pandemic, and today’s economic downturn has exacerbated the problem. Some 600 million people in the region don’t have access to electricity, and that number is likely to reach 630 million by 2030 if the recovery continues to stagnate. It is becoming increasingly difficult for Africa to attract investment amid fears of default and downgraded credit ratings.
The World Bank says sub-Saharan Africa alone needs $20 billion to finance universal electrification in the region. While the bank can provide some of this funding, it has signaled that it cannot mobilize all of the needed finances, citing the need for alternative sources. African governments need to get creative to woo partnerships and funding to power their future.
Many global north countries have expressed interest in financing African infrastructure with a focus on private sector-led investments. The European Union, for example, is looking to raise 300 billion euros to finance African infrastructure as part of its Global Gateway initiative. The Biden administration, meanwhile, is championing its $600 billion Partnership for Global Infrastructure and Investment abroad, including projects in Angola, and the Build Back Better World initiative at home.
Some experts think these commitments were dead on arrival because there were no concrete follow-up actions. There are also concerns that Western project developers may be too risk-averse to consider taking up contracts in most African countries. This is a worrying trend because recent data from the World Bank shows that private investments in Sub-Saharan Africa decreased by 17% in 2021.
Still, there are opportunities for African nations to forge more public-private partnerships in the power sector, and there are successful models across the continent that can serve as benchmarks for newcomers. The Ouarzazate Solar Power Station project in Morocco and South Africa’s KaXu Solar One are good examples.
Governments may also consider shifting from large-scale power plants to smaller and modular units as these are more attractive to green financing. China, for example, is moving away from financing coal-fired power projects to focus on green financing for overseas power projects, thus signaling a new direction across the board. These include smaller projects focused on things like solar and wind power generation.
China’s reduced funding for African energy infrastructure should serve as a wake-up call to African governments that they cannot solely rely on Beijing’s support. They should instead carefully pursue alternative financing sources and diversify to include smaller power projects that can more easily attract funding.
This op-ed was written by Knollis Delle, a renewable and alternative energy policy expert at the Ministry of Energy in Ghana.