The world is on the verge of significant changes, especially when it comes to energy. Clean energy sources are becoming more available and cost-effective. Interestingly, China stands out as the leading force in clean energy, although it remains the highest emitter of carbon. Meanwhile, the newly elected president of the United States is known for his skepticism about climate change and his strong support for fossil fuels, hinting at a potential trade conflict with China. Adding to the mix, he has brought on Elon Musk, a major player in clean energy, as an influential ally. With all these developments, what lies ahead for energy?
Before the recent elections, I had a conversation with Fatih Birol, the director of the International Energy Agency (IEA) in Paris. The IEA is known for its annual World Energy Outlook, which serves as a crucial reference for the energy sector. Birol emphasized that we are moving from an “age of oil and gas” to an “age of electricity,” mainly fueled by renewable resources and nuclear power.
The IEA forecasts that renewable energy, especially solar power, will make up 80% of all new power generation capacities by 2030. According to Birol, countries are not just shifting to renewables for climate reasons; they are also motivated by the fact that renewables are often cheaper than fossil fuels. The costs of clean energy technologies such as solar panels, wind turbines, and lithium-ion batteries are currently at historic lows.
Moreover, there is enough renewable energy capacity anticipated to meet the expected surge in electricity demand. The IEA estimates that from now until 2035, electricity demand will grow six times faster than the demand for all other forms of energy. This rise is attributed to the increasing adoption of electric vehicles, as well as the growing reliance on air-conditioning, artificial intelligence data centers, and electric appliances. A positive note: over 90% of people worldwide now have access to electricity, primarily due to efforts in South Asia to connect underprivileged communities to the power grid, although about 750 million people still lack electricity, mostly in sub-Saharan Africa.
While the transition to electricity is expected to curb carbon emissions somewhat, it may not be enough. The IEA states that fossil fuel consumption, currently at record levels, is likely to peak around 2030 but will remain substantial afterward. Alarmingly, the agency predicts that global temperatures could rise by 2.4 degrees Celsius by 2100 unless countries adjust their policies.
On a more encouraging note, the clean energy sector is predicted to expand significantly. The IEA estimates that the market for clean technologies could nearly triple by 2035, reaching values exceeding $2 trillion, comparable to the current global crude oil market. China appears poised to thrive in this new economic landscape, similar to its success in the previous era, unless the new U.S. administration intervenes significantly.
Birol likens China’s dominant position in clean energy to that of Real Madrid in the Champions League, stating that “almost every energy story today is fundamentally a China story.” The country leads in key green industries such as the manufacture of battery cells, solar panels, wind turbines, refining essential minerals like lithium, and electric vehicle production, holding around a 70% share in these global supply chains.
The United States, at a considerable distance, is bolstered by Joe Biden’s Inflation Reduction Act, which has funneled investment into green industries. If the incoming administration decides to abandon this act, China stands to gain even more market advantage. Meanwhile, many European nations have fallen behind after relinquishing their early lead in solar energy, moving away from nuclear power, and becoming reliant on Russian oil and gas.
Threats of tariffs from the new U.S. president against China add another layer of complexity to the situation. His protectionist stance could push Europe and other allies to avoid Chinese technologies, affecting the flow of innovation and resources.
Nevertheless, investors maintain an optimistic outlook for companies like Tesla, which has seen a surge in market value since the election, surpassing the combined market capitalization of legacy automakers Ford, General Motors, and Stellantis. Notably, American consumers are expected to continue embracing clean technologies, especially if they are cost-effective and efficient, despite a push towards traditional fossil fuels.
There is some good news ahead: energy prices may stabilize in the near future. The IEA projects a possible oversupply of oil and natural gas, especially if more drilling licenses are issued. While Russia and Gulf states will keep exporting fossil fuels, they may earn less as the shift toward renewables and electric vehicles progresses. This transformation could mirror the decline of coal regions like West Virginia.
Ultimately, China’s plan is to navigate through the impending trade challenges and cement its position in the new economy, while Musk aims to capitalize on the opportunities arising from this shift.