4 ways geopolitical tensions are increasing carbon emissions

In today's complex global landscape, geopolitical tensions have far-reaching implications across a variety of sectors. The ripple effects of these tensions are felt across politics, economics, society and the environment. These interconnected challenges don’t just impact governance structures but also affect the delicate equilibrium of our ecosystems in unexpected ways.

Supply chains are perceived as robust and reliable systems upon which the global economy has relied for decades. But ongoing geopolitical conflicts threaten the balance of trade between producers and consumers.

Turmoil in the Red Sea has sent shockwaves through commercial shipping industries as strategic maritime routes are compromised. The impact on not only the shipping industry but also the global economy is clear, influencing everything from delivery schedules to the availability of goods. Russia's war against Ukraine has inflicted major disruptions, particularly through the re-routing of both commercial passenger and cargo flights.

These ongoing disruptions could expedite the trend towards nearshoring driven by a dual strategy to achieve greater control over supply chain management and to reduce emissions and the carbon-associated impact of global air, land and sea trade.

In navigating this polarized world, effective responses must be collaborative and transcend traditional silos for a sustainable and harmonious future. By acknowledging the interconnectedness of global challenges, a systems approach becomes imperative.

Global leaders must move away from the practices of the globalization era to address frequent and unpredictable disruptions. A meaningful and positive outcome from building more resilient supply chains is that sustainability is inherently addressed. As the world moves towards regional management of resources, the impact on emissions will be positively reduced.

Here are four geopolitical issues set to impact carbon emissions in 2024:

The maritime industry, responsible for transporting more than 80% of international trade volume, faces a daunting challenge in its quest to decarbonize the global fleet. With shipping already contributing about 3% of all global greenhouse gas emissions, the industry operates an aging fleet predominantly fuelled by fossil resources.

Despite ongoing investments in alternative fuels such as liquefied natural gas (LNG), liquefied petroleum gas (LPG), methanol, biofuel, electric and hydrogen, their application is currently constrained by distance and route limitations.

Ongoing geopolitical conflicts and threats to commercial shipping are compromising this strategic maritime route, crucial for the swift movement of goods between Asia, Europe and the Americas. The prolonged Red Sea conflict and the resulting avoidance of the Suez Canal necessitate rerouting via the Cape of Good Hope – a detour that adds 7 to 10 days to shipments between Asia and select Western markets.

Increased rerouting amplifies the carbon footprint of the industry, while the recent inclusion of maritime emissions in the EU's Emissions Trading System with a carbon tax based on distance is expected to further escalate costs, with potential consequences of a 3-5% hike passed on to consumers.

As the sector grapples with these challenges, finding sustainable solutions becomes even more crucial for both economic and environmental reasons. The impact on not only the shipping industry but also the global economy is clear, influencing everything from delivery schedules to the availability of goods.

The closed airspace over Ukraine and Russia forces aircraft to detour, circumventing the restricted airspace, which significantly elongates their travel paths. These extended routes not only result in increased fuel consumption but also escalate carbon emissions, intensifying the environmental impact of air travel – one of the hardest to abate sectors.

To make the situation worse, maritime challenges have shifted preferences for transporting high-margin goods. As the maritime route becomes more costly and less predictable, air freight is a more viable alternative, offering reliability and speed. A shift towards air freight could be particularly pronounced for products where the value and time sensitivity justify the higher transportation costs.

However, closing main airways such as over the Ukraine–Russian airspace poses significant disruption to this possible surge in demand. We anticipate that this trend will likely be limited to high-margin goods where the higher cost of air transport doesn't significantly impact profitability.

The aviation industry, already under scrutiny for its carbon footprint, faces heightened challenges owing to geopolitical conflicts affecting airspace accessibility. Airlines are compelled to operate less fuel-efficient routes, leading to higher overall emissions per journey. This not only poses a concern for the environment but also underscores the intricate relationship between geopolitical events and the broader environmental impact of human activities.

Efforts to address climate change in the aviation sector are further hindered by such airspace restrictions, necessitating a comprehensive approach that considers both geopolitical stability and environmental sustainability to mitigate the cumulative effects on carbon emissions.

The concentration of critical minerals poses a threat to global economies, people and national security and has profound implications for carbon emissions. Examining crucial battery materials, for example, such as lithium, cobalt and graphite, it is alarming that, according to a Kearney analysis, a single country controls at least 60% of one or more stages of global production for each of these elements. Australia, Chile and China emerge as the top three players. This level of control not only puts economic stability at risk but also raises concerns about environmental sustainability.

The US Department of Defence (DOD) has identified 37 critical minerals where more than half of global production relies on a single country, intensifying the challenges of securing stable and sustainable access to these resources. Such concentration not only threatens the resilience of supply chains to disruption but also exacerbates carbon emissions by limiting the ability to diversify and adopt more sustainable practices in the extraction and production of these vital materials.

Addressing these vulnerabilities is not only a matter of economic prudence but a crucial step towards mitigating the environmental impact associated with the current state of supply chain concentration.

The need to enhance both resilience and sustainability within supply chains presents a compelling opportunity that necessitates the involvement of governments and international cooperation. Market forces alone are insufficient; a new framework for supply chain resilience requires collaborative efforts among like-minded countries.

Geopolitical conflicts, despite their challenges, offer a unique space in which to advance these international cooperation frameworks. A strategic approach involves the expansion of global value chains, particularly in critical manufacturing sectors, through the establishment of alternative suppliers outside the region for the production of semiconductors, electronics, automobiles, batteries and electric vehicles. To mitigate disruptions, it is crucial to adjust the level of buffer inventory, stockpile critical components and enhance air cargo capacity.

A robust supply chain risk analysis framework involves a thorough assessment of the entire supply chain to identify and evaluate potential risks at every stage. This analysis typically assesses risks from geopolitical tensions, economic volatility and environmental concerns. By creating a comprehensive risk profile for the supply chain, companies accomplish a dual mission – one that prioritizes risks based on geopolitical tensions as well as addressing sustainability priorities.

At the same time, the concept of the blue economy emerges as a crucial strategy, emphasizing the sustainable use of marine resources within our oceans. This holistic approach focuses on three pivotal elements: greenhouse gas emissions, trade and economic development. By fostering such international collaboration and adopting comprehensive strategies, there’s a transformative opportunity to fortify supply chains against disruptions while simultaneously advancing sustainability goals on a global scale.

In the current global landscape, with escalating conflicts in a world polarized on multiple fronts, we see how geographical tensions have unexpected effects across all development angles. Geopolitical rivalries and conflicts have inadvertently become drivers of environmental degradation as nations prioritize their strategic interests over collective efforts to combat climate change.

These geopolitical conflicts are more than a disruption, they pose a strategic challenge for global trade, impacting sustainability goals and exposing new vulnerabilities. The Red Sea disruption and Russia's war against Ukraine have revealed the fragility of the global supply chain, particularly at critical choke points, all leading to higher costs, greater operational challenges and negative impacts for the climate.

Short-term policies such as price management and re-routing address the immediate impacts but they leave gaps in addressing sustainability and supply chain resiliency. Future shifts involve moving to regional supply chain management, such as nearshoring and balancing multi-modal transportation based on the type of goods and services. To manage these disruptions, businesses must focus on real-time supply chain monitoring, supply chain resiliency and a comprehensive sustainability strategy.

A silver lining is that this crisis presents a unique opportunity for leaders to swiftly adapt and reconfigure global trade and climate strategies in the face of escalating regional uncertainties. The intersection of geopolitical dynamics and environmental concerns is just another example of the need for the global community to prioritize multilateral cooperation and sustainable practices to address the pressing effects of climate change in an interconnected world.

Sustainability can be a vector of change that not only promotes an inclusive economic development but also underpins peace and stability.