War, trade tensions, politics and economics: the global factors shaping our response to climate change

“While all eyes are on issues that are not climate, whether it's the Ukraine war, the Israel-Gaza conflict, trade tensions, security conflicts, etc, the attention on climate withers and as a result we don't make very much progress.”

Varun Sivaram, of the Council on Foreign Relations, sets out the problem: wars and trade rifts are making it more difficult to tackle the climate crisis.

But not impossible.

Speaking on the World Economic Forum's Radio Davos podcast, Sivaram and Arun Sharma, of Indian conglomerate Adani Group, both said the momentum towards decarbonisation was now near to unstoppable.

“Laws of economics have a tendency to eventually win,” Sharma told Radio Davos. “That’s why I think there are a lot more hopeful things that we can think of than the negativity that geopolitical competition is pointing to.”

Both men are members of the World Economic Forum's Global Future Council (GFC) on the Future of Geopolitics and spoke to the podcast ahead of an Annual Meeting of the Global Future Councils in Dubai, where experts from around the world are discussing solutions to some of the thorniest problems.

The competition for climate technology

With half the world voting in elections this year, domestic policy imperatives are higher up the political agenda than global cooperation on climate change, the experts say. But that has not stopped seismic economic shifts such as the stratospheric rise of solar power, driven primarily by price.

The fight to dominate the solar market contributed to a trade war between the US and China. But the climate and other countries, rather than being caught in the crossfire, have actually benefited from the fallout, according to Sharma.

“What China did was it invested $160 billion in going ahead of what any country can do in this space. India is now trying to build [solar panels], and we are benefiting from China, the technology that they have developed, which they took from the West. But China mastered the technology, and they reduced the cost. So if a company tells you that geopolitics is stopping it from decarbonising, I don't think it works.”

He sees the same trend beginning to play out with green hydrogen, where around a fifth of the cost of production stems from electrolyzers.

“Right now, we are looking at two different worlds. There are Chinese electrolyzer economics and then there are Western electrolyzer economics, which are two or three times more expensive. This Chinese technology can actually accelerate the adoption of green hydrogen.”

The decarbonization dumping ground

Electric vehicles (EVs) provide another example of this for Sivaram, with Western tariffs on Chinese EVs providing a “dumping ground effect” that pushes excess capacity into emerging economies.

“This can be good for emerging economies in that they get cheap commodities,” he says, noting that this helps advance decarbonization. On the flipside, however, he points out that as this dumping effect pulls prices lower, it can make it impossible for emerging economies to build their own domestic industries for green technologies, as they have no way of competing on cost.

But if the world’s ultimate goal is decarbonization, shouldn’t the need for cheap technology trump the desire to avoid one country dominating the market?

“It might not matter for solar panels, because they don’t pose a security risk. But it does matter if I'm dependent on [China for] something that's a national security commodity,” Sivaram says.

“Batteries are one of those things. The United States therefore is going to take action to protect its domestic economy – the military devices that depend on batteries or consumer electronics that depend on batteries – and want to diversify its supply chain. For security reasons, it may want to do something that's a little more expensive than the pure best thing for climate, the cheapest way to achieve the climate transition. “

Tug of war on trade

These concerns have been part of the reason why the US has introduced restrictions on semiconductor exports to China, but for Sharma, this is only effective in the short term.

“In the long term, it forces countries to develop their own technology. By doing that, you are shooting yourself in the foot. The West can stop access to the technology, but I think it's only delaying the inevitable.

“China may also try to say, OK, India is becoming a competitor in the renewable manufacturing space … can we sort of stop a rival from emerging? Yes, in the short term, [you can and] it will have an impact. But it will galvanise India to develop its own technology.”

For Sivaram, this “global race to dominate supply chains, or at least to secure supply chains” will create winners but also losers, as is being seen in the arena of critical minerals.

“The countries that have access to these resources are suddenly becoming enmeshed in a tug of war,” he says. “Indonesia, for example, big exporter of nickel; Democratic Republic of Congo, [same] for cobalt; many countries in South America for lithium. You're going to see a tug of war play out [for these minerals] between China and the United States.”

While this may be good for the resource-producing countries, “from a pure climate perspective, the answer is clear: policies that raise the costs of incoming goods such as supply-chain components … hinder the ability to deploy clean energy”.

Ending the North-South divide

So what’s the best way to bring clean energy to the whole world – both the Global North and the Global South? Can big international climate conferences, known as COPs, help?

“Climate progress actually probably isn’t driven primarily through the COPs,” says Sivaram. “A lot of good progress is happening in the private sector … and so long as this continues and technologies improve, it doesn't actually matter very much whether the COPs get anything done. What's critical is that competition continues to drive a race to the top on the clean energy transition.”

For Sharma, COP meetings can provide a framework to help develop smaller-scale bilateral and other alliances. However, he points out that “the developing world doesn't want to be lectured [by countries that] created most of the emissions. They want to do something.”

Does this mean Western countries should be donating more money to developing countries to help them speed up their energy transitions?

“There are more effective things you can do,” Sivaram says. “If you're in the West and you invest in bringing down the cost of a critical technology that everybody around the world can use, it's both politically palatable [domestically] and it helps even more than just donating that money. We will actually have done more to reduce global climate change by bringing down the cost of technology than we would have by trying to mobilise some paltry amount of international aid funding.”

For Sharma, the progress in areas such as solar shows that “the private sector is working”, but he adds that the significantly higher cost of capital in the Global South than in the Global North is creating challenges. This is another area where he believes COP can help.

“COP has a role to play because it can look at the differentiated trajectory of different parts of the world in meeting climate change,” he says. “It has to develop the framework by which developed economies are assisting the Global South. Without that global governance mechanism, we are in a sort of uncharted territory.”

Sivaram is blunt in his final assessment: “We need to be done with this North-South divide, this emerging economy-developed country divide. We all need to get to zero. We need to do it now. And many of the things that we need to do are technical fixes to a) bring new technologies to market, and b) make it easier for these systems to integrate intermittent renewable energy.

“I'd love to see regional local coalitions start to make progress. We've heard exciting plans in the Indo-Pacific to link different countries [with] undersea transmission cables. We've seen the northern Europeans make real plans about coordination of transmission and offshore wind offtake and power market integration. These are technical things, but they make a big difference to attracting investment in the clean energy transition. And they can happen in rich countries and not-so-rich countries.