How geopolitics will both hinder and accelerate the global energy transition

The global race to lead in the energy transition has seen significant investments in infrastructure, particularly by the United States, the European Union and China. The US, through its Inflation Reduction Act (IRA), is directing $369 billion into clean energy, focusing on expanding domestic manufacturing of critical technologies such as electric vehicles and renewable energy components. The legislation is designed not only to cut emissions, but also to reposition the US as a global leader in green technology production. This parallels the European Union's Fit for 55 initiative, part of its broader Green Deal, which seeks to achieve climate neutrality by 2050, with key investments in hydrogen, offshore wind and grid modernization.

China, already the world’s largest producer of solar panels, is leveraging its dominance in clean energy technology supply chains to further entrench its global leadership. In 2022, it produced 80% of the world’s solar panels and dominated the global battery market. Meanwhile, resource-rich nations like Australia and Canada are strategically benefiting from their vast mineral reserves. Australia, which accounts for more than half of the world’s lithium production, is emerging as a critical player in the energy transition, capitalizing on the rising global demand for essential materials.

This shift towards green infrastructure is part of an accelerating trend where nations recognize that energy security, technological leadership and climate action are intertwined. However, geopolitical competition has introduced bottlenecks in the critical mineral supply chain, raising concerns about how this race might inadvertently slow the very progress it seeks to achieve.

The rising costs associated with the energy transition, termed “greenflation”, have sparked concern as the prices of raw materials and renewable technologies soar. However, advancements in technology and regulatory mechanisms are beginning to mitigate these inflationary pressures. Over the past decade, the cost of solar and wind energy has decreased by 85% and 55%, respectively, due to improvements in manufacturing efficiencies and economies of scale.

Moreover, emerging technologies such as carbon capture and storage (CCS) and small modular reactors (SMRs) offer the potential for cost-effective decarbonization. For example, the International Atomic Energy Agency (IAEA) projects that with sufficient policy support, SMRs could provide a scalable and affordable low-carbon energy source by the 2030s.

On the regulatory front, initiatives like the European Union’s Carbon Border Adjustment Mechanism (CBAM) are designed to prevent carbon leakage by placing a tariff on carbon-intensive imports, ensuring that the costs of decarbonization are shared more evenly. This regulation not only levels the playing field for European companies, but also encourages greener production practices globally, reducing the risk of greenflation while promoting sustainable growth.

As for resource demand, the IMF estimates that copper, nickel, cobalt and lithium will be most impacted by the global energy transition. Forecasting expected demand and subsequent impact on price is predicated on the time horizon and type of scenario. Specifically, achieving net-zero by 2040 or 2050 will have radically different implications for the price of key transition metals. The range of estimates varies. The World Bank expects a seven-fold increase in lithium demand by 2040 compared to 2020. In a net-zero emissions scenario, the IMF projects a 25-fold increase in lithium consumption by 2050 compared to 2020.

And finally, the IEA presents a range of possible futures. In its Sustainable Development Scenario (SDS), demand significantly exceeds supply, with lithium demand being 51 times higher than today's levels by 2040. Applying the IEA’s SDS to the rest of the transition metals of cobalt, nickel, and copper, we see a radical increase in demand:

New green technologies also often require more physical materials for the same output when compared with their conventional counterparts during the construction phase. For example, battery electric vehicles (BEVs) are typically 15 to 20% heavier than comparable internal-combustion engine (ICE) vehicles and will therefore become a key driver for materials demand in the coming decades. Estimates range from 35% to 68% of new car sales being EVs by 2030, with a likely range falling between 40% and 50%. This translates to around 25-40 million EVs sold annually by 2030, compared to about 7 million in 2022. The IMF forecasts that under net-zero scenarios projected to 2050, production of graphite, cobalt, vanadium and nickel falls short of demand, with a potential gap exceeding two-thirds. Even metals like copper, lithium and platinum face potential shortfalls of 30-40%, jeopardizing their ability to meet future clean energy needs.

Furthermore, the narrow clusters of key minerals and metals necessary for the energy transition are poised to be a flashpoint for supply chains. The following are based on 2022 production levels, are expressed as a percentage of the global total:

This concentration of critical minerals in a handful of countries introduces vulnerabilities. Supply chain disruptions or export restrictions, driven by geopolitical tensions, could jeopardize global energy goals. Geopolitical rivalries risk fragmenting supply chains and undermining cross-regional collaboration, especially as nations prioritize self-sufficiency over cooperation. This competition can delay collective action on climate goals, heightening the risk of supply shortfalls and regulatory misalignment.

In this context, third-party institutions like the World Economic Forum play a critical role in bridging divides: facilitating dialogue, aligning policy frameworks and driving coordinated action. Without such intermediaries, the transition risks becoming a zero-sum contest rather than a global effort. As the energy landscape shifts, fostering collaboration will be essential – not just for managing competition, but for ensuring sustainable progress on a planetary scale.