How resource protectionism is influencing the energy transition

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Eklavya Gupte:

Welcome to Energy Evolution, a Platts podcast brought to you by S&P Global Commodity Insights, where we explore the pivotal moments and trends shaping our energy future.

I am your host Eklavya Gupte, and today we're diving into a critical topic that lies at the intersection of geopolitics and energy, resource protectionism and its profound implications for the energy transition. Now we're just about halfway through 2025 and it's glaringly clear that the energy markets have experienced a tumultuous journey marked by volatility and uncertainty. From tariffs imposed on essential goods to a surge in global conflicts, escalating trade tensions are prompting significant shifts in the pace of the energy transition with many nations resorting to protectionist policies. The global rollout of renewable energy technologies faces significant headwinds according to many analysts and policymakers, but others are of the view that this trend in resource nationalism is actually quite bullish for the energy transition. Many fossil fuel importing countries in particular are looking to diversify their energy sources to tap more renewables, something Europe in particular has experienced in the wake of Russia's invasion of Ukraine.

Now joining me in this episode is James Burgess who covers the energy transition beat in the Platts news team. Welcome James. I know you've been closely following the impact on renewables from recent events this year. So how are tariffs and the ongoing economic and political uncertainty driving energy policies for many countries and companies?

James Burgess:

Well, it's no surprise that the clean energy tech has not been immune to some of these macroeconomic trends and the geopolitical scenarios that we're seeing at the moment. There's everything from critical minerals, batteries, renewables and carbon capture, and all these are dependent on global supply chains as well as investment decisions from developers in a widespread geography. And it really does depend on sector and geography. So we've seen Europe is really blazing a trail forging ahead with its green energy transition. It's reframing that in terms of national security and energy affordability, and that's something we'll come onto in a bit.

If we look at the US under the Trump administration, there's been a clear pull back from supportive policies for renewables, and the Trump administration has effectively scrapped a lot of subsidies and incentives for renewable energy. We've seen major uncertainty and cancellations for wind projects and hydrogen projects. A lot of developers and investors are pulling back or pausing decisions. If we look at Asia, China for example, is looking to gain market share in emerging clean technology areas from solar panels, as we've seen over the last decade or so to emerging electrolyser technology and other energy transition areas. They're also supplying their own expanding energy demand with renewables. And even fossil fuel rich regions such as the Middle East see opportunities there with countries looking to diversify into such things as green hydrogen and ammonia, largely targeting export markets.

Eklavya Gupte:

Thanks James. But at the same time, we have quite a few headwinds. Many energy companies, particularly the big oil and gas firms, are shelving or exiting from renewable projects. And we also see some governments applying some brakes on their energy and climate goals.

James Burgess:

So you're right, there's significant headwinds in the clean energy technology space. Supply chains have been disrupted massively, first of all from the COVID pandemic and the Ukraine war with Russia's invasion. And now we're seeing trade tensions and tariffs disrupt supply chains of critical minerals, of components. All of these in markets that are globalized in their nature. There's also been a period of high interest rates and cost inflation that's impacting policies from renewable hydrogen to offshore wind with developers having to revisit budgets and expectations around costs in a rapidly moving environment. And there's still delays in implementing some of the policy that we've talked about.

Even within Europe, there's still sectors where project developers and companies are becoming quite impatient for governments to deliver on some of the financing they've committed. Now it's starting to trickle through and we're seeing projects start to get built across the clean energy space. I mentioned it is sector-specific, so there's clearly booming demand for critical minerals and components for things like solar panels, wind turbines, other raw materials, but there's still cost concerns and policy frameworks are causing some delays in sectors such as offshore wind and hydrogen. Having said that, some see the momentum behind the energy transition as unstoppable, and while there could be short-term setbacks and delays, longer term, the path has been set to a switch to renewables and low-carbon energy.

Eklavya Gupte:

Thanks, James. Now James spoke with two experts to get a varied perspective on how recent events were impacting the pace of the energy transition. First, he spoke to Dan Klein, who is the head of Future Energy Pathways at S&P Global Commodity Insights. And Dan observes how many countries have had to modify and adapt their energy strategies to navigate these geopolitical shifts.

James Burgess:

Hi Dan, welcome to the podcast.

Dan Klein:

It's great to be with you James.

James Burgess:

So we're going to dive into some themes around the energy transition and how resource protectionism and nationalism impacting some of the investments and projects there. Now we've seen a lot of uncertainty around tariffs and other trade measures. How are these recent global events impacting the rollout of renewables and the energy transition?

Dan Klein:

Current events have been broadly worrying about the rollout of renewables and the energy transition. Supply chains of many things, but of clean energy technology particular have become so globalized with inputs and finished goods crossing national borders several times before their final usage. So the exposure there to tariffs and potential trade tariffs and the uncertainty there really raises their costs and raises questions about the investment environment to make those investments in those technologies. And this is particularly the case with the trade war with China. It's hard to overstate how crucial China is in this space from production of rarest minerals and the refining, the manufacturing of solar panels, EV components, hydrogen electrolyzers, all of those things. China really dominates in this space. And so increased tariffs on imports or components of these finished goods will have direct increase of costs of clean energy technologies and that can really impact a competitiveness with other forms of energy use and fossil fuel use in particular.

James Burgess:

Would you say the pace of the energy transition is stalling as well as these increased costs and supply chains?

Dan Klein:

I don't know if I would go so far as to say the energy transition is stalling, but there's just been some political pushback on energy transition and decarbonization goals of late. And once again, this is highlighted by the US and the Trump administration. It has really not been shy about its feelings about renewables and broader clean energy technologies and just with the announcing proposals to remove the subsidies and support mechanisms. At the same time, the sort of weakness in oil and gas prices has a knock-on effect from trade fair tariffs and slowing economic growth. And it weakens the economic trends incentive to switch to an EV for example. But it's tempting to get lost in the headlines here that there are prevailing factors that are getting factored into all of our outlooks that we're putting out across our scenarios. In my role in the scenarios team, I can tell you that there are few aspects about that future that we're building into each and every one of the scenarios which have a pretty wide range of energy futures.

And one of the biggest ones here is China's clean energy push. So for a variety of reasons, China has made this energy transition the centerpiece of its economy in the 21st century, and the amount of wind and solar that is being added in China every year is just staggering. It added over 200 gigawatts of capacity in 2024 alone, almost 300 gigawatts to be fair. And on top of this, one in every two cars sold in China is essentially an EV at this point. And so there's a massive number of that is going into China's big market and it's the biggest market in the world for these types of things.

And so when you look at what's going on in China, you can have a very strong feelings about the energy transition that's happening globally and just in its dominance of energy markets in particular. But what's happening in the US certainly is worrying for a broader energy transition concerns because if this sort of protectionism and feeling that decarbonization is not a higher priority, that is certainly worrying. And if this sort of bolsters the US economy, there could be other economies out there around the world that see a deregulatory pathway or focusing on lower cost fossil fuels could be the pass forward and that could spread to other markets.

James Burgess:

I feel that's an interesting aspect of the current geopolitics. There's been a growing focus on energy security from a lot of energy importing countries, and with that comes a drive in some sectors, and thinking of Europe in particular for homegrown power in particular renewables. So I was wondering if you can give us a sense of is this focus on energy security and homegrown renewables bullish or bearish for energy transition?

Dan Klein:

Energy security is a term that can apply to a lot of different things. And I think if you're talking about the push for energy security domestically, renewables, I think that's generally bullish for the energy transition. But I think if you're thinking about energy security in a broader sense that can apply to fossil fuel or in countries where fossil fuel use production is key to the domestic industry and that is something that might want to be protected and building domestic production. So the drill baby drill mantra in the US is certainly part of that in that aspect. So it's a really complicated issue and it's one that we're focusing on all our scenarios.

Our idea of energy security is the build of that is not going away. But as you say, in places like Europe or especially in smaller maybe island nations like Japan where there's not a lot of fossil fuel resources that go into place building renewables, whether you import the renewables from China or anywhere else or you're building up all that infrastructure domestically, that certainly insulates you from swings in oil markets, LNG markets and all those types of things. So those incentives are certainly staying in place, particularly as renewables are the lowest cost form of new power generation that can go into the market right now. So no matter what happens with geopolitics is that sort of guiding star principles being there is that if you need to build new power, renewables is the lowest cost solution.

James Burgess:

It's interesting, we're seeing a different picture emerge in different parts of the globe depending on how their economies are oriented around different energy sources, about the energy sources available. And we touched on this at the beginning, but I was wondering how you see energy transition investments and projects impacted by the growing protectionism that we're seeing globally.

Dan Klein:

Similarly, I think it's a complicated issue, but on balance, I think it's an additional barrier that the energy transition has to overcome to see an acceleration, the places that most people feel that it needs to go. This goes back to the idea that the modern economy is built on relatively free trade where goods are made from inputs sourced from around the world. And the modern economy in the 21st century is not nationalized. We're not building and using everything that's just made in a certain country and underscores that trilemma that we've often heard about before, balancing energy security, sustainability and affordability.

And while we've talked about how there can be overlap in these areas, so often domestic concerns, short-term concerns can overrule those factors for our energy sustainability. But really the uncertainty of all this that's happening, it's not necessarily there are tariffs in place, it's that there could be very wide ranging of tariffs, not knowing if you're going to have to pay a 20% tariff or a 100% tariff makes pretty uncertain market conditions. And especially considering that a lot of these clean energy technologies are so initially capital intensive and they can then have very low variable costs going forward. Having that certainty upfront is certainly important and there's different ways to [inaudible 00:12:57] with that. In the US, the IRA, the Inflation Reduction Act was trying to do this upfront where to build up domestic clean energy technologies, but that's sort of been weakened in this recent Trump administration.

James Burgess:

So it seems that there's an awful lot of headwinds facing the sector, at least in the shorter term. Do you see any bright spots for energy transition in the current climate?

Dan Klein:

I think this again once goes back to what's going on in China. I think those of us in the western world gets so focused of what's happening in the US and Europe and even Europe is seeming a little bit less ambitious about its climate goals. But the amount of new clean tech that's going into place year after year in China is incredible. The largest car market in the world is becoming more electrified than is using internal combustion engines in terms of new sales. So these types of things are moving forward.

And as China goes, so goes the world. So if you're looking at what's happening in a global fleet perspective, global sales are ticking up into the 20, 30% new cars being electrified. China is getting to its peak coal in terms of its demand, and that means the world is getting to its peak coal demand. It's right at or past its peak of gasoline and diesel. And so these types of milestones are really important and it kind of really underscores of where we go from here. Are we going to be seeing a sharper peak, a sharper reduction from those peaks globally, or are things like resource protectionism, trade tariffs, all those things going to really blunt those factors going forward or can we see a future where decarbonization accelerates?

James Burgess:

And just turning to Europe for a moment, how do you see the prospects there? Because it's been incredibly exposed to fossil fuels and a major importer, especially of Russian gas up until the invasion of Ukraine. And we've seen that as a big policy driver to shift away from fossil fuels and Russian gas in particular. You mentioned politics, there's a lot of political pressure on various parties across Europe to step back on some of the environmental and green policies. But at the same time, there is this continued narrative of pushing renewables and energy transition. How do you see the balance of energy sources there in the next few years?

Dan Klein:

I think policy makers are looking for that word, they're looking for balance. And with an uncertain future, needing to make sure they're not putting all eggs in one basket. So I think obviously in a long-term situation, if you have the installed capacity to use so much more renewables, your exposure to swings in prices and demand or geopolitical concerns like their cutoff of Russian gas into Europe become less of an issue. But at the same time, looking to build up LNG import infrastructure in other sorts of ways to sort of have backup plans or at least to a bridge to get to that future where it's more driven by renewables and being able to not be exposed to that. So especially in this sort of period of uncertainty, having a diverse strategy of doing both things at the same time is probably what a lot of policy makers are looking at.

James Burgess:

And then finally, looking in particular fossil fuel importers, how do you see them positioning themselves regarding the energy transition? Are they doubling down on a turn to renewables to try and move on to the new technology? Or are they focusing on further fossil fuel imports?

Dan Klein:

There's [inaudible 00:16:16] different categories of fossil fuel importers that are having different strategies. If there is a country that maybe not is looking for incremental growth of energy demand, mature economies, this is where growth of renewables can chip away at your existing need for energy and that would just chip away at fossil fuels. But if you're in a growing economy, the decisions are a lot more complex. Do you need to build a new natural gas distribution network to handle incremental natural gas if you feel like your growth of energy demand is that much larger [inaudible 00:16:47] LNG or is it something where you feel relatively confident about new renewables needing at least incremental energy demand growth and not needing to build that infrastructure? Because if you're thinking about how much infrastructure needs to be available, it can be very expensive. It can last for decades. And so there's a lot of concerns about stranded assets out there. So there's diverse strategies amongst countries about what they're doing depending on their growth profile for overall energy demand.

James Burgess:

Well, thanks very much for joining us.

Dan Klein:

It's a pleasure, James.

Eklavya Gupte:

We also spoke with Societe Generale's global head of commodity strategy, Ben Hoff. Now Ben is very much of the view that the narrative around energy transition is moving solely away from environmental considerations, but towards energy security and sovereignty.

James Burgess:

So I'd like to start with talking about fossil fuel importing countries. How are they positioning themselves regarding the energy transition? Our country's doubling down on renewables or focusing on securing more fossil fuel imports.

Ben Hoff:

First of all, James, thanks so much for having me. Lovely to be here. And I think that's really a very pertinent and timely question. I think in short, it really depends on the country you're looking at. Part of the world is obviously fossil fuel rich, less of a question for them. The other part of the world, which is really what we're focused on here, are countries that are fossil fuel poor. And indeed, the focus of the energy transition in these fossil fuel poor countries has really always been as much about saving carbon molecules as it's been about facilitating energy independence through the transition. So what I would say is that for that latter group of countries, the countries that are net importers of fossil fuels, the urgency to become more energy independent, less dependent on fossil fuels, as if anything increased. And I think that's really going to be a theme that we're going to see play out over the coming years.

James Burgess:

And another aspect, the macroeconomic aspect of the energy transition. In recent years and especially the last few months, we've seen very strong concerns around recession or potential economic downturns, partly driven by the Trump administration tariffs and other supply chain issues. How do you see that playing into the drive to energy transition when certain countries and regions are struggling with economic growth and looking at a less certain outcome?

Ben Hoff:

Well look, I think that's a really good question, James. Truth be told, any form of infrastructure development and energy infrastructure development is no exception. There is massively capital impacts. So the difference between 7% interest rates and 3% interest rates is ultimately the driver of economic viability of changing that infrastructure and putting in place new projects, new renewable projects. So to me, that's one of the major feedback loops where rates just do play a massive role and really determine the difference between economically viable and economically non-viable, probably more so even than just pure recession or recession fears.

The reason I say that is because at this point, maybe aside from the US and the change of administration here, but to a large extent, the die has been set for the energy transition at least in the rest of the world, outside of the US, to continue a pace, largely because it is to a significant extent publicly funded or at least in partnership publicly funded. But that's where rates come in. And when you have rates that are just double what they were five years ago, that really changes the economics of a lot of those projects quite significantly.

James Burgess:

And are there any concrete examples you can point to where there has been doubling down on transition renewables in light of increasing resource nationalism and protectionism?

Ben Hoff:

Working for a French bank. There's obviously no way I couldn't talk about France basically becoming significant nuclear energy provider in the 1970s. And that is, I think actually a very successful example of what can be achieved through arguably a level of protectionism. When you look at Pierre Messmer, was the prime minister in 1974, pretty much came up with a plan that single-handedly turned France from not being the producer of any nuclear energy in the early 1970s to nuclear being 75% of its electricity consumption by the mid 1990s. That obviously all played out against the background of a highly protected local energy infrastructure. The fact that, yeah, they did get an initial design from Westinghouse, but ultimately protected the evolution of that design, all things that were ultimately protectionist measures to some extent.

France consumes roughly 67% of its electricity from nuclear, but that has really laid the foundation for reliable integration of renewables into the system. And the net result of this is that amongst all G7 nations, France stands out in that only 3.7% of its electricity is generated by fossil fuels. And that really is possible through this early adoption at scale of nuclear, which one can argue very easily was the result of a successful protectionist policy.

James Burgess:

So you're saying it's more longer term that the direction's been set, the transition is in motion, the political agenda is set in places like Europe, so regardless of these headwinds, there's still momentum in that direction. Is that a fair characterization?

Ben Hoff:

Yeah, absolutely. I mean, we've got on the order of $2 trillion of energy transition related projects either underway or in the pipe that are basically planned out and at least in parts already being implemented. And so that's a wave of projects that's just going to be very difficult to stop dead in its tracks. So will it slow the train? Yes, probably it will slow the train, but ultimately the direction of the train here is set and this train has left the station. So it seems unlikely to mean that we're going to see any form of complete reversal here, at least at a global level.

James Burgess:

Another element of energy transition, and it relates to national spending and how governments and institutions are approaching this. There's been a lot of discussion around the parallels in national security and energy security. I was wondering what your thoughts are on how governments are allocating funding between defense and energy transition?

Ben Hoff:

Look, I think there's an increasing realization that national security and energy independence go hand in hand. That indeed energy independence is part of national security. And so I think that's increasingly the perception. Certainly Europe, you look at the new German government that just assumed power, the abolition of the debt break in as much as defense related spending is concerned together with an infrastructure bill. These are all manifestations of this realization that defense slash national security and the energy transition go hand in hand. Now, that's obviously a lot truer for countries that are fossil fuel poor than it is for countries that are fossil fuel rich. But conceptually, energy is the one, probably the single largest Achilles heel of an economy. And that is something that I think really was brought home for Western Europe as a result of the war in Ukraine, where basically when you look at Germany as probably the leading example, a large chunk of Germany's industrial success from the 1970s onward was funded by the reliable and cheap availability of Russian fossil fuels, notably natural gas via pipeline.

And having that suddenly removed as a result of the war in Ukraine really changed the economics in a very significant way for Germany. And it's that realization that really dawned on politicians and I think Europeans at large, that if you don't have fossil fuels available locally, you are vulnerable. And really the only vehicle, the only known technological vehicle that these countries have as of now to alleviate these vulnerabilities through the energy transition. Maybe not to the point where they become completely energy independent, but where they would use their dependence on fossil fuels to a manageable extent.

James Burgess:

Well, thank you very much. Thank you, Ben Hoff, thank you for joining this podcast.

Eklavya Gupte:

All right, listeners, that is all for this episode. Hope you found it useful. Please stay up to date with upcoming episodes by subscribing to Energy Evolution on Apple, Spotify, or wherever you prefer to listen. If you have ideas for guests or topics, please email energyevolution@spglobal.com.

Now, before we sign off, I would like to give a shout-out to our other podcast team members, that includes my co-host, Taylor Kuykendall, Camilla Naschert, Karen Willenbrecht, Dan Testa, and Christopher Coats. Thank you very much for listening.