The green transition will transform the global economic order

The transition to a carbon-neutral world should make all countries better off, at least in theory. Many will rely less on fuel imports, yielding big savings and insulating their economies from swings in hydrocarbon prices. Those that export the metals needed for new Teslas, turbines and terawatt-hours of grid capacity will earn juicy rents. Even former petrostates may thrive if they can use revamped refineries and pipelines, as well as wind and sun, to make hydrogen. And everyone would welcome a planet that stops getting hotter and more dangerous every year.

In practice, the transition to net zero will be turbulent. Changing energy-consumption patterns and the reshuffling of trade flows will both crown new winners and create new losers. In 2024 this divergence, hitherto masked by the effects of covid-19, a flagging global economy and China’s deceleration, will start to become more visible—but not always in the ways you might expect. It is not simply the case that providers of fossil-fuel resources will lose and providers of green resources will win. There will be winners and losers in both camps.

During the transition the world will continue to guzzle hydrocarbons. The International Energy Agency predicts that oil demand will peak before 2030, but green backlashes seen in 2023 suggest it may not ebb so soon. Meanwhile investor pressure and doubts over long-term demand mean that only state-owned firms in the Gulf and Latin America are spending big on new supply. This will concentrate still-meaty oil rents in the hands of fewer exporters. Eventually the Organisation of the Petroleum Exporting Countries (OPEC), a cartel whose members disagree on how best to handle the transition, could implode, allowing low-cost petrostates to grab even more market share.

Demand for gas will persist longer still, allowing the trio that exports most of it in liquid form—America, Australia and Qatar—to cash in. Even coal will retain its lure into the 2040s. As long as energy-hungry Asia devours it, Australia and Indonesia, best placed to serve the region, won’t mind the dirty dollars.

But as oil riches continue to flow, many petrostates will fail to future-proof their economies, and will suffer eventually. Energy importers in Africa, Europe and Asia will have to pay top dollar for their hydrocarbons. After renewed volatility amid geopolitical worries in late 2023, prices for these are likely to swing again in 2024. A rebounding global economy will demand more oil just as Asia and Europe compete for gas. Barring a global crash, importing nations from Germany to Japan may face high prices for a decade or more.

The effects of electrification will also be nuanced. The rush to hit decarbonisation targets will create vast demand for the metals—cobalt, copper, lithium and nickel—that are vital ingredients in green power stations, grids and electric cars. In 2024 this prospect may trump near-term worries about the economy, causing metals prices to go up again. Yet with clean technologies still in flux, demand adapting to rising prices and new supply arriving in big lumps, the market for many of these minerals may go through rapid boom-and-bust cycles, wrongfooting exporters. Many such countries, new to mining, lack the well-run sovereign funds, hedging mechanisms and fiscal prudence needed to manage volatility. The difficulty and cost of turning mines on and off, and the geographic dispersion of deposits, make it unlikely that an OPEC of metals will emerge. That suggests that only the savviest few will grow rich flogging green resources.

And the boom will not last for ever: once there are enough windmills turning and electric cars on the road, appetite for green metals will stabilise at a lower level. More durable rents will flow to countries that can exploit strong sun, winds and rivers to generate plentiful green electricity they don’t need. In some cases the unequal endowment of resources will exacerbate regional differences: expect the windy North Sea and the sunny Mediterranean to do well, while cloudy continental Europe struggles. Luckiest will be countries that can combine several types of resources to guarantee a continuous supply of renewable energy. Those with small populations may use any surplus they produce to lure energy-hungry industries, such as steelmaking or data storage, to their shores. Others will seek to export the excess, either in the form of electrons or liquid fuels.

The energy superpowers of the transition will be those that ignore critics and do everything: flog fossil fuels, dig out metals and turbocharge renewables. No country does all that yet. The Gulf states talk a lot about solar and hydrogen but have yet to make either happen at scale. Chile mines vast amounts of copper and lithium but does not exploit its 6,500km of coastline, southern storms and sunny deserts to generate electricity in volume. America has shale oil and gas and ever more renewables, but faces opposition when it comes to mining for green metals in its backyard. The transition’s biggest prizes are still to play for. ■

Matthieu Favas, Commodities editor, The Economist