Managing the geopolitics of Europe’s energy transition

“Geopolitics is disrupting the critical supply chains essential for the energy transition, not least in Europe. Ahead of an event at the LSE Festival Peter Hill introduces the Clean Technology Partnership Initiative, a framework which assesses where national security, energy resilience and growth objectives converge to identify where international partnerships can reduce exposure at reasonable cost. Europe’s energy transition is no longer just about tackling climate change. Shocks from conflicts in Ukraine and Gulf have exposed the risks of relying on imported fossil fuels and concentrated supply chains. America has turned towards tariffs and appears to see Europe as irrelevant or subservient. China dominates most key clean technology components and has shown its willingness to weaponise these. These changes in the strategic environment are leading European governments to conclude that open markets alone will not deliver their objectives of energy resilience, national security and economic growth. A more deliberate approach to clean energy and industry supply chains is needed. The European Union is already moving in this direction. The EU’s Net Zero Industry Act , Clean Industrial Deal and proposed Industrial Accelerator Act seek to build more resilient supply chains. Britain has pursued similar objectives through its Modern Industrial Strategy and Clean Power 2030 Action Plan . Strategic partnerships at the bilateral level, such as the EU’s Clean Trade and Investment Partnerships and critical minerals agreements, are creating the basis for co-operation between trusted partners. But these initiatives do not yet confront the choices Europe faces: what to build domestically, what to source externally, where to accept higher costs for reasons of security or domestic industry and which partnerships to pursue to reduce risk at scale. The Clean Technology Partnerships Initiative This is what the Clean Technology Partnerships Initiative (CTPI), which I chair, seeks to address. Extensive analysis is openly available on supply chain exposures. The harder task is to distinguish between vulnerabilities that matter strategically, those that can realistically be addressed and how to prioritise and practically implement partnerships that enable investment in critical supply chains. The CTPI framework assesses where national security, energy resilience and economic growth objectives converge, identifying the supply chain segments where international partnerships can materially reduce exposure at reasonable cost. The result is a practical way to move from high-level discussion of the geopolitics of energy and climate to specific measures that governments and industry can take forward at acceptable cost. For Europe, our analysis shows that interventions should focus on a set of critical clean energy supply chains where risk is most acute and where partnerships can best strengthen the industrial base, economic resilience and energy security, specifically batteries, offshore wind, grid equipment, nuclear, geothermal, heat pumps, green steel and green ammonia. These areas share a common feature. Vulnerabilities are concentrated in specific segments of the value chain, many of which apply to several technologies; domestic action alone is insufficient to mitigate the vulnerability; and targeted partnerships can materially reduce exposure. The nature of vulnerability differs across the sectors however. In some, the risk comes from one country controlling key early stages of production. In others, it results from trusted partner countries’ lack of capacity, or because the early stage of market formation means that supply chains have yet to be firmly established. Because not all supply chain risks require the same response, understanding these differences is essential to determine the form of intervention. Long-term offtake agreements can give producers the demand certainty needed to secure investment. Strategic equity stakes may be needed where upstream supply is highly concentrated. Joint ventures and inward investment can build manufacturing capacity and support technology transfer. Strategic imports can be the fastest and most efficient route where domestic production is not viable. In many cases this will require blended finance, using public capital, export credit, development finance and guarantees to reduce risk, aggregate demand and crowd in private investment. Many of the most important projects will not be delivered by private capital alone, particularly in emerging markets where infrastructure, political risk and bankability constraints can be significant. Public finance cannot replace private investment, but it can reduce risk, aggregate demand and make projects viable. An urgent challenge European governments are making clear that they see these challenges as urgent. But problems of co-ordination across and between governments, and the limits of political attention, mean they may need to prioritise, starting with the most acute geopolitical chokepoints where disruption would be hard to absorb. Take the battery supply chain . Europe cannot replicate all the upstream supply chain for batteries domestically at competitive cost. But it can reduce dependency in selected stages of the supply chain. Partnerships with trusted partners able to supply graphite and anode materials, cathode materials and cells can diversify exposure, while European policy can continue to support domestic assembly, recycling and downstream manufacturing. Further intervention will be required for these supply chains to be commercially viable in Europe as recent developments, including the failures of Northvolt , a Swedish firm, and Morrow Batteries , a Norwegian one, have shown. Delivery will require a level of organisation and orchestration in government that may prove challenging but not impossible. It will require co-ordination between government departments and agencies, between partner governments and with industry and private finance. It will also require political discipline. Governments sometimes mistake memoranda of understanding for delivery. Diplomatic statements can set direction, but supply chains are changed by binding commitments, credible demand and finance that reaches projects. Governments need the capability to work across energy, industry, finance, foreign affairs and defence, and to give someone or some body, a mandate to originate, structure and close deals at commercial speed. European countries will also need to co-ordinate demand and financing where national markets are too small to anchor investment alone. And however difficult, more effective co-ordination is likely to be more effective than relying on regulation or trade protection alone. Reducing geopolitical risk in clean technologies does not require a rewiring of relationships or new organisations. At least initially, the number of partners Europe would need to work with to address its key vulnerabilities would be limited and would include both OECD and non-OECD countries. There is a good basis to build from. Across the geographies examined by the CTPI, there are existing relationships, capabilities, trading partnerships and interests that can be built on to create deeper co-operation and resilience. The geopolitical challenge facing Europe is significant. Without a more co-ordinated approach, the clean energy transition and its industrial and economic benefits risk being shaped and seized by other powers. Addressing vulnerabilities in a co-ordinated and comprehensive way can secure benefits for Europe and build relationships that withstand a changing geopolitical landscape. CTPI’s proposed approach is deliberately practical, seeking to turn broad discussion about the geopolitics of the energy transition into an executable programme for doing something about it, providing advice to governments and their delivery arms such as policy banks. Our aim is to give governments a methodology for making decisions; a set of specific proposals and partnerships to implement those decisions; and, insofar as they want it, technical support to turn proposals into investable proposition. We will publish our findings in the coming weeks. On 15 June Peter Hill will take part in “ How geoeconomics will affect the green transition ”, a public event being held as part of the LSE Festival: How to save the planet. Register to attend in person or here to attend online . This article gives the views of the author, not the position of LSE Business Review or the London School of Economics. You are agreeing with our comment policy when you leave a comment. Image credit: Shutterstock AI The post Managing the geopolitics of Europe’s energy transition first appeared on LSE Business Review .

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