The global economy has been hit by humongous roadblocks in the past two years. First, we saw Covid bring the entire planet to a standstill and then disrupt supply chains. Next, the Russian invasion of Ukraine pushed costs across segments to unbearably high levels. The inflation bogey hasn't spared developed or developing nations. Energy costs, food shortages, agro-inputs crunch, financial disruptions and ultimately high inflation along with capital flight from the majority of countries have led to an unsustainable global economic outlook. Many small nations like Sri Lanka have already seen debts spiralling out of control leading to social unrest. Nations in Africa and Asia too are seeing high-interest rates and capital scarcity to service debts making it very difficult to support their fledgling economy after Covid devastation. Set against this backdrop is the global ambition of greener growth to tackle climate change whose effects are felt across continents simultaneously. The pledge to turn to carbon neutral, energy-efficient, decarbonisation of the mobility sector along with other energy-intensive sectors by nations is now in serious trouble. This pledge looks impossible due to capital turning elusive and the finances of nations going haywire with unforeseen events.
I assume that climate finance would have been fulfilled by Europe and U.S- reservoirs of global capital, but with Europe reeling under the high inflation, especially energy costs, its ambition to finance a green transition remains doubtful. In America, coal is slowly clawing back and Biden’s tenacious position amongst the electorate has made him allow polluting minerals to be back in use. In Europe, the geopolitical calculations to punish Russia has led to high gas scarcity and hence turning European nations towards coal. This one might infer short-term changes that can be reversed with geostrategic changes. But the transition to green energy has now brought a whole different problem- one that looks very difficult to ease. This transition to a decarbonised world hinges on two fundamental pillars- one being “climate finance” which entails the expenditure of trillions of dollars, especially by low-income nations. The other is critical minerals including lithium, bismuth, cobalt, nickel and rare-earth elements where most production is concentrated in just three countries. Amongst this is China whose dominance extends to control of 50% of global rare earth mining and 80% of the processing of the rare earth elements into industrial products needed in the renewable energy sector. Most disturbing for India whose transition towards decarbonisation largely hinges on Solar power is that the International Energy Agency has warned that 80% of all the world’s Solar manufacturing stages, from polysilicon to ingots, wafers, cells and modules will be in China by 2022. This is unprecedented and China’s foresight in developing these industries to capture the energy transition process will be a major geo-economic and geo-political tussle. Hence now the globe has challenges surrounding a transition to a green economy that entails a Chinese assertion with ownership of renewable inputs required and a lack of finance for adaptation.
In such a scenario I argue that the partnerships that the U.S has been building through QUAD, I2U2, and Partnership for Global Infrastructure and Investment must focus on financing nations for the transition. This finance must be in opposition to the debt traps of Chinese capital and must genuinely engage with nations to build sustainable low-carbon energy infrastructure. Next, the US has created the Mineral Security Partnership, “an ambitious venture to bolster critical mineral supply chains” according to the US, which is a development of international significance. Eleven countries (US, Canada, Japan, Germany, France, UK, Finland, Norway, Sweden, Korea, Australia along with the European Commission) have joined as partners in what one analyst described as a “metallic NATO”. Some are geologically well endowed and major players in mining, others have strengths in refining, processing and trading of minerals, and some lead the R&D on metallurgy for alternatives. These steps will check the Chinese ambition of controlling the entire supply chain of critical supplies and using it for furthering its geo-strategic objectives. Lastly, one major obstacle that the US and its allies face is that many low-income nations have high debts and a very large balance of payments crisis. The US has to devise some plans with the IMF & World Bank to get these nations out of economic catastrophe and also institutionalise good economic policy-making to be imparted. In this, India with its sound economic policies will be of great help.
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