We don't expect pineapple to come from Norway or papaya from the Sahara desert. On the contrary, these fruits tend to grow in places with a lot of sunlight and water. So why do energy-intensive products such as steel come from energy-scarce countries such as Japan and South Korea?
The answer is that compared to wood, natural gas or hydrogen, coal and oil have unique characteristics: they have amazing energy per unit volume and weight. This fact, coupled with the advancement of transportation technology in the 20th century, means that the world has become "flat" from an energy point of view. Since oil can be transported from the Persian Gulf to New York or Seoul, the cost is only a small part of the cost of oil per barrel, so lack of local energy is not an obstacle.
This is not always the case. Prior to the advent of railways, proximity to coal was important for steel production. Prior to the advent of steam engines, proximity to fast-moving rivers that could drive waterwheels was essential for manufacturers. But today, locally available energy is not a prerequisite for most energy-intensive activities. Except for natural gas (which is more environmentally friendly than coal and oil in any case), energy can be brought to most places at a moderate cost.
However, as the world gradually gets rid of dependence on coal and oil, the situation of flattening energy supply will be a thing of the past. With the exception of nuclear power, all green energy sources—solar, wind, hydro, and geothermal—are unevenly distributed and costly to transport. Even if companies insist on using fossil fuels with carbon capture and storage, they will benefit from being close to geological formations that can store carbon dioxide—and these are not ubiquitous.
Therefore, in a decarbonized world, energy-intensive activities will again have to be carried out near specific locations, just like in the waterwheel era. This is not good news for cities such as Gwangyang, South Korea, where the world's largest steel plant is located, or the Middle East aluminum industry currently powered by natural gas.
Who benefits from this transition will depend on the outcome of a brewing conflict involving the earth and its atmosphere. The environmental movement has long been concerned about the impact of human activities on the earth, from local pollution of land, air and water to the destruction of forests and animal species. But the need for climate change and decarbonization has greatly increased the trade-offs in solving these different issues.
In particular, as Bill Gates pointed out, significantly reducing carbon dioxide emissions will require electrification of everything that can be electrified. But this will require large amounts of copper, aluminum, cobalt, lithium and rare earths, and this can only be achieved through large-scale mining. Large-scale electrification may also require more hydropower and nuclear power plants.
We have already seen this effect. Although the recent increase in oil prices has made fossil fuel energy more expensive and thus contributes to decarbonization, the fact that aluminum and copper prices are close to historical highs means that the price of electricity substitutes is also rising, thus inhibiting the speed of green energy substitution.
These metal price increases are inevitable to some extent, because the time required to install new capacity means that supply is slow to respond to demand. But the speed of supply response does not only depend on technical factors. It is also closely related to the political system’s ability to reach a national consensus on the right way to develop mining activities, minimize environmental damage, and adequately compensate potential losers.
This is easier said than done. Even in countries such as Peru and Chile, the mining industry is still very controversial. In these countries, the mining industry is the main export industry and the main contributor to global production. The Prime Minister of Peru recently ordered that exploration and development licenses should not be renewed in a major mining area. The licensing process also constrains South Africa's mining industry. Moreover, in addition to mining, Colombia and Chile also have huge hydropower potential, but it is difficult to reach a national consensus on using this potential.
Therefore, while the losers from decarbonization are relatively obvious, the winners will be those who combine geographic luck with smart actions. Without human efforts, the sun and wind would not turn into electricity.
Cities, regions and countries hoping to benefit from the relocation of energy-intensive industries need to ensure that they can reliably provide safe green energy. This will depend on their ability to transform the energy system. Some countries can follow the example of France to develop its nuclear energy potential. For example, Kazakhstan can use its sufficient uranium reserves to develop next-generation nuclear power plants and meet the needs of other parts of the world. Venezuela can make the most of its underutilized water energy output from the Caroni River to revitalize the country’s steel and aluminum industries. Australia, Namibia and Chile can use their record-setting sunshine rates to become major producers of green hydrogen.
Sub-Saharan African countries can seek to exploit their geological potential and compete with Australia and South America in the mining industry. Bolivia, Chile and Mexico can dominate the lithium battery industry by converting lithium carbonate resources into lithium oxide and batteries that use green energy. (South Korea, Japan, and China are currently using fossil fuels to perform the same process.) Other countries may develop carbon storage capabilities.
Decarbonization will change the country's development path and force policymakers to rethink their economic strategies. Too much greening debate has focused on the sacrifices that each country can make to reduce emissions. But the end of energy flattening will lead to large-scale industrial relocation, and saving the atmosphere requires finding better ways to reduce the damage to the land. The forerunners of the right ecosystem to reach a national consensus to promote green growth will certainly be in the forefront.
Ricardo Hausmann (Ricardo Hausmann) is a professor at Harvard University's Kennedy School of Government, director of the Harvard Growth Laboratory, former Venezuelan Minister of Planning, and former chief economist of the Inter-American Development Bank.
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