The climate battle will determine who leads the world economy

Solar panels and wind turbines at an integrated power plant in the Chinese city of Dongtai.Yaorusheng

Ignacio Baños was not stopped by a pandemic.

Last summer, in the midst of the health crisis, the CEO of Lithium Iberia, together with his team of engineers, drilled non-stop, 24 hours a day, in the Las Navas field (Cañaveral, Cáceres).

With a kind of giant drill they gave more than 30 small "punctures" in the subsoil, reaching an average depth of up to 450 meters underground.

The objective: to analyze the lithium content of the area, rich in this material, essential for the batteries of electric cars and the energy storage of renewables.

"For us it was essential not to waste a minute."

While waiting to comply with all the procedures and environmental studies, in 2022 this mine of the so-called “white gold” will start operations, which promises to put Spain on the new energy map of the planet and which will supply the mineral to the first battery factory in the world. south of the continent.

"Our project is strategic, not only local and regional, but national and European," concludes Baños.

This businessman, from a lost corner of Extremadura, is part of a world race that, to a large extent, will determine the dominator of the 21st century economy.

If a commercial pulse broke out first between the great powers, followed by a technological one, the key battle of the next decades will be the climate one.

On a planet where electrification is the answer to climate change, dominance over raw materials (lithium, copper, cobalt or rare earths) and renewable energy production chains has become a matter of national security and a source of much money.

"Whoever controls the sustainable economy, investments, research and development and supply lines will have a geopolitical advantage," says Haim Israel, Global Head of Thematic Investing and Analysis at Bank of America (BofA).

Dozens of countries are pulling the strings to adopt net zero greenhouse gas emissions targets by 2050 (China will do so in 2060).

Many of them have joined the 2015 Paris Agreement, which aims to limit the global temperature rise this century to below 2 ° C.

The situation is one of total emergency.

The frequency and severity of heat waves, hurricanes, floods, and droughts are intensifying.

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• Extremadura will have the first battery factory in southern Europe

The economic impact of climate change could reach 69 trillion dollars (58.4 trillion euros) by the end of this century and investment in the energy transition should increase to four trillion a year, according to calculations by BoFA.

That is why all the great powers have stepped on the accelerator on the path to a more sustainable world with millionaire plans, taking advantage of their economic recovery programs after covid-19.

Europe will invest 30% of the 750,000 million euros of Next Generation funds in environmental projects.

The US - which has returned to the Paris Agreement and seeks to save furniture from its environmental policy - will allocate two billion dollars in the next 10 years.

China - with 20% of the planet's population and the world's largest emitter of CO₂ - has not put a figure on the table to achieve neutrality, but it has no intention of being left behind.

The Asian giant has been the country that has invested the most in transition in the last decade: 1.2 trillion dollars.

Despite this, it still depends on fossils.

58% of all its energy consumption comes from coal, a sector in which it still invests.

Half of the plants for this raw material under construction in the world are located there.

China is aware that this source of energy does not work in its favor.

"It is more expensive to keep coal plants running than to add new renewable capacity," says an analysis by the European Council on Foreign Relations.

Above all, in a context where the costs of electricity production from green energies have fallen drastically in a decade (-82% for solar photovoltaic, -39% for onshore wind and -29% for offshore wind) .

They are the cheapest source of electricity in history, says the International Energy Agency (IEA).

This is largely due to technological advancement by developers, but also to economies of scale (fueled by China) and increasingly competitive supply chains.

Today, from Abu Dhabi (the oil-rich emirate with one of the world's largest solar plants) to Laos and Bhutan, which sell electricity from their hydroelectric plants to neighboring countries, they are in search of a green future.

"As the energy system transforms, so do the relations between countries", warns Thijs Van de Graaf, professor of International Politics at the University of Ghent (Belgium).

Out of this transition will emerge a new group of winners and losers.

“Can you imagine Morocco exporting sustainable energy to southern European countries?” Asks Olafur Ragnar Grimsson, former president of Iceland and current president of the Global Commission on the Geopolitics of Energy Transformation.

"In the future it might happen," he says on the other end of the phone.

Since 2009, the African country has developed a renewable energy program (solar and wind) with which it intends to cover 52% of its energy demand by the end of 2030. But it is still far from competing with Europe, a leader in renewables.

Last year these became the main source of electricity in the area, above fossil fuels.

And its industrial muscle is strong: eight of the 10 largest cleantech companies in the world are European.

Net exporters

Some countries are already net exporters of electricity generated by green energy.

Norway sells power to its neighbors and is building transmission cables to Germany and the UK.

And Portugal will send green hydrogen to the Netherlands.

"We are facing a geopolitical transformation," adds Grimsson.

"Green energy will be the basis for the success and progress of the States," argues the former president.

"Renewables redistribute wealth and power between countries and regions," van de Graaf abounds.

Controlling energy has always been a foreign policy weapon.

The iconic case: the 1973 Arab oil embargo, which left the US and some Western countries without oil, and accelerated US energy independence.

More recently, for example, the United States (become the leading oil producer thanks to hydraulic drilling) has imposed oil sanctions against Iran (for its nuclear activities), Venezuela (against the Nicolás Maduro regime) and Russia (as a result of the annexation of Crimea).

Russia, for its part, has long used natural gas prices strategically, granting discounts to allied regimes such as Belarus and Armenia, and raising prices for Western-minded ones.

There are three ways that countries can influence the green energy system, according to an analysis by the International Renewable Energy Agency (IRENA).

The first: exporting electricity or sustainable fuels.

The second: controlling raw materials.

The third: achieving a technological advantage, as in the development of batteries for electric vehicles.

In this new battlefield the weapons of war are old acquaintances: limits on exports, imposition of tariffs, sanctions or restrictions.

"The race is on," says Israel of BofA.

And one of the most visible faces in this dispute is that of electric vehicles, he says.

Tesla and China

Last week, China banned its military personnel and employees of state-owned companies from the use of American Tesla vehicles, fearing information leaking through car cameras.

The measure has been a jug of cold water for Elon Musk's company.

China is its second largest market, after the US One fifth of the 500,000 cars sold worldwide in the past year roll on Chinese roads.

The unexpected blow is not trivial, according to experts.

It occurs in the midst of the rise of the Chinese electric vehicle manufacturer industry, forged with vast government support.

Nio, XPeng and Li Auto have gained strength in the markets and popularity with the public.

The movement also coincides with the return of the United States to the sustainable agenda.

Joe Biden wants the clean energy transition to be the key to his economic policy.

The president has set a date to achieve carbon neutrality: 2050. This will be achieved through another milestone: an electricity system without emissions by 2035. In this context, both countries seek to protect their own manufacturers, analysts agree.

Beijing's ban adds spice to the tense relationship, which has left serious clashes.

The last one happened a couple of weeks ago at the first China-US summit in the Biden era, and in which both did not hide their differences.

"This war over energy is intertwined with broader conflicts," explains Van de Graaf.

China, however, is not daunted.

You know you have the upper hand.

For years it has provided economic benefits to its companies to reduce the technology gap with the West, focusing on key sectors, such as renewables and electric vehicles.

For this, it has launched incentives both on the supply side (tax refunds or low-interest loans) and on the demand side (consumer subsidies).

The fruits are palpable.

Beijing controls the manufacture of three-quarters of the world's solar panels (according to the China Photovoltaic Industry Association) and has more than a third of the global market for wind turbines.

Its renewable energy facilities do not stop growing.

In 2020, China built more wind farms than the entire planet combined, despite the pandemic, according to the Global Wind Energy Council.

"Green energy is the energy of the future and will assume the importance of fossil fuels in the medium term," says Janka Oertel, director of the Asia program at the European Council on Foreign Relations.

"It would be naive to ignore the economic and political changes that the decarbonization agenda of the largest economies will bring," says the expert.

The King of Batteries

China is the king of lithium batteries.

Beijing manufactures 77% of these despite extracting only 9% of the mineral (the market is controlled by Australia and Chile with a 75% share), according to the British consultancy Benchmark Mineral Intelligence.

"China's dominance is in the value chain - from mineral processing to manufacturing," says Caspar Rawles, an analyst at Benchmark.

His leadership has led the US and Europe to depend on Beijing.

"China is ready to be the big winner," highlights Daniel Yergin, economic historian.

It is also the star in rare earth mining: a set of 17 elements from the periodic table, used in wind turbines and electronic devices.

When it cannot extract raw materials in its territory, such as cobalt, it invests in operations abroad to guarantee supply.

This is evident in the Democratic Republic of the Congo, which controls more than three-quarters of world production, and where China has taken over the major mining companies.

Beijing has hit hard.

However, Europe wants a second chance.

He looks for her after seeing himself in front of the mirror.

During the first months of the pandemic, which led to the shutdown of the economy and the paralysis of supply chains, the area further evidenced its dependence.

Between 75% and 100% of most critical essential metals, many of them used in the renewables industry, are purchased outside the continent, according to the European Commission.

For example, 98% of the rare earths comes from China and South Africa supplies 71% of the platinum.

Faced with this, Europe has set up machinery to reactivate the extraction of some metals, including lithium.

The continent will consume up to 18 times more of that material in 2030 and about 60 times more by 2050, according to the Commission.

Europe's plan is to extract 80% of the mineral needs from the continent by 2025. “We cannot allow our current dependence on fossil fuels to be replaced by a dependence on critical raw materials,” said Maros Sefcovic, Vice President of the European Commission, last September.

Portugal, Spain, Finland, Germany, Austria and the Czech Republic have mining projects for this mineral in the development phase.

"If we have such an important automotive industry in Spain and Europe, we also have to ensure the supply of raw materials," says David Valls, representative of Infinity Lithium, another of the two companies competing to extract lithium in Cáceres.

"Failure to do so would be a loss of the market."

This company seeks to obtain this raw material from San José Valdeflórez, the second largest lithium mine in Europe, behind a deposit in northern Portugal.

"Our project has a life of 30 years," says Valls.

"We are going to produce an annual average of 15,000 tons of lithium hydroxide that could be used to manufacture up to 10 million electric vehicles," he adds.

The company is supported by the European Battery Alliance (EBA), a community initiative launched in 2017 created to fill the gap with China.

New mines

Those responsible for Infinity Lithium (which has met with rejection by environmental groups) hope that once the administrative procedures have been overcome, they will be able to put the mine into operation by the end of 2022 or the beginning of 2023. Both the San José Valdeflórez mine like Cañaveral, led by Lithium Iberia, they are only part of the chain.

Europe also wants to boost battery manufacturing.

EIT InnoEnergy, manager of the EBA, estimates that there are some 70 large projects related to this technology on the continent, ranging from the extraction and refining of raw materials and advanced materials, to the manufacture of cells and the treatment and recycling of used batteries.

"Batteries are the future of green energy," says Mario Celdrán, CEO of Phi4Tech, which is about to build, in Badajoz, one of the first factories in the country and in which Banco Santander participates.

This is in addition to the one announced by the Government together with Volkswagen, Seat and Iberdrola.

"In Spain there is room for more than one factory, of course," adds Celdrán.

Europe has also paved the way for companies like Tesla and BMW to install projects in various countries in the area.

The Commission's expectation is that at least 30 million electric vehicles will circulate in the region by 2030.

The Old Continent has surpassed China in world sales of electric cars.

In 2020, the marketing of these cars rose 137%.

Now, Europe accounts for 43% of the global market compared to 26% it had in 2019, according to EV-volumes.

The big manufacturers have also turned to this niche with impetus.

They launched 65 new vehicle models in Europe last year, twice the number in China, and another 99 are expected to hit the market this year.

Some companies, like Ford, have announced that they will only distribute cars with this technology by the end of this decade.

In this story, the United States has the upper hand.

"The years of Trump's presidency delayed the deployment of electric vehicles," says Jim Greenberger, founder of NAATBatt, an association of battery manufacturers.

Despite having a competitive advantage that is its innovation ecosystem, sector participants have not been able to digest the advance of renewables.

These represent a residual part of its energy matrix dominated by oil, gas and coal.

Today, the large energy companies - who bet on hydraulic fracturing, which led the United States to achieve energy independence and to be the largest oil producer in the world - want to turn the tables.

The big draw: the resources that transformation offers.

Some investors have stopped funding fossil fuel projects, driven by global climate action.

The top money managers are also on board.

Larry Fink, founder and CEO of BlackRock, announced that sustainability was the goal for his company, which manages $ 7 trillion.

Other fund managers, such as Fidelity and Vanguard, are betting on this trend.

In 2020, funds investing in green bonds around the world raised $ 350 billion, 36% more than in 2019, according to JP Morgan.

"Covid-19 has caused the biggest recession since World War II, but it has renewed the focus of capital owners on climate change," says this investment bank.

In January, Biden signed a series of executive orders to curb climate change, tightening surveillance controls on hydraulic fracturing for oil and gas extraction.

It also called for a review of supply chains for critical materials, including those needed for electric cars.

The US has said that relying on foreign sources for these materials creates a "strategic vulnerability" for its economy.

"The challenge for the West to compete with China on green technologies is by no means insurmountable," says Greenberger.

Its dominance is a recent phenomenon.

In mid-2015, more light electric vehicles were sold in the United States than in the Asian country.

10 years ago, China had an almost negligible share of the lithium-ion battery market, controlled by the Japanese and South Koreans.

"If the West wants to own this technology sector, it can still do so," says the representative of the American sector.

"You just need to make the necessary investment," he concludes.