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I’ve lately become obsessed with Europe’s energy crisis. I know it’s a little unusual for me to write about current affairs, but prompted by a few of the conversations I’ve been having with Carbon Upcycling, I think there may be quite a few lessons from the way the world’s economy worked before the late nineteenth century — that is, before the first major wave of globalisation.
Long-distance trade has of course been common since ancient times. Archaeologists often find Byzantine-made glassware from the sixth century all the way out in India, China, and even Japan. Or beads from seventh-century Southeast Asia all the way out in Libya, Spain, and even Britain. Yet such long-distance trades often involved goods that were entirely unique to particular areas — gems, spices, indigo, coffee, tea — or were sufficiently valuable to make the high costs of transportation worthwhile, such as expert-made glassware, silks, and muslin cloths with impossibly high thread counts. Long-distance trade may have been ancient but was restricted to luxuries. It did not involve the everyday goods of life.
That all changed, however, when the innovations of the sixteenth to the nineteenth centuries caused transportation costs to dramatically fall. With better sailing ships, canals, and navigational techniques, followed by better roads, railways, refrigeration, steam power, and dynamite (which meant railways could cross mountain ranges, canals could link oceans, and new deep-water ports could be dug), it was soon profitable to transport even the cheapest and bulkiest of goods over vast distances — goods like meat, coal, and grain.
The entire world was brought into a single market, in which even the bulkiest commodities of each continent were suddenly in direct competition with one another. The decisions of farmers in Ukraine, for example, in the nineteenth century came to affect the farmers in America, China, India, or even Australia, and all of them vice versa. The prices of commodities all over the world thus converged to similar levels, falling in some places, but rising in the economies that had previously been too distant from the ready markets of the industrialised nations.
The result was what economic historians call a terms-of-trade boom, with the more agrarian economies’ commodity exports becoming more valuable relative to manufactured imports. Thus, their grain, raw fibres, minerals, and ores suddenly bought many more foreign manufactures like textiles. Countries that specialised in commodities thus specialised even further, devoting even more of their workers, resources and capital to extracting them. They were incentivised to extend their frontiers — to put more of the wilderness under pasture or plough, and to dig deeper for the mineral wealth beneath their feet.
Meanwhile, for the industrial economies, the opposite happened. By gaining access to many more and cheaper sources of raw resources and food, they were able to make their own manufactured exports cheaper too. And this, in turn, further exacerbated the terms-of-trade boom among their newly globalised commodity suppliers. As the great Saint-Lucian economist Sir W. Arthur Lewis put it, the world in the late nineteenth century separated into an increasingly industrialised “core”, fed by an increasingly farming- and mining-focused “periphery”.
Much has changed in the century that followed, and some of the old core/periphery distinctions have moved or entirely broken down. But the world has remained globalised. Even in periods of higher tariffs, like between the world wars, no amount of protectionism was able to counteract or undo the effects of the dramatic drop in global transportation costs. With the advent of telegraphs, telephones, fax machines, and now the Internet, even many services are becoming globalised as well — a process likely sped up by the pandemic. Those who can easily work from home will increasingly, like nineteenth-century workers the world over, find themselves either the victims or beneficiaries of global price convergence. (Incidentally, I’m not convinced that the very services-heavy economies of Europe or North America are even remotely prepared for this, to the extent that they can prepare at all for what is the economic equivalent of a planetary-scale force of nature.)
But globalisation skipped cleaner energy. The older and more polluting fossil fuels like coal and oil are highly globalised commodities with fairly similar prices the world over. Coal was the first major fuel source to be affected by the nineteenth-century wave of globalisation, and it became even more globalised thanks to the oil crises of the 1970s, which prompted still further investments in making coal more easily transportable as a replacement. In the latter half of the twentieth century the cost of shipping coal managed to fall by another 65-70%, so that between 1970 and 2000 the quantity of internationally-traded coal increased by over 230%. Oil, in turn, globalised even faster. Energy analysts have long treated the world’s crude oil supply as “one great pool”, rapidly flowing to wherever it is demanded most thanks to a massive infrastructure of pipelines, refineries, and tankers.
With a globalised fuel supply came some security and less volatility, because regionally-specific shortages could be rapidly alleviated from elsewhere. Indeed, having two globalised fuel sources competing with one another also set a limit on how high energy prices could ever go. If Europe, for example, had continued to rely on these two, polluting fuels, it would have avoided the region-specific energy cost surges of the kind it’s seeing right now.
This might also have been the case with a cleaner energy source like nuclear too: uranium, just like coal or oil, is a globally-traded commodity after all. Its high value per weight makes it especially able to bear any of the costs of safely transporting it. But the trouble is that very few countries in Europe invested much in the ability to convert it into nuclear energy. Those that did, like France, Sweden, and Slovakia, will now benefit somewhat in the form of less steeply rising electricity prices and inflation, but it will probably take years for anyone else to copy them. The market for nuclear energy, unlike its uranium fuel, is ultimately still national or regional at best.
In fact, the whole cause of the current crisis has been due to globalisation not quite reaching the last major fossil fuel, natural gas. Even after decades of investment in infrastructure — the world has three times as many kilometres of gas pipeline as it does for oil — the supply of natural gas was still largely regional. Last month the price of gas in Europe was over 800% higher than in the United States. Gas is the inverse of coal, in that it is especially costly and difficult to transport by sea. Natural gas first needs to be cooled into a liquid before it can be loaded onto a specialised ship, and then needs to be converted upon arrival back into gas. Liquefied natural gas (LNG) thus requires a whole expensive processing and storage infrastructure of its own in order to even be imported — an infrastructure that many countries had not installed when Russia suddenly restricted its gas pipeline exports to Europe.
Because of Europe’s sudden and extraordinary regional gas shortage, formerly Russia-dependent countries like Germany are now scrambling to build LNG import terminals of their own, and gas-exporting countries are exploring how to take advantage of Europe’s sudden spike in demand. Egypt is even rationing its own people’s electricity right now, so that it can ship more LNG to Europe. The demand for LNG in Europe is so high, that even countries on the other side of the world are having to outbid them for any gas supplies they had not already contracted for — LNG-dependent countries like South Korea, Pakistan, and Japan are being especially hit hard by rising energy costs. We are thus seeing the market for natural gas globalise in a matter of months rather than decades, with the usual winners and losers from price convergence experiencing their wins and losses especially sharply.
Even if the globalisation of natural gas can be sped up, however, there is still the problem of reducing carbon emissions. Although it is thought to be a cleaner fuel than coal or oil, natural gas is still ultimately a fossil fuel, and its methane emissions bring separate problems too. The challenge is that the renewable alternatives — like wind, solar, geothermal, and hydropower — are especially difficult to globalise at all.
One day, perhaps, battery technologies or liquid hydrogen tankers will be sufficiently effective to make it worth shipping stored renewable electricity across oceans. But in the meantime there is no way to export more sun to Scandinavia, or more rain to the Sahara. We can so far only boost domestic renewable energy supplies, or perhaps build interconnectors to import it from nearby. There is even a proposal right now to install an undersea cable to send year-round Moroccan solar and wind power directly all the way to the UK.
But the un-globalisable nature of renewable energy may even be an opportunity, even if right now it’s a problem. In a globalised market, exporters of a commodity face competition the world over, and are thus unable to affect global prices themselves. They are what economists call price takers, rather than price makers. Even when lots of producers band together in a cartel, like the oil-producing countries of OPEC, in the medium-term they can struggle to influence world prices. They must still compete with alternatives like coal, renewables and natural gas, as well as with non-OPEC oil producers, which have been on the rise. In a globalised market, no single country or company has enough power to influence global prices. It’s when markets are merely regional that some countries can have the opportunity to have enough market share to influence prices themselves — thus Russia was able to be an energy price maker for Europe this year, because its withdrawn natural gas supplies were so large and could not immediately or cheaply be replaced by alternatives or from further afield.
What this also implies, however, is that given the supply of renewables is also so regional, then boosting that supply should also be able to lower a whole region’s energy prices. It perhaps even implies that whichever region were to most rapidly expand its renewable energy supply could also gain a very large competitive edge over the rest of the world, allowing it to have persistently lower costs to its industries and population. After all, with an expanded and un-globalisable energy supply, that region’s energy prices would not automatically converge to the still-high global level. Other regions would have to make significant renewable investments of their own in order to catch up, rather than being able to simply import cheaper energy from whichever region got there first.
And it looks like Europe has one of the clearest opportunities to be the region to get there first — because of its current problems. As the supply of natural gas is still not quite globalised and the current shortages hurt Europe the most, its uniquely high natural gas prices provide especially sharp incentive for all countries in the region to invest in renewable capacity. This is, of course, already happening within each country, as Italy for example installs many more solar panels, and France looks at expanding its nuclear capacity. But I don’t just mean the incentive for individual countries to invest in themselves. I also mean each country’s incentive to invest in the rest of the region as well — much like the Netherlands in the sixteenth century invested in the agriculture of Poland, Scandinavia, Germany and England in order to feed both itself and Renaissance Italy. Grain at the time was still only traded regionally, so it made perfect sense to expand the entire continent’s supply wherever there was plenty of land to spare.
Today’s energy equivalent of sixteenth-century Europe’s breadbasket seems to be North Africa.Take Algeria, for example, which is not only one of the countries in the world with the greatest potential for both solar, but is also a major source of natural gas for Spain and Italy, and has a rapidly expanding population of already over 40 million that currently almost entirely consumes natural gas itself. Given those facts about it, and its plenty of land to spare, a dramatic increase in Algerian solar and wind would likely have a sizeable impact on lowering energy prices for the whole of Europe. Indeed, even if the renewable energy installed there were used solely for Algeria’s own population, then this alone would free up a whole mid-sized country’s worth of gas demand that is already well-connected to southern Europe by pipelines. That increased gas export would in turn relieve both energy demand and prices in Spain and Italy’s own neighbours to the north. And that’s not even to mention the longer-term effect, whereby Algeria could very rapidly switch entirely to exporting clean energy directly to Europe instead. (Let alone the effect this would have on putting a dent in the world’s carbon emissions.)
Much the same Europe-wide incentives apply to investing in Morocco, Libya, Tunisia, and Egypt — the countries of what we might call the Aeolian-Helian Zone, after the sun-god Helos and the wind-keeper Aeolus (the Sahara, it turns out, is also very windy). Yet, strikingly, the level of renewables investment in most of North African countries has been pitifully small, with Morocco for example still very much reliant on both oil and coal.
This is despite the example already being set by other countries. Take Jordan, which has a similarly excellent potential for solar and wind, but fewer resources than Algeria or Morocco to spend. It went from having only 1% renewable in its electricity mix back in 2014 to a whopping 29% today. Jordan shows just how rapidly progress can be made, so long as there is both investment and the will to act.
Energy is so often treated as either a national problem, or as so global as to be beyond any one country’s control. But if the history of globalisation teaches us anything, it’s that for the foreseeable future renewable energy will be region-wide problem requiring region-wide solutions as well. Just as the Netherlands was the first to take advantage of the Baltic grain trade to feed its Golden Age, and Britain was the first to take advantage of coal to achieve global hegemony, the region to move first and fastest on renewable energy will be the one to reap the eventual reward.
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Another Aeolian Zone worth exploring is the coast of Greenland, where the winds appear to blow strongest when there is much weaker wind on the European continent. See, for example, the Katabata project.
Good article, until I came across the following fallacy:
"What this also implies, however, is that given the supply of renewables is also so regional, then boosting that supply should also be able to lower a whole region’s energy prices."
This is an important point many in the energy debate are missing, and non-experts have a hard time grappling with because the headlines suggest the quote above is correct. However, it is not correct. The more a region relies on renewable sources of energy, the higher that regions energy prices go. This is due to the intermittent nature of renewables, and the lack of economically viable energy storage solutions (like batteries). An electricity system/grid therefore has to backup the renewables. Europe basically runs two systems, a renewable system and a fossil system which backs it up. So while the point source of electricity generation from wind or solar is cheap, while the wind is blowing and/or the sun is shining, the cost to deliver reliable energy for the entire grid is much much higher.
Like the coal trader said. The problem with wind and solar is not merely that they can't be transported effectively from region to region. They also can't be transported across time. There is no way to store solar energy for the night, much less the winter.