In August 2020, massive wildfires erupted in California and Oregon. Forest fires are a regular occurrence in the region during the summer, but their frequency and severity has increased in recent years—possibly as a result of climate change. While they were battling the flames, firefighters noticed something odd. Controlled burning, a crucial tool to prevent wildfires, had not taken place during the spring. Something else was unusual: there were no drones available to monitor the fires. The reason why there had been no controlled burns and why drones were missing had nothing to do with environmental policies or budget cuts. It had to do with China.
A few months earlier, the White House had ordered federal government agencies to stop using a vast fleet of 800 drones that previously helped conduct controlled burns and monitor fires across the United States. The drones worked perfectly well, but they were made by DJI, a Chinese company. The White House was worried that the drones might covertly send information to China and allow Beijing to see what the drones could see (claims DJI denied).
Staff from the U.S. Department of the Interior warned that halting controlled burning would likely result in massive wildfires. Yet, the White House ignored these warnings and went further with its China-proofing strategy. It also halted the acquisition of seventeen high-tech systems, called Ignis, that help start controlled fires. The technology powering the Ignis devices was American, but the systems included Chinese-made components.
The decision to shelve the fire-monitoring equipment derailed the activities of the Office of Wildland Fire; the White House could not identify alternative suppliers of controlled-burning systems that had zero ties to China. With drones grounded and Ignis systems missing, the Office of Wildland Fire carried out only a quarter of the controlled-burning operations that it had arranged to undertake in 2020. A few months later, the consequences of this decision became clear: almost forty people died in the fires, and the damage totaled nearly $2 billion.
The lack of drones is an illustration of the ripple effects of the growing use of U.S. economic statecraft, notably China-related controls on the export or use of specific technology. It is unlikely that using drones would have prevented the fires, which were worsened by strong winds and record-high heat. However, they could have helped to lower the death toll and reduce the scale of the damage.
Reflecting on this story, it is clear that economic statecraft—loosely defined in this article as trade tariffs, financial sanctions, and tech-related export or usage controls—can have a detrimental effect on the United States’ ability to tackle extreme weather events fueled by climate change. Yet, this is only one side of the coin. Can climate change and the resulting transition away from fossil fuels also have an impact on the shape, targets, and effectiveness of economic statecraft?
Over the past several decades, economic penalties have become the go-to tool for U.S. policymakers to respond to diplomatic crises, punish human rights abusers, and, more recently, degrade Russia’s ability to wage war against Ukraine. There is much thinking among policymakers about the impact of climate change on security policy, be it planning for a hurricane that shuts down military bases or crafting contingency measures for heat waves that ground helicopters. However, the policy debate has not yet focused on the impact of global warming, and the world’s responses to it, on economic statecraft. This article explores those issues.
Climate Change and the Energy Transition Will Shake Up Economic Statecraft
The fight against climate change and the adoption of sanctions policies can both happen at the multilateral level, under the aegis of the United Nations. Global climate conferences, called COPs, are organized under the UN umbrella. Meanwhile, other UN bodies are involved in drafting multilateral sanctions, which currently target Iraq, North Korea, Somalia, and five other states.
Multilateral sanctions have been in place for long enough to offer sobering insights for the comparatively new fight against climate change. UN-led measures are usually hard to adopt and typically not powerful enough to provoke major change. (For instance, North Korea has been under UN sanctions for decades, but the Kim dynasty is still in power.) As a result, Western democracies typically prioritize national economic statecraft and coordinated measures among like-minded allies, as the response to Russia’s invasion of Ukraine has shown. Western economic measures to tackle climate change could take at least three forms. Countries could do the following:
- Set up carbon border taxes. The EU leads the way in this field; its Carbon Border Adjustment Mechanism (CBAM) will be implemented gradually starting in October 2023 on European imports of goods that are carbon-intensive to produce, such as cement, iron, steel, aluminium, and fertilizers. Firms producing such goods outside the EU will be required to buy certificates covering the related carbon dioxide emissions. Similarly, Canada has held consultations on carbon border adjustment mechanisms, and all Canadian provinces are implementing carbon pricing mechanisms. Despite the growing popularity of such tools (around forty countries have already implemented some form of carbon-pricing schemes), the adoption of a U.S. carbon tax does not appear to be forthcoming. Such a measure is unlikely to pass in Congress.
- Use individual sanctions to target those who commit environmental crimes. Such financial sanctions could work like current designations against Russian businessmen, Syrian warlords, or Venezuelan drug traffickers. Individuals or companies that would fall under U.S. “green sanctions” would have their U.S. assets frozen and be barred from traveling to the United States. Their contacts with American citizens and companies would also be curtailed. Although green sanctions remain uncommon, the United States has already used such measures in recent years. In 2019, for instance, the United States placed Try Pheap, a Cambodian businessman involved in illegal timber logging, under sanctions. Green sanctions could target individuals engaged in deforestation (for instance, in Brazil) or wildlife trafficking (notably in Africa). Alternatively, such measures could restrict U.S. financing for entire economic sectors, such as the coal industry. In such a case, Washington could seek to make new coal projects unaffordable or at least less profitable by raising compliance costs, for example. However, the adoption of such measures has stalled. Since it was introduced in April 2021, the Targeting Environmental and Climate Recklessness Act has failed to garner support in Congress. The picture is similar in the EU, where a proposal from the European Parliament to punish environmental crimes looks unlikely to be adopted by member states.
- Repurpose current tools of economic statecraft, such as price caps and export controls. A first option would be to set price caps on highly polluting commodities, such as fossil fuels. Such a mechanism would mirror the G7-EU price cap on Russian oil exports, which set a maximum price of $60 per barrel for Russian oil exported with the assistance of Western shipping and insurance firms. Price caps would lead to lower global prices for some commodities, therefore boosting demand. However, in the long term, such mechanisms would depress the price of carbon-intensive commodities and discourage companies from developing new deposits, gradually curbing supply. A second option would entail imposing export controls on the technology required to extract carbon-intensive commodities, such as deep-sea gas deposits in Russia’s Arctic region. Both of these options would be tricky to implement. Price caps would require international cooperation, and export controls would be met with some pushback from the private sector.
All of these options come with a significant risk of backlash from emerging countries. Many people in the Global South would consider green economic statecraft as an attempt by Western states to advance their own interests at the expense of developing economies. One way to mitigate this risk would be to levy such measures only against individuals and companies, not on entire countries. Another way to address this issue would involve releasing robust communications around the objectives of climate-related economic statecraft. However, even the best information campaigns would not prevent countries under sanctions from using climate-related measures as scapegoats for their governments’ own shortcomings. This would only perpetuate a long-standing trend. For example, shortly after the invasion of Ukraine, Russia’s Ministry of Energy cynically declared that Western sanctions would make it impossible for the country to achieve its climate goals. The reality is that Russia never intended to meet these objectives.
Sanctions on Oil, Gas, and Other Carbon-Intensive Commodities Will Become Moot
Sanctions targeting oil, gas, and coal will cease to be effective as the share of these in the global energy mix gradually decreases. According to the International Energy Agency, in a global net-zero scenario, the world’s demand for gas could drop by 55 percent, demand for oil by 75 percent, and demand for coal by 98 percent over the next three decades. This will weigh on the effectiveness of Western sanctions against energy powers, such as Iran, Russia, and Venezuela (see figure 1). Measures targeting the Iranian, Russian, and, to a lesser extent, Venezuelan energy sectors form a huge part of Western sanctions packages; taken together, these three countries account for nearly 20 percent of global oil production and almost 25 percent of global gas production. Climate change will also have an impact on the effectiveness of sanctions against countries that are not commodities producers. For instance, UN sanctions on North Korea include measures restricting Pyongyang’s oil imports. Such sanctions will become moot if renewable energy makes up a significant part of North Korea’s energy mix.
Western states will need to find pressure points other than energy when designing sanctions. However, this will be easier said than done. In most commodities-producing countries, the energy sector relies on a few big firms. This makes these companies obvious targets for sanctions designations, as they typically account for a large share of government revenues and are easy to identify. Once the energy transition is complete, it is unclear whether any obvious pressure points will remain. That being said, the energy transition could also entail the demise of global energy superpowers, such as Russia. This shift could weigh on Moscow’s imperial ambitions, or at least its ability to finance them, decreasing the Western use-case for sanctions on Russia.
The Green Transition Will Give New Forms of Leverage to China and Russia
The energy transition will give China leverage in the form of access to rare earth elements. As former Chinese leader Deng Xiaoping remarked in 1992, “The Middle East has oil, China has rare earths.” The country controls 37 percent of rare earth reserves, 59 percent of global production, and nearly 85 percent of worldwide processing capacity. By contrast, the United States owns only 1 percent of the world’s known reserves of rare earths, and the one U.S. rare earths mine sends its production to China for processing. Beijing knows that it has an ace up its sleeve with rare earths; these materials are crucial to building wind turbines and solar panels. Concerns are especially acute for dysprosium. China and Myanmar control 100 percent of global production of this mineral, which is necessary to build magnets for wind turbines. Beyond rare earths, China also controls around 13 percent of global production of lithium, which is critical for electric-vehicle batteries.
China could restrict Western access to critical minerals. This has already happened in the past. In 2010, Beijing banned the export of rare earths to Tokyo amid a conflict over disputed islands in the East China Sea. Since then, Beijing’s threats have become clearer. In 2019, Chinese leader Xi Jinping paid a visit to a rare earths mine in southeastern Jiangxi Province. Through the visit, Beijing intended to signal that China held huge leverage over the United States in the form of rare earths; as a Chinese government-controlled newspaper bluntly put it after the visit, “Don’t say you weren’t warned.”
Moscow could use its mining sector as leverage over Western countries, too. Russia holds huge reserves of minerals that will be critical for the energy transition. These include nickel (for lithium-ion batteries), palladium (for catalytic reactions), and copper (for electrical networks). Russia is also a major player in the global food market, notably for grains and sunflower oil. Russia’s behavior since it invaded Ukraine shows that the Kremlin will not shy away from weaponizing food commodities. This could be a powerful form of leverage because climate change will exacerbate food insecurity. For instance, Russia could threaten to cut off food supplies to the Global South to gain concessions from Western states (something Moscow does whenever it is time to renew the deal that allows for the safe passage of Ukrainian and Russian grains through the Black Sea).
Western countries have only a few good options to tackle China’s and Russia’s potential weaponization of minerals and food supplies. Building mines is costly, time-consuming, and polluting. It would also take an unprecedented mining build-out in Western states to meet future demand for clean energy. In the agricultural sector, Russia has the world’s third-largest amount of arable land, after the United States and India, giving Moscow an indisputable edge. However, two factors could improve Western resilience. First, this situation could give fresh impetus to the development of new technologies, such as sodium batteries. Given that sodium is abundant globally, this would limit Western dependency on the four countries that produce 96 percent of global lithium supplies: Australia, Chile, China, and Argentina. Similarly, innovative technology in the food industry could boost agricultural yields and lessen reliance on Russian wheat. Second, Western countries could make a big investment push toward Africa, which holds huge mineral reserves. The Democratic Republic of Congo, for instance, holds huge deposits of copper, cobalt, and lithium. However, competition will be fierce as China and Russia are also making inroads on the continent; in 2020, China bought almost half of Africa’s mineral exports.
The Global Energy Transition Will Get Caught Up in U.S.-China Competition for Economic Dominance
Export controls will be the sanctions of tomorrow, owing to the recent emergence of two simultaneous trends. First, the time of peak U.S. sanctions may well have passed. This is due to the fast development of financial mechanisms that do not rely on the U.S. dollar or Western banking channels, for example, alternatives to the SWIFT financial messaging system. Such mechanisms give countries access to non-Western financial tools, gradually weighing on the effectiveness of Western financial sanctions. Second, the U.S.-China competition for economic dominance is increasingly being waged in the digital and high-tech spheres. Semiconductors, which are tiny electronic components that power all electronic devices as well as military gear, form the crux of the battle. Recent U.S. export controls seek to curb China’s ability to access top-notch semiconductors in a bid to slow down Beijing’s technological and military advances. However, these measures will also have an impact on China’s development of clean technologies; the manufacturing of solar panels, wind turbines, and smart grids requires semiconductors. China could also curb its exports of solar panels, of which it is a major global supplier.
The global energy transition could get caught up in the U.S.-China tech war. The likeliest long-term scenario is one of a tech decoupling between the two countries, notably for high-tech chips. This would have detrimental consequences on the green transition, particularly in developing economies. The emergence of dual supply chains for clean tech—serving either Western- or Chinese-dominated markets—could entail higher prices, delays, and the proliferation of technical standards that might not be compatible with each other. The global technological landscape for clean industries could fragment between a U.S.-led bloc and a China-dominated sphere. The U.S. government takes this risk seriously; in April 2023, U.S. National Security Advisor Jake Sullivan warned that “clean-energy supply chains are at risk of being weaponized in the same way as oil in the 1970s, or natural gas in Europe in 2022.”
In a worst-case scenario, the United States and China could weaponize access to green technologies. The United States is gradually widening its China-related export controls to include a growing set of innovative technologies, such as AI and quantum computing. For its part, China is considering curbing the export of solar panel technology. So far, U.S. plans to target the biotech and clean energy sectors have been shelved. However, they could be resurrected, as there is a bipartisan consensus on the need to adopt robust policies to counter China’s increasing assertiveness, notably toward Taiwan. Restricting access to U.S. clean tech could backfire, though. Targeting technologies that are critical to the global green transition could set back global progress on decreasing carbon emissions.
Conclusion
Climate change and the global energy transition will reshape economic statecraft, leading to the emergence of new tools, such as carbon border taxes or environmental sanctions, and the demise of current financial measures on energy exporters.
The global shift toward renewable energies will offer U.S. adversaries—notably China and Russia—new ways to exert leverage on Western democracies by weaponizing access to raw materials that are critical for the global energy transition. In particular, these countries could weaponize access to their supplies of minerals, rare earths, and food commodities.
The green transition is likely to become one of the battlefields of the U.S.-China competition for economic dominance—a trend that could magnify the impacts of climate change. Adjusting to this new normal will require a Western reassessment of economic statecraft tools.