Oil-producing nations need to act

Many of the leading oil- and gas-producing nations accumulated enormous wealth during the oil era. Most have directed savings into a sovereign fund. As a new era of renewable energy dominance begins to take shape, key economic and political building blocks will be reorganised. For these nations now is the time to act. They should use this wealth to secure an advantage in renewable energy technology.

Oil and gas-producing nations, thanks to their ‘rainy day’ funds, have the potential to become angel investors in this space. Annual investment needed in wind and solar capacity has been estimated at around $1tn, quadruple current spending. Accumulated wealth in global sovereign funds should be made available by the governments that set the investment guidelines for these funds.

Investing in renewable energy research and development will be a sensible ‘macro hedge’. This might be direct investing into the ‘picks and shovels’ of renewable energy projects or into research and development projects that will help these oil nations become champions in the renewable sector.

Although more evenly distributed around the globe than oil, renewable energy resources do not map perfectly onto areas of maximum electricity usage. Solar energy potential is high in many oil-producing nations, but the technology to store and distribute the electricity produced is not yet ready. Exporting the electricity produced by renewable energy is in its early stages of development, expensive and difficult over long distances.

One renewable-rich country that has found a way to work around this problem is Iceland, which has become a home for industries that are energy-intensive. Global aluminium producers have taken advantage of Iceland’s cheap supply of electricity from renewable sources for many years. Remarkably, aluminium production in Iceland is now 80% of that in the US.

Car maker BMW moved high-performance computing applications to a data centre in Iceland almost a decade ago. They operate at a facility that runs on 100% renewable energy and benefits from very cheap cooling costs (thanks to the ambient temperature). BMW runs power-intensive applications including crash simulations, aerodynamic calculations and computer-aided design and engineering, all of which are critical to the development of BMW’s energy efficient vehicles. For BMW several green boxes are ticked.

US tech companies have established energy-intensive data centres that run on sites powered by Icelandic geothermal and hydroelectricity. Most recently, Iceland has also become a home to Bitcoin farms, which has enabled Bitcoin to begin to chip away at accusations that the cryptocurrency has appalling green credentials.

Iceland has found a way to ‘export’ its renewable energy that may provide lessons for other countries with comparably large renewable energy potential.

In the renewable energy era, a greater degree of energy self-sufficiency will be achievable for many countries. Electricity will become a local market rather than global, and might vary by nation, city, time of year and even time of day. Cobalt and lithium are not found everywhere. Rare earths (while not particularly rare) are costly and dirty to extract, and existing producers will benefit from incumbency. There will again be geological lottery winners, but the jackpots are unlikely to compare in size or be as concentrated as those of the oil era.

The oil and gas nations of the world should put their sovereign funds to work and embrace the coming era of renewable energy. Renewable energy will help the world to make progress towards all 17 of the United Nations Sustainable Development Goals. Such progress would represent success beyond the scope of gross domestic product, and should be encouraged by all nations that have signed the Paris agreement, including the oil and gas producers.

This article first appeared in the Sustainable Policy Institute Journal in August 2021.