DUBAI -- As tensions grow between the U.S. and China, energy expert Daniel Yergin told Nikkei in an online interview that China's decision to aim for net zero emissions by 2060 was not purely about tackling pollution or climate change, but rather a more strategic calculation to advance its global presence.
He said these decisions were linked to a strategy to enhance its electric vehicle industry and an intention to reduce oil imports.
Daniel Yergin is the vice chairman of IHS Markit and an author. In his latest book, "The New Map: Energy, Climate, and the Clash of Nations," he writes about how the energy transition is influencing energy geopolitics.
With tensions between the U.S. and China rise over numerous global issues, he stressed that China's concerns were climate change, urban pollution and rapidly rising oil imports, as well as challenging Japan, the U.S, South Korea and western Europe in the global automobile market.
He said China would not be able to catch up with the Europeans, Japanese or Americans on manufacturing cars with internal combustion engines, but that China was ahead in EV technology, production and consumption -- almost half the world's EVs are in China. The Chinese push for EVs was due to climate change and the desire to be competitive in the global economy, he said.
Some auto companies in Japan are betting on fuel cell vehicles as an alternative, but Yergin said: "the policy decisions in China, the world's largest auto market, as well as those in the U.S. and Europe, are forcing the decision to go electric." Global automakers are now directing their new investment towards EVs, and government regulations and financial penalties on emissions are leaving the industry with little choice.
Chinese President Xi Jinping recently gave a speech reminding the world that China is a huge growth market, and that countries should not make the mistake of shutting themselves out of it. If U.S.-China relations deteriorate, that would put countries like Japan in a difficult position, because of its strategic relationship with the U.S. "This is a big geopolitical problem, and this is a 2021 problem," Yergin told Nikkei.
Asked about how climate change can be tackled while governments simultaneously deal with accumulated debt due to economic support measures during the coronavirus pandemic, Yergin said that "the financial burdens on governments' will weigh more heavily than people realize," adding that "we are now in debt burdens that we have not seen in modern times."
The U.S. has just approved a $1.9 trillion spending package to mitigate the economic effects of the pandemic. "Governments will have to pay attention to their financial burdens as well as [to] climate concerns," Yergin noted.
Yergin also said the improving relations between some Arab countries and Israel deserved more attention.
In this context, he said the historic agreement to normalize relations between Israel and the United Arab Emirates signed in August 2020 had redrawn the geopolitical map -- it showed a strategic alliance between the two countries on common concerns such as Iran and Turkey, amid the U.S. withdrawal from the region including its withdrawal of troops from Syria. He also raised an important question: "Will there be a growing Chinese strategic presence in the Middle East?"
The [normalization agreement] did not get as much attention as it should have, [because it] really does redraw the map," he said. Currently, Asia, not the U.S., is the main market for Middle Eastern oil; meanwhile, the U.S is energy independent because of the shale revolution, Yergin points out.
When asked about the ongoing limbo over the crucial Iran nuclear deal, after the administration of former U.S. President Donald Trump withdrew from the deal in 2018, Yergin predicts that the team of new U.S. President Joseph Biden will be keen to restore it. "Many people who negotiated the Iran deal under the Obama administration, are now back in senior positions in the Biden administration," he said.
"The bigger risk is not to have an agreement, rather than to have an agreement," adding, "obviously, the Arab countries in the Persian Gulf and Israel do not agree."
He predicts that the restoration of the deal will be increasingly difficult not only because the deal was broken by the U.S., but also because of the Iranian missile program and the presence of Iranian-linked militias in the region, though he believes Biden will keep the issue high on his priority list.
As oil prices hover around $60 per barrel, having steadily risen from around $20 a barrel a year ago, Yergin emphasized that "the virus and vaccines are in charge of oil prices right now." He said that vaccination programs and economies were accelerating, which was the "fundamental driver" behind the oil price increase.
He said the forecast at IHS Markit for the world economy was 5.1% growth in 2021, and 5.7% for the U.S. economy. "By the second or third quarter, the world economy will be bigger than it was in 2019," he said, while noting that the virus still remained a risk to global growth.
According to Yergin, the expectation among oil-exporting countries is that by summer 2021, oil demand will rise by 5 million barrels a day, assuming there is not another surge in daily new COVID-19 cases.