It's a New Era of Climate Geopolitics. And Businesses Should Pay Attention

By Justin Worland

U.S. climate envoy?John Kerry?visited China this week to jumpstart climate discussions between the world’s two largest economies and greenhouse gas emitters amid a period of serious tension between the two countries.

To longtime followers of the ins and outs of climate policy, the trip was an important stop on the trudge to the United Nations climate conference to be held in Dubai this fall. But, still, it wasn’t exactly monumental. “It’s going to take a little bit more work to break the new ground,” Kerry said upon the conclusion of his visit.

But, despite this, the visit drew unprecedented interest—and not just from climate policy wonks but from policymakers and professionals in a range of fields. While the usual suspects wondered how the engagement might affect climate negotiations, many others wanted to know whether Kerry could facilitate a wider boost in relations between the two countries. Importantly for readers of this newsletter, many were also curious about how the visit might affect businesses reliant on Chinese exports of climate-related technology.

Welcome to a new era of climate geopolitics. As international climate politics and diplomacy have grown in importance, they’re now relevant to a much bigger audience beyond policy wonks, including and especially businesses. Companies will need to navigate geopolitics as they consider the best way to decarbonize their supply chains and how to comply with new cross-border regulations coming from the European Union and elsewhere.

From the very first days when climate change entered common parlance, policymakers and political leaders have approached it as a geopolitical issue. Year after year, diplomats have gathered at U.N.-sponsored meetings to negotiate climate matters and, on occasion, brokered international agreements. Nonetheless, climate has only fleetingly occupied the geopolitical center stage. The global economy’s shift toward low-carbon energy and industry has changed that.

Take trade policy. Trade relations are both central to the international agenda of most governments and an easy avenue to incentivize other countries to decarbonize. And, yet, governments have remained reluctant to go there for decades, fearful of disrupting anything that might foster economic growth.

That thinking has evolved in the last few years. The European Union is implementing a fee on imports for high-carbon products. The U.S.?Inflation Reduction Act?incentivizes domestic production of clean energy technology in a way that touches directly on trade relations. And countries around the world are racing to shore up relationships that will allow them to buy and sell climate technologies.

For businesses, this rise in climate geopolitics comes amid a broader reassessment of the importance of geopolitics for the bottomline. In the decades following the collapse of the Soviet Union, companies and investors bet on increasingly free markets and liberalized trade as they built global supply chains with some degree of geopolitical stability assumed. Ultimately, efficiency trumped security.

A range of factors—most notably the Russian invasion of Ukraine but also rising populism and tensions with China—have led to a reassessment. And climate change should be right in the middle of it. A January?report?from the International Energy Agency showed that China has at least 60% of the world’s manufacturing capacity for solar panels, components of wind energy systems, and batteries, leaving big companies in the west committed to decarbonizing vulnerable to any geopolitical friction that might halt exports of those goods. The E.U. is the world’s largest market for imports, and companies should also watch how geopolitical saber rattling related to climate policy might affect their ability to sell goods in the continent.

This doesn’t necessarily leave companies with a clear action item. Geopolitics are hard to navigate and the risks of business engagement often outweighs the rewards. But, at the very least it should offer an advisory: don’t keep your eye off the ways in which climate geopolitics might shape your supply chain or marketplace.

Must-read stories from TIME Climate:

• The Last Time Our Planet Was This Hot, Woolly Mammoths Roamed the Earth
• These Two Charts Show Why U.S.-China Cooperation on Climate is so Challenging
• A High Steaks Game: Can Beyond Save the Alt-Meat Industry?
• When It Comes to Climate Change, There's No Such Thing as a New Normal

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