BRICS in the Land of Energy Transition

At the last meeting of OPEC+, Brazil joined OPEC as its newest member. The move was not previously advertised and may have surprised some, especially after in the summer, President Lula da Silva announced a "most ambitious" energy transition package.

At COP28, OPEC took intense heat for opposing language that would spell out the end of its members' oil industries. Saudi Arabia was specifically singled out as the villain even as it earmarks billions of dollars for transition projects and was recently reported to have raised $8.5 billion in green bond proceeds.

This week, right after COP28 ended, Russia's deputy economy minister said the country would seek to unite BRICS under the banner of the energy transition. This is the same BRICS, now extended, that overlaps increasingly with OPEC.

Russia will chair the BRICS alliance next year, during which it will have the task "to combine efforts and common approaches in the Eurasian space and in the BRICS space," Ilya Torosov told Bloomberg in an interview.

BRICS is hardly the first geopolitical and trade grouping that comes to mind when considering the transition. The EU is a much more likely first thought, or the G7. Yet it appears that the energy transition has spilled into geopolitics, which would explain why BRICS is talking about it as a bloc and not as individual members. Related: Andurand's Wrong-Way Bet on Oil Cost Fund 54%

Individually, the BRICS bloc has China, the world's largest investor in wind, solar, and electric vehicles and home to the greatest capacity of wind and solar and the biggest EV market. India, also a founding BRICS member, has major ambitions in the transition space, too, with EY forecasting that its low-carbon energy sector is set to attract more than $250 billion in investments.

South Africa, the fifth alliance member, is no poster boy for low-emission energy, but it is working to change this with some debt financing. The country recently announced requests for proposals for 5 GW of wind and solar and over 600 MW of battery storage.

In other words, BRICS may include, as of this year, two of the world's biggest oil producers, but it is staking its claim in the transition, too. It is, however, going about it pragmatically.

Russia's Torosov told Bloomberg the country will continue relying on natural gas for power generation but seek to reduce the use of coal while expanding nuclear and hydro.

China and India refused to sign the COP28 pledge for tripling the world's wind and solar generation capacity because they did not like language about coal included in the document. It was only to be expected.

Both countries are expanding their coal generation capacity, with India alone planning to triple domestic coal output to satisfy growing energy demand. China, meanwhile, was approving new coal generation projects at an impressive clip equal to two new plants per week last year, according to climate think tank Centre for Research on Energy and Clean Air. This is happening even as it boosts wind and solar capacity further to record highs.

Saudi Arabia is working on increasing its oil production capacity to 13 million barrels, and Brazil also has plans to boost oil output-to fund the transition, among others. Lula's chief of staff recently told the media that Brazil needed more oil money to finance the transition, an argument that Saudi Arabia will strongly agree with.

So, with most individual BRICS members having their transition plans in place-or at least ambitions-it makes sense that the topic should be discussed at the group level. What the discussion leads to is more difficult to say. Chances are, however, that the result will be as pragmatic as each individual member's plans for a transition or, in China's and India's case, an addition of more energy sources.

In fact, the belief that BRICS will heed the example of G7 or the EU and try to shift from hydrocarbons, nuclear, and hydro to wind and solar is most likely mistaken. The reason for this is not just the fact that half of BRICS is heavily dependent on oil revenues. It is because BRICS is watching that example in real time and seeing the unwanted consequences.

Canada has implemented a carbon tax, and Canadians are finding it increasingly hard to make ends meet as a result. Germany has invested billions upon billions into wind and solar energy, only to be forced to reopen coal generators after it shut down its last nuclear reactors. The UK may bankrupt itself to pay wind capacity developers their asking price as costs soar in the sector. And the EU collectively is still a sizeable buyer of Russian gas and oil, by proxies.

The governments implementing the above policies in the energy space are adamant that they are the one right way forward. One could argue this is a risky stance, with voters increasingly disgruntled with the cost of living. Still, governments are not budging. Chances are that BRICS is watching this, and it is paying attention. It's a textbook example of how not to do it.

By Irina Slav for Oilprice.com

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