Transitioning towards bio-based economies brings a new set of geopolitical dynamics and could give rise to new dominant players with natural resource endowments, R&D and innovation investments, and processing capacities.
The Russian invasion of Ukraine has highlighted the dynamic connection between climate and geopolitics. This has been further exacerbated by increasing tension between the West and China. At the same time, climate change impacts will affect natural resource availability such as water, which will negatively impact crop yields and reduce food production, further changing global dynamics.
A transition from a fossil fuel-based economy to a bio-based one brings a different set of geopolitical implications. The dominance and power that comes with ownership, control and access to in-demand resources would shift from current large oil majors to new players with different bio-related endowments.
This shift is set against a backdrop of turbulence and uncertainty. Sustainable technological advancements are proceeding at a great pace and rapidly altering businesses, societies and national priorities. The extent of climate impacts is also likely to affect the abilities of nations to transition to a bioeconomy.
We have highlighted here four emerging geopolitical dynamics that are shaping bioeconomy transitions.
Nature in a ‘Paris moment’
At a time when international negotiations on climate are running up against geopolitical and supply chain barriers, there have been recent successes on multilateral agreements to protect nature.
Momentum is growing behind the concept of considering nature in international legal frameworks and development pathways. Countries – including Brazil, Indonesia, China and the US, among others – with large natural resource endowments, such as land and water, are emerging in a unique position on the world stage.
By May 2023, an analysis of 101 developing countries – that submitted their updated nationally determined contributions as part of the Paris Agreement – showed that over 95 per cent had included in some way nature-based solutions for mitigation or adaptation. The link between COVID-19 and the encroachment on natural habitats has also helped reinforce the need for collective action on nature protection.
This momentum culminated in 196 countries signing up to the ambitious 2022 Kunming-Montreal Global Biodiversity Framework. One of the centrepieces of the agreement is a target to restore 30 per cent of all degraded ecosystems and conserve equal amounts of land, water and seascapes.
Nature-based solutions – which are actions to restore, manage or conserve natural ecosystems to provide environmental, biodiversity and social benefits – gained significant support in recent years. While international negotiations on nature might be going through a ‘Paris moment’, as some frame it, there are many issues to resolve.
Dialogue continues on fairly sharing the benefits and proceeds from the use of digital sequence information (DSI) technologies, which can advance innovation by sharing access to online genetic data and thus replace the need to access and assess physical biological materials. But the rules for accessing DSI remain generally unclear, with some biodiverse nations believing their sovereign rights and potential monetary gains have been undermined by the commercialization of the technology. This will be a core focus at the United Nations Biodiversity Conference (CBD COP16).
Another challenge will be to align how global conservation and restoration ambitions relate to the development pathways of emerging economies that rely on the extraction of natural resources, like Indonesia, Brazil and India. In 2020, international flows of conservation finance – comprised of different approaches to reallocate financial capital in ways that benefit nature – amounted to between $124 billion and $143 billion. This pales in comparison to the revenues of the extractives sector. For example, the 2023 revenue for the top 40 mining companies was $845 billion globally.
Unfair competition from fossil fuels
There is a current lack of level playing field for bio-based innovations, exacerbated by large-scale fossil fuel subsidies. Such subsidies artificially lower the price of fossil fuels, at either production or consumption, and make the cost of bio-based alternatives relatively higher. Production subsidies can take the form of tax breaks or direct payments, while consumption subsidies include government policy to guarantee cuts to fuel prices for consumers.
There is a current lack of level playing field for bio-based innovations, exacerbated by large-scale fossil fuel subsidies.
Russia, Iran, China, Saudi Arabia and Egypt are the top five subsidizers of fossil fuels, based on share of GDP.
Fossil fuel subsidy reform is a way to encourage investment in renewable carbon use and bio-based options. Repurposing a fraction of this to bio-based innovation could alter the cost-profile of these innovations, bringing them to market more rapidly.
Yet while there is political rhetoric behind removing ‘inefficient’ fossil fuel subsidies, the vagueness and the intractability of other priorities and industrial policies make their elimination difficult.
Countries in the G7 and G20 have agreed to remove ‘inefficient fossil fuel subsidies’, but there is a lack of clarity over what this means or in what timeframe. Indeed, explicit annual subsidies have more than doubled from $500 billion in 2020 to $1.3 trillion in 2022.
Individual countries attempting fossil fuel reform have often faced economic reverberations and a social backlash. For example, Kazakhstan, which is in the top 25 countries for fossil fuel subsidies, erupted into violence in 2022, sparked by a sharp increase in national fuel prices due to the formal end of subsidies for domestic liquefied petroleum gas (LPG).
But this is not inevitable and there are emerging efforts by country alliances to manage fossil fuel subsidy reform. Initiatives like the Beyond Oil and Gas Alliance (BOGA) are increasing their membership while other countries, including Indonesia, the Philippines, Ghana and Morocco, have each introduced policies, such as cash transfers and social support, to compensate for reduction or removal of fossil fuel subsidies.
A transition away from fossil fuels stands to transform global power relations as new value chains are created that introduce different resource powerhouses and potential technology leadership.
New and expanded value chains can shift geopolitical power
The concentration of resources gives economic and political leverage to the countries that possess these assets. As this power shifts away from fossil fuel producers, different national capabilities and dynamics will emerge.
Bioresource endowments
Countries with large bio-based resource endowments stand to drive and shape the configuration of existing and potentially new global production and value chains.
Biomass can come from many sources, including from land dedicated to its growth (such as woody biomass), waste and residual pools. Current concentrations illuminate potential global dynamics of bio-based production across food, energy
and materials.
- Asia has the largest area for grazing (10 million square kilometres – km²), dominated by China (4 million km²). Followed by Australia (3 million km²), the US (2 million km²), Brazil (2 million km²) and Kazakhstan (2 million km²).
- Asia also has the largest area for cropland (6 million km²), led by India (2 million km²). Followed by the US (2 million km²), China (2 million km²), Russia (1 million km²) and Indonesia (1 million km²).
- The greatest area of forest is in Europe, dominated by Russia (8 million km²). Followed by Brazil (5 million km²), Canada (3 million km²) and the US (3 million km²).
Value-adding capabilities
The potential geopolitical power shift is not just about the location of physical resources. To realize a high-value bioeconomy, production capabilities need to be matched by processing capabilities.
At present, these exist only in a few concentrated locations. Biorefinery capacity is strongly dominated by the US, European Union and China. India and Brazil have large pockets of existing industry and global value chain players that could provide a head start in processing bio-based products.
Converting existing oil refineries so that they utilize bio-based feedstocks – including both forest products and crops, like maize and sugar cane – to produce a variety of bio-based chemicals, plastics and fuels is an emerging opportunity to increase the global production capacity, which could provide a broader base of refineries with a role to play in the transitions to bioeconomies in regions like the Middle East, Southeast Asia and in resource and processing rich countries. Currently, the cost of updating oil refinery technology – especially for hydrotreating, which is required when using bio-based feedstocks rather than those derived from fossil fuels – is a barrier to transitioning existing infrastructure. But the balance could tip in the favour of converting to bio-based feedstock if the cost of fossil fuels increases compared to its market value.
Technology development
Countries that are identifying and investing in key innovations and technologies stand to be at the forefront of bioeconomy transitions.
A transition to a bio-based economy offers emergent high-tech opportunities to establish new markets for products and new methods of production that are not necessarily reliant on existing land endowments. For example:
- The US has focused on harnessing capabilities for bio-manufacturing and biotechnology innovation, commercialization and trade across numerous sectors including chemicals, food, climate change solutions and health.
- New technology allows the controlled growth of bio-feedstocks from microbial sources and atmospheric CO₂ or fungi.
- Countries can also integrate other technology advancements with existing bio-based sectors. For example, Finland is pursuing strengthened knowledge and technology bases, in preparation for the ‘next digital leap’ in the bioeconomy in which data is used to automate processes and add value.
- Global value chain players across key sectors, such as pulp and paper, consumer goods and biosolutions are all experimenting with bioeconomy innovations in production, feedstock blending, processing and consumer products, which are disrupting fossil fuel-based energy, food and material products.
Realizing the value of potential bioeconomy innovations requires commensurate skills and capacities to develop, deploy and scale-up. In recognition of this, some countries are putting their strategic focus on future bio-based industries. India is creating a skilled workforce for the bioeconomy by expanding activities in strategic areas including synthetic biology and quantum biology.
There are also parallel critical linchpin technologies, dominated by the US and China, which are required for numerous bioeconomy innovations:
- Carbon capture, utilization and storage (CCUS) is still nascent but dominated by the US. These technologies are needed to implement certain bioeconomy advances such as protein production from air. But the future feasibility of CCUS is highly uncertain. Currently, this technology only captures around 50 million tonnes of CO₂ (Mt CO₂) annually. By 2030, the IEA estimates that operational, under-construction and planned CCUS capacity will total 435 Mt CO₂ each year, which is still tiny compared to total energy emissions today, which total 37.4 billion gigatonnes of CO₂ in 2023. The widespread use of CCUS is still hampered by technological, efficiency and cost barriers. Currently, only 1.3 Mt CO₂ are used in the biofuels industry. The US is dominant in this field, with a share of nearly half of operational global CCUS.
- Abundant renewable energy is needed for the bioeconomy transition and China will play a leading role. In principle, renewable energy resources are available in one form or another in most countries, but some countries, namely China, have raced ahead in deploying capacity. China has a leading position in manufacturing, but also in innovation and deployment of renewable energy technologies. The country is also the biggest investor in renewable energy.
Crucially, countries that do not control key biotechnologies may become heavily dependent on the few countries and companies that do. Countries, regions and organizations that have conditions conducive to R&D, including access to early stage capital, protected intellectual property rights and established markets, already have a comparative advantage.
Collaboration in the context of alliances and competition
Competition – and shifting alliances – have become a key narrative when it comes to trade.
Imports of forestry and agricultural products has become increasingly dominated by two countries: the US and China. In 2022, they imported forestry products worth up to $32 billion and $42.3 billion, respectively, almost three times as much as their closest competitor, Germany ($11.7 billion). For agricultural products in 2022, China imported $223 billion and the US $139 billion (compared to Germany’s $88.3 billion). The US and China are still strongly bound by their bio-based dependencies. The US receives most of its agricultural imports from regional actors, Canada and Mexico, while China purchases significant amounts of agricultural goods from the US. Brazil is China’s top agricultural products importer.
In the last decade, trade of forestry and agricultural products has become increasingly dominated by two countries: the US and China.
Future political turmoil could see countries looking towards allies – or countries willing to trade with both the US and China – to meet their import needs.
Against this backdrop, countries and private sector actors recognize that there is much to gain from having a competitive advantage in the bioeconomy. There are many variables, but industry estimates suggest that biological production applications could contribute to a significant economic impact over the next 10 to 20 years. As a result, policies and agendas to foster domestic bioeconomy sectors often enjoy bipartisan political support in the US.
The private sector will be a necessary conduit for research and design for the next generation of biotechnologies – as well as a beneficiary of the financial rewards.
At the same time, trade-offs are emerging. Addressing the biodiversity and climate crises requires collaboration on investment and technology-sharing. But countries also see advantages – from resource security and market opportunities – in protectionist policymaking. While in the private sector, international companies – which have the resources to test and roll-out technologies – have market incentives to grow their own business models.
