From 8725d63955b5f41e6f44a07208522f8cd505f7d3 Mon Sep 17 00:00:00 2001 From: theagora Date: Tue, 28 Nov 2023 13:51:57 +0800 Subject: [PATCH] =?UTF-8?q?0x23=20Patch=20Build=20VOL.35=20=C2=A9=20MMXXII?= =?UTF-8?q?I=20997ee46?= MIME-Version: 1.0 Content-Type: text/plain; charset=UTF-8 Content-Transfer-Encoding: 8bit --- c2/index.html | 64 +- c2/page10/index.html | 64 +- c2/page11/index.html | 64 +- c2/page12/index.html | 64 +- c2/page13/index.html | 64 +- c2/page14/index.html | 64 +- c2/page15/index.html | 64 +- c2/page16/index.html | 64 +- c2/page17/index.html | 64 +- c2/page18/index.html | 32 + c2/page2/index.html | 64 +- c2/page3/index.html | 64 +- c2/page4/index.html | 64 +- c2/page5/index.html | 64 +- c2/page6/index.html | 64 +- c2/page7/index.html | 64 +- c2/page8/index.html | 64 +- c2/page9/index.html | 64 +- columns.xml | 2 +- feed.xml | 2 +- heros.xml | 2 +- hkers.xml | 1156 +++++++++++------ ...1-08-principles-for-uk-china-strategy.html | 207 +++ ...23-11-09-the-securitisation-of-energy.html | 282 ++++ hkers/2023-11-10-track-and-disrupt.html | 139 ++ .../2023-11-16-new-energy-supply-chains.html | 491 +++++++ hkers/index.html | 111 +- 27 files changed, 2506 insertions(+), 1006 deletions(-) create mode 100644 hkers/2023-11-08-principles-for-uk-china-strategy.html create mode 100644 hkers/2023-11-09-the-securitisation-of-energy.html create mode 100644 hkers/2023-11-10-track-and-disrupt.html create mode 100644 hkers/2023-11-16-new-energy-supply-chains.html diff --git a/c2/index.html b/c2/index.html index 6fb0be91..1509c777 100644 --- a/c2/index.html +++ b/c2/index.html @@ -66,6 +66,38 @@
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【香港保衛戰當年今日・七】

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diff --git a/columns.xml b/columns.xml index 192da9c6..42582a63 100644 --- a/columns.xml +++ b/columns.xml @@ -1,4 +1,4 @@ -Jekyll2023-11-26T09:12:44+08:00https://agorahub.github.io/pen0/columns.xmlThe Republic of Agora | ColumnsUNITE THE PUBLIC ♢ VOL.35 © MMXXIII剝奪生命2023-10-25T12:00:00+08:002023-10-25T12:00:00+08:00https://agorahub.github.io/pen0/columns/philosophie-terminales-depriving-life<h3 id="國家是否有權決定公民的生死">國家是否有權決定公民的生死？</h3> +Jekyll2023-11-28T13:50:31+08:00https://agorahub.github.io/pen0/columns.xmlThe Republic of Agora | ColumnsUNITE THE PUBLIC ♢ VOL.35 © MMXXIII剝奪生命2023-10-25T12:00:00+08:002023-10-25T12:00:00+08:00https://agorahub.github.io/pen0/columns/philosophie-terminales-depriving-life<h3 id="國家是否有權決定公民的生死">國家是否有權決定公民的生死？</h3> <!--more--> diff --git a/feed.xml b/feed.xml index ed7840fb..555076a5 100644 --- a/feed.xml +++ b/feed.xml @@ -1 +1 @@ -Jekyll2023-11-26T09:12:44+08:00https://agorahub.github.io/pen0/feed.xmlThe Republic of AgoraUNITE THE PUBLIC ♢ VOL.35 © MMXXIII \ No newline at end of file +Jekyll2023-11-28T13:50:31+08:00https://agorahub.github.io/pen0/feed.xmlThe Republic of AgoraUNITE THE PUBLIC ♢ VOL.35 © MMXXIII \ No newline at end of file diff --git a/heros.xml b/heros.xml index 03af50a1..5ed73687 100644 --- a/heros.xml +++ b/heros.xml @@ -1,4 +1,4 @@ -Jekyll2023-11-26T09:12:44+08:00https://agorahub.github.io/pen0/heros.xmlThe Republic of Agora | HerosUNITE THE PUBLIC ♢ VOL.35 © MMXXIII左翼政治的马氏难题2023-10-19T12:00:00+08:002023-10-19T12:00:00+08:00https://agorahub.github.io/pen0/heros/Anonymous-a1_l-the-machiavellian-dilemma-of-left-wing-politics<p>廿世纪中叶处于冷战风口浪尖的法国，对苏立场成为当时知识分子的分界线。</p> +Jekyll2023-11-28T13:50:31+08:00https://agorahub.github.io/pen0/heros.xmlThe Republic of Agora | HerosUNITE THE PUBLIC ♢ VOL.35 © MMXXIII左翼政治的马氏难题2023-10-19T12:00:00+08:002023-10-19T12:00:00+08:00https://agorahub.github.io/pen0/heros/Anonymous-a1_l-the-machiavellian-dilemma-of-left-wing-politics<p>廿世纪中叶处于冷战风口浪尖的法国，对苏立场成为当时知识分子的分界线。</p> <!--more--> diff --git a/hkers.xml b/hkers.xml index a55348a4..89559502 100644 --- a/hkers.xml +++ b/hkers.xml @@ -1,4 +1,751 @@ -Jekyll2023-11-26T09:12:44+08:00https://agorahub.github.io/pen0/hkers.xmlThe Republic of Agora | HkersUNITE THE PUBLIC ♢ VOL.35 © MMXXIIIWritten Evidence2023-11-07T12:00:00+08:002023-11-07T12:00:00+08:00https://agorahub.github.io/pen0/hkers/written-evidence<p><em>The Russian invasion of Ukraine increased the European Union’s (EU) ambitions in security in defence as well as member states’ appetite for EU-led solutions in this field.</em> <excerpt></excerpt> <em>Specifically, the war unveiled the role of the European Commission as a policy entrepreneur which is enhancing its competences in security and defence through the usage of a “market-security nexus”. As defence cooperation gets increasingly framed by the EU in terms of economic efficiency and resilience, it might be difficult for London to ignore the gravitational pull of EU market and legislation in the long term. However, EU efforts in regulating the defence market are still nascent, and there are still both room and value for the UK to engage in this process. This submission is divided into three sections addressing the Terms of Reference (ToRs) 1, 3 and 5, respectively. Lastly, it concludes with a policy recommendations section suggesting specific avenues for defence cooperation within existing EU frameworks.</em></p> +Jekyll2023-11-28T13:50:31+08:00https://agorahub.github.io/pen0/hkers.xmlThe Republic of Agora | HkersUNITE THE PUBLIC ♢ VOL.35 © MMXXIIINew Energy Supply Chains2023-11-16T12:00:00+08:002023-11-16T12:00:00+08:00https://agorahub.github.io/pen0/hkers/new-energy-supply-chains<p><em>Russia’s invasion of Ukraine has focused attention on energy supply chains and contributed to growing unease in the West about the fact that supply chains for the commodities necessary for the global energy transition are highly concentrated in China (or under Chinese control).</em></p> + +<excerpt /> + +<p>Concerns range from cyber security through to security of energy supply and economic security. The disruption to energy supply chains caused by Russia’s invasion of Ukraine was felt mainly in terms of the physical supply of gas to Europe and the impact this had on the global market. In this context, this paper considers the implications of threats to the physical supply of some of the critical materials and products that the UK requires for its energy transition.</p> + +<p>China has benefited from being an early mover in the processing of many minerals used in net zero technologies, as well as in the production of intermediate goods and, more recently, final goods. In some elements of the supply chain China has a near monopoly (80–100% market share): the rare earths used to manufacture the permanent magnets used in wind turbines and electric vehicles (EVs) are just one example; other examples are connected to the production of battery anodes, high-quality spherical graphite, and the processing of manganese (also used in batteries). In the production of solar photovoltaic modules, meanwhile, China has a near monopoly on the production of polysilicon, silicon wafers and silicon cells. Added to this are very high concentrations (60–80% market share) in many other elements of these supply chains.</p> + +<p>In light of this dominance, this paper considers what risks China’s position in these supply chains poses to the physical supply of materials, components and final goods in the battery and EV, solar, wind and electricity grid supply chains, and whether China could deliberately leverage its position to impose costs on the UK. These risks are assessed according to whether they could affect the UK solely, a group of countries, or the entire market. The paper argues that risks to the UK specifically are currently limited by low levels of manufacturing of these technologies in the UK: because the UK typically imports final goods – where Chinese dominance is less pronounced – its direct dependence on Chinese suppliers is limited. However, the UK might still be an attractive target for largely symbolic measures intended to send political messages.</p> + +<p>The targeting of country groupings (such as NATO or the EU) by sanctions and counter-sanctions amid geopolitical tensions is potentially more dangerous for the UK. Market concentration in China is likely to persist for the foreseeable future, and alternative supply chains are unlikely to be sufficient to meet the demands of multiple countries. At the same time, protectionist industrial policies in the EU and the US may complicate future access to supply chains (which could become less dependent on China), while markets currently lack transparency and, in some cases, scale.</p> + +<p>The biggest risk for the UK is shortages of critical minerals. Shortages are widely forecast, and China’s control of mineral processing and refining means it would play a central role in the allocation of scarce goods. Leveraging supply chains for political ends has historically been more effective in tight markets – the 1970s oil embargoes came during periods of tight supply – but China is more likely to allocate available supplies according to its own national economic interest. During the Covid-19 pandemic, high-volume contracts with Chinese companies were more likely to be honoured, and if this pattern were to be replicated it could mean that decisions about allocation were passed to companies, which would decide which of their domestic and international operations received scarce materials. However, China’s ban on Australian coal shows that where a security threat is perceived, Beijing will take action, even if it will cause damage to the Chinese economy.</p> + +<p>There are also risks in terms of defence and international relations. Access to technology for the military is likely to be similar to that for the civilian economy for the time being, with net zero technologies currently most likely to be used for military logistics or for housing/bases. The most immediate risks relate to the secure operation of technologies, but these tend to be associated with cyber risks, which are not covered in this paper. The increased importance of critical minerals as commodities may change geopolitical dynamics and in some cases result in domestic and regional instability, influencing where the military is deployed. In the longer term, there are questions about whether China’s industrial power and growing technological advantage in net zero will be leveraged to create advantages for its own military capability.</p> + +<p>Finally, China’s role as the paramount – and in some cases only – investor in and purchaser of mineral ores will clearly be significant for its global influence. China’s role in producer countries, as well as its trading practices, will be important in shaping the character of the global market, with long-term implications for the UK’s defence and security policies.</p> + +<h3 id="introduction">Introduction</h3> + +<p>China is central to the new energy supply chains required for the decarbonisation of the global economy. It is a large investor in the mining of numerous critical materials and metals both domestically and abroad and, more significantly, the manufacture of critical energy-related components is heavily concentrated in China, meaning that many of the mined ores are sent there for processing. As a result, China is central to the production of wind turbines, solar photovoltaics (PV), permanent magnets, batteries and electric vehicles. As the energy transition unfolds and electrification gathers pace, demand for these materials and end products is set to increase. The International Energy Agency (IEA) estimates that a concerted effort to reach the Paris Agreement goals (climate stabilisation at “well below 2°C global temperature rise”) would mean a quadrupling of mineral requirements for clean energy technologies by 2040. An even faster transition, to hit net zero globally by 2050, would require six times more critical mineral inputs in 2040 than in 2020. However, investment so far is falling short of what the world is forecast to need.</p> + +<p>The UK’s own net zero plans imply large increases in domestic demand for critical minerals and end products, as well as greater reliance on complex supply chains. Rapid growth requires stable markets and resilient supply chains, but events over the past few years have highlighted that stability is not guaranteed. The lack of investment in minerals globally suggests that shortages will occur and that costs will rise. In the past, increased pressure on mineral supplies has led to increased investment but, given the time lag for bringing on new supplies, price volatility has also ensued. Similar challenges related to the supply of new materials could delay the energy transition and raise the associated costs. Although cost increases and delays also spur technological innovations, net zero targets are approaching rapidly, meaning that new infrastructure and equipment need to be sourced and deployed. In this context, the UK government must balance the need to move quickly with decarbonisation against the cost and availability of materials and potential security risks from immature and concentrated supply chains.</p> + +<p>Concerns about the availability of minerals and metals are compounded by China’s central role in both mining and processing. The Covid-19 pandemic and the Russian invasion of Ukraine have highlighted the risks associated with market concentration and “just-in-time” supply chain strategies. Supply chain disruptions during the pandemic led to longer lead times and higher costs for supplies of manufactured goods from China. Lockdowns, combined with factory accidents and floods in China, reduced the availability of polysilicon, the starting material for wafers in solar cells, and as China produced 80% of the world’s supplies in 2020, prices rose by 350%. Some residential solar developers reported that, for the first time, their growth was constrained by the availability of equipment, rather than by sales.</p> + +<p>Meanwhile, following Russia’s invasion of Ukraine and gas supply disruptions, energy security has become a top policy priority for many governments. Russia’s dominance in European gas supplies emphasised the risk of reliance on a single large supplier, creating alarm about China’s dominance in the provision of key materials and components for the energy transition. And, in the context of worsening US–China relations, many Western governments and companies are looking to de-risk their China exposure.</p> + +<p>Government policies aimed at diversifying supply sources and processing facilities are critical, given the need for more materials and end products. But it is important to recognise that, even as China’s share of these processes falls, it will remain central to many energy supply chains. It is important that the UK, which currently has limited production capacity, understands the complexity of new energy supply chains, the risks associated with China’s dominance, and the various implications of diversifying, decoupling or de-risking them. Excluding China completely from the UK’s new energy supply chains is unrealistic and would be counterproductive for the UK’s net zero targets.</p> + +<p>Every strategy to diversify new energy supply chains needs to be seen in the context of the broader UK–China bilateral economic relationship, which topped £100 billion in the 12 months to the end of Q1 2023. New energy supply chains are only a small part of this relationship, which raises the question of whether there are risks specific to these supply chains that warrant targeted treatment, what these are, and how mitigation strategies fit into this much larger economic relationship.</p> + +<p>Numerous studies have analysed different demand scenarios for critical materials and minerals, as well as the supply gap, and have described China’s dominance. But they do not assess how this dominance impacts the UK. This paper aims to fill that gap and asks: how has China become the dominant actor in new energy supply chains; and can China use its dominance in net zero energy supply chains to penalise the UK because of its policy choices? The paper argues that it will be very difficult for China to target the UK directly, given the complexity of the relevant supply chains. Any export controls or embargoes that China imposed on the UK would impact many other consumer countries equally. Similarly, the UK would not be insulated from any bottlenecks or breakdowns in these supply chains, impacting its ability to meet its net zero targets.</p> + +<p>That said, China’s centrality across the entire value chain raises questions for the UK’s foreign and defence policies, as well as for its industrial and economic policy. These challenges need to be understood and assessed rationally. While this paper argues that it would be very difficult for China to target the UK specifically using new energy supply chains, it also seeks to highlight the different risks associated with market concentration in China.</p> + +<p>This paper is by no means a comprehensive assessment of all these risks and their various international ramifications. Further research and discussion are needed to advance the conversation, but a fact-based foundation is the important first step, and that is what this paper seeks to offer. Similarly, the paper does not assess cyber threats or environmental, social and governance concerns, which represent different categories of risk best covered in separate discussions.</p> + +<p>The paper is based on publicly available sources in the English and Chinese languages. Quantitative data is drawn principally from a combination of official publications of national governments and international organisations, and industry and consultancy reports. A key challenge was the lack of consistency in the data between different sources, which is why the quantitative data on China’s share of global supply chain is presented as percentage bands rather than as precise percentages. Sources for qualitative information include policy documents and analyses produced by national governments and international organisations, consultancy and think tank reports, academic papers and online press articles. Finally, this paper is also informed by a closed research event hosted by RUSI, which involved officials from UK government departments, industry figures and think tank representatives.</p> + +<h4 id="structure">Structure</h4> + +<p>The paper is organised as follows: the first chapter briefly discusses Chinese government policies as they relate to net zero supply chains; the second chapter covers the UK’s need for low-carbon energy infrastructure; and the third chapter outlines areas of Chinese dominance in net zero supply chains. The fourth and final chapter offers a preliminary analysis of the risks in order to guide thinking about the scale and nature of the challenge – identifying foreign policy, defence and economic risks to the UK associated with China’s control over net zero supply chains – before offering some preliminary observations and suggestions for further research.</p> + +<h3 id="i-chinese-government-policy-and-supply-chain-dominance">I. Chinese Government Policy and Supply Chain Dominance</h3> + +<p>China does not have a critical materials strategy per se, but its dominance in new energy supply chains emanates from a combination of early moves into various industrial applications (rare earths, batteries, solar PV and, to a lesser degree, wind turbines) via central and local government support accompanied by low labour, land and electricity costs. Compounded by the Chinese government’s concerns about energy security, industrial policies have aimed to advance electrification as a means of limiting imports of fossil fuels, mainly through the development of electric vehicles (EVs). While the battery and EV sector developed differently from solar PV and wind turbines (as discussed below), they benefited from similar industrial policies and from the government’s ability to support long-term goals. As such, signals from central government indicating that these were priority industries led to preferential policies for manufacturing, as well as financial support for innovation and (at times) for infrastructure and deployment. In addition, the low input costs that attracted foreign investors were combined with obligations to partner with Chinese firms, which then led to technology transfers.</p> + +<p>As these industries developed and scaled up in China, the state also supported outbound investments in mining, with varying degrees of success, and with substantial variation in corporate environmental, social and governance (ESG) practices. The incentives shifted from focusing on one part of the supply chain to targeting integrated supply chains and, as these industrial activities expanded, to supporting industries and the pools of experienced labour which formed around them. Development of the industries was economically, rather than geopolitically, driven, with China seeking markets where it might gain a competitive advantage in order to generate employment and industrial growth. China’s solar PV development was initially conceived as an export-oriented industry to benefit from feed-in tariffs in countries such as Germany. That said, the Chinese government already recognised in the late 1980s that the availability of critical resources (such as rare earths) offered it a strategic advantage. Deng Xiaoping is reported to have remarked that while “the Middle East has oil, China has rare earths”.</p> + +<p>Preferential policies differed among the supply chains and varied depending on the availability of mineral resources in China. In rare earths, for instance, where China has abundant resources, policies to support mining and processing date back to the 1970s, while foreign investments were confined to joint ventures in the 1990s. From that point, policies focused on limiting exports and encouraging Chinese companies to develop high-end products and devices, while also aiming to limit illegal mining and exports (which had severe environmental and health impacts in China, and which depressed prices domestically).</p> + +<p>The EV industry in China was born from a desire to foster industrial development and technological upgrading while also reducing the country’s dependence on oil imports. The government adopted supportive industrial policies for EV manufacturing, sales and charging infrastructure, offering tax incentives and subsidies for innovation and R&amp;D as early as the mid-2000s. Much like the situation with rare earths, government policies that made foreign investments appealing were accompanied by cheap input costs, with the quid pro quo of partnering with Chinese car and battery makers. In 2012, as part of the 12th Five-Year Plan, the government issued the “Energy Saving and New Energy Automobile Industry Development Plan (2012–2020)” aimed at developing EV science and technology. The “Made in China 2025” plan, issued in 2015, introduced the development of the new energy vehicle (NEV) industry as a national strategy and, more broadly, encouraged new energy industries such as renewables. This built on the “Strategic Emerging Industries” initiative that was announced in 2006, but broadened it out from a focus on technical innovation to encompass the entire manufacturing process.</p> + +<p>Over this period, government departments introduced various plans to guide the development of the NEV industry, encouraging the creation of an ecosystem to support these industries. Government policies focused on innovation in EVs and batteries, as well as on encouraging both production and sales of EVs and infrastructure build-out. In 2021, policy guidance also looked to address the use of EV battery packs in other applications after their removal from EVs, including as part of China’s long-term plan to develop smart networks and to achieve vehicle-to-grid integration. The Ministry of Industry and Information Technology’s 12th Five-Year Plan for the nonferrous metals sector noted that priority would be given to developing China’s overseas presence. Chinese banks have therefore supported Chinese miners in their efforts to acquire ownership interests in mines and processing facilities in Africa, Australia, Europe, North America and South America, and in signing offtake agreements with operating mines.</p> + +<p>As the domestic EV market grew, government policies facilitated and prioritised the development of an integrated battery and EV supply chain. To be sure, some developments, including e-bikes and a burgeoning solar heating industry, have emerged in China due to innovations by local companies that saw new demand emerging, even though they were not formally encouraged (some were even discouraged, as in the case of e-bikes). This is important to note, because not all of China’s initiatives are led and directed by the government, nor are they perfectly implemented. When discussing China, it is important to note that there is a difference between central government’s policy framing on the one hand, and corporate activities and behaviours on the other.</p> + +<p>Nonetheless, the state-led industrial policy framework has been a key contributor to China’s dominance in these industries of the future. Some of the attributes seen in the EV sector also supported the development of China’s solar industry: manufacturers benefited from local government support such as land concessions, tax benefits, less expensive operating environments and, in some cases, even direct investment. The central government contributed by directing state financing to these projects and even helped to catalyse cost declines in input materials like polysilicon. However, when polysilicon prices plummeted (due to a fall in demand as trade restrictions were imposed on Chinese solar exports, combined with the existence of large stocks of polysilicon) local governments provided further support to shield these industries. That said, solar PV, unlike other industries, did not begin life as a domestic industry. Chinese firms first entered PV module manufacturing through technology acquisition, before gradually succeeding in building their competitiveness and technological capabilities throughout the supply chains, as they saw new opportunities for growth, as well as via local interactive learning networks.</p> + +<p>In a somewhat similar vein, the Chinese government has, since the early stage of wind energy development, focused on establishing a domestic wind industry supply chain, initially by financing investments in small wind farms, and through the development of wind projects as early as the 1980s. Foreign expertise was then brought in, but joint ventures were designed to include substantial local content requirements (later abolished). In addition to policies that stimulated renewable R&amp;D and equipment manufacturing, the government also introduced pricing policies to support the integration of renewable energy.</p> + +<p>Industrial policies in support of manufacturing, innovation and deployment have had unintended consequences from the Chinese government’s perspective – among them subsidy fraud, illegal mining and negative environmental impacts – while incentive structures have evolved to deal with regulatory gaps, financial stress along the supply chains and other challenges. Notwithstanding the challenges, these policies have, over time, allowed China to become a critical and low-cost supplier of new energy materials.</p> + +<p>In addition to industrial and innovation policies, the Chinese government regulates the mining of critical materials and their processing. China’s 2016 National Plan for Mineral Resources classifies the country’s mineral resources as “strategic”, “advantageous”, “protected”, or “strategic emerging industry” minerals. China does not have a critical minerals list akin to those in place in the US or the EU. For the different categories of minerals, the plan identifies where China needs to encourage exploration of minerals in short supply, regulate the amount of minerals defined as “advantageous”, cut production of minerals with excess capacity, and ensure the supply of minerals in strategic emerging industries. The plan identifies three broad categories:</p> + +<ul> + <li> + <p>Energy minerals – oil, gas, shale gas, coal, coal-bed methane and uranium.</p> + </li> + <li> + <p>Metallic minerals – iron, chromium, copper, aluminium, gold, nickel, tungsten, tin, molybdenum, antimony, cobalt, lithium, rare earths and zirconium.</p> + </li> + <li> + <p>Non-metallic minerals – phosphorus, potash, crystalline graphite and fluorite.</p> + </li> +</ul> + +<p>This list includes metals and minerals that are not on developed economies’ lists of critical materials, but it also excludes a number of materials often cited by developed economies as “critical” (such as vanadium, tellurium, niobium and others that are used in hydrogen, solar PV or wind turbines). And while advanced manufacturing economies with a high dependency on imported raw materials include supply risk as a key parameter when categorising their lists of materials, Chinese assessments of “strategic minerals” use a broader, more flexible set of criteria, in which some “strategic minerals” are subject to supply risk and others are not. Indeed, according to China’s Geological Survey, the category of “advantageous minerals” includes rare earths and tungsten, and refers to minerals for which China has a domestic resource advantage relative to other countries, allowing it to control or influence global markets.</p> + +<h3 id="ii-demand-for-low-carbon-energy-infrastructure-in-the-uk">II. Demand for Low-Carbon Energy Infrastructure in the UK</h3> + +<p>In its 2023 analysis, the UK’s National Grid estimated that the national electricity supply would treble by 2035, through both domestic generation and imports. This would involve a massive increase in different forms of infrastructure (see Table 1).</p> + +<p><img src="https://i.imgur.com/u78vM9M.png" alt="image01" /> +<em>▲ <strong>Table 1: National Grid (2023) Projections to 2035 for England and Wales.</strong> Source: National Grid ESO, “Bridging the Gap to Net Zero”, March 2023.</em></p> + +<p>Concurrent global growth in demand will put great pressure on international supply chains. Mining companies in particular face a range of challenges, including high exploration and production costs, environmental and social concerns, access to capital and shortages of skilled labour. Currently, investments in both the mining of new minerals and processing capacity are falling short of estimated demand, notwithstanding the different demand outlooks and uncertainties around the impact of new technologies. The IEA, for instance, notes that “in a scenario consistent with climate goals, expected supply from existing mines and projects under construction is estimated to meet only half of projected lithium and cobalt requirements and 80% of copper needs by 2030”. Thus, if investment in new mine capacity is not accelerated, the pace of the energy transition will be constrained.</p> + +<p>This raises a number of issues for the UK. First, its ability to meet its net zero goals will depend on the availability of new energy supplies. Meanwhile, the UK’s industrial and economic competitiveness will be closely linked to energy costs. Some military systems also use critical materials, and, while the quantities of these are relatively small, they require high-purity, high-value materials. Finally, supply disruptions, however limited, could reduce the UK’s ability to use renewable technology to meet its climate goals, as well as constrain its freedom of action.</p> + +<p>To date the UK has relied on markets to satisfy its needs and, where effective and efficient markets exist, government policies suggest this will remain the case. The UK government recognised in its 2022 Critical Minerals Strategy that many critical mineral markets are “incomplete”, having inadequate data and transparency. The Critical Minerals Intelligence Centre was established at the British Geological Survey in July 2022, and the government has committed to convening a dialogue with industry, and to using multilateral engagement to promote market development. But establishing concrete policies to secure necessary supplies will be challenging without an industrial strategy to provide guidance on UK demand for critical minerals at the various stages of the supply chain.</p> + +<p>The efforts of the UK and its allies to build out new energy supply chains are likely to involve a lengthy process – one from which China cannot be excluded, at least in the near term. While policy papers do not articulate what level of reliance on China is acceptable to the UK and its allies, the decoupling (now de-risking) narratives indicate that there will be an attempt to rapidly reduce dependence on China. In the US, for instance, the Inflation Reduction Act provides a range of tax credits, as the country seeks to encourage the sourcing of battery materials domestically, or from partner countries with which the US has free trade agreements. From 2025 onwards, EV batteries will only be eligible for US purchase subsidies if they do not contain any critical minerals that were extracted, processed or recycled by a “foreign entity of concern” – including China. Similarly, the European Commission’s proposal for a new Critical Raw Materials Act (CRMA) aims to achieve a high degree of self-sufficiency by 2030. According to the CRMA, EU capacity should reach at least 10% of domestic demand for mining and extraction and at least 40% for processing and refining, in a bid to address overreliance on China’s supply chains. The European Raw Materials Alliance, announced in September 2020 as part of the European Action Plan on Critical Raw Materials, focuses on developing sustainable and responsible supply chains for critical raw materials and fostering partnerships with resource-rich countries other than China.</p> + +<p>Before the paper goes on to discuss the implications of this for UK security, the next chapter offers a brief overview of key net zero supply chains and their complexity.</p> + +<h3 id="iii-chinas-dominance-of-new-energy-supply-chains">III. China’s Dominance of New Energy Supply Chains</h3> + +<h4 id="supply-chain-components">Supply Chain Components</h4> + +<p>Supply chains for low-carbon energy technologies have several stages and involve many different countries. A supply chain may comprise as many as six steps:</p> + +<ol> + <li> + <p>Extraction and beneficiation of mineral ores.</p> + </li> + <li> + <p>Processing and refining of the ores to produce metals.</p> + </li> + <li> + <p>Further processing to produce the required alloys or chemical compounds.</p> + </li> + <li> + <p>Manufacture of individual components.</p> + </li> + <li> + <p>Manufacture of intermediate products from these components.</p> + </li> + <li> + <p>Assembly of final product.</p> + </li> +</ol> + +<p>In principle, each step can be carried out in a different country. But China, as discussed below, has built a strong position that spans steps one to five in several important supply chains. The basis of this strength lies in China’s dominance of the extraction and, to an even greater extent, processing of certain critical minerals.</p> + +<p><strong>What are Critical Minerals?</strong></p> + +<p>The criticality of a specific mineral is generally assessed on the basis of the risk of interruption to supply and on the economic or security importance to the importing nation or region of such a disruption. One factor that contributes to the assessment of supply risk is the market concentration of the production of a mineral ore or refined metal. Most assessments do not consider the geographic concentration of primary mineral ore resources, as these are – in most cases – abundant and geographically widespread. However, the known high-quality accumulations tend to be geographically concentrated, though future exploration may yield some new high-grade deposits.</p> + +<p>The principal focus of such criticality assessments is the mineral inputs required to produce advanced technologies, notably in the low-carbon and defence industries. Assessments carried out by different organisations result in different lists of critical minerals. This is due to a combination of differing geographic scope and economic/security concerns, as well as different methodologies. This study draws on four such assessments, conducted respectively by: the US Department of the Interior; the IEA; the British Geological Survey; and the European Commission.</p> + +<p>The minerals identified as critical by one or more of these assessments, and which are inputs to low-carbon energy technologies, are listed in Table 2.</p> + +<p><img src="https://i.imgur.com/EPBI78A.png" alt="image02" /> +<em>▲ <strong>Table 2: Critical Minerals Relevant to Low-Carbon Energy Technologies.</strong> Sources: <a href="https://www.govinfo.gov/content/pkg/FR-2022-02-24/pdf/2022-04027.pdf">US Department of the Interior, “2022 Final List of Critical Minerals”, Federal Register (Vol. 87, No. 37, 24 February 2022)</a>, p. 10,381; IEA, “The Role of Critical Minerals in Clean Energy Transitions”, May 2021; Paul Lusty et al., UK Criticality Assessment of Technology Critical Minerals and Metals, British Geological Survey, CR/21/120 (Keyworth: British Geological Survey, 2021); Silvia Bobba et al., Critical Raw Materials for Strategic Technologies and Sectors in the EU: A Foresight Study (Brussels: European Commission, 2020).</em></p> + +<p>The growing demand for clean energy technologies will sharply accelerate the demand for some of these critical minerals. Table 3 summarises the IEA’s estimates for this growth to 2040.</p> + +<p><img src="https://i.imgur.com/BfZxfiw.png" alt="image03" /> +<em>▲ <strong>Table 3: Estimated Growth in Demand for Selected Critical Minerals and Share of Clean Energy Technologies in Total Demand.</strong> Notes: 1. STEPS and SDS refer respectively to the IEA’s “Stated Policies” and “Sustainable Development” scenarios. 2. * refers to neodymium only. Source: IEA, “The Role of Critical Minerals in Clean Energy Transitions”.</em></p> + +<p>It is clear that China holds a significant or strong global position in the extraction and/or processing of a large number of the minerals listed in Table 2. In most cases, China’s global share of processing is significantly larger than that of ore extraction, as China imports large quantities of ore for domestic processing. The strength of China’s position is enhanced by its growing involvement in mining and mineral processing overseas (Table 4). The scale of overseas investment in this sector accelerated in the first half of 2023, with a focus on nickel, lithium and copper. The countries that host Chinese mining companies will play a growing role in the global energy transition.</p> + +<p><img src="https://i.imgur.com/PFNtRA7.png" alt="image04" /> +<em>▲ <strong>Table 4: Examples of Countries Where China is Deeply Involved in Critical Minerals.</strong> Note: PGMs = platinum group metals. Sources: Christoph Nedopil Wang, “China Belt and Road Initiative (BRI)”; Chen Aizhu and Fransiska Nangoy, “Shandong Nanshan May Expand Indonesia Site into $6 bln Aluminium Complex”, Reuters, 15 May 2023; Saliou Samb, “China to Loan Guinea $20 Billion to Secure Aluminium Ore”, Reuters, 6 September 2023; James Attwood and Leonardo Lara, “China’s BYD Takes Next Steps on $290 Million Lithium Project in Chile”, Bloomberg, 3 July 2023; Jonathan Gilbert and James Attwood, “China’s Zijin is in Talks with Argentina to Turn Lithium into Battery Cathode”, Bloomberg, 10 July 2023; Thomas Graham, “Bolivia’s Dream of a Lithium Future Plays out on High-Altitude Salt Flats”, The Guardian, 25 January 2023; “Gabon, CITIC to Mine 26 Mln T Manganese Resource”, Reuters, 23 October 2010; Harry Dempsey, “Indonesia Emerges as World’s Second-Largest Cobalt Producer”, Financial Times, 9 May 2023; Yudith Ho and Eko Listiyorini, “Chinese Companies are Flocking to Indonesia for its Nickel”, Bloomberg, 15 December 2022; Harry Dempsey and Leslie Hook, “China Set to Tighten Grip over Global Cobalt Supply as Price Hits 32-Month Low”, Financial Times, 13 March 2023; Simon Mundy, “China Enters South African Platinum Sector”, Financial Times, 18 December 2010.</em></p> + +<p>The UK has no significant mining production of the critical minerals identified by the British Geological Survey, but prospective areas for mineral extraction do exist in the UK, notably for lithium in Cornwall. Whether extraction of any of these deposits can be brought to a significant scale by 2035 is an open question, not least due to social and environmental concerns. Likewise, the UK’s processing capacity for these minerals is very limited. Nevertheless, the UK is home to a number of international mining companies that could, in principle, supply some of the required minerals. Recycling is often seen as having more potential in the UK, but in a rapidly growing market, recycled materials originating in the UK will lag behind demand significantly.</p> + +<p>Below is a more detailed look at some of the other key supply chain components that will need to be addressed in any shift away from Chinese dominance.</p> + +<p><strong>Batteries and EVs</strong></p> + +<p>Lithium-ion batteries are the most commonly used form of energy storage for electric and hybrid motor vehicles and are also used for household and grid electricity storage. Their key components are anodes, cathodes and electrolytes. Lithium is the most important metal in this context, as it provides the electrolyte as well as most forms of cathode. The chemistry of the cathode and anode varies, and this results in six main types of lithium-ion battery:</p> + +<ul> + <li>NMC: Lithium nickel manganese cobalt oxide.</li> + <li>NCA: Lithium nickel cobalt aluminium oxide.</li> + <li>LCO: Lithium cobalt oxide.</li> + <li>LFP: Lithium iron phosphate.</li> + <li>LMO: Lithium manganese oxide.</li> + <li>LTO: Lithium titanate.</li> +</ul> + +<p>The composition of the cathode is the main differentiator between these battery types. The anode is commonly composed of graphite, either natural or synthetic (manufactured from hydrocarbons). The main exception is the LTO battery, which uses lithium titanate for the anode. Tin and niobium are likely to be used in the future to increase the energy density of the anode.</p> + +<p>Table 5 illustrates in simplified form the supply chain for lithium-ion batteries, from raw material (in the form of ore) through to final battery assembly. This shows that China’s strong position in mineral ore extraction only applies to natural graphite and silicon. In contrast, China has built a strong – and even dominant – position in mineral processing and in the refining of domestic and imported ores, the manufacture of anodes, cathodes and electrolytes, and in the manufacture of the lithium-ion cells that go into the final battery pack. The import of beneficiated ores from overseas through bilateral offtake agreements has been key to this success (see Table 4). Chinese mining companies have enhanced this advantage through their overseas investments, notably in the Democratic Republic of the Congo for cobalt, in Latin America for lithium and in Indonesia for nickel, in some cases supporting not only mining but in-country refining and processing.</p> + +<p>Ongoing technological advances are likely to achieve two things. The first involves cost and efficiency improvements for existing lithium-ion chemistries, which could reduce the unit requirement for critical minerals. The second is the development of entirely new designs that could radically reduce or even obviate the need for critical minerals: these potential designs include solid state batteries, redox flow batteries, sodium-ion and iron-air chemistries, and supercapacitors. Japanese firms have been leading these innovations, but companies from South Korea, the US, China and Europe are also contributing. These advances are not currently being pursued at scale by the UK, but should they be developed and deployed rapidly it remains to be seen whether they could materially change the UK’s demand outlook by 2035.</p> + +<p>In 2022, only 6% of the UK’s EVs were produced domestically, and even now direct exposure to the Chinese supply chain – which is most dominant in refining, components and intermediate products (see Table 5) – is limited. Some 47% of the UK’s battery EVs were imported from the EU in 2022, up from 44% in 2019, followed by China at 32%, up from 2% in 2019. Sales of Chinese EVs in the UK and EU are growing. Moreover, Chinese companies already manufacture batteries in Europe (which are consequently not subject to tariffs), and this capacity could rise to 322 gigawatt hours per year (GWh/yr) by 2031. Chinese car manufacturers will also look to start production in Europe.</p> + +<p>As of August 2023, the UK hosts two operating lithium-ion battery plants:</p> + +<ul> + <li> + <p>Envision–AESC’s LMO plant in Sunderland, with a capacity of 1.9 GWh/yr and plans to expand to 11 GWh/yr by 2024 and 35 GWh/yr by 2030.</p> + </li> + <li> + <p>AMTE’s lithium-ion battery plant in Thurso, with a capacity of 0.5 GWh/yr.</p> + </li> +</ul> + +<p>On 18 July 2023, it was announced that Tata had committed to building a 40 GWh/yr plant in Somerset. Other potential gigafactories in Coventry and Dundee have yet to be confirmed.</p> + +<p>According to the Faraday Institution, the UK’s manufacturing capacity could, based on current plans, reach a combined 57 GWh/yr by 2030. That falls short of the UK’s estimated requirement of 100 GWh/yr of battery supplies (or gigafactories) to meet demand for batteries for private cars, commercial vehicles, heavy goods vehicles, buses, micromobility and grid storage by 2030, the date at which the UK had intended to end the sale of fully internal combustion engine vehicles and vans, which was delayed to 2035 in September 2023. By 2040, that demand could rise to nearly 200 GWh/yr. According to data from UK Trade Info, the UK currently relies on China for 42% of its lithium-ion battery packs.</p> + +<p>It is unclear whether the UK can become an attractive destination for battery makers in the future given the limited nature of UK incentives (at least compared to support schemes rolled out in the EU and the US) and due to uncertainty about future trading rules with the EU. Lithium mining locally could help attract battery makers, but lithium mining tends to take years to scale up. Even if the UK did increase its battery manufacturing capabilities, it would need to attract both auto assemblers and battery makers – which would likely be Japanese, South Korean or Chinese – or to support local companies in the face of strong international competition.</p> + +<p>Assuming that the UK will not be able to meet all its battery and EV requirements domestically, it will continue to import both batteries and EVs from Europe and China, with Chinese EVs and batteries looking likely to be more cost competitive than their European counterparts. With more gigafactories opening up in Europe, the UK will be able to diversify its battery and EV imports, but will remain dependent on a limited number of producers who, in turn, will remain reliant on Chinese components and minerals (see Table 5).</p> + +<p><img src="https://i.imgur.com/2SCmO3K.png" alt="image05" /> +<em>▲ <strong>Table 5: China’s Involvement in the Supply Chain for Lithium-Ion Batteries.</strong> Notes: 1. Italics indicate estimated share of Chinese production once overseas projects are included. 2. C* = natural graphite. 3. C** = high-quality spherical graphite. 4. metals in brackets are likely to be used in the future. Sources: <a href="https://www.usgs.gov/publications/mineral-commodity-summaries-2023">US Geological Survey, “Mineral Commodity Summaries 2023”, 31 January 2023</a>; IEA, “The Role of Critical Minerals in Clean Energy Transitions”; Lusty et al., “UK Criticality Assessment of Technology Critical Minerals and Metals”; Bobba et al., “Critical Raw Materials for Strategic Technologies and Sectors in the EU: A Foresight Study”; <a href="https://www.iea.org/reports/the-state-of-clean-technology-manufacturing">IEA, “The State of Clean Technology Manufacturing”, May 2023</a>; <a href="https://www.iea.org/reports/energy-technology-perspectives-2023">IEA, “Energy Technology Perspectives 2023”</a>; Heejin Kim and Gabrielle Coppola, “Chinese Firms are Seeking Korean Partners to Skirt US EV Rules”, Bloomberg, 30 July 2023.</em></p> + +<p><strong>Wind Power Plants</strong></p> + +<p>Large, modern wind turbines place significant demands on material supply to maximise their energy output and strength. The respective key components are permanent magnets for the generators and steel for the tower, nacelle and other parts of the turbine. Permanent magnets are also essential components of the traction motors in EVs. The most commonly used form of permanent magnet in wind turbines is the NdFeB magnet (neodymium iron boron), whose production requires neodymium, along with other rare earth metals such as dysprosium and praseodymium. China extracts around 70% of the world’s rare earth metal ores (see Table 6). Moreover, China is responsible for around 90% of the global output of rare earth metals through its longstanding dominance of rare earth ore processing and refining. China has taken advantage of this strength to build manufacturing capacity that now provides nearly 90% of the world’s supply of NdFeB magnets.</p> + +<p>Most of the other critical minerals shown in Table 6 are additives to steel (manganese, chromium, molybdenum, nickel, niobium) or inputs to other turbine components. As is the case in battery materials, China has a strong mineral processing industry that allows it to import ores to produce refined metals. This has given the country a dominant position in the supply of refined manganese and relatively strong positions in aluminium, copper and molybdenum.</p> + +<p>These foundations in the production of permanent magnets and in metallurgical industries have given China the basis for achieving a large share of global production of key components such as generators, gearboxes, blades and nacelles.</p> + +<p>In 2022, the UK had over 14 GW of offshore wind. Half of the UK’s renewable energy comes from wind, and by 2030, offshore wind will supply a third of the country’s electricity. In its 2022 Energy Security Strategy, the government scaled up its plans for wind to reach 50 GW by 2030, compared to a 40 GW target previously, including up to 5 GW of innovative floating wind. RenewableUK, the country’s renewable trade body, estimates that the pipeline of projects either under construction or highly likely to start construction is on track to exceed this 50 GW target.</p> + +<p>The UK hosts plants that manufacture wind turbine blades and towers, but it imports most of the other components. While some of these components can be manufactured in Europe, most of the generators will rely on permanent magnets from China, and even manufacturers of permanent magnets outside China may still be reliant on rare earth metals supplied by China. To address this supply risk, manufacturers are finding ways to reduce or change the mix of rare earth metals in NdFeB magnets, and research is underway to develop entirely new technologies.</p> + +<p>However, the likelihood that these developments will substantially reduce the need for rare earth metals or dramatically change China’s centrality in the near term – even as its share of these components falls – is low. This is because of the scale and cost competitiveness of the Chinese industry compared to competitors, and the concentration of the refining of most other rare earths and metals in China.</p> + +<p><img src="https://i.imgur.com/CMKGas0.png" alt="image06" /> +<em>▲ <strong>Table 6: China’s Involvement in the Supply Chain for Wind Turbines.</strong> Note: Italics indicate estimated share of Chinese production once overseas projects are included. Sources: US Geological Survey, “Mineral Commodity Summaries 2023”; IEA, “The Role of Critical Minerals in Clean Energy Transitions”; Lusty et al., “UK Criticality Assessment of Technology Critical Minerals and Metals”; Bobba et al., “Critical Raw Materials for Strategic Technologies and Sectors in the EU: A Foresight Study”; IEA, “The State of Clean Technology Manufacturing”; IEA, “Energy Technology Perspectives 2023”.</em></p> + +<p><strong>Solar PV Modules</strong></p> + +<p>The majority of PV cells are manufactured from silicon, generally in polycrystalline form. Polycrystalline silicon cells also require germanium and borates. China’s key strength lies in the production of polycrystalline silicon (see Table 7). The country’s domestic manufacturing capacity has grown in recent years, allowing China’s share of global output of polycrystalline silicon to reach 89% in 2022 and the quantity of imports to decline. On this basis, China has achieved almost total dominance (around 95%) in the supply of silicon wafers and a very strong position (around 85%) in the supply for silicon cells. It also makes more than 70% of the world’s solar PV modules.</p> + +<p>China is also a dominant supplier of germanium, a by-product of zinc ore processing, and has a strong position in the production of metals such as copper, aluminium, lead and tin that are necessary components of solar PV panels.</p> + +<p>Other technologies in this sphere include cadmium telluride (CdTe) and copper indium gallium selenide (CIGS) cells. Table 7 shows that China has a moderately strong position in the production of tellurium, indium, cadmium and molybdenum, as well as a dominant position in gallium. All of these metals are produced as by-products of other processes, and their availability depends in part on the production of ores containing other minerals and on the processing of these ores to recover the by-products. Future technological options for solar PV include gallium arsenide and amorphous silicon cells.</p> + +<p>The UK lacks manufacturing at scale of polycrystalline silicon, silicon wafers and cells, and cells based on other technologies. Facilities for such production are thin on the ground: Power Roll has opened a plant in Durham to manufacture flexible solar film using perovskite technology, and while Oxford PV has developed perovskite-on-silicon cell technology, its factory is in Germany and the company has stated that it is reluctant to build the next factory in the UK due to the lack of incentives. A number of companies in the UK manufacture solar PV modules from imported cells, such as UKSOL, UK Solar Power, Sharp and GB Sol, but imports of modules from China remain significant. For example, up to 40% of UK solar farms were built with Chinese modules in 2021. The supply chains for these modules allegedly involve forced labour in Xinjiang, where the production of polysilicon is concentrated, meaning that companies sourcing panels already face an ethical, reputational and compliance challenge.</p> + +<p><img src="https://i.imgur.com/WWknnnH.png" alt="image07" /> +<em>▲ <strong>Table 7: China’s Involvement in the Supply Chain for Solar PV.</strong> Notes: 1. Metals in brackets are those needed for CdTe and CIGS cells. 2. Italics indicate estimated share of Chinese production once overseas projects are included. Sources: US Geological Survey, “Mineral Commodity Summaries 2023”; IEA, “The Role of Critical Minerals in Clean Energy Transitions”; Lusty et al., “UK Criticality Assessment of Technology Critical Minerals and Metals”; Bobba et al., “Critical Raw Materials for Strategic Technologies and Sectors in the EU: A Foresight Study”; IEA, “The State of Clean Technology Manufacturing”; IEA, “Energy Technology Perspectives 2023”.</em></p> + +<p><strong>Electricity Grids</strong></p> + +<p>The principal metals required for transmission lines and transformers are copper, aluminium, zinc and cadmium, along with iron. None of these metals were considered critical for the UK by the British Geological Survey, although China accounts for between 40% and 60% of some of these metals, and aluminium is considered critical by the EU and the US. The supply of critical minerals such as gallium and germanium for microchips – or the supply of microchips themselves – could increase in significance if China becomes a dominant global supplier.</p> + +<p>Rather than raw materials, the main China-related vulnerability for UK electricity grids may be cyber security (not considered in detail in this paper). The IEA estimates that by 2025 there will be 30–40 billion devices linked to electricity grids across the world, and that any of these could be used to attack the grid. This is a major security challenge, and will require governments and companies to act in concert to ensure the resilience of power systems – a process that cannot be discussed in detail here. Instead, the broader responses from government and industry to China’s dominance in the sphere of raw materials are considered.</p> + +<h4 id="government-and-corporate-responses">Government and Corporate Responses</h4> + +<p>A combination of deteriorating relations with China and rising demand for the minerals that are critical to the low-carbon transition has led governments and companies from industrialised countries to take steps to reduce their reliance on China for these minerals. Government actions include imposing import restrictions, incentivising domestic investment and production, stockpiling, and building partnerships with other countries. An additional priority is R&amp;D to develop alternatives to the currently used minerals so as to enhance the efficiency of their use and expand recycling.</p> + +<p>The US government has been among the most active in seeking to decouple from China in this regard, including through the 2022 Inflation Reduction Act, which supports investment and guides procurement along the full length of the supply chain. Resource-rich Australia and Canada are also supporting investment in mining and processing, while in 2023 the EU published its draft Critical Raw Materials Act, which includes 2030 targets for mineral extraction, processing and recycling, as well as limiting over-dependence on a single third country. At the same time, the EU published a draft of the Net-Zero Industry Act, which aims to scale up the manufacturing of new energy technologies in Europe.</p> + +<p>Realising that international cooperation was needed, the US led the establishment of the Minerals Security Partnership in June 2022 to “bolster critical mineral supply chains essential for the clean energy transition”. The first meeting in September 2022 was attended by official partners Australia, Canada, Finland, France, Japan, South Korea, Norway, Sweden, the UK, the US and the EU. Mineral-rich countries such as Argentina, Brazil, the Democratic Republic of the Congo, Mongolia, Mozambique, Namibia, Tanzania and Zambia also attended.</p> + +<p>In addition to the construction of new mines and processing plants outside China, two trends in particular may help reduce dependence on China. The first is reducing or obviating the need for critical minerals in key technologies. Such measures would include the development of sodium-ion batteries for EVs and permanent magnets free of REEs, as well as increasing the efficiency of use and recycling of the materials. However, the time needed to scale up these innovations is uncertain, and China itself may still play a leading role in these technologies. The second trend involves the increasing level of support being given to promote the domestic production of renewable energy equipment and EVs in the US and Europe, which will bolster the growing capacity to process and refine metal ores.</p> + +<p>Taken together, these moves mark a potential turning point in international policies to address Chinese dominance in the mining and processing of critical minerals. However, the impact of these measures is likely to be modest over the period to 2035, given the time needed to commission new mines and processing plants and to scale up the use of new technological solutions, not least due to environmental and social concerns, as well as the energy and water requirements of these processes. In light of this, it is important to consider how China could leverage its dominance in these critical supply chains, and what the implications of such leverage could be.</p> + +<h3 id="iv-what-threat-does-chinas-dominance-pose-to-the-uk">IV. What Threat Does China’s Dominance Pose to the UK?</h3> + +<p>This chapter sets out a preliminary analysis of the risks posed to the UK by China’s domination of new energy supply chains. It assesses the extent to which the UK is at risk of being singled out as a target, whether it is more vulnerable to being targeted as part of a broader regional- or alliance-level bloc, and the extent to which it is vulnerable to disruptions to the global market. It ends with a discussion of other risks relating to international relations and defence that the UK should consider in parallel with the China-related risks.</p> + +<p>Global energy supply chains are important tools for soft power and greyzone contestation. China’s role in new energy supply chains is already an important factor in great power politics – and the importance of this influence will only increase. The US’s Inflation Reduction Act denies subsidies to EV producers that are dependent on Chinese materials on grounds of security, and not for diversification or industrial reasons, as discussed earlier. Furthermore, supply-chain organisation, both in terms of the location of different activities and in terms of market relationships, may be a significant source of tension and instability. Dependence on digital technologies for the operation of some new energy technologies also raises questions about their use in defence and by the diplomatic and security services.</p> + +<p>The risks posed by China’s role in the supply chain must be understood alongside other international developments in the energy industry, including Russia’s invasion of Ukraine and industrial strategy in the US and the EU. This chapter will offer some initial analysis before recommending useful avenues for further research, and preliminary observations on how the UK might consider its security posture with regard to China and net zero.</p> + +<p>At the outset, it should be noted that the character of the risk from net zero supply chains is fundamentally different from that of fossil fuel supply chains. Disruption to fossil fuel supply chains has immediate and widespread consequences which can be catastrophic for society, the economy and defence. Net zero systems are not primarily based on fuel supply, but most commonly on electricity infrastructure. This makes them by default more resilient to supply chain disruption. Delays and temporary price escalation in new energy supply chains would not have an immediate appreciable impact on energy production or consumption in the UK. That said, prolonged disruption would negatively impact the UK’s ability to meet its net zero targets and its climate action, and could impact energy security in a situation where electricity demand was increasing rapidly and equipment for generation or grid storage could not be sourced. Put simply, the short-term risk to physical energy supply in the UK from China is much less than from fossil fuel markets.</p> + +<h4 id="could-the-uk-be-individually-targeted">Could the UK be Individually Targeted?</h4> + +<p>In recent years, China has demonstrated a willingness to leverage the export of critical materials and technologies to achieve domestic and international political objectives, and as a response to sanctions. In 2010, as part of the government’s efforts to clamp down on illegal mining and trade of REEs within China, and coinciding with a fishing dispute with Japan, the Chinese Ministry of Commerce increased the tax imposed on exports of rare earth ores, oxides and compounds, introduced an export tax on end products, and tightened production quotas. These strategies resulted in a reduction of the share of production being exported, from 90% in 2000 to 20% by 2012. While exports to Japan fell, flows to other countries – including Australia and the UK – also declined. The imposition of these export restrictions in 2010 has become the poster child for concerns about China weaponising its dominance in critical materials.</p> + +<p>More recently, China announced export controls on gallium and germanium in response to US, Japanese and Dutch export controls on semiconductor chips. China is the world’s top supplier of these two metals, which are used to make semiconductors, solar panels and fibre optics. In July 2023, citing national security concerns, China’s Ministry of Commerce announced that all exporters of these products must apply for export licences for dual-use items and technologies starting on 1 August 2023. Obtaining the licences can take up to two months, and it is unclear how many will ultimately be issued. The sharp limitation of such export licences by Beijing would give additional impetus to diversification efforts in importing countries, but could also give rise to a wave of illegal production and exports from China, as was the case with rare earths in the past. The timing of the announcement suggests that the ban is a political signal more than an attempt at economic coercion, but the line between the two is dangerously blurred. The announcement of the export restrictions led to higher prices and a rush to stockpile but also, as was the case in 2010, to a diversification of supplies and processing away from China.</p> + +<p>Although sanctions and export bans could weaken China’s position in the long term, by accelerating this diversification, China has nonetheless used these tools in response to actions that it perceives as aggressive. China is therefore only likely to manipulate new energy supply chains against the UK in the face of perceived aggression from the UK against Beijing. Indeed, there is currently no indication that China is more likely to use new energy supply chains than any other supply chain in this way, when it can leverage instead either high levels of concentration or high levels of foreign-owned manufacturing in China. In the case of gallium and germanium, restrictions were carefully calibrated in response to restrictions on the sale of defence-related semiconductor chips to China, where gallium and germanium are important inputs. Consequently, other materials with dual military and energy-technology uses appear most likely to be caught in the crossfire of any future trade restrictions. China could constrain parts of net zero supply chains in response to UK policies perceived as hostile to China, but at this juncture, net zero supplies appear unlikely to be the subject of export controls other than in reciprocation.</p> + +<p>The exposure of the UK to export controls varies considerably depending on the commodity or product, and is determined more by UK demand than by Chinese dominance. Only limited data is publicly available for detailed trade between the UK and China: the UK does not publish any figures, and data from China is limited. What data is available shows that in areas that are more critical for net zero the UK is not necessarily heavily dependent on direct supply from China: for example, China’s exports of copper to the UK were worth only $145 million in 2022 and nickel exports only $11 million. Aluminium trade was much more extensive, being worth $2 billion. Net zero technologies make up only a small proportion of UK demand for aluminium, but the metal has wider importance for net zero as a lightweight alternative to steel used to improve efficiency, particular for automotives and buildings.</p> + +<p>The imposition of export controls by China would ultimately limit Beijing’s dominance over time and affect its reputation as a reliable supplier, just as infrastructure bottlenecks have already expedited trading partners’ efforts to diversify supply chains (as seen during the Covid-19 pandemic). Additional restrictions would only accelerate these trends. Russia’s invasion of Ukraine has already prompted a rethink by governments and international companies that are dependent on China, with many taking action to diversify. This shift emanates from rising tensions between the US and China and from concerns about decoupling, as well as worries about a military conflict between China and the US (and any potential sanctions that could ensue).</p> + +<p>Manufacturers are already looking to diversify production to other low-cost countries – a move also incentivised by rising wage and other input costs in China – at the same time as flagship programmes such as the US Inflation Reduction Act and the EU Net-Zero Industry Act provide new incentives. This reinforces the well-established principle that countries that lose their reputation as reliable suppliers can incur serious economic penalties in the long run. For now, China is unlikely to engage in direct sanctions against the UK, but should it seek to retaliate against UK policies (or in the event of a broader conflict with the UK or the West), China’s control over net zero supply chains offers it considerable leverage over all consumers, including the UK. The short-term impact would be more limited than disruption to the supply of fossil fuels, but would still put pressure on the UK economy and its ability to meet its net zero targets. Using economic coercion would also impact Chinese companies, and the Chinese economy would incur large costs too, especially given the growing importance of new energy exports compared with other exporting sectors.</p> + +<p>From the UK perspective, efforts to diversify production and supplies should at least partially mitigate China’s ability to individually target the UK in many areas over the medium term. Moreover, UK demand for materials is small by global standards, and will remain so. This means that the development of relatively limited international supply chains, independent of China, would likely be sufficient to rebalance the global market should export controls specifically target the UK. Such a scenario would see production that is not under China’s control redirected to the UK, with China-influenced supply chains redirected to fill the gap, albeit at a cost.</p> + +<p>Currently, the UK’s limited manufacturing capacity shields it from the impact of any potential cut-off by China: taking wind energy as an example, China’s dominance in permanent magnets is unlikely to be an effective sanction, as the UK does not directly import magnets but instead imports generators using those magnets from multinational companies in third countries. However, the threat should not be underestimated, particularly as the UK aspires to increase its manufacture of net zero equipment. The further the UK moves up the supply chain, the closer it moves to direct dependence on Chinese suppliers. But as domestic industrialisation will take time, new supply chains are likely to develop in tandem, particularly given strong government support for alternative supply chains within the EU and the US. Indeed, the UK will require more localisation of supply chains in order for its automotive production to qualify for tariff-free trade with Europe.</p> + +<p>While China’s ability to coerce the UK is therefore limited, any supply shortages (due to retaliatory measures, blockades or export controls imposed by China for a variety of reasons) will likely impact three main categories of new energy industries – the automotive sector, electricity generators, and UK companies with manufacturing operations in China.</p> + +<p>In the automotive sector, the UK government is likely to aim to maintain existing production capacity by converting it to EVs. China’s dominance in battery minerals as well as anodes, cathodes, electrolytes and lithium-ion packs, coupled with the apparent requirement for battery production for automotive manufacturers to be located in the UK, suggests that UK automotive companies will be directly dependent on Chinese suppliers. This would increase the overall vulnerability to restrictions targeting the UK.</p> + +<p>As discussed above, China is actively investing in manufacturing capacity in Europe. In situations such as mineral shortages, this could make the European manufacturing base more resilient, as Chinese companies might maintain supply to their own operations, potentially at the expense of other customers. However, during a major confrontation, Chinese-owned automotive capacity – assuming it would cease to operate – could prove a liability, because of the potential impact of interrupting production.</p> + +<p>The second group of entities that might be vulnerable to export controls targeting the UK consists of large-scale electricity generation project developers, where original equipment manufacturer (OEM) warranties are typically required to finance the purchase of key equipment, and where operations and maintenance may be dependent on the OEM for supply of spare parts and technical support.</p> + +<p>With many power plants relying on spare parts from China in the event of a breakdown, there may be some risk to their ongoing operation should access to spare parts and OEM expertise be restricted for an extended period of time. A more detailed assessment of exposure and scale may be beneficial in this case to determine whether risk is limited to power plant owners and operators, or whether it might threaten the security of electricity supply – but this assessment is not attempted here.</p> + +<p>The third group vulnerable to sanction is made up of UK companies that have manufacturing operations in China. China’s unique industrial ecosystem means that many UK technology companies manufacture equipment in the country, covering everything from smart meters to EVs and EV chargers. These companies are perhaps the most susceptible to intervention by the Chinese government, since small companies (such as these typically are) can be targeted by domestic legislation which, without risking significant international escalation, still sends a strong political message to Western governments, while big companies are able to pressure home governments to compromise in order to protect their businesses.</p> + +<p>Looking beyond these three vulnerable groups, it is likely that Brexit has reduced the potential cost to China of taking action specifically against the UK (as opposed to against Europe more broadly), and this might increase the likelihood of symbolic action being taken against the UK alone in order to send a message to the wider European community. Targeting an individual member of the EU with export control measures would mean targeting the entire bloc, with potentially significant repercussions for China. The UK, by contrast, might be individually targeted, causing relatively little short-term economic damage to Chinese companies while still making a strong political statement.</p> + +<p>For now, the threat of export controls targeting the UK alone appears to be limited. This is because direct UK consumption of China-dominated materials is very limited, due to the lack of manufacturing of net zero technologies in the UK and because alternative sources of supply will emerge over the medium term sufficient to meet UK demand. However, because of the likely scale of future UK demand, particularly as battery production for EVs grows ahead of 2030, more government planning may be advisable to ensure that alternative supply chains are being developed, in the UK and globally, at sufficient scale to keep up with demand. Moreover, protectionist penalties incorporated into industrial legislation in the US and the EU may make supply chains less fungible, and could limit the extent to which the UK can benefit from new supply chains.</p> + +<h4 id="regional-vulnerability">Regional Vulnerability</h4> + +<p>The analysis above suggests that, if the UK alone were to be targeted by Chinese export controls, the impact under current conditions might be limited by low demand for intermediate products and diverse markets for final goods; and that such action taken in the future would also be limited in impact due to the emergence, over time, of alternative supply chains. This should insulate UK foreign policy somewhat from possible Chinese coercion using new energy supply chains.</p> + +<p>However, any confrontation with China over an issue such as the sovereignty of Taiwan would mean the UK facing China as part of a bloc, which could result in retaliatory measures from Beijing that targeted groups of countries. As a member of NATO, Five Eyes, and a group of likeminded nations opposed to Beijing’s aggressive expansionism in China’s immediate neighbourhood, the UK is exposed to geopolitical escalation involving sanctions and counter-sanctions against its allies. The 2022 energy crisis showed the extent to which regional disruption magnifies risks in concentrated markets, since global markets areunable to readjust to meet demand without generating very high prices. It also highlighted the interconnected nature of markets: even though the UK does not import gas directly from Russia, it was not insulated from higher gas prices.</p> + +<p>Again, the automotive sector might be the most immediately affected in the event of multinational action against China, as lack of access to Chinese supply chains would have an immediate impact on the UK economy. If the UK were targeted individually, it is likely that alternative supply chains would be available, whereas these alternatives are unlikely to be sufficient to sustain industries in the UK and the EU or the US concurrently in the event of multinational action. This kind of impact is currently hypothetical, as the UK does not yet produce a significant volume of EVs, but as the production of internal combustion engines is scaled back across the Western world, the potential for disruption grows significantly. That said, the ability to extend the life of the existing vehicle stock and the likely continued use of fossil fuel-powered heavy goods vehicles beyond 2030 means that any impact on the wider economy would likely be limited.</p> + +<p>Export controls affecting whole regions would undoubtedly put UK climate targets in jeopardy. As the Covid-19 pandemic demonstrated, sudden price inflation or delayed availability of key components for renewable power projects could result in delays and project cancellations. If supply-chain concentrations are not addressed, they could become an energy security challenge over time: the energy transition is set to result in a rapid increase in electricity demand from decarbonised sectors such as heating and vehicle transportation. This demand is not likely to be met by additional fossil fuel capacity, leaving the UK reliant on a steady supply of renewable electricity generation equipment to meet demand. For grid stability and to meet peak demand, the expansion of variable renewable capacity will also require substantial additions of flexible battery capacity. Furthermore, as fossil fuel plants are retired, non-renewable back-up options may become less available to increase output during periods of tight supply, while relying on fossil fuel plants for more of the time will leave less in reserve for emergencies.</p> + +<p>National Grid ESO estimates that the UK will need anywhere between 13 GW/44 GWh and 31 GW/118 GWh storage capacity by 2030, up from 3 GW/29 GWh in 2022. Energy security is linked to the UK’s ability to extend the electricity network and to deploy smart technologies whose supply chains currently depend on China. If the ramping up of mutually dependent net zero elements of the grid does not proceed in step with the retirement of fossil fuel infrastructure, energy security issues could emerge.</p> + +<p>In this context, the timing of any export controls would be critical. The UK will be most vulnerable while dependencies on China remain high and as investment in fossil fuel infrastructure becomes minimal and some assets are permanently retired. The duration of any disruption would also be important, with a short period of export controls unlikely to have a significant impact on citizens, as existing technologies would continue to operate and new projects would only be delayed by temporary price spikes and shortages. An extended period of export controls lasting years – not at all inconceivable in the history of modern sanctions – would pose a more severe energy security challenge.</p> + +<p>These questions about the UK’s vulnerabilities have led to some debate about whether net zero targets jeopardise UK security. But the reality is that trying to slow the energy transition risks worsening energy security challenges.69 Reliance on fossil fuels, coupled with price volatility, creates risks and vulnerabilities, whereas renewable electricity offers secure and affordable supplies – assuming prices continue to fall. A slower transition extends the period during which parallel infrastructures must be maintained, at increasingly high costs, and during which assets intended for retirement see reduced investment and decreasing performance, increasing the risk of unplanned outages and failures. Furthermore, many aspects of the energy transition – such as EV adoption – have a momentum of their own. Creating uncertainty about whether infrastructure will be available on time to meet demand by attempting to slow the adoption of net zero technologies may simply result in inadequate infrastructure due to insufficient investment. Ultimately investors will take their own view on likely demand, and if additional redundancy is desired it will need additional financial incentives.</p> + +<h4 id="global-exposure">Global Exposure</h4> + +<p>The most significant sources of vulnerability the UK faces in terms of China-dominated new energy supply chains are undoubtedly those that have an impact on the global market. These include non-political events such as natural disasters and pandemics, common to all concentrated markets, as well as market risks that are already highly likely, such as shortages of key minerals. In its base case analysis, based on current policies, McKinsey estimates that by 2030, some eight out of 14 minerals essential for net zero technologies will have shortages of more than 10% of demand, with two facing shortages of more than 50%. In a scenario where commitments are achieved, all but two minerals face shortages of more than 10%. Primary production is already largely committed over this period, meaning that forecasts are relatively certain to be realised if demand increases at the expected rate. Recycling might be expedited to reduce shortages, with primary production increases possible over the longer term, but recycling policy and implementation of critical minerals strategy in the UK remains limited.</p> + +<p><img src="https://i.imgur.com/z7JZnFt.png" alt="image08" /> +<em>▲ <strong>Table 8: UK New Energy Technology Demand and Forecast Supply Adequacy for Related Critical Minerals with High Levels of Chinese Control.</strong> Projected 2030 mineral supply and demand imbalance figures are based on the current trajectory base case laid out in Patricia Bingoto et al., “The Net-Zero Materials Transition”. Sources for other information in the table: Faraday Institution, “UK Electric Vehicle and Battery Production Potential to 2040”; <a href="https://view.officeapps.live.com/op/view.aspx?src=https%3A%2F%2Fwww.nationalgrideso.com%2Fdocument%2F283061%2Fdownload&amp;wdOrigin=BROWSELINK">National Grid ESO, “Future Energy Scenarios 2023 Data Workbook”, July 2023</a>; <a href="https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1096248/electricity-networks-strategic-framework-appendix-1-electricity-networks-modelling.pdf">Department for Business, Energy and Industrial Strategy, “Appendix I: Electricity Networks Modelling”, August 2022</a>.</em></p> + +<p>Shortages could create allocation problems for China of the kind that are common to all major producers during tight markets. If shortages cause production to fall significantly below global demand, China will have to decide which markets to serve first, and it is probable that the domestic market will be prioritised. This behaviour is common for most producers – for example, oil exports were banned in the US between 1975 and 2015, and some Australian states have legislation allowing export bans under some circumstances. Disruption in battery supply chains during the Covid-19 pandemic tended to result in contracts with the largest volumes and biggest customers being honoured. This would favour larger EV manufacturers, which are then likely to prioritise between their assets across countries according to commercial strategy.</p> + +<p>With shortages looming, investments in mining by Chinese companies should generally be welcomed and not seen as a threat. Indeed, growing Chinese investment in mining and its increasing share of the market reflects the lack of activity among other actors. While China is working to secure upstream mineral supplies, the UK and other countries around the world are failing to move at sufficient pace to encourage additional sources of supply and incentivise processing capacity outside China. The more important question over the longer term is whether Chinese investments will support the development of a liquid and fungible market. Evidence from sectors such as LNG, which were initially entirely bilaterally contracted, suggests that more actively traded markets are likely to emerge as the number of producing countries proliferates, but this can take a long time. This may not be relevant for some of the speciality minerals that are required in very small quantities, and where stockpiling may be a better solution, but the availability of traded markets in larger commodities can mitigate the impact of supply outages.</p> + +<p>The extent of China’s dominance of supply chains and the likely persistence of this position for at least the next decade means that UK-based companies will be exposed to sharp tactics and aggressive competition. Aggressive price competition is a periodic feature of commodity markets, and marginal producers tend to be casualties of this dynamic. For example, aggressive competition between Saudi Arabia and Russia for oil market share in 2020 put sufficient pressure on US shale oil producers for then-president Donald Trump to call for OPEC to reduce production and increase prices. In another example, a flood of Chinese steel onto global markets in the mid-2010s as Chinese domestic demand slowed and spare capacity became available resulted in bankruptcies and protectionism across the rest of the world. China has the capacity in many areas of the supply chain to pressurise competitors, but over the next decade this is likely to be mitigated for mining upstream and midstream by shortages, which make sharp commercial tactics much less effective (as all additional capacity will be utilised). As discussed earlier, the situation for manufacturers dependent on scarce Chinese supplies will be different, and state support for underutilised gigafactories is expected by some in the industry.</p> + +<h4 id="defence">Defence</h4> + +<p>Growing demand for critical minerals is prompting questions from defence analysts within and outside government. Three questions appear particularly pressing:</p> + +<ol> + <li> + <p>How secure are defence and security supply chains, and how secure will they continue to be?</p> + </li> + <li> + <p>How secure is the use of net zero technologies by the military and security services?</p> + </li> + <li> + <p>How will changing demand patterns for minerals affect where the military is called upon to deploy?</p> + </li> +</ol> + +<p>The research for this paper suggests that the risks stemming from China’s role in supply chains affecting access to new energy technologies for military purposes are likely to be similar to those affecting civilian applications: over the next decade, military net zero technologies are likely to use similar materials and components to civilian technologies. Land mobility may be one of the main drivers of demand, which, while deployed in different formats, will likely use the same underlying battery materials and technologies as civilian EVs. The same is true of renewable or hybrid mini-grids deployed at military bases. Targeting military usage specifically would therefore be very difficult to do without targeting the entire civilian supply chain. That said, large-scale military procurements might be vulnerable to delays should aggressive corporate tactics be adopted, which could have implications for military capability by extending the use of outdated equipment.</p> + +<p>Secure operation of net zero technologies is the critical area for military and security services. China already bars EVs from sensitive sites over fears that data could be misappropriated. There are similar fears in Western security services and militaries about how easily the movement of EVs used in covert operations might be tracked. While Chinese-made vehicles may pose a particular risk, this is a concern for all EVs, which tend to transfer large amounts of data on vehicle movement and usage. But the issue is not limited to EVs, with all vehicles being increasingly dependent on software and sending usage data to manufacturers.</p> + +<p>The question of how demand for critical minerals might affect the location of conflicts around the world is an important one, although largely beyond the scope of this paper. China does play a significant role as the primary offtaker of mining for net zero resources internationally. The way that China chooses to behave with respect to the interests of other countries seeking access to mines creates risks, such as ensuring access to logistics and infrastructure, allocation of promising concessions, and contest for political influence should tensions between China and other major mineral consumers escalate. Similarly, opaque contractual structures create uncertainty about the degree of liability of sometimes fragile governments. Externalities from poor mining practices can be a significant source of instability and are by no means limited to Chinese interests, but they highlight the need for more engagement by international and multilateral institutions with miners on best practice and market reform.</p> + +<p>A longer-term question that may not be receiving sufficient attention is what the impact might be should China leverage its industrial and, increasingly, technological advantage in net zero technologies for military purposes. Net zero technologies are still at an early stage in their innovation trajectories, and are receiving much more R&amp;D investment globally than conventional technologies. In many areas, they may ultimately outperform fossil fuel technologies, in terms of both cost and capability, particularly in logistics. It is not yet clear what scope there is for major technological breakthroughs in China to impact relative military advantage, particularly with respect to China’s neighbours. Such innovations might ultimately affect many areas – from the relative efficiency of Chinese industrial defence production and cheaper logistics with superior capability, potentially through to battlefield advantages from developments in areas such as sheet metals and electric drones – and will have their origins in a superior industrial–technological ecosystem.</p> + +<p>There is no doubt that China’s influence in new energy supply chains will expand its already significant global footprint. Similarly, China’s higher risk tolerance compared to many Western actors, combined with companies’ willingness to operate with razor-thin margins, will further enhance Beijing’s control over new energy mineral resources. As seen in other areas, China’s economic and commercial presence in a wide range of producer countries also aids Beijing’s efforts to garner backing in multilateral bodies and global institutions in support of China’s position on a given issue. To be sure, Chinese companies operating abroad have a mixed track record in terms of their ESG practices, and have suffered pushback from host countries. China’s growing global footprint and fear of decoupling with the West is already leading it to rally developing countries to reduce the West’s influence. On a bilateral basis too, China’s involvement in producer countries could have implications for broader UK foreign policy goals. The extent of this influence will, however, depend on the degree of support China is offering, how it is perceived in host countries, and how alternative influences are perceived. The UK should review its foreign policy approaches in this context too. China’s foreign policy is closely linked to new energy supply chains, but is not defined by it. At the same time, foreign policy initiatives can support commercial and strategic objectives, including expanding and deepening China’s dominance of net zero supply chains. These interconnections deserve further research and analysis.</p> + +<h3 id="conclusion">Conclusion</h3> + +<p>China holds dominant or strong positions along several global supply chains for the clean energy products that are critical to the net zero energy transition in the UK and elsewhere. Examples include lithium-ion batteries, wind turbines and solar PV modules. China’s strength in this regard encompasses the extraction of raw mineral ores, through the processing and refining of the ores to produce the final metals, to the manufacture of intermediate and final products. China’s dominance is particularly pronounced in the processing and refining of ores. Significant quantities of some of these ores are imported to China from overseas, often from mines in which Chinese companies hold a significant or majority share, or with which they have secured offtake agreements.</p> + +<p><strong>Scale of dominance:</strong> In lithium-ion battery supply chains, for example, China is responsible for more than 80% of global supplies of spherical graphite and refined manganese, and of anodes and electrolytes. For wind turbines, it controls more than 80% of refined rare earth metals and manganese, as well as NdFeB magnets. Finally, in solar PV modules, it accounts for more than 80% of refined germanium, polysilicon, wafers and silicon cells. Elsewhere in these supply chains, China is responsible for more than 60% of global output, pointing to very high degrees of market concentration.</p> + +<p><strong>Processing and refining:</strong> Chinese dominance pivots on its control of the processing and refining of minerals. This rests on economies of scale built up over many years, government financial incentives, and on an increasingly strong stock of intellectual property. Chinese companies’ importance in upstream mining is further reinforced by control of the midstream, but also by a relatively high degree of risk tolerance, which backstops upstream mining investments, ensuring access to the highest-value parts of the supply chain. This position will not be usurped over the next decade, and potentially will only be to a limited extent in the decade afterwards. Any inroads into reducing Chinese market share willcrequire heavy public investment and protection from dumping and aggressive state-backed competition.</p> + +<p><strong>Potential leverage:</strong> China could potentially exploit its strength for coercive purposes: it is already using export quotas and administrative processes to complicate access to supplies of gallium and germanium, as well as graphite, which in turn has impacted costs. Arguably, infrastructure bottlenecks in China during the Covid-19 pandemic or outages due to floods and power cuts have had a more material impact on the cost and availability of new energy supplies to date. Going forward, the lack of critical materials will also have an inflationary effect on new energy supply chains. Market concentration in China will clearly give it commercial advantages, but the extent to which Beijing will use it for geopolitical leverage remains uncertain. For now, Beijing is more likely to use its leverage in response to perceived aggression – but this could change over time.</p> + +<p>Comparisons to Russia’s importance in terms of gas supplies have been made frequently since the Russian invasion of Ukraine. However, there are important distinctions to be made. First, Russia accounted for 40% of European gas supplies before the invasion, whereas market concentration in China is vastly more significant. Second, the impact of an oil or gas outage is different to curtailment of sales of critical materials or components. A direct oil or gas shortage imposes costs on a country’s economy and can limit activity in certain sectors if no alternatives are available; shortages of critical materials, on the other hand, do not cripple economic activity immediately. Third, given the existence of fungible traded markets for oil and gas, supply outages can be mitigated at a cost, which in turn has implications for the entire global economy. Even though the UK does not import Russian pipeline gas, the impact of higher gas prices was also felt in the UK. Equivalent market mechanisms for critical materials are nascent or immature, making it harder to offset shortages. Overall, supply outages for materials and components have a longer-term inflationary impact and risk slowing the energy transition. A simple comparison to oil and gas is not enough. The risks associated with market concentration for new energy supply chains must therefore be assessed more holistically, as should the trade-offs associated with de-risking or decoupling from China.</p> + +<p><strong>Risks to the UK:</strong> The coercive risk for the UK is related to the degree of separation between the stage of the supply chain dominated by China and the stage at which UK consumers enter the market. The likelihood that China would be able to target the UK exclusively is small, as the UK today is principally an importer of final or near-final products. As the UK’s capacity to manufacture these products grows, its vulnerability to Chinese coercion increases, and will require a diversification of supply chains. However, even with more diverse supply chains, the UK’s access to materials and components (as well as their cost) would be determined by industrial policy choices made in the EU and the US. Conversely, given the wider tensions between China and the West, any action taken by China to restrict exports of clean energy metals and products would more likely impact the UK, the EU and the US together in response to a perceived provocation, either economic or military. If prolonged, such an embargo would have a profound impact on the UK’s low-carbon transition (alongside other economies’ transitions), but only a modest effect on the wider economy. The greatest risk for the UK stems from events that have a global impact. These could arise from a natural disaster or pandemic, or from a general shortage of critical materials that forces China to prioritise its domestic market.</p> + +<p><strong>Battery supply chains:</strong> The UK is likely to be most heavily exposed to China’s dominance in battery supply chains. This is because China is dominant across most elements of the battery supply chain, and UK automotive manufacturers and the UK electricity grid are expected to rapidly increase demand for batteries. Wind is another area of concern, but the concerns are currently mitigated by a degree of separation between Chinese suppliers and UK users. Nuclear power is not discussed in this paper, but is another supply chain where China is increasingly influential.</p> + +<p><strong>China’s political/economic calculus:</strong> China’s ability to leverage its position in net zero supply chains for political ends should be neither overstated nor underestimated. The reason it should not be overstated is because China could use other supply chains to impose coercive pressure on the UK: the total value of UK trade with China in the year to end Q1 2023 was £107.5 billion, with £69.5 billion of imports. China was the UK’s fourth-largest trade partner over this period. This shows that, in circumstances that might give rise to a serious ratcheting up of pressure on UK–Chinese trade, the UK would have much more immediate concerns than net zero supply chains. The reason that China’s ability to leverage its dominance should not be underestimated is that the relatively limited (but symbolically important) role of net zero technologies – as well as China’s unusual dominance in those industries – might make them a useful target should China wish to make a political statement. This paper shows that there may be ways for China to use net zero supply chains in this way without provoking a major escalation.</p> + +<p><strong>Military considerations:</strong> The risks to new energy technologies for military purposes stemming from China’s role in supply chains are likely to be similar to those facing the wider population. However, in a time of actual or potential shortage the military could be vulnerable to aggressive corporate strategies and, meanwhile, the military faces the same data security risks as civilian users of Chinese equipment. The extent to which China will be able to use its technological and manufacturing strengths in net zero products to yield military advantage is not clear. In contrast, China’s growing international sales and investment in net zero minerals and products is already boosting its soft power in ways that will impact the UK’s foreign policy goals.</p> + +<p><strong>Risk mitigation:</strong> Mitigating China-centred risks will require action across the entire supply chain: accelerating investments in upstream mining developments, diversification of processing and refining, and recycling of critical minerals and materials. International efforts should aim to engage all actors, including China, to align objectives as far as possible towards the development of open markets which will ultimately benefit everyone, at least economically. Involving China directly in UK projects may mitigate some risks related to shortages, but may also hamper longer-term efforts to develop alternative supply chains that are fully independent of China, and so a mixed approach might be optimal.</p> + +<p><strong>The fallacy of delay:</strong> Risks related to China are not likely to be significantly reduced by delays to the transition to net zero. Energy security during the transition is most closely associated with delay and uncertainty as systems are simultaneously scaled up, ramped down, or repurposed. Abandoning national targets would simply increase uncertainty about government commitment to putting in place the infrastructure that will underpin future energy security.</p> + +<p><strong>Research needs:</strong> Internally consistent public data is not available on China’s market position in most minerals and products, with multiple reputable sources giving significantly different figures. Better publicly available data on the following issues would help improve analysis of:</p> + +<ul> + <li> + <p>China’s domestic extraction capacity for critical minerals.</p> + </li> + <li> + <p>China’s domestic processing capacity and annual output of critical minerals.</p> + </li> + <li> + <p>Capacity and annual output of critical mineral mines and processing plants outside China that involve Chinese investment.</p> + </li> + <li> + <p>Data around prices of critical minerals and materials.</p> + </li> + <li> + <p>Details of China’s international trade (import and export) in critical mineral ores and refined metals, including routes through third countries (in terms of quantity and value).</p> + </li> + <li> + <p>Detailed information on China’s international trade in intermediate and final products of net zero energy technologies, including routes through third countries and products manufactured by Chinese companies in third countries (in terms of quantity and value).</p> + </li> +</ul> + +<p>Countries do not need to be close allies to be close trading partners. Political or ideological alignment is similarly non-essential. China is deeply embedded in new energy supply chains and its long and steady cultivation of these industries has been essential for the progress made towards reducing the cost of new energy technologies worldwide. Despite some risks, the UK should not seek to exclude China from its supply chains. Instead, the country should seek to communicate effectively with China about the need for diverse supply chains as a point of principle for robust markets and to make the case clearly that this is both in the UK and China’s interests. Bigger, more reliable markets will result in a larger and more diverse client base for China and more supply chains for large-scale new energy technology consumers in the UK and allied countries.</p> + +<p>In its domestic policy, the UK should aim to encourage consumers to invest in diversity at all stages of the supply chain, without seeking to exclude China from any of them. Likely shortages in critical minerals offer an opportunity to do this as more mining and refining capacity will probably be required, some of which might usefully be located outside China.</p> + +<hr /> + +<p><strong>Michal Meidan</strong> is Head of China Energy Research at the Oxford Institute for Energy Studies (OIES). Before joining OIES in July 2019, she headed cross-commodity China research at Energy Aspects. Prior to that, she headed China Matters, an independent research consultancy providing analysis on the politics of energy in China.</p> + +<p><strong>Philip Andrews-Speed</strong> is a Senior Research Fellow at the OIES. He has more than forty years’ experience in the field of energy and resources, starting his career as mineral and petroleum exploration geologist before moving into the field of energy and resource governance.</p> + +<p><strong>Dan Marks</strong> is a Research Fellow in energy security at the Royal United Services Institute. His research focuses on national security dimensions of the energy transition in the United Kingdom and internationally.</p>Michal Meidan, et al.Russia’s invasion of Ukraine has focused attention on energy supply chains and contributed to growing unease in the West about the fact that supply chains for the commodities necessary for the global energy transition are highly concentrated in China (or under Chinese control).Track and Disrupt2023-11-10T12:00:00+08:002023-11-10T12:00:00+08:00https://agorahub.github.io/pen0/hkers/track-and-disrupt<p><em>Efforts to align third countries with sanctions against Russia will only succeed when the private networks facilitating circumvention are understood and countered.</em></p> + +<excerpt /> + +<p>Sanctions regimes have continued to expand in scope since the full-scale invasion of Ukraine, aiming to asphyxiate Russia’s financial and military capabilities to wage war. The EU alone has passed 11 packages to date, each building on the last. These packages are paired with efforts to restrict circumvention, along with a forthcoming EU directive criminalising sanctions evasion.</p> + +<p>The unprecedented sanctions against Russia have highlighted the importance of third countries – those countries that are neither the target of sanctions nor adopters of sanctions against Russia/Belarus (and thus are not legally bound by sanctions). Such third countries make up a majority of the world and are therefore an important factor in determining whether sanctions are ultimately effective. Put simply, if third countries provide circumvention routes or substitutes for the goods and services that sanctions aim to curtail, then the sanctions will be weakened or fail.</p> + +<p>The trade in dual-use goods is one of five categories of sanctions evasion and avoidance covered by recent analysis undertaken by RUSI as part of the Serious and Organised Crime Anti-Corruption Evidence (SOC ACE) programme, and provides a particularly salient example of the role of third countries. Numerous reports have publicised cases of manufacturers deliberately or inadvertently shipping important military and technological components from sanctions-imposing countries to intermediaries in third countries that then ship them onward to military end-users in Russia and Belarus.</p> + +<h3 id="tracking-sanctions-evasion-networks-in-third-countries">Tracking Sanctions-Evasion Networks in Third Countries</h3> + +<p>Our recent SOC ACE report categorised five types of sanctions evasion critical to funding and supplying Russia’s military-industrial complex: financial services, company incorporation, dual-use and military goods, exports of sanctioned Russian commodities, and oil smuggling. All of these operate primarily in the private sector and rely on third countries’ lax enforcement of – or deliberate refusal to implement –sanctions.</p> + +<p>In the case of countries not imposing sanctions, many commentators have bemoaned the whack-a-mole problem: company incorporation is so easy that sanctioning a person or a company will just cause another to appear in its place. Behind all of these seemingly random companies, however, is a Russian or affiliated individual(s) directing a network, often associated with Russia’s Federal Security Service. In many cases, investigators have identified links between the Russian military-industrial complex and newly incorporated companies with low public profiles – and these wider networks are often based in or linked to manufacturers, banks and other businesses in sanctions-imposing countries.</p> + +<p><strong><em><code class="highlighter-rouge">If third countries provide circumvention routes or substitutes for the goods and services that sanctions aim to curtail, then the sanctions will be weakened or fail</code></em></strong></p> + +<p>These thousands of companies are often not random or spontaneous creations, but directed by the Russian military-industrial base. They consist of networks of individuals and companies directing this support and supply business, along with intermediary companies and the shipping and logistics firms that facilitate the circumvention trade. Gathering the data necessary to map these networks is critical, as is understanding which government stakeholders are linked to these networks, in order to support diplomatic engagement to disrupt this trade in third countries.</p> + +<p>Some third countries are already introducing their own control systems to monitor the re-export of goods to Russia, such as Kazakhstan’s online tool to track the entire supply chain “from border to border”. However, governments and private businesses in these countries would benefit from this specific data collection and mapping approach to mitigate their exposure to opaque sanctions evasion networks and thus avoid getting caught in the crosshairs of US or EU sanctions.</p> + +<h3 id="building-capacity-in-allied-countries">Building Capacity in Allied Countries</h3> + +<p>Notwithstanding the role of third countries, allied countries that have imposed sanctions also contribute to circumvention. Many of the microelectronic components still feeding Russia’s military systems are Western-made yet continue to reach Russia, mostly due to a combination of a lack of enforcement capacity and the deliberate obfuscation of end-users through third-party intermediaries by the global networks supplying Russia.</p> + +<p>Over 30 countries representing more than half the global economy have announced sanctions and export controls targeting Russia, but the findings of the RUSI-led European Sanctions and Illicit Finance Monitoring and Analysis Network (SIFMANet) point to a series of challenges that sanctions-imposing countries consistently face.</p> + +<p>Prior to February 2022, many members of the sanctions coalition had very limited exposure to sanctions, and they are now scrambling to overhaul their national frameworks. In the EU, several member states are trying to determine the competent authorities and their responsibilities towards what is repeatedly called the “unprecedented” scale of sanctions against Russia. Both private- and public-sector actors have struggled to implement and enforce the sanctions, meaning that even countries with strong political will struggle to detect and interrupt sanctions evasion that might involve – or even start in – their own jurisdiction.</p> + +<p><strong><em><code class="highlighter-rouge">Truly disrupting third-country sanctions circumvention requires a better understanding of the wider networks enabling this activity</code></em></strong></p> + +<p>With unclear responsibilities, scarce resources and a lack of expertise, private-sector operators face an uphill battle to tackle the already intricate task of detecting and countering circumvention, muddled by the involvement of complex multi-jurisdictional schemes often involving third countries.</p> + +<p>The coalition of sanctions-imposing countries could also be strengthened by more consistent intelligence-sharing to disrupt cross-border global sanctions evasion networks, and by improved harmonisation in the interpretation of sanctions (including among EU member states). This leads to cases where authorities from different member states disagree on whether measures should be taken against an entity that one or the other understands to be in breach of sanctions. Moreover, the violation and circumvention of sanctions is not criminalised in all members of the sanctions coalition – notably in EU member states. This means that even if these practices are already taking place within their jurisdiction, authorities cannot initiate investigations and disrupt the networks involved. The upcoming EU directive to criminalise these practices will aim to remedy this, but this adjustment is long overdue.</p> + +<h3 id="disrupting-global-sanctions-evasion-networks">Disrupting Global Sanctions-Evasion Networks</h3> + +<p>Truly disrupting third-country sanctions circumvention requires a better understanding of the wider networks enabling this activity, from banks and corporate service providers to shipping and logistics networks. Taking this wider view will likely generate new levers for pressure, including cutting the financial ties of the enablers supporting this trade. Further, applying a network focus should also reveal links between private-sector actors and the governments of third countries.</p> + +<p>In sum, efforts to tackle evasion should combine diplomatic engagement with third countries, focused on a network-centric approach, with a tightening of domestic efforts to disrupt sanctions circumvention at source. It is thus key that sanctions-imposing countries harmonise and improve their national frameworks as well, including better coordination and information-sharing across the coalition. Sanctions-evasion networks operate as global enterprises, and sanctions-imposing countries must do the same to render them ineffective.</p> + +<hr /> + +<p><strong>Olivia Allison</strong> is currently working as an independent consultant, following a role as a Senior Managing Director at the boutique investigations consultancy K2 Integrity. She has more than 15 years’ experience carrying out complex, international investigations and supporting the development of integrity and governance for state-owned companies, international companies, and international financial institutions (IFIs).</p> + +<p><strong>Gonzalo Saiz</strong> is a Research Analyst at the Centre for Financial Crime &amp; Security Studies at RUSI, focusing on sanctions and counter threat finance. He is part of Project CRAAFT (Collaboration, Research and Analysis Against Financing of Terrorism) and Euro SIFMANet (European Sanctions and Illicit Finance Monitoring and Analysis Network).</p>Olivia Allison and Gonzalo SaizEfforts to align third countries with sanctions against Russia will only succeed when the private networks facilitating circumvention are understood and countered.The Securitisation Of Energy2023-11-09T12:00:00+08:002023-11-09T12:00:00+08:00https://agorahub.github.io/pen0/hkers/the-securitisation-of-energy<p><em>Understanding how Russia constructs its energy security and foreign policies is essential to anticipating how it might behave in international forums, particularly on challenging issues such as environmental and energy security.</em></p> + +<excerpt /> + +<p>This paper examines how Russia’s energy policy has interacted with its foreign and defence policies since its full-scale invasion of Ukraine in February 2022. The key findings are:</p> + +<ul> + <li> + <p>Russia perceives any restriction of its access to and exploitation of oil and gas markets both within Russia and abroad as a serious security threat. Restriction could either be through international sanctions that prevent Russia from accessing deep-water oil deposits, or the international climate change agenda that calls for a reduction on oil and gas production.</p> + </li> + <li> + <p>As a major oil and gas producer, Russia considers the hydrocarbons industry to be a key part of its political economy and therefore its national security. Prior to Russia’s invasion of Ukraine, Russia’s role as an energy provider – or sense of international responsibility to its clients – was thought to keep some of its behaviour in check, even as Russia had in the past wielded its energy supplies to extract political concessions from some of its former Soviet neighbours. Ultimately, Russia’s security goals in Ukraine overtook any of this responsibility, which has framed much of the debate around Russia’s future as a declining energy power in Europe.</p> + </li> + <li> + <p>Russia’s understanding of energy security is bound up in the country’s sovereignty, and with strategic competition with other states over resources. Ensuring security of demand and continued access to resources are part of Russia’s national security framework and even its national identity.</p> + </li> + <li> + <p>The war has increased the urgency for Russia to seek out alternative alliances and structures with China and Iran. In recent years, Russia has established its own energy forums with partners such as Saudi Arabia and some African states – work which has become more pressing since the war began and Russia’s energy relations with the West have been significantly reduced.</p> + </li> + <li> + <p>Russia claims that the West is seeking to undermine it through its dominance of energy resources, and that international forums, such as the UN, are prejudiced against Russia’s national interests. Russia also conflates energy with politicking, maintaining that Western efforts to cap its production prices or curtail nuclear energy use are part of a campaign to undermine Russian values and assert a neoliberal agenda.</p> + </li> + <li> + <p>The war has intensified Moscow’s need to identify new export destinations, with rail and pipeline networks that were previously in train accelerated. But to do so, particularly towards the Indo-Pacific region, Russia must link up its oil and gas reserves with maritime and rail infrastructure. This includes new terminals along the Northern Sea Route that can process liquefied natural gas, coal and oil and updating port infrastructure, as well as new ice-class vessels for exports.</p> + </li> + <li> + <p>Investments in the North–South Corridor via Iran have also gained traction since the war began, particularly to export oil and deliver on some of the practical elements of Russia’s foreign policy, by bringing Iran and India closer to its economic network. Russia has also identified specific development zones in the Arctic that are rich in hydrocarbons or have access to the sea.</p> + </li> + <li> + <p>Prior to the war, Gazprom’s monopoly in Europe had been unchallenged, but this is not the case in Asia, where it faces rival Novatek – this infighting may impact Russia’s ability to expand its energy plans in China. The Power of Siberia 2 pipeline contract with China, as yet to be signed, would give Gazprom a future role in Asia.</p> + </li> + <li> + <p>Russia tends to use international platforms like the UN to further its own national interests or ensure it has a stake in the conversation, rather than in pursuit of a common cause. Since the war began, Russia’s ability to interact with other (especially Western) states has been restricted.</p> + </li> + <li> + <p>Since the war began, Russia and Saudi Arabia’s coordination through OPEC+ has been more pressing. Riyadh has not aligned itself with the Western consensus on Ukraine, nor has it introduced sanctions on Russia. But the war has caused a decline in global energy prices, and there are frictions between Russia and Saudi Arabia over Russia’s refusal to publish its oil export figures. Riyadh suspects that Moscow continues to export significant volumes of oil despite their price agreements, but the former has not criticised this and, since the war began, has invested in Russian companies like Gazprom.</p> + </li> + <li> + <p>Russia is highly affected by climate change, but also banks on its status as a commodities producer to retain its international position. This inconsistency informs its strategic policymaking on the environment, as well as its behaviour in international forums related to climate change. Moscow often objects to international climate change efforts because it prioritises Russia’s national security, not the security implications that can stem from climate issues. While climate change can affect Russia’s national security, it is described as an issue that threatens Russia’s economic development, requiring technological or practical solutions, not adjustment to the extractive industries. Russia also views warming Arctic seas as more of an opportunity to improve access to shipping lanes than a crisis.</p> + </li> + <li> + <p>Russia views the Western-led climate change movement as an agenda seeking to undermine Russia and its interests in the extractive industries. Moscow’s installing of former intelligence officials in posts concerned with environmental security highlights the crossover in the Kremlin’s mindset between the environment and national security.</p> + </li> + <li> + <p>Since the war, many environmental links between Russia and the West have been severed. Moreover, there is little international oversight of Russia’s major drilling projects or their environmental impact, and legislation that restricts ecological activism has been tightened. Most Western-led NGOs dedicated to the environment have been shut down.</p> + </li> + <li> + <p>Ultimately, even if the UK can decouple from Russian oil, the complex and global nature of international energy markets means Russia’s behaviour as a hydrocarbon superpower can still impact the UK’s energy security. Russia views external attempts to cap oil prices as a dangerous precedent that could be extended to other areas of the Russian economy and Russian values. This indicates that Moscow interprets international economic and pragmatic decisions as a direct attack on Russian sovereignty.</p> + </li> +</ul> + +<h3 id="introduction">Introduction</h3> + +<p>This paper analyses Russia’s energy policy and the way this interacts with the country’s foreign and defence policies. The paper is part of RUSI’s UK National Security and the Net Zero Transition project and is published alongside a paper that focuses on the links between Saudi Arabia’s energy policy and its foreign and security policy behaviour. Together, these two papers analyse how Russia and Saudi Arabia – which aside from the US are the world’s leading oil exporters – approach their roles as energy superpowers, how their energy-related decision-making has evolved since Russia’s invasion of Ukraine, and how their foreign policies and conduct in international forums, including on climate change and other major global issues, will continue to have global implications.</p> + +<p>As oil and gas prices were already elevated in 2021 following the Covid-19 pandemic, Russia was able to exploit them in Europe in order to drive up prices before it invaded Ukraine. This returned the link between energy and geopolitics, and in particular the question of energy security, to the fore. The war has demonstrated that energy and geopolitics cannot be separated, and has increased the need to determine how major fossil fuel producers think about their international roles.</p> + +<p>While there are many definitions of energy security, for the purposes of this paper, energy security of states is considered to be both a practical issue of supply access and pricing, and a geopolitical issue that relates to foreign policy behaviour in the energy sector. For states that are net importers of energy, as the UK and most of Europe are, security of oil and gas supply is often equated with diversification. This includes diversification away from fossil fuels, an increasingly potent driver of energy policy across Europe. But while hydrocarbons are required to generate electricity and to fuel industries, diversification of supply also means securing access to oil and gas from sufficiently diverse sources that no single disruption leads to sudden shortages or price disruption.</p> + +<p>Before the Ukraine war, some European states relied, to varying degrees, on imports from Russia, one of the world’s top oil and gas producers and exporters. The war has prompted many European states to reduce and ideally end imports from Russia by 2027 in order to deprive Moscow of revenue and reduce Russia’s leverage over Europe. While the EU has made some progress on this, reductions in gas volumes in particular were also due in part to the Kremlin’s actions, including Moscow’s suspension of gas via the Nord Stream 1 pipeline, and a March 2022 presidential decree that demanded payment for gas in roubles from countries involved in the EU’s “unfriendly actions” towards Russia.</p> + +<p>The UK has been comparatively less affected by this dynamic; in 2021, only 9% of the UK’s oil and 4% of its gas imports came from Russia, and by January 2023 this had been brought to zero. But while replacing Russian supply was not the UK’s key concern, due to its reliance on natural gas, it was hit just as hard as its European partners by the surge in oil and gas prices sparked by the war. The UK is exposed not just to disruptions to the flows of the oil and gas that it imports directly, but also to the global flows of hydrocarbons.</p> + +<p>As the war continues into its second year, although oil prices have somewhat stabilised, there has been a renewed focus by the West on the behaviour of the members of the Organization of the Petroleum Exporting Countries (OPEC), most notably Saudi Arabia, and a group of major producers, including Russia, that have aligned their oil policies with those of OPEC since 2016 through the OPEC+ framework. Every decision by the grouping to adjust production quotas, especially the significant cuts announced in October 2022 and June 2023, has been scrutinised by Western analysts for its economic and political motives.</p> + +<p>Moreover, the serious fracturing of the relationship between Russia and the West as a result of Russia’s invasion of Ukraine has meant that Russia’s behaviour as a major hydrocarbon producer, both in its export dealings and more generally in international forums for discussing these issues, has been particularly difficult to engage with. This is particularly the case where, as in Russia, governments control the energy industry. As a major emitter of greenhouse gases, Russia’s behaviour around climate change issues adds another dimension to this.</p> + +<p>Given the importance of understanding how major producers behave, this paper examines how Russia sees and exercises the international roles afforded to it by its energy resources. The paper analyses three key issues: how hydrocarbons and their export relate to Russia’s perceptions of itself and its place in the world; the extent to which Russia’s energy policies are securitised and how they are linked to Russia’s domestic and foreign policies; and how Russia relates its status as a hydrocarbon exporter to notions of environmental security and international climate action efforts. As the paper will show, Russian definitions and understanding of environmental security and where this presents a national security threat widely diverge from Western understandings. Moscow tends to frame risks stemming from climate change, such as flooding, as something to be countered by technological or financial solutions, rather than addressing core issues, such as Russia’s continued extraction of hydrocarbons, as contributions to the initial problem.</p> + +<p>Understanding how Russia constructs its energy security and foreign policies is therefore essential to anticipating how it might behave in international forums, particularly on challenging issues such as environmental and energy security, and where some of Moscow’s red lines might be.</p> + +<h4 id="methodology-and-structure">Methodology and Structure</h4> + +<p>The paper is divided into three chapters. The first focuses on Russia’s foreign policy decision-making in energy since it invaded Ukraine, and some of the factional disagreements between powerful energy companies which impact the Kremlin’s ability to put forth a coherent energy strategy. The second chapter discusses Russia’s engagement in OPEC+, highlighting its marriage of convenience with Saudi Arabia around oil prices and the future trajectory of this bilateral cooperation. The third chapter examines Russia’s approach to environmental security and discusses the divergences of opinion between Russia and the West over how to approach the threat of climate change.</p> + +<p>This paper is based on a review of open-source journals, books and public statements from officials in Russia, using local-language sources where possible, to piece together Russia’s current and historical views on energy security, focusing on the 2022 invasion but also grounding the analysis in recent historical literature. In addition, the paper offers a targeted review of Russia’s energy strategies and other important official documents such as its national security and Arctic strategies, as well as documents that govern its environmental policies and its engagement with the hydrocarbons industry, in order to understand better the gaps between Russia’s official foreign policy documents and its actions.</p> + +<h3 id="i-russia-reimagining-the-globe">I. Russia: Reimagining the Globe</h3> + +<p>For Russia, its full-scale invasion of Ukraine and the impact of that invasion on global prices have accelerated the competition between it and the West over traditional oil and gas markets, a process that has been under way for more than a decade. It is less the changing oil prices themselves and more the potential restriction of Russia’s access to and exploitation of these markets – both domestically within Russia and abroad, variously through instruments such as international sanctions that prevent Russia from accessing deep-water oil deposits, or the international climate change agenda that calls for a reduction in oil and gas production – that Russia views as a serious security threat. This securitisation of energy policies is the lens through which Russia’s own energy policymaking is seen from Moscow.</p> + +<p>Russia is a major oil and gas producer, with its oil output in 2021 making up 14% of the world’s total supply. In 2021, its revenues from oil and natural gas made up 45% of its annual budget. Its energy companies are also major employers within Russia, supporting the livelihoods of over two million people, and the importance of these industries is enshrined in Russian law. According to a 2008 law, key industries such as defence and oil and gas are considered by the Kremlin to be “strategic sectors” – cornerstones of the economy upon which Russia’s political economy and therefore its national security rests. Foreign investment in these sectors is heavily restricted, extra state scrutiny is exerted over them, and they are prioritised at the expense of other, less lucrative sectors such as healthcare and education.</p> + +<p>Prior to Russia’s invasion of Ukraine, the Western view of Russia’s role as an energy provider was a rather paradoxical mixture of business pragmatism and political interventionism. Before the 2022 invasion, Russia’s status as a major petro-state and its consequent sense of responsibility to its clients, particularly in Europe, were viewed by some Western analysts as one of the guarantors that could keep Russia’s international behaviour in check – but there was also broad acknowledgement that Russia was capable of and had used its supplies to extract political concessions from former Soviet neighbours such as Georgia (in 2006) and Ukraine (in 2009). In the end, Russia’s security goals in Ukraine overtook any desire for Russia to cast itself as a reliable energy supplier, and this has framed much of the current debate around Russia’s future as a declining energy power in Europe. However, what this has overlooked from a policy (rather than an energy) perspective is that for Moscow, energy supply is only part of the security picture.</p> + +<h4 id="moscows-securitisation-of-energy--ensuring-russian-sovereignty">Moscow’s Securitisation of Energy – Ensuring Russian Sovereignty</h4> + +<p>Most states view energy security as a serious issue; many governments have influence over their nations’ energy sectors and in a lot of these, the energy sector tends to be dominated by large projects and the relatively small number of companies controlling them. What makes Russia’s approach to energy security particularly Russian is the way that energy and the country’s very sovereignty are bound up with strategic competition with other countries over resources.</p> + +<p>Security of demand and continued access to oil and gas markets are key tenets of Russia’s national security framework, and of its national identity. Moscow’s perception of itself as a great power is largely based on a combination of its military might, its nuclear capabilities and its continued ability to produce and export significant volumes of natural resources. Although President Putin has not specifically referred to Russia as an “energy superpower”, it is clear Moscow views its prominence on the international stage and its ability (or as Moscow sees it, its right) to have a significant stake in foreign affairs as bound up with its natural resource wealth.</p> + +<p>From the Kremlin’s perspective, attempts to stymie Russia’s continued role as a natural resource producer – be it through sanctions or competition with other states over access to resources in the Arctic – are all a serious threat to Russia’s existence. Sanctions introduced on Russia’s hydrocarbons industry by Europe, the US and other allies since Russia’s annexation of Crimea in 2014 tended to target technology related to Arctic, deep-water exploration and onshore tight oil extraction, but ultimately they had little impact on Russia’s onshore deposits in western and eastern Siberia, which make up the bulk of its production in the short term.</p> + +<p>Against this backdrop, and particularly since its full-scale invasion of Ukraine in 2022, Russia has embarked on a strategic and practical reorientation of both its trade and foreign policy alliances. This reorientation sees Russia reimagining the globe and Moscow’s place within it.</p> + +<p>Russia’s latest foreign policy strategy – its first major policy document published since the war began – envisages Russia and its allies China and India united at the centre of a grand Greater Eurasian Partnership, pitted against the hegemonic (and allegedly declining) West. This perception frames Moscow as being at the heart of decision-making, with nascent relationships with middle powers such as Iran forming an important economic basis of the alliance. Although much has been made of the significant gap between Russia’s strategic planning and its practical ability to deliver on these goals, what this perception does show is Russia’s intention to restructure the globe on its own terms and to place Moscow at the hub of global decision-making. This is important, because it clearly delineates who and what Russia sees as a threat to its sovereignty. Its foreign policy document makes clear that it respects the sovereignty of powers such as India and China, while remaining mistrustful of and distant from the so-called “Anglo-Saxon world”, a derisive and archaic term that Moscow uses to refer to the UK and some other European states. However, it is not clear that China and India buy into Moscow’s version of the world, especially with framings that conceptualise Russia as the driver and leader of their international positions.</p> + +<p>Russia’s foreign policy approach pivots its vision towards a new alliance arrayed directly against the “collective West” (in Russia’s mindset, mostly made up of the EU, NATO member states and the US), which is depicted as a failed example of imposed democracy. This clash of civilisations that Russia is articulating is laying the groundwork for serious frictions between the West, Russia and the rest of Russia’s allies, particularly over energy and access to available resources.</p> + +<p>The war has also exacerbated a growing tendency on the part of Russia to seek out alternative structures such as BRICS – an economic grouping consisting of Brazil, Russia, India, China and South Africa – or the Shanghai Cooperation Organisation in order to promote its way of looking at the world. In this vein, since 2017, Russia has established its own energy forums with trusted partners – including Saudi Arabia and many African states – with the aim of reframing energy issues on its own terms. One such forum, in 2022, was notable for its assertion that Europe’s longstanding policy of moving away from Russian gas was a failed attempt to weaken Russia, linked to the energy crisis – with no acknowledgement of Russia’s own role in that crisis.</p> + +<p>Russia’s perception is that the West is seeking to undermine Russia through its dominance of energy resources, and that international forums such as the UN Security Council are prejudiced against Russia and its national interests. There is also a widespread belief among the Kremlin leadership that certain efforts by the West – for example, to cap oil production prices or curtail the use of nuclear energy, or for the US to deliver gas to Europe in order to replace Russia – are part of an attempt to undermine Russian traditional values and exert a neoliberal political agenda. Moscow’s understanding of the West’s actions in the energy sector has been framed in increasingly negative terms over the past decade, reflecting not only the highly securitised way in which Moscow views any external intervention in what it perceives to be its energy affairs, but also its own misconceptions about the West. It also reflects that Moscow has little concept of the importance of climate change issues in shaping global energy policies and prefers to frame climate change as a Western conspiracy designed to undermine Russia’s interests.</p> + +<p>While many of these foreign policy relationships were in train before the war, Russia’s invasion has accelerated Moscow’s need to identify new energy export destinations and to reduce its reliance on imported foreign technology. Although Russia’s so-called “pivot to the East” has already been a long-term trend for at least the past decade, with some rail and pipeline infrastructure build to support it, the programme has recently been accelerated because Russia has few other options. To do this, however, Russia must link up its oil and gas reserves with its maritime and rail infrastructure in order to reorientate its export structures and maintain its own energy security. Whether realistic or not, Putin maintained in mid-2022 that by 2025, Russia intends for 80% of its energy industry’s equipment to be domestically manufactured, to ensure that oil production remains high and to reduce external sanctions risks.</p> + +<p>Some of these plans for domestic reliance, and new ways of seeing the globe, are evident from Russia’s other strategic planning documents that govern the energy sector, some of which were written before the war.</p> + +<h4 id="moscows-shifting-self-perception">Moscow’s Shifting Self-Perception</h4> + +<p>This shift in Moscow’s approach to energy security can be seen from two of the most important documents that govern the country’s energy sector: its Energy Strategy (ES) and its National Security Strategy (NSS).</p> + +<p>Russia’s previous NSSs had only briefly mentioned energy in an environmental context, but in the 2021 strategy, the most recent, it is noted as something that permeates all aspects of security and Russian life: ensuring heating, as something to be protected alongside the defence industries and nuclear power plants, and as a major factor in Russia’s economic security. The increasing securitisation of energy means that Russia views external attempts at reform, as well as geopolitical competition over important energy markets, as a threat to Russia’s sovereignty, and will respond with what it views as appropriate force.</p> + +<p>Russia’s current ES (ES-35) was approved in 2020 by Prime Minister Mikhail Mishustin and runs up to 2035. Irrespective of its sparse mention in the NSS, Moscow has long viewed energy as a part of its national security, given the significant contribution of hydrocarbons to the federal budget, and the ES-35 makes it clear that any restriction on Russia’s production and sale of oil, gas and coal would be considered a security threat. The ES-35 is a strategy for safeguarding the oil and gas industry, and there is little attempt to diversify away from reliance on fossil fuels. Extraction and exports are priorities – the strategy aims to launch five major oil projects in the Arctic and 21 projects to extract raw materials such as gold and coal, alongside a significant increase in resource production from liquefied natural gas (LNG), which Russia aims to increase from 8.6 million tonnes in 2018 to 91 million tonnes by 2035. The boost to LNG production will necessitate an increase in infrastructure to support it, which the ES-35 outlines for the Russian Arctic and Far Eastern regions; these plans are supported and governed by other strategic documents.</p> + +<p>There have been three key developments since the war began that have demonstrated most clearly Russia’s changing view of itself and its place in the world as an energy producer and supplier. First, in August 2022, Prime Minister Mishustin approved an updated plan for the development of the Northern Sea Route (NSR), a trade route that runs across the top of the Russian Arctic. Among other measures, the plans include construction of three new terminals to process LNG, oil and coal, as well as updating existing port infrastructure in the Far East to accommodate an increase in capacity. With plans to construct new ice-class vessels capable of traversing the NSR, not only is Russia preparing to increase the production and export of raw materials, but it is also attempting to better link up its land and maritime infrastructure, and is using this physical infrastructure to assert its dominance over the maritime domain.</p> + +<p>But as ever with many of Russia’s so-called “mega-projects”, there are few feasibility studies available to determine whether investing in these often-politicised projects will ultimately add value to the Russian economy, or even whether ports will be able to accept sufficient planned increases in traffic to make investments worthwhile. Indeed, following a South Korean feasibility study on expanding Russia’s small Far Eastern Slavyanka port in 2018, ultimately the project never came to pass and, since the war began, many foreign investment projects have been halted. Other considerations relating to major projects like these, such as environmental impacts or the effect on local Indigenous populations, are rarely taken into account.</p> + +<p>Second, as part of the development of the NSR, Russia is pursuing important infrastructure projects with allies such as Iran to resurrect the North–South Corridor. This is a railway development project linking Russia to the Indian Ocean via Iran that has been repeatedly shelved over the past two decades, but which has gained new impetus since the war. Plans include linking up ports along the NSR with land and sea routes south of Russia across the Caspian Sea to northern parts of Iran, a grandiose project of a kind that, as the history of Soviet-style planning has evidenced, rarely delivers on its objectives. While it is still incomplete and there are numerous political and infrastructure obstacles to overcome, the North–South Corridor is nevertheless part of Russia’s longer-term plan to export goods, including its oil, through these new land and sea networks. There is substantive investment in it already: as of 2022, Russia had committed $13 billion to different projects as part of the scheme. The North–South Corridor links up roads, rail and maritime infrastructure across multiple countries, and is an attempt by Moscow to deliver on some of the practical elements of its planned foreign policy, bringing countries such as India and Iran more closely into Russia’s economic network.</p> + +<p>A third key aspect of Russia’s reimagining of the globe that has been accelerated since the war began can be seen in its Arctic strategy up to 2035, and in Moscow’s changing perception of the NSR. Unlike its predecessors, the current strategy has identified specific development zones – which will receive greater Kremlin attention and financing – that are either rich in mineral resources such as hydrocarbons, or have access to the sea. This highlights Russia’s dual priorities of resource extraction and export in the Arctic, and is a further example of its strategic linkages between the land and maritime domains. Amid a downturn in relations with the West, over the past few years, there has been a noticeable shift in perceptions of the NSR within Russia, from viewing it as a potential international route capable of linking up Europe and Asia to instead seeing it as a useful route specifically for Russian companies to deliver energy resources to their own global markets. This refocusing on ensuring Russia’s dominance of sea routes is likely a precursor to further attempts to exert control over the maritime domain, with likely a concomitant increase in Russia’s projection of sovereignty over parts of the NSR that are considered international waters.</p> + +<h4 id="how-united-is-russias-energy-decision-making">How United is Russia’s Energy Decision-Making?</h4> + +<p>Russia’s ability to use its position as a major oil and gas supplier on the international stage in exchange for influence, political concessions or access to other resources, or to project its regime survival, is often viewed – both by Moscow and the West – as its most effective foreign policy asset. But while Russia’s energy diplomacy tends to be viewed as a political tool it can wield at will, Russia’s energy strategy is dominated by often-competing approaches, which means that it has occasionally been forced into cooperation with foreign partners to ensure that it retains its position as global producer. As its energy relationship with the West declines, Russia will likely be obliged to cooperate with partners in the Indo-Pacific region, which does not necessarily put it in a position of strength.</p> + +<p>There are multiple competing interests within Russia’s energy sector, with conflicts between the country’s official strategies and the vested interests of individuals and their coteries who are driving these industries forward, and this makes Russia’s energy approach inherently flawed.</p> + +<p>Russia’s energy market is dominated by Gazprom (headed by Alexei Miller) and Rosneft (under Igor Sechin), two major oil and gas producers that are in turn technically overseen by the Kremlin. These industries are subject to a series of vested interests that include personal financial concerns, political demands and corrupt practices, all of which make it challenging to determine Russia’s true energy “strategy”. Gazprom is also a sprawling and influential conglomerate that includes financing (through Gazprombank), oil (Gazprom Neft is Russia’s fourth-largest oil company) and the media (Gazprom-Media owns several television channels). These companies employ a relatively large segment of Russian society, with just under half a million people as of 2019.</p> + +<p>Companies like Gazprom and Rosneft are under state control, but operationally, they both function without significant government interference, as long as this does not directly contradict stated Kremlin foreign or domestic policy goals. Rosneft and Gazprom have also successfully resisted some directives from the Kremlin – government plans in 2013 to try to privatise the oil and gas industry were met with strong pushback from Gazprom, Rosneft and others, such as major bank Sberbank, until they were eventually halted. That said, there is also an important degree of self-censorship within Gazprom and Rosneft, which still tend to act within the Kremlin’s agenda without being compelled to do so.</p> + +<p>Despite its relative operational autonomy, in a strategic sense, Gazprom has for years been at the heart of many of Russia’s foreign policy strategies, especially in Europe, where dependency on Russian gas was of political significance, via the (now defunct) Nord Stream pipelines. But while Gazprom’s monopoly has been relatively unchallenged in Europe, this is not so in Russia’s dealings with Asia. There, Gazprom’s greatest rival is the privately owned Novatek, which is absorbing significant amounts of market share amid Russia’s energy reorientation to China, through the Yamal LNG project. Novatek and Rosneft were permitted by the Russian government to participate in LNG exports in 2013, with the view that Gazprom’s monopoly was holding Russia back from becoming a major player in the gas sector.</p> + +<p>New trade deals with China such as the Power of Siberia 2 pipeline, discussed amid much fanfare between Putin and President Xi Jinping in March 2023 (but as yet unsigned), give Gazprom a nascent role in Asia, although construction of that pipeline would not begin until 2024 at the earliest, and would not come online until 2029, even if it were to run to schedule. Since 2014, Rosneft has also sought to challenge Gazprom’s monopoly and gain access to the Power of Siberia pipeline, and has been inching into the gas market over the past decade by acquiring the rights to develop its own gas deposits in Russia. In 2023, Putin appeared to have agreed to Rosneft’s demand, maintaining that its gas reserves from its fields in Krasnoyarsk and Irkutsk could be used to supply the Power of Siberia 2 pipeline, and instructing Deputy Prime Minister Alexander Novak to act as arbiter between Gazprom and Rosneft as they worked out the details. As Europe moves away from its reliance on Russian energy, Gazprom may well be forced into ever-greater direct competition with other companies such as Novatek and Rosneft for market share.</p> + +<p>Competition between Sechin and Miller – with Putin acting as the ultimate arbiter – makes it a challenge for Russia’s energy industry to make long-term plans, with political interference and self-interest often trumping financial expedience. Occasionally, their arguments spill over into the public domain, such as over which company contributes more taxes to the federal budget. Rivalry between Gazprom and Rosneft can be occasionally disruptive and can stymie progress on major projects. The two companies were embroiled in widely publicised litigation proceedings against each other in 2015–16, over Rosneft’s attempts to gain access to the Sakhalin-2 oil and gas project in the Far East, an appeal which Gazprom ultimately lost in the Supreme Court. However, competition like this tends to be more about defending turf than about actual views on Russia’s foreign policy or national interests, which are still inherently decided at the Kremlin level.</p> + +<p>Given these features of Putin’s decision-making process, Russia’s energy policy approach has never been particularly coherent, and there have always been groups that prioritise how much money can be extracted from Russia’s natural resources, juxtaposed with internal critics of Russia’s sprawling infrastructure projects – such as expensive symbolic bridges – whose economic returns are negligible and which tend to serve political goals. While important foreign policy decisions remain the purview of the Kremlin, infighting within the oil and gas industry has repercussions for Russia’s efficiency and ability to project its image as an extractives “superpower” abroad. This is a longstanding issue that was a challenge for the Kremlin prior to the war, but as competition over new markets in the Indo-Pacific region grows, internal competition between Russia’s energy companies is also likely to increase.</p> + +<h3 id="ii-russias-involvement-in-opec">II. Russia’s Involvement in OPEC+</h3> + +<p>Russia tends to use international platforms either as a means to further its own national interests or to ensure that it has a stake in the conversation, rather than in pursuit of a common cause. Since its invasion of Ukraine, Russia’s ability to interact with other, particularly Western, states in multinational forums has been increasingly restricted, and an international arrest warrant for Putin has posed another logistical challenge to face-to-face engagement. Russia’s behaviour in the OPEC+ grouping, which is designed to influence global oil pricing, is still in service of its national interests, but must be carefully balanced with its desire to maintain a strong bilateral relationship with Saudi Arabia – the two countries in combination sell 20% of oil used globally.</p> + +<p>Russia and Saudi Arabia’s energy policies – and by extension their foreign policies – are often conflated due to their shared leadership of the OPEC+ grouping. Yet the Russian–Saudi partnership is more of a marriage of convenience than an expression of a wider strategic alignment. The basis of the relationship is that both countries support the stabilisation of oil prices while simultaneously ensuring high export revenues.</p> + +<p>In this vein, OPEC+ was formed in 2016 in response to the disruption of the global oil market caused by the US shale revolution. By increasing the number of countries coordinating their production levels, the cartel was able to influence the supply side of the market and stabilise international oil prices – but the potential brittleness of the alliance was demonstrated in the price war between Moscow and Riyadh in March and April 2020. As the global economy shut down with the onset of the Covid-19 pandemic in 2020, leading oil prices to fall, Russia refused to go along with Saudi-proposed production cuts, seeing an opportunity to deal a blow to the US shale industry. Saudi Arabia, though also not necessarily opposed to hurting shale producers, ramped up production in order to deliberately push down prices even further and thereby forced Moscow to relent.</p> + +<p>Officially, OPEC+ coordination has been less contentious since February 2022. Russia has some leverage over Iran (an OPEC member), which Saudi Arabia lacks, and Saudi Arabia’s insistence on continuing to work with Russia in the grouping despite protestations from the US and elsewhere can be seen as an indication of how much more importance Riyadh apportions to its ability to influence the oil market (especially at a time of heightened volatility) than to maintaining a harmonious rapport with Washington. Moscow also recognises that collaboration with Riyadh will be critical to ensure supply management, even as it continues to delay production cuts.</p> + +<p>Russia’s relationship with Saudi Arabia has become more of a pressing issue since the onset of the Ukraine war. Riyadh has chosen not to align itself with the Western consensus on the war and has not introduced sanctions on Russia, nor condemned the war. The announcement at the August 2023 BRICS summit that Saudi Arabia would be joining the grouping – with some caveats – could boost the economic potential of the bloc and offer a further channel to deepen bilateral ties, including offering new sources of sanctions evasion for Russia. There is also nascent bilateral cooperation over joint investment funds to support Russian agriculture and oil production equipment, and few high-profile projects have been announced, although the Saudi side has been much less vocal about its willingness to invest within Russia.</p> + +<p>Russia’s invasion of Ukraine has altered its position on the OPEC grouping somewhat. In search of clients and new export markets for its oil, Russia has been prepared to accept lower prices to sell its oil and maintain production, offering cut-price deals to its allies China and India in a bid to drum up funds for the war. There are also frictions over Russia’s secrecy around its figures – it does not disclose how many barrels of oil it exports, and Saudi Arabia is suspicious that Russia has continued to export significant volumes, undercutting former price agreements.</p> + +<p>For now, Saudi Arabia has not criticised Russia’s decisions to sell at a discount or publicly spoken out against its data secrecy, given the two countries’ common interest in maintaining oil prices at a level that can shore up their state budgets. Russia also has significant reason to keep the Kingdom on side – major Saudi companies invested more than $500 million in Gazprom, Rosneft and major oil producer Lukoil just after the war began and Western sanctions were introduced. Since the onset of the war, however, Russia has been on the back foot; it has few major international players it can call on as partners, and the relationship with Riyadh, which may start to demand more of Russia, is an important one.</p> + +<h3 id="iii-russias-environmental-paradox">III. Russia’s Environmental Paradox</h3> + +<p>One of Russia’s many strategic paradoxes is that it is a country highly affected by climate change, but banks on its status as a producer of commodities to retain its international position. This inconsistency informs its strategic policymaking on the environment, and its behaviour in international forums around climate change.</p> + +<p>The Kremlin has never been particularly concerned by environmental security, and many of its actions have been reactive to environmental disasters that occur on its territory, rather than preventative. The ES-35 specifically frames international climate change policies as a hindrance to Russia’s own energy security development, even if it simultaneously acknowledges the theoretical importance of reducing carbon emissions. Similar inconsistencies can be found in Russia’s Arctic strategy, which notes the security threat of warming seas such as flooding in coastal areas and the melting of permafrost, but still pushes high production of fossil fuels and the mining of extractives. Globally, Russia is the fourth-largest greenhouse gas emitter, after China, the US and India, and is responsible for 7% of the world’s CO2 emissions. Nevertheless, Putin has been derisive about Europe’s green energy approach, maintaining that the energy crisis in Europe is in fact due to Europe’s investment in wind farms that cannot make up for a reduction in fossil fuels.</p> + +<p>In international forums, Russia often objects to proposals to improve global environmental security. While this can appear bullish and self-interested, it is also partly due to different understandings of security: Russia’s longstanding concept of environmental security prioritises the security of the nation as the key concern, rather than the security implications that can stem from environmental problems, and includes a collective historical view that the natural environment holds no intrinsic value in its own right. Climate change is seen as something that affects Russia’s national security (including defence), but it is framed in strategic documents as a threat to Russia’s economic development that calls for practical solutions, rather than any adjustment to the extractive industries. Russia also tends to approach issues such as warming Arctic seas not as a crisis but as an economic opportunity that will improve access to new shipping lanes and offer a boost to the Russian export industry. Some Russian academics have disputed this prevailing analysis, maintaining that the impact of climate change in the country will probably not be a net positive overall, but their views are unlikely to be influential in altering the Kremlin’s longstanding policies.</p> + +<p>Russia has tried to separate environmental security into two issues: the first is the economic damage to the country caused by climate change that Russia aims to mitigate, chiefly through technological interventions or improved investment, while the second is what Russia perceives as a Western-led agenda, under the guise of environmental activism, to undermine Russian institutions. Russia has suggested at the UN Security Council that environmental security issues are a ruse for external military interventions in countries rich in natural resources (perhaps referring to the African continent) and has framed this as a threat to Russia’s interests in the extractive industries. Ultimately, Russia views most international attempts to warn against the dangers of climate change and fossil fuel reliance as a further threat to Russian sovereignty.</p> + +<p>Within Russia, important figures traditionally from the defence or security services have increasingly been appointed to lead on environmental issues. In 2016, Sergei Ivanov, a former minister of defence (2001–07) and KGB officer in the Foreign Intelligence Service, was appointed the president’s special representative on the environment and transport. Ivanov oversees environmental protection, as well as the development of the Far Eastern regions and streamlining infrastructure to support businesses; he is also an important member of Russia’s powerful Security Council and a longstanding Putin ally. While his precise role is unclear, his positioning indicates the crossover in the Kremlin’s mindset between the environment and national security.</p> + +<p>In terms of its foreign policy, Moscow’s securitisation of the environment means that it is rarely cooperative on internationally led climate change issues. On the UN Security Council, Russia pays lip service to climate action but favours the status quo, tending to use the platform to ensure that it has a place at the table and to promote its economic (extractives) interests, rather than with a view to safeguarding the environment. In principle, Russia is a signatory to UN-led efforts to reduce greenhouse gas emissions, but the Kremlin does not publish figures about its oil and gas production rates and only offers broad public statements about production cuts, which makes it a challenge to determine how compliant (or not) it may be. It has also been criticised internationally for its gutting of environmental policies that would have otherwise worked to reduce greenhouse gas emissions, by refusing to introduce quotas or penalties on greenhouse gas emitters.</p> + +<p>This approach is unlikely to change, largely due to the presence of powerful business lobbying groups who work on behalf of the oil and gas industry, such as the Russian Union of Industrialists and Entrepreneurs (Rossiskiy soyuz promyshlennikov i predprinimateley, RSPP), whose coordination council is co-chaired by Putin’s youngest daughter, giving the RSPP a direct line to the Kremlin. The RSPP extensively lobbies against any proposed bills that could reduce the oil and gas industry’s ability to extract resources in environmentally protected areas, and it is rarely opposed by the Kremlin.</p> + +<p>Perhaps most concerningly, since the onset of the war, many environmental links between Russia and the West have been severed, and there is little international oversight of major drilling projects in Russia and the permanent impact that these could have on protected environments, especially in more isolated parts of the Russian Arctic. Legislation within Russia that restricts ecological activism has also tightened since the war, reflective of a broader repressive legal environment targeting institutions with a perceived Western-led agenda. For example, in March 2023, the Worldwide Fund for Nature was branded as a “foreign agent” – this inclusion on the foreign agents list by Russia’s Federal Security Service comes with an implication of espionage and suggests that the organisation receives funding from murky sources abroad, seeking to undermine Russia. Many organisations on the list have ceased to function under pressure from the security services, and as a result there is a risk that there will be even less external oversight of resource extraction.</p> + +<p>Russia’s understanding of threats to the environment has close links to its understanding of threats to its hydrocarbons industry, as well as to the personal interests of the ruling elites (including Putin) and the central role that energy resources play in Russia’s international policies, all of which are bound up with ideas of Russian sovereignty. Any attempts by the international community to further an agenda that restricts Russia’s continued extraction of hydrocarbons, its export of them to new and existing markets, and the construction of infrastructure on land and at sea to support this, are framed as part of a security threat to which Moscow will respond harshly.</p> + +<h3 id="conclusion-where-moscows-red-lines-are">Conclusion: Where Moscow’s Red Lines are</h3> + +<p>Given Russia’s ability to have an impact on global oil and gas prices, the UK and its European allies will need to try to understand, react to and – where possible – influence the way in which Russia approaches its role in energy markets and in international forums. Even if the UK were to entirely decouple from Russian oil, the complex and global nature of international energy markets means that Russia’s behaviour as a hydrocarbon superpower still has the ability to substantially alter the UK’s energy security. Although diplomatic relations with countries such as Russia may have been all but severed, Russia’s actions matter, whether through decisions on oil production, its global positioning and attempts to reconfigure the world order, or its divergent understandings of what energy and environmental security mean.</p> + +<p>Russia’s approach since the onset of the Ukraine war has been to expand its foreign policy partnerships with allies such as China, India and Iran; to invest in the land and maritime infrastructure to support its political goals as well as its extractive efforts; and to seek alternative clients for its oil and gas, while maintaining high production. While its energy strategy may be at times incoherent and pulled in multiple directions due to the many vested interests involved, there is a clear sense of some of Moscow’s red lines when it comes to its understanding of energy security and its intent to maintain the extraction and export of hydrocarbons to fuel its economy. Just as debates around oil price caps and moves to reduce carbon emissions are seen as an unwelcome Western intervention, similarly, attempts by the international community to involve Russia in the climate change debate are viewed by Moscow as another security threat to Russia’s sovereignty, and an attempt to impose Western values on a country now forging its own path eastwards.</p> + +<p>Moreover, Russia and Saudi Arabia – and other oil producers – regard Western enthusiasm to impose energy-related sanctions on Russia, particularly the price cap, as a dangerous precedent for political intervention in the oil market. Putin himself has been vocal about the limitations of the cap, maintaining that there is a risk of mission creep (i.e., that oil price caps could be extended to other sectors of the Russian economy, and indeed to any other country in the world), and has framed this as another attempt by the West to undermine the Russian economy and its “values”. This is a further indication of how Moscow continues to view what other countries frame as economic and pragmatic decisions as a direct attack on Russian sovereignty, and it means that Moscow’s responses to these proposals are likely to appear disproportionate or couched in national security terms.</p> + +<p>Ultimately, Russia is pursuing a fundamentally revisionist international project to reconfigure the global order on its own terms, and it is willing to deploy the political capital and revenues derived from its hydrocarbon might to further this project. For there to be any united action around climate change, the UK and Europe must pay closer attention to the foreign and security policies of major hydrocarbon producers like Russia, in order to understand the roots of some of the international implications resulting from their actions.</p> + +<hr /> + +<p><strong>Emily Ferris</strong> is a Research Fellow in the International Security Studies department at RUSI, specialising in Russian domestic politics. Emily has a particular interest in Russia’s military and civilian infrastructure including its railways, road and port systems, and the role this plays in advancing Russia’s political ambitions in the Indo-Pacific region, as well as deployed in conflict zones such as Ukraine. She also researches domestic political administrations in Russia’s Far East, and Russia’s military and political relationship with Belarus.</p>Emily FerrisUnderstanding how Russia constructs its energy security and foreign policies is essential to anticipating how it might behave in international forums, particularly on challenging issues such as environmental and energy security.Principles For UK–CN Strategy2023-11-08T12:00:00+08:002023-11-08T12:00:00+08:00https://agorahub.github.io/pen0/hkers/principles-for-uk-china-strategy<p><em>China poses an “epoch-defining and systemic challenge with implications for almost every area of government policy and the everyday lives of British people”, according to the UK’s March 2023 Integrated Review Refresh.</em> <excerpt></excerpt> <em>While stopping short of labelling China a “threat”, this is a marked shift from the “golden era” of UK–China relations heralded during Xi Jinping’s 2015 visit to the UK.</em></p> + +<p>Such a shift in assessment requires a commensurate response. This Policy Brief reviews the government’s response to China to date and examines criticisms of its approach, including calls to publish an “unclassified version of its China Strategy”. Rather than detail specific policy recommendations or argue in broad-brush terms for a more hawkish or dovish stance, the brief proposes six principles for a more dynamic and broadly based – and so more effective – China strategy. It argues that, while publishing a strategy document may aid communication, there are more important things to be done.</p> + +<h3 id="changes-after-the-golden-era">Changes After the “Golden Era”</h3> + +<p>Much has changed since 2015. Notwithstanding current travails, China’s economy has grown by nearly 50% in real terms and accounts for a larger share of global trade. The country’s ambitions in new technologies have become more widely understood and borne some fruit, notably in renewable energy and electric vehicles. President Xi has focused on self-reliance at home, emphasising national security and the leading role of the Chinese Communist Party, while becoming more active on the world stage. Last year, NATO concluded that China’s “stated ambitions and coercive policies challenge our interests, security and values”. The US’s ambassador to China, Nicholas Burns, said last year that US–China relations might be at their “lowest moment” since Nixon’s 1972 China visit. Tensions over Taiwan have risen sharply.</p> + +<p>Throughout this, trade with China has grown. In the 12 months to March 2023, China was the UK’s fourth-largest trading partner, though the UK ran a £38 billion trade deficit. 1 Questions of security and values, always present in the China policy debate, have however come strongly to the fore. China’s imposition and subsequent interpretation of the 2020 Hong Kong National Security Law have caused widespread outrage. Detailed reporting of China’s human rights abuses against the Xinjiang Uyghurs gained media attention and stirred parliamentary debate and opposition. The government has identified China as a significant source of cyber attacks on UK interests, with increased activity and disinformation campaigns during the Covid-19 pandemic. The recent China report from Parliament’s Intelligence and Security Committee (ISC) concluded that “China’s size, ambition and capability have enabled it to successfully penetrate every sector of the UK’s economy”. Additionally, China’s initial slow Covid response and its refusal to allow a full WHO investigation have damaged trust. Its stance on Ukraine has further sharpened concerns. And, while the UK has been the leading destination for Chinese direct investment into Europe since 2000, activity has recently fallen away sharply.</p> + +<h3 id="policy-changes">Policy Changes</h3> + +<p>The UK government has taken action on numerous fronts. In 2020, the Johnson-led government reversed the decision to allow the purchase of Huawei’s 5G technology following a reassessment of security risks and political pressure from the Trump administration. Chinese involvement in the UK’s nuclear power programme came under renewed scrutiny, leading to a buyout of China’s interest in the Sizewell C project. The Hong Kong British National (Overseas) visa scheme has enabled close to 130,000 Hong Kong nationals to move to the UK. The 2021 National Security and Investment Act introduced a tighter screening process for foreign investment into key sectors. The 2023 National Security Act established a Foreign Influence Registration Scheme. This year also saw announcements of a Critical Minerals Strategy refresh, the National Protective Security Authority and an Economic Deterrence Initiative. Nonetheless, when security is not an issue, the UK remains “open for business from China”. There are also policies, urged by some backbench MPs, that the government has not pursued. It has not declared Chinese actions in Xinjiang to be a genocide and has not followed the US in sanctioning Hong Kong officials.</p> + +<p>Consistent with the Integrated Review’s “tilt to the Indo-Pacific”, the UK has been active in the region. A carrier strike group was deployed there in 2021 for the first time since 1997, and will return in 2025. The UK is the first non-regional member of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership trade agreement. It has been active in helping formulate stronger G7 and NATO positions on China, and has shaped and joined new minilateral partnerships including the AUKUS agreement, the Global Combat Air Programme and the Mineral Security Partnership. The sanctioning of Xinjiang officials was announced in coordination with the US, Canada and the EU.</p> + +<h3 id="is-this-a-strategy">Is This a Strategy?</h3> + +<p>Throughout all this, many have called on the government to publish a China strategy. In 2019, the House of Commons Foreign Affairs Committee (FAC) called for “a single, detailed public document defining the UK’s China strategy … [to] be published by the end of 2020”. In 2021, the House of Lords International Relations and Defence Committee entitled its report “The UK and China’s Security and Trade Relationship: A Strategic Void”.</p> + +<p>This year has seen progress. The Refresh summarised the UK’s approach to China with three pillars: Protect/Align/Engage:</p> + +<ul> + <li> + <p>Protect the UK through enhancing security measures in critical national infrastructure, supply chains, democratic freedoms and science and technology.</p> + </li> + <li> + <p>Align with “core allies and a broader group of partners” to deepen cooperation.</p> + </li> + <li> + <p>Engage with China directly and multilaterally so as to “where possible cooperate on global challenges” and secure a “positive trade and investment relationship”, while “avoiding dependencies … and protecting our national security”.</p> + </li> +</ul> + +<p>In April, Foreign Secretary James Cleverly expanded on this in a speech, “Our Position on China”, arguing that “we must engage with China where necessary and be unflinchingly realistic about its authoritarianism”. Cleverly’s August visit to Beijing drew on the same position. The prime minister, Rishi Sunak, has described the approach as “robust pragmatism”, while also calling China “the biggest challenge of our age to global security and prosperity” after the May G7 meeting.</p> + +<p>No detailed China paper has been published, however – nothing similar to Germany’s recently published China strategy. In August, the FAC called again for an “unclassified China strategy”. Charles Parton, a long-time China analyst, has described the lack of a clearly communicated China strategy as the “panda in the room”.</p> + +<h3 id="pressures-for-greater-clarity">Pressures for Greater Clarity</h3> + +<p>The government’s approach can be criticised from three angles. First, that the “three pillars” strategy does not amount to an appropriate or even coherent course of action. Second, that it lacks specifics and glosses over trade-offs. Third, that publishing a detailed China strategy brings benefits greater than any associated costs.</p> + +<p>Protect/Align/Engage implicitly rejects alternative strategies of large-scale decoupling or unquestioning engagement. Some simply disagree with this approach, seeing it as riddled with contradictions. A three-pillar framing is not, however, unique to the UK. It reflects the “complicated and sophisticated” nature of relations with the world’s second-largest economy. The US speaks of “invest, align, compete”, following US Secretary of State Antony Blinken’s earlier description of the US–China relationship as “competitive when it should be, collaborative when it can be, adversarial when it must be”. The EU has described China as a negotiating partner, economic competitor and systemic rival. China also mostly pursues a similar approach, while at times strategically choosing to reject it. In 2021, foreign minister Wang Yi stated that “China–U.S. cooperation on climate change cannot be divorced from the overall situation of China–U.S. relations”. With Australia and Lithuania, China has linked disagreements on Taiwan and Covid-19 with economic relations. The UK does also need a response to such situations.</p> + +<p>The lack of focus on trade-offs is a more compelling criticism. The approach smacks of “cakeism”, promising to secure all the benefits and address all the negatives that China presents, while ducking value judgements and tough choices on priorities.</p> + +<p>For instance, the UK is to engage China on climate matters, and China leads in renewable energy. So what is the stance on sourcing solar panels from Xinjiang given well-documented reports of forced labour and its likely presence in UK supply chains? Does reliance on China reflect successful engagement, an unacceptable breach of our values, or a security risk? Universities benefit financially and intellectually from Chinese students and research collaborations, while facing risks of revenue dependence, challenge to academic freedoms and leakage of sensitive research. How should the UK navigate this? University leaders need better guidance based on the government’s assessment of trade-offs and priorities.</p> + +<p>Finally, a more detailed China strategy could be published, but the benefits need to exceed the costs. The ISC’s China report states that as of 2019, “the National Security Council (NSC) owns and creates [government] policy on China”, which is then set out in a six-pillar “China Framework”. Even the names of three of these pillars are redacted. The related China National Strategy Implementation Group seeks to avoid a “binary prosperity vs. security” approach. So trade-offs are considered, but there is no external communication of how this is done.</p> + +<p>Publishing would provide a better basis for debate, challenge and holding the government to account, and also provide clearer guidance to those making China-related decisions. The only previous China policy paper, the Foreign and Commonwealth Office’s “The UK and China: A Framework for Engagement” (2009), stated that “this document is intended to begin a broader conversation”.</p> + +<p>The argument is finely balanced, however. By their nature, elements of the China strategy need to remain confidential, not least from Beijing. Discussion and challenge of a redacted strategy paper can skew debate. Any published paper serves more to communicate a narrative than to describe a government’s full strategy. And decision-makers often need more sector-specific guidance than a single paper can communicate. A published strategy paper is no panacea.</p> + +<h3 id="six-principles-for-a-more-dynamic-and-effective-ukchina-strategy">Six Principles for a More Dynamic and Effective UK–China Strategy</h3> + +<p>Implementation of the right China strategy, itself made up of a myriad of China-related decisions, is more important than a single paper. Keeping in mind the following six principles will help formulate a more dynamic and effective China strategy for the UK.</p> + +<h4 id="1-strategy-should-be-more-than-a-document">1. Strategy should be more than a document.</h4> + +<p>“Strategy” is a popular word, yet one used by different people with different meanings. At heart, it is about making choices to achieve defined objectives or outcomes and then putting in place the required resources to realise them. Roger Martin, a leading business strategy academic, writes that “strategy is choice. Strategy is not a long planning document”. While those implementing need to understand the strategy, no company publishes its strategy in full on its website. Nor does any country. Important elements are confidential, shared on a need-to-know basis.</p> + +<p>Strategy is dynamic and iterative, rather than static and one-time. It considers and addresses multiple, changing contingencies. In today’s world, decisions are made in changing, uncertain circumstances based on imperfect information. China and the UK’s allies alike react and adapt to the choices made by others.</p> + +<p>This means that a detailed set of actions, decided centrally, fixed and then communicated to others to implement, is unlikely to succeed. Rather, many different people need to make decisions that together amount to a strategy. This is, in the words of management scholar Henry Mintzberg, “emergent strategy”. At times, this can be hard to distinguish from a contradictory “muddling through” and no overall strategy. This does not, however, make the approach any less valid. Determining which elements of the China strategy should be centrally determined – and which not – is an important matter of judgement.</p> + +<h4 id="2-strategy-should-be-explicit-about-whose-behaviours-need-to-change--or-stay-the-same--in-order-to-bring-about-specific-outcomes">2. Strategy should be explicit about whose behaviours need to change – or stay the same – in order to bring about specific outcomes.</h4> + +<p>Good strategy is clear on both desired outcomes and the behaviours – continuing or changed – needed to bring them about. The current UK government seeks “a positive trade and investment relationship” with China. But it is does not explain what this statement really means, or what needs to happen for this to occur. By contrast, the 2009 China “Framework for Engagement” did contain very detailed targeted outcomes. However, this document contained few specifics about how they might be achieved. The current UK–China strategy would benefit from greater clarity on both aspects.</p> + +<p>It is much easier for the UK government to affect behaviours at home than in China, or even in “like-minded countries”. A China strategy must take much of what China does as a given. It should then determine how best to change what happens in the UK, while taking account of how China (and others) might act in response. Government can change behaviours at home by banning or mandating certain activities, or by changing incentives and providing better information to those who then decide for themselves. Which approach makes sense, and where, is at the heart of a clear China strategy. Clearer communication of the government’s perspective on this would allow others to make better decisions on China matters.</p> + +<p>For Lawrence Freedman, strategy is the “art of creating power”. China’s economy is five times larger than the UK’s, and its population 20 times as large. The Integrated Review recognises that if the UK is to influence the choices of Chinese decision-makers, it needs to gain scale through working with others – hence recent extensive collaboration through the G7, NATO and other fora. Here too, however, the UK’s ability to change behaviour is shaped by what others choose. US policy plays an especially critical role, both regarding its own stance on China and its appetite to act in coordination with allies or alone. If US policy becomes significantly more or less hawkish, the options for the UK’s China strategy also shift: US policy on Taiwan shapes any role that the UK might play. China’s reaction to the UK’s choices also depends partly on how the British approach compares with those of other major countries. French President Emmanuel Macron’s April visit to Beijing yielded commercial contracts, while Rishi Sunak has yet to meet President Xi.</p> + +<h4 id="3-a-china-strategy-is-for-the-whole-uk-not-just-for-government">3. A China strategy is for the whole UK, not just for government.</h4> + +<p>In developing the strategy, the simple term “UK China strategy” merits unpacking and definition. It is about more than the bilateral relationship. Abroad, the UK encounters China in its relations with every country and in multilateral organisations. At home, China is not just a matter for government. Thousands, perhaps, millions, of people take decisions where China plays a role – from supplier selection to deciding how to protect open academic discussion in universities. Equally, while China is important, it is not everything: there are many other topics that matter to the UK. Still, many major decisions have an important China component without being decisions “about China”.</p> + +<p>This breadth is important because China is often described as taking a “whole-of-state” approach to its affairs, whereby the Party’s dominant role removes any meaningful distinction between government and private actors. The ISC report discusses the security risks that this poses to British interests. In its most extreme formulation, the term significantly overestimates the Party’s coordination and cohesion across a country of 1.4 billion people, but the risks cannot be ignored.</p> + +<p>The UK must formulate an appropriate response that meets the challenge, while preserving our distinctive democratic strengths and diversity of opinion, not seeking to ape the controlling approach of the Chinese party-state. The UK government itself needs a “whole-of-government” approach that consistently integrates considerations of economics, security and values into decision-making. But also needed is a China strategy for the UK as a whole, which clarifies where government should make and mandate China-related decisions, and where others are better placed to do so.</p> + +<h4 id="4-those-who-make-the-decisions-need-to-be-well-informed">4. Those who make the decisions need to be well-informed.</h4> + +<p>The UK will make better decisions on China when those making the decisions know more about China, about how it sees the world, about others’ experience of dealing with China, and about how China in turn reacts. China is unfamiliar, opaque, multifaceted and fast-changing. Good decisions draw on knowledge and experience rather than on misconceptions, guesswork and stereotypes. Yet a 2021 Higher Education Policy Institute report highlighted that there is a “lack of knowledge and understanding [about China] that would enable actors in the private and public spheres to craft the answers that are needed”. The Integrated Review committed to “invest in enhanced China-facing capabilities, through which we will develop a better understanding of China and its people”.</p> + +<p>Three aspects merit greater attention. Firstly, there is a need to define the scope and nature of “China capabilities” that would help different decision-makers in and out of government. This should include practical experience, such as contract negotiations, as much as academic and policy knowledge. Second, many, if not most, people who make decisions with a China dimension will not be, and will not need to be, China experts. They must, however, know enough to make good decisions and be able to access expert knowledge as needed. The government can help facilitate this access. Finally, there is scope to draw more systematically on the experience of others. The Chinese diaspora in the UK offers a broad range of useful perspectives. The UK can learn more from how other countries manage their own complex China relationships, such as Japan and Australia.</p> + +<h4 id="5-strategy-without-resourcing-and-implementation-is-just-wish-making">5. Strategy without resourcing and implementation is just wish-making.</h4> + +<p>Strategies often fail. Plans are written but not implemented. Successful strategies require objectives grounded in reality, supported with the right resourcing and organisational structures; clear responsibilities and accountabilities; incentives and sanctions to encourage action; and durable leadership commitment that adapts in the face of changing circumstances.</p> + +<p>For the UK in relation to China, these conditions do not currently appear to be in place. The ISC China report found that “the slow speed at which strategies, and policies, are developed and implemented … leaves a lot to be desired”. It also rightly highlighted the need for longer-term planning and resource commitments. This in turn requires sufficient cross-party consensus for commitments to last through changes of government.</p> + +<p>Resourcing for China has increased. In March, the government announced a doubling in 2024/25 of funding for its China Capabilities Programme. Richard Moore, head of the Secret Intelligence Service, recently stated that “we now devote more resources to China than anywhere else, reflecting China’s increasing global significance”. This is likely not enough, though limited public information makes it hard to judge. Indeed, there are good strategic arguments for not revealing publicly the resource levels behind some initiatives.</p> + +<p>However, it is not a question of money alone. Improving coordination, communication and alignment across government remains a big task. This is as much as question of leadership focus and organisational effectiveness as resource levels per se.</p> + +<p>Internationally, too, increased resources are needed. China is much more active on the global stage, putting increased time and effort into advancing its agenda in multilateral institutions and offering financial support to countries in the Global South in particular. There is increased contention and competition. Here, cooperation with others allows for burden-sharing, whether in addressing China’s efforts in the UN to redefine human rights or the implications of increased financial development assistance in the Pacific Islands. But more resources – both time and money – are needed if strategy is to be more than rhetoric.</p> + +<h4 id="6-strategy-requires-learning-and-adaptation">6. Strategy requires learning and adaptation.</h4> + +<p>Strategy is not static. Broad objectives may remain constant, but prioritisation, detailed outcomes and how to achieve them will change. Strategy will also change, based on which policies work and which do not. As such, any detailed China strategy paper may quickly date. Strategy must learn and adapt rapidly to changed assessments and circumstances. It must these days consider a China with strong digital capabilities, but large structural economic problems, in a world of AI, rather than a high-growth China excelling in physical infrastructure.</p> + +<p>Much of this learning will inevitably happen behind closed doors. However, external review and reflection – in parliament, in expert groups and in the broader community – is important too. A published China strategy can help anchor this debate, but it must not become a fixed baseline pursued for its own sake while the world changes.</p> + +<h3 id="conclusion">Conclusion</h3> + +<p>China indeed has “implications for almost every area of government policy and the everyday lives of British people”. While the government has made substantial progress on its approach to this challenge, more needs to be done.</p> + +<p>What matters more than having a strategy paper is a host of decisions in different domains, followed by resourcing, implementation and review. Reasonable people can disagree on what being “clear-eyed” about China means in practice. This is not the work of government alone, even where China pursues its own “whole-of-state” approach. Across the UK, better awareness is needed, both of the opportunities and the risks that China presents. This will allow people to strike the right balance between risk and return – and also determine where, on certain matters of security and values, there is no balance to be struck, and economic benefits must take a backseat. But without increased resources – both time and money – a better China strategy will remain an expression of hope rather than reality.</p> + +<hr /> + +<p><strong>Andrew Cainey</strong> is a Senior Associate Fellow at RUSI and the founding director of the UK National Committee on China. He has lived and worked for most of the past twenty-five years in China, Korea and Singapore advising businesses and governments, having first visited China in 1981. His particular areas of focus relate to China’s development, its growing role and influence across Asia and globally and the intersection of economic prosperity, technology and national security.</p>Andrew CaineyChina poses an “epoch-defining and systemic challenge with implications for almost every area of government policy and the everyday lives of British people”, according to the UK’s March 2023 Integrated Review Refresh.Written Evidence2023-11-07T12:00:00+08:002023-11-07T12:00:00+08:00https://agorahub.github.io/pen0/hkers/written-evidence<p><em>The Russian invasion of Ukraine increased the European Union’s (EU) ambitions in security in defence as well as member states’ appetite for EU-led solutions in this field.</em> <excerpt></excerpt> <em>Specifically, the war unveiled the role of the European Commission as a policy entrepreneur which is enhancing its competences in security and defence through the usage of a “market-security nexus”. As defence cooperation gets increasingly framed by the EU in terms of economic efficiency and resilience, it might be difficult for London to ignore the gravitational pull of EU market and legislation in the long term. However, EU efforts in regulating the defence market are still nascent, and there are still both room and value for the UK to engage in this process. This submission is divided into three sections addressing the Terms of Reference (ToRs) 1, 3 and 5, respectively. Lastly, it concludes with a policy recommendations section suggesting specific avenues for defence cooperation within existing EU frameworks.</em></p> <h3 id="section-1">Section 1</h3> @@ -9469,409 +10216,4 @@ <hr /> -<p><strong>Stephen Reimer</strong> is a Senior Research Fellow at RUSI’s Centre for Financial Crime &amp; Security Studies, where he specialises on countering the financing of terrorism and threat finance generally. His recent work has focused on self-activating terrorism finance in Europe, the national security threats posed by illicit finance, and assessing risk of terrorism financing abuse in the not-for-profit sector.</p>Stephen ReimerThis research briefing outlines major trends in the financial tradecraft of ISKP, how the branch factors into broader Islamic State financial networks, and how the group looks after its own financial needs.Three’s A Crowd2023-09-04T12:00:00+08:002023-09-04T12:00:00+08:00https://agorahub.github.io/pen0/hkers/threes-a-crowd<p><em>Jonathan Eyal interviews Senior Associate Fellow, H A Hellyer, about the Saudi-Israeli normalisation.</em></p> - -<excerpt /> - -<p><em>There have been various reports over recent weeks indicating that Saudi Arabia and Israel might be close to normalisation, with the Biden administration actively pushing for a deal by the end of the year. The Wall Street Journal even claimed that the Saudis had agreed with the Biden administration on a normalisation path, while Israeli normalisation with other Arab states has met with dramatic consequences, such as in Libya. Jonathan Eyal (<strong>JE</strong>) asked our Senior Associate Fellow, H A Hellyer (<strong>HH</strong>), about the significance of these events.</em></p> - -<p><em><strong>JE:</strong> Are the two countries indeed close to normalisation? If so, why would it matter? If not, why not?</em></p> - -<p><strong>HH:</strong> Saudi-Israeli normalisation is not a Saudi-Israeli story – it is a Saudi-Israeli-US story. Each of the three would be deeply involved in any such endeavour, and without the active participation of all three, the entirety of the undertaking fails. So, it is important to see how it squares up in each.</p> - -<p><em><strong>JE:</strong> Let’s start with Saudi Arabia, in that case. There were suggestions that previously, Riyadh was looking to build a broader “anti-Iran” front, and that this was energising the possibility of Saudi-Israeli normalisation?</em></p> - -<p><strong>HH:</strong> Any such suggestion no longer holds water, following the de-escalation between Riyadh and Tehran that resulted in the restoration of diplomatic ties in March of this year. Indeed, across a number of files, the mood in Riyadh appears to be one of de-escalation.</p> - -<p>But this desire for de-escalation does not extend to an automatic desire to widen engagement with the Israelis. The current Israeli government is one that is deeply controversial within the wider Israeli establishment itself, let alone across the region, for its empowering of the Israeli far right.</p> - -<p>The Saudis are probably looking at the United Arab Emirates, which normalised with Israel in the Abraham Accords, and seeing prominent Emirati figures express exasperation at how the Israeli political scene currently looks – one announced publicly during an Israeli conference that further Arab-Israeli normalisation was unlikely, and that the Netanyahu government “embarrassed” the UAE. Indeed, last week, Israel’s opposition leader, Yair Lapid, met with the Emirati foreign minister, with Lapid announcing this publicly on his social media feeds – a clear message for Israelis.</p> - -<p><em><strong>JE:</strong> So, the Saudis would need a pretty big reason, then, to normalise with the Israelis right now?</em></p> - -<p><strong>HH:</strong> I think a rather massive one. From the Saudi regime’s perspective, which is cognisant of its own reputation across the Muslim world, as well as among its own domestic constituents, it would be rather awkward to normalise with this particular Israeli government.</p> - -<p>Riyadh’s reservations would have been confirmed by the response to the recent suggestion that Libya and Israel were drawing closer to normalisation; the domestic response in Libya to the very notion was robust and uncompromising, leading Libyan officials to publicly denounce the contacts that had clearly been underway.</p> - -<p>It’s thus not surprising that Riyadh is signalling a lot of disquiet with the current media discourse around normalisation between it and a Netanyahu-led Israel. Perhaps in response, Saudi Arabia decided to commit to a rather symbolic move: the accreditation of a Saudi diplomat to the Palestinian Authority, and a consul-general for Jerusalem (although non-resident).</p> - -<p>The Israeli response was to insist there would be no opening of a consulate in Jerusalem– even though the Saudis had never suggested they would open one in the first place. However, a message was delivered and received, in all directions: that Riyadh is not keen on the present Israeli government.</p> - -<p><strong><em><code class="highlighter-rouge">The Saudis may well assess that they stand a chance of a much better deal with the next US administration, and without the Netanyahu obstacle</code></em></strong></p> - -<p>That the Israelis continue to openly reject any idea of concessions on the Palestinian file, such as insisting that there would be no settlement freeze in the occupied West Bank irrespective of any deal with Saudi Arabia, will have only served to buttress Riyadh’s position. Indeed, Palestinian officials themselves identify in Riyadh a willingness to listen to their concerns, and have already given Riyadh a list of items they want to see reflected in any Israeli-Saudi peace deal. These items are fairly minimalist compared to public rhetoric and discussions, which means the Palestinians are probably trying to strategise about what they can genuinely get at this stage – but it’s rather unlikely that the current Israeli government would make any gesture of this kind.</p> - -<p><em><strong>JE:</strong> One begins to suspect Riyadh is thinking less about the Israeli government, and more about Washington?</em></p> - -<p><strong>HH:</strong> Well, certainly, Saudi moves vis-à-vis Israel have perhaps as much to do with the US as they do with the Israelis. There might well be dividends for the Saudis, particularly in terms of tech, from a normalisation deal with the Israelis. But the real “asks” are going to be vis-à-vis the US, and there are massive challenges here.</p> - -<p>In particular, Riyadh is looking for a US commitment to a security umbrella architecture, something as close to Article 5 of the NATO charter as it can get – and that is not terribly likely at present. There is also a desire to get support for a civilian nuclear programme.</p> - -<p>There is tremendous opposition to a deal especially among Democrats, so it would be difficult to get any such agreement past the Senate; and more widely in the Beltway, there is antipathy vis-à-vis Saudi Crown Prince Mohammed bin Salman (MBS) himself. As the Democratic Party inches more and more towards the progressive left, that antipathy is only empowered further; it may not be a complete dealbreaker, but it does raise the price, so to speak, for the hassle in Washington. Considering both the Democrats and the Republicans will be focusing on the next electoral cycle pretty soon, all that needs to happen is for people to kick up a fuss about a prospective deal for a few weeks, or even a couple of months, and the whole discussion will get thrown into the long grass as people gear up for the election instead. The Saudis know all of this – and they’re not going to put in a massive amount of investment until the situation changes. This is especially true after the withdrawal from Afghanistan – which Riyadh, and much of the wider Middle East, would have seen as evidence of a desire in Washington to wind down the US footprint abroad, and to not commit to protecting existing security architecture.</p> - -<p>And as previously noted, there is still the “Palestine Question” to consider. Riyadh has made it clear that there has to be movement on the Israeli occupation of Palestinian territories in order for movement to take place, and the Biden administration seems to be rationalising that such a movement would make it easier to get US Democrat support for the deal. And that kind of support is vital.</p> - -<p>So, you have senior Biden administration officials shuttling to the Arab world to engage directly with Saudi and Palestinian officials, precisely to discuss “realistic understandings” with the Palestinians on this point. But even if Washington gets expectations down to a bare minimum, it still runs into the obstacle that is Netanyahu, who recognises that taking steps towards the Palestinians “would likely anger the extreme-right parties that are part of [Netanyahu] coalition and risk bringing down his government”.</p> - -<p>So, frankly, from the Saudi perspective, it probably means this is the worst possible time to invest in a deal. If they wait a while, they may have less to worry about in terms of the Biden administration and obstacles among Democrats, and in terms of an Israeli government led by Netanyahu, with so much far-right representation therein. The Saudis may well assess that they stand a chance of a much better deal with the next US administration, and without the Netanyahu obstacle.</p> - -<p><em><strong>JE:</strong> So, for Riyadh, the factors are pretty clear. When it comes to the Israelis, would normalisation be a proverbial “win”?</em></p> - -<p><strong>HH:</strong> When it comes to the Israelis, any normalisation with any Arab state is a win. If it were to be achieved with Saudi Arabia, this would be a massive win, as far as the Israelis are concerned – the Israeli prime minister sent no less than his close advisor and minister for strategic affairs to Washington mainly for the purpose of working on such a deal.</p> - -<p><strong><em><code class="highlighter-rouge">There might be a great deal of activity and shuttle diplomacy underway – but sometimes, even if there is a “will”, there isn’t always a “way”</code></em></strong></p> - -<p>Although the calculus seems to be a bit oddly placed, the assumption appears to be that because Mecca and Medina are in Saudi Arabia, normalisation with Riyadh would suddenly fling open the doors to the entire Muslim world. But Riyadh is not the Vatican, and this is not the 12th century when the Catholic papacy was at its strongest point of power. Riyadh’s foreign policy changes in the past have not made a massive difference to most Muslim states, beyond the GCC; one can see, for example, how Saudi allies in different parts of Asia still developed and maintained links with Tehran at the height of Saudi-Iranian tensions.</p> - -<p><em><strong>JE:</strong> So, what would normalisation achieve, in that case?</em></p> - -<p><strong>HH:</strong> What is true is that those states which want to normalise would have more to work with in terms of arguing the case domestically for normalisation, especially if they can find dividends, at least with their own stakeholders and constituents. But the Palestinian issue is still a pretty live one – even if symbolically – in a lot of the Muslim world, and if it is not addressed in some way, most states that don’t already want relations to be developed are unlikely to change their minds. It would represent a cost in terms of their own domestic politics, and would not provide sufficient payoffs. Indeed, the Biden administration has already told the Israelis that any successful deal with Riyadh would have to include some kind of concessions with regards to the Palestinians. So, if the Israelis are imagining a massive change in their political positioning in the Muslim world, they probably ought to consider the main reasons why normalisation has escaped them for so long.</p> - -<p><em><strong>JE:</strong> That all accounts for the Saudis and the Israelis. But as we’ve already seen, this is a tripartite issue. What is the situation in Washington?</em></p> - -<p><strong>HH:</strong> Well, the Israelis aren’t exactly doing wonders with the Biden administration at the moment more generally, including on the normalisation file. Washington was not impressed by Israel’s publicising of the Libyan-Israeli track, and made it clear as such, and the Biden administration was direct about the need for Netanyahu’s government to make some kind of concessions vis-à-vis the Palestinians in order to get a deal with Saudi Arabia, which has already been rejected by Israel’s far-right finance minister; not to mention that Netanyahu is asking for more security arrangements between the US and Israel.</p> - -<p>Moreover, there is a lot of concern in Washington about the nature of Israeli democracy itself (and the much more widespread accusation that Israel is guilty of apartheid against the Palestinians); writ large, the Israelis aren’t making a deal any easier to come by.</p> - -<p>Nevertheless, in the Beltway, with all its policy establishments – governmental and otherwise – Israeli normalisation is a bipartisan issue, there is massive support for it as a principle across the aisle. Indeed, the Abraham Accords were met with huge exuberance and enthusiasm, which perhaps explains why there has been a lot of media reportage that seems incredibly keen to put the best possible face on the likelihood of Saudi-Israeli normalisation.</p> - -<p>But wishful thinking is not sufficient. As mentioned above, security guarantees for other countries are not the easiest things to get through the Senate, and Saudi Arabia seems to have made it clear that this is what would get a deal across the finish line. And the media coverage that seemed to indicate there was an imminent deal in the offing provoked, rather uncharacteristically for Washington, a pretty blunt and public put-down by the administration, saying that no framework had been agreed upon.</p> - -<p>Yes, the administration wants it – that is clear, and it has expended a lot of energy and visits from US officials to investigate the potential for a deal, as well as engaging with Israeli officials on the subject. It was also reported that Biden may engage in bilateral personal meetings with MBS this month at the G20, and with Netanyahu in the US, to discuss possibilities.</p> - -<p>But the administration also knows that in a few months, its bandwidth will be focused on the election cycle and domestic considerations, and it is equally aware that Saudi Arabia is not about to give Biden a massive foreign policy “win” without something equally massive in return. There might be a great deal of activity and shuttle diplomacy underway – but sometimes, even if there is a “will”, there isn’t always a “way”.</p> - -<p>It might well be that the Saudis and Israelis normalise in our lifetimes – but probably not in 2023.</p> - -<hr /> - -<p><strong>H.A. Hellyer</strong> is the Senior Associate Fellow of RUSI. Specialising in geopolitics, security studies, political economy, and belief, he has more than 20 years of experience in governmental, corporate advisory, and academic environments in Europe, USA, the Middle East, and Southeast Asia.</p>H A HellyerJonathan Eyal interviews Senior Associate Fellow, H A Hellyer, about the Saudi-Israeli normalisation.Stormbreak Through Frontline2023-09-04T12:00:00+08:002023-09-04T12:00:00+08:00https://agorahub.github.io/pen0/hkers/stormbreak-through-frontline<p><em>Russian defences and military adaptations pose challenges for Ukraine’s 2023 offensive.</em></p> - -<excerpt /> - -<p>Irrespective of the progress made during Ukraine’s counteroffensive, subsequent offensives will be necessary to achieve the liberation of Ukrainian territory. It is therefore important to assess the tactics employed and training provided during the Ukrainian offensive to inform force generation over the coming months. This report scrutinises tactical actions to identify challenges that need solving.</p> - -<p>The prerequisite condition for any offensive action is fires dominance. This has been achieved through blinding the counterbattery capability of Russian guns and the availability of precise and long-range artillery systems. Ensuring the sustainability of this advantage by properly resourcing ammunition production and spares for a consolidated artillery park is critical.</p> - -<p>Ukraine is suffering from heavy rates of equipment loss, but the design of armoured fighting vehicles supplied by its international partners is preventing this from converting into a high number of killed personnel. It is vital that Ukrainian protected mobility fleets can be recovered, repaired and sustained. This also demands a focus on industrial capacity and fleet consolidation.</p> - -<p>Attempts at rapid breakthrough have resulted in an unsustainable rate of equipment loss. Deliberately planned tactical actions have seen Ukrainian forces take Russian positions with small numbers of casualties. However, this approach is slow, with approximately 700–1,200 metres of progress every five days, allowing Russian forces to reset. One key limitation on the ability to exploit or maintain momentum is mine reconnaissance in depth. The exploration of technological tools for conducting standoff mine reconnaissance would be of considerable benefit to Ukrainian units.</p> - -<p>Another limiting factor in Ukrainian tactical operations is staff capacity at battalion and brigade level. Training of staff would significantly assist Ukrainian forces. This will only be helpful, however, if training is built around the tools and structure that Ukraine employs, rather than teaching NATO methods that are designed for differently configured forces. There is also a critical requirement to refine collective training provided to Ukrainian units outside Ukraine so that Ukrainian units can train in a manner closer to how they fight. This requires regulatory adjustment to allow for the combination of tools that are highly restricted on many European training areas.</p> - -<p>Russian forces have continued to adapt their methods. Some of these adaptations are context specific, such as the increased density of minefields, from a doctrinal assumption of 120 metres to a practical aim to make them 500 metres deep. Other adaptations are systemic and will likely have a sustained impact on Russian doctrine and capability development. The foremost of these is the dispersal of electronic warfare systems rather than their concentration on major platforms, a shift to application-based command and control tools that are agnostic of bearer, and a transition to a dependence on more precise fires owing to the recognised inability to achieve the previously doctrinally mandated weight of imprecise fire given the threat to the logistics sustaining Russian guns. It is vital that Ukraine’s partners assist the country’s preparations for winter fighting, and subsequent campaign seasons now, if initiative is to be retained into 2024.</p> - -<h3 id="introduction">Introduction</h3> - -<p>Russian forces suffered major setbacks in autumn 2022 with the collapse of the Western Group of Forces in Kharkiv and a compelled withdrawal from Kherson. In response to these setbacks, General Sergei Surovikin, then commanding Russian forces in Ukraine, adopted a new strategy. First, Russia would use long-range precision strikes to wage an attritional campaign against Ukraine’s electricity and reticulation infrastructure with the aim of making Ukraine’s cities uninhabitable during the winter. Second, the Armed Forces of the Russian Federation would build a series of defence lines across the occupied territories in a bid to blunt further Ukrainian advances and protract the conflict by exhausting Ukrainian troops. The extensive preparation for defensive operations – compared with the aggressive war aims of the Kremlin – contributed to Surovikin being removed in January, with General Valery Gerasimov, Chief of the Russian General Staff, launching an ill-prepared and costly series of offensive thrusts in January 2023. Nevertheless, the defence lines were completed, and Russia has been able to fall back on these defences after the failure of its offensive actions. The Surovikin Line now poses a major barrier to Ukrainian troops seeking to liberate the occupied territories.</p> - -<p>During the preparation of Ukraine’s offensive, various concepts of operation were examined. Much of the data supporting the tactics that Ukraine’s international partners sought to train Ukrainian forces to adopt was based on operational analysis from the 20th century that did not contend with a range of technologies employed in Ukraine. Understanding how effective these tactics have been, therefore, is important for refining both the tactics of Ukraine’s international partners, and improving the training provided to Ukrainian forces for subsequent operations. This report seeks to explore a set of tactical actions fought by the Ukrainian military in the opening phases of the counteroffensive and how both Ukrainian and Russian sides have refined their approach in response.</p> - -<p>The overall plan for the offensive is highly sensitive. Detailed accounts of aggregate losses and other data are also sensitive because they would provide Russia with information about the extent to which they have written down Ukrainian units. Therefore, instead of trying to summarise progress throughout the offensive, this report presents a case study of a series of tactical actions, fought over a two-week period over the villages of Novodarivka and Rivnopil, straddling the border between Donetsk and Zaporizhzhia oblasts. The series of tactical actions is chosen because it is representative of wider trends, and informative as to how Russian forces manage different tactical challenges, and the various approaches employed by Ukrainian troops. The overview is based on accounts of the operations by participants, captured documents from Russian command posts, open-source material including satellite imagery of the engagements, and a review of non-public videos of the relevant tactical actions. This report was presented to the Armed Forces of Ukraine (AFU) prior to publication to ensure that its release would not compromise any ongoing operations or tactics. The report remains solely the work of the authors named.</p> - -<h3 id="i-taking-novodarivka-and-rivnopil">I. Taking Novodarivka and Rivnopil</h3> - -<p>The line of contact between Ukrainian and Russian forces along the boundary between Zaporizhzhia and Donetsk oblasts had been relatively static over the months preceding Ukraine’s offensive. Russian offensive operations in early 2023 had focused on Vulhedar, some 40–50 kilometres to the east, and Bakhmut. Ukrainian troops remained dug into tree lines around a kilometre to the north of Novodarivka, around the village of Novopil. A brigade of the Ukrainian Territorial Defence Forces (TDF) had been holding the line for some time, reinforced in May by a mechanised brigade and another line brigade in anticipation of the offensive. The mechanised brigade would spearhead the breakthrough. The Russians had a company in Novodarivka and another in Rivnopil, with a third holding a series of fighting positions between the two settlements. Behind this were additional reserves including armour. The approaches to the settlements were heavily mined. To begin advancing south towards the Surovikin Line, Ukrainian forces needed to break through these villages, and thereafter through Priyutne, approximately 6 kilometres to the south.</p> - -<p><img src="https://i.imgur.com/ED4mL1C.png" alt="image01" /> -<em>▲ <strong>Figure 1: Russian Brigade Map of Force Laydown and Assessed Ukrainian Positions as of 10 April 2023.</strong> Source: Captured by Ukrainian forces during fighting in June 2023.</em></p> - -<p><img src="https://i.imgur.com/M81kQPc.png" alt="image02" /> -<em>▲ <strong>Figure 2: Recreated Map of Russian Positions at Novodarivka and Rivnopil.</strong> Source: Map captured by Ukrainian forces during fighting in June 2023; Maxar Technologies.</em></p> - -<p>The Ukrainian offensive began in late May with a protracted period of preparatory artillery fires. For the Rivnopil sector, batteries of M777 155-mm howitzers had been assigned to support the effort, setting up their firing positions to the northwest. Usually, Ukrainian howitzers would have to displace 2–15 minutes from opening fire, depending on their distance from different threat systems. This time it was clear that Ukrainian intelligence had accurately marked down Russian firing positions, and with the greater range afforded by 155-mm guns, the Ukrainian gunners quickly caused Russian artillery to be pulled back. Since the targets in this phase were largely in the close, the Ukrainian artillery established a steady rhythm of strikes with little need to displace. There was a sense of elation among the crews and the infantry watching the fire. For months each gun was strictly limited in the number of rounds available. Ukraine had been trying to conserve its ammunition to stockpile for the offensive. Now there was freedom to fire and when calls for resupply were made, additional rounds were promptly delivered.</p> - -<p>The Ukrainians also worked to degrade Russian tactical reserves using UAVs. Reconnaissance by day would locate Russian positions, which would be attacked at night using converted agricultural UAVs dropping RPGs. These tactics were fairly binary in their viability. If Russian electronic warfare (EW) was active, the UAVs could not get in and usually were not committed. If there was a relaxation in electronic protection, the effects could be dramatic. In one incident, a company of Russian tanks had taken up position in a woodblock behind the front. Five UAVs, each carrying four RPGs, were dispatched, destroying or seriously damaging seven of the tanks, although all of the UAVs were lost in the process.</p> - -<p>The decision to attempt a breach of the initial Russian fighting positions was taken on the evening of 3 June, with mechanised troops assigned the task. There was a debate within the command group over the bogginess of the ground after recent rainfall. Nevertheless, the decision was to proceed. The initial attack was to aim to breach an area where the minefields were less dense, because of the short distance between the lines, and to break into the village of Novodarivka. The village had been almost entirely destroyed by Russian shelling when originally taken and was now simply a set of fighting positions for a Russian infantry company. Long and thin, running east to west, the village provided the Russians with covered positions that overlooked most approaches to their company positions to the east and west.</p> - -<p>After identifying the points for the breach, the offensive started early in the morning of 4 June. Two UR-77 Meteorit charges were fired across the narrowest part of the minefield, blowing two 6-metre-wide channels from the treeline to the north to the edge of Novodarivka. Under covering fire from artillery, the first column advanced along the eastern breach. The column was led by a pair of tanks, followed by MaxxPro MRAPs carrying the infantry. Unfortunately, the MRAPs struggled in the boggy ground, especially in the wake of the tanks. Several of the MRAPs bogged in, while the cleared lane was insufficiently wide for other vehicles to pass. It was at this point, with the column fully committed to the breach, that a pair of Russian tanks unmasked and began to engage the column. The Ukrainian tanks fired back at a range of around 800 metres. Nevertheless, the vehicles in the column were knocked out in succession. Infantry disembarking either turned back, or pressed forwards along the cleared lane, trying to find shelter. Some infantry sections made it to the edge of the village, but the open ground behind them, now scoured by fire, was perilous to traverse, risking this force’s isolation. Too small to take the village, the Ukrainian military now had to press ahead or risk the destruction of the platoon that had made it to Novodarivka. The threat to those suppressed in the minefield eased after SPG-9 recoilless guns managed to engage the Russian tanks from the flank, knocking them out. This allowed casualties to be extracted.</p> - -<p>The commitment of the second company to the western breach was necessitated both by the requirement to make progress against the objective and to reinforce the troops in Novodarivka. The ground proved firmer along this lane. However, when the column was fully committed to the breach, two more Russian tanks emerged, moving at pace towards the column and firing. Via UAV feeds, the command post watched the emergence of the enemy, and fires were brought down to try and disrupt the action. Exposed, the breaching company attempted to accelerate through the breach, but deviated from course. All vehicles in the company were then immobilised by mine strike in succession. Russian fires then began to range on the column. The dismounts once again bifurcated, some reaching the outskirts of the village and others withdrawing.</p> - -<p><img src="https://i.imgur.com/VrSqAvs.png" alt="image03" /> -<em>▲ <strong>Figure 3: Assault and Aftermath of the Breach of Novodarivka.</strong> Source: Planet Labs.</em></p> - -<p><img src="https://i.imgur.com/67T457q.png" alt="image04" /> -<em>▲ <strong>Figure 4: Assault and Aftermath of the Breach of Novodarivka.</strong> Source: Maxar Technologies, 6 June 2023.</em></p> - -<p>The Russian defenders inside the village displaced to account for the positions that had now been occupied, falling back to strongpoints in a farm to the east of the village, and to several fighting positions along the central road. Recognising the importance of expanding the ground held to disperse the force from Russian fires, the Ukrainian commander deployed two assault groups to reinforce. One group in platoon strength worked its way along the breach, using the immobilised vehicles as cover, while fires suppressed the Russian positions. Another platoon situated to the west noted that a fold of dead ground had become viable as the repositioning of Russian forces in the village removed it from view, while dense foliage prevented overhead observation by UAS. These troops advanced cautiously to the western end of Novodarivka and began to assault Russian positions to secure the crossroads that bifurcated the settlement. After some fierce fighting, the Russian troops withdrew eastwards to prevent their positions from becoming isolated. Fighting inside Novodarivka would continue for a further week with Russian firing positions in the eastern farmstead holding out until isolated by another Ukrainian action towards Rivnopil. Despite the Russians holding some positions, these no longer overlooked the approaches to other Russian units, opening up additional avenues of attack. The first new position to be assaulted was the elevated ground to the west of Novodarivka. Previously, Russian positions in the settlement had denied the approaches to the hill, but with these firing posts removed, Ukrainian infantry were able to contest the position from which Russian artillery spotters had previously directed fire against Ukrainian troops.</p> - -<p><img src="https://i.imgur.com/Qu0NWIZ.png" alt="image05" /> -<em>▲ <strong>Figure 5: Advance on Novodarivka.</strong> Source: Maxar Technologies, Telegram, RUSI.</em></p> - -<p><img src="https://i.imgur.com/ByLS1TJ.png" alt="image06" /> -<em>▲ <strong>Figure 6: Advance on Novodarivka.</strong> Source: Maxar Technologies, Telegram, RUSI.</em></p> - -<p>Before any further advances could be taken, it was necessary to deal with the Russian company in front of the village of Rivnopil to the east. This position controlled access to a series of woodblocks that ran semi-contiguously north to south. Ukrainian commanders were concerned that if they attempted to press ahead, Russian anti-tank guided weapons (ATGW) teams and other troops would work their way around the flank and cause significant damage to critical equipment. The position therefore needed to be taken. At the same time, however, Ukrainian commanders were wary. They had lost two companies of equipment to take Novodarivka. Such a loss rate was not sustainable if they were to eventually breach the Surovikin Line. It was therefore essential that the assault on the Rivnopil positions was accomplished without similar setbacks.</p> - -<p>The attack on the Russian company position in front of Rivnopil would be led by TDF troops. In order to carry out the operation, the attacking force was augmented with two tanks from a neighbouring brigade and a battery of artillery. The attack began with artillery preparation of the Russian lines. Thereafter, the two tanks moved into positions where they had line of sight to the objective and began to deliver fire. The tanks, moving in and out of cover, engaged the Russian firing positions to draw the attention of and suppress the defenders. Shortly thereafter, artillery strikes on the fighting positions were combined with the delivery of smoke in front of the tanks. The tanks worked forwards, giving the impression that smoke was being used to cover the advance of infantry.</p> - -<p>While the tanks fixed the attention of the defence, a platoon multiple of Ukrainian assault troops moved along the treeline to the east of the Russian fighting positions. From there, it began to lay down suppressing fire and advance in pairs. The action drew the attention of the defence, which now recognised a clear tactical play, with a fixing action to its front, and a major assault about to be launched against its flank. The Russian unit began to reposition to prepare for this attack and attempted to win the firefight to the east. Reinforcing the perception that it was about to be assaulted, the Ukrainian artillery then delivered a heavy salvo against the positions, signposting an imminent assault.</p> - -<p>The assault when it came did not materialise as the Russian defenders had envisaged. Instead, a platoon of assault troops, having infiltrated forwards along the western flank of the position then advanced rapidly, reaching the defensive positions that had been thinned out in anticipation of the assault to the east. Disorientated and fearing encirclement, the Russian troops began to withdraw towards Rivnopil, abandoning their communications equipment, and leaving five troops behind who were taken prisoner. Ukrainian forces had to exploit the attack quickly, advancing beyond the company position, because its coordinates were pre-registered with Russian artillery which delivered strikes on the trenches. Nevertheless, the rapid collapse of this position forced a redistribution of forces in Rivnopil itself, allowing another brigade to launch an attack on the village and, over several days, drive the Russians to fall back to the tree lines beyond the village. Eventually, Russian troops withdrew across a water obstacle behind the village and blew several agricultural dams to flood the area, establishing a string of ATGW firing posts in the tree lines beyond. The density of the ATGW screen was significant, with approximately four launchers per treeline with 50 missiles. These ATGW teams allow advances to be made past them and then conduct anti-tank ambushes from the flank before attempting to withdraw. They therefore had to be cleared deliberately before any armour could be pushed forwards. With only one obstacle-crossing vehicle available, the Ukrainian units had to pause to consolidate their gains.</p> - -<p><img src="https://i.imgur.com/BGdchQT.png" alt="image07" /> -<em>▲ <strong>Figure 7: Positions In Front of Rivnopil.</strong> Source: Maxar Technologies, June 2023; Planet Labs.</em></p> - -<p>The capture of Novodarivka and Rivnopil took two weeks, with the need to secure flank positions being a prerequisite to further advances. Thus, the rate of advance during this period was one tactical advance for three days of fighting, with each advance moving the line of control approximately 700–1,200 metres forwards. The difference in methods for the various advances produced starkly contrasting results in terms of the level of expenditure for the gains made. Whereas the first tactical advance against Novodarivka cost two companies worth of equipment, losses throughout the attack on Rivnopil were light. Both Russian and Ukrainian forces made adaptations to their methods after these initial exchanges. The emphasis for Ukrainian troops moved to taking ground while conserving equipment and personnel.</p> - -<h3 id="ii-russian-lessons-and-adaptation">II. Russian Lessons and Adaptation</h3> - -<p>The tactical actions around Novodarivka and Rivnopil were largely seen as successes by Russian forces insofar as they inflicted sufficient equipment losses in the early phases so as to degrade the reach of Ukrainian manoeuvre units assuming a consistent rate of loss through the depth of Russia’s defensive positions. At the same time Russian losses in artillery and tanks were high, with the former being more concerning for the Russian command. Russian troop losses, while acceptable for the 58th Combined Arms Army as regards the level of attrition inflicted, were nevertheless unsustainable in the context of a protracted assault unless reinforcement was delivered. In short, Russia achieved tactical success in preventing a breakthrough, and could achieve operational success if it continued to inflict comparable equipment loss on the enemy. Attrition of personnel, however, if it remained consistent into the autumn, posed a risk of operational defeat, while loss of artillery systems threatened a reduction in capacity to attrit Ukrainian troops. Given this dynamic, several adaptations were made to Russian defensive operations.</p> - -<p>The first adaptation was to increase the depth of minefields. Russian minefields had been doctrinally set down as 120-metres deep prior to the offensive. Following the early clashes, it was noted that this depth of mines was breachable by MICLIC and UR-77 to a sufficient depth to enable infantry to get into Russian defensive positions. The aim, therefore, has been to increase the depth of minefields to up to 500 metres, well beyond any rapid breaching capability. This has had a series of secondary implications. First, the Russian logistics systems were organised to equip brigades with sufficient mines to comply with doctrinal templates. The increased depth of the fields means that Russian forces have had insufficient mines to consistently meet this lay down with a density of mines consistent with doctrine. The result has been improvisation of explosive devices, the diversification of the range of mines ceded, and the decreasing regularity of minefields. Other common adaptations have included the laying of two anti-tank mines together – one atop the other – compensating for reduced density by ensuring that vehicles are immobilised by single mine-strikes, even when vehicles are equipped with dozer blades. Prior to this it was not unusual for a tank equipped with a dozer blade to survive three mine strikes before being immobilised by the fourth. Although the consistency of the minefields is now diminished, this has significantly complicated Ukrainian planning and minefield reconnaissance.</p> - -<p>Russian forces have also assessed that the practice of setting pre-registered fires to engage their own positions once they are lost is inefficient and dangerous when the enemy has an artillery advantage in terms of counterbattery detection, range and accuracy. The problems with this method have included the exposure of friendly guns, reduced effectiveness because of the Ukrainian tendency to displace from the fighting positions as soon as possible, and a dependency on communications. To solve these problems the Russians have resorted to preparing their fighting positions for reserve demolition. This is often done with improvised charges. The template is to detonate the first line once Ukrainian troops enter the fighting positions, while Russian forces withdraw through the rear of the trenches. The Russians assess this to be more responsive and assured than the application of artillery fire, and to threaten the boldest and most capable assault troops in Ukrainian formations, deterring attacks on firing posts.</p> - -<p>If the increased complexity and extent of the minefields imposes constraints on adversary tempo, and reserve demolition of fighting positions deters the rapid clearing of positions, this fixing of the enemy requires that the Russians have a means to inflict damage on advancing troops. Artillery remains the primary method, but with fewer guns and a requirement to protect them, there is now a greater emphasis placed on other means. One of the foremost methods adopted by the AFRF is the emplacement of ATGW teams to the flanks of their positions, prioritising better trained and motivated troops to conduct anti-tank ambushes. Although there are limited personnel capable and willing to fight forward in this way, there appears to be no shortage of Russian ATGWs, with Ukrainian troops noting that these teams are well stocked with recently manufactured munitions. These troops are also prioritised for directing fire from standoff aviation.</p> - -<p>The use of attack aviation has posed a consistent challenge for Ukrainian forces throughout the counteroffensive. The foremost threat comes from Ka-52 Alligators firing Vikhr and Ataka ATGMs. However, the Russians have also begun mounting Ataka on Mi-35Ms, which also engage in area-effect strikes utilising salvos of lofted S-8 rockets. Aviation strikes are launched from a depth of approximately 8–10 kilometres from the target. Ukrainian forces note that the presence of attack aviation is often heralded by the lifting of GPS jamming among Russian formations, reflecting the need for precise navigation in order to coordinate strikes, given that both armies are using many of the same platforms. Russian helicopter groups are also often flying with an EW-equipped helicopter for defensive purposes, equipped with directional pods aimed at targeting radar. The Russians are having to keep helicopters relatively close to the front, making their forward arming and refuelling points and other infrastructure vulnerable. Nevertheless, shortage of Ukrainian tactical air defence, the low altitude maintained by these assets, and the limited period during which they are in the hover to deliver effects all make countering attack aviation difficult.</p> - -<p>The Russian military has also determined to tactically exploit opportunities when Ukrainian forces have become bogged down by aggressive flanking with armour to knock out Ukrainian systems. It is worth noting that Russia often loses the tanks used for these counterattacks but they inflict disproportionate damage because the mines constrain Ukrainian vehicles in their ability to manoeuvre or respond. This willingness to counterattack and a decision to defend forwards highlight how training for Russian tank crews and other specialisms has continued to function, generating new crews with some tactical competence compared with the disruption in collective training that has hampered Russian infantry.</p> - -<p>There are also areas of adaptation that reflect a significant improvement in practice and are not specific to the current context. One area of continued Russian adaptation but also improvement is EW. Russian EW has been a major area of investment and Russian EW operators tend to be technically competent. Nevertheless, Russian EW platforms have largely comprised modernised versions of Soviet equipment, which placed each type of effector on a single large platform, with formations of platforms providing a range of EW effects. The vulnerability of this approach has been recognised by the AFRF given the targeting of specific emitters. This has, in the first instance, led to the much more subtle employment of large platforms such as Zhitel R330-Zh. It has also driven a preference for the mounting of antenna on light platforms, or the dismounting and distribution of antenna that can be placed to cover tactical positions. The channelling of effects through antenna can therefore be carried out by EW suites that are not tied to the emitting signature. The loss of antenna when they are targeted is a cost that the Russian military feels it can bear. This is a transition in progress and so is not a uniform approach. Nevertheless, the preference to use systems such as Pole-21 and to treat them as disposable systems in order to provide wide-area protection from UAV strikes reflects a change in mindset, and how the Russian EW branch is learning from the conflict.</p> - -<p>Another interesting area of conceptual innovation – underway before Ukraine’s offensive but accelerated by the dynamics at play today – is a transition of Russian fires doctrine. Based on statistics gathered during the Second World War, Russian artillery had established levels of fire that were assessed to deliver specified effects against defined targets. For example, 720 rounds were assessed to be necessary to achieve the suppression of a platoon fighting position. This is the basis on which Russian fires operated in the opening phases of their invasion of Ukraine. It is an approach that the Russians now assess to be non-viable. First, the Russian forces lack the ammunition to sustain this volume of fire. Second, the logistics enabling such a volume of fire is too vulnerable to detection and long-range precision strike. Third, the loss of counterbattery radar and barrel wear have meant that this mass approach to fire suppression is of diminishing effectiveness.</p> - -<p>The general conclusion that Russian fires doctrine is non-viable has caused a doubling down on the concept of the Reconnaissance Fires Complex (RFC) with effect being prioritised over volume. While manufacture of a range of Russian munitions has become constrained, production of Krasnopol 152-mm laser-guided shells has been prioritised, with newly manufactured shells being widely available across the front. The use of UAVs to designate for Krasnopol has also been increased. Lancet has also been used extensively, along with FPV UAVs, to strike lead elements of Ukrainian units. Flown in complexes with ISR UAVs, these effects provide precision. The Russian military is, of course, continuing to rely heavily on MLRS, 120-mm mortars and other imprecise systems, while corner-cutting in the production of its munitions is becoming apparent. Nevertheless, the trend appears to be towards maximising accuracy and reducing the number of rounds necessary to achieve the desired outcome rather than resorting to saturation fire. This is a concerning trend, as over time it will likely significantly improve Russian artillery. The growth in the complexity, diversity and density of Russian UAVs is concerning. The gains in both effect of the warhead and the economy of its design between Lancet-3 and Lancet-3M demonstrate how the Russians are actively improving their fielded equipment. Modifications to loitering munitions to achieve noise reduction on Shahed-136 and to harden navigation are also notable. Here, it is clear that the AFRF are actively learning from Ukrainian forces, and in doing so, reducing the extent of some Ukrainian advantages.</p> - -<p>Enabling the RFC depends on communications. Here too, the Russian military is making important progress. At the beginning of the full-scale invasion, Russian forces depended heavily on bespoke military radios. In the scramble for equipment late last year, a wide array of civilian systems was employed. Conceptually, however, the Russians now appear to have moved on, increasingly relying on military bearer networks but app-based services for encoding and accessing data. The result is that a system such as Strelets can provide a 3G connection to multiple devices operating applications that are intuitive for civilian users. This separation of bearers and services is nascent and the security and robustness of the systems being tested must be doubted. Nevertheless, the reduced training burden of this approach and the improvements in fire direction already achieved mean that the AFRF are likely to continue to push in this direction and increasingly systematise their communications architecture around these methods.</p> - -<h3 id="iii-ukrainian-challenges-and-requirements">III. Ukrainian Challenges and Requirements</h3> - -<p>Ukrainian adaptation to overcome these challenges is sensitive. Instead, therefore, this report will outline several areas of persistent challenge that Ukraine’s international partners could focus on to refine the support they offer to the AFU. Given the trajectory of the offensive it is now clear that major ground combat operations will continue in 2024 and so improving support to Ukraine’s force generation process now is critical.</p> - -<p>Insofar as Ukrainian forces have been able to make progress during the offensive it has been dependent on fires superiority. Outranging the Russians, combined with having better means for detecting enemy artillery and carrying out counterbattery fires, is an essential Ukrainian advantage. This advantage is limited in its duration by the serviceability of Ukrainian artillery pieces, the availability of replacement barrels, and the continued supply of 155-mm ammunition. With 17 artillery systems in operation, it is evident that replacement barrels cannot be produced for all systems, because of the shortage of barrel machines across NATO. It is therefore vital that Ukraine’s international partners invest to ensure that there is a sustainable supply for a consolidated artillery park, focusing on maintaining a more limited range of guns at greater scale. If this is not achieved, it will undermine the preconditions for Ukraine to continue to make progress next year. The protection of guns from Lancet-3M and other loitering munitions is also becoming a critical priority and research into methods of force protection should be accelerated.</p> - -<p>The importance of sustaining combat platforms provided by Ukraine’s international partners is also important for protected mobility. There is a diverse range of vehicles that have been donated, from MRAPs to IFVs. Some are no longer in production, while others are still in widespread service. Ukrainian troops note that Western-provided platforms are vastly superior to their Soviet-legacy protected mobility platforms for one fundamental reason: crew survivability. Whereas for a Soviet mechanised section, its BMP was its primary weapons system, and so Soviet planners treated as synonymous the loss of the BMP with the loss of the section, Western armies treat mechanisation as an addition to basic infanteering. Protected mobility is aimed at delivering infantry to their objective, which the infantry then assault. This difference in mindset, combined with a different approach to losses, means that there is a heavy emphasis in Western platforms on the survivability of dismounts even if the vehicle is mission killed. By contrast with Soviet-legacy platforms, the compromise of the vehicle’s armour is also usually catastrophic for those inside it. Life support systems are a secondary consideration. Given that Russia has greater mass than Ukraine, the accumulation of experience and longevity of troops is strategically vital for the AFU. But while Western-supplied protected mobility may be doing a good job at enabling their dismounts to survive – as demonstrated by the infantry still making it to Novodarivka despite their vehicles falling victim to mines and enemy fires – there is still a high loss rate of platforms. These platforms are often mobility killed rather than destroyed. But rebuilding them demands a consistent provision of spare parts. That is challenging for vehicles that are no longer in production. Again, therefore, Ukraine’s international partners need to ensure that the industrial support is available to make the Ukrainian military sustainable.</p> - -<p>The depth of exploitation of the conditions created by fires superiority is significantly limited by the capacity for minefield reconnaissance. At present, Ukrainian operations are inherently limited in their tempo by the fact that as Russian minelaying becomes less and less uniform and omnipresent, it is necessary to thoroughly recce ahead of any major push lest equipment loss becomes unacceptable. This cannot be carried out in depth and often relies on dismounted engineers. It is therefore very difficult to plan operations beyond the defences immediately in front of Ukrainian positions, meaning that breaches forwards are difficult to exploit. A note of caution is that because of the deviation from doctrine, minefields differ in their actual contours from what is shown on Russian plans. Assistance, therefore, should focus on equipment and techniques for detecting mines. One critical area that could assist is the use of algorithmic image analysis that could be conducted using UAVs to map minefields more quickly.</p> - -<p>Planning remains a significant challenge for Ukrainian units because of the limited availability of trained staff officers. The rapid expansion of the AFU with the mobilisation of civilians means that there are many more units than staffs. Although brigades have technical specialists able to run the communications and support systems they need, and often have skilled commanders, planning shops and experienced G3 staff are scarce. This limits the scale at which brigades can combine arms, especially during offensive operations where planning times are compressed. This was an area of support identified as a requirement as early as June 2022 but Ukraine’s partners have not effectively provided it. It is vital that any staff training that is offered is not premised on putting Ukrainian staff through academic courses aimed at creating NATO staff officers. A relatively small number of staff applying NATO processes will have to revert to the mean once they are back in Ukraine and working with the bulk of a staff who has not received training on the same procedures. Instead, training should be based on observation of how Ukrainian brigade staffs operate and the tools they depend on and then offering training on techniques that maximise the efficiency of how those staffs function within this context. The training must be bespoke. Ideally, it would be of a whole staff. It must also accurately represent the communications and ISR tools employed by Ukrainian brigades.</p> - -<p>Another area of critical priority is training junior leaders to conduct tactical battle drills. Again, attrition and the expansion of the Ukrainian military mean that junior leaders with deep expertise in offensive operations are not universally available across Ukraine’s formations. This manifests in referring of combat management to higher echelons, where there are more experienced officers. This drives the continuation of combat management at higher echelon and limits mission command. Additional pressure is placed on the brigade, limiting the scale and complexity at which it can operate. This was demonstrated during the attack on Rivnopil. Only 3% of Ukrainian artillery-fire missions are smoke missions. As demonstrated during the assault on the company position north of Rivnopil, smoke can be extremely useful in confusing the enemy ground force and obscuring assault actions. But smoke also has the effect of obscuring the view from UAVs which higher Ukrainian echelons and command posts use to coordinate activity and conduct combat management. Commanders persistently prioritise maintaining their own understanding of the battlefield over laying down smoke and concealing their personnel’s movements. Given the criticality of rapid application of artillery to support movement, this prioritisation is understandable, but it also reflects limitations in the ability of the brigade to trust tactical commanders to execute actions when not directed by high headquarters with greater situational awareness. Given the saturation of the headquarters that results, it is vital to train junior leaders, in combination with expanding staff capacity.</p> - -<p>Another area where training needs to be refined is in gearing the support provided outside Ukraine with the AFU’s training structure inside Ukraine. At present, individual training conducted outside of Ukraine builds upwards from individual skills. There is not enough time in the course to move on to collective training at the company, while the safety cases on Western ranges require certification of individual skills before more complex activities can be trained. This approach to safety may make sense in peacetime for Western armies. For Ukraine, it simply transfers risk from training to operations. The reality is that individual training can be delivered by the AFU in Ukraine. What cannot easily be delivered is collective training. This is because the AFU does collective training “in the unit”. Soldiers who are certified in their individual skills by training centres are assigned to units and it is up to the brigade commander to carry out training activities. If a brigade is fighting a sector of the front, it must establish a training area behind the frontline and rotate troops back to exercise. This limits the scale of training to company-sized activities at maximum, with the level of training undertaken entirely dependent on the intensity of operational activity at the front. This approach to force generation means that most Ukrainian battalions are generating approximately two platoons of troops which are considered fully capable of leading assault actions. While the rest of the battalion provides reinforcement, and the ability to hold ground, the size at which formations can conduct offensive action is severely constrained.</p> - -<p>Collective training outside Ukraine is hampered by the fact that because of the safety culture in NATO, Ukrainian troops cannot train as they fight. Moreover, many NATO tactics either require a level of training that is not feasible within the timeframe available, or are not validated in the modern threat environment. A good example here is that Ukrainian training emphasises the threat from artillery even when teaching squad tactics. For Western armies that build skills incrementally, artillery is introduced into training after basic infantry tactics are mastered. More complex training involving artillery cannot be conducted until troops are certified in their basic skills to be able to exercise safely. For Ukraine, however, troops who are not prepared to deal with artillery are not prepared for the fight. Another example is the shaping effect of UAVs. Most NATO training areas are severely restricted in the types of UAVs that can be flown and how they can be used. This is because of fears that UAVs will malfunction and fly into controlled airspace, such as the area around civilian airports. The problem is that for collective training above company, Ukrainian troops need to be prepared for and practise tactics in an environment where there are up to 25 UAVs observing their movements, while UAVs are also critical to their own combat management. Thus, on partner training grounds where they could conduct collective training that is hard to carry out in Ukraine, they are prevented by regulation from either actually practising and refining their own command and control procedures, or exercising tactics that realistically represent the threat. This gearing of training to meet Ukraine’s needs is critical if future rounds of mobilised Ukrainian troops are to be properly prepared to continue the liberation of their territory.</p> - -<h3 id="conclusion">Conclusion</h3> - -<p>Operational analysis of tactical actions during Ukraine’s summer offensive reveals a range of important areas where Ukraine’s international partners can refine their support. Improvements in international training and other assistance will not have an impact on the current offensive. They will be critical however for Ukraine next year in its next round of force generation. Confidence that forces can be regenerated and that equipment can be repaired and sustained is also important for the AFU in shaping its planning for the current phases of operations. Delays in improvements to training or the industrial investment in making Ukrainian capabilities sustainable will similarly not have an immediate effect, but will impose a considerable cost on Ukraine next year. Some of the challenges currently limiting Ukrainian operations are a direct consequence of the failure to address identified requirements with sufficient alacrity in 2022.</p> - -<p>It is also important to recognise that Russian forces are fighting more competently and with reasonable tenacity in the defence. Although they are losing ground, Russian forces are largely conducting orderly withdrawals from positions and are effectively slowing down and thereby managing Ukrainian advances while imposing a considerable cost in equipment. Another important point is that scarcity of systems that Russia had previously depended on to offer advantages are causing significant adaptation in the Russian armed forces and some of the solutions arrived at are likely to be continued and built on after the war. Most consequential of these are the move to application-based command and control services, agnostic of military bearers, and the shift in fires to emphasise effect for rounds fired rather than volume of rounds delivered on the enemy.</p> - -<p>The Ukrainian military has learned from initial setbacks during its summer offensive. Even if a rapid breakthrough has proven difficult, the attrition being afflicted on Russian forces will see a degradation in the defence over time, and once a critical mass of losses is reached, that degradation may become non-linear. Given that it is unlikely, however, that this offensive will deliver a decisive liberation of ground, both Russia and Ukraine now face the question of how to regenerate combat power for the next round of fighting, into 2024 and beyond. For Russia, mobilising people is simple, but providing trainers and equipment for them remains a bottleneck. The conditions under which mobilisation is conducted are also constrained by Russian political considerations. Although it would make most sense to mobilise personnel before they are needed, Moscow consistently defers taking critical decisions until there is an immediate need. For Ukraine, there is first the question of how to retain as much of its experienced forces as possible, and second how to expand the scale at which its forces can operate by working with its international partners to improve collective training. Whether Ukraine’s partners can overcome their habitual sluggishness in doing what they have identified as necessary will be critical in determining whether Ukraine can maintain the initiative into the next fighting season in 2024.</p> - -<p>Given the lead-times involved, one question that should dominate the thinking of Ukraine’s international partners today is the dynamics of winter warfare. Last year, Russia prepared its troops poorly for winter conditions and suffered disproportionately as a result. Ukraine’s current offensive operations are likely to continue into the autumn, but the question should be asked whether actions can be taken now to maintain the pressure through the winter. It is highly likely that Russia will hope that the winter will cause Ukraine to pause its offensive efforts, while Moscow will likely return to the attempted destruction of energy and reticulation infrastructure across Ukraine. It is now clear that the conflict will protract. It is therefore important that Ukraine’s international partners invest now to give Ukraine protracted advantages. Failure to make timely adjustment to support will come at a heavy price in 2024.</p> - -<hr /> - -<p><strong>Jack Watling</strong> is Senior Research Fellow for Land Warfare at the Royal United Services Institute. Jack works closely with the British military on the development of concepts of operation, assessments of the future operating environment, and conducts operational analysis of contemporary conflicts.</p> - -<p><strong>Nick Reynolds</strong> is the Research Fellow for Land Warfare at RUSI. His research interests include land power, wargaming and simulation. Prior to joining RUSI he worked for Constellis.</p>Jack Watling and Nick ReynoldsRussian defences and military adaptations pose challenges for Ukraine’s 2023 offensive.Adversarial AI2023-09-04T12:00:00+08:002023-09-04T12:00:00+08:00https://agorahub.github.io/pen0/hkers/adversarial-ai<p><em>This article explores developments in adversarial artificial intelligence (AAI) and machine learning, examining recent research, practical realities for the deployment of adversarial attacks, and the pursuit of secure and robust AI.</em></p> - -<excerpt /> - -<h4 id="invisible-to-the-digital-eye">Invisible to the digital eye</h4> - -<p>In an underground command centre, an intelligence analyst sits at a computer terminal. The analyst is presented with a series of aerial photographs taken by uncrewed air systems and satellites of potential targets – ammunition dumps, vehicle parks, and defensive positions. Due to the huge volume of imagery and videos being produced by the suite of aerial sensors, target recognition software sifts through the millions of frames searching for objects of potential interest. The software has been trained to identify armoured vehicles, aircraft, and command posts. The analyst then works through the pile of indications and passes them to targeting specialists to decide on further action. However, the software fails to flag a squadron of enemy fighter aircraft sitting on a rural airfield, which continue to target friendly troops and destroy vehicles and equipment. Coloured patches designed to trick target recognition software and present false negatives have been attached to the jets. Consequently, they are not flagged to the analyst and remain hidden among the noise of the gigabytes of aerial footage. This is one potential threat which is raised by the spectre of adversarial AI.</p> - -<p>AI systems are becoming increasingly critical assets in commerce, transportation, and the military. As the role of military AI increases to manage ever-growing volumes of data, a potential vulnerability presents itself. Instead of targeting physical infrastructure with missiles and bombs, it is possible to attack the algorithms, machine learning models and networks which support the military decision-making process.</p> - -<h3 id="ai-security-concerns">AI security concerns</h3> - -<p>Adversarial attacks are a class of techniques that analyse the parameters of a machine learning model (such as a neural network) to calculate a series of changes to an input that causes a misclassification.</p> - -<p>In other words, they are attacks which are designed to lead the model to make a mistake. Some have argued that the secret to winning the AI war might rest not in making the most impressive weapons but in “mastering the disquieting treachery of the software.” The proliferation of defence and security AI use cases has garnered much more attention than the potential vulnerabilities in the software. Developers are prioritising getting their AI systems to work in the first place, with security and adversarial activity taking a back seat. This is not an advisable strategy.</p> - -<p>Adversarial AI was first discussed and identified as a threat in 2004. At this time, the focus was not on the defence or security realm, but the more innocuous subject of email spam. In this case, a machine learning algorithm was pitted against a spam filter and was able to learn how to write spam emails which would get through the filter by using identified “good words.”</p> - -<p>The first conference on AI security followed in 2007. There was a dearth of activity between 2008 and 2014 with a spike of research papers published on the subject, ostensibly because of the first successful attacks on deep learning algorithms. Since 2015, research into adversarial AI has risen substantially, with more than 1000 papers published in 2019 and more than 1500 published in 2020. Multiple papers are being published almost every day on the subject.</p> - -<p>In the worst cases, AI systems may be tricked into targeting the wrong people, or causing uncrewed systems to malfunction and stop dead in their tracks. More widely, artificial intelligence is being used for administrative and organisational tasks within the national security apparatus as well as in cyber security. These are all areas where if a machine learning model learns the wrong thing, does the wrong thing, or reveals the wrong thing, there may be very damaging consequences.</p> - -<h3 id="attack-vectors">Attack vectors</h3> - -<p>AI systems that process images are the most commonly attacked, although others such as speech recognition, malware detection, and sentiment analysis have also been victim.</p> - -<p>There are several ways machine learning models can be attacked. These attacks may be designed with intimate knowledge of a system, which are known as white-box attacks. Attacks designed without knowledge of the internal workings of the systems are black-box attacks.</p> - -<h4 id="poisoning">Poisoning</h4> - -<p>Poisoning attacks see intentionally malicious training data fed into machine learning models ahead of deployment. Only a very small amount of data needs to be affected to influence the whole model, making this a significant threat. An example of poisoning would be mislabelling a series of harmful images as benign whilst adding a physical identifier such as a small red square in one corner.The model then learns that images with a red square are safe, and they will make it through the filter even if they are not safe.</p> - -<h4 id="evasion">Evasion</h4> - -<p>Evasion attacks are similar to poisoning attacks but take place after deployment at test time. Neural networks have been shown time and again to be easily fooled by changes to images that are often imperceptible to the human eye, but will mean that the AI system classifies objects incorrectly. This may be changing a few pixels in an image resulting in a system classifying a cat as a dog. In a defence context, an armoured vehicle being classified as a civilian car, or vice versa, may have catastrophic ramifications if a targeting decision is made without meaningful human input. Another well-known example is researchers at McAfee putting a small sticker on a 35mph speed limit sign which tricked a Tesla into believing the limit was 85mph and accelerating to 50mph above the speed limit. A similar experiment where two bits of tape were put onto a stop sign led the autonomous driving software to read it as a 45mph road sign instead.</p> - -<h4 id="extraction-and-inference-attacks">Extraction and inference attacks</h4> - -<p>Extraction attacks seek to replicate a machine learning model by feeding it inputs and logging the outputs. In other words, malicious queries will be used to expose details of the model’s internal details. Attackers may be targeting the model itself, or the data on which it has been trained – allowing sensitive information to be extracted. In the case of businesses this may be proprietary information and in the security sphere, it may be classified or otherwise sensitive information. Successful extraction attacks may then lead to carefully crafted evasion attacks, moving from a black box to a white box scenario.</p> - -<h3 id="how-worried-should-we-be">How worried should we be?</h3> - -<p>There has been increasing focus on the subject of adversarial AI with many publications highlighting particular vulnerabilities with machine vision, large language models, and neural networks.</p> - -<p>However, the move from laboratory setting to deploying AAI in the real world (especially a battlefield) is very difficult. Most research to date on the topic of adversarial camouflage, such as the colourful patches mentioned in the introductory vignette, has taken place in a sterile environment. AI has been fed static images with the patches pasted on top – they have not been placed on real aircraft and tested, as the authors themselves admit. Patches would need to be effective whilst the airborne sensor flies all the way over, which means it gets a view of the target at numerous angles.</p> - -<p>Real world research has been more problematic, for both “friendly” and “enemy” forces. Some image recognition models failed when presented with a desert environment. Equally, the altitude and standoff distance of the sensor and the size of the target vehicle in the camera’s aperture also affected how effective adversarial patches were. One experiment found that even with adversarial patches woven into camouflage paint, AI models would be able to correctly identify a mobile vehicle every 3.3 seconds in full-motion video, enough to track it accurately. Indeed, the same research concluded that the adversary would need to print or paint adversarial patches the size of football fields to be truly deceptive, which limits the tactic to stationary high-value targets.</p> - -<p>Models can be tricked by feeding them minutely perturbed static images and audio, but this becomes much more difficult in the real world where changing perspectives and different types of noise make it difficult to keep up a ruse. It is not practical for an adversary to inject noise directly into a sensor. Indeed, adversarial attacks appear to be much more suited to disguising a static object, rather than one that is moving, like a person.</p> - -<p>The development of adversarial examples requires overcoming several other challenges. There is difficulty in developing a generalisable model that will work on numerous vectors. It is not economical to make bespoke solutions every single time, unless a target is particularly valuable. Controlling the size of perturbations can be difficult as it is not known how large the aperture is. If the perturbation is too small it will not work, and if it is too large it may get spotted. Nevertheless, these adversarial examples could present a significant vulnerability to future AI systems.</p> - -<h3 id="lack-of-focus-and-regulation">Lack of focus and regulation</h3> - -<p>AI developers are striving to get their models to simply work, with little consideration for the robustness of the model.</p> - -<p>Moreover, there are no agreed standards for the robustness or security of machine learning models. There are several private endeavours such as the Microsoft and Mitre Adversarial ML Threat Matrix and the “Cleverhans” Python library on GitHub used to benchmark the robustness of ML models.</p> - -<p>Looking to the future, agreed standards and regulations for AI security will help shape the research field, allow best practices to be shared, and give users peace of mind and trust in the systems. The UK Government’s AI White Paper notes the importance of systems functioning in a robust and secure way throughout their lifecycle. The International Organisation for Standardisation is also developing a series of standards for the safety, transparency, and robustness of ML models. The UK’s National Cyber Security Centre has also published guidance on the security of ML, offering a number of principles for practitioners, decision makers and IT security professionals. In the US, the Defense Advanced Research Projects Agency (DARPA) created the Guaranteeing AI Robustness against Deception (GARD) programme which aims to create broad-based defences that work against numerous attack vectors. Previous defences were designed for specific, pre-defined attacks which limits their efficacy.</p> - -<h3 id="what-can-be-done">What can be done?</h3> - -<p>How might governments and militaries look to prevent adversarial attacks and mitigate their effects should they take place?</p> - -<p>In traditional cybersecurity, vulnerabilities can be patched and continue to be used by customers. This approach does not work for machine learning models. If a model is poisoned, it will have to be retrained from an earlier untainted version which can be very costly. Equally, hosting the model on an encrypted cloud is no use if the model has been poisoned during development.</p> - -<p>Adversarial robustness is the term used to describe a model’s ability to resist being tricked or exploited. When models move from using training data to new data, the model’s performance can change. As such, exposing models to adversarial examples when they are being developed can allow them to be strengthened against such attacks. One difficulty is trying to conceive of every different type of attack. AI models are coded by humans who define their parameters. If the attack is something that has not been foreseen, the ML model will struggle to reconcile this with what it knows.</p> - -<p>Training data might also be sanitised. Ensuring that the collection and labelling of data is thorough and accurate is a way to prevent the insertion of poisoned data. However, many larger models rely on massive scale data scraping from the internet. Ensuring that models contain no bad data is a huge ask and may undermine the point of training the model in the first place if it becomes a very human-centric and analogue endeavour. In some cases, another AI system might be used as a filter. Moreover, extensive testing on a series of discrete datasets can help make a model more robust.</p> - -<p>The resource cost of attacks should also be considered. A white box attack is less costly for an adversary than a black box attack. Without prior knowledge of the system, an adversary must develop its own version of the model which takes time, effort, and money. Time conducting reconnaissance on another party’s model also increases the chance of such efforts being noticed, which will cause a defensive reaction. However, it is likely that the adversary will be part way between the two. There is value in trying to make attacks uneconomical to the adversary, by denying them information about systems. Actively looking for adversarial attacks by monitoring models for failure patterns can also be a productive route.</p> - -<p>Importantly, research has found that there is no defence that cannot be overcome by a specialised attack. The field is moving quickly so keeping abreast of developments is important and will give situational awareness to developers and users. However, adversarial attacks are inherently brittle and appropriate pre-processing and well-designed models can effectively mitigate most effects. A growing library of resources to counter adversarial attacks can be found on GitHub. The Alan Turing Institute has also published guidance on responsible design for AI systems in the public sector which remains relevant.</p> - -<h3 id="moving-forward">Moving forward</h3> - -<p>There is still time to address the risks posed by adversarial AI. As is often the case, most progress is being made in the private sector, but it is government who will need to legislate or mandate appropriate standards – in close partnership with industry and academia. Defence and security professionals should be alive to the threats posed by adversarial AI, and the responsibility of mitigating those risks should not rest with developers alone.</p> - -<hr /> - -<p><strong>Patrick Hinton</strong> was the Chief of the General Staff’s Visiting Fellow in the Military Sciences Research Group at RUSI until the end of August 2023. He is a serving regular officer in the British Army’s Royal Artillery. He has experience working with ground based air defence systems and remotely piloted air systems. He has also worked in the personnel space. Since joining the Army in 2014, his career has consisted of a number of appointments at regimental duty including Troop Command, Executive Officer, and Adjutant.</p>Patrick HintonThis article explores developments in adversarial artificial intelligence (AAI) and machine learning, examining recent research, practical realities for the deployment of adversarial attacks, and the pursuit of secure and robust AI.Navigate Risks Of AI2023-08-31T12:00:00+08:002023-08-31T12:00:00+08:00https://agorahub.github.io/pen0/hkers/navigate-risks-of-ai<p><em>Artificial intelligence (AI) is the most recent dilemma confronting the news industry, particularly following the public research release of ChatGPT in December 2022.</em> <excerpt></excerpt> <em>A few outlets like BuzzFeed, News Corps Australia, and G/O Media quickly moved to incorporate generative AI into their content production. In early 2023, BuzzFeed rolled out ChatGPT-fueled quizzes, travel articles, and a recipe recommendation chatbot named Botatouille. Many others are scoping longer-term strategies, like the Washington Post, which announced the creation of two internal teams in May 2023 to explore future uses for AI. Writers, on the other hand, have generally been more cautious: both the Writers Guild of America, East and the Gizmodo Media Group Union condemned G/O Media in July 2023 for publishing AI-generated articles without first consulting editorial staffers, warning “unreliable AI programs notorious for creating falsehoods and plagiarizing the work of real writers” were “an existential threat to journalism.”</em></p> - -<p>Some AI developers are attempting to get ahead of the controversy by framing their chatbots as value-added features for the news industry — in other words, helpers, not displacers, of human journalists. Over the past few months, Google has reportedly met with both national and local news outlets to pitch Genesis, a generative AI chatbot that can draft headlines, social media posts, and articles, framed as a productivity booster. In July 2023, OpenAI partnered with the American Journalism Project to provide $5 million in direct grants to enable local newsrooms to test-drive AI. The same month, it struck an agreement with the Associated Press to access archived articles through 1985 to train large language models (LLMs) in exchange for both licensing fees and experimental use of OpenAI software. But these limited partnerships gloss over technology’s strained history with newsrooms, one where most journalists have received no compensation for the use of their work to train algorithms even as digital ad-tech monopolies have contributed to their long-term decline in marketing revenue.</p> - -<p>A common refrain has been that newsrooms must evolve to accommodate technological advancements, but this characterization is neither accurate nor fair. Even publishers that have adapted to the whims of powerful technology corporations have faced repercussions for doing so. For example, some digital news outlets redesigned their distribution strategies to capitalize on social media’s peak growth in the early 2010s, allowing individual users to view and share article links on decentralized channels in exchange for a steady stream of clicks. BuzzFeed, which initially gained traction through social media virality instead of traditional print subscriptions, epitomized this novel business model. But when Facebook unilaterally modified its content ranking algorithm in January 2018 to prioritize advertiser and connection-based engagement, which reduced visibility to external news websites, early movers like BuzzFeed were hit the hardest. BuzzFeed abruptly closed its Pulitzer-winning news division in April 2023 citing revenue shortfalls, while outlets like the New York Times, which had diversified its income stream with traditional subscriptions, were less vulnerable to opaque decisions by large technology companies.</p> - -<p>The sustainability of news cannot fall on publishers alone; large digital platforms must share responsibility to understand and address their sizable impacts on society. Yet search engine and social media companies operate with relatively few U.S. legal requirements to build fairness and transparency into algorithms, protect sensitive personal information when serving personalized advertisements, engage in ad-tech practices that promote fair competition with news publishers, and mitigate the spread of harmful content online. Without bright-line U.S. regulations for technology companies, the recent acceleration in AI adoption presents at least four major risks that could severely undermine both news availability and public access to information in the long term.</p> - -<p><strong><em><code class="highlighter-rouge">The sustainability of news cannot fall on publishers alone; large digital platforms must share responsibility to understand and address their sizable impacts on society.</code></em></strong></p> - -<h4 id="1-search-engines-may-adopt-ai-to-answer-user-queries-which-would-significantly-decrease-web-traffic-to-external-news-websites">(1) Search engines may adopt AI to answer user queries, which would significantly decrease web traffic to external news websites.</h4> - -<p>Newspapers are in a reciprocal but largely unequal relationship with search engines. Google, which controls approximately 92 percent of the search engine market worldwide, sends news websites approximately 24 billion views per month. This may account for over one-third of publishers’ online traffic, which is a critical metric for digital advertisements. Shortly after the research release of ChatGPT, Google and Microsoft both announced plans to harness generative AI to directly answer user queries in the form of paragraphs. Unlike the current version of ChatGPT, which is not connected to the internet and only reflects historical training data prior to 2021, Microsoft’s Bing (which incorporates ChatGPT) and Google’s Bard both intend to derive responses from real-time data across the internet ecosystem, which could enable them to analyze breaking news. In this manner, LLMs could increase the gatekeeper power of dominant search engines that aim to maximize user engagement or screen time on their platforms.</p> - -<p>Should LLMs direct fewer readers to click through Google to external websites, digital news organizations risk losing a major source of online visibility, audience engagement, and advertising revenue. Going forward, if news publishers cannot reliably count on search engine traffic in the long term, websites may increasingly depend on paywalls to draw revenue independent of large technology corporations. In 2019, 76 percent of U.S. newspapers employed paywalls, compared to 60 percent in 2017. Many substantially hiked subscription rates during this time frame as their advertising revenues simultaneously faltered. Paid subscriptions can help some news organizations build around loyal reader bases, especially if their content is specialized or exclusive. But the subscription pot is not large enough to sustain all publications, and smaller or more niche publications are disproportionately more likely to fold.</p> - -<p>There are also negative societal externalities to walling off access to accurate and relevant information on topics including climate change, public health, and civil rights. Stephen Bates, a professor at the University of Nevada, Las Vegas, warns that the rising prevalence of paywalls could create “income rather than geographic news deserts.” In other words, individuals who cannot afford multiple newspaper subscriptions may be more likely to believe misinformation and lower-quality content — whether human- or AI-generated — that they view on social media or search engines for free. In a more fragmented internet, people are more likely to exist within their ideological bubbles, as chatbots cannot offer diverse perspectives like a human journalist can. Social media algorithms, which typically recommend or promote content based on past browsing activity or personal interests, further reinforce echo chambers based on user engagement and not the common good.</p> - -<h4 id="2-social-media-platforms-are-using-ai-to-automatically-rank-posts-which-enables-the-mass-de-prioritization-of-legitimate-news-outlets-in-favor-of-fake-spammy-or-manipulative-user-uploaded-content">(2) Social media platforms are using AI to automatically rank posts, which enables the mass de-prioritization of legitimate news outlets in favor of fake, spammy, or manipulative user-uploaded content.</h4> - -<p>Prior to the internet age, news outlets controlled public attention in centralized destinations, effectively serving as the primary window for mass audiences to understand current events. But social media platforms democratized publishing in the past two decades by allowing anyone to gain international virality, transforming content-ranking algorithms into the new gatekeepers of attention and relevance. Newspapers face legal liability for publishing defamatory or false claims, but social media platforms generally do not. Section 230 of the Communications Decency Act allows “online computer services” immunity over most types of content that third-party users upload. Subsequently, many social media platforms employ AI recommendation systems that automatically rank content based on users’ predicted interests or personal connections, with the goal of maximizing screen time instead of collective public knowledge.</p> - -<p>When Facebook chose to algorithmically de-prioritize public news content in January 2018, external news websites lost visitors. Within six months of that algorithmic change, BuzzFeed’s traffic decreased by 13 percent and ABC News’s by 12 percent, according to the analytics firm Comscore. The Pew Research Center found that only 31 percent of U.S. adults reported consuming news on Facebook by 2022, compared to 66 percent in 2016. Facebook’s power to singlehandedly decrease automated referrals to news websites, coupled with the platform’s first-ever decrease in U.S. users in 2022, had the indirect effect of deepening many publishers’ reliance on Google for web visitors and their ensuing digital advertising dollars. Furthermore, as Facebook whistleblower Frances Haugen revealed in 2021, the 2018 algorithmic policy shift may have harmed not only the bottom line of newspapers but also their perceived legitimacy within the social media ecosystem itself. In a leaked internal memo, company data scientists discovered the decision “had unhealthy side effects on important slices of public content, such as politics and news,” since the algorithm frequently ranked user-generated misinformation higher than trustworthy publisher-generated news.</p> - -<p>In addition to text, the widespread availability of generative AI tools allows any internet user to easily post doctored images, video, and audio online, which could facilitate the impersonation of newsrooms or even threaten the safety of individual journalists. In 2022, Graphika detected AI-generated videos on Facebook simulating a nonexistent news agency called Wolf News, which appeared to broadcast messaging supporting the Chinese Communist Party. In 2018, far-right groups spread deepfake pornography videos containing journalist Rana Ayyub’s manipulated image in retaliation for her investigative reporting, subjecting her to years-long harassment, doxxing, and death threats. There are no U.S. federal laws that specifically regulate deepfake AI technologies, so every social media platform, app store, search engine, and online forum treats this content differently. Meta’s policy is to remove synthetic media that “would likely mislead someone into thinking that a subject of the video said words that they did not” or that “merges, replaces, or superimposes content on a video, making it appear to be authentic.” However, the company exempts “parody or satire.” Furthermore, as deepfake imagery becomes more realistic and commonplace, synthetic media policies will likely become progressively difficult to enforce. Content detection algorithms must continuously advance, too; otherwise, the internet ecosystem may become a more perilous space for public-facing journalists, with audiences who are less receptive to the information they convey.</p> - -<h4 id="3-chatbots-cannot-perform-the-same-functions-as-a-human-journalist-but-news-executives-may-still-leverage-ai-to-streamline-operations-or-justify-workforce-reductions-in-the-short-term">(3) Chatbots cannot perform the same functions as a human journalist, but news executives may still leverage AI to streamline operations or justify workforce reductions in the short term.</h4> - -<p>At the moment, artificial general intelligence cannot match human writers and editors in technical capability. LLMs like ChatGPT are best equipped to automate specific functions like summarizing documents — but not advanced editorial skills like relationship building with sources, original analytical thinking, contextual understanding, or long-form creative writing. LLMs predict patterns and word associations based on their training datasets but, during large-scale deployments, are known to contain factual inaccuracies or even generate fake stories altogether. In February 2023, Penn State researchers also found that LLMs can spit out plagiarized text, whether by inadequately paraphrasing or copying training material verbatim. Such behavior is doubly problematic for some models, like ChatGPT, which do not attribute or cite sources by default. In addition, since many LLMs build upon text from online websites and forums — many of which have historically excluded or exhibited hostility toward individuals based on factors like gender identity, race, or sexual orientation — their automated outputs can reproduce broader societal biases.</p> - -<p><strong><em><code class="highlighter-rouge">The internet ecosystem may become a more perilous space for public-facing journalists, with audiences who are less receptive to the information they convey.</code></em></strong></p> - -<p>Despite these shortcomings, some corporate news executives may leverage LLMs to cut expenditures in the short term and not simply to boost productivity or create new value in the long term. When G/O Media, the parent company of Gizmodo and Deadspin, published AI-generated entertainment articles in July 2023, it attracted high public backlash over their many factual errors, lack of human editorial oversight, and overall substandard quality of writing. CNET paused its use of LLMs in January 2023 after a significant number of errors and plagiarized language were detected within its AI-generated articles, which the outlet admitted to having “quietly” published for months without clear disclosures. As historian David Walsh puts it, “The issue with AI is not that it will actually replace us, but that it will be used to justify catastrophic business decisions that will destroy entire industries precisely because AI cannot actually replace us.”</p> - -<p>In March 2023, OpenAI, OpenResearch, and University of Pennsylvania researchers estimated that LLMs could affect job functions for 80 percent of the U.S. workforce — with writers, reporters, and journalists among the most vulnerable. Moreover, MIT, London School of Economics, and Boston University researchers detected a negative correlation between AI adoption and job recruitment between 2010 and 2018: for every 1 percent increase in AI deployment, companies cut hiring by approximately 1 percent. It is hardly surprising that CNET staffers cited long-term uncertainty from AI as one reason for unionizing in May 2023 or that the Writers’ Guild of America (WGA) proposed banning AI in screenwriting and prohibiting creative material from training algorithms when striking the same month. (A later proposal from the WGA contemplated allowing studios to use AI to craft screenplays but with human employees retaining full economic residuals and credits.) The impact of AI on the workforce is not simply a long-term issue; many writers and journalists are already facing a significant amount of labor uncertainty.</p> - -<h4 id="4-generative-ai-can-increase-the-prevalence-of-spammy-or-false-content-online-which-obscures-legitimate-news-and-funnels-advertising-dollars-away-from-traditional-publishers">(4) Generative AI can increase the prevalence of spammy or false content online, which obscures legitimate news and funnels advertising dollars away from traditional publishers.</h4> - -<p>While present-day LLMs cannot compose original prose comparable to that of a highly skilled journalist, they are well suited to churning out low-cost, low-quality, and high-volume clickbait. While clickbait production does not help most traditional newsrooms, it benefits made-for-advertising (MFA) websites, which are spammy, traffic-driven sites designed solely to maximize page views and advertising dollars. As of August 2023, analytics firm NewsGuard discovered at least 437 websites that deployed generative AI to churn out large quantities of fictitious articles — many containing unsubstantiated conspiracy theories, unreliable medical advice, or fabricated product reviews. These sites draw clicks with headlines ranging from “Can lemon cure skin allergy?” to “I’m sorry for the confusion, as an AI language model I don’t have access to external information or news updates beyond my knowledge cutoff data. However, based on the given article title, an eye-catching news headline could be.”</p> - -<p><strong><em><code class="highlighter-rouge">The impact of AI on the workforce is not simply a long-term issue; many writers and journalists are already facing a significant amount of labor uncertainty.</code></em></strong></p> - -<p>MFA websites provide no material public benefits but, without proper safeguards, could create significant negative externalities in an AI era. LLMs are designed to generate outcomes at scale — a perfect fit for content farms whose sole purpose is search engine optimization (SEO) through nonsensical keywords, summarized or verbatim text from news sources, and highly repetitive spam. These articles often list fake authors or anonymous bylines and appear to lack human oversight. The rising prevalence of AI-generated spam could decrease public trust and understanding of critical current events, especially if it distorts the market for real news and obscures legitimate newsrooms as centralized sources of information. It will become exponentially harder for human journalists to disseminate trustworthy information when the internet ecosystem is stuffed with bots.</p> - -<p>Content farms divert more than user attention away from legitimate news websites; they also cost valuable digital advertising dollars. The AI-generated websites that NewsGuard detected were stuffed with programmatic advertisements, including from major brands like Subaru and Citigroup — almost all of which were automatically routed through Google’s Ad Exchange. Google Ads maintains policies against servicing “spammy automatically-generated content” but does not publicly reveal the results of its placement algorithm or content review outcomes. In June 2023, an Adalytics study showed that Google frequently served video ads on lower-quality clickbait or junk websites without the awareness of its buy-side advertising clients. The same month, the Association of National Advertisers estimated that about $13 billion in digital advertising revenue is algorithmically funneled into clickbait MFA websites, which amounts to approximately 15 percent of the total $88 billion pie that marketers spend on automated ad exchanges every year. If not for the proliferation of AI-generated MFA content, those funds could otherwise provide a much-needed lifeline for legitimate news outlets.</p> - -<h3 id="analysis-of-policy-approaches">Analysis of Policy Approaches</h3> - -<p>A massive legislative push to compel large technology platforms that host news content to pay publishers is playing out all over the world. In June 2023, the Canadian Parliament enacted the Online News Act, which requires designated search engines and social media platforms to pay news publishers for any external article links or quotes their users view or share. Australia and the European Union respectively passed the News Media Bargaining Code (NMBC) and Copyright Directive in 2021, and legislators in Brazil, India, the United Kingdom, the United States, and California have either proposed or are actively considering similar measures.</p> - -<p>Canada’s parliamentary budget officer predicts that news organizations could share an additional $329 million in annual revenue after the Online News Act becomes effective. However, this figure is a small fraction of the estimated $4.9 billion that Canadian news outlets lost from 2010 to 2022, and it will never be realized if Google and Meta choose to boycott the law altogether. Just hours after the passage of the Online News Act, Meta announced plans to permanently shut down news access for Canadian users. Shortly after, Google stated it too would block all Canadian news links on its search engine. Their responses should not come as a surprise: directly prior to Australia’s passage of the NMBC in 2021, Meta abruptly cut off users from viewing news pages, and Google announced it might have “no real choice” but to withdraw search services within the country. Faced with those ultimatums, Australian lawmakers soon amended the NMBC’s final text in a manner that exempted Meta and Google from any binding actions. And after France began enforcing the Copyright Directive in 2021, Google throttled users from seeing article previews in France, which drastically decreased click-throughs. Their actions underscore the problem with forced negotiation: it is very difficult to enforce payment schemes when digital gatekeepers can simply choke off access to the news content internet users see.</p> - -<p>These legislative measures, sometimes referred to as “link taxes,” create the wrong incentives. In the past, they have discouraged Google and Meta from displaying news content on their platforms, which decreases critical streams of traffic to external news websites. In the future, such policies may even motivate search engines to accelerate the adoption of generative AI to answer user queries instead of displaying external links. Forced payment measures also seek to reinforce newspapers’ dependency on large technology companies, as they do not address the structural reasons for Google and Meta’s market dominance. For these reasons, U.S. technology companies need bright-line rules that meaningfully prevent harmful ad-tech, data collection, and AI practices. Such rules, in turn, can foster a healthier and more sustainable online environment in which newsrooms can evolve in the long term.</p> - -<h4 id="1-dominant-technology-platforms-need-clear-ex-ante-rules-to-prevent-anticompetitive-practices-that-reinforce-their-gatekeeper-power-over-news-publishers">(1) Dominant technology platforms need clear ex ante rules to prevent anticompetitive practices that reinforce their gatekeeper power over news publishers.</h4> - -<p>Two-party negotiations cannot work if the playing field is not level. Because Google and Meta have taken steps to lock in gatekeeper power over digital advertising and content distribution in recent years, they basically own the league newspapers operate in. For example, Google’s 2008 acquisition of DoubleClick enabled it to effectively monopolize all three stages of the ad-tech process: the buy-side advertiser network, sell-side publisher tools, and the ad exchange through which most news websites auction online advertising spots. In turn, market dominance enables the search giant to demand up to 35 percent of proceeds that would otherwise flow to publishers. It also provides Google with ample means to compel news websites to adopt Accelerated Mobile Pages formatting and control their ability to engage in header bidding, among other actions. Similarly, Meta also increased its gatekeeper power by acquiring nascent competitors like Instagram (2012) and WhatsApp (2014), which allowed it to combine user data across multiple subsidiaries to curate personalized advertisements much more granularly than traditional newspapers can.</p> - -<p>These behaviors have raised alarm bells in numerous jurisdictions. In June 2023, the European Commission filed a formal statement of objection to Google’s ad-tech practices, arguing that the company’s control over all stages of the digital advertising process allows it to illegally disadvantage website publishers. In January 2023, the U.S. Department of Justice similarly sued Google over alleged anticompetitive actions that distort free competition in the ad-tech space, seeking to split up its Ad Manager suite. In November 2021, the Federal Trade Commission (FTC) challenged Meta’s acquisitions of Instagram and WhatsApp, seeking a possible divestiture of both platforms. Also in 2021, an Australian Competition and Consumer Commission (ACCC) investigation found that Google had engaged in “systemic competition concerns” like blocking ad-tech competitors from placing ads on YouTube and other subsidiaries. Further, ACCC chair Rod Sims noted at the time, “Investigation and enforcement proceedings under general competition laws are not well suited to deal with these sorts of broad concerns, and can take too long if anti-competitive harm is to be prevented.” The ACCC report summarizes a widespread issue: enforcement actions occur after the fact and are not guaranteed to undo the years of consolidation that have helped Google and Meta lock in market power and divert advertising revenue from news organizations.</p> - -<p>Traditional antitrust law requires a modernized approach in the digital age — one that implements forward-looking guardrails to prevent dominant technology companies from harming nascent rivals, news publishers, and society at large. The European Union recently put new ex ante rules into place with its Digital Markets Act, which aims to prohibit gatekeeper technology platforms from abusing their control over multiple sides of a market. Members of the U.S. Congress have floated several bills containing similar proposals to limit practices like self-prioritization and acquisitions, but their momentum stalled following debates over their possible effects on malware prevention, content moderation, and other issues. In March 2023, Canada’s Competition Bureau put forward over 50 recommendations to modernize its antitrust legal framework, which has not undergone significant updates since the 1980s. Comprehensive antitrust reform is never quick or straightforward to implement, but it is essential to preventing anticompetitive acquisitions, growing news websites’ ad-tech options and revenue, and fostering a more diverse and sustainable news ecosystem overall.</p> - -<h4 id="2-both-technology-platforms-and-newsrooms-need-formal-guardrails-to-promote-ethics-fairness-and-transparency-in-any-development-and-deployment-of-ai">(2) Both technology platforms and newsrooms need formal guardrails to promote ethics, fairness, and transparency in any development and deployment of AI.</h4> - -<p>Approximately 100 million entities registered for ChatGPT within two months of its release, meaning numerous companies, including search engines and newsrooms, are deploying LLMs before direct legal safeguards are in place. The United States has existing federal and state privacy, copyright, consumer protection, and civil rights laws that apply to some aspects of the digital space, but there are broad legal uncertainties about how to interpret them in the context of generative AI (see sections 3 and 4).</p> - -<p>In July 2023, the White House announced voluntary commitments from OpenAI, Google, Meta, and four other AI developers to invest in algorithms to “address society’s greatest challenges” and create “robust technical mechanisms to ensure that users know when content is AI generated.” This announcement follows previous nonbinding strategies like the White House’s Blueprint for an AI Bill of Rights (2022) and the National Institute of Standards and Technology’s AI Risk Management Framework (2023), which both call upon companies to prioritize transparency, accountability, fairness, and privacy in AI development. Broad voluntary principles, like these, are the first steps in the absence of a mandatory legal framework that directly regulates generative AI, but LLM developers will need to take significant strides to meet them. For example, OpenAI released a tool in January 2023 to help identify AI-generated text but withdrew it six months later due to high error rates. Furthermore, generative AI as an industry largely continues to obscure how it collects data, assesses and mitigates risk, and promotes internal accountability.</p> - -<p>As politicians additionally debate mandatory safeguards to mitigate the risks of AI, it is important to consider how any forthcoming laws could better support journalism and trustworthy information-sharing online. In 2022, Congress introduced the draft American Data Privacy and Protection Act (ADPPA), which contains provisions for large companies to publicly explain how high-risk AI systems make decisions, incorporate training data, and generate output. In April 2023, the National Telecommunications and Information Administration at the Department of Commerce issued a request for comment on AI accountability measures like audits and certifications. Transparency measures, such as these, could help news readers evaluate the credibility and fairness of the AI-generated text they view. They could also assist marketers in contesting automated advertisement placement with MFA websites instead of traditional news publishers. Both internet users and news publishers could benefit from increased public visibility into all AI development, regardless of the algorithm’s perceived level of risk of any given algorithm, which could include high-level statistics into methodology, specific sources of training data, generalized outcomes, and error rates.</p> - -<p>In June 2023, the European Parliament passed the draft AI Act, which could require developers to proactively mitigate automated output that perpetuates existing societal inequities. Under the act, “general purpose” algorithms (which would likely include LLMs like ChatGPT) would be required to identify “reasonably foreseeable risks” in their design and test training datasets for bias. Furthermore, “high-risk systems” (which would include social media ranking algorithms with over 45 million users) would be subject to more intensive standards like human oversight, assessments of an algorithm’s potential impact in specific contexts, and documentation of training datasets. Going further, evaluations for high-risk AI use by large search engines and social media companies should also include their potential impacts on journalism and information-sharing, including the spread of harmful content or burying of legitimate news online.</p> - -<p><strong><em><code class="highlighter-rouge">As politicians additionally debate mandatory safeguards to mitigate the risks of AI, it is important to consider how any forthcoming laws could better support journalism and trustworthy information-sharing online.</code></em></strong></p> - -<p>While technology platforms need legal responsibilities to ensure fairness and accountability in AI development, any newsrooms that choose to deploy LLMs must also develop clear and transparent processes when doing so. Some news organizations have already published initial principles for generative AI. For example, the Guardian and the News/Media Alliance (NMA) both recommend public disclosures of any AI-generated output. The Guardian additionally pledges to retain human oversight over generative AI deployment, while the NMA also states that publishers who use LLMs should continue to bear responsibility for any false or discriminatory outcomes. However, there is a clear gap in the development and publication of formal standards: according to a May 2023 World Association of News Publishers survey, 49 percent of newsroom respondents had deployed LLMs, but only 20 percent had implemented formal guidelines. As a baseline, newsrooms need to identify clear purposes or contexts in which they might deploy LLMs, including conditions, safeguards, and limitations. Going further, newsrooms also need to strengthen labor protections for positions that AI deployment might substantially affect.</p> - -<h4 id="3-technology-platforms-should-recognize-the-ip-rights-of-news-outlets-and-human-creators-especially-when-using-copyrighted-articles-to-train-algorithms">(3) Technology platforms should recognize the IP rights of news outlets and human creators, especially when using copyrighted articles to train algorithms.</h4> - -<p>AI developers have trained LLMs by scraping billions of written articles, images, audio, and lines of software code from humans, typically without compensating, citing, obtaining permission from, or even informing the original creators. A wide range of professionals, ranging from the NMA to comedian Sarah Silverman to computer programmers, are asking — or, in some cases, suing — AI developers to pay their training data sources, stating their unlicensed use of content violates IP rights. Days after the Associated Press reached a licensing deal with OpenAI in July 2023, thousands of authors signed an open letter to urge LLM developers to both obtain consent from and compensate writers in order to scrape their work. In January 2023, a group of software developers sued OpenAI and GitHub for building the code-generating algorithm Copilot based on their licensed work. That same month, several artists filed a class action lawsuit against Stability AI, Midjourney, and DeviantArt for processing their copyrighted material to train algorithms that generated images in their unique styles. Shortly after, Getty Images sued Stability AI in the United Kingdom and the United States for training algorithms based on 12 million copyrighted images. In addition, the Daily Mail is reportedly considering legal action against Google for scraping hundreds of thousands of copyrighted articles to develop Bard without permission.</p> - -<p>These cases could take years to resolve in court, and their outcomes are uncertain. Generative AI has created novel questions over the interpretation of existing IP rights, particularly whether algorithms fall under the fair use exception in the Copyright Act. Although AI developers have acknowledged their history of scraping copyrighted material without consent, they have also argued that generative AI qualifies as fair use because the output is sufficiently “transformative” in nature compared to the original input. The plaintiffs in these lawsuits disagree, arguing that fair use does not protect the exploitation of copyrighted material in highly commercial contexts where AI developers benefit financially at the expense of human creators. Furthermore, generative AI tools reproduce copyrighted text or images in many cases, sometimes even quoting source text verbatim, which possibly contradicts the transformative use argument. Going forward, the definitions of “fair use” and “derivative works” will be critical for Congress or the courts to clarify to help writers and other content creators exercise their IP rights in the production of AI.</p> - -<p>But even if some copyright holders manage to successfully negotiate or sue for compensation from AI developers, one-time payments are a narrow solution that will not prevent more seismic long-term impacts on journalism and other professional careers. ChatGPT is estimated to require trillions of data points, while OpenAI is currently valued at up to $29 billion. In other words, the sheer scale of training datasets alone means that most creators will not receive substantial payments. Better-known creators might wield more power to negotiate payouts compared to smaller or lesser-known ones, but technology corporations would likely retain disproportionate power to decide. Moreover, the licensing agreements would likely be short term or otherwise limited, while the disruption to writers’ jobs and living wages would be permanent. Since algorithms continually generate inferences based on past outputs, it would be difficult, if not impossible, to engineer a long-term residual payment system that both quantifies the monetary value of original data points and tracks subsequent usage in perpetuity.</p> - -<p><strong><em><code class="highlighter-rouge">Generative AI has created novel questions over the interpretation of existing IP rights, particularly whether algorithms fall under the fair use exception in the Copyright Act.</code></em></strong></p> - -<p>Although copyright infringement lawsuits, if successful, are unlikely to lead to a long-term residual solution, they could drastically slow or even pause commercial sales of LLMs. Some image hosting websites, such as Getty Images, have already banned AI-generated images to prevent exposure to litigation. Stability AI, alternatively, has announced future plans to allow content creators to opt out of the processing of their work. In the case of generative AI, a more cautious and gradual pace of adoption could perhaps benefit the field in the long term. AI developers need time to devise creative ways to work collaboratively with copyright holders, increase the integrity of their training data, and mitigate the overall pitfalls of their algorithms on journalism. They should not commercially deploy these tools without a solid understanding of the legal and ethical IP risks they raise.</p> - -<h4 id="4-modernized-data-privacy-regulations-are-necessary-to-curb-surveillance-based-advertising-and-in-turn-return-some-market-power-from-large-technology-companies-to-news-publishers">(4) Modernized data privacy regulations are necessary to curb surveillance-based advertising and, in turn, return some market power from large technology companies to news publishers.</h4> - -<p>Because LLMs are built upon billions of news articles, social media posts, online forums, and other text-based conversations from across the web, they inevitably sweep up sensitive personal information. In turn, their automated outputs could reveal personal details related to specific individuals, whether accurate or fabricated, which carries privacy and reputational risks. In March 2023, the Italian Data Protection Authority temporarily banned ChatGPT from processing local users’ data but restored access weeks later after OpenAI agreed to allow EU individuals to exclude their personal information from training data sets and delete inaccuracies. In April 2023, the European Data Protection Board formed an ongoing task force to coordinate potential enforcement actions against ChatGPT amid investigations by data protection authorities in France, Spain, Germany, and other member countries. In May 2023, the Office of the Privacy Commissioner of Canada, along with three provincial authorities, opened probes into OpenAI’s collection, processing, and disclosure of personal information without sufficient consent, transparency, or accountability mechanisms.</p> - -<p>In July 2023, the FTC requested information on OpenAI’s training data sources, risk mitigation measures, and automated outputs that reveal details about specific people. However, the consumer protection agency primarily acts against companies that engage in “unfair or deceptive” practices, as the United States lacks a comprehensive federal privacy law that directly regulates how LLMs collect and process personal information. Dozens of privacy bills were introduced in the 116th and 117th Congresses that would have modernized U.S. privacy protections, most prominently the ADPPA in 2022, but none were enacted into law. Many of these proposals, including the ADPPA, shared a similar framework that would (a) allow individuals to access, modify, and delete personal information that companies hold; (b) restrict companies to processing personal information only as necessary to provide an initial service that users request; and (c) require minimum transparency standards in data usage.</p> - -<p>Most of these U.S. bills were introduced before the public release of ChatGPT and entirely exempted publicly available information — a significant omission that could allow many LLMs, which are often trained based on data scanned from public-facing web pages, to avoid any forthcoming privacy legal restrictions. Even so, systemic boundaries on how all technology platforms process even nonpublic personal information could still significantly help shift some digital advertising dollars away from Google and Meta and back to news websites. With a more limited capability to algorithmically track and microtarget ads based on individuals’ browsing behavior or other personal attributes, marketers might increasingly favor contextual ads based on the content of a webpage. In other words, marketers might place protein bar ads in the sports section of a local newspaper instead of targeting Facebook users who browse health-related posts, or they might place diaper ads in a parenting magazine instead of identifying shoppers between the ages of 25 and 45 who recently purchased a pregnancy test. Because contextual advertising does not depend on granular data analytics about individual website visitors, it can better support the news publishers that produce content instead of the social media platforms and search engines that track and distribute it.</p> - -<h4 id="5-large-technology-platforms-need-robust-content-moderation-policies-that-promote-a-safe-and-healthy-information-ecosystem-for-news-organizations-to-thrive-in">(5) Large technology platforms need robust content moderation policies that promote a safe and healthy information ecosystem for news organizations to thrive in.</h4> - -<p>Section 230 of the 1996 Communications Decency Act indirectly reinforces the gatekeeper power of large social media platforms and search engines. With the legal power to independently choose which content to promote, demote, host, or block, technology platforms exercise substantial control over the distribution and visibility of news content, even as they directly compete with external websites for traffic and screen time. Gatekeepers have economic incentives to keep users hooked on their platforms, which sometimes means algorithmically promoting scandalous or enraging clickbait that captures the most user attention while de-ranking news reporting that benefits the public interest. In turn, a higher influx of false or toxic posts simultaneously subjects journalists to increased hostility and impedes readers’ ability to parse online junk to identify real news.</p> - -<p>Despite legitimate concerns about Section 230, a complete repeal of the statute could negatively impact both the news industry and internet users. Section 230 protects the free exchange of information and allows technology platforms to host news content without fear of frivolous litigation from right-wing extremists. For example, it shields technology platforms that host news articles about abortion access, even as some states like Texas have tried to block people from obtaining reproductive health information in the aftermath of Dobbs v. Jackson Women’s Health Organization (2022). As seen from the unintended consequences of the Allow States and Victims to Fight Online Sex Trafficking Act (FOSTA), a Section 230 repeal would likely lead technology platforms to drastically reduce the availability of third-party content. In turn, journalists would likely lose social media users as a diverse resource for leads and article ideas. Independent or freelance journalists might have difficulty maintaining their online audiences or public brands, and smaller news start-ups could disproportionately struggle to get off the ground, especially if technology platforms face legal pressure to exclusively work with well-known incumbent entities.</p> - -<p>Instead, many researchers — including some news publishers — have supported middle-ground approaches to amend Section 230 or otherwise enact reasonable guardrails for technology platforms to address harmful or illegal content. The European Union will begin to enforce the Digital Services Act (DSA) in 2024, which could provide one possible model for the United States. The DSA requires technology platforms to adhere to minimum transparency standards like publishing content takedown statistics and explaining recommendation algorithms. Furthermore, it requires them to maintain user controls like opt-outs of personalized content ranking algorithms and notice-and-action systems to flag illegal material. The DSA prevents technology platforms from targeting paid advertisements based on a person’s sexual orientation or political affiliation and prohibits behavioral ads toward children, which could reduce their edge over newspapers in digital marketing. The law also requires larger digital platforms — including Facebook and Google — to assess the “systemic” and “societal or economic” risks of their services, share publicly available data with approved researchers, and allow external compliance audits. While the DSA is one of the first major laws to require external transparency and user controls over ranking algorithms, U.S. and global legislators have also proposed numerous other frameworks. Each raises its own set of debates, but it is important to weigh how any potential measure can better foster a healthy ecosystem for journalism to thrive in.</p> - -<h4 id="6-governments-should-promote-policies-that-recognize-the-value-of-journalism-as-a-public-good">(6) Governments should promote policies that recognize the value of journalism as a public good.</h4> - -<p>The news industry creates positive externalities that benefit far more than direct subscribers or readers. Newsrooms dedicate substantial resources to sourcing, fact-checking, and disseminating information in the public interest, and journalists serve as independent mechanisms to hold powerful institutions accountable. However, their immense societal value does not suit the system of free market capitalism in which it exists. Newsrooms earn income based on advertisements and subscriptions and not the public benefit of the information they communicate, leaving their overall bottom line vulnerable to ranking algorithms, reader or marketer demand, and even macroeconomic fluctuations. Some venture capitalist firms or wealthy individuals have attempted to invest in newsrooms, but their goals can be misaligned. Andreessen Horowitz invested $50 million in BuzzFeed News in 2014, but its constant pressure for perpetual growth, high returns, and profitability ultimately did not fit the company’s journalistic mission.</p> - -<p>Recognizing the civic value of journalism, some governments have considered direct or indirect public funding for journalism. In 2018, Canada established a pot of C$50 million (around $39 million) to support local newsrooms, dispensed by a third-party intermediary to preserve press independence from the government. However, public funding may not work in every country, especially given differing legal, cultural, and political norms around press independence. U.S. politicians have a particularly tumultuous relationship with both the mainstream media and technology companies, evident in their lackluster support for public news systems. The United States spent just $3.16 per capita on public broadcasting in 2019, barely a fraction of France’s $75.89, Australia’s $35.78, and Canada’s $26.51. As Politico’s Jack Shafer points out, even this sparse amount has been highly controversial: “Politicians — usually Republicans like President Donald Trump — routinely issue threats to defund NPR and PBS every time they object to the outlets’ coverage. Do we really want to make the print press beholden to such political whims?”</p> - -<p><strong><em><code class="highlighter-rouge">. . . journalists serve as independent mechanisms to hold powerful institutions accountable. However, their immense societal value does not suit the system of free market capitalism in which it exists.</code></em></strong></p> - -<p>Apart from public funding, governments could consider other avenues to help newspapers diversify revenue sources, which, in turn, could reduce reliance on volatile traffic streams. For example, both France and Canada offer tax credits to incentivize individuals to subscribe to newspapers, and Canada amended its tax laws in 2020 to permit newsrooms to seek charitable donations. U.S. legislators could take a similar route. Some pitched tax deductions for newspaper subscribers, advertisers, and employers in the Local Journalism Sustainability Act in 2020 and 2021, though these measures did not reach a vote. Congress could also consider mechanisms to help newsrooms function as nonprofit or hybrid organizations — for example, by changing rules that prevent nonprofit editorial boards from endorsing candidates. In March 2023, the nonprofit Texas Observer reversed its closure decision after crowdfunding over $300,000, demonstrating the potential for newsrooms to tap into alternative support like philanthropic donations or grants. That said, nonprofit status alone is not a one-track solution; there is a limited pool of foundation grants, and the relatively low rates of existing news subscribers suggest the onus cannot fall on grassroots donors to sustain the industry.</p> - -<h3 id="conclusion">Conclusion</h3> - -<p>As AI becomes more ubiquitous, the news industry will need to carve out space in a more crowded, more chaotic, and less original information ecosystem. The relationship between technology platforms and newsrooms will continue to evolve in both the short and long terms, but robust data governance frameworks are necessary now to support the financial viability of newspapers and cultivate a diverse and trustworthy online sphere. Large search engines and social media platforms need clear boundaries around their monetization of personal information to target advertisements, acquisitions of nascent competitors, exclusionary actions like self-prioritization, use of copyrighted material, and amplification or de-amplification of online traffic. In turn, both technology platforms and newsrooms require bright-line responsibilities to promote ethical and human-centered standards at every stage in the AI development and deployment process.</p> - -<p><strong><em><code class="highlighter-rouge">As AI becomes more ubiquitous, the news industry will need to carve out space in a more crowded, more chaotic, and less original information ecosystem.</code></em></strong></p> - -<p>These policies are not exhaustive. The long-term health and sustainability of the news industry will require more than technological solutions alone. Direct financial support for newsrooms is critical — whether through nonprofit models, direct or indirect government funding, or even nontraditional monetization methods. For example, some newsrooms have embraced side ventures like consulting or hosting events to raise income. But neither the production requirements nor the societal benefits of journalism alone can translate into dollars and cents. To succeed, news outlets also require a civically engaged society — one bound by critical thinking and collective interest in the community. In addition, corporate executives will need to urgently prioritize the input and well-being of human writers, including through job protections and union contracts, in order to sustain journalism as a stable and accessible career option. Ultimately, the actions that technology platforms, newsrooms, governments, and individuals take today will shape the long-term trajectory of the news industry.</p> - -<hr /> - -<p><strong>Caitlin Chin-Rothmann</strong> is a fellow at the Center for Strategic and International Studies (CSIS), where she researches the impact of technology on geopolitics and society. Her current research interests include the relationships between data brokers and government agencies, the evolution of news in a digital era, and the role of technology platforms in countering online harmful content.</p>Caitlin ChinArtificial intelligence (AI) is the most recent dilemma confronting the news industry, particularly following the public research release of ChatGPT in December 2022. \ No newline at end of file +<p><strong>Stephen Reimer</strong> is a Senior Research Fellow at RUSI’s Centre for Financial Crime &amp; Security Studies, where he specialises on countering the financing of terrorism and threat finance generally. His recent work has focused on self-activating terrorism finance in Europe, the national security threats posed by illicit finance, and assessing risk of terrorism financing abuse in the not-for-profit sector.</p>Stephen ReimerThis research briefing outlines major trends in the financial tradecraft of ISKP, how the branch factors into broader Islamic State financial networks, and how the group looks after its own financial needs. \ No newline at end of file diff --git a/hkers/2023-11-08-principles-for-uk-china-strategy.html b/hkers/2023-11-08-principles-for-uk-china-strategy.html new file mode 100644 index 00000000..23807f7d --- /dev/null +++ b/hkers/2023-11-08-principles-for-uk-china-strategy.html @@ -0,0 +1,207 @@ + + + + + + + + + + Principles For UK–CN Strategy · The Republic of Agora + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + +
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Principles For UK–CN Strategy

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Six Principles for a More Dynamic and Effective UK–China Strategy

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Andrew Cainey | 2023.11.08

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China poses an “epoch-defining and systemic challenge with implications for almost every area of government policy and the everyday lives of British people”, according to the UK’s March 2023 Integrated Review Refresh. While stopping short of labelling China a “threat”, this is a marked shift from the “golden era” of UK–China relations heralded during Xi Jinping’s 2015 visit to the UK.

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Such a shift in assessment requires a commensurate response. This Policy Brief reviews the government’s response to China to date and examines criticisms of its approach, including calls to publish an “unclassified version of its China Strategy”. Rather than detail specific policy recommendations or argue in broad-brush terms for a more hawkish or dovish stance, the brief proposes six principles for a more dynamic and broadly based – and so more effective – China strategy. It argues that, while publishing a strategy document may aid communication, there are more important things to be done.

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Changes After the “Golden Era”

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Much has changed since 2015. Notwithstanding current travails, China’s economy has grown by nearly 50% in real terms and accounts for a larger share of global trade. The country’s ambitions in new technologies have become more widely understood and borne some fruit, notably in renewable energy and electric vehicles. President Xi has focused on self-reliance at home, emphasising national security and the leading role of the Chinese Communist Party, while becoming more active on the world stage. Last year, NATO concluded that China’s “stated ambitions and coercive policies challenge our interests, security and values”. The US’s ambassador to China, Nicholas Burns, said last year that US–China relations might be at their “lowest moment” since Nixon’s 1972 China visit. Tensions over Taiwan have risen sharply.

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Throughout this, trade with China has grown. In the 12 months to March 2023, China was the UK’s fourth-largest trading partner, though the UK ran a £38 billion trade deficit. 1 Questions of security and values, always present in the China policy debate, have however come strongly to the fore. China’s imposition and subsequent interpretation of the 2020 Hong Kong National Security Law have caused widespread outrage. Detailed reporting of China’s human rights abuses against the Xinjiang Uyghurs gained media attention and stirred parliamentary debate and opposition. The government has identified China as a significant source of cyber attacks on UK interests, with increased activity and disinformation campaigns during the Covid-19 pandemic. The recent China report from Parliament’s Intelligence and Security Committee (ISC) concluded that “China’s size, ambition and capability have enabled it to successfully penetrate every sector of the UK’s economy”. Additionally, China’s initial slow Covid response and its refusal to allow a full WHO investigation have damaged trust. Its stance on Ukraine has further sharpened concerns. And, while the UK has been the leading destination for Chinese direct investment into Europe since 2000, activity has recently fallen away sharply.

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Policy Changes

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The UK government has taken action on numerous fronts. In 2020, the Johnson-led government reversed the decision to allow the purchase of Huawei’s 5G technology following a reassessment of security risks and political pressure from the Trump administration. Chinese involvement in the UK’s nuclear power programme came under renewed scrutiny, leading to a buyout of China’s interest in the Sizewell C project. The Hong Kong British National (Overseas) visa scheme has enabled close to 130,000 Hong Kong nationals to move to the UK. The 2021 National Security and Investment Act introduced a tighter screening process for foreign investment into key sectors. The 2023 National Security Act established a Foreign Influence Registration Scheme. This year also saw announcements of a Critical Minerals Strategy refresh, the National Protective Security Authority and an Economic Deterrence Initiative. Nonetheless, when security is not an issue, the UK remains “open for business from China”. There are also policies, urged by some backbench MPs, that the government has not pursued. It has not declared Chinese actions in Xinjiang to be a genocide and has not followed the US in sanctioning Hong Kong officials.

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Consistent with the Integrated Review’s “tilt to the Indo-Pacific”, the UK has been active in the region. A carrier strike group was deployed there in 2021 for the first time since 1997, and will return in 2025. The UK is the first non-regional member of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership trade agreement. It has been active in helping formulate stronger G7 and NATO positions on China, and has shaped and joined new minilateral partnerships including the AUKUS agreement, the Global Combat Air Programme and the Mineral Security Partnership. The sanctioning of Xinjiang officials was announced in coordination with the US, Canada and the EU.

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Is This a Strategy?

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Throughout all this, many have called on the government to publish a China strategy. In 2019, the House of Commons Foreign Affairs Committee (FAC) called for “a single, detailed public document defining the UK’s China strategy … [to] be published by the end of 2020”. In 2021, the House of Lords International Relations and Defence Committee entitled its report “The UK and China’s Security and Trade Relationship: A Strategic Void”.

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This year has seen progress. The Refresh summarised the UK’s approach to China with three pillars: Protect/Align/Engage:

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    Protect the UK through enhancing security measures in critical national infrastructure, supply chains, democratic freedoms and science and technology.

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    Align with “core allies and a broader group of partners” to deepen cooperation.

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    Engage with China directly and multilaterally so as to “where possible cooperate on global challenges” and secure a “positive trade and investment relationship”, while “avoiding dependencies … and protecting our national security”.

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In April, Foreign Secretary James Cleverly expanded on this in a speech, “Our Position on China”, arguing that “we must engage with China where necessary and be unflinchingly realistic about its authoritarianism”. Cleverly’s August visit to Beijing drew on the same position. The prime minister, Rishi Sunak, has described the approach as “robust pragmatism”, while also calling China “the biggest challenge of our age to global security and prosperity” after the May G7 meeting.

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No detailed China paper has been published, however – nothing similar to Germany’s recently published China strategy. In August, the FAC called again for an “unclassified China strategy”. Charles Parton, a long-time China analyst, has described the lack of a clearly communicated China strategy as the “panda in the room”.

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Pressures for Greater Clarity

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The government’s approach can be criticised from three angles. First, that the “three pillars” strategy does not amount to an appropriate or even coherent course of action. Second, that it lacks specifics and glosses over trade-offs. Third, that publishing a detailed China strategy brings benefits greater than any associated costs.

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Protect/Align/Engage implicitly rejects alternative strategies of large-scale decoupling or unquestioning engagement. Some simply disagree with this approach, seeing it as riddled with contradictions. A three-pillar framing is not, however, unique to the UK. It reflects the “complicated and sophisticated” nature of relations with the world’s second-largest economy. The US speaks of “invest, align, compete”, following US Secretary of State Antony Blinken’s earlier description of the US–China relationship as “competitive when it should be, collaborative when it can be, adversarial when it must be”. The EU has described China as a negotiating partner, economic competitor and systemic rival. China also mostly pursues a similar approach, while at times strategically choosing to reject it. In 2021, foreign minister Wang Yi stated that “China–U.S. cooperation on climate change cannot be divorced from the overall situation of China–U.S. relations”. With Australia and Lithuania, China has linked disagreements on Taiwan and Covid-19 with economic relations. The UK does also need a response to such situations.

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The lack of focus on trade-offs is a more compelling criticism. The approach smacks of “cakeism”, promising to secure all the benefits and address all the negatives that China presents, while ducking value judgements and tough choices on priorities.

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For instance, the UK is to engage China on climate matters, and China leads in renewable energy. So what is the stance on sourcing solar panels from Xinjiang given well-documented reports of forced labour and its likely presence in UK supply chains? Does reliance on China reflect successful engagement, an unacceptable breach of our values, or a security risk? Universities benefit financially and intellectually from Chinese students and research collaborations, while facing risks of revenue dependence, challenge to academic freedoms and leakage of sensitive research. How should the UK navigate this? University leaders need better guidance based on the government’s assessment of trade-offs and priorities.

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Finally, a more detailed China strategy could be published, but the benefits need to exceed the costs. The ISC’s China report states that as of 2019, “the National Security Council (NSC) owns and creates [government] policy on China”, which is then set out in a six-pillar “China Framework”. Even the names of three of these pillars are redacted. The related China National Strategy Implementation Group seeks to avoid a “binary prosperity vs. security” approach. So trade-offs are considered, but there is no external communication of how this is done.

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Publishing would provide a better basis for debate, challenge and holding the government to account, and also provide clearer guidance to those making China-related decisions. The only previous China policy paper, the Foreign and Commonwealth Office’s “The UK and China: A Framework for Engagement” (2009), stated that “this document is intended to begin a broader conversation”.

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The argument is finely balanced, however. By their nature, elements of the China strategy need to remain confidential, not least from Beijing. Discussion and challenge of a redacted strategy paper can skew debate. Any published paper serves more to communicate a narrative than to describe a government’s full strategy. And decision-makers often need more sector-specific guidance than a single paper can communicate. A published strategy paper is no panacea.

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Six Principles for a More Dynamic and Effective UK–China Strategy

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Implementation of the right China strategy, itself made up of a myriad of China-related decisions, is more important than a single paper. Keeping in mind the following six principles will help formulate a more dynamic and effective China strategy for the UK.

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1. Strategy should be more than a document.

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“Strategy” is a popular word, yet one used by different people with different meanings. At heart, it is about making choices to achieve defined objectives or outcomes and then putting in place the required resources to realise them. Roger Martin, a leading business strategy academic, writes that “strategy is choice. Strategy is not a long planning document”. While those implementing need to understand the strategy, no company publishes its strategy in full on its website. Nor does any country. Important elements are confidential, shared on a need-to-know basis.

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Strategy is dynamic and iterative, rather than static and one-time. It considers and addresses multiple, changing contingencies. In today’s world, decisions are made in changing, uncertain circumstances based on imperfect information. China and the UK’s allies alike react and adapt to the choices made by others.

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This means that a detailed set of actions, decided centrally, fixed and then communicated to others to implement, is unlikely to succeed. Rather, many different people need to make decisions that together amount to a strategy. This is, in the words of management scholar Henry Mintzberg, “emergent strategy”. At times, this can be hard to distinguish from a contradictory “muddling through” and no overall strategy. This does not, however, make the approach any less valid. Determining which elements of the China strategy should be centrally determined – and which not – is an important matter of judgement.

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2. Strategy should be explicit about whose behaviours need to change – or stay the same – in order to bring about specific outcomes.

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Good strategy is clear on both desired outcomes and the behaviours – continuing or changed – needed to bring them about. The current UK government seeks “a positive trade and investment relationship” with China. But it is does not explain what this statement really means, or what needs to happen for this to occur. By contrast, the 2009 China “Framework for Engagement” did contain very detailed targeted outcomes. However, this document contained few specifics about how they might be achieved. The current UK–China strategy would benefit from greater clarity on both aspects.

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It is much easier for the UK government to affect behaviours at home than in China, or even in “like-minded countries”. A China strategy must take much of what China does as a given. It should then determine how best to change what happens in the UK, while taking account of how China (and others) might act in response. Government can change behaviours at home by banning or mandating certain activities, or by changing incentives and providing better information to those who then decide for themselves. Which approach makes sense, and where, is at the heart of a clear China strategy. Clearer communication of the government’s perspective on this would allow others to make better decisions on China matters.

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For Lawrence Freedman, strategy is the “art of creating power”. China’s economy is five times larger than the UK’s, and its population 20 times as large. The Integrated Review recognises that if the UK is to influence the choices of Chinese decision-makers, it needs to gain scale through working with others – hence recent extensive collaboration through the G7, NATO and other fora. Here too, however, the UK’s ability to change behaviour is shaped by what others choose. US policy plays an especially critical role, both regarding its own stance on China and its appetite to act in coordination with allies or alone. If US policy becomes significantly more or less hawkish, the options for the UK’s China strategy also shift: US policy on Taiwan shapes any role that the UK might play. China’s reaction to the UK’s choices also depends partly on how the British approach compares with those of other major countries. French President Emmanuel Macron’s April visit to Beijing yielded commercial contracts, while Rishi Sunak has yet to meet President Xi.

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3. A China strategy is for the whole UK, not just for government.

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In developing the strategy, the simple term “UK China strategy” merits unpacking and definition. It is about more than the bilateral relationship. Abroad, the UK encounters China in its relations with every country and in multilateral organisations. At home, China is not just a matter for government. Thousands, perhaps, millions, of people take decisions where China plays a role – from supplier selection to deciding how to protect open academic discussion in universities. Equally, while China is important, it is not everything: there are many other topics that matter to the UK. Still, many major decisions have an important China component without being decisions “about China”.

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This breadth is important because China is often described as taking a “whole-of-state” approach to its affairs, whereby the Party’s dominant role removes any meaningful distinction between government and private actors. The ISC report discusses the security risks that this poses to British interests. In its most extreme formulation, the term significantly overestimates the Party’s coordination and cohesion across a country of 1.4 billion people, but the risks cannot be ignored.

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The UK must formulate an appropriate response that meets the challenge, while preserving our distinctive democratic strengths and diversity of opinion, not seeking to ape the controlling approach of the Chinese party-state. The UK government itself needs a “whole-of-government” approach that consistently integrates considerations of economics, security and values into decision-making. But also needed is a China strategy for the UK as a whole, which clarifies where government should make and mandate China-related decisions, and where others are better placed to do so.

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4. Those who make the decisions need to be well-informed.

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The UK will make better decisions on China when those making the decisions know more about China, about how it sees the world, about others’ experience of dealing with China, and about how China in turn reacts. China is unfamiliar, opaque, multifaceted and fast-changing. Good decisions draw on knowledge and experience rather than on misconceptions, guesswork and stereotypes. Yet a 2021 Higher Education Policy Institute report highlighted that there is a “lack of knowledge and understanding [about China] that would enable actors in the private and public spheres to craft the answers that are needed”. The Integrated Review committed to “invest in enhanced China-facing capabilities, through which we will develop a better understanding of China and its people”.

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Three aspects merit greater attention. Firstly, there is a need to define the scope and nature of “China capabilities” that would help different decision-makers in and out of government. This should include practical experience, such as contract negotiations, as much as academic and policy knowledge. Second, many, if not most, people who make decisions with a China dimension will not be, and will not need to be, China experts. They must, however, know enough to make good decisions and be able to access expert knowledge as needed. The government can help facilitate this access. Finally, there is scope to draw more systematically on the experience of others. The Chinese diaspora in the UK offers a broad range of useful perspectives. The UK can learn more from how other countries manage their own complex China relationships, such as Japan and Australia.

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5. Strategy without resourcing and implementation is just wish-making.

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Strategies often fail. Plans are written but not implemented. Successful strategies require objectives grounded in reality, supported with the right resourcing and organisational structures; clear responsibilities and accountabilities; incentives and sanctions to encourage action; and durable leadership commitment that adapts in the face of changing circumstances.

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For the UK in relation to China, these conditions do not currently appear to be in place. The ISC China report found that “the slow speed at which strategies, and policies, are developed and implemented … leaves a lot to be desired”. It also rightly highlighted the need for longer-term planning and resource commitments. This in turn requires sufficient cross-party consensus for commitments to last through changes of government.

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Resourcing for China has increased. In March, the government announced a doubling in 2024/25 of funding for its China Capabilities Programme. Richard Moore, head of the Secret Intelligence Service, recently stated that “we now devote more resources to China than anywhere else, reflecting China’s increasing global significance”. This is likely not enough, though limited public information makes it hard to judge. Indeed, there are good strategic arguments for not revealing publicly the resource levels behind some initiatives.

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However, it is not a question of money alone. Improving coordination, communication and alignment across government remains a big task. This is as much as question of leadership focus and organisational effectiveness as resource levels per se.

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Internationally, too, increased resources are needed. China is much more active on the global stage, putting increased time and effort into advancing its agenda in multilateral institutions and offering financial support to countries in the Global South in particular. There is increased contention and competition. Here, cooperation with others allows for burden-sharing, whether in addressing China’s efforts in the UN to redefine human rights or the implications of increased financial development assistance in the Pacific Islands. But more resources – both time and money – are needed if strategy is to be more than rhetoric.

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6. Strategy requires learning and adaptation.

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Strategy is not static. Broad objectives may remain constant, but prioritisation, detailed outcomes and how to achieve them will change. Strategy will also change, based on which policies work and which do not. As such, any detailed China strategy paper may quickly date. Strategy must learn and adapt rapidly to changed assessments and circumstances. It must these days consider a China with strong digital capabilities, but large structural economic problems, in a world of AI, rather than a high-growth China excelling in physical infrastructure.

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Much of this learning will inevitably happen behind closed doors. However, external review and reflection – in parliament, in expert groups and in the broader community – is important too. A published China strategy can help anchor this debate, but it must not become a fixed baseline pursued for its own sake while the world changes.

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Conclusion

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China indeed has “implications for almost every area of government policy and the everyday lives of British people”. While the government has made substantial progress on its approach to this challenge, more needs to be done.

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What matters more than having a strategy paper is a host of decisions in different domains, followed by resourcing, implementation and review. Reasonable people can disagree on what being “clear-eyed” about China means in practice. This is not the work of government alone, even where China pursues its own “whole-of-state” approach. Across the UK, better awareness is needed, both of the opportunities and the risks that China presents. This will allow people to strike the right balance between risk and return – and also determine where, on certain matters of security and values, there is no balance to be struck, and economic benefits must take a backseat. But without increased resources – both time and money – a better China strategy will remain an expression of hope rather than reality.

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Andrew Cainey is a Senior Associate Fellow at RUSI and the founding director of the UK National Committee on China. He has lived and worked for most of the past twenty-five years in China, Korea and Singapore advising businesses and governments, having first visited China in 1981. His particular areas of focus relate to China’s development, its growing role and influence across Asia and globally and the intersection of economic prosperity, technology and national security.

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+ + + + diff --git a/hkers/2023-11-09-the-securitisation-of-energy.html b/hkers/2023-11-09-the-securitisation-of-energy.html new file mode 100644 index 00000000..ef1fe85b --- /dev/null +++ b/hkers/2023-11-09-the-securitisation-of-energy.html @@ -0,0 +1,282 @@ + + + + + + + + + + The Securitisation Of Energy · The Republic of Agora + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + +
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The Securitisation Of Energy

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Russia’s Use of Hydrocarbons in its Foreign Policy since the Ukraine Invasion

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Emily Ferris | 2023.11.09

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Understanding how Russia constructs its energy security and foreign policies is essential to anticipating how it might behave in international forums, particularly on challenging issues such as environmental and energy security.

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This paper examines how Russia’s energy policy has interacted with its foreign and defence policies since its full-scale invasion of Ukraine in February 2022. The key findings are:

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    Russia perceives any restriction of its access to and exploitation of oil and gas markets both within Russia and abroad as a serious security threat. Restriction could either be through international sanctions that prevent Russia from accessing deep-water oil deposits, or the international climate change agenda that calls for a reduction on oil and gas production.

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    As a major oil and gas producer, Russia considers the hydrocarbons industry to be a key part of its political economy and therefore its national security. Prior to Russia’s invasion of Ukraine, Russia’s role as an energy provider – or sense of international responsibility to its clients – was thought to keep some of its behaviour in check, even as Russia had in the past wielded its energy supplies to extract political concessions from some of its former Soviet neighbours. Ultimately, Russia’s security goals in Ukraine overtook any of this responsibility, which has framed much of the debate around Russia’s future as a declining energy power in Europe.

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    Russia’s understanding of energy security is bound up in the country’s sovereignty, and with strategic competition with other states over resources. Ensuring security of demand and continued access to resources are part of Russia’s national security framework and even its national identity.

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    The war has increased the urgency for Russia to seek out alternative alliances and structures with China and Iran. In recent years, Russia has established its own energy forums with partners such as Saudi Arabia and some African states – work which has become more pressing since the war began and Russia’s energy relations with the West have been significantly reduced.

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    Russia claims that the West is seeking to undermine it through its dominance of energy resources, and that international forums, such as the UN, are prejudiced against Russia’s national interests. Russia also conflates energy with politicking, maintaining that Western efforts to cap its production prices or curtail nuclear energy use are part of a campaign to undermine Russian values and assert a neoliberal agenda.

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    The war has intensified Moscow’s need to identify new export destinations, with rail and pipeline networks that were previously in train accelerated. But to do so, particularly towards the Indo-Pacific region, Russia must link up its oil and gas reserves with maritime and rail infrastructure. This includes new terminals along the Northern Sea Route that can process liquefied natural gas, coal and oil and updating port infrastructure, as well as new ice-class vessels for exports.

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    Investments in the North–South Corridor via Iran have also gained traction since the war began, particularly to export oil and deliver on some of the practical elements of Russia’s foreign policy, by bringing Iran and India closer to its economic network. Russia has also identified specific development zones in the Arctic that are rich in hydrocarbons or have access to the sea.

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    Prior to the war, Gazprom’s monopoly in Europe had been unchallenged, but this is not the case in Asia, where it faces rival Novatek – this infighting may impact Russia’s ability to expand its energy plans in China. The Power of Siberia 2 pipeline contract with China, as yet to be signed, would give Gazprom a future role in Asia.

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    Russia tends to use international platforms like the UN to further its own national interests or ensure it has a stake in the conversation, rather than in pursuit of a common cause. Since the war began, Russia’s ability to interact with other (especially Western) states has been restricted.

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    Since the war began, Russia and Saudi Arabia’s coordination through OPEC+ has been more pressing. Riyadh has not aligned itself with the Western consensus on Ukraine, nor has it introduced sanctions on Russia. But the war has caused a decline in global energy prices, and there are frictions between Russia and Saudi Arabia over Russia’s refusal to publish its oil export figures. Riyadh suspects that Moscow continues to export significant volumes of oil despite their price agreements, but the former has not criticised this and, since the war began, has invested in Russian companies like Gazprom.

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    Russia is highly affected by climate change, but also banks on its status as a commodities producer to retain its international position. This inconsistency informs its strategic policymaking on the environment, as well as its behaviour in international forums related to climate change. Moscow often objects to international climate change efforts because it prioritises Russia’s national security, not the security implications that can stem from climate issues. While climate change can affect Russia’s national security, it is described as an issue that threatens Russia’s economic development, requiring technological or practical solutions, not adjustment to the extractive industries. Russia also views warming Arctic seas as more of an opportunity to improve access to shipping lanes than a crisis.

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    Russia views the Western-led climate change movement as an agenda seeking to undermine Russia and its interests in the extractive industries. Moscow’s installing of former intelligence officials in posts concerned with environmental security highlights the crossover in the Kremlin’s mindset between the environment and national security.

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    Since the war, many environmental links between Russia and the West have been severed. Moreover, there is little international oversight of Russia’s major drilling projects or their environmental impact, and legislation that restricts ecological activism has been tightened. Most Western-led NGOs dedicated to the environment have been shut down.

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    Ultimately, even if the UK can decouple from Russian oil, the complex and global nature of international energy markets means Russia’s behaviour as a hydrocarbon superpower can still impact the UK’s energy security. Russia views external attempts to cap oil prices as a dangerous precedent that could be extended to other areas of the Russian economy and Russian values. This indicates that Moscow interprets international economic and pragmatic decisions as a direct attack on Russian sovereignty.

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Introduction

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This paper analyses Russia’s energy policy and the way this interacts with the country’s foreign and defence policies. The paper is part of RUSI’s UK National Security and the Net Zero Transition project and is published alongside a paper that focuses on the links between Saudi Arabia’s energy policy and its foreign and security policy behaviour. Together, these two papers analyse how Russia and Saudi Arabia – which aside from the US are the world’s leading oil exporters – approach their roles as energy superpowers, how their energy-related decision-making has evolved since Russia’s invasion of Ukraine, and how their foreign policies and conduct in international forums, including on climate change and other major global issues, will continue to have global implications.

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As oil and gas prices were already elevated in 2021 following the Covid-19 pandemic, Russia was able to exploit them in Europe in order to drive up prices before it invaded Ukraine. This returned the link between energy and geopolitics, and in particular the question of energy security, to the fore. The war has demonstrated that energy and geopolitics cannot be separated, and has increased the need to determine how major fossil fuel producers think about their international roles.

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While there are many definitions of energy security, for the purposes of this paper, energy security of states is considered to be both a practical issue of supply access and pricing, and a geopolitical issue that relates to foreign policy behaviour in the energy sector. For states that are net importers of energy, as the UK and most of Europe are, security of oil and gas supply is often equated with diversification. This includes diversification away from fossil fuels, an increasingly potent driver of energy policy across Europe. But while hydrocarbons are required to generate electricity and to fuel industries, diversification of supply also means securing access to oil and gas from sufficiently diverse sources that no single disruption leads to sudden shortages or price disruption.

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Before the Ukraine war, some European states relied, to varying degrees, on imports from Russia, one of the world’s top oil and gas producers and exporters. The war has prompted many European states to reduce and ideally end imports from Russia by 2027 in order to deprive Moscow of revenue and reduce Russia’s leverage over Europe. While the EU has made some progress on this, reductions in gas volumes in particular were also due in part to the Kremlin’s actions, including Moscow’s suspension of gas via the Nord Stream 1 pipeline, and a March 2022 presidential decree that demanded payment for gas in roubles from countries involved in the EU’s “unfriendly actions” towards Russia.

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The UK has been comparatively less affected by this dynamic; in 2021, only 9% of the UK’s oil and 4% of its gas imports came from Russia, and by January 2023 this had been brought to zero. But while replacing Russian supply was not the UK’s key concern, due to its reliance on natural gas, it was hit just as hard as its European partners by the surge in oil and gas prices sparked by the war. The UK is exposed not just to disruptions to the flows of the oil and gas that it imports directly, but also to the global flows of hydrocarbons.

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As the war continues into its second year, although oil prices have somewhat stabilised, there has been a renewed focus by the West on the behaviour of the members of the Organization of the Petroleum Exporting Countries (OPEC), most notably Saudi Arabia, and a group of major producers, including Russia, that have aligned their oil policies with those of OPEC since 2016 through the OPEC+ framework. Every decision by the grouping to adjust production quotas, especially the significant cuts announced in October 2022 and June 2023, has been scrutinised by Western analysts for its economic and political motives.

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Moreover, the serious fracturing of the relationship between Russia and the West as a result of Russia’s invasion of Ukraine has meant that Russia’s behaviour as a major hydrocarbon producer, both in its export dealings and more generally in international forums for discussing these issues, has been particularly difficult to engage with. This is particularly the case where, as in Russia, governments control the energy industry. As a major emitter of greenhouse gases, Russia’s behaviour around climate change issues adds another dimension to this.

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Given the importance of understanding how major producers behave, this paper examines how Russia sees and exercises the international roles afforded to it by its energy resources. The paper analyses three key issues: how hydrocarbons and their export relate to Russia’s perceptions of itself and its place in the world; the extent to which Russia’s energy policies are securitised and how they are linked to Russia’s domestic and foreign policies; and how Russia relates its status as a hydrocarbon exporter to notions of environmental security and international climate action efforts. As the paper will show, Russian definitions and understanding of environmental security and where this presents a national security threat widely diverge from Western understandings. Moscow tends to frame risks stemming from climate change, such as flooding, as something to be countered by technological or financial solutions, rather than addressing core issues, such as Russia’s continued extraction of hydrocarbons, as contributions to the initial problem.

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Understanding how Russia constructs its energy security and foreign policies is therefore essential to anticipating how it might behave in international forums, particularly on challenging issues such as environmental and energy security, and where some of Moscow’s red lines might be.

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Methodology and Structure

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The paper is divided into three chapters. The first focuses on Russia’s foreign policy decision-making in energy since it invaded Ukraine, and some of the factional disagreements between powerful energy companies which impact the Kremlin’s ability to put forth a coherent energy strategy. The second chapter discusses Russia’s engagement in OPEC+, highlighting its marriage of convenience with Saudi Arabia around oil prices and the future trajectory of this bilateral cooperation. The third chapter examines Russia’s approach to environmental security and discusses the divergences of opinion between Russia and the West over how to approach the threat of climate change.

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This paper is based on a review of open-source journals, books and public statements from officials in Russia, using local-language sources where possible, to piece together Russia’s current and historical views on energy security, focusing on the 2022 invasion but also grounding the analysis in recent historical literature. In addition, the paper offers a targeted review of Russia’s energy strategies and other important official documents such as its national security and Arctic strategies, as well as documents that govern its environmental policies and its engagement with the hydrocarbons industry, in order to understand better the gaps between Russia’s official foreign policy documents and its actions.

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I. Russia: Reimagining the Globe

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For Russia, its full-scale invasion of Ukraine and the impact of that invasion on global prices have accelerated the competition between it and the West over traditional oil and gas markets, a process that has been under way for more than a decade. It is less the changing oil prices themselves and more the potential restriction of Russia’s access to and exploitation of these markets – both domestically within Russia and abroad, variously through instruments such as international sanctions that prevent Russia from accessing deep-water oil deposits, or the international climate change agenda that calls for a reduction in oil and gas production – that Russia views as a serious security threat. This securitisation of energy policies is the lens through which Russia’s own energy policymaking is seen from Moscow.

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Russia is a major oil and gas producer, with its oil output in 2021 making up 14% of the world’s total supply. In 2021, its revenues from oil and natural gas made up 45% of its annual budget. Its energy companies are also major employers within Russia, supporting the livelihoods of over two million people, and the importance of these industries is enshrined in Russian law. According to a 2008 law, key industries such as defence and oil and gas are considered by the Kremlin to be “strategic sectors” – cornerstones of the economy upon which Russia’s political economy and therefore its national security rests. Foreign investment in these sectors is heavily restricted, extra state scrutiny is exerted over them, and they are prioritised at the expense of other, less lucrative sectors such as healthcare and education.

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Prior to Russia’s invasion of Ukraine, the Western view of Russia’s role as an energy provider was a rather paradoxical mixture of business pragmatism and political interventionism. Before the 2022 invasion, Russia’s status as a major petro-state and its consequent sense of responsibility to its clients, particularly in Europe, were viewed by some Western analysts as one of the guarantors that could keep Russia’s international behaviour in check – but there was also broad acknowledgement that Russia was capable of and had used its supplies to extract political concessions from former Soviet neighbours such as Georgia (in 2006) and Ukraine (in 2009). In the end, Russia’s security goals in Ukraine overtook any desire for Russia to cast itself as a reliable energy supplier, and this has framed much of the current debate around Russia’s future as a declining energy power in Europe. However, what this has overlooked from a policy (rather than an energy) perspective is that for Moscow, energy supply is only part of the security picture.

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Moscow’s Securitisation of Energy – Ensuring Russian Sovereignty

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Most states view energy security as a serious issue; many governments have influence over their nations’ energy sectors and in a lot of these, the energy sector tends to be dominated by large projects and the relatively small number of companies controlling them. What makes Russia’s approach to energy security particularly Russian is the way that energy and the country’s very sovereignty are bound up with strategic competition with other countries over resources.

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Security of demand and continued access to oil and gas markets are key tenets of Russia’s national security framework, and of its national identity. Moscow’s perception of itself as a great power is largely based on a combination of its military might, its nuclear capabilities and its continued ability to produce and export significant volumes of natural resources. Although President Putin has not specifically referred to Russia as an “energy superpower”, it is clear Moscow views its prominence on the international stage and its ability (or as Moscow sees it, its right) to have a significant stake in foreign affairs as bound up with its natural resource wealth.

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From the Kremlin’s perspective, attempts to stymie Russia’s continued role as a natural resource producer – be it through sanctions or competition with other states over access to resources in the Arctic – are all a serious threat to Russia’s existence. Sanctions introduced on Russia’s hydrocarbons industry by Europe, the US and other allies since Russia’s annexation of Crimea in 2014 tended to target technology related to Arctic, deep-water exploration and onshore tight oil extraction, but ultimately they had little impact on Russia’s onshore deposits in western and eastern Siberia, which make up the bulk of its production in the short term.

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Against this backdrop, and particularly since its full-scale invasion of Ukraine in 2022, Russia has embarked on a strategic and practical reorientation of both its trade and foreign policy alliances. This reorientation sees Russia reimagining the globe and Moscow’s place within it.

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Russia’s latest foreign policy strategy – its first major policy document published since the war began – envisages Russia and its allies China and India united at the centre of a grand Greater Eurasian Partnership, pitted against the hegemonic (and allegedly declining) West. This perception frames Moscow as being at the heart of decision-making, with nascent relationships with middle powers such as Iran forming an important economic basis of the alliance. Although much has been made of the significant gap between Russia’s strategic planning and its practical ability to deliver on these goals, what this perception does show is Russia’s intention to restructure the globe on its own terms and to place Moscow at the hub of global decision-making. This is important, because it clearly delineates who and what Russia sees as a threat to its sovereignty. Its foreign policy document makes clear that it respects the sovereignty of powers such as India and China, while remaining mistrustful of and distant from the so-called “Anglo-Saxon world”, a derisive and archaic term that Moscow uses to refer to the UK and some other European states. However, it is not clear that China and India buy into Moscow’s version of the world, especially with framings that conceptualise Russia as the driver and leader of their international positions.

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Russia’s foreign policy approach pivots its vision towards a new alliance arrayed directly against the “collective West” (in Russia’s mindset, mostly made up of the EU, NATO member states and the US), which is depicted as a failed example of imposed democracy. This clash of civilisations that Russia is articulating is laying the groundwork for serious frictions between the West, Russia and the rest of Russia’s allies, particularly over energy and access to available resources.

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The war has also exacerbated a growing tendency on the part of Russia to seek out alternative structures such as BRICS – an economic grouping consisting of Brazil, Russia, India, China and South Africa – or the Shanghai Cooperation Organisation in order to promote its way of looking at the world. In this vein, since 2017, Russia has established its own energy forums with trusted partners – including Saudi Arabia and many African states – with the aim of reframing energy issues on its own terms. One such forum, in 2022, was notable for its assertion that Europe’s longstanding policy of moving away from Russian gas was a failed attempt to weaken Russia, linked to the energy crisis – with no acknowledgement of Russia’s own role in that crisis.

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Russia’s perception is that the West is seeking to undermine Russia through its dominance of energy resources, and that international forums such as the UN Security Council are prejudiced against Russia and its national interests. There is also a widespread belief among the Kremlin leadership that certain efforts by the West – for example, to cap oil production prices or curtail the use of nuclear energy, or for the US to deliver gas to Europe in order to replace Russia – are part of an attempt to undermine Russian traditional values and exert a neoliberal political agenda. Moscow’s understanding of the West’s actions in the energy sector has been framed in increasingly negative terms over the past decade, reflecting not only the highly securitised way in which Moscow views any external intervention in what it perceives to be its energy affairs, but also its own misconceptions about the West. It also reflects that Moscow has little concept of the importance of climate change issues in shaping global energy policies and prefers to frame climate change as a Western conspiracy designed to undermine Russia’s interests.

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While many of these foreign policy relationships were in train before the war, Russia’s invasion has accelerated Moscow’s need to identify new energy export destinations and to reduce its reliance on imported foreign technology. Although Russia’s so-called “pivot to the East” has already been a long-term trend for at least the past decade, with some rail and pipeline infrastructure build to support it, the programme has recently been accelerated because Russia has few other options. To do this, however, Russia must link up its oil and gas reserves with its maritime and rail infrastructure in order to reorientate its export structures and maintain its own energy security. Whether realistic or not, Putin maintained in mid-2022 that by 2025, Russia intends for 80% of its energy industry’s equipment to be domestically manufactured, to ensure that oil production remains high and to reduce external sanctions risks.

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Some of these plans for domestic reliance, and new ways of seeing the globe, are evident from Russia’s other strategic planning documents that govern the energy sector, some of which were written before the war.

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Moscow’s Shifting Self-Perception

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This shift in Moscow’s approach to energy security can be seen from two of the most important documents that govern the country’s energy sector: its Energy Strategy (ES) and its National Security Strategy (NSS).

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Russia’s previous NSSs had only briefly mentioned energy in an environmental context, but in the 2021 strategy, the most recent, it is noted as something that permeates all aspects of security and Russian life: ensuring heating, as something to be protected alongside the defence industries and nuclear power plants, and as a major factor in Russia’s economic security. The increasing securitisation of energy means that Russia views external attempts at reform, as well as geopolitical competition over important energy markets, as a threat to Russia’s sovereignty, and will respond with what it views as appropriate force.

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Russia’s current ES (ES-35) was approved in 2020 by Prime Minister Mikhail Mishustin and runs up to 2035. Irrespective of its sparse mention in the NSS, Moscow has long viewed energy as a part of its national security, given the significant contribution of hydrocarbons to the federal budget, and the ES-35 makes it clear that any restriction on Russia’s production and sale of oil, gas and coal would be considered a security threat. The ES-35 is a strategy for safeguarding the oil and gas industry, and there is little attempt to diversify away from reliance on fossil fuels. Extraction and exports are priorities – the strategy aims to launch five major oil projects in the Arctic and 21 projects to extract raw materials such as gold and coal, alongside a significant increase in resource production from liquefied natural gas (LNG), which Russia aims to increase from 8.6 million tonnes in 2018 to 91 million tonnes by 2035. The boost to LNG production will necessitate an increase in infrastructure to support it, which the ES-35 outlines for the Russian Arctic and Far Eastern regions; these plans are supported and governed by other strategic documents.

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There have been three key developments since the war began that have demonstrated most clearly Russia’s changing view of itself and its place in the world as an energy producer and supplier. First, in August 2022, Prime Minister Mishustin approved an updated plan for the development of the Northern Sea Route (NSR), a trade route that runs across the top of the Russian Arctic. Among other measures, the plans include construction of three new terminals to process LNG, oil and coal, as well as updating existing port infrastructure in the Far East to accommodate an increase in capacity. With plans to construct new ice-class vessels capable of traversing the NSR, not only is Russia preparing to increase the production and export of raw materials, but it is also attempting to better link up its land and maritime infrastructure, and is using this physical infrastructure to assert its dominance over the maritime domain.

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But as ever with many of Russia’s so-called “mega-projects”, there are few feasibility studies available to determine whether investing in these often-politicised projects will ultimately add value to the Russian economy, or even whether ports will be able to accept sufficient planned increases in traffic to make investments worthwhile. Indeed, following a South Korean feasibility study on expanding Russia’s small Far Eastern Slavyanka port in 2018, ultimately the project never came to pass and, since the war began, many foreign investment projects have been halted. Other considerations relating to major projects like these, such as environmental impacts or the effect on local Indigenous populations, are rarely taken into account.

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Second, as part of the development of the NSR, Russia is pursuing important infrastructure projects with allies such as Iran to resurrect the North–South Corridor. This is a railway development project linking Russia to the Indian Ocean via Iran that has been repeatedly shelved over the past two decades, but which has gained new impetus since the war. Plans include linking up ports along the NSR with land and sea routes south of Russia across the Caspian Sea to northern parts of Iran, a grandiose project of a kind that, as the history of Soviet-style planning has evidenced, rarely delivers on its objectives. While it is still incomplete and there are numerous political and infrastructure obstacles to overcome, the North–South Corridor is nevertheless part of Russia’s longer-term plan to export goods, including its oil, through these new land and sea networks. There is substantive investment in it already: as of 2022, Russia had committed $13 billion to different projects as part of the scheme. The North–South Corridor links up roads, rail and maritime infrastructure across multiple countries, and is an attempt by Moscow to deliver on some of the practical elements of its planned foreign policy, bringing countries such as India and Iran more closely into Russia’s economic network.

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A third key aspect of Russia’s reimagining of the globe that has been accelerated since the war began can be seen in its Arctic strategy up to 2035, and in Moscow’s changing perception of the NSR. Unlike its predecessors, the current strategy has identified specific development zones – which will receive greater Kremlin attention and financing – that are either rich in mineral resources such as hydrocarbons, or have access to the sea. This highlights Russia’s dual priorities of resource extraction and export in the Arctic, and is a further example of its strategic linkages between the land and maritime domains. Amid a downturn in relations with the West, over the past few years, there has been a noticeable shift in perceptions of the NSR within Russia, from viewing it as a potential international route capable of linking up Europe and Asia to instead seeing it as a useful route specifically for Russian companies to deliver energy resources to their own global markets. This refocusing on ensuring Russia’s dominance of sea routes is likely a precursor to further attempts to exert control over the maritime domain, with likely a concomitant increase in Russia’s projection of sovereignty over parts of the NSR that are considered international waters.

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How United is Russia’s Energy Decision-Making?

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Russia’s ability to use its position as a major oil and gas supplier on the international stage in exchange for influence, political concessions or access to other resources, or to project its regime survival, is often viewed – both by Moscow and the West – as its most effective foreign policy asset. But while Russia’s energy diplomacy tends to be viewed as a political tool it can wield at will, Russia’s energy strategy is dominated by often-competing approaches, which means that it has occasionally been forced into cooperation with foreign partners to ensure that it retains its position as global producer. As its energy relationship with the West declines, Russia will likely be obliged to cooperate with partners in the Indo-Pacific region, which does not necessarily put it in a position of strength.

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There are multiple competing interests within Russia’s energy sector, with conflicts between the country’s official strategies and the vested interests of individuals and their coteries who are driving these industries forward, and this makes Russia’s energy approach inherently flawed.

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Russia’s energy market is dominated by Gazprom (headed by Alexei Miller) and Rosneft (under Igor Sechin), two major oil and gas producers that are in turn technically overseen by the Kremlin. These industries are subject to a series of vested interests that include personal financial concerns, political demands and corrupt practices, all of which make it challenging to determine Russia’s true energy “strategy”. Gazprom is also a sprawling and influential conglomerate that includes financing (through Gazprombank), oil (Gazprom Neft is Russia’s fourth-largest oil company) and the media (Gazprom-Media owns several television channels). These companies employ a relatively large segment of Russian society, with just under half a million people as of 2019.

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Companies like Gazprom and Rosneft are under state control, but operationally, they both function without significant government interference, as long as this does not directly contradict stated Kremlin foreign or domestic policy goals. Rosneft and Gazprom have also successfully resisted some directives from the Kremlin – government plans in 2013 to try to privatise the oil and gas industry were met with strong pushback from Gazprom, Rosneft and others, such as major bank Sberbank, until they were eventually halted. That said, there is also an important degree of self-censorship within Gazprom and Rosneft, which still tend to act within the Kremlin’s agenda without being compelled to do so.

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Despite its relative operational autonomy, in a strategic sense, Gazprom has for years been at the heart of many of Russia’s foreign policy strategies, especially in Europe, where dependency on Russian gas was of political significance, via the (now defunct) Nord Stream pipelines. But while Gazprom’s monopoly has been relatively unchallenged in Europe, this is not so in Russia’s dealings with Asia. There, Gazprom’s greatest rival is the privately owned Novatek, which is absorbing significant amounts of market share amid Russia’s energy reorientation to China, through the Yamal LNG project. Novatek and Rosneft were permitted by the Russian government to participate in LNG exports in 2013, with the view that Gazprom’s monopoly was holding Russia back from becoming a major player in the gas sector.

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New trade deals with China such as the Power of Siberia 2 pipeline, discussed amid much fanfare between Putin and President Xi Jinping in March 2023 (but as yet unsigned), give Gazprom a nascent role in Asia, although construction of that pipeline would not begin until 2024 at the earliest, and would not come online until 2029, even if it were to run to schedule. Since 2014, Rosneft has also sought to challenge Gazprom’s monopoly and gain access to the Power of Siberia pipeline, and has been inching into the gas market over the past decade by acquiring the rights to develop its own gas deposits in Russia. In 2023, Putin appeared to have agreed to Rosneft’s demand, maintaining that its gas reserves from its fields in Krasnoyarsk and Irkutsk could be used to supply the Power of Siberia 2 pipeline, and instructing Deputy Prime Minister Alexander Novak to act as arbiter between Gazprom and Rosneft as they worked out the details. As Europe moves away from its reliance on Russian energy, Gazprom may well be forced into ever-greater direct competition with other companies such as Novatek and Rosneft for market share.

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Competition between Sechin and Miller – with Putin acting as the ultimate arbiter – makes it a challenge for Russia’s energy industry to make long-term plans, with political interference and self-interest often trumping financial expedience. Occasionally, their arguments spill over into the public domain, such as over which company contributes more taxes to the federal budget. Rivalry between Gazprom and Rosneft can be occasionally disruptive and can stymie progress on major projects. The two companies were embroiled in widely publicised litigation proceedings against each other in 2015–16, over Rosneft’s attempts to gain access to the Sakhalin-2 oil and gas project in the Far East, an appeal which Gazprom ultimately lost in the Supreme Court. However, competition like this tends to be more about defending turf than about actual views on Russia’s foreign policy or national interests, which are still inherently decided at the Kremlin level.

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Given these features of Putin’s decision-making process, Russia’s energy policy approach has never been particularly coherent, and there have always been groups that prioritise how much money can be extracted from Russia’s natural resources, juxtaposed with internal critics of Russia’s sprawling infrastructure projects – such as expensive symbolic bridges – whose economic returns are negligible and which tend to serve political goals. While important foreign policy decisions remain the purview of the Kremlin, infighting within the oil and gas industry has repercussions for Russia’s efficiency and ability to project its image as an extractives “superpower” abroad. This is a longstanding issue that was a challenge for the Kremlin prior to the war, but as competition over new markets in the Indo-Pacific region grows, internal competition between Russia’s energy companies is also likely to increase.

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II. Russia’s Involvement in OPEC+

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Russia tends to use international platforms either as a means to further its own national interests or to ensure that it has a stake in the conversation, rather than in pursuit of a common cause. Since its invasion of Ukraine, Russia’s ability to interact with other, particularly Western, states in multinational forums has been increasingly restricted, and an international arrest warrant for Putin has posed another logistical challenge to face-to-face engagement. Russia’s behaviour in the OPEC+ grouping, which is designed to influence global oil pricing, is still in service of its national interests, but must be carefully balanced with its desire to maintain a strong bilateral relationship with Saudi Arabia – the two countries in combination sell 20% of oil used globally.

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Russia and Saudi Arabia’s energy policies – and by extension their foreign policies – are often conflated due to their shared leadership of the OPEC+ grouping. Yet the Russian–Saudi partnership is more of a marriage of convenience than an expression of a wider strategic alignment. The basis of the relationship is that both countries support the stabilisation of oil prices while simultaneously ensuring high export revenues.

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In this vein, OPEC+ was formed in 2016 in response to the disruption of the global oil market caused by the US shale revolution. By increasing the number of countries coordinating their production levels, the cartel was able to influence the supply side of the market and stabilise international oil prices – but the potential brittleness of the alliance was demonstrated in the price war between Moscow and Riyadh in March and April 2020. As the global economy shut down with the onset of the Covid-19 pandemic in 2020, leading oil prices to fall, Russia refused to go along with Saudi-proposed production cuts, seeing an opportunity to deal a blow to the US shale industry. Saudi Arabia, though also not necessarily opposed to hurting shale producers, ramped up production in order to deliberately push down prices even further and thereby forced Moscow to relent.

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Officially, OPEC+ coordination has been less contentious since February 2022. Russia has some leverage over Iran (an OPEC member), which Saudi Arabia lacks, and Saudi Arabia’s insistence on continuing to work with Russia in the grouping despite protestations from the US and elsewhere can be seen as an indication of how much more importance Riyadh apportions to its ability to influence the oil market (especially at a time of heightened volatility) than to maintaining a harmonious rapport with Washington. Moscow also recognises that collaboration with Riyadh will be critical to ensure supply management, even as it continues to delay production cuts.

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Russia’s relationship with Saudi Arabia has become more of a pressing issue since the onset of the Ukraine war. Riyadh has chosen not to align itself with the Western consensus on the war and has not introduced sanctions on Russia, nor condemned the war. The announcement at the August 2023 BRICS summit that Saudi Arabia would be joining the grouping – with some caveats – could boost the economic potential of the bloc and offer a further channel to deepen bilateral ties, including offering new sources of sanctions evasion for Russia. There is also nascent bilateral cooperation over joint investment funds to support Russian agriculture and oil production equipment, and few high-profile projects have been announced, although the Saudi side has been much less vocal about its willingness to invest within Russia.

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Russia’s invasion of Ukraine has altered its position on the OPEC grouping somewhat. In search of clients and new export markets for its oil, Russia has been prepared to accept lower prices to sell its oil and maintain production, offering cut-price deals to its allies China and India in a bid to drum up funds for the war. There are also frictions over Russia’s secrecy around its figures – it does not disclose how many barrels of oil it exports, and Saudi Arabia is suspicious that Russia has continued to export significant volumes, undercutting former price agreements.

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For now, Saudi Arabia has not criticised Russia’s decisions to sell at a discount or publicly spoken out against its data secrecy, given the two countries’ common interest in maintaining oil prices at a level that can shore up their state budgets. Russia also has significant reason to keep the Kingdom on side – major Saudi companies invested more than $500 million in Gazprom, Rosneft and major oil producer Lukoil just after the war began and Western sanctions were introduced. Since the onset of the war, however, Russia has been on the back foot; it has few major international players it can call on as partners, and the relationship with Riyadh, which may start to demand more of Russia, is an important one.

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III. Russia’s Environmental Paradox

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One of Russia’s many strategic paradoxes is that it is a country highly affected by climate change, but banks on its status as a producer of commodities to retain its international position. This inconsistency informs its strategic policymaking on the environment, and its behaviour in international forums around climate change.

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The Kremlin has never been particularly concerned by environmental security, and many of its actions have been reactive to environmental disasters that occur on its territory, rather than preventative. The ES-35 specifically frames international climate change policies as a hindrance to Russia’s own energy security development, even if it simultaneously acknowledges the theoretical importance of reducing carbon emissions. Similar inconsistencies can be found in Russia’s Arctic strategy, which notes the security threat of warming seas such as flooding in coastal areas and the melting of permafrost, but still pushes high production of fossil fuels and the mining of extractives. Globally, Russia is the fourth-largest greenhouse gas emitter, after China, the US and India, and is responsible for 7% of the world’s CO2 emissions. Nevertheless, Putin has been derisive about Europe’s green energy approach, maintaining that the energy crisis in Europe is in fact due to Europe’s investment in wind farms that cannot make up for a reduction in fossil fuels.

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In international forums, Russia often objects to proposals to improve global environmental security. While this can appear bullish and self-interested, it is also partly due to different understandings of security: Russia’s longstanding concept of environmental security prioritises the security of the nation as the key concern, rather than the security implications that can stem from environmental problems, and includes a collective historical view that the natural environment holds no intrinsic value in its own right. Climate change is seen as something that affects Russia’s national security (including defence), but it is framed in strategic documents as a threat to Russia’s economic development that calls for practical solutions, rather than any adjustment to the extractive industries. Russia also tends to approach issues such as warming Arctic seas not as a crisis but as an economic opportunity that will improve access to new shipping lanes and offer a boost to the Russian export industry. Some Russian academics have disputed this prevailing analysis, maintaining that the impact of climate change in the country will probably not be a net positive overall, but their views are unlikely to be influential in altering the Kremlin’s longstanding policies.

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Russia has tried to separate environmental security into two issues: the first is the economic damage to the country caused by climate change that Russia aims to mitigate, chiefly through technological interventions or improved investment, while the second is what Russia perceives as a Western-led agenda, under the guise of environmental activism, to undermine Russian institutions. Russia has suggested at the UN Security Council that environmental security issues are a ruse for external military interventions in countries rich in natural resources (perhaps referring to the African continent) and has framed this as a threat to Russia’s interests in the extractive industries. Ultimately, Russia views most international attempts to warn against the dangers of climate change and fossil fuel reliance as a further threat to Russian sovereignty.

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Within Russia, important figures traditionally from the defence or security services have increasingly been appointed to lead on environmental issues. In 2016, Sergei Ivanov, a former minister of defence (2001–07) and KGB officer in the Foreign Intelligence Service, was appointed the president’s special representative on the environment and transport. Ivanov oversees environmental protection, as well as the development of the Far Eastern regions and streamlining infrastructure to support businesses; he is also an important member of Russia’s powerful Security Council and a longstanding Putin ally. While his precise role is unclear, his positioning indicates the crossover in the Kremlin’s mindset between the environment and national security.

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In terms of its foreign policy, Moscow’s securitisation of the environment means that it is rarely cooperative on internationally led climate change issues. On the UN Security Council, Russia pays lip service to climate action but favours the status quo, tending to use the platform to ensure that it has a place at the table and to promote its economic (extractives) interests, rather than with a view to safeguarding the environment. In principle, Russia is a signatory to UN-led efforts to reduce greenhouse gas emissions, but the Kremlin does not publish figures about its oil and gas production rates and only offers broad public statements about production cuts, which makes it a challenge to determine how compliant (or not) it may be. It has also been criticised internationally for its gutting of environmental policies that would have otherwise worked to reduce greenhouse gas emissions, by refusing to introduce quotas or penalties on greenhouse gas emitters.

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This approach is unlikely to change, largely due to the presence of powerful business lobbying groups who work on behalf of the oil and gas industry, such as the Russian Union of Industrialists and Entrepreneurs (Rossiskiy soyuz promyshlennikov i predprinimateley, RSPP), whose coordination council is co-chaired by Putin’s youngest daughter, giving the RSPP a direct line to the Kremlin. The RSPP extensively lobbies against any proposed bills that could reduce the oil and gas industry’s ability to extract resources in environmentally protected areas, and it is rarely opposed by the Kremlin.

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Perhaps most concerningly, since the onset of the war, many environmental links between Russia and the West have been severed, and there is little international oversight of major drilling projects in Russia and the permanent impact that these could have on protected environments, especially in more isolated parts of the Russian Arctic. Legislation within Russia that restricts ecological activism has also tightened since the war, reflective of a broader repressive legal environment targeting institutions with a perceived Western-led agenda. For example, in March 2023, the Worldwide Fund for Nature was branded as a “foreign agent” – this inclusion on the foreign agents list by Russia’s Federal Security Service comes with an implication of espionage and suggests that the organisation receives funding from murky sources abroad, seeking to undermine Russia. Many organisations on the list have ceased to function under pressure from the security services, and as a result there is a risk that there will be even less external oversight of resource extraction.

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Russia’s understanding of threats to the environment has close links to its understanding of threats to its hydrocarbons industry, as well as to the personal interests of the ruling elites (including Putin) and the central role that energy resources play in Russia’s international policies, all of which are bound up with ideas of Russian sovereignty. Any attempts by the international community to further an agenda that restricts Russia’s continued extraction of hydrocarbons, its export of them to new and existing markets, and the construction of infrastructure on land and at sea to support this, are framed as part of a security threat to which Moscow will respond harshly.

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Conclusion: Where Moscow’s Red Lines are

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Given Russia’s ability to have an impact on global oil and gas prices, the UK and its European allies will need to try to understand, react to and – where possible – influence the way in which Russia approaches its role in energy markets and in international forums. Even if the UK were to entirely decouple from Russian oil, the complex and global nature of international energy markets means that Russia’s behaviour as a hydrocarbon superpower still has the ability to substantially alter the UK’s energy security. Although diplomatic relations with countries such as Russia may have been all but severed, Russia’s actions matter, whether through decisions on oil production, its global positioning and attempts to reconfigure the world order, or its divergent understandings of what energy and environmental security mean.

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Russia’s approach since the onset of the Ukraine war has been to expand its foreign policy partnerships with allies such as China, India and Iran; to invest in the land and maritime infrastructure to support its political goals as well as its extractive efforts; and to seek alternative clients for its oil and gas, while maintaining high production. While its energy strategy may be at times incoherent and pulled in multiple directions due to the many vested interests involved, there is a clear sense of some of Moscow’s red lines when it comes to its understanding of energy security and its intent to maintain the extraction and export of hydrocarbons to fuel its economy. Just as debates around oil price caps and moves to reduce carbon emissions are seen as an unwelcome Western intervention, similarly, attempts by the international community to involve Russia in the climate change debate are viewed by Moscow as another security threat to Russia’s sovereignty, and an attempt to impose Western values on a country now forging its own path eastwards.

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Moreover, Russia and Saudi Arabia – and other oil producers – regard Western enthusiasm to impose energy-related sanctions on Russia, particularly the price cap, as a dangerous precedent for political intervention in the oil market. Putin himself has been vocal about the limitations of the cap, maintaining that there is a risk of mission creep (i.e., that oil price caps could be extended to other sectors of the Russian economy, and indeed to any other country in the world), and has framed this as another attempt by the West to undermine the Russian economy and its “values”. This is a further indication of how Moscow continues to view what other countries frame as economic and pragmatic decisions as a direct attack on Russian sovereignty, and it means that Moscow’s responses to these proposals are likely to appear disproportionate or couched in national security terms.

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Ultimately, Russia is pursuing a fundamentally revisionist international project to reconfigure the global order on its own terms, and it is willing to deploy the political capital and revenues derived from its hydrocarbon might to further this project. For there to be any united action around climate change, the UK and Europe must pay closer attention to the foreign and security policies of major hydrocarbon producers like Russia, in order to understand the roots of some of the international implications resulting from their actions.

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Emily Ferris is a Research Fellow in the International Security Studies department at RUSI, specialising in Russian domestic politics. Emily has a particular interest in Russia’s military and civilian infrastructure including its railways, road and port systems, and the role this plays in advancing Russia’s political ambitions in the Indo-Pacific region, as well as deployed in conflict zones such as Ukraine. She also researches domestic political administrations in Russia’s Far East, and Russia’s military and political relationship with Belarus.

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Track and Disrupt

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How to Counter Sanctions-Evasion Networks

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Olivia Allison and Gonzalo Saiz | 2023.11.10

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Efforts to align third countries with sanctions against Russia will only succeed when the private networks facilitating circumvention are understood and countered.

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Sanctions regimes have continued to expand in scope since the full-scale invasion of Ukraine, aiming to asphyxiate Russia’s financial and military capabilities to wage war. The EU alone has passed 11 packages to date, each building on the last. These packages are paired with efforts to restrict circumvention, along with a forthcoming EU directive criminalising sanctions evasion.

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The unprecedented sanctions against Russia have highlighted the importance of third countries – those countries that are neither the target of sanctions nor adopters of sanctions against Russia/Belarus (and thus are not legally bound by sanctions). Such third countries make up a majority of the world and are therefore an important factor in determining whether sanctions are ultimately effective. Put simply, if third countries provide circumvention routes or substitutes for the goods and services that sanctions aim to curtail, then the sanctions will be weakened or fail.

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The trade in dual-use goods is one of five categories of sanctions evasion and avoidance covered by recent analysis undertaken by RUSI as part of the Serious and Organised Crime Anti-Corruption Evidence (SOC ACE) programme, and provides a particularly salient example of the role of third countries. Numerous reports have publicised cases of manufacturers deliberately or inadvertently shipping important military and technological components from sanctions-imposing countries to intermediaries in third countries that then ship them onward to military end-users in Russia and Belarus.

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Tracking Sanctions-Evasion Networks in Third Countries

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Our recent SOC ACE report categorised five types of sanctions evasion critical to funding and supplying Russia’s military-industrial complex: financial services, company incorporation, dual-use and military goods, exports of sanctioned Russian commodities, and oil smuggling. All of these operate primarily in the private sector and rely on third countries’ lax enforcement of – or deliberate refusal to implement –sanctions.

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In the case of countries not imposing sanctions, many commentators have bemoaned the whack-a-mole problem: company incorporation is so easy that sanctioning a person or a company will just cause another to appear in its place. Behind all of these seemingly random companies, however, is a Russian or affiliated individual(s) directing a network, often associated with Russia’s Federal Security Service. In many cases, investigators have identified links between the Russian military-industrial complex and newly incorporated companies with low public profiles – and these wider networks are often based in or linked to manufacturers, banks and other businesses in sanctions-imposing countries.

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If third countries provide circumvention routes or substitutes for the goods and services that sanctions aim to curtail, then the sanctions will be weakened or fail

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These thousands of companies are often not random or spontaneous creations, but directed by the Russian military-industrial base. They consist of networks of individuals and companies directing this support and supply business, along with intermediary companies and the shipping and logistics firms that facilitate the circumvention trade. Gathering the data necessary to map these networks is critical, as is understanding which government stakeholders are linked to these networks, in order to support diplomatic engagement to disrupt this trade in third countries.

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Some third countries are already introducing their own control systems to monitor the re-export of goods to Russia, such as Kazakhstan’s online tool to track the entire supply chain “from border to border”. However, governments and private businesses in these countries would benefit from this specific data collection and mapping approach to mitigate their exposure to opaque sanctions evasion networks and thus avoid getting caught in the crosshairs of US or EU sanctions.

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Building Capacity in Allied Countries

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Notwithstanding the role of third countries, allied countries that have imposed sanctions also contribute to circumvention. Many of the microelectronic components still feeding Russia’s military systems are Western-made yet continue to reach Russia, mostly due to a combination of a lack of enforcement capacity and the deliberate obfuscation of end-users through third-party intermediaries by the global networks supplying Russia.

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Over 30 countries representing more than half the global economy have announced sanctions and export controls targeting Russia, but the findings of the RUSI-led European Sanctions and Illicit Finance Monitoring and Analysis Network (SIFMANet) point to a series of challenges that sanctions-imposing countries consistently face.

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Prior to February 2022, many members of the sanctions coalition had very limited exposure to sanctions, and they are now scrambling to overhaul their national frameworks. In the EU, several member states are trying to determine the competent authorities and their responsibilities towards what is repeatedly called the “unprecedented” scale of sanctions against Russia. Both private- and public-sector actors have struggled to implement and enforce the sanctions, meaning that even countries with strong political will struggle to detect and interrupt sanctions evasion that might involve – or even start in – their own jurisdiction.

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Truly disrupting third-country sanctions circumvention requires a better understanding of the wider networks enabling this activity

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With unclear responsibilities, scarce resources and a lack of expertise, private-sector operators face an uphill battle to tackle the already intricate task of detecting and countering circumvention, muddled by the involvement of complex multi-jurisdictional schemes often involving third countries.

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The coalition of sanctions-imposing countries could also be strengthened by more consistent intelligence-sharing to disrupt cross-border global sanctions evasion networks, and by improved harmonisation in the interpretation of sanctions (including among EU member states). This leads to cases where authorities from different member states disagree on whether measures should be taken against an entity that one or the other understands to be in breach of sanctions. Moreover, the violation and circumvention of sanctions is not criminalised in all members of the sanctions coalition – notably in EU member states. This means that even if these practices are already taking place within their jurisdiction, authorities cannot initiate investigations and disrupt the networks involved. The upcoming EU directive to criminalise these practices will aim to remedy this, but this adjustment is long overdue.

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Disrupting Global Sanctions-Evasion Networks

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Truly disrupting third-country sanctions circumvention requires a better understanding of the wider networks enabling this activity, from banks and corporate service providers to shipping and logistics networks. Taking this wider view will likely generate new levers for pressure, including cutting the financial ties of the enablers supporting this trade. Further, applying a network focus should also reveal links between private-sector actors and the governments of third countries.

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In sum, efforts to tackle evasion should combine diplomatic engagement with third countries, focused on a network-centric approach, with a tightening of domestic efforts to disrupt sanctions circumvention at source. It is thus key that sanctions-imposing countries harmonise and improve their national frameworks as well, including better coordination and information-sharing across the coalition. Sanctions-evasion networks operate as global enterprises, and sanctions-imposing countries must do the same to render them ineffective.

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Olivia Allison is currently working as an independent consultant, following a role as a Senior Managing Director at the boutique investigations consultancy K2 Integrity. She has more than 15 years’ experience carrying out complex, international investigations and supporting the development of integrity and governance for state-owned companies, international companies, and international financial institutions (IFIs).

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Gonzalo Saiz is a Research Analyst at the Centre for Financial Crime & Security Studies at RUSI, focusing on sanctions and counter threat finance. He is part of Project CRAAFT (Collaboration, Research and Analysis Against Financing of Terrorism) and Euro SIFMANet (European Sanctions and Illicit Finance Monitoring and Analysis Network).

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New Energy Supply Chains

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Is the UK at Risk from Chinese Dominance?

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Michal Meidan, et al. | 2023.11.16

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Russia’s invasion of Ukraine has focused attention on energy supply chains and contributed to growing unease in the West about the fact that supply chains for the commodities necessary for the global energy transition are highly concentrated in China (or under Chinese control).

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Concerns range from cyber security through to security of energy supply and economic security. The disruption to energy supply chains caused by Russia’s invasion of Ukraine was felt mainly in terms of the physical supply of gas to Europe and the impact this had on the global market. In this context, this paper considers the implications of threats to the physical supply of some of the critical materials and products that the UK requires for its energy transition.

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China has benefited from being an early mover in the processing of many minerals used in net zero technologies, as well as in the production of intermediate goods and, more recently, final goods. In some elements of the supply chain China has a near monopoly (80–100% market share): the rare earths used to manufacture the permanent magnets used in wind turbines and electric vehicles (EVs) are just one example; other examples are connected to the production of battery anodes, high-quality spherical graphite, and the processing of manganese (also used in batteries). In the production of solar photovoltaic modules, meanwhile, China has a near monopoly on the production of polysilicon, silicon wafers and silicon cells. Added to this are very high concentrations (60–80% market share) in many other elements of these supply chains.

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In light of this dominance, this paper considers what risks China’s position in these supply chains poses to the physical supply of materials, components and final goods in the battery and EV, solar, wind and electricity grid supply chains, and whether China could deliberately leverage its position to impose costs on the UK. These risks are assessed according to whether they could affect the UK solely, a group of countries, or the entire market. The paper argues that risks to the UK specifically are currently limited by low levels of manufacturing of these technologies in the UK: because the UK typically imports final goods – where Chinese dominance is less pronounced – its direct dependence on Chinese suppliers is limited. However, the UK might still be an attractive target for largely symbolic measures intended to send political messages.

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The targeting of country groupings (such as NATO or the EU) by sanctions and counter-sanctions amid geopolitical tensions is potentially more dangerous for the UK. Market concentration in China is likely to persist for the foreseeable future, and alternative supply chains are unlikely to be sufficient to meet the demands of multiple countries. At the same time, protectionist industrial policies in the EU and the US may complicate future access to supply chains (which could become less dependent on China), while markets currently lack transparency and, in some cases, scale.

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The biggest risk for the UK is shortages of critical minerals. Shortages are widely forecast, and China’s control of mineral processing and refining means it would play a central role in the allocation of scarce goods. Leveraging supply chains for political ends has historically been more effective in tight markets – the 1970s oil embargoes came during periods of tight supply – but China is more likely to allocate available supplies according to its own national economic interest. During the Covid-19 pandemic, high-volume contracts with Chinese companies were more likely to be honoured, and if this pattern were to be replicated it could mean that decisions about allocation were passed to companies, which would decide which of their domestic and international operations received scarce materials. However, China’s ban on Australian coal shows that where a security threat is perceived, Beijing will take action, even if it will cause damage to the Chinese economy.

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There are also risks in terms of defence and international relations. Access to technology for the military is likely to be similar to that for the civilian economy for the time being, with net zero technologies currently most likely to be used for military logistics or for housing/bases. The most immediate risks relate to the secure operation of technologies, but these tend to be associated with cyber risks, which are not covered in this paper. The increased importance of critical minerals as commodities may change geopolitical dynamics and in some cases result in domestic and regional instability, influencing where the military is deployed. In the longer term, there are questions about whether China’s industrial power and growing technological advantage in net zero will be leveraged to create advantages for its own military capability.

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Finally, China’s role as the paramount – and in some cases only – investor in and purchaser of mineral ores will clearly be significant for its global influence. China’s role in producer countries, as well as its trading practices, will be important in shaping the character of the global market, with long-term implications for the UK’s defence and security policies.

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Introduction

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China is central to the new energy supply chains required for the decarbonisation of the global economy. It is a large investor in the mining of numerous critical materials and metals both domestically and abroad and, more significantly, the manufacture of critical energy-related components is heavily concentrated in China, meaning that many of the mined ores are sent there for processing. As a result, China is central to the production of wind turbines, solar photovoltaics (PV), permanent magnets, batteries and electric vehicles. As the energy transition unfolds and electrification gathers pace, demand for these materials and end products is set to increase. The International Energy Agency (IEA) estimates that a concerted effort to reach the Paris Agreement goals (climate stabilisation at “well below 2°C global temperature rise”) would mean a quadrupling of mineral requirements for clean energy technologies by 2040. An even faster transition, to hit net zero globally by 2050, would require six times more critical mineral inputs in 2040 than in 2020. However, investment so far is falling short of what the world is forecast to need.

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The UK’s own net zero plans imply large increases in domestic demand for critical minerals and end products, as well as greater reliance on complex supply chains. Rapid growth requires stable markets and resilient supply chains, but events over the past few years have highlighted that stability is not guaranteed. The lack of investment in minerals globally suggests that shortages will occur and that costs will rise. In the past, increased pressure on mineral supplies has led to increased investment but, given the time lag for bringing on new supplies, price volatility has also ensued. Similar challenges related to the supply of new materials could delay the energy transition and raise the associated costs. Although cost increases and delays also spur technological innovations, net zero targets are approaching rapidly, meaning that new infrastructure and equipment need to be sourced and deployed. In this context, the UK government must balance the need to move quickly with decarbonisation against the cost and availability of materials and potential security risks from immature and concentrated supply chains.

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Concerns about the availability of minerals and metals are compounded by China’s central role in both mining and processing. The Covid-19 pandemic and the Russian invasion of Ukraine have highlighted the risks associated with market concentration and “just-in-time” supply chain strategies. Supply chain disruptions during the pandemic led to longer lead times and higher costs for supplies of manufactured goods from China. Lockdowns, combined with factory accidents and floods in China, reduced the availability of polysilicon, the starting material for wafers in solar cells, and as China produced 80% of the world’s supplies in 2020, prices rose by 350%. Some residential solar developers reported that, for the first time, their growth was constrained by the availability of equipment, rather than by sales.

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Meanwhile, following Russia’s invasion of Ukraine and gas supply disruptions, energy security has become a top policy priority for many governments. Russia’s dominance in European gas supplies emphasised the risk of reliance on a single large supplier, creating alarm about China’s dominance in the provision of key materials and components for the energy transition. And, in the context of worsening US–China relations, many Western governments and companies are looking to de-risk their China exposure.

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Government policies aimed at diversifying supply sources and processing facilities are critical, given the need for more materials and end products. But it is important to recognise that, even as China’s share of these processes falls, it will remain central to many energy supply chains. It is important that the UK, which currently has limited production capacity, understands the complexity of new energy supply chains, the risks associated with China’s dominance, and the various implications of diversifying, decoupling or de-risking them. Excluding China completely from the UK’s new energy supply chains is unrealistic and would be counterproductive for the UK’s net zero targets.

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Every strategy to diversify new energy supply chains needs to be seen in the context of the broader UK–China bilateral economic relationship, which topped £100 billion in the 12 months to the end of Q1 2023. New energy supply chains are only a small part of this relationship, which raises the question of whether there are risks specific to these supply chains that warrant targeted treatment, what these are, and how mitigation strategies fit into this much larger economic relationship.

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Numerous studies have analysed different demand scenarios for critical materials and minerals, as well as the supply gap, and have described China’s dominance. But they do not assess how this dominance impacts the UK. This paper aims to fill that gap and asks: how has China become the dominant actor in new energy supply chains; and can China use its dominance in net zero energy supply chains to penalise the UK because of its policy choices? The paper argues that it will be very difficult for China to target the UK directly, given the complexity of the relevant supply chains. Any export controls or embargoes that China imposed on the UK would impact many other consumer countries equally. Similarly, the UK would not be insulated from any bottlenecks or breakdowns in these supply chains, impacting its ability to meet its net zero targets.

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That said, China’s centrality across the entire value chain raises questions for the UK’s foreign and defence policies, as well as for its industrial and economic policy. These challenges need to be understood and assessed rationally. While this paper argues that it would be very difficult for China to target the UK specifically using new energy supply chains, it also seeks to highlight the different risks associated with market concentration in China.

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This paper is by no means a comprehensive assessment of all these risks and their various international ramifications. Further research and discussion are needed to advance the conversation, but a fact-based foundation is the important first step, and that is what this paper seeks to offer. Similarly, the paper does not assess cyber threats or environmental, social and governance concerns, which represent different categories of risk best covered in separate discussions.

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The paper is based on publicly available sources in the English and Chinese languages. Quantitative data is drawn principally from a combination of official publications of national governments and international organisations, and industry and consultancy reports. A key challenge was the lack of consistency in the data between different sources, which is why the quantitative data on China’s share of global supply chain is presented as percentage bands rather than as precise percentages. Sources for qualitative information include policy documents and analyses produced by national governments and international organisations, consultancy and think tank reports, academic papers and online press articles. Finally, this paper is also informed by a closed research event hosted by RUSI, which involved officials from UK government departments, industry figures and think tank representatives.

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Structure

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The paper is organised as follows: the first chapter briefly discusses Chinese government policies as they relate to net zero supply chains; the second chapter covers the UK’s need for low-carbon energy infrastructure; and the third chapter outlines areas of Chinese dominance in net zero supply chains. The fourth and final chapter offers a preliminary analysis of the risks in order to guide thinking about the scale and nature of the challenge – identifying foreign policy, defence and economic risks to the UK associated with China’s control over net zero supply chains – before offering some preliminary observations and suggestions for further research.

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I. Chinese Government Policy and Supply Chain Dominance

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China does not have a critical materials strategy per se, but its dominance in new energy supply chains emanates from a combination of early moves into various industrial applications (rare earths, batteries, solar PV and, to a lesser degree, wind turbines) via central and local government support accompanied by low labour, land and electricity costs. Compounded by the Chinese government’s concerns about energy security, industrial policies have aimed to advance electrification as a means of limiting imports of fossil fuels, mainly through the development of electric vehicles (EVs). While the battery and EV sector developed differently from solar PV and wind turbines (as discussed below), they benefited from similar industrial policies and from the government’s ability to support long-term goals. As such, signals from central government indicating that these were priority industries led to preferential policies for manufacturing, as well as financial support for innovation and (at times) for infrastructure and deployment. In addition, the low input costs that attracted foreign investors were combined with obligations to partner with Chinese firms, which then led to technology transfers.

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As these industries developed and scaled up in China, the state also supported outbound investments in mining, with varying degrees of success, and with substantial variation in corporate environmental, social and governance (ESG) practices. The incentives shifted from focusing on one part of the supply chain to targeting integrated supply chains and, as these industrial activities expanded, to supporting industries and the pools of experienced labour which formed around them. Development of the industries was economically, rather than geopolitically, driven, with China seeking markets where it might gain a competitive advantage in order to generate employment and industrial growth. China’s solar PV development was initially conceived as an export-oriented industry to benefit from feed-in tariffs in countries such as Germany. That said, the Chinese government already recognised in the late 1980s that the availability of critical resources (such as rare earths) offered it a strategic advantage. Deng Xiaoping is reported to have remarked that while “the Middle East has oil, China has rare earths”.

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Preferential policies differed among the supply chains and varied depending on the availability of mineral resources in China. In rare earths, for instance, where China has abundant resources, policies to support mining and processing date back to the 1970s, while foreign investments were confined to joint ventures in the 1990s. From that point, policies focused on limiting exports and encouraging Chinese companies to develop high-end products and devices, while also aiming to limit illegal mining and exports (which had severe environmental and health impacts in China, and which depressed prices domestically).

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The EV industry in China was born from a desire to foster industrial development and technological upgrading while also reducing the country’s dependence on oil imports. The government adopted supportive industrial policies for EV manufacturing, sales and charging infrastructure, offering tax incentives and subsidies for innovation and R&D as early as the mid-2000s. Much like the situation with rare earths, government policies that made foreign investments appealing were accompanied by cheap input costs, with the quid pro quo of partnering with Chinese car and battery makers. In 2012, as part of the 12th Five-Year Plan, the government issued the “Energy Saving and New Energy Automobile Industry Development Plan (2012–2020)” aimed at developing EV science and technology. The “Made in China 2025” plan, issued in 2015, introduced the development of the new energy vehicle (NEV) industry as a national strategy and, more broadly, encouraged new energy industries such as renewables. This built on the “Strategic Emerging Industries” initiative that was announced in 2006, but broadened it out from a focus on technical innovation to encompass the entire manufacturing process.

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Over this period, government departments introduced various plans to guide the development of the NEV industry, encouraging the creation of an ecosystem to support these industries. Government policies focused on innovation in EVs and batteries, as well as on encouraging both production and sales of EVs and infrastructure build-out. In 2021, policy guidance also looked to address the use of EV battery packs in other applications after their removal from EVs, including as part of China’s long-term plan to develop smart networks and to achieve vehicle-to-grid integration. The Ministry of Industry and Information Technology’s 12th Five-Year Plan for the nonferrous metals sector noted that priority would be given to developing China’s overseas presence. Chinese banks have therefore supported Chinese miners in their efforts to acquire ownership interests in mines and processing facilities in Africa, Australia, Europe, North America and South America, and in signing offtake agreements with operating mines.

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As the domestic EV market grew, government policies facilitated and prioritised the development of an integrated battery and EV supply chain. To be sure, some developments, including e-bikes and a burgeoning solar heating industry, have emerged in China due to innovations by local companies that saw new demand emerging, even though they were not formally encouraged (some were even discouraged, as in the case of e-bikes). This is important to note, because not all of China’s initiatives are led and directed by the government, nor are they perfectly implemented. When discussing China, it is important to note that there is a difference between central government’s policy framing on the one hand, and corporate activities and behaviours on the other.

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Nonetheless, the state-led industrial policy framework has been a key contributor to China’s dominance in these industries of the future. Some of the attributes seen in the EV sector also supported the development of China’s solar industry: manufacturers benefited from local government support such as land concessions, tax benefits, less expensive operating environments and, in some cases, even direct investment. The central government contributed by directing state financing to these projects and even helped to catalyse cost declines in input materials like polysilicon. However, when polysilicon prices plummeted (due to a fall in demand as trade restrictions were imposed on Chinese solar exports, combined with the existence of large stocks of polysilicon) local governments provided further support to shield these industries. That said, solar PV, unlike other industries, did not begin life as a domestic industry. Chinese firms first entered PV module manufacturing through technology acquisition, before gradually succeeding in building their competitiveness and technological capabilities throughout the supply chains, as they saw new opportunities for growth, as well as via local interactive learning networks.

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In a somewhat similar vein, the Chinese government has, since the early stage of wind energy development, focused on establishing a domestic wind industry supply chain, initially by financing investments in small wind farms, and through the development of wind projects as early as the 1980s. Foreign expertise was then brought in, but joint ventures were designed to include substantial local content requirements (later abolished). In addition to policies that stimulated renewable R&D and equipment manufacturing, the government also introduced pricing policies to support the integration of renewable energy.

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Industrial policies in support of manufacturing, innovation and deployment have had unintended consequences from the Chinese government’s perspective – among them subsidy fraud, illegal mining and negative environmental impacts – while incentive structures have evolved to deal with regulatory gaps, financial stress along the supply chains and other challenges. Notwithstanding the challenges, these policies have, over time, allowed China to become a critical and low-cost supplier of new energy materials.

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In addition to industrial and innovation policies, the Chinese government regulates the mining of critical materials and their processing. China’s 2016 National Plan for Mineral Resources classifies the country’s mineral resources as “strategic”, “advantageous”, “protected”, or “strategic emerging industry” minerals. China does not have a critical minerals list akin to those in place in the US or the EU. For the different categories of minerals, the plan identifies where China needs to encourage exploration of minerals in short supply, regulate the amount of minerals defined as “advantageous”, cut production of minerals with excess capacity, and ensure the supply of minerals in strategic emerging industries. The plan identifies three broad categories:

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    Energy minerals – oil, gas, shale gas, coal, coal-bed methane and uranium.

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    Metallic minerals – iron, chromium, copper, aluminium, gold, nickel, tungsten, tin, molybdenum, antimony, cobalt, lithium, rare earths and zirconium.

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    Non-metallic minerals – phosphorus, potash, crystalline graphite and fluorite.

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This list includes metals and minerals that are not on developed economies’ lists of critical materials, but it also excludes a number of materials often cited by developed economies as “critical” (such as vanadium, tellurium, niobium and others that are used in hydrogen, solar PV or wind turbines). And while advanced manufacturing economies with a high dependency on imported raw materials include supply risk as a key parameter when categorising their lists of materials, Chinese assessments of “strategic minerals” use a broader, more flexible set of criteria, in which some “strategic minerals” are subject to supply risk and others are not. Indeed, according to China’s Geological Survey, the category of “advantageous minerals” includes rare earths and tungsten, and refers to minerals for which China has a domestic resource advantage relative to other countries, allowing it to control or influence global markets.

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II. Demand for Low-Carbon Energy Infrastructure in the UK

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In its 2023 analysis, the UK’s National Grid estimated that the national electricity supply would treble by 2035, through both domestic generation and imports. This would involve a massive increase in different forms of infrastructure (see Table 1).

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image01 +▲ Table 1: National Grid (2023) Projections to 2035 for England and Wales. Source: National Grid ESO, “Bridging the Gap to Net Zero”, March 2023.

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Concurrent global growth in demand will put great pressure on international supply chains. Mining companies in particular face a range of challenges, including high exploration and production costs, environmental and social concerns, access to capital and shortages of skilled labour. Currently, investments in both the mining of new minerals and processing capacity are falling short of estimated demand, notwithstanding the different demand outlooks and uncertainties around the impact of new technologies. The IEA, for instance, notes that “in a scenario consistent with climate goals, expected supply from existing mines and projects under construction is estimated to meet only half of projected lithium and cobalt requirements and 80% of copper needs by 2030”. Thus, if investment in new mine capacity is not accelerated, the pace of the energy transition will be constrained.

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This raises a number of issues for the UK. First, its ability to meet its net zero goals will depend on the availability of new energy supplies. Meanwhile, the UK’s industrial and economic competitiveness will be closely linked to energy costs. Some military systems also use critical materials, and, while the quantities of these are relatively small, they require high-purity, high-value materials. Finally, supply disruptions, however limited, could reduce the UK’s ability to use renewable technology to meet its climate goals, as well as constrain its freedom of action.

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To date the UK has relied on markets to satisfy its needs and, where effective and efficient markets exist, government policies suggest this will remain the case. The UK government recognised in its 2022 Critical Minerals Strategy that many critical mineral markets are “incomplete”, having inadequate data and transparency. The Critical Minerals Intelligence Centre was established at the British Geological Survey in July 2022, and the government has committed to convening a dialogue with industry, and to using multilateral engagement to promote market development. But establishing concrete policies to secure necessary supplies will be challenging without an industrial strategy to provide guidance on UK demand for critical minerals at the various stages of the supply chain.

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The efforts of the UK and its allies to build out new energy supply chains are likely to involve a lengthy process – one from which China cannot be excluded, at least in the near term. While policy papers do not articulate what level of reliance on China is acceptable to the UK and its allies, the decoupling (now de-risking) narratives indicate that there will be an attempt to rapidly reduce dependence on China. In the US, for instance, the Inflation Reduction Act provides a range of tax credits, as the country seeks to encourage the sourcing of battery materials domestically, or from partner countries with which the US has free trade agreements. From 2025 onwards, EV batteries will only be eligible for US purchase subsidies if they do not contain any critical minerals that were extracted, processed or recycled by a “foreign entity of concern” – including China. Similarly, the European Commission’s proposal for a new Critical Raw Materials Act (CRMA) aims to achieve a high degree of self-sufficiency by 2030. According to the CRMA, EU capacity should reach at least 10% of domestic demand for mining and extraction and at least 40% for processing and refining, in a bid to address overreliance on China’s supply chains. The European Raw Materials Alliance, announced in September 2020 as part of the European Action Plan on Critical Raw Materials, focuses on developing sustainable and responsible supply chains for critical raw materials and fostering partnerships with resource-rich countries other than China.

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Before the paper goes on to discuss the implications of this for UK security, the next chapter offers a brief overview of key net zero supply chains and their complexity.

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III. China’s Dominance of New Energy Supply Chains

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Supply Chain Components

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Supply chains for low-carbon energy technologies have several stages and involve many different countries. A supply chain may comprise as many as six steps:

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    Extraction and beneficiation of mineral ores.

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    Processing and refining of the ores to produce metals.

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    Further processing to produce the required alloys or chemical compounds.

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    Manufacture of individual components.

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    Manufacture of intermediate products from these components.

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    Assembly of final product.

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In principle, each step can be carried out in a different country. But China, as discussed below, has built a strong position that spans steps one to five in several important supply chains. The basis of this strength lies in China’s dominance of the extraction and, to an even greater extent, processing of certain critical minerals.

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What are Critical Minerals?

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The criticality of a specific mineral is generally assessed on the basis of the risk of interruption to supply and on the economic or security importance to the importing nation or region of such a disruption. One factor that contributes to the assessment of supply risk is the market concentration of the production of a mineral ore or refined metal. Most assessments do not consider the geographic concentration of primary mineral ore resources, as these are – in most cases – abundant and geographically widespread. However, the known high-quality accumulations tend to be geographically concentrated, though future exploration may yield some new high-grade deposits.

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The principal focus of such criticality assessments is the mineral inputs required to produce advanced technologies, notably in the low-carbon and defence industries. Assessments carried out by different organisations result in different lists of critical minerals. This is due to a combination of differing geographic scope and economic/security concerns, as well as different methodologies. This study draws on four such assessments, conducted respectively by: the US Department of the Interior; the IEA; the British Geological Survey; and the European Commission.

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The minerals identified as critical by one or more of these assessments, and which are inputs to low-carbon energy technologies, are listed in Table 2.

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image02 +▲ Table 2: Critical Minerals Relevant to Low-Carbon Energy Technologies. Sources: US Department of the Interior, “2022 Final List of Critical Minerals”, Federal Register (Vol. 87, No. 37, 24 February 2022), p. 10,381; IEA, “The Role of Critical Minerals in Clean Energy Transitions”, May 2021; Paul Lusty et al., UK Criticality Assessment of Technology Critical Minerals and Metals, British Geological Survey, CR/21/120 (Keyworth: British Geological Survey, 2021); Silvia Bobba et al., Critical Raw Materials for Strategic Technologies and Sectors in the EU: A Foresight Study (Brussels: European Commission, 2020).

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The growing demand for clean energy technologies will sharply accelerate the demand for some of these critical minerals. Table 3 summarises the IEA’s estimates for this growth to 2040.

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image03 +▲ Table 3: Estimated Growth in Demand for Selected Critical Minerals and Share of Clean Energy Technologies in Total Demand. Notes: 1. STEPS and SDS refer respectively to the IEA’s “Stated Policies” and “Sustainable Development” scenarios. 2. * refers to neodymium only. Source: IEA, “The Role of Critical Minerals in Clean Energy Transitions”.

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It is clear that China holds a significant or strong global position in the extraction and/or processing of a large number of the minerals listed in Table 2. In most cases, China’s global share of processing is significantly larger than that of ore extraction, as China imports large quantities of ore for domestic processing. The strength of China’s position is enhanced by its growing involvement in mining and mineral processing overseas (Table 4). The scale of overseas investment in this sector accelerated in the first half of 2023, with a focus on nickel, lithium and copper. The countries that host Chinese mining companies will play a growing role in the global energy transition.

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image04 +▲ Table 4: Examples of Countries Where China is Deeply Involved in Critical Minerals. Note: PGMs = platinum group metals. Sources: Christoph Nedopil Wang, “China Belt and Road Initiative (BRI)”; Chen Aizhu and Fransiska Nangoy, “Shandong Nanshan May Expand Indonesia Site into $6 bln Aluminium Complex”, Reuters, 15 May 2023; Saliou Samb, “China to Loan Guinea $20 Billion to Secure Aluminium Ore”, Reuters, 6 September 2023; James Attwood and Leonardo Lara, “China’s BYD Takes Next Steps on $290 Million Lithium Project in Chile”, Bloomberg, 3 July 2023; Jonathan Gilbert and James Attwood, “China’s Zijin is in Talks with Argentina to Turn Lithium into Battery Cathode”, Bloomberg, 10 July 2023; Thomas Graham, “Bolivia’s Dream of a Lithium Future Plays out on High-Altitude Salt Flats”, The Guardian, 25 January 2023; “Gabon, CITIC to Mine 26 Mln T Manganese Resource”, Reuters, 23 October 2010; Harry Dempsey, “Indonesia Emerges as World’s Second-Largest Cobalt Producer”, Financial Times, 9 May 2023; Yudith Ho and Eko Listiyorini, “Chinese Companies are Flocking to Indonesia for its Nickel”, Bloomberg, 15 December 2022; Harry Dempsey and Leslie Hook, “China Set to Tighten Grip over Global Cobalt Supply as Price Hits 32-Month Low”, Financial Times, 13 March 2023; Simon Mundy, “China Enters South African Platinum Sector”, Financial Times, 18 December 2010.

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The UK has no significant mining production of the critical minerals identified by the British Geological Survey, but prospective areas for mineral extraction do exist in the UK, notably for lithium in Cornwall. Whether extraction of any of these deposits can be brought to a significant scale by 2035 is an open question, not least due to social and environmental concerns. Likewise, the UK’s processing capacity for these minerals is very limited. Nevertheless, the UK is home to a number of international mining companies that could, in principle, supply some of the required minerals. Recycling is often seen as having more potential in the UK, but in a rapidly growing market, recycled materials originating in the UK will lag behind demand significantly.

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Below is a more detailed look at some of the other key supply chain components that will need to be addressed in any shift away from Chinese dominance.

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Batteries and EVs

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Lithium-ion batteries are the most commonly used form of energy storage for electric and hybrid motor vehicles and are also used for household and grid electricity storage. Their key components are anodes, cathodes and electrolytes. Lithium is the most important metal in this context, as it provides the electrolyte as well as most forms of cathode. The chemistry of the cathode and anode varies, and this results in six main types of lithium-ion battery:

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  • NMC: Lithium nickel manganese cobalt oxide.
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  • NCA: Lithium nickel cobalt aluminium oxide.
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  • LCO: Lithium cobalt oxide.
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  • LFP: Lithium iron phosphate.
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  • LMO: Lithium manganese oxide.
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  • LTO: Lithium titanate.
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The composition of the cathode is the main differentiator between these battery types. The anode is commonly composed of graphite, either natural or synthetic (manufactured from hydrocarbons). The main exception is the LTO battery, which uses lithium titanate for the anode. Tin and niobium are likely to be used in the future to increase the energy density of the anode.

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Table 5 illustrates in simplified form the supply chain for lithium-ion batteries, from raw material (in the form of ore) through to final battery assembly. This shows that China’s strong position in mineral ore extraction only applies to natural graphite and silicon. In contrast, China has built a strong – and even dominant – position in mineral processing and in the refining of domestic and imported ores, the manufacture of anodes, cathodes and electrolytes, and in the manufacture of the lithium-ion cells that go into the final battery pack. The import of beneficiated ores from overseas through bilateral offtake agreements has been key to this success (see Table 4). Chinese mining companies have enhanced this advantage through their overseas investments, notably in the Democratic Republic of the Congo for cobalt, in Latin America for lithium and in Indonesia for nickel, in some cases supporting not only mining but in-country refining and processing.

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Ongoing technological advances are likely to achieve two things. The first involves cost and efficiency improvements for existing lithium-ion chemistries, which could reduce the unit requirement for critical minerals. The second is the development of entirely new designs that could radically reduce or even obviate the need for critical minerals: these potential designs include solid state batteries, redox flow batteries, sodium-ion and iron-air chemistries, and supercapacitors. Japanese firms have been leading these innovations, but companies from South Korea, the US, China and Europe are also contributing. These advances are not currently being pursued at scale by the UK, but should they be developed and deployed rapidly it remains to be seen whether they could materially change the UK’s demand outlook by 2035.

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In 2022, only 6% of the UK’s EVs were produced domestically, and even now direct exposure to the Chinese supply chain – which is most dominant in refining, components and intermediate products (see Table 5) – is limited. Some 47% of the UK’s battery EVs were imported from the EU in 2022, up from 44% in 2019, followed by China at 32%, up from 2% in 2019. Sales of Chinese EVs in the UK and EU are growing. Moreover, Chinese companies already manufacture batteries in Europe (which are consequently not subject to tariffs), and this capacity could rise to 322 gigawatt hours per year (GWh/yr) by 2031. Chinese car manufacturers will also look to start production in Europe.

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As of August 2023, the UK hosts two operating lithium-ion battery plants:

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    Envision–AESC’s LMO plant in Sunderland, with a capacity of 1.9 GWh/yr and plans to expand to 11 GWh/yr by 2024 and 35 GWh/yr by 2030.

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    AMTE’s lithium-ion battery plant in Thurso, with a capacity of 0.5 GWh/yr.

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On 18 July 2023, it was announced that Tata had committed to building a 40 GWh/yr plant in Somerset. Other potential gigafactories in Coventry and Dundee have yet to be confirmed.

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According to the Faraday Institution, the UK’s manufacturing capacity could, based on current plans, reach a combined 57 GWh/yr by 2030. That falls short of the UK’s estimated requirement of 100 GWh/yr of battery supplies (or gigafactories) to meet demand for batteries for private cars, commercial vehicles, heavy goods vehicles, buses, micromobility and grid storage by 2030, the date at which the UK had intended to end the sale of fully internal combustion engine vehicles and vans, which was delayed to 2035 in September 2023. By 2040, that demand could rise to nearly 200 GWh/yr. According to data from UK Trade Info, the UK currently relies on China for 42% of its lithium-ion battery packs.

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It is unclear whether the UK can become an attractive destination for battery makers in the future given the limited nature of UK incentives (at least compared to support schemes rolled out in the EU and the US) and due to uncertainty about future trading rules with the EU. Lithium mining locally could help attract battery makers, but lithium mining tends to take years to scale up. Even if the UK did increase its battery manufacturing capabilities, it would need to attract both auto assemblers and battery makers – which would likely be Japanese, South Korean or Chinese – or to support local companies in the face of strong international competition.

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Assuming that the UK will not be able to meet all its battery and EV requirements domestically, it will continue to import both batteries and EVs from Europe and China, with Chinese EVs and batteries looking likely to be more cost competitive than their European counterparts. With more gigafactories opening up in Europe, the UK will be able to diversify its battery and EV imports, but will remain dependent on a limited number of producers who, in turn, will remain reliant on Chinese components and minerals (see Table 5).

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image05 +▲ Table 5: China’s Involvement in the Supply Chain for Lithium-Ion Batteries. Notes: 1. Italics indicate estimated share of Chinese production once overseas projects are included. 2. C* = natural graphite. 3. C** = high-quality spherical graphite. 4. metals in brackets are likely to be used in the future. Sources: US Geological Survey, “Mineral Commodity Summaries 2023”, 31 January 2023; IEA, “The Role of Critical Minerals in Clean Energy Transitions”; Lusty et al., “UK Criticality Assessment of Technology Critical Minerals and Metals”; Bobba et al., “Critical Raw Materials for Strategic Technologies and Sectors in the EU: A Foresight Study”; IEA, “The State of Clean Technology Manufacturing”, May 2023; IEA, “Energy Technology Perspectives 2023”; Heejin Kim and Gabrielle Coppola, “Chinese Firms are Seeking Korean Partners to Skirt US EV Rules”, Bloomberg, 30 July 2023.

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Wind Power Plants

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Large, modern wind turbines place significant demands on material supply to maximise their energy output and strength. The respective key components are permanent magnets for the generators and steel for the tower, nacelle and other parts of the turbine. Permanent magnets are also essential components of the traction motors in EVs. The most commonly used form of permanent magnet in wind turbines is the NdFeB magnet (neodymium iron boron), whose production requires neodymium, along with other rare earth metals such as dysprosium and praseodymium. China extracts around 70% of the world’s rare earth metal ores (see Table 6). Moreover, China is responsible for around 90% of the global output of rare earth metals through its longstanding dominance of rare earth ore processing and refining. China has taken advantage of this strength to build manufacturing capacity that now provides nearly 90% of the world’s supply of NdFeB magnets.

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Most of the other critical minerals shown in Table 6 are additives to steel (manganese, chromium, molybdenum, nickel, niobium) or inputs to other turbine components. As is the case in battery materials, China has a strong mineral processing industry that allows it to import ores to produce refined metals. This has given the country a dominant position in the supply of refined manganese and relatively strong positions in aluminium, copper and molybdenum.

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These foundations in the production of permanent magnets and in metallurgical industries have given China the basis for achieving a large share of global production of key components such as generators, gearboxes, blades and nacelles.

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In 2022, the UK had over 14 GW of offshore wind. Half of the UK’s renewable energy comes from wind, and by 2030, offshore wind will supply a third of the country’s electricity. In its 2022 Energy Security Strategy, the government scaled up its plans for wind to reach 50 GW by 2030, compared to a 40 GW target previously, including up to 5 GW of innovative floating wind. RenewableUK, the country’s renewable trade body, estimates that the pipeline of projects either under construction or highly likely to start construction is on track to exceed this 50 GW target.

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The UK hosts plants that manufacture wind turbine blades and towers, but it imports most of the other components. While some of these components can be manufactured in Europe, most of the generators will rely on permanent magnets from China, and even manufacturers of permanent magnets outside China may still be reliant on rare earth metals supplied by China. To address this supply risk, manufacturers are finding ways to reduce or change the mix of rare earth metals in NdFeB magnets, and research is underway to develop entirely new technologies.

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However, the likelihood that these developments will substantially reduce the need for rare earth metals or dramatically change China’s centrality in the near term – even as its share of these components falls – is low. This is because of the scale and cost competitiveness of the Chinese industry compared to competitors, and the concentration of the refining of most other rare earths and metals in China.

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image06 +▲ Table 6: China’s Involvement in the Supply Chain for Wind Turbines. Note: Italics indicate estimated share of Chinese production once overseas projects are included. Sources: US Geological Survey, “Mineral Commodity Summaries 2023”; IEA, “The Role of Critical Minerals in Clean Energy Transitions”; Lusty et al., “UK Criticality Assessment of Technology Critical Minerals and Metals”; Bobba et al., “Critical Raw Materials for Strategic Technologies and Sectors in the EU: A Foresight Study”; IEA, “The State of Clean Technology Manufacturing”; IEA, “Energy Technology Perspectives 2023”.

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Solar PV Modules

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The majority of PV cells are manufactured from silicon, generally in polycrystalline form. Polycrystalline silicon cells also require germanium and borates. China’s key strength lies in the production of polycrystalline silicon (see Table 7). The country’s domestic manufacturing capacity has grown in recent years, allowing China’s share of global output of polycrystalline silicon to reach 89% in 2022 and the quantity of imports to decline. On this basis, China has achieved almost total dominance (around 95%) in the supply of silicon wafers and a very strong position (around 85%) in the supply for silicon cells. It also makes more than 70% of the world’s solar PV modules.

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China is also a dominant supplier of germanium, a by-product of zinc ore processing, and has a strong position in the production of metals such as copper, aluminium, lead and tin that are necessary components of solar PV panels.

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Other technologies in this sphere include cadmium telluride (CdTe) and copper indium gallium selenide (CIGS) cells. Table 7 shows that China has a moderately strong position in the production of tellurium, indium, cadmium and molybdenum, as well as a dominant position in gallium. All of these metals are produced as by-products of other processes, and their availability depends in part on the production of ores containing other minerals and on the processing of these ores to recover the by-products. Future technological options for solar PV include gallium arsenide and amorphous silicon cells.

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The UK lacks manufacturing at scale of polycrystalline silicon, silicon wafers and cells, and cells based on other technologies. Facilities for such production are thin on the ground: Power Roll has opened a plant in Durham to manufacture flexible solar film using perovskite technology, and while Oxford PV has developed perovskite-on-silicon cell technology, its factory is in Germany and the company has stated that it is reluctant to build the next factory in the UK due to the lack of incentives. A number of companies in the UK manufacture solar PV modules from imported cells, such as UKSOL, UK Solar Power, Sharp and GB Sol, but imports of modules from China remain significant. For example, up to 40% of UK solar farms were built with Chinese modules in 2021. The supply chains for these modules allegedly involve forced labour in Xinjiang, where the production of polysilicon is concentrated, meaning that companies sourcing panels already face an ethical, reputational and compliance challenge.

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image07 +▲ Table 7: China’s Involvement in the Supply Chain for Solar PV. Notes: 1. Metals in brackets are those needed for CdTe and CIGS cells. 2. Italics indicate estimated share of Chinese production once overseas projects are included. Sources: US Geological Survey, “Mineral Commodity Summaries 2023”; IEA, “The Role of Critical Minerals in Clean Energy Transitions”; Lusty et al., “UK Criticality Assessment of Technology Critical Minerals and Metals”; Bobba et al., “Critical Raw Materials for Strategic Technologies and Sectors in the EU: A Foresight Study”; IEA, “The State of Clean Technology Manufacturing”; IEA, “Energy Technology Perspectives 2023”.

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Electricity Grids

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The principal metals required for transmission lines and transformers are copper, aluminium, zinc and cadmium, along with iron. None of these metals were considered critical for the UK by the British Geological Survey, although China accounts for between 40% and 60% of some of these metals, and aluminium is considered critical by the EU and the US. The supply of critical minerals such as gallium and germanium for microchips – or the supply of microchips themselves – could increase in significance if China becomes a dominant global supplier.

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Rather than raw materials, the main China-related vulnerability for UK electricity grids may be cyber security (not considered in detail in this paper). The IEA estimates that by 2025 there will be 30–40 billion devices linked to electricity grids across the world, and that any of these could be used to attack the grid. This is a major security challenge, and will require governments and companies to act in concert to ensure the resilience of power systems – a process that cannot be discussed in detail here. Instead, the broader responses from government and industry to China’s dominance in the sphere of raw materials are considered.

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Government and Corporate Responses

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A combination of deteriorating relations with China and rising demand for the minerals that are critical to the low-carbon transition has led governments and companies from industrialised countries to take steps to reduce their reliance on China for these minerals. Government actions include imposing import restrictions, incentivising domestic investment and production, stockpiling, and building partnerships with other countries. An additional priority is R&D to develop alternatives to the currently used minerals so as to enhance the efficiency of their use and expand recycling.

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The US government has been among the most active in seeking to decouple from China in this regard, including through the 2022 Inflation Reduction Act, which supports investment and guides procurement along the full length of the supply chain. Resource-rich Australia and Canada are also supporting investment in mining and processing, while in 2023 the EU published its draft Critical Raw Materials Act, which includes 2030 targets for mineral extraction, processing and recycling, as well as limiting over-dependence on a single third country. At the same time, the EU published a draft of the Net-Zero Industry Act, which aims to scale up the manufacturing of new energy technologies in Europe.

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Realising that international cooperation was needed, the US led the establishment of the Minerals Security Partnership in June 2022 to “bolster critical mineral supply chains essential for the clean energy transition”. The first meeting in September 2022 was attended by official partners Australia, Canada, Finland, France, Japan, South Korea, Norway, Sweden, the UK, the US and the EU. Mineral-rich countries such as Argentina, Brazil, the Democratic Republic of the Congo, Mongolia, Mozambique, Namibia, Tanzania and Zambia also attended.

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In addition to the construction of new mines and processing plants outside China, two trends in particular may help reduce dependence on China. The first is reducing or obviating the need for critical minerals in key technologies. Such measures would include the development of sodium-ion batteries for EVs and permanent magnets free of REEs, as well as increasing the efficiency of use and recycling of the materials. However, the time needed to scale up these innovations is uncertain, and China itself may still play a leading role in these technologies. The second trend involves the increasing level of support being given to promote the domestic production of renewable energy equipment and EVs in the US and Europe, which will bolster the growing capacity to process and refine metal ores.

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Taken together, these moves mark a potential turning point in international policies to address Chinese dominance in the mining and processing of critical minerals. However, the impact of these measures is likely to be modest over the period to 2035, given the time needed to commission new mines and processing plants and to scale up the use of new technological solutions, not least due to environmental and social concerns, as well as the energy and water requirements of these processes. In light of this, it is important to consider how China could leverage its dominance in these critical supply chains, and what the implications of such leverage could be.

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IV. What Threat Does China’s Dominance Pose to the UK?

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This chapter sets out a preliminary analysis of the risks posed to the UK by China’s domination of new energy supply chains. It assesses the extent to which the UK is at risk of being singled out as a target, whether it is more vulnerable to being targeted as part of a broader regional- or alliance-level bloc, and the extent to which it is vulnerable to disruptions to the global market. It ends with a discussion of other risks relating to international relations and defence that the UK should consider in parallel with the China-related risks.

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Global energy supply chains are important tools for soft power and greyzone contestation. China’s role in new energy supply chains is already an important factor in great power politics – and the importance of this influence will only increase. The US’s Inflation Reduction Act denies subsidies to EV producers that are dependent on Chinese materials on grounds of security, and not for diversification or industrial reasons, as discussed earlier. Furthermore, supply-chain organisation, both in terms of the location of different activities and in terms of market relationships, may be a significant source of tension and instability. Dependence on digital technologies for the operation of some new energy technologies also raises questions about their use in defence and by the diplomatic and security services.

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The risks posed by China’s role in the supply chain must be understood alongside other international developments in the energy industry, including Russia’s invasion of Ukraine and industrial strategy in the US and the EU. This chapter will offer some initial analysis before recommending useful avenues for further research, and preliminary observations on how the UK might consider its security posture with regard to China and net zero.

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At the outset, it should be noted that the character of the risk from net zero supply chains is fundamentally different from that of fossil fuel supply chains. Disruption to fossil fuel supply chains has immediate and widespread consequences which can be catastrophic for society, the economy and defence. Net zero systems are not primarily based on fuel supply, but most commonly on electricity infrastructure. This makes them by default more resilient to supply chain disruption. Delays and temporary price escalation in new energy supply chains would not have an immediate appreciable impact on energy production or consumption in the UK. That said, prolonged disruption would negatively impact the UK’s ability to meet its net zero targets and its climate action, and could impact energy security in a situation where electricity demand was increasing rapidly and equipment for generation or grid storage could not be sourced. Put simply, the short-term risk to physical energy supply in the UK from China is much less than from fossil fuel markets.

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Could the UK be Individually Targeted?

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In recent years, China has demonstrated a willingness to leverage the export of critical materials and technologies to achieve domestic and international political objectives, and as a response to sanctions. In 2010, as part of the government’s efforts to clamp down on illegal mining and trade of REEs within China, and coinciding with a fishing dispute with Japan, the Chinese Ministry of Commerce increased the tax imposed on exports of rare earth ores, oxides and compounds, introduced an export tax on end products, and tightened production quotas. These strategies resulted in a reduction of the share of production being exported, from 90% in 2000 to 20% by 2012. While exports to Japan fell, flows to other countries – including Australia and the UK – also declined. The imposition of these export restrictions in 2010 has become the poster child for concerns about China weaponising its dominance in critical materials.

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More recently, China announced export controls on gallium and germanium in response to US, Japanese and Dutch export controls on semiconductor chips. China is the world’s top supplier of these two metals, which are used to make semiconductors, solar panels and fibre optics. In July 2023, citing national security concerns, China’s Ministry of Commerce announced that all exporters of these products must apply for export licences for dual-use items and technologies starting on 1 August 2023. Obtaining the licences can take up to two months, and it is unclear how many will ultimately be issued. The sharp limitation of such export licences by Beijing would give additional impetus to diversification efforts in importing countries, but could also give rise to a wave of illegal production and exports from China, as was the case with rare earths in the past. The timing of the announcement suggests that the ban is a political signal more than an attempt at economic coercion, but the line between the two is dangerously blurred. The announcement of the export restrictions led to higher prices and a rush to stockpile but also, as was the case in 2010, to a diversification of supplies and processing away from China.

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Although sanctions and export bans could weaken China’s position in the long term, by accelerating this diversification, China has nonetheless used these tools in response to actions that it perceives as aggressive. China is therefore only likely to manipulate new energy supply chains against the UK in the face of perceived aggression from the UK against Beijing. Indeed, there is currently no indication that China is more likely to use new energy supply chains than any other supply chain in this way, when it can leverage instead either high levels of concentration or high levels of foreign-owned manufacturing in China. In the case of gallium and germanium, restrictions were carefully calibrated in response to restrictions on the sale of defence-related semiconductor chips to China, where gallium and germanium are important inputs. Consequently, other materials with dual military and energy-technology uses appear most likely to be caught in the crossfire of any future trade restrictions. China could constrain parts of net zero supply chains in response to UK policies perceived as hostile to China, but at this juncture, net zero supplies appear unlikely to be the subject of export controls other than in reciprocation.

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The exposure of the UK to export controls varies considerably depending on the commodity or product, and is determined more by UK demand than by Chinese dominance. Only limited data is publicly available for detailed trade between the UK and China: the UK does not publish any figures, and data from China is limited. What data is available shows that in areas that are more critical for net zero the UK is not necessarily heavily dependent on direct supply from China: for example, China’s exports of copper to the UK were worth only $145 million in 2022 and nickel exports only $11 million. Aluminium trade was much more extensive, being worth $2 billion. Net zero technologies make up only a small proportion of UK demand for aluminium, but the metal has wider importance for net zero as a lightweight alternative to steel used to improve efficiency, particular for automotives and buildings.

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The imposition of export controls by China would ultimately limit Beijing’s dominance over time and affect its reputation as a reliable supplier, just as infrastructure bottlenecks have already expedited trading partners’ efforts to diversify supply chains (as seen during the Covid-19 pandemic). Additional restrictions would only accelerate these trends. Russia’s invasion of Ukraine has already prompted a rethink by governments and international companies that are dependent on China, with many taking action to diversify. This shift emanates from rising tensions between the US and China and from concerns about decoupling, as well as worries about a military conflict between China and the US (and any potential sanctions that could ensue).

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Manufacturers are already looking to diversify production to other low-cost countries – a move also incentivised by rising wage and other input costs in China – at the same time as flagship programmes such as the US Inflation Reduction Act and the EU Net-Zero Industry Act provide new incentives. This reinforces the well-established principle that countries that lose their reputation as reliable suppliers can incur serious economic penalties in the long run. For now, China is unlikely to engage in direct sanctions against the UK, but should it seek to retaliate against UK policies (or in the event of a broader conflict with the UK or the West), China’s control over net zero supply chains offers it considerable leverage over all consumers, including the UK. The short-term impact would be more limited than disruption to the supply of fossil fuels, but would still put pressure on the UK economy and its ability to meet its net zero targets. Using economic coercion would also impact Chinese companies, and the Chinese economy would incur large costs too, especially given the growing importance of new energy exports compared with other exporting sectors.

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From the UK perspective, efforts to diversify production and supplies should at least partially mitigate China’s ability to individually target the UK in many areas over the medium term. Moreover, UK demand for materials is small by global standards, and will remain so. This means that the development of relatively limited international supply chains, independent of China, would likely be sufficient to rebalance the global market should export controls specifically target the UK. Such a scenario would see production that is not under China’s control redirected to the UK, with China-influenced supply chains redirected to fill the gap, albeit at a cost.

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Currently, the UK’s limited manufacturing capacity shields it from the impact of any potential cut-off by China: taking wind energy as an example, China’s dominance in permanent magnets is unlikely to be an effective sanction, as the UK does not directly import magnets but instead imports generators using those magnets from multinational companies in third countries. However, the threat should not be underestimated, particularly as the UK aspires to increase its manufacture of net zero equipment. The further the UK moves up the supply chain, the closer it moves to direct dependence on Chinese suppliers. But as domestic industrialisation will take time, new supply chains are likely to develop in tandem, particularly given strong government support for alternative supply chains within the EU and the US. Indeed, the UK will require more localisation of supply chains in order for its automotive production to qualify for tariff-free trade with Europe.

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While China’s ability to coerce the UK is therefore limited, any supply shortages (due to retaliatory measures, blockades or export controls imposed by China for a variety of reasons) will likely impact three main categories of new energy industries – the automotive sector, electricity generators, and UK companies with manufacturing operations in China.

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In the automotive sector, the UK government is likely to aim to maintain existing production capacity by converting it to EVs. China’s dominance in battery minerals as well as anodes, cathodes, electrolytes and lithium-ion packs, coupled with the apparent requirement for battery production for automotive manufacturers to be located in the UK, suggests that UK automotive companies will be directly dependent on Chinese suppliers. This would increase the overall vulnerability to restrictions targeting the UK.

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As discussed above, China is actively investing in manufacturing capacity in Europe. In situations such as mineral shortages, this could make the European manufacturing base more resilient, as Chinese companies might maintain supply to their own operations, potentially at the expense of other customers. However, during a major confrontation, Chinese-owned automotive capacity – assuming it would cease to operate – could prove a liability, because of the potential impact of interrupting production.

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The second group of entities that might be vulnerable to export controls targeting the UK consists of large-scale electricity generation project developers, where original equipment manufacturer (OEM) warranties are typically required to finance the purchase of key equipment, and where operations and maintenance may be dependent on the OEM for supply of spare parts and technical support.

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With many power plants relying on spare parts from China in the event of a breakdown, there may be some risk to their ongoing operation should access to spare parts and OEM expertise be restricted for an extended period of time. A more detailed assessment of exposure and scale may be beneficial in this case to determine whether risk is limited to power plant owners and operators, or whether it might threaten the security of electricity supply – but this assessment is not attempted here.

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The third group vulnerable to sanction is made up of UK companies that have manufacturing operations in China. China’s unique industrial ecosystem means that many UK technology companies manufacture equipment in the country, covering everything from smart meters to EVs and EV chargers. These companies are perhaps the most susceptible to intervention by the Chinese government, since small companies (such as these typically are) can be targeted by domestic legislation which, without risking significant international escalation, still sends a strong political message to Western governments, while big companies are able to pressure home governments to compromise in order to protect their businesses.

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Looking beyond these three vulnerable groups, it is likely that Brexit has reduced the potential cost to China of taking action specifically against the UK (as opposed to against Europe more broadly), and this might increase the likelihood of symbolic action being taken against the UK alone in order to send a message to the wider European community. Targeting an individual member of the EU with export control measures would mean targeting the entire bloc, with potentially significant repercussions for China. The UK, by contrast, might be individually targeted, causing relatively little short-term economic damage to Chinese companies while still making a strong political statement.

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For now, the threat of export controls targeting the UK alone appears to be limited. This is because direct UK consumption of China-dominated materials is very limited, due to the lack of manufacturing of net zero technologies in the UK and because alternative sources of supply will emerge over the medium term sufficient to meet UK demand. However, because of the likely scale of future UK demand, particularly as battery production for EVs grows ahead of 2030, more government planning may be advisable to ensure that alternative supply chains are being developed, in the UK and globally, at sufficient scale to keep up with demand. Moreover, protectionist penalties incorporated into industrial legislation in the US and the EU may make supply chains less fungible, and could limit the extent to which the UK can benefit from new supply chains.

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Regional Vulnerability

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The analysis above suggests that, if the UK alone were to be targeted by Chinese export controls, the impact under current conditions might be limited by low demand for intermediate products and diverse markets for final goods; and that such action taken in the future would also be limited in impact due to the emergence, over time, of alternative supply chains. This should insulate UK foreign policy somewhat from possible Chinese coercion using new energy supply chains.

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However, any confrontation with China over an issue such as the sovereignty of Taiwan would mean the UK facing China as part of a bloc, which could result in retaliatory measures from Beijing that targeted groups of countries. As a member of NATO, Five Eyes, and a group of likeminded nations opposed to Beijing’s aggressive expansionism in China’s immediate neighbourhood, the UK is exposed to geopolitical escalation involving sanctions and counter-sanctions against its allies. The 2022 energy crisis showed the extent to which regional disruption magnifies risks in concentrated markets, since global markets areunable to readjust to meet demand without generating very high prices. It also highlighted the interconnected nature of markets: even though the UK does not import gas directly from Russia, it was not insulated from higher gas prices.

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Again, the automotive sector might be the most immediately affected in the event of multinational action against China, as lack of access to Chinese supply chains would have an immediate impact on the UK economy. If the UK were targeted individually, it is likely that alternative supply chains would be available, whereas these alternatives are unlikely to be sufficient to sustain industries in the UK and the EU or the US concurrently in the event of multinational action. This kind of impact is currently hypothetical, as the UK does not yet produce a significant volume of EVs, but as the production of internal combustion engines is scaled back across the Western world, the potential for disruption grows significantly. That said, the ability to extend the life of the existing vehicle stock and the likely continued use of fossil fuel-powered heavy goods vehicles beyond 2030 means that any impact on the wider economy would likely be limited.

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Export controls affecting whole regions would undoubtedly put UK climate targets in jeopardy. As the Covid-19 pandemic demonstrated, sudden price inflation or delayed availability of key components for renewable power projects could result in delays and project cancellations. If supply-chain concentrations are not addressed, they could become an energy security challenge over time: the energy transition is set to result in a rapid increase in electricity demand from decarbonised sectors such as heating and vehicle transportation. This demand is not likely to be met by additional fossil fuel capacity, leaving the UK reliant on a steady supply of renewable electricity generation equipment to meet demand. For grid stability and to meet peak demand, the expansion of variable renewable capacity will also require substantial additions of flexible battery capacity. Furthermore, as fossil fuel plants are retired, non-renewable back-up options may become less available to increase output during periods of tight supply, while relying on fossil fuel plants for more of the time will leave less in reserve for emergencies.

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National Grid ESO estimates that the UK will need anywhere between 13 GW/44 GWh and 31 GW/118 GWh storage capacity by 2030, up from 3 GW/29 GWh in 2022. Energy security is linked to the UK’s ability to extend the electricity network and to deploy smart technologies whose supply chains currently depend on China. If the ramping up of mutually dependent net zero elements of the grid does not proceed in step with the retirement of fossil fuel infrastructure, energy security issues could emerge.

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In this context, the timing of any export controls would be critical. The UK will be most vulnerable while dependencies on China remain high and as investment in fossil fuel infrastructure becomes minimal and some assets are permanently retired. The duration of any disruption would also be important, with a short period of export controls unlikely to have a significant impact on citizens, as existing technologies would continue to operate and new projects would only be delayed by temporary price spikes and shortages. An extended period of export controls lasting years – not at all inconceivable in the history of modern sanctions – would pose a more severe energy security challenge.

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These questions about the UK’s vulnerabilities have led to some debate about whether net zero targets jeopardise UK security. But the reality is that trying to slow the energy transition risks worsening energy security challenges.69 Reliance on fossil fuels, coupled with price volatility, creates risks and vulnerabilities, whereas renewable electricity offers secure and affordable supplies – assuming prices continue to fall. A slower transition extends the period during which parallel infrastructures must be maintained, at increasingly high costs, and during which assets intended for retirement see reduced investment and decreasing performance, increasing the risk of unplanned outages and failures. Furthermore, many aspects of the energy transition – such as EV adoption – have a momentum of their own. Creating uncertainty about whether infrastructure will be available on time to meet demand by attempting to slow the adoption of net zero technologies may simply result in inadequate infrastructure due to insufficient investment. Ultimately investors will take their own view on likely demand, and if additional redundancy is desired it will need additional financial incentives.

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Global Exposure

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The most significant sources of vulnerability the UK faces in terms of China-dominated new energy supply chains are undoubtedly those that have an impact on the global market. These include non-political events such as natural disasters and pandemics, common to all concentrated markets, as well as market risks that are already highly likely, such as shortages of key minerals. In its base case analysis, based on current policies, McKinsey estimates that by 2030, some eight out of 14 minerals essential for net zero technologies will have shortages of more than 10% of demand, with two facing shortages of more than 50%. In a scenario where commitments are achieved, all but two minerals face shortages of more than 10%. Primary production is already largely committed over this period, meaning that forecasts are relatively certain to be realised if demand increases at the expected rate. Recycling might be expedited to reduce shortages, with primary production increases possible over the longer term, but recycling policy and implementation of critical minerals strategy in the UK remains limited.

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image08 +▲ Table 8: UK New Energy Technology Demand and Forecast Supply Adequacy for Related Critical Minerals with High Levels of Chinese Control. Projected 2030 mineral supply and demand imbalance figures are based on the current trajectory base case laid out in Patricia Bingoto et al., “The Net-Zero Materials Transition”. Sources for other information in the table: Faraday Institution, “UK Electric Vehicle and Battery Production Potential to 2040”; National Grid ESO, “Future Energy Scenarios 2023 Data Workbook”, July 2023; Department for Business, Energy and Industrial Strategy, “Appendix I: Electricity Networks Modelling”, August 2022.

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Shortages could create allocation problems for China of the kind that are common to all major producers during tight markets. If shortages cause production to fall significantly below global demand, China will have to decide which markets to serve first, and it is probable that the domestic market will be prioritised. This behaviour is common for most producers – for example, oil exports were banned in the US between 1975 and 2015, and some Australian states have legislation allowing export bans under some circumstances. Disruption in battery supply chains during the Covid-19 pandemic tended to result in contracts with the largest volumes and biggest customers being honoured. This would favour larger EV manufacturers, which are then likely to prioritise between their assets across countries according to commercial strategy.

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With shortages looming, investments in mining by Chinese companies should generally be welcomed and not seen as a threat. Indeed, growing Chinese investment in mining and its increasing share of the market reflects the lack of activity among other actors. While China is working to secure upstream mineral supplies, the UK and other countries around the world are failing to move at sufficient pace to encourage additional sources of supply and incentivise processing capacity outside China. The more important question over the longer term is whether Chinese investments will support the development of a liquid and fungible market. Evidence from sectors such as LNG, which were initially entirely bilaterally contracted, suggests that more actively traded markets are likely to emerge as the number of producing countries proliferates, but this can take a long time. This may not be relevant for some of the speciality minerals that are required in very small quantities, and where stockpiling may be a better solution, but the availability of traded markets in larger commodities can mitigate the impact of supply outages.

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The extent of China’s dominance of supply chains and the likely persistence of this position for at least the next decade means that UK-based companies will be exposed to sharp tactics and aggressive competition. Aggressive price competition is a periodic feature of commodity markets, and marginal producers tend to be casualties of this dynamic. For example, aggressive competition between Saudi Arabia and Russia for oil market share in 2020 put sufficient pressure on US shale oil producers for then-president Donald Trump to call for OPEC to reduce production and increase prices. In another example, a flood of Chinese steel onto global markets in the mid-2010s as Chinese domestic demand slowed and spare capacity became available resulted in bankruptcies and protectionism across the rest of the world. China has the capacity in many areas of the supply chain to pressurise competitors, but over the next decade this is likely to be mitigated for mining upstream and midstream by shortages, which make sharp commercial tactics much less effective (as all additional capacity will be utilised). As discussed earlier, the situation for manufacturers dependent on scarce Chinese supplies will be different, and state support for underutilised gigafactories is expected by some in the industry.

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Defence

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Growing demand for critical minerals is prompting questions from defence analysts within and outside government. Three questions appear particularly pressing:

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    How secure are defence and security supply chains, and how secure will they continue to be?

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    How secure is the use of net zero technologies by the military and security services?

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    How will changing demand patterns for minerals affect where the military is called upon to deploy?

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The research for this paper suggests that the risks stemming from China’s role in supply chains affecting access to new energy technologies for military purposes are likely to be similar to those affecting civilian applications: over the next decade, military net zero technologies are likely to use similar materials and components to civilian technologies. Land mobility may be one of the main drivers of demand, which, while deployed in different formats, will likely use the same underlying battery materials and technologies as civilian EVs. The same is true of renewable or hybrid mini-grids deployed at military bases. Targeting military usage specifically would therefore be very difficult to do without targeting the entire civilian supply chain. That said, large-scale military procurements might be vulnerable to delays should aggressive corporate tactics be adopted, which could have implications for military capability by extending the use of outdated equipment.

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Secure operation of net zero technologies is the critical area for military and security services. China already bars EVs from sensitive sites over fears that data could be misappropriated. There are similar fears in Western security services and militaries about how easily the movement of EVs used in covert operations might be tracked. While Chinese-made vehicles may pose a particular risk, this is a concern for all EVs, which tend to transfer large amounts of data on vehicle movement and usage. But the issue is not limited to EVs, with all vehicles being increasingly dependent on software and sending usage data to manufacturers.

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The question of how demand for critical minerals might affect the location of conflicts around the world is an important one, although largely beyond the scope of this paper. China does play a significant role as the primary offtaker of mining for net zero resources internationally. The way that China chooses to behave with respect to the interests of other countries seeking access to mines creates risks, such as ensuring access to logistics and infrastructure, allocation of promising concessions, and contest for political influence should tensions between China and other major mineral consumers escalate. Similarly, opaque contractual structures create uncertainty about the degree of liability of sometimes fragile governments. Externalities from poor mining practices can be a significant source of instability and are by no means limited to Chinese interests, but they highlight the need for more engagement by international and multilateral institutions with miners on best practice and market reform.

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A longer-term question that may not be receiving sufficient attention is what the impact might be should China leverage its industrial and, increasingly, technological advantage in net zero technologies for military purposes. Net zero technologies are still at an early stage in their innovation trajectories, and are receiving much more R&D investment globally than conventional technologies. In many areas, they may ultimately outperform fossil fuel technologies, in terms of both cost and capability, particularly in logistics. It is not yet clear what scope there is for major technological breakthroughs in China to impact relative military advantage, particularly with respect to China’s neighbours. Such innovations might ultimately affect many areas – from the relative efficiency of Chinese industrial defence production and cheaper logistics with superior capability, potentially through to battlefield advantages from developments in areas such as sheet metals and electric drones – and will have their origins in a superior industrial–technological ecosystem.

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There is no doubt that China’s influence in new energy supply chains will expand its already significant global footprint. Similarly, China’s higher risk tolerance compared to many Western actors, combined with companies’ willingness to operate with razor-thin margins, will further enhance Beijing’s control over new energy mineral resources. As seen in other areas, China’s economic and commercial presence in a wide range of producer countries also aids Beijing’s efforts to garner backing in multilateral bodies and global institutions in support of China’s position on a given issue. To be sure, Chinese companies operating abroad have a mixed track record in terms of their ESG practices, and have suffered pushback from host countries. China’s growing global footprint and fear of decoupling with the West is already leading it to rally developing countries to reduce the West’s influence. On a bilateral basis too, China’s involvement in producer countries could have implications for broader UK foreign policy goals. The extent of this influence will, however, depend on the degree of support China is offering, how it is perceived in host countries, and how alternative influences are perceived. The UK should review its foreign policy approaches in this context too. China’s foreign policy is closely linked to new energy supply chains, but is not defined by it. At the same time, foreign policy initiatives can support commercial and strategic objectives, including expanding and deepening China’s dominance of net zero supply chains. These interconnections deserve further research and analysis.

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Conclusion

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China holds dominant or strong positions along several global supply chains for the clean energy products that are critical to the net zero energy transition in the UK and elsewhere. Examples include lithium-ion batteries, wind turbines and solar PV modules. China’s strength in this regard encompasses the extraction of raw mineral ores, through the processing and refining of the ores to produce the final metals, to the manufacture of intermediate and final products. China’s dominance is particularly pronounced in the processing and refining of ores. Significant quantities of some of these ores are imported to China from overseas, often from mines in which Chinese companies hold a significant or majority share, or with which they have secured offtake agreements.

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Scale of dominance: In lithium-ion battery supply chains, for example, China is responsible for more than 80% of global supplies of spherical graphite and refined manganese, and of anodes and electrolytes. For wind turbines, it controls more than 80% of refined rare earth metals and manganese, as well as NdFeB magnets. Finally, in solar PV modules, it accounts for more than 80% of refined germanium, polysilicon, wafers and silicon cells. Elsewhere in these supply chains, China is responsible for more than 60% of global output, pointing to very high degrees of market concentration.

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Processing and refining: Chinese dominance pivots on its control of the processing and refining of minerals. This rests on economies of scale built up over many years, government financial incentives, and on an increasingly strong stock of intellectual property. Chinese companies’ importance in upstream mining is further reinforced by control of the midstream, but also by a relatively high degree of risk tolerance, which backstops upstream mining investments, ensuring access to the highest-value parts of the supply chain. This position will not be usurped over the next decade, and potentially will only be to a limited extent in the decade afterwards. Any inroads into reducing Chinese market share willcrequire heavy public investment and protection from dumping and aggressive state-backed competition.

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Potential leverage: China could potentially exploit its strength for coercive purposes: it is already using export quotas and administrative processes to complicate access to supplies of gallium and germanium, as well as graphite, which in turn has impacted costs. Arguably, infrastructure bottlenecks in China during the Covid-19 pandemic or outages due to floods and power cuts have had a more material impact on the cost and availability of new energy supplies to date. Going forward, the lack of critical materials will also have an inflationary effect on new energy supply chains. Market concentration in China will clearly give it commercial advantages, but the extent to which Beijing will use it for geopolitical leverage remains uncertain. For now, Beijing is more likely to use its leverage in response to perceived aggression – but this could change over time.

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Comparisons to Russia’s importance in terms of gas supplies have been made frequently since the Russian invasion of Ukraine. However, there are important distinctions to be made. First, Russia accounted for 40% of European gas supplies before the invasion, whereas market concentration in China is vastly more significant. Second, the impact of an oil or gas outage is different to curtailment of sales of critical materials or components. A direct oil or gas shortage imposes costs on a country’s economy and can limit activity in certain sectors if no alternatives are available; shortages of critical materials, on the other hand, do not cripple economic activity immediately. Third, given the existence of fungible traded markets for oil and gas, supply outages can be mitigated at a cost, which in turn has implications for the entire global economy. Even though the UK does not import Russian pipeline gas, the impact of higher gas prices was also felt in the UK. Equivalent market mechanisms for critical materials are nascent or immature, making it harder to offset shortages. Overall, supply outages for materials and components have a longer-term inflationary impact and risk slowing the energy transition. A simple comparison to oil and gas is not enough. The risks associated with market concentration for new energy supply chains must therefore be assessed more holistically, as should the trade-offs associated with de-risking or decoupling from China.

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Risks to the UK: The coercive risk for the UK is related to the degree of separation between the stage of the supply chain dominated by China and the stage at which UK consumers enter the market. The likelihood that China would be able to target the UK exclusively is small, as the UK today is principally an importer of final or near-final products. As the UK’s capacity to manufacture these products grows, its vulnerability to Chinese coercion increases, and will require a diversification of supply chains. However, even with more diverse supply chains, the UK’s access to materials and components (as well as their cost) would be determined by industrial policy choices made in the EU and the US. Conversely, given the wider tensions between China and the West, any action taken by China to restrict exports of clean energy metals and products would more likely impact the UK, the EU and the US together in response to a perceived provocation, either economic or military. If prolonged, such an embargo would have a profound impact on the UK’s low-carbon transition (alongside other economies’ transitions), but only a modest effect on the wider economy. The greatest risk for the UK stems from events that have a global impact. These could arise from a natural disaster or pandemic, or from a general shortage of critical materials that forces China to prioritise its domestic market.

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Battery supply chains: The UK is likely to be most heavily exposed to China’s dominance in battery supply chains. This is because China is dominant across most elements of the battery supply chain, and UK automotive manufacturers and the UK electricity grid are expected to rapidly increase demand for batteries. Wind is another area of concern, but the concerns are currently mitigated by a degree of separation between Chinese suppliers and UK users. Nuclear power is not discussed in this paper, but is another supply chain where China is increasingly influential.

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China’s political/economic calculus: China’s ability to leverage its position in net zero supply chains for political ends should be neither overstated nor underestimated. The reason it should not be overstated is because China could use other supply chains to impose coercive pressure on the UK: the total value of UK trade with China in the year to end Q1 2023 was £107.5 billion, with £69.5 billion of imports. China was the UK’s fourth-largest trade partner over this period. This shows that, in circumstances that might give rise to a serious ratcheting up of pressure on UK–Chinese trade, the UK would have much more immediate concerns than net zero supply chains. The reason that China’s ability to leverage its dominance should not be underestimated is that the relatively limited (but symbolically important) role of net zero technologies – as well as China’s unusual dominance in those industries – might make them a useful target should China wish to make a political statement. This paper shows that there may be ways for China to use net zero supply chains in this way without provoking a major escalation.

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Military considerations: The risks to new energy technologies for military purposes stemming from China’s role in supply chains are likely to be similar to those facing the wider population. However, in a time of actual or potential shortage the military could be vulnerable to aggressive corporate strategies and, meanwhile, the military faces the same data security risks as civilian users of Chinese equipment. The extent to which China will be able to use its technological and manufacturing strengths in net zero products to yield military advantage is not clear. In contrast, China’s growing international sales and investment in net zero minerals and products is already boosting its soft power in ways that will impact the UK’s foreign policy goals.

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Risk mitigation: Mitigating China-centred risks will require action across the entire supply chain: accelerating investments in upstream mining developments, diversification of processing and refining, and recycling of critical minerals and materials. International efforts should aim to engage all actors, including China, to align objectives as far as possible towards the development of open markets which will ultimately benefit everyone, at least economically. Involving China directly in UK projects may mitigate some risks related to shortages, but may also hamper longer-term efforts to develop alternative supply chains that are fully independent of China, and so a mixed approach might be optimal.

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The fallacy of delay: Risks related to China are not likely to be significantly reduced by delays to the transition to net zero. Energy security during the transition is most closely associated with delay and uncertainty as systems are simultaneously scaled up, ramped down, or repurposed. Abandoning national targets would simply increase uncertainty about government commitment to putting in place the infrastructure that will underpin future energy security.

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Research needs: Internally consistent public data is not available on China’s market position in most minerals and products, with multiple reputable sources giving significantly different figures. Better publicly available data on the following issues would help improve analysis of:

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    China’s domestic extraction capacity for critical minerals.

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    China’s domestic processing capacity and annual output of critical minerals.

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    Capacity and annual output of critical mineral mines and processing plants outside China that involve Chinese investment.

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    Data around prices of critical minerals and materials.

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    Details of China’s international trade (import and export) in critical mineral ores and refined metals, including routes through third countries (in terms of quantity and value).

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    Detailed information on China’s international trade in intermediate and final products of net zero energy technologies, including routes through third countries and products manufactured by Chinese companies in third countries (in terms of quantity and value).

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Countries do not need to be close allies to be close trading partners. Political or ideological alignment is similarly non-essential. China is deeply embedded in new energy supply chains and its long and steady cultivation of these industries has been essential for the progress made towards reducing the cost of new energy technologies worldwide. Despite some risks, the UK should not seek to exclude China from its supply chains. Instead, the country should seek to communicate effectively with China about the need for diverse supply chains as a point of principle for robust markets and to make the case clearly that this is both in the UK and China’s interests. Bigger, more reliable markets will result in a larger and more diverse client base for China and more supply chains for large-scale new energy technology consumers in the UK and allied countries.

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In its domestic policy, the UK should aim to encourage consumers to invest in diversity at all stages of the supply chain, without seeking to exclude China from any of them. Likely shortages in critical minerals offer an opportunity to do this as more mining and refining capacity will probably be required, some of which might usefully be located outside China.

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Michal Meidan is Head of China Energy Research at the Oxford Institute for Energy Studies (OIES). Before joining OIES in July 2019, she headed cross-commodity China research at Energy Aspects. Prior to that, she headed China Matters, an independent research consultancy providing analysis on the politics of energy in China.

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Philip Andrews-Speed is a Senior Research Fellow at the OIES. He has more than forty years’ experience in the field of energy and resources, starting his career as mineral and petroleum exploration geologist before moving into the field of energy and resource governance.

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Dan Marks is a Research Fellow in energy security at the Royal United Services Institute. His research focuses on national security dimensions of the energy transition in the United Kingdom and internationally.

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+ + + + diff --git a/hkers/index.html b/hkers/index.html index 26e5e665..3a9ff8aa 100644 --- a/hkers/index.html +++ b/hkers/index.html @@ -69,13 +69,14 @@
UNITE THE PUBLIC ♢ VOL.35 © MMXXIII ♢ C2
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Written Evidence

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New Energy Supply Chains

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Isabella Antinozzi | 2023.11.07
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The Russian invasion of Ukraine increased the European Union’s (EU) ambitions in security in defence as well as member states’ appetite for EU-led solutions in this field.

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Michal Meidan, et al. | 2023.11.16
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Russia’s invasion of Ukraine has focused attention on energy supply chains and contributed to growing unease in the West about the fact that supply chains for the commodities necessary for the global energy transition are highly concentrated in China (or under Chinese control).

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< Full Article >
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< Full Article >
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<
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Two Wars, One Denominator

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Track and Disrupt

+ -
Emily Ferris | 2023.11.07
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As the war in Gaza distracts the West from its support for Ukraine, Russia is seeking to exploit the situation by positioning itself as a reasonable broker that has the ear of both Israel and Hamas.

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Olivia Allison and Gonzalo Saiz | 2023.11.10
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Efforts to align third countries with sanctions against Russia will only succeed when the private networks facilitating circumvention are understood and countered.

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< Full Article >
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< Full Article >
@@ -100,14 +101,14 @@
<
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The Kingdom Of Oil

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The Securitisation Of Energy

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Tobias Borck | 2023.11.07
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Saudi Arabia is set to remain one of the most influential players in global oil and energy markets. Understanding – and taking seriously – its evolving strategic calculus must therefore be a key task for policymakers in the UK and across Europe as they seek to safeguard their countries’ energy security.

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Emily Ferris | 2023.11.09
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Understanding how Russia constructs its energy security and foreign policies is essential to anticipating how it might behave in international forums, particularly on challenging issues such as environmental and energy security.

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< Full Article >
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< Full Article >
@@ -116,14 +117,13 @@
<
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AI-Generated Lies And Truth

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Principles For UK–CN Strategy

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David Gioe and Alexander Molnar | 2023.11.02
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How does the technology aid fake news and narratives – particularly in the run-up to 2024 for elections in many Western democracies?

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Andrew Cainey | 2023.11.08
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China poses an “epoch-defining and systemic challenge with implications for almost every area of government policy and the everyday lives of British people”, according to the UK’s March 2023 Integrated Review Refresh.

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< Full Article >
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<
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Israel’s Gaza Problem

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Written Evidence

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Daniel R DePetris | 2023.11.01
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Following the 7 October attack by Hamas, Israel has determined to destroy the terrorist group controlling Gaza once and for all. The question is not just whether or not it will succeed, but what its plan is for the day after.

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Isabella Antinozzi | 2023.11.07
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The Russian invasion of Ukraine increased the European Union’s (EU) ambitions in security in defence as well as member states’ appetite for EU-led solutions in this field.

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< Full Article >
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< Full Article >
@@ -148,14 +147,14 @@
<
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The Lost European Vision

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Two Wars, One Denominator

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Christian Mölling and Sören Hellmonds | 2023.10.31
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Drawing insights from defense experts across NATO members, the study highlights the evolving European defense landscape, emphasizing security of supply concerns and the balance between national and EU initiatives. The report underscores pivotal forthcoming decisions in Europe’s defense amidst changing geopolitical dynamics.

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Emily Ferris | 2023.11.07
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As the war in Gaza distracts the West from its support for Ukraine, Russia is seeking to exploit the situation by positioning itself as a reasonable broker that has the ear of both Israel and Hamas.

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< Full Article >
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< Full Article >
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Treading A Fine Line

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The Kingdom Of Oil

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Louise Kettle | 2023.10.30
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After initial speculation around its involvement in the Hamas attacks, Iran is coming under increasing pressure over how to respond to the conflict.

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Tobias Borck | 2023.11.07
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Saudi Arabia is set to remain one of the most influential players in global oil and energy markets. Understanding – and taking seriously – its evolving strategic calculus must therefore be a key task for policymakers in the UK and across Europe as they seek to safeguard their countries’ energy security.

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< Full Article >
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< Full Article >
@@ -180,14 +179,14 @@
<
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Goodbye Mr Chips?

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AI-Generated Lies And Truth

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Paul O’Neill and Patrick Hinton | 2023.10.30
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Better practices are needed to improve the effectiveness of defence training.

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David Gioe and Alexander Molnar | 2023.11.02
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How does the technology aid fake news and narratives – particularly in the run-up to 2024 for elections in many Western democracies?

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< Full Article >
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Uncrewed Ground Systems

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Israel’s Gaza Problem

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Patrick Hinton | 2023.10.26
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Military experimentation with uncrewed ground systems (UGS) is happening apace. Bomb disposal robots have been in service with armed forces for decades. Now, systems with greater capabilities and autonomy are being developed and tested.

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Daniel R DePetris | 2023.11.01
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Following the 7 October attack by Hamas, Israel has determined to destroy the terrorist group controlling Gaza once and for all. The question is not just whether or not it will succeed, but what its plan is for the day after.

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< Full Article >
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< Full Article >
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Taliban’s Campaign Against IS

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The Lost European Vision

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Antonio Giustozzi | 2023.10.25
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This paper examines the strategies employed by the Taliban in response to the threat posed by the Islamic State in Khorasan (IS-K) in 2021–22.

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Christian Mölling and Sören Hellmonds | 2023.10.31
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Drawing insights from defense experts across NATO members, the study highlights the evolving European defense landscape, emphasizing security of supply concerns and the balance between national and EU initiatives. The report underscores pivotal forthcoming decisions in Europe’s defense amidst changing geopolitical dynamics.

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< Full Article >
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< Full Article >
@@ -1061,6 +1060,14 @@
<