Sustainable energy supply chain

Kim Sung-woo

From May 20, the Asian Leadership Conference (ALC) convened in Seoul. Often described as Korea’s answer to the Davos forum, the ALC gathers distinguished global leaders —ranging from former U.S. President George W. Bush to Indian Prime Minister Narendra Modi — to survey major challenges facing society and to explore possible policy and practical solutions. For the past 10 years, I have organized and moderated the conference’s environment and energy session. This year, the conversation was dominated by risks to energy supply chains. That emphasis reflects a stark reality: Since the United States’ strike on Iran at the end of February and the subsequent escalation into a broader Middle East conflict, the world has confronted renewed supply chain vulnerabilities that pose a direct threat to global energy security.

The current crisis in the Middle East has resurrected the inflationary specter that followed the outbreak of the Russia-Ukraine war in 2022, when gas and electricity prices surged dramatically. The episode has made clear that geopolitical shocks of that magnitude can recur, and that their repetition would have severe implications for energy markets worldwide. As conflicts in Europe and the Middle East continue to reverberate, Asia’s energy markets have been particularly sensitive to instability. In that context, nations with high dependence on imported fuels — most notably Korea and Japan — voiced urgent calls at the conference for measures to mitigate the fragility of existing supply chains and to strengthen national energy security capabilities through accelerated energy transition.

Analyzing how the U.S. and China are each navigating energy transition proved especially instructive, because developments in those two countries strongly influence Asian markets and set powerful examples, albeit different ones, for how to manage supply chain risk. In the U.S., energy transition has advanced significantly even in spite of federal policy priorities. Over the past year, the Donald Trump administration has pursued a regulatory agenda that favors fossil fuels and scales back clean energy initiatives. This administration has rescinded the Environmental Protection Agency’s (EPA) endangerment finding, the legal basis for regulating greenhouse gas emissions from vehicles, power plants and industrial sources, and proposed a 52 percent reduction in the EPA’s budget for the coming fiscal year. Those moves signal a governmental posture that appears disengaged from rapid decarbonization.

Yet despite this federal policy orientation, market and technology forces have propelled a different direction for power-sector investment. Official projections released earlier this year by the U.S. Energy Information Administration (EIA) indicate that of the approximately 86 gigawatts of new generation capacity planned for installation in 2026, an estimated 93 percent consists of solar, wind and energy storage systems — about 51 percent solar, 14 percent wind and 28 percent storage. The EIA’s outlook further suggests that between 2025 and 2027, coal-fired generation will decline by approximately 10 percent, while solar generation could increase by roughly 46 percent. The prevailing interpretation among analysts and industry participants is that clean energy technologies are now relatively inexpensive and can be deployed rapidly compared with many conventional alternatives, aligning them with the immediate operational and economic needs of the U.S. electric grid.

China’s approach, by contrast, blends a strong state-driven commitment to energy transition with an explicit strategy to cultivate domestic industrial capacity that reduces exposure to external disruptions. Over the past decade, Beijing has pursued higher energy self-reliance by concentrating domestic resources and capabilities in coal, nuclear and renewables while actively promoting electrification in the transport sector through policies supporting electric-vehicle adoption. This effort has left China comparatively insulated from supply shocks and price volatility arising from conflicts abroad. At the same time, China has methodically built up manufacturing strength in the industrial ecosystem that undergirds energy transition – electric vehicles, batteries and renewable energy equipment. By 2025, China accounted for nearly three quarters of global electric vehicle production, roughly 80 percent of global lithium-ion battery manufacturing capacity, and about 88 percent of solar-panel manufacturing capacity.

The recent Middle East turmoil has intensified demand across the region and among neighboring countries for alternatives to oil and gas, accelerating the shift from internal combustion vehicles to electric vehicles and prompting more rapid adoption of energy storage solutions and renewable installations as governments strive to domesticize energy supply. That demand has, in turn, driven increased exports from China’s energy-transition industries — export growth fueled by high production volumes and competitive pricing.

Taken together, these patterns have immediate relevance for Korea and Japan. The Strait of Hormuz carries roughly 20 percent of global seaborne crude oil flows, with roughly 80 percent of the oil transiting the waterway is destined for Asia. Korea sources about 70 percent of its crude oil imports from the Middle East, and Japan’s dependence exceeds 90 percent. Despite efforts since the oil shocks of the 20th century to diversify supplies, both countries remain heavily reliant on Middle Eastern imports for economic reasons that have constrained more rapid transition. Still, the U.S. experience underscores an important contemporary difference: The costs of many clean energy options have fallen sufficiently that energy transition is economically feasible on a broader scale today.

At the same time, China’s model warns against overreliance on a single external supplier: If Korea and Japan seek to reduce Middle Eastern dependence solely by importing energy transition technologies and components from a single country, they may substitute one form of supply chain vulnerability for another. A more sustainable path is to pursue domestic energy transition programs that increase indigenous energy production while simultaneously cultivating homegrown industries that support the transition. Building such domestic capacity would reduce exposure to distant geopolitical shocks, strengthen long-term energy security and create resilient, sustainable supply chains that better serve strategic interests.

Kim Sung-woo, head of Environment & Energy Research Institute at Kim & Chang, is a board member of KETEP.