Chartbook 439 Electrostates v. petrostates. Clarifying a tricky distinction.

Some time last year a distinction began to be drawn between electrostates and petrostates. China was the key instance of an electrostate. The US under Donald Trump has made a spectacle out of its commitment to fossil fuels. The result have been a spate of headlines and articles pitting electrostates v. petrostates. I made my own contributed to the genre with the title of my LRB talk in the fall.

Since then I’ve become increasingly worried about the proliferating uses of the contrast. Because, as compelling as it may be for leader writers, it is a distinction that needs to be handled with care.

We call a country an electrostate, if it draws a large and increasing share of its total final energy consumption in the form of electricity.

Source: Ember

This is opposed to a society that relies heavily on burning gas, oil or fuel directly, whether in industrial or domestic uses or in cars, trucks, ships and airplanes. How you get your energy delivered matters, because in the clean energy transition, the key mantra is “electrify everything”. Electricity is one form of power that we know how to produce by clean means. In most places that is still far from true for much of electricity generation, but it is the prospect of the energy transition that gives significance to the question of electrification and supercharges the idea of an “electrostate”.

China has been singled out as the archetypal electrostate. It has been expanding the share of its final energy use which is delivered in the form of electricity. Added to which, in the last five years, renewables have taken over as the most rapidly expanding form of electricity generation. Furthermore, Chinese manufacturers dominate the EV business, bringing the prospect into view that the internal combustion engine will be rapidly displaced. Ultra high-speed (electrified) railways compete with inter-regional flying inside China. And China, of course, is very much a mixed economy with the state playing a key role. So China ticks all the boxes of an ElectroState.

But think for a second about it, and you realize that the vision of electrostate development is not inherently confined to particular states and countries. When coal and hydro were the cheapest means of generating electricity and gas could not be shipped long-distance except by pipeline, the advantage in electrification was with mountainous countries with suitable rivers and with those with large coal deposits. But the advent of LNG and the arrival of renewables and batteries mean that electrification is now an option for everyone, everywhere.

Who would not choose versatile electric power, especially if it can be provided from clean and cheap sources? The Soviet Union was an electrical engineering powerhouse, where the PRC’s first generation of electrical engineers learned their trade. Brazil is a hydro power. The Gulf states have been eager importers of Chinese solar panels and batteries. In the United States, the state of Texas is the leading generator of utility scale renewable energy. For long stretches of the day, America’s largest producer of oil and gas, runs its electricity grid heavily on solar and wind supported by batteries.

The hyperscaling AI companies who are due to spend $650 bn on “compute” in 2026, are desperate to build out the US electrostate. Their problem is not just that the US resists imports of the cheapest Chinese solar panels and wind turbines and, under Trump sabotages renewables development in general, but that regardless of who sits in the White House, the process of grid expansion, connection and interconnection is so broken, that even if generating capacity becomes available, it cannot be hooked up efficiently.

In short, any economy can be an electrostate. Whether you produce huge quantities of oil, gas or coal, makes no difference. The degree to which you are an electrostate is an expression not of underlying factor endowments, or of economic structure, but of economic and governmental rationality. It is a complex index of your capacity for modern economic and technological development. The US is not not an electrostate. It is an electrostate, just one that is slouching rather than racing towards the new era of ultra-low cost electric power.

Nevertheless, it has been increasingly common to dub the US a petrostate. Generally, this isn’t meant kindly. Why?

The shale revolution has turned the United States into the leading oil and gas producer in the world. And into a major exporter. But the term “petrostate” was generally a designation reserved for economies and states that are dependent on oil and gas to generate rents (GDP), valued added (GDP), export earnings (dollars), or government revenue (taxes), or all four. To be designated a petrostate, in other words, means that you were at a relatively low level of economic development, or a low-level of state capacity.

The designation of petrostate applies to an economy like that of Angola. It can be sensibly applied to the Gulf states, though they have worked hard to diversify their economies. Officially, oil and gas account for “only” somewhere between 40 and 50 percent of the Saudi economy. Saudi Arabia isn’t a city state. It is a county of 32 million inhabitants. At a pinch the designation as “petrostate” an be applied to Russia, particularly on the government revenue and export earnings side. But in the classic sense, it really does not make much sense when applied to the US. The American Petroleum Institute credits its own lobby - the oil and gas industry - with a $1.8 trillion contribution to US GDP 2021 or 7-8 percent. In Texas, oil and gas account for 15-16 percent of GDP. That is significant but not large enough to qualify even Texas as a petrostate in the strong sense of the word. If pundits and politicians choose to talk about the US as though it were a “petrostate” that is for political reasons. It is a matter of “discursive construction”, rather than an obvious economic fact. The strength of the US fossil fuel lobby needs explaining not taking for granted. And as for the contrast to electrostates is concerned, Texas may be responsible for 42 percent of US oil and gas production. But it is also America’s leading producer of renewable electricity and a pioneer in the deployment of battery power. Why? Because it makes economic sense. Being a competitive oil and gas producer, like Texas or Saudi Arabia, is not a license for waste. Having a dynamic sector, like oil and gas, in a regional economy in fact tends to raise costs for other sectors (Dutch disease), making them more, not less interested in other ways of saving money, as, for instance, with cheap, clean electricity.

What is truly distinctive about the USA as an oil and gas producer, and what puts the designation as a “petrostate” back in play, is not so much the production side, as the demand-side. The US economy is not just the leading oil producer in the world, producing over 13 m barrels per day, it is also the number one oil consumer, with demand running at c. 19-20 m barrels per day, roughly 20 percent of global demand. By comparison China consumers 15-16 m barrels, and produces at home no more than 4 m barrels. The EU consumes 10 m barrels per day and produces barely half a million. Saudi Arabia produces around 9.5 m barrels per day and consumers only 3.5 m barrels. Russia produces just short of 9 m barrels per day and consumes around 3.9 m barrels.

So this sets up three different positions with regard to the fossil fuel future. China and the EU have every reason to look for ways to replace imported oil with home generated (clean) electric power. Hence the compelling logic of China’s electrostate development and the puzzle as to why Europe is not pushing far harder in the same direction. In any case, the trend seems clear. Expect the EU and China to conform ever more comprehensively to the electrostate model.

Saudi Arabia (and Russia) face more of a dilemma. As suppliers they are petrostates, but with production far in excess of local demand they ultimately rely on global markets to absorb their production. They can cultivate and “lock-in” those global markets by building infrastructure like pipelines, LNG terminals and refineries. But ultimately they are competing on price against other energy types, notably electricity. Being dependent on foreign demand (and often on foreign capital and technology) was another common feature of classic petrostates. With China (and the EU) decarbonizing, the outlook for fossil fuel demand is not bright. This gives the classic petrostates a powerful incentive to diversify their economies away from fossil fuels. The rich producers - Saudi Arabia not Iraq or Angola - have money to invest. And clean and affordable electric power is an obvious line to pursue. Hence the investments by the Gulf states in Chinese renewables. Expect their future trajectory to be that of petrostates with electrostate sectors.

What qualifies the US as a unique kind of “petrostate”, is not just its huge oil and gas production, but the fact that this supply is met by even greater demand. This gives the United States a choice. The balance of demand and supply means that it could simply decouple from the global trend towards (green) electrification and “lock in” a hydrocarbon based national or continental model. This is not the most obvious path. The most obvious path for the US, as a much larger and more sophisticated economy than either Russia or Saudi Arabia, would be to opt for the same mixed economy model but with a different balance i.e. an increasingly green electrostate with a large hydrocarbon sector. This was the “all of the above” model favored by the Obama and Biden administrations. But the GOP und Trump don’t favor this path. For ideological reasons, they oppose a mixed model of fossil and electrotech development. This is a perverse, political choice. But unlike for the rest of the world, this is at least thinkable in the US case. In an inversion of familiar logic, the US is large enough, rich enough and sophisticated enough to simply freeze in place the late 20th century model for the foreseeable future.

To do this, the push to electrify mobility would be aborted. Internal combustion engines would rely on America’s domestic oil production or cheap imports of oil. If it chose to exclude renewables in electricity generation by regulatory decree, the US could revert to the early 2000s gas-based model of electrification. An electricity system based first and foremost on natural gas is an option for the US. At the margin this would be less efficient than a model with a growing share of renewables. But the main obstacle to this path is not so much economics, but the inability to produce enough gas turbines and the inability of America’s network to rapidly connect new capacity. Though it is rarely spelled out in this form, it is this specter which keeps the talk of an American “petrostate” in circulation.

If this were to be the future it would be highly significant not only for its immediate impact, but also for the way that it scrambles normal models of causation. The petrostate designation was after all based on a naturalistic model of economic development driven by factor endowments. Petrostates precisely in being determined by their natural endowments were also in some more “primitive” than diversified economies that survived and prospered through finding niche in the division of labour. If the United States chooses to use its endowment of fossil fuels and the size of its economy to freeze in place the early 20th-century status quo and thus to fall more and more out of step with global electrotech development, that will not be a natural fact, but a matter of political choice. The US would be the pioneer of a novel form of “closed petrostate”.

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