1. Global appetite for energy transition
What are the major issues impacting clean energy transition?
A central policy of many of those committed to reducing global warming is a transition to clean energy. This makes sense because the fossil-fueled energy sector is responsible for the majority of the world’s greenhouse gas emissions. However, this is not a simple case of turning off coal-burning power stations and flicking the switch to clean energy on.
“One year ago everybody who would have heard the word energy would probably have thought about the energy transition about sustainable development about different speeds of different countries, practical questions. Now when you hear energy, people think energy security, in a very narrow way they think the light shouldn't go out. They think energy needs to be available and affordable. And they think fossil fuels: oil flows, please don't disrupt; gas, please let it come; coal, we need more of it.”
Christof Rühl, Columbia University
The climate science is unequivocal. Our planet is warming, causing polar ice to melt, leading to rising sea levels and extreme weather events, impacting the health and safety of millions. To address this threat, 195 of the world’s countries pledged in Paris in 2015 to contain levels of global warming to, ideally, 1.5°C.
However, the practicalities of changing the world’s approach to energy bring a range of (often expensive) decisions for businesses and complex geopolitical issues for nations to navigate. As Christof Rühl from the Center on Global Energy Policy at Columbia University said during the panel discussion: “It was never [going to be] the simple switch out with the dirty fossil, and the simple substitution in with a new clean energy.” The reality is that energy security, weakened by a global energy crisis and the war in Ukraine, has shone a spotlight on what a massive and complex task energy transition will be.
Global appetite for energy transition
How will the current energy crisis influence government net zero targets and impact businesses as they prepare to transition into clean energy?
Big topic of the day
Energy is undisputedly the big topic of the day. According to the Executive Director of the International Energy Agency, Fatih Birol, the world is in the middle of “the first truly global energy crisis” amid soaring prices and reduced availability. Dr Birol made this assertion at the World Economic Forum Annual Meeting at Davos in May 2022 and again later this year at the Singapore International Energy Week close to the end of October.
The current energy crisis is the culmination of a perfect storm of several factors. The rapid rebound following the pandemic recession put pressure on markets as demand for energy spiked. Meanwhile, despite rising demand, supplies are pinched. Russian gas supplies to Europe have been dramatically reduced as Russia retaliates to sanctions imposed following the invasion of Ukraine. At the same time, many of the oil producing nations of the Middle East have taken the decision to cut production. Add high inflation and rising interest rates into this equation, and it is fair to predict a difficult winter ahead for the advanced economies of the northern hemisphere. Indeed, the EU Crisis Management Commissioner Janez Lenarčič recently reported that several countries within the European Union could face energy blackouts this winter. The head of the UK’s National Grid echoed such warnings for the UK.
The threat of blackouts is not limited to the European continent. Earlier this year the Australian Energy Market Operator (AEMO) warned that the states of South Australia and Victoria could face electricity shortages in the second half of 2023 and 2024 respectively. AEMO’s Chief Executive Daniel Westerman pointed to the need for investments to support the country’s transmission network capability. Localised power outages are also an increasing reality across the USA, often linked to extreme weather events.
No energy transition without energy security From multinationals to SMEs and individual consumers working to keep their homes warm this winter, the issue of affordable, accessible, energy is a key priority. As Christof Rühl acknowledged: “There will not be an energy transition without energy security. And at least at the moment, there cannot be energy security without fossil fuels, whether one likes it or not.” However, as he emphasised during the live event, this acknowledgement is not about climate denying nor of propping up the fossil fuel industry, but a lesson in economics. As he explained, looking back over the past three hundred years of human history we can point to two previous energy transitions. The first from wood to coal happened during the end of 18th century and beginning of the 19th. It was an integral part of the industrial revolution and saw many industries develop mechanisation. The second, during the 20th century, saw the world switch from coal to oil as the primary fuel. Both of these energy transitions were driven by demand. However, the clean energy transition does not have the same demand side push. Instead, legislation and initiatives such as carbon taxes mean there is a stronger supply side pressure which risks creating disruption, bottlenecks and other problems.
“There will not be an energy transition without energy security. And at least at the moment, there cannot be energy security without fossil fuels.”
Christof Rühl, Columbia University
“We have to be realistic about what's possible and what is not, and recognise we need a system with redundancies and buffers to be successful in the transition.”
Christof Rühl, Columbia University
Geopolitical issues
Economic warfare has long been employed during armed conflicts. Sea blockades were used in both world wars in a bid to cut shipments of critical supplies. The war in Ukraine has seen many examples of what could be described as ‘economic warfare’, from western sanctions on Russian goods and businesses, to the reduction of the gas supply from Russia to Europe.
In many ways this conflict has focused attention on the issue of energy security. Can Europe survive or even thrive without Russian gas? For Christof Rühl a good place to start evaluating this question is to think beyond the conflict. He noted that: “This will be a world where most governments will be considerably poorer. Maybe not the US, and China maybe a bit different, but certainly in Europe, certainly the aggregate of the G7, having paid all these energy costs, having paid for reconstruction, having invested a lot in defence industries, will be poorer.”
What’s more, high levels of government debt from borrowing to finance pandemic interventions, coupled with high inflation and high interest rates mean that many governments may not be in the position to invest in clean energy infrastructure or to offer economic incentives. This is not a situation that is unique to Europe. Many countries across the world that are less impacted by the war in Ukraine are feeling the pinch of economic realities and in some cases, facing recession.
For Christof Rühl this presents a sobering picture. He said: “We will have to admit that the Paris targets cannot be met.” However, he stressed that energy transition is still urgent and that governments will have to focus on mechanisms which provide high economic incentives including areas such as carbon taxes. He added that these are areas that need to be discussed at COP meetings.
Energy transition policies in major markets
The clean energy transition is a global climate issue. According to a new report from the World Meteorological Organization, the supply of electricity from clean energy sources must double within the next eight years to limit global temperature increases. Without this, there is a risk that climate change, more extreme weather and water stress will undermine global energy security and, according to the report, even jeopardize renewable energy supplies.
However, each of the world’s economies have different approaches to the clean energy transition and the UN Sustainable Development Goals. Here is a brief overview of the legislation and policies introduced by some the major economic markets and regions.
European Green Deal 2019 The European Green Deal aims to achieve net zero for the 27 EU member states by 2050 and become the world’s first climate-neutral continent. Funding mechanisms amounting to EUR 1 trillion underpin the policy and contribute to areas such as the EU Hydrogen Strategy and Offshore Renewable Energy Strategy with the aim of ensuring a just an inclusive transition.
US: Inflation Reduction Act 2022 The US Inflation Reduction Act includes a wide range of public investments in social, infrastructure and environmental projects throughout the US. Regarded by many as the most significant clean energy and climate legislation in the history of the nation, it aims to invest in domestic energy production while promoting clean energy (among a wide range of measures).
China: 14th Five Year Plan 2022 China’s latest Five-Year Plan references a low-carbon transformation of the energy and industry sectors and with the aim for the country to be net-zero by 2060. Although the country is investing heavily in renewable energy and accounts for a large global share of solar and wind power projects, coal still dominates as a significant source of power.