Much has changed in the global energy landscape since COP26 held in Glasgow in 2021. Unfortunately, these changes have injected complexities which were not factored in when climate goals were drawn up a year ago.
Among the key challenges that global leaders attending the ongoing COP27 summit in Egypt will have to continue addressing much after the meet concludes on November 18, will be the energy transition which has been disrupted by the Russian invasion of Ukraine. The situation, it is agreed, has caused profound and long-lasting changes calling for a more sustainable energy system.
Nothing outlines the problem clearer than the latest World Energy Outlook (WEO) study that warns us about energy transition and its urgency. “Today’s energy crisis is delivering a shock of unprecedented breadth and complexity. The biggest tremors have been felt in the markets for natural gas, coal and electricity with significant turmoil in oil markets as well, necessitating two oil stock releases of unparalleled scale by International Energy Agency (IEA) member countries to avoid even more severe disruptions. With unrelenting geopolitical and economic concerns, energy markets remain extremely vulnerable, and the crisis is a reminder of the fragility and unsustainability of the current global energy system.”
New energy paradigm
Indeed, the Russian invasion of Ukraine has triggered a major reorientation of the global energy trade since Russia has been the world’s largest exporter of fossil fuels accounting for 21 per cent of the energy trade in 2021. But the war in Eastern Europe has changed the energy dynamic radically. The IEA expects a new energy paradigm to emerge with the focus on reliability, affordability and reducing emissions.
To address the unprecedented challenge, several countries have brought about new enactments that include the US Inflation Reduction Act which provides tax rebates and credits for consumers opting for energy efficient appliances and switching over to electric vehicles. The EU’s Fit for 55 package is one that promotes speedier transition to greener energy solutions. Similarly, Japan’s Green Transformation programme is designed to reduce fossil fuel dependency. Korea aims to increase the share of nuclear power and renewables in its energy mix. India and China have drawn up ambitious clean energy targets in the backdrop of the Ukraine conflict.
Dr Faith Birol, Executive Director of International Energy Agency, in the WEO 2022 study highlighted the concerns: “It is essential to bring everyone on board, especially at a time when geopolitical fractures on energy and climate are all the more visible… This means redoubling efforts to ensure that a broad coalition of countries has a stake in the new energy economy. The journey to a more secure and sustainable energy system may not be a smooth one. But today’s crisis makes it crystal clear why we need to press ahead.”
Impact of Ukraine crisis
In the IEA’s assessment, “The (Ukraine) crisis has stoked pressures and created a looming risk of recession, as well as a huge $ 2 trillion windfall for fossil fuel producers above their net 2021 income. With energy markets remaining extremely vulnerable, today’s energy shock is a reminder of the fragility and unsustainability of our current energy system.”
The crisis puts a spotlight on governments and how they react. This may call for countries to redraw their respective Nationally Determined Contributions (NDCs) to work towards Net Zero Emissions by 2050. While India had outlined its NDCs in Glasgow last year, the rapid changes may need a renewed approach.
Clearly, the current high energy prices are causing a huge transfer of wealth from consumers to producers with high fuel costs contributing to rising inflation. Huge uncertainties loom over how this energy crisis will evolve and how long fossil fuel prices will remain elevated following the Ukraine crisis.
To achieve clean energy goals, investment needs to go up above $4 trillion by 2030 as against earlier projection of $2 trillion to achieve the Net Zero targets. This only underscores the importance and the need to attract new investments into the energy sector.