5 key insights into accelerating the energy transition
The world is making progress in decarbonization and infrastructure development, as presented in the 2023 Fostering Effective Energy Transition report.
Yet, recent crises – from the COVID-19 pandemic to the war in Ukraine – have shown how precarious the balance between energy security, affordability and sustainability really is.
Many countries have, understandably, shifted their focus to securing a stable energy supply in order to maintain economic growth and national security. But those goals have come at the expense of energy equity and inclusiveness.
In advance of the COP28 summit, we’d like to delve into the latest report’s findings and share insights into what countries and stakeholders have (and have not) accomplished in meeting their commitments.
The fact that the summit coincides with the conclusion of the first five-year Global Stocktake – an evaluation of countries’ and stakeholders’ collective progress toward meeting the goals of the Paris Agreement – makes the timing of these insights even more relevant.
Our hope is that it might foster greater collaboration and better decision-making as we collectively find our way through the energy transition. Here are the five top insights:
Due to various health, geopolitical and economic crises, an increasing number of households, including those in advanced economies, are struggling to meet the basic needs of heating and lighting at affordable costs. The impact is more severe for vulnerable consumers in developing countries. Estimates suggest that about 75 million people who recently gained access to electricity are likely to lose the ability to pay for it.
Recently implemented large-scale policy packages in developed countries hold great potential to bolster energy security and accelerate the transition. However, with these policies comes the risk of a subsidy race, which could be detrimental for countries with limited financial resources.
While ensuring energy security and sustainability is critical, so is maintaining and building energy equity. This will require large-scale international financial support to low-income countries and such a ramp-up is crucial to ensure an inclusive transition that benefits all nations, regardless of their economic status.
For the first time, investments in low-carbon energy technologies have surpassed those in fossil fuels; exceeding $1 trillion in 2022. This continues an upward trend in investment seen over the last decade, with a 19% increase from 2021 levels and a 70% increase from pre-pandemic levels in 2019.
Indeed, new superpowers are emerging in the clean energy frontier, with six countries directing more than 1% of their gross domestic product (GDP) towards renewables investments. China had the largest share of GDP investments, investing more than 1.5% of GDP in renewables, followed by Vietnam, Azerbaijan and Bosnia and Herzegovina.
This is undeniably positive news. Yet, meeting 2050 goals will require significantly more funding – $1.7 trillion annually – to scale the supply of clean energies and supporting technologies. These additional investments must be directed across the entire supply chain and focused on commercializing the full breadth of clean energy solutions, including alternative fuels, hydrogen, and carbon capture and sequestration.
Financial investments in clean energy will continue to be a lifeline for transitioning economies. Such investments, along with a transfer of new technologies to emerging and developing countries, are critical to ensure an equitable transition.
In November 2022, the number of people on the planet surpassed 8 billion people. As our global population grows, so does the global demand for energy.
Over the past decade, 95% of countries have improved their aggregate Energy Transition Index (ETI) score, with those improvements being more pronounced in large energy-consuming countries such as China and India.
Attention is now rightly turning towards highly populated developing countries, because the strength of the overall energy transition will be contingent upon commitment and progress in all the large economies regardless of their state of development.
Quick wins and transition fast tracks exist for developing countries. For example, the average cost of reducing emissions is estimated to be half the cost seen in advanced economies. But many developing countries, despite their commitment to decarbonization, simply lack the financial and technological capability to seize such opportunities. Leading countries must collaborate and provide support to consistent and equitable progress around the world.
Achieving our long-term energy transition goals requires sustained momentum, even in the face of near-term macroeconomic and geopolitical disruptions. Only two major economies – India and Singapore – are showing sustained momentum on building energy equity, sustainability and security. The rest of the world’s energy transition momentum is insufficient. And with ETI scores plateauing, the window of opportunity to resolve this is closing.
The lack of consistent and balanced progress highlights the challenge many countries face while navigating the energy transition. In response, countries need to assess their own transition readiness – and then plan to resolve them (or have a roadmap to resolution) before the decade is over.
Policies and regulations are setting the pace of the energy transition. Energy and climate policies – especially those being activated by innovative partnership models across the value chain – now taking center stage in domestic and international affairs.
And for good reason. A successful transition requires more attention to regulatory and financial environments. If not managed properly, new regulations or policies could drive higher costs and even greater inequalities, particularly for the world’s most vulnerable populations.
Consider the landmark legislations, including the US’s Inflation Reduction Act (IRA) and the proposed EU Net Zero Industry Act, put forward to ramp up clean energy and drive innovation for accelerated decarbonization.
These policy packages hold great potential. However, the stability of such defining legislation is at risk due to the politicization of climate change.
As long as the energy transition is a flashpoint between opposing political ideologies, it will be increasingly difficult to align stakeholder groups around the need for an inclusive transition. Greater clarity on policies and country priorities is the first step to enabling the deployment of capital and business solutions at scale.
Significant strides have undeniably been made in the energy transition. It is time for the public- and private-sector players to accelerate, increase innovative collaborations and take additional steps forward to foster equity and resilience.