Global Sustainability Agenda #18: The challenge in balancing the “Energy Trilemma” – Sustainability, Reliability, and Affordability

Global Sustainability Agenda #18

Global Sustainability Reality

The SEC votes this week on controversial climate change rule: Here’s what’s at stake (CNBC)

Scientists estimate that human-caused methane emissions are responsible for up to 30 percent of the global warming being experienced today (NY Times)

Emissions from Fossil Fuels Continue to Rise (Earth Observatory)

Carbon emissions reach new high, but are slowing as renewables boom (Business Live)

The Netherlands shines as key European energy transition driver (Reuters)

EU countries have seen a decade of progress towards their 2030 sustainable energy goal (Phys)

The return of energy security (S&P Global)

How Republicans view climate change and energy issues (Pew Research)

How five crucial elections in 2024 could shape climate action for decades (Nature)

Global Sustainability Business Impact

Clean, cheap or fair – which countries should pump the last oil and gas? (Climate Change News)

Renewable Energy Is Green, but We Can Make It Greener (NREL)

Former CIA chief says maritime trade under threat from global instability (Journal of Commerce)

Red Sea diversions could force rethink of inventory strategies: ONE’s Nixon (Journal of Commerce)

Amazon-Backed Hydrogen Firm Raises €500 Million to Ramp Up (Bloomberg)

Step Aside, ESG. BlackRock Is Doing ‘Transition Investing’ Now (The Wall Street Journal)

Rio Tinto Aims 3.5M Carbon Credit Pledge, Eni Leads with Retired Credits (Carbon Credits)

The path forward

Climate policy stands as a global priority, yet recent experiences reiterate a vital lesson: energy security is equally crucial. Neglecting or underestimating energy security risks inciting backlash, derailing climate efforts, and precipitating crises. The events of recent years underscore that the energy transition hinges on maintaining reliable and affordable energy sources, particularly in the developing world, home to 80% of the global population.

Energy Security

Energy security is a cornerstone for nations, sustaining economies and ensuring societal well-being. Although momentarily subdued during the COVID-19 pandemic, its significance has resurged with heightened urgency. Today, energy security encompasses not only conventional oil and gas but also renewables and electric grid reliability.

Investment in supplies and infrastructure is the bedrock of energy security and is crucial for meeting escalating demand. With existing oil production facing a natural decline of 3%-4% annually, substantial investment is imperative to sustain current supply levels.

Recent events underscore that a smooth and substantial energy transition necessitates assured energy security. Without it, climate policies risk backlash, as evidenced in parts of Europe. Moreover, the absence of energy security poses risks of disruption, conflict, and future political instability. For instance, Africa’s projected population doubling in the next quarter-century accentuates the urgency for energy security to fuel economic growth and job creation, averting mass migration to Europe and its consequent political ramifications.

The global energy shock triggered by Russia’s invasion of Ukraine in February 2022 served as a stark reminder of the paramount importance of energy security. Governments worldwide swiftly repositioned energy security as a top priority. Europe pivoted towards liquefied natural gas (LNG) to offset Russian gas cuts, accompanied by significant reductions in gas consumption, particularly in industries.

Beyond geopolitical crises, the energy transition itself introduces new dimensions of energy security concerns. Shortfalls in minerals essential for renewable energy technologies, coupled with challenges in cost, supply chain disruptions, and permitting delays, pose significant hurdles to renewable energy deployment. Predictions of near-term peaking in oil and gas demand may prove unrealistic given current investment and deployment rates in renewables.

Economic Disparities

The imperative for reliable and affordable energy is most pronounced in the developing world, where 80% of the global population resides. Within the G20, consensus prevails on advancing energy security, access, market stability, and affordability.

Energy security is fundamental for alleviating poverty and addressing energy access gaps. While renewables offer promise, they presently meet only a fraction of the energy needs required for economic development, poverty reduction, and improved health in many African countries. Bridging the disparities in per capita GDP underscores the urgency for increased investment in oil and gas to fuel economic growth in these regions.

The widening economic gaps and energy disparities pose significant risks. Africa’s projected population surge by 2050 highlights the criticality of addressing energy shortages to sustain growth and stability. Failure to invest adequately in energy supplies risks exacerbating these disparities, potentially leading to mass emigration and destabilizing the political landscape in Europe.

In summary, prioritizing energy security alongside climate action is essential for sustaining global prosperity, averting crises, and fostering equitable development.

The Political Landscape

The transition trajectory towards sustainable energy is intricately tied to the policies enacted by politicians, often constrained by the rhythms of election cycles and fiscal limitations.

With households already grappling with elevated energy costs for an extended period, political parties are cautious about further burdening them.

This year, elections are scheduled in five major carbon-emitting regions globally: the United States, India, Indonesia, Russia, and the European Union. Together, these territories account for a significant portion of the world’s population and human-made carbon emissions, approximately one-third in each category.

In the UK, Prime Minister Rishi Sunak has reiterated the nation’s commitment to achieving net zero emissions, but with a notable caveat: the transition must be “fairer” for families. Meanwhile, Leader of the Opposition, Keir Starmer, has indicated that financial constraints within the government will necessitate a scaling back of his party’s decarbonization plans. Reform UK, on the other hand, aims to disrupt the status quo with its populist agenda, aiming for net zero ambitions as part of its anti-woke platform.

To fulfill its net zero obligations, the UK must undergo a significant transformation, particularly in tripling historical levels of investment in electricity infrastructure. This shift is crucial to ensuring that the grid facilitates, rather than obstructs, the transition to renewable energy. Addressing this investment challenge requires a fundamental overhaul of how networks are planned, constructed, operated, and financed.

The US Republican stance on climate change and energy issues in the US showcases a nuanced perspective

While there is generally less concern expressed about climate change among Republicans, there is support for specific proposals aimed at addressing it. According to the Pew Research Center’s survey, a majority of Republicans endorse measures like requiring oil and gas companies to seal methane gas leaks and providing tax credits to businesses for developing carbon capture technologies. Additionally, a significant portion of Republicans (54%) supports the US participating in international efforts to mitigate the effects of global climate change.

Economic considerations play a prominent role for Republicans when evaluating climate policies. Keeping consumer costs low and promoting job and economic growth are cited as top priorities by a majority of Republicans. While protecting the environment for future generations is also deemed necessary, it ranks lower in priority compared to Democrats’ perspectives.

Republicans demonstrate support for both fossil fuel and renewable energy sources. Large proportions back increasing production of fossil fuel sources such as offshore oil and gas drilling and hydraulic fracturing, alongside support for renewable energy production, including solar and wind power, as well as nuclear power plants.

Republicans overwhelmingly believe that fossil fuels should continue to be part of the US energy landscape rather than being phased out entirely in favor of renewable sources. The Biden administration’s goal of shifting towards renewable energy is met with skepticism from Republicans, who express concerns about potential negative impacts such as increased prices and decreased reliability of the electrical grid.

Notably, there are generational differences within the GOP regarding fossil fuels and climate change. Younger Republicans are more likely to acknowledge the contribution of human activity to climate change and prioritize renewable energy development over fossil fuels compared to their older counterparts.

Looking forward

As we look ahead, it’s crucial to consider the potential crises that must be avoided in our pursuit of a sustainable future. While climate change took center stage at the COP28 climate conference in late 2023, the significance of “ensuring energy security” was also emphasized in the final UAE Consensus document. This acknowledgment reflects an understanding that achieving the COP28 goal of “a just, orderly, and equitable” energy transition requires a solid foundation of energy security.

The past two years have served as stark reminders of the consequences of disorderly transitions. These can include price shocks, shortages, disruptions in supply chains, and even social and political strife. Such disorder can lead to a scramble for resources, backlash from affected communities, and bitter divisions among nations. Ultimately, these cycles of crises underscore the urgent need for proactive measures to avoid such pitfalls in the years ahead.

As we navigate the complexities of transitioning to a more sustainable energy landscape, it is imperative that we prioritize stability, resilience, and inclusivity. By doing so, we can mitigate the risks of crises and work towards a future that is not only environmentally sustainable but also socially and economically just.

To address the issues and challenges around transitioning the global energy system to a lower carbon future while maintaining stability, security and affordability of energy supplies, organizations focus on the following broad areas:

– Unlock finance

– Meet the needs of the Global South

– Tackle infrastructure and supply chain bottlenecks

– Develop frameworks and tools to track, measure and manage progress and risks

– Enable an environment for collaboration, partnerships and engagement

Beatriz Canamary

Beatriz Canamary is a consultant in Sustainable and Resilient Business, Doctor and Professor in Business, Civil Engineer, specialized in Mergers and Acquisitions from the Harvard Business School, and mom of triplets. Today she is dedicated to the effective application of the UN Sustainable Development Goals in Multinationals.

She is an ESG enthusiast and makes it possible to carry out sustainable projects, such as energy transition and net-zero carbon emissions. She has +15 years of expertise in large infrastructure projects.

Member of the World Economic Forum, Academy of International Business and Academy of Economics and Finance.