Why the Green Energy Transition is Likely to be Slower than Hoped?

Aug 1

Written By TBG

At the forefront of concerns of leaders worldwide, is the unrelenting price of energy. From President Biden’s recent trip to Saudi Arabia to encourage the kingdom to shore up oil production, to European Union lawmakers passing an agreement to reduce reliance on Russian natural gas by any means necessary, the imperative in this moment is to provide citizens respite at the pump and ease the fears of uncontrolled inflation. These developments, however, provide us with a timely opportunity to revisit the challenges of navigating the green energy transition in an increasingly unstable world, defined by rising global energy demand and war. Worryingly, it bodes ominously for our ability to make significant progress by the critical date of 2050. Here is why.

Several academic papers have documented the positive relationship between democracies and a Green Energy transition. According to Parry et al. 2021, democracies are more likely to enact environmentally friendly policies, reduce dependency on fossil fuels and pursue conservation efforts. With a global backsliding in democracy in the last 16 years, our ability to stay on track of ambitious climate goals are not guaranteed. The undermining of values such as human rights, equal treatment under law and freedom from persecution have real repercussions on the energy transition, manifesting itself in a likely move away from decentralization of energy systems and reduced public participation in environmental policymaking. Growing authoritarianism tends to undermine institutional independence and impede their ability to pursue environmentally sound legislation that might be contrary to the ruling regime’s desires.

The energy transition’s potential as a tool to redistribute political and economic power to deliver more equitable outcomes stands to be stunted if freedom around the world continues to diminish.This would also entail the loss of new green jobs that are likely to deliver better health, environmental and social outcomes.

Like any traditional energy project, many supply chain issues can also occur in renewable energy projects. For example, construction may be delayed or halted due to growing material costs or labor shortages. However, specific characteristics of renewable energy projects increase the likelihood of supply chain disruption. The markets for critical energy transition elements like lithium, cobalt, copper, and rare materials used to produce solar panels, batteries, and other clean energy technologies are already experiencing many issues that afflict the world's oil markets. These resources are as essential to life as oil but are also concentrated in a few geographic locations that are often defined by instability and inaccessibility.

According to Art Fletcher, executive vice president of construction at Invenergy, the supply chain challenges are "overwhelming." He added that obtaining equipment had put a "very significant strain" on the resources of the Chicago-based generation developer, with difficulties reaching "an all-new level." Shipping costs are a major issue facing the renewables industry. For example, in the U.S., costs have risen from $4,000 a container to as much as $25,000 in the summer of 2021. Fletcher added that although costs have decreased since the summer, they will never return to where they were previously.

Additionally, the price of copper, raw materials, and equipment for renewables is increasing. According to IHS Markit, the price of PV systems would rise by 4% in 2021 compared to 2020. This occurs as analysts from IHS Markit Clean Energy Technology anticipate a double-digit increase in solar PV installations in 2021.

Due to supply chain challenges, particularly those brought on by trade policy, developers must make their goals and plans more flexible. The worst enemy of the renewable energy sector, particularly in the solar industry, is the continued uncertainty. The global energy shift also poses a challenge for nations producing oil and gas, especially those with less diversified economies and more reliant on oil earnings. This is true for several Middle Eastern and North African countries who, although adopting complex economic diversification policies, have not made much headway in this area.

Especially since it is in the interest of oil-producing nations to perpetuate fossil fuel regimes as it props up their government. With an unpredictable geopolitical order, concerted efforts to a singular goal seem less likely. The ramifications may be severe from a socioeconomic and geopolitical standpoint if the world's energy transition occurred faster than anticipated and if these nations remained unprepared. Therefore serious adjustments are needed to prevent severe economic repercussions.

It's also vital to remember that natural gas, another fossil fuel, has played and continues to play a crucial geopolitical role in several parts of the world, including Europe. Large pipelines constructed to link Russia and other producers like Norway and Algeria, with the major European markets have been the foundation for developing natural gas markets in Europe since the 1960s. Due to this circumstance, Europe relies heavily on Russian natural gas imports, and disagreements over gas prices between Russia and Ukraine caused the supply of Russian natural gas to Europe via Ukraine to be interrupted.

These occurrences elevated natural gas to the top of Europe's list of geopolitical risks and prompted the development of a strategy for the diversification of natural gas supplies, the most prominent example of which is the Southern Gas Corridor, which will connect the Caspian region to Europe via Turkey and is currently under construction.

But given that oil and natural gas have dominated the geopolitics of energy for more than 50 years, it makes sense to look into whether and how the global energy transition, which is being fueled by decarbonization policies and rapid advancements in renewable energy technologies and electric vehicles, will affect this.

Transitioning into a new energy reality, contrary to how it may sound, has historically been a long and complex process. It took coal the better part of a century to dislodge wood as the world’s predominant fuel source. Similarly, oil which was discovered in 1859, only usurped coal as society’s primary energy source in the 1960s. The current transition, from fossil fuels to renewables, seeks to usher in a net carbon neutral energy system in around 30 years, which given historical benchmarks, is highly ambitious. While renewables have seen a steady rise in their share of the global energy supply, concerns about intermittency and storage are still roadblocks to greater growth, and the influence of external pressures like the ones highlighted above have stunted the speed at which this transition might be realized.

However, a potential example of leadership on climate change is Norway. Its electric system produces almost no emissions; 98 percent of it is generated by renewable energy sources, primarily hydropower. The nation is also funding the development of solar panels that can survive powerful ocean swells, surges, and floating solar farms. Additionally, a large number of its homes gather, store, and even sell solar energy to energy corporations. The country also invests in renewable energy while maintaining a robust economy. It also provides billions of dollars to the Green Climate Fund, which helps developing nations cope with and adapt to climate change.

Despite the obstacles and delays, the world is moving in the right direction when it comes to the green energy transition. While the speed at which this transition is taking place is rather unpredictable, committing to a set of fundamental targets might ensure that we do not get completely derailed. This will be key to making sure we arrive at a green future and do not get lost in the way.

References:

TBG

Why the Green Energy Transition is Likely to be Slower than Hoped?

Saudi Arabia’s THE LINE: An Analysis

Heat Waves: Causes and Global Consequences

The Bassiouni Group