Global Advancement Towards a Comprehensive Energy Transition

Global advancement towards a comprehensive energy transition has been momentarily suspended due to numerous health, economic, and geopolitical crises. Numerous nations have been prioritizing the stabilization of their energy supply to underpin economic growth and secure national interests, albeit often compromising on the equitable distribution of energy resources.

The World Economic Forum's 2023 edition of the report titled 'Fostering Effective Energy Transition' provides an analytical overview of ways in which both governmental bodies and private sector entities can sustain their transition initiatives, while simultaneously promoting equity and fortitude. The report showcases the world's efforts towards decarbonization and infrastructural development, however, recent crises – including the COVID-19 pandemic and the conflict in Ukraine – have exposed the delicate equilibrium of energy security, affordability, and sustainability.

In anticipation of the COP28 summit, it's pertinent to scrutinize the findings of this report and understand the progress (or lack thereof) made by nations and stakeholders in fulfilling their pledges. The summit's concurrence with the conclusion of the inaugural five-year Global Stocktake – an assessment of collective progress towards achieving the objectives of the Paris Agreement – adds to the pertinence of these insights.

The hope is to facilitate heightened collaboration and informed decision-making as we navigate the complexities of the energy transition. Here are five crucial insights from the report:

A decrease in energy equity

As a consequence of various health, geopolitical, and economic crises, an escalating number of households, even in developed economies, are finding it challenging to afford basic utilities like heating and lighting. The impact is harsher on vulnerable consumers in developing nations. It's estimated that approximately 75 million people, who recently gained access to electricity, are likely to lose their ability to afford it.

Recently enacted policy packages in developed nations carry the potential to fortify energy security and hasten the transition. However, these policies may trigger a subsidy race, which could be detrimental for countries with constrained financial resources.

While ensuring energy security and sustainability is paramount, so is the conservation and enhancement of energy equity. This will necessitate large-scale international financial aid to low-income countries, an essential step towards an inclusive transition that benefits all nations, irrespective of their economic standing.

Need for trillions of dollars in investments

For the first time, investments in low-carbon energy technologies have exceeded those in fossil fuels, crossing the $1 trillion mark in 2022. This is a continuation of an upward trend in investment observed over the past decade, registering a 19% increase from 2021 and a 70% increase from pre-pandemic levels in 2019.

New powers are emerging in the clean energy frontier, with six countries directing over 1% of their Gross Domestic Product (GDP) towards investments in renewables. However, to meet the 2050 goals, considerably more funding - $1.7 trillion annually – is required to scale up the supply of clean energies and supporting technologies.

Investments in clean energy will remain pivotal for economies in transition. These investments, along with the transfer of new technologies to emerging and developing countries, are critical to ensure a fair transition.

Spotlight on the developing world

With the global population surpassing 8 billion in November 2022, the global energy demand has inevitably escalated. Over the past decade, 95% of countries have improved their aggregate Energy Transition Index (ETI) score, with significant improvements observed in large energy-consuming countries such as China and India.

The emphasis is now shifting towards populous developing countries, as the overall strength of the energy transition will rely on commitment and progress across all large economies, regardless of their developmental stage.

Maintaining momentum is a challenge

Long-term energy transition goals necessitate persistent momentum, even in the face of macroeconomic and geopolitical disruptions. Only two major economies – India and Singapore – have demonstrated consistent momentum in building energy equity, sustainability, and security. Globally, the energy transition momentum is inadequate, and with the plateauing of ETI scores, the window of opportunity to rectify this is gradually closing.

The uneven and sporadic progress underlines the complexities many countries encounter while navigating the energy transition. In response, countries must evaluate their transition readiness and formulate strategies to address these challenges within this decade.

Policies and partnerships can facilitate a progressive transition—if managed appropriately

Policies and regulations are dictating the tempo of the energy transition. Energy and climate policies – notably those activated by innovative partnership models across the value chain – are now pivotal in domestic and international affairs.

A successful transition necessitates greater attention to regulatory and financial landscapes. If not managed adequately, new regulations or policies could inflate costs and exacerbate inequalities, especially for the world's most vulnerable populations.

The stability of crucial legislations like the US’s Inflation Reduction Act (IRA) and the proposed EU Net Zero Industry Act, intended to boost clean energy and drive innovation for accelerated decarbonization, is at risk due to the politicization of climate change.

As long as the energy transition remains a point of contention between opposing political ideologies, aligning stakeholder groups around the need for an inclusive transition will be increasingly challenging. More clarity on policies and national priorities is the first step towards enabling large -scale deployment of capital and business solutions.

Significant progress has undoubtedly been made in the energy transition. The time is now for public and private sector players to amplify their efforts, foster innovative collaborations, and take further steps to promote equity and resilience.