BackThe covid hurdle in the global energy transition
The pandemic has exposed the vulnerabilities of the energy system, and put at risk the transition to cleaner energy targets set in the Paris Agreement.A strong enabling environment is needed to ensure the system bounces back from unforeseen disruptions. India has made consistent progress but it has opportunities to ramp up renewable energy production
PremiumThe year 2020 was supposed to be a turning point in the global energy transition. The production and consumption of energy accounts for two-thirds of annual global anthropogenic emissions, making the transition central to delivering the promise of the Paris Agreement.
Countries were expected to take stock of their Nationally Determined Contributions to meeting the Paris Agreement’s goals and potentially strengthen their commitments to keeping global temperature increases to well below 2 degrees, with the ambition of reducing this figure to no more than 1.5 degrees. 2020 arrived with a sense of gathering momentum as the world entered its decade of delivery.
But over the course of the past few months, we have been up against a low-probability, high-impact catastrophe of global proportions. The speed, scale and intensity of the covid-19 pandemic caught us off guard, necessitating the reallocation of resources and a collective conviction towards limiting the extent of the damage, and restoring normalcy as soon as possible.
Covid-19 has proven to be a "black swan" event, threatening to undo the gains from the longest period of economic expansion in history.
Its disruptions have exposed vulnerabilities in the energy system. The short-term outlook for the energy transition is, therefore, at risk. The unprecedented speed and extent of the drop in energy demand, and the accompanying price volatilities and geopolitical implications have destabilized the global energy system.
The economic dimensions of energy transition mean that extreme price volatility has fiscal implications for countries, and impacts the livelihoods of millions of energy sector workers. It also alters the competitiveness of renewable energy technologies and reduces incentives for energy efficiency. Resilience, not just in markets and infrastructure, but also in policy and cooperation mechanisms will be critical for an accelerated recovery.
There are signs of revival, as energy demand seems to be gradually picking up. However, it might be longer before the economy reclaims the lost ground. Given the uncertain economic outlook, purchase of automobiles and domestic appliances might be postponed, infrastructure development could be paused, and non-essential industrial activities might take longer to restart.
This decline in energy consumption has an immediate effect on the environment, as skies have cleared in even the most polluted areas of China and India. While this may be a blessing in disguise for the environmental sustainability agenda, it should not be mistaken for progress, and also demonstrates the cost we need to pay for an effective energy transition.
Along with a sustainable and thriving ecosystem for future generations, an effective energy transition is also essential for economic growth and social development. In an increasingly turbulent global paradigm, disruptions are the new normal, and energy transition roadmaps need to integrate robustness against these disruptions. Resilience of energy transition, in the long-term, implies a strong enabling environment that sees the system bouncing back from unforeseen or exogenous disruptions. This includes the presence of strong political commitment, stable capital markets and access to investment, a steady pipeline of innovations, modernization of infrastructure, training human capital for future energy systems, etc.
The World Economic Forum's Energy Transition Index (ETI) benchmarks countries on these fundamentals for energy transition, along with the performance of their energy system on economic growth, environmental sustainability, and energy access and security. From the recently completed analysis for this year's index, the evidence of gradual progress on energy transition is strong.
Since 2015, more than 80% of the countries have increased their score on the ETI. India has improved its ranking to 74th out of 115 countries, being one of the few countries in the world to have made consistent progress since 2015. The improvements have come across all three dimensions of the energy triangle: economic development and growth; energy access and security; and environmental sustainability. It indicates a strong positive trajectory, driven by political commitment and an enabling policy environment, ramping up installation of renewable sources of power supply, enacting measures to address indoor pollution through clean cooking fuels, and achieved gains in efficiency of domestic appliances and lighting.
Improvement opportunities lie in scaling up renewable power generation to a new target of 275 gigawatts by 2027, de-carbonization of hard-to-abate sectors like heavy industry and freight transport, and modernizing the power sector infrastructure to better integrate renewable energy sources.
Encouragingly, the gap between emerging economies and the leading countries seems to be narrowing, but much work remains to be done. Only a handful of countries have been able to make steady annual progress on the ETI over the past six years, which demonstrates the complexity and challenges of energy transition. Improving levels of regulations and political commitment, capital and investment, and technology development have been critical to unlocking this progress globally.
When we finally manage to put the global tragedy of covid-19 behind us, there may be some valuable lessons learned. The energy transition challenge is similar to the pandemic in terms of scale, cascading effects across social and economic systems, more severe for vulnerable populations, and the necessity of a decisive, timely and concerted response. Stakeholders need to be conscious that the fight against covid-19 does not set us back in solving the critical socio-economic puzzle of global energy transition. Otherwise the losses resulting from the virus will take an even greater toll on humanity.
The authors are, respectively, head and project lead, Shaping the Future of Energy and Materials, World Economic Forum
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