2023: Progress for energy transition but satisfactory grades not in sight!

Last week, a friend at dinner asked me, what I thought about the progress in 2023 for energy transition and whether we had a chance of limiting global warming to 1.5C after the ′hottest year on record′.

As anyone who has led ambitious large multi-year projects knows, there is a moment in some when you realise that certain elements on the critical path be it engineering, components, resources, construction or others may not be in place. You sense that you may not make it on time, on budget or on quality and therefore have three options: either revamp your approach, be transparent with your client/ stakeholders or wish for a miracle. In most projects, you employ all three hoping that everything will be alright in the end.

2023 for energy transition was that moment in the global project to limit global warming to 1.5C. GHG emissions from fossil fuels reached almost 37 bn tonnes after dropping during the pandemic. Coal demand surpassed peak levels at 8.5 billion tonnes, while oil and gas consumption also set records.

To avoid catastrophic warming, global emissions need to peak by 2025 but this goal will not be met. Even forecasts of reaching a peak by 2030 seem challenging. The Global Carbon Budget for 1.5C is already in jeopardy and expected to be run over 6 years from now. The greening of the global energy mix remains far too slow.

The world will ring in the new year and tear off the calendar for 2023 so here are my key takeaways for the year and the road ahead.

Policy wins but leaves much to be desired

A historic milestone occurred at COP28 with the inclusion of “phase down ” of fossil fuel language for the first time in an international climate agreement. The fact that it took us 28 COPs and a COP chair from the fossil fuel industry to gather enough resolve and courage to state the obvious, says something about the process. The Global Methane Pledge to halve emissions from this potent GHG by 50 largest oil companies by 2030 was an important step. The creation of a loss and damage fund of US$700m to support vulnerable nations also brought progress.... though it barely covers 0.2% of the need.

The EU’s Fit for 55 Package , EU Wind Power Package and US Inflation Reduction Act may serve to boost governmental support for the transition. The roll-out of both the EU and UK Carbon Border Adjustment Mechanism targeted at selected high-emission industries was the first step towards the implementation of a global carbon tax. European Sustainability Reporting Directive and Reporting standards have added impetus for corporations to act.

However, COP28 lacked the bold commitments required to close the emissions gap in line with the 1.5C pathway despite a clear IPCC Global Stocktake urging more action.

Looking to 2024, the policy outlook remains mixed. Rising pressure for bolder national plans will remain, but geopolitical rifts around energy security, friend-shoring and green protectionism may increase the costs, and make renewables more expensive while stifling international collaboration. The outcome of US Presidential elections and the rightward shift in elections in 2024 may further muddy the waters. Already, centre-right politics face pressure from their voters on ambitious energy transition policies in many nations that have led climate action.

Economics - Cheaper renewables but fossil fuels offer better returns

On the economic front, renewables expanded significantly, with solar and wind accounting for over 90% of new power generation capacity in 2023. The levelized costs of leading renewable technologies like solar PV and onshore wind continued to fall. Electric vehicle sales accelerated, reaching up to 15 million in 2023 and up 35% over last year. Renewables, both solar and wind retained their lead as the cheapest source of energy.

However, with rising interest rates and costs, the outlook for the renewables industry is on weaker ground. Several projects were put on hold or had their FID delayed due to the return on invested capital being lower than the cost of capital. Industry stalwarts such as #Orsted and #NextEra have tripped as a result.

In a clear shift, big oil majors have traded their investment in renewables over fossil fuel investment, by adopting the ′and not or′ strategy as returns on oil and gas remain high. Setbacks like BlackRock downgrading its ESG focus also increase concerns about fossil fuel and sustainable finance trade-offs. Governments have also had to adjust the auction process and/ or support prices to maintain momentum for renewables.

Moreover, Oil and gas prices after climbing for Russia’s invasion of Ukraine, have continued to soften hitting US$71/ bbl at the end of the year despite Israel's attack on Gaza. The energy industry is a game of ′cents, not dollars′ and this may mean that fossil fuel use may become more competitive vs. renewables in the absence of a global cost of carbon.

Looking ahead, China’s (and India's) pursuit of carbon neutrality and associated policies to curb coal and drive renewables will be critical to emissions reduction efforts worldwide. With state-driven mandates, China may be on a solid path, though recent macroeconomic weakness may present risks.

Next-generation technologies like green hydrogen, carbon capture, and others though promising are still in the infancy to be competitive and make a sizeable dent in carbon economics in 2024.

Expanding transmission and grid infrastructure will be essential to support rising clean energy capacities and projects like Viking Link here in the UK point towards the need for greater integration of fragmented grid networks to enable energy transition.

Lastly, for the Global South, it would be imperative that both financing and technology are unlocked as their energy demand grows, to avoid them making the same mistakes the rest of the world has already made i.e. investing in fossil fuels.

Innovation goes on amid slow deployment

On the technology front, highlights in 2023 included continued cost declines in key areas like green hydrogen electrolysers , longer-duration battery storage, wind, solar and more. The world's first sustainable aviation fuel flight took off between London and New York. Satellites and AI improved insights into methane leakage across oil and gas operations.

The start-up of commercial production of the world's largest wind turbine at the world's largest offshore wind farm at Dogger Bank off the coast of the UK was a major milestone. New larger wind turbines set a world record achieving 384 MWh of electricity production in a single day.

Progress in commercial-scale deployment of floating offshore wind, electric aviation, green cement/steel, bioenergy, CCUS and other breakthroughs, however, are at an early stage. Turning research breakthroughs into real-world scale-up will take time but green shoots are in most places.

Looking to 2024, demonstration and deployment at scale is critical for next-generation clean energy technologies. Digitalisation may optimise power distribution through intelligent grid networks connecting distributed generation, storage and electric vehicles in the network.

Climate activism and litigation drive change

Climate protests have pressured policymakers and corporations to take bolder action. Younger generations were at the forefront of movements like Fridays for the Future and Extinction Rebellion, signalling rising public support for climate progress, especially among youth. Ecuador won a landmark suit against oil production-related pollution in an eco-sensitive region.

Moving forward, climate litigation and accountability efforts against governments and companies accused of greenwashing or blocking progress are likely to ramp up. New SEC & EU rules improve climate risk disclosure. These risks may accelerate fossil fuel decline and drive responsible investment.

Deforestation slows but impacts worsen

On the environmental front, the very slight expected decline in the rate of deforestation was among the few bright spots. Overall deforestation though, remains at a very high level with the world losing a forest the size of a football field every second... Biodiversity loss has accelerated, with over 40% of monitored species in decline according to the IPBES.

The physical impacts of climate change intensified during 2023, with extreme weather events across the world making it very visible (possibly a silver lining that may add impetus). The year was the hottest on record with global temperatures hitting 1.1-1.2C above pre-industrial levels. Oceans rapidly acidified and absorbed more heat with record temperatures.

A friend of mine wryly noted that ′this may be the hottest year on record, but a few years down the road we may remember it as one of the coolest′. 2024 is forecasted to be another scorching record-setting year due to the El Ni?o effect. Every increment of warming will worsen climate change impacts and damage our ecosystems.

While no single year defines our fate, 2023 highlights the urgency for us to act. This by all means is the decisive decade for the survival of our species and our world. Putting a few runs on the board every inning may give us a nice warm feeling, but may not be enough to win the game. The stakes may not be higher as we enter 2024. But this decisive decade is not lost yet!

By rapidly scaling proven solutions (solar, wind, electric vehicles, batteries, grid etc), doubling down on innovation and collaboration, breaking barriers to put a price on carbon (not merely for protectionism) and supporting Global South in clean energy development, we can accelerate the energy transition. This project summons our collective ingenuity, brotherhood and will for a common goal of a prosperous zero-carbon future with clean air, green jobs, and improved health and resilience worldwide.

The window, like in all major projects, grows narrower by the day, but we have to employ all three options. The goal remains within our grasp, only if we can change our behaviour and language to act now with wisdom, grace, courage and resolve.

As T.S. Eliot artfully said ′For last year's words belong to last year's language and next year's words await another voice.′

Wish you all, your families and close ones a very happy and prosperous New Year!