Energy crisis: five questions that must be answered.

The global energy map is fundamentally changing.

Events in 2022 altered Russia’s place in the global energy market. By necessity, energy alliances have shifted – some were rebuilt, others consolidated. In the previous year, more than half of Russian oil exports and about three-quarters of its gas exports went to Europe. The European Union looks to the United States, Algeria, Norway, Africa and the Middle East for energy supplies. Economists monitor G7 partnerships intended to strengthen political solidarity and bargaining power.

“In 2023, in a historic shift, EU states will club together to purchase enough gas to refill 15% of their stores. The extent to which the EU will coordinate this move with its other partners in the G7 group of advanced economies will be important to watch.”

Russia is increasing sales of gas and oil to Asian countries such as India and China, and may retain influence in the OPEC+ alliance, particularly if the United States and Saudi Arabia remain at political odds.

Energy efficiency is key to reducing dependency on liquefied natural gas.

Switching to greener energy sources and exporting fertilizer and steel industries to other countries will help Europe achieve durable natural-gas usage reductions. East Asian nations may turn from natural gas to cheaper but dirtier coal. The United States?seeks to insulate itself from market volatility by supporting renewable energy development combined with increased domestic oil and gas production.

Using cheaper natural gas as a “bridge fuel” and shifts to coal burning will hinder efforts to reduce global carbon emissions.

“Globally, whether investments shift from gas infrastructure to coal or renewables will have deep consequences for carbon budgets.”

Green hydrogen, a new technology that involves water electrolysis powered by renewable energy, is increasingly critical. The Canada–Germany Hydrogen Alliance is developing mutual supply chains. The EU is working toward hydrogen trade ties with several African nations, and supporting fuels produced with cleaner electricity.

Researchers are assessing strategies that achieve balanced supply and demand in a tight fuel market, as China emerges from COVID-19 restrictions. Policy and regulatory tools are being redesigned to accommodate.

The economic and technological viability of emerging energy projects must be evaluated.

In reaction to the crisis, some energy projects are hastily created or fast-tracked.

“The BarMar pipeline, a joint project by France, Spain and Portugal, aims to pipe natural gas – and later green hydrogen – through an undersea network between Barcelona and Marseilles in the next four to five years. The technical and economic viability of such infrastructure remains to be established, however.”

Russia’s efforts to send more energy products to Asian markets remains poorly understood. The planned gas pipeline “Power of Siberia 2” is intended to connect the country to China, but sanctions and economic bottlenecks may hinder its construction.

High energy prices may facilitate the world’s migration to greener power sources.

High gas and oil prices provide incentives for consumers and industries to install heat pumps and solar systems. EU policy-makers have simplified regulations for retrofitting buildings and obtaining permits. The United States’ Inflation Reduction Act includes subsidies for cleaner manufacturing, and the CHIPS for America Act supports the semiconductor industry. Many western nations are developing innovative green technologies that could lead to less reliance on China’s raw materials.

Rather than attempting to replace China’s massive solar power production hub, countries could focus on new technologies like non-silicon solar panels and sodium batteries.

Reserves of minerals and metals in various countries should be analyzed. Countries possessing key materials like cobalt and lithium will probably not experience an “oil rush” such as the one that occurred in the Middle East, causing conflicts between countries. Experts should assess the impacts of “green extractivism” in lower-income nations.

An increasing rift exists between low-carbon emission countries and those falling behind in emission controls.

This creates severe economic implications. If investments decline in coal-based countries, some will face hurdles in modernization.

“Investment imbalances are dire: In 2021, developing and emerging economies received a mere 8% of all clean-energy investment – most of the rest went to industrialized countries and China.”

Pledges to the Green Climate Fund consistently fall short. The Global Climate Alliance initiative, introduced at the COP27 conference in Egypt, represents an opportunity for wealthy countries to contribute to a “climate financing pool.” Funds are distributed to lower-income nations according to their emission commitments. Transitioning to decarbonization is largely a political move. The question remains whether humanity accepts this transition as a common challenge involving financial institutions and governments, or as a “green race,” which rewards countries that attract “clean capital.”

Industrial landscapes shift according to energy availability and cost.

As structural changes demanded by decarbonization occur, industries take requisite actions. Energy-intensive manufacturers like those producing chemicals and aluminum are moving to the United States?or the Middle East, where they can obtain cheaper fuel. European steel manufacturers invest in green hydrogen, or partner with wind-to-hydrogen start-ups. Car makers make parts with green steel and aluminum.

“In the longer term, facilities for steel, aluminum and power-to-X technologies will increasingly be sited in areas rich in sunlight, wind, hydropower and biofuels.”

Decarbonization efforts could be threatened by deindustrialization, which engenders lower growth and employment. New economic powerhouse regions could emerge in Australia, North Africa and the Middle East, as manufacturers with pipeline access lose their competitive edges. Heavy industries require refreshed business models to remain successful.

Supply chains to service new technologies such as green hydrogen represent a work in progress.

The success of industrial transition to green energy depends upon production reorganization, and economic interventions such as subsidies. The United Kingdom?and the United States work to innovate their ways out of the fossil fuel age, but struggle with legacy industries like steel, chemicals and coal. “Corporatist economies” like those in France and Germany organize labor well, but are weighted with old industry sectors. Transportation and production costs remain challenging.

In 2023, economic nationalism and deglobalization trends should become clear.

In 2022, some governments made investments in energy projects which exceeded crisis management. The cost of solar panels dropped because of innovation, investments and subsidies in large countries. The global transition to green energy may stall as markets fragment through industry reshoring, or if pure competition rules and countries act in isolation.

“Since last September, European governments have earmarked more than €700 billion (US$743 billion) in energy subsidies to ease the pain for families and businesses facing record prices.”

The EU Energy Platform has emerged as a “cartel in the making” due to its natural gas purchases, and in France and Germany, some energy companies were nationalized. It is not clear whether such occurrences are long-term reorientations or temporary exceptions. Open global markets are most effective in allocating scarce energy resources.

The energy crisis directly affects social inequality and political?unrest.

Low- and middle-income populations are deeply affected by energy cost increases. The crisis could easily devolve into extreme debt burden for developing countries, already saddled with debt from the COVID-19 pandemic. Sinking public coffers and diminished foreign exchange reserves put their abilities to borrow money at risk. Researchers work to interpret links between lending and development policies, and multilateral aid.

Energy poverty, price shocks and inflation disturb societal order and foment political instability in even the wealthiest countries. Lower-income nations are often skeptical when richer nations call upon them to decarbonize, while at the same time burning coal to replace Russian energy imports. Tensions could flare between rich and poor nations if climate goals, tariffs and trading blocs are not properly aligned to serve the common good.

“Social and political scientists and economists need to identify which bilateral, regional and multilateral mechanisms are best placed to foster climate finance, technology transfer and capacity building as pledged under the [2015] Paris climate agreement.”

Research supporting the COP27 climate meeting should include instituting a “global loss and damage fund” which compensates nations for taking actions to mitigate climate change. Otherwise, mounting tensions will threaten global climate cooperation at a time when action is critically needed.