Net Zero Economy vs. Energy Security

Have the recent geopolitical uncertainties complicated the much-needed shift away from fossil fuels, or have they presented the perfect catalyst to accelerate the transition towards renewable energy??

Surging energy prices amid the Russia-Ukraine war, have forced countries to speed up progress towards energy independence. Concerns about energy security and diversifying suppliers are now ranked high on the agendas of governments, when just over four months ago, the 26th?session of the UN Climate Change Conference - more commonly known as Conference of the Parties (COP26) - took place in Glasgow, UK. By the end of the conference, governments agreed to work together to “enhance climate action” and a group of over 20 governments and financial institutions agreed to stop financing new overseas fossil fuel projects by the end of 2022?(Greenpeace UK 2021). Fast forward four months later, volatile oil prices sparked by the invasion, are raising concerns about sticking to long-term goals of a net zero economy versus short-term pressures to prioritize energy security by ramping up oil production and increasing the use of coal.

Average monthly Brent crude oil price from February 2020 to February 2022?(in U.S. dollars per barrel)

Source: www.statista.com

Volatility in the Oil and Gas Market

Two years ago, at the start of the pandemic, the price of petroleum products saw a sharp decline due to a fall in demand and an increase in supply. The resumption of economic activity and renewed demand was then met with limited supplies, followed by a rebound in prices. The pandemic-era surge in prices, placed unwelcomed financial pressure on consumers. Caribbean countries, however, have long been exposed to the volatility that exists in the oil and gas market, in some cases paying almost double for electricity compared to the United States says David L. Goldwyn,?who was the leading State Department energy diplomat in the first Obama administration?(Goldwyn 2021).?

Geopolitical Energy Crisis

Since the Russia-Ukraine geopolitical unrest in late February, the price of Brent crude oil has jumped as high as $139.13 per barrel on March 08, before retreating to around $125 soon after. This has sent governments who are heavily reliant on Russian oil into a tailspin. Germany halted the Nord Stream 2 Baltic Sea pipeline project designed to transport double the flow of Russian gas directly to Germany. The UK said it plans to stop purchasing Russian oil. The EU is aiming to reduce its Russian gas imports by 80 percent and the U.S has imposed sanctions on Russian fossil fuels.?

Energy Security

"The focus right now should be on energy security," said John Hess, CEO of US oil and gas producer Hess Corporation.?In the quest for energy security and to keep up with increasing demand, countries are putting plans in place to ramp up oil production. However, this is easier said than done, after oil production had to be cut drastically in the early days of the pandemic due to the sharp decline in demand.?“In a lot of places, once output has been reduced, it is not easy to bring it back,” said Richard Bronze, the head of geopolitics at Energy Aspects, a London-based research firm.?The subsequent lag in global energy output has?helped push oil prices to seven-year highs?according to Stanley Reed of the New York Times.?

Coal Makes a Comeback?

During China’s ‘Two Sessions’ meetings,?Xi Jinping?–?President of China?–?was quoted saying: “We cannot throw away our means of living first, only to find that our new livelihood has yet to arrive”.?Prof Lin Boqiang –?Dean of the China Institute for Studies in Energy Policy at Xiamen University in China –?admitted that?China’s energy consumption increased “dramatically” in 2021. He added that, despite its fast growth, renewable energy?had?not?been able to match?the?soaring demand, especially during peak times.?As a result, coal production had been ramped up to meet the country’s energy intensity.

Net Zero Economy vs. Energy Security

Increases in domestic oil and gas production by some countries, has prompted lawmakers to question recent decarbonization strategies. Newspapers have reported that some politicians in Prime Minister Boris Johnson’s Conservative Party have been calling for a referendum on the government’s 2050 net zero target, claiming that “the British people cannot afford to address climate change”. The cut in Russian oil and natural gas supplies to markets and the urgent need to restore energy security and independence raises the important question, “in the wake of the crisis in Ukraine, are net zero commitments being placed on the back burner, or is this a clear opportunity to fast track the transition to renewable energy?”

Climate Action Now

The latest report from the United Nation’s Intergovernmental Panel on Climate Change (IPCC), published on 28 February 2022, warned that irreversible changes have already taken place, brought on by climate change. The IPCC Sixth Assessment Report (AR6)?(IPCC 2022), says that “action at the global level for climate resilient development (CRD) is more urgent than previously assessed.” They went on to say the world faces unavoidable multiple climate hazards over the next two decades. Hazards such as increased heat waves, droughts, floods, severe storms and hurricanes. These extreme weather events bring about loss of life, biodiversity, and infrastructure and exposes millions of people to acute food and water insecurity.

Though significant efforts have been made to reduce climate risks, the journey to net zero emissions has been slow.??Experts estimate that the world is currently on pace to warm somewhere between 2 degrees and three degrees Celsius this century, warns Brad Plumer and Raymond Zhong of the New York times. Achieving the goal of limiting global warming to no more than 1.5 degrees Celsius would require nations to all but eliminate their fossil fuel emissions by 2050 and most are lagging far behind this target. The Russian invasion and the urgent need to secure energy independence could set back progress even further. Have these recent geopolitical uncertainties complicated the much-needed shift away from fossil fuels, or have they presented the perfect opportunity to accelerate the transition towards renewable energy??

A Good Crisis

Experts say we have already missed an opportunity to fast-track the transition to clean energy by not rising to the occasion during the Covid-19 crisis. Thijs Van de Graaf, associate professor of international politics at Ghent University said “they say, never waste a good crisis. I think you already wasted one with the pandemic”. An analysis of the governments of 20 of the largest economies (G20), found that out of the $14 trillion spent on fiscal recovery in 2020-2021 in response to the pandemic, less than 6 percent ($1 trillion) was spent on policies aimed at reducing carbon emissions. To add-insult-to-injury, the International Energy Agency (IEA) says to reach net zero emissions by 2050, clean energy investment worldwide will need to more than triple by 2030 to around $4 trillion per year?(IEA 2021).?

Energy Poverty

Achieving net zero emissions by 2050 will require nothing short of the complete transformation of the global energy system. As countries continue to be challenged by energy poverty, the time is now to prioritize the transition to a net zero economy. Particularly countries in the Caribbean region whose high energy costs are not only a burden for their people, but also a major bottleneck to achieving economic growth and prosperity?(World Bank 2015). The territories of the Caribbean are almost entirely dependent on petroleum products to supply their energy needs. They also have conditions ideal for leveraging renewable energy from the sun, wind, geothermal energy and hydropower. However, expansions of such renewable energy infrastructure will need to be driven by significant increases in green investments.

Source: Energy Information Administration (EIA)

Setback or Golden Opportunity

Though energy security concerns have led to an upswing in the demand for fossil fuels, experts say this should only be in the short term. Short term because renewables today cannot respond to the surge in energy demand. Energy executives believe that the transition away from fossil fuels is still happening despite these setbacks.?“These are bumps?in?the road,?but the momentum is still very strong toward the energy transition” says Scott Mackin, managing partner at Denham Capital, a sustainable infrastructure fund based in Boston.?

Bridging the Gap?

Christian Lindner, finance minister of Germany said "clean energy should be considered the energy of freedom” and the key element to boosting energy independence. Perhaps governments have been misguided in assuming the two crises are mutually exclusive and have consequently taken a binary approach. The ongoing Russia-Ukraine conflict has presented a turning point where climate change and energy security must both be treated as emergencies. A turning point that will require the world to pivot and address both climate change and energy security with an equal sense of urgency. The 2022 energy crisis could be a silver lining for both energy and the environment, if bold and possibly unpopular steps are taken. Steps that could quickly bridge the gap between energy security and the net zero economy.

References

Adler, Kevin. 2022. "CERAWeek 2022: Balancing near-term energy security with long-term energy transition."?IHS Markit.?07 March. https://cleanenergynews.ihsmarkit.com/research-analysis/ceraweek-2022-balancing-nearterm-energy-security-with-longterm.html.

Carbon Brief Staff. 2022. "China Briefing, 10 March 2022: Changes to energy targets; Xi's coal directives; Analysis on record high coal consumption."?Carbon Brief.?10 March. https://www.carbonbrief.org/china-briefing-10-march-2022-changes-to-energy-targets-xis-coal-directives-analysis-on-record-high-coal-consumption.

Goldwyn, David L. 2021. "It’s time to refresh the Caribbean Energy Security Initiative."?Atlantic Council.?22 November. https://www.atlanticcouncil.org/blogs/energysource/its-time-to-refresh-the-caribbean-energy-security-initiative/.

Greenpeace UK. 2021. "What Happened at COP26? The good, bad and blah, blah, blah..."?Greenpeace International .?17 November. https://www.greenpeace.org.uk/news/what-happened-at-cop26/.

Holden, Michael . 2022. "Climate change group vows to disrupt UK oil refineries."?Reuters.?09 March. https://www.reuters.com/business/energy/climate-change-group-vows-disrupt-uk-oil-refineries-2022-03-09/.

Hook, Leslie, and Neil Hume . 2022. "Will the Ukraine war derail the green energy transition?"?Financial Times.?08 March . https://www.ft.com/content/93eb06ec-ba6c-4ad2-8fae-5b66235632b2.

IEA. 2021. "Net Zero by 2050; A Roadmap for the Global Energy Sector."?International Energy Agency .?May. https://www.iea.org/reports/net-zero-by-2050.

IPCC. 2022. "Climate Change: a threat to human wellbeing and health of the planet."?IPCC Sixth Assessment Report; Impacts, Adaptation and Vulnerability .?28 February . https://www.ipcc.ch/report/ar6/wg2/resources/press/press-release/.

Nahm, Jonas M, Scot M Miller, and Johannes Urpelainen. 2022. "G20’s US$14-trillion economic stimulus reneges on emissions pledges."?Nature.?02 March. https://www.nature.com/articles/d41586-022-00540-6.

Plumer , Brad, and Raymond Zhong. 2022. "Climate Change Is Harming the Planet Faster Than We Can Adapt, U.N. Warns."?The New York Times.?28 February . https://www.nytimes.com/2022/02/28/climate/climate-change-ipcc-report.html.

Reed, Stanley. 2022. "Oil Producers Aren’t Keeping Up With Demand, Causing Prices to Stay High."?The New York Times.?15 January . https://www.nytimes.com/2022/01/14/business/energy-environment/oil-prices-opec.html.

World Bank. 2015. "Unlocking the Caribbean’s energy potential."?The World Bank .?31 January . https://www.worldbank.org/en/news/opinion/2015/01/31/unlocking-the-caribbeans-energy-potential.