A view back and ahead: The world in transition

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The year 2022 will come to an end in a few days. Time to look back and look forward. Twelve months, intense in every respect, lie behind us. These were months that confronted us all with new challenges, many that we could have never anticipated a year ago. In many cases, however, these challenges provide great opportunities and potential. We need to jump at the chance to make real, systematic change for the better – geopolitically, economically and socially. This is my personal reflection on 2022 and outlook for the coming year in a world in transition.

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1. Geopolitics: War for Energy

February 24, 2022, fundamentally changed the world. Unbelievable for many, this day brought war back to Europe. More than that, the war shifted the focus in Europe on energy, which was previously taken for granted. Energy is the basis of civilizational development and economic progress. This year in Europe we have seen how fragile this foundation can be. Energy is being used as a weapon – by turning the gas tap on and off or destroying energy infrastructure. This endangers the well-being of hundreds of millions of people.

But 2022 also showed us that politics and business have moved closer together in many regions of the world. Together, we are working on solutions to achieve energy security, independence and diversification, and to drive forward the energy transition. Without a doubt, this will also be a defining issue for 2023.

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2. Economy: Rising energy prices, high inflation, looming recession

The war in Ukraine is also leading to massive economic disruptions that pose a challenge to entire economies, companies and us as citizens. Energy prices in Germany alone rose by around 43% from October 2021 to October 2022. In parallel, the inflation rate was around 10%, both values we have not seen for decades. Globally, experts predict an inflation rate of around 8.75%.

At the same time, however, the wisdom that every crisis has also opportunities will prove true in 2022. Europe is strengthening the focus to define its energy strategy. Despite all the justified criticism of protectionist tendencies, the United States has shown with the Inflation Reduction Act how the energy transition can be massively accelerated. In other regions too, it is clear that the energy transition is the biggest investment program since the industrialization. It offers enormous opportunities for economic recovery that must be consistently embraced. Let us work together on this in 2023.

3. Social: pandemic and climate change

2022 will also go down in history as the year many countries emerged from the COVID-19 pandemic. For the first time in three years, larger gatherings and much anticipated face-to-face exchanges were possible again. Nevertheless, what remains? The coronavirus has fundamentally changed our personal lives and how we work together in a more virtual manner.

At the same time, 2022 also represents a further intensification of climate change. Forest fires, droughts, devastating floods almost everywhere in the world make it clear: We have less than a decade to stop the irreversible effects on our planet. We discussed this just recently at COP27 in Sharm El-Sheikh. We must act now to address climate change. And the actions taken must benefit everyone in society. The latest IPCC report has made it abundantly clear: Without significant action, global warming will rise to 3.2 °C. To limit it to 1.5 °C, we need to reduce emissions by 45% by 2030 compared to 2019. But none of this will work without social acceptance. There is much to be done here in 2023.

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A look back at 2022 shows that the world is in a state of transition – politically, economically and socially. This results in clear tasks for 2023 that we can only tackle together:

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1. Political: Ensure energy security and competitiveness

Energy is a security issue, so in 2023 we must continue to work to ensure energy security and competitiveness: in Europe and worldwide. This requires public-private partnerships and incentive schemes that attract private investment to accelerate the transformation of our energy systems. The Inflation Reduction Act in the United States has shown how this can be done quickly and pragmatically. However, fair competitive conditions must apply worldwide. Otherwise, we create trade conflicts that immediately wipe out competitive advantages. Moreover we need companies that acknowledge their responsibility, invest in their locations and scale future projects. In 2023, Siemens Energy will start manufacturing gigawatt-scale hydrogen electrolyzers in Berlin at a site which today is a core location for gas turbine manufacturing. Just one of many examples of how our company is transforming.

Wind energy demands urgent political action in 2023. The wind industry is in a serious crisis. By setting targeted framework conditions, governments can help make it successful again. That will require accelerated approval procedures, new auction concepts, better trade agreements and inflation compensation to ensure fair competition. This would create the conditions for economic success – and thus for secure and well-paid jobs

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2. Economic: Using the energy transition as a growth engine

COP27 reminded us loud and clear that political compromises are not enough. Concrete action is needed to make the energy transition a success. We are running out of time. But Sharm El-Sheik also showed that the narrative is changing. Governments, businesses and society finally discussed concrete steps to reduce greenhouse gas emissions immediately and sustainably: not against each other, but with each other. Because – and in my view this is the biggest lever – the energy transition has the potential to become the biggest economic growth engine since the industrialization and would thus bring together economic and ecological interests. An investment requirement of €50 trillion speaks a clear language here. What is important now? Five points are central:

• Expanding renewables. By 2050, we need to massively expand the share of renewables – by a factor of 2 in the United States, by a factor of 4-10 in Asia-Pacific compared to 2020 and by a factor of 3-4 in Europe.
• Improve energy efficiency: We must save energy wherever possible, that will also require innovation as we move forward with more electrification and better energy management.
• Strengthening power grids: The rising share of renewable energies and increasing electrification require more robust grids.
• Use existing infrastructure as a bridge: Existing infrastructure must be used for the transition – even if it is based on fossil technologies.
• Ensure supply chains and the minerals: More materials and minerals are needed for the energy transition. Ensuring access to them is the basis for the success of the energy transition worldwide.

COP27 undoubtedly did not bring the success that we all hoped for. But if we continue to work consistently on accelerating the energy transition in 2023, we can achieve economic, ecological and social progress.

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3. Social: Ensure a just transition

Climate change is a global issue and needs societal support. Temperatures will not stop rising in Berlin or Washington if emissions in New Delhi do not fall. More than two-thirds of global CO2 emissions come from emerging and developing countries. So, the issue is how we sustain economic growth in countries such as these. We need to deploy our technologies, provide financial support and promote local workforces.

The Loss and Damage Fund adopted in Sharm El-Sheikh is encouraging. It is the first fund announced to provide financial assistance to the victims of climate change, particularly in developing countries. The fact that a decision still has to be made on the specific form of the fund is another important field of action for 2023, because the industrialized countries had already promised in Paris to support the developing countries with around €100 billion annually – so far without appropriate implementation. But the global energy transition will only succeed if it is fair. May this be an obligation for all of us.

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There is still a lot to do in 2023. As a leading energy technology company, we want to make our own contribution, and we will.

What is needed is close cooperation between politics, business and society. 2022 has shown that the readiness for change exists on all sides. That gives me hope for the new year.

From the bottom of my heart, I wish my colleagues, our customers, partners and all of you who have followed me on LinkedIn throughout the year a happy and reflective Christmas season, a few quiet and relaxing days between the years and a good start to a happy, successful, but above all healthy new year 2023. Together, we can achieve a lot.

Yours,

Christian Bruch