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The Global Energy Transition Has A $22 Trillion Problem

Public Policy
  • The global energy industry is on the cusp of a major transformation.
  • Geopolitics will shift considerably as supply chains shift away from fossil fuels and toward rare earth minerals essential to renewable energy infrastructure and electric vehicle batteries.
  • “The growing importance of energy security and the need to bolster supply chains will require a level of energy investment not seen since 2007,” the World Economic Forum reports.

The global energy industry is at a turning point. Unprecedented shocks to the global economy stemming from the Covid-19 pandemic and compounded exponentially by Russia’s illegal war in Ukraine have caused massive disruption to the global economy and forced nations around the world to rethink their energy policies and energy security strategies, opening a window for a genuine clean energy transition without the usual inertia faced by such a revolution.

For the first time ever, the International Energy Agency (IEA) has released a projection in which all fossil fuels either plateau or drop in the foreseeable future. In fact, the IEA projects that global demand for fossil fuels could begin to peak within this decade, a huge development compared to earlier forecasts. However, only some agree with this outlook. OPEC argues that, on the contrary, peak oil will occur later than anticipated as the world prioritizes energy security over climate pledges.

This kind of uncertainty seems to be the new normal as even the most seasoned and respected financial and economic institutions need help judging which way the wind is blowing. Thrown into disarray by the myriad market shocks rising from the “three Cs” – Covid-19, climate change, and conflict – the current economy is throwing out all kinds of mixed messages and contradictory indicators making projection processes unusually murky. We know that we’re at a crossroads, but it’s hard to know what road to take when we can’t quite see where those roads are going.

With all of this increasing complexity in mind, the World Economic Forum argues that the future of the energy industry will be characterized and shaped by eight key factors: 1. Policy-making; 2. New energy security challenges; 3. A shortage of energy efficiency measures; 4. Higher decarbonization costs; 5. Government investment and inflation; 6. Greater energy price volatility; 7. Insufficient energy supply; and 8. Inadequate energy access in developing countries. Keeping these eight new “realities” in mind will be key for new strategies in the private and public sectors to “develop new strategies to meet critical energy goals in an ever-more complex environment.”

Volatility will be an unavoidable part of the energy transition. Geopolitics will shift considerably as supply chains shift away from fossil fuels and toward rare earth minerals essential to renewable energy infrastructure and electric vehicle batteries. China controls the vast majority of many of these minerals, posing new threats to energy security. Increased competition over these inputs could also raise their prices considerably, leading to what is being called “greenflation.”

Indeed, decarbonization will be expensive, and government investment will be essential, as will major climate financing schemes for the developing world. So far, expenditures are way below where they need to be to ensure sufficient energy for the future. “The growing importance of energy security and the need to bolster supply chains will require a level of energy investment not seen since 2007,” the World Economic Forum reports. New technologies also suffer from a $22 trillion gap between current spending and 2030 needs.

These financing shortfalls will likely lead to insufficient energy supply (particularly in the global south) and continued energy price volatility as energy demand continues to grow while we simultaneously move away from fossil fuels. In order to keep the gap between supply and demand to a minimum, energy efficiency standards will be key, but are unlikely to be utilized to their full potential according to experts.

Policy will therefore be key going forward to help manage all of these factors and to keep the world on track and accountable for its decarbonization pledges. Obviously, it won’t be easy, and the difficulty, volatility, and expense of the energy transition will push the economy back toward fossil fuels if sufficient policy measures and enforcement instruments are not in place. It’s a tough road ahead for decarbonization, but compared to the alternative, it’s the best worst choice by a long shot.

By Haley Zaremba for Oilprice.com 

 



6 Comments on "The Global Energy Transition Has A $22 Trillion Problem"

  1. makati1 on Fri, 18th Nov 2022 12:02 am 

    OILPRICE pushing their “green” agenda.

    The earth will “de-carbonize” when all of the FFs are burned. Not a minute before. (OR, if the nuke dogs of war are turned lose.)

    The West will starve and freeze. The East will continue to grow their economies. The dumbed down, brainwashed Western serfs will probably not even notice their 3rd world surroundings. The ‘frog in the pot’ syndrome. They are obvious now to anyone outside the pot.

  2. Theedrich on Fri, 18th Nov 2022 1:50 am 

    Starve the U.S. of energy, impose dictatorship: as the global energy situation becomes more difficult, the U.S. crime syndicate in Washington, D.C. is importing millions more ThirdWorld parasites to exacerbate and accelerate the problem even as, on 2022 Nov 17, the world welcomed its eight billionth hominin, an energy-hungry Filipino who will eventually probably try to reach America.  The American masses themselves have no idea of what is coming;  they expect the future to be just more of the past, only better and with more freebies.  This is not, of course, what is in the minds of the globemasters of the World Economic Foundation or in those of other Big Players.

    In America, the aim of the Democrats is one-party rule:  permanent dictatorship.  The Democrat Party (with the support of many Republicans) is a totalitarian masquerade.  It seeks to end freedom forever and replace it with tyranny.  Their preferred technique to accomplish this is the lie.  They are assisted in this not only with the controlled media, but also with the myth-based asininity of Christianity, founded on the insane, primitive narrative of a talking snake.  (There is a massive, age-old industry based on this insanity.)  In essence, the self-destruction of Western civilization is being perpetrated by inducing mass psychosis into the mindless masses.

    Thus spake Zarathustra.

    𝖁𝖊𝖗𝖎𝖙𝖆𝖘 𝖑𝖎𝖇𝖊𝖗𝖆𝖇𝖎𝖙 𝖛𝖔𝖘.

  3. Ted Wilson on Sun, 20th Nov 2022 10:38 am 

    Seems average well oil productivity in shale has gone below 1,000 b/d. Yet they are producing more by drilling more wells.

    But cost and energy input will increase much more.

    The only relief is the fast rising electric car sales.

  4. makati1 on Mon, 21st Nov 2022 2:40 pm 

    Ted, electric car sales are not increasing. Not to mention that the electric grids cannot handle the new load if they did. No one will be buying any new cars as the Western economic depre$$ion becomes more obvious.

    A war with China will cut off all of the things necessary to even make them. Coming soon, if the insane US keep pushing.

  5. fnaf on Fri, 25th Nov 2022 2:58 am 

    I think this post is very helpful and full of useful information. So, I’d like to thank you for all the hard work you put into writing this article

  6. Die Off Soon on Sat, 26th Nov 2022 10:39 am 

    There will be no engineered soft landing for this planet of hair-challenged apes.

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