Energy price shocks are testing the resolve of many consumers and businesses around the world. The current global energy crisis arose from geopolitical conflicts, supply chain disruption, underinvestment in broader energy sources, resurgence in demand following the COVID-19 pandemic, legacy and disconnected infrastructure, and slower-than-required investments in clean energy sources. While it took a decade or more for this perfect storm to develop, the path forward should be addressed quickly. By 2050, the global population is projected to reach approximately 10 billion, while global material consumption is expected to double. In order to enable inclusive economic growth while remaining within the targets of the Paris Agreement, energy intensity will likely need to be dramatically reduced and the energy transition may need to proceed at a much faster rate than it has to date.
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Tackling the current crisis and accelerating the energy transition may require concerted action not only from businesses and societies but also from individuals across the three dimensions of what has become known as the “energy trilemma”—or the overlapping aims of addressing sustainability and climate change, bolstering energy security and resilience, and creating a just and affordable system. To help balance these goals, swift, yet fundamental, changes are needed in energy production, delivery, and consumption.
Addressing sustainability and climate change
Energy consumption and production account for more than two-thirds of annual greenhouse gas emissions. There are a range of mitigation pathways, many of which currently employ some combination of energy efficiency, end-use electrification, grid modernization, and low-emissions power generation. Beyond electricity, there are a spectrum of technologies, such as carbon capture utilization and storage, green hydrogen, ammonia, and biofuels that will likely require further investment and new financing solutions.
Scaling decarbonization pathways has been especially challenging for hard-to-abate sectors. But many companies and investors have successfully piloted new technologies. For instance, the chemical industry, which is built on hydrocarbons that are used both as a feedstock and an energy source, is now actively innovating with new feedstocks and alternative energy. Green hydrogen, which is becoming more economical due to falling renewable power costs and improving electrolyzer technologies, may offer an avenue for doing this. Whether or not adequate financing can be found for such innovative projects will likely largely depend on balancing economics, policy, and regulations. Meanwhile, stakeholders are increasingly demanding greater accountability from companies across sectors, challenging them to keep pace with rapidly evolving environmental, social, and governance (ESG) reporting guidelines.
Bolstering energy security and resilience
With European nations facing the challenge of lessening dependencies on Russian gas, minimizing supply shortages and disruptions while prioritizing energy efficiency and conservation has been thrust front and center. However, energy security risks are not just limited to hydrocarbons. New forms of energy security risks and vulnerabilities are emerging even for low-carbon sources. For instance, digitalization, including greater application of sensors and artificial intelligence to modernize grids and energy infrastructure, could open the energy system to greater cyber risks. Furthermore, as electricity becomes increasingly important, so can securing the supply chain across key metals, rare earth minerals, computer chips, and other components used to help connect and automate various parts of an electrified economy.
The current power-price crisis in Europe, as well as ongoing threats to energy security from climate-change-driven severe weather events, has further emphasized the need for energy diversification. Even as the world works to decarbonize, many governments have realized the security value of continuing to invest and incentivize investments in current fossil-fuel systems, including liquefied natural gas infrastructure assets, which can also be decarbonized.
In addition, industrial geopolitical competitiveness has recently emerged as an energy security concern. Volatile energy prices, with significant cost differentials between the US and Europe, may be here to stay. This situation is challenging the competitiveness of energy-intensive industries in certain regions, even as they simultaneously navigate policy and trade uncertainty. In response, some are exploring ways to help accelerate the shift to sustainable, long-term energy supplies; understand energy efficiency and the potential for fuel-switching; simulate footprint choices for optimized energy locations; and model policy choices to help inform the above.
Creating a just and affordable system
Regardless of the pathway chosen, people should be at the center of the energy transition in a fair and inclusive way. This often translates into access to modern energy systems, social and economic development, and the inclusion of customers, communities, employees, and other stakeholders as active participants. Businesses will likely invest capital where they see stability and gains, while consumers will likely buy energy, even if it is green, only if it is affordable. Additionally, ensuring energy equity and accessibility, however, could turn the investment equation upside down, since developing nations currently receive only a fraction of global investments in clean energy despite having the highest need. Thus, achieving this balance is key, and that is where technology, infrastructure, collaboration, and the right set of policies and regulations come in.
In building economical solutions, providers and policymakers may need to keep in mind the importance of reducing the energy burden on small industries and households; minimizing their switching and replacement costs; and streamlining the allocation of carbon pricing and energy credits. At the same time, utilities may need help smoothing out demand to cope with low spare capacity.
Finally, to help make this happen, industries will likely need to hire and/or train a workforce geared for a low-carbon economy. The skills needed for a low-carbon workforce are, to a large extent, the same engineering knowledge, safety mindset, and digital know-how that many energy sector employees currently possess. To help ensure a smooth transition to a low-carbon economy, governments and companies may need to augment the current energy workforce by providing re-skilling, up-skilling, and cross-skilling assistance.
A connected energy future
Because the goals are beyond the reach of any one nation or sector to attain, collaboration, alignment, and investment are the common elements across the three vectors of the energy trilemma. Collectively, we are moving toward a connected energy future, where we're all in it together, with a common purpose, and each with a clear role to help create our new energy world.
