Blog post September 28, 2020

The energy transition is postponed

Nine months ago, the energy transition was at the top of the political agenda. 2020 was to be a year of dramatic progress with dozens of countries and companies signing up to net zero commitments, a new attempt to reach a global deal at the COP26 meeting, and a radical Green Deal adopted and funded by the European Union. 

COVID-19 has halted most of that. COP26 is postponed, the momentum behind the net zero commitments has been lost and the funding for the European Green Deal has been absorbed into the planning for economic recovery. The priority for Governments and the wider population is jobs and the fear of rising unemployment as short term furlough schemes come to an end. According to the IMF the global economy will shrink this year by 4.9 per cent, while the EU economy will shrink by as much as 8.3 per cent. 

The economic downturn has produced a fall in emissions – amounting according to estimates from the International Energy Agency to 8 per cent this year. But the nature of the recovery which has begun in some economies is showing how temporary that reduction will be. China is the one major economy likely to achieve positive growth this year and the recovery which has begun is coal fired. Unsurprisingly the coal price in Asia has recovered to pre- crisis levels. 

The volume of renewable energy supplies continues to grow helped on by continuing reductions in cost but overall hydrocarbons continue to supply 80 per cent of global energy demand. At just the moment when investment on new vehicles, infrastructure and equipment is needed to deliver the energy transition, the post Covid recession is forcing companies and individuals to cut back on new projects. Without a turnover of the capital stock, individuals and companies will keep using their existing equipment which is tied to hydrocarbons. 

A long recession – stretching three or four years – might keep the absolute volume of emissions below the 2019 level of 36.8 billion Gt for a while, particularly if air travel is serious restricted.  But that does not amount to the fundamental shift in the energy mix which is required. If the economy recovers more quickly the graph of global emissions will resume its upward path as it has after every previous period of economic disruption. 

But postponement does not mean that the issue is dead. On the contrary what happens over the next year as emissions rise again will re-enforce the urgency of the challenge. What can be done to prepare for that moment?  

The first necessary step is to change tone. Shouting about extinction will achieve nothing if the public and politicians are not listening.  The need now is for serious plans which are practical in a world hit by recession. Those plans need to spell out what can be done now and in the immediate future.

Those plans need to spell out what can be done now and in the immediate future. Talk of net zero in 2050 is too distant to be relevant. A reduction of emissions by 2030, changing the trajectory of the problem is what matters.   

Nick Butler

Much can be done over ten years building on the gains of the last decade – the dramatic fall in costs of renewables, the digitisation of energy systems and the development of technology which can improve environmental outcomes with cleaner products and more efficient equipment. Recognising reality, the actions most likely to win public support are those that bring employment and reduce costs to the consumer as well as offering cleaner energy. That is the second step which can be pursued by both Government and business – a step already being taken by some of the leaders in the energy sector.   

The next step is the establishment of a better system of energy diplomacy.  Given the limited material progress made since the Paris Agreement in 2015, it is time to acknowledge that there will be no global deal. The divergence of national interests is too wide. The practical answer is to build coalitions of the willing topic by topic. 

That process could begin with agreement on a set of research priorities. The current set of renewables – led by wind, solar and hydro – is doing well and is on track to dominate the electricity market over the next decade. But electricity cannot reach the sectors which rely on the use of concentrated energy – such as heavy industry or freight transportation.  Hydrogen is one possible answer but still faces real challenges in terms of cost (especially for green hydrogen – produced using renewables rather than gas).  A dozen different countries are pursuing individual hydrogen strategies.  A coordinated coalition pooling resources would be more effective. The same applies to the related need for more industrial scale testing of carbon capture and use systems.   

Steps of this sort should be the priority for the next year or so, so that as the pandemic passes and public attention turns back to the challenge of climate change, they will find a serious programme of action in place. 

Covid 19 as I wrote a few months ago is not a friend of the energy transition.  But plagues pass and recessions end. Until they do, the challenge is to make sure that the inevitable immediate focus on dealing with the pandemic does not completely distract attention from the longer term and potentially even more serious risk of climate change. 

ONS does not take positions or engage in advocacy but we hope the commentary will stimulate debate in the run up to the ONS meeting at the end of summer and beyond.  The coronavirus has demonstrated in the harshest possible way that we are all in this together. “Together” is the theme of this year’s ONS and we hope by encouraging an open discussion is happening we can go through and emerge from the crisis with a full understanding of the interdependent world in which we live.

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