Risky business. (Kevin Frayer/Getty Images)
COMMENT
The year 2020 was supposed to be a turning point in the global energy transition from fossil-based (oil, gas, coal) systems of energy production to renewable resources such as sun and wind. The production and consumption of energy accounts for two-thirds of annual global anthropogenic emissions, making the energy transition central to delivering the promise of the Paris Agreement.
Countries were expected to take stock of their nationally determined contributions to meeting the Paris Agreement’s goals and potentially strengthen their commitments to keeping global temperature increases to well below 2 degrees Celsius, with the ambition of reducing this figure to no more than 1.5 degrees. The year arrived with a sense of gathering momentum as the world entered its decade of delivery.
But over the course of the past few months, we have been up against a low-probability, high-impact catastrophe of global proportions. The speed, scale and intensity of the Covid-19 pandemic caught us off guard, necessitating the reallocation of resources and a collective conviction towards limiting the extent of the damage, and restoring normalcy to the economy and to society as soon as possible.
Covid-19 has proven to be a “black swan” event, threatening to undo the gains from the longest period of economic expansion in history.
The disruptions from Covid-19 have exposed vulnerabilities in the energy system. The short-term outlook for the energy transition is therefore at risk. The unprecedented speed and extent of the drop in energy demand, and the accompanying price volatilities and geopolitical implications have destabilised the global energy system.
The economic dimensions of energy transition mean that extreme price volatility has fiscal implications for countries and affects the livelihoods of millions of workers in the energy sector. It also alters the competitiveness of renewable energy technologies and reduces incentives for energy efficiency. Resilience, not just in markets and infrastructure, but also in policy and cooperation mechanisms will be critical for an accelerated recovery in energy transition.
There are signs of revival; energy demand seems to be gradually picking up. But it might be longer before the economy reclaims the lost ground. Given the uncertain economic outlook, purchase of vehicles and domestic appliances might be postponed, infrastructure development could be paused and non-essential industrial activities might take longer to restart.
This decline in energy consumption has an immediate effect on the environment; skies have cleared in even the most polluted areas of China and India. This may be a blessing in disguise for the environmental sustainability agenda, but it should not be mistaken for progress, and also demonstrates the cost we need to pay for an effective energy transition.
Along with a sustainable and thriving ecosystem for future generations, an effective energy transition is also essential for economic growth and social development. In an increasingly turbulent global paradigm, disruptions are the new normal, and energy transition roadmaps need to integrate robustness against these disruptions. Resilience of energy transition, in the long-term, implies a strong enabling environment that sees the system bouncing back from unforeseen or exogenous disruptions. This includes the presence of strong political commitment, stable capital markets, investment, a steady pipeline of innovations, modernisation of infrastructure, training people for future energy systems, and so forth.
The World Economic Forum’s energy transition index (ETI) benchmarks countries on these fundamentals for energy transition, along with the performance of their energy system on economic growth, environmental sustainability, access to energy and security. From the recently completed analysis for this year’s index, the evidence of gradual progress on energy transition is strong.
Since 2015, more than 80% of the countries have increased their score on the ETI. Encouragingly, the gap between emerging economies and the leading countries seems to be narrowing, but much work remains to be done. Only a handful of countries have been able to make steady annual progress on the ETI over the past six years, which demonstrates the complexity and difficulties of energy transition. Improving levels of regulations and political commitment, capital and investment, and technology development have been critical to unlocking this progress globally.
South Africa ranks 106 out of 115 countries on the ETI 2020. This indicates an improvement of five percentage points in the composite ETI score for South Africa over the past year, but significant problems remain. Energy security and environmental sustainability are still areas of concern, and coal continues to remain the mainstay of the energy system. The power blackouts made a significant dent in South Africa’s gross domestic product, demonstrating the economic dimensions of the energy system.
When we finally put the global tragedy of Covid-19 behind us, there may be valuable lessons learned. The energy transition challenge is similar to the pandemic in terms of scale, cascading effects across social and economic systems, more severe for vulnerable populations, and the necessity of a decisive, timely and concerted response.
Stakeholders around the world need to be conscious that the fight against Covid-19 does not set us back in solving the critical socio-economic puzzle of global energy transition, otherwise the losses resulting from the virus will take an even greater toll on humanity.
Roberto Bocca heads Shaping the Future of Energy and Materials at the World Economic Forum and Harsh Vijay Singh is the project lead.