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Managing The Gap Between Energy Needs And Green Goals
The war in Eastern Europe calls for policymakers to strike that fine balance between energy security and energy transition. This has to be done through ramping up deployment of renewables but at the same time continuing investments in hydrocarbon infrastructure to an extent that they don't hinder a transition over the long term
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When the COP26 climate conference came to an end on November 14 last year, it was hailed as the most crucial Conference of Parties (COP) since COP21, which gave world the Paris Agreement. Although the conference was unsatisfactory in delivering the action and commitments needed to reach the targets from the Paris Agreement, it did raise the global ambition on climate action. Global energy transition got a new air even as countries like India and China continued their embracement for coal.
Apart from the renewed commitments to fight the climate emergency at COP26, several other developments in recent months saw policymakers talking about accelerating the transition towards clean energy. For example, the coal and power crisis that India first witnessed back in October 2021 saw Union Power Minister RK Singh calling for ramping up energy storage technologies to provide cheap renewable power. However, as India faces that same crisis again amid a severe heatwave in many regions, the government is ramping up its reliance on coal yet again; we’ll come to it a bit later.
Similarly, as Russian President Vladimir Putin started sending his forces toward Ukraine’s border in December, oil prices began rallying in anticipation of supply disruptions if a war broke out, which did happen. The spike in oil prices raised a big question, whether they will speed the global transition from fossil fuels to cleaner energy sources. These prices contributed significantly to increasing the inflation figures across countries.
On February 24, Putin went to war in Ukraine, sending oil prices above $100 a barrel. On March 6, it went up to a 13-year high at $139 a barrel when US Secretary of State Antony Blinken said that the US and its allies were considering an import ban on Russian Oil, which the US announced on March 8. Since then, many global developments have indicated that the dirtiest fuels are here to stay, and global energy transition can take a back seat.
While the world has seen many oil shocks in the past, Russia has become crucial because it is the largest producer of almost every form of energy from oil, coal, natural gas and even nuclear fuel. The war has disrupted markets for each of these commodities.
Drilling and burning more?
Consider the following developments. The CERAWeek in Houston, Texas, which took place after the ban on Russian oil by the US, saw the climate-friendly administration of Joe Biden embracing the oil bosses. Biden’s officials, including his climate envoy John Kerry, were expected by many to come down hard on oil bosses for their dull decarbonisation efforts. Instead, they subtly encouraged these bosses to crank out more oil to compensate for the losses due to the ban on Russian oil.
Last week, Russia turned off the gas taps to Poland and Bulgaria as they denied to pay for energy purchases in Roubles – as demanded by Moscow to bypass sanctions and keep its long war running in Eastern Europe on the back of its energy exports. Even though Poland relies on coal for around 70 per cent of its electricity generation, the state support for such coal-based power plants is nearing its end as tighter EU emissions limits kick in for power plants receiving state support in 2025.
This weaponisation of energy by Russia has got countries considering whether to keep coal plants online longer to avoid increasing reliance on Russian gas. The use of coal will need to plummet if the European Union (EU) plans to meet its target to cut net emissions 55 per cent by 2030, from 1990 levels.
Finally, an unrelenting heatwave pushed India’s electricity demand to a record high in April, leading to the country’s worst power crisis in over six years. This has forced India to go back on a policy to cut down coal imports, and it has asked state and private sector utilities to ensure delivery of 19 million tonnes of coal from overseas by end-June. This will increase India’s import bill as the war has shot up coal prices in the international market. As of May 5, coal prices in the international spot market are $319 a ton, and prices were near $70 a ton last year in May.
The Fine Balance
Even before the war broke out, the energy markets were tight in Eastern Europe. The renewable push in recent years and the urgency to fight the climate emergency saw underinvestment in traditional energy sectors, disrupting their output and supply. These developments show the dilemma that policymakers are facing across the world between balancing energy transition and energy security, prompting the question of how leaders can better manage the gap between energy needs and their green goals.
Jason Bordoff, Co-founding Dean Columbia Climate School and Meghan O'Sullivan suggest a three-pronged strategy to deal with this dilemma. They mention that countries should first double down on clean energy transition by speeding up renewable energy deployment.
Secondly, they state that countries should also invest enough in their hydrocarbon infrastructure to meet today's energy needs. "This should be done while minimising the extent to which such investments hinder a transition over the long term," they mention in a note.
And finally, they emphasise the need for having more tools to mitigate the energy market volatility. "America, the EU and their allies should increase strategic stockpiles, avoid prematurely retiring energy assets and expand programmes to curb consumer usage in periods of peak energy demand," they suggest.
The California Example
California is a great example to illustrate what Bordoff and O'Sullivan are suggesting. On April 3, the state's primary grid ran on more than 97 per cent renewable energy at 3:39 pm. California has set a target to have a zero-carbon power system by 2045, but it neglected the traditional infrastructure in the race for ramping up and deploying renewables. The state has found itself scrambling for power supplies during the past two summers as it has added more intermittent sources and retired natural gas plants.
JPMorgan Chase & Co.'s global head of sustainable investing, Jennifer Wu, recently said that she sees the war speeding up the shift to renewable energy even though there are some instances of fossil fuels like coal, oil and gas getting ramped up in some parts of the world.
In some ways, managing this gap and striking that delicate balance between energy transition and energy security resonates with India's stand at the COP26 when it decided to phase down coal instead of phasing it out and, at the same time announcing its intention of ramping up renewables by 2030 to meet 50 per cent of its energy requirements from them. COP27 will undoubtedly see new paradigms of the global energy transition.