Challenges and Actions
In this second part of the article series on the UN theme report concerning energy transition the focus is on the challenges and actions that are key for this process. The main ideas in the report once again reflect the need for cooperation and innovation to achieve a successful and just energy transition. As the 1.5-degree target ceases to be a realistic goal, the global community is required to make energy cooperation work more urgently than ever before. The report stresses the importance of investment in infrastructure and technologies that make the energy transition possible. Governments need to incentivize private investment in these areas to drive down the cost of advanced technologies especially in developing economies.
Another central challenge in the report will be having a so called “just transition” in reference to the labor market. The authors of the report propose labor-market interventions that could make the transition more seamless for workers by reorientating them towards emerging and maturing sectors from declining industries. One such example is using the skillset of offshore oil workers on newly established offshore wind power plant. A policy of partial retraining will have the effect of protecting workers against skills obsolescence and generating structural unemployment. The report specifically mentions that this is unlikely to manifest in all sectors since the skills of these workers might not match up with the new jobs that are being created.
Policy Framing
Government policy is the first point being addressed in chapter 5 of the report as it emphasizes the importance of a holistic approach to the transition. It goes on to state that policy makers cannot work in isolation and must consider the needs and opportunities of all stakeholders in the system. Most importantly policy makers need to make sure private sector investment will flow into green energy. This is a very important point that the report does not flesh out sufficiently. A more elaborate explanation of this issue would be necessary for actual policies to be developed. It is not clear how the authors of the report plan to incentivize investment by private actors. The authors go on to state that investment is likely to lower the cost of electrification in lower income countries. However, it is these exact countries where investments and financial resources are very scarce. The report does not go into further detail on how these countries will gain access to sufficient funds for such investments. It is stated that developed economies should help finance such investments but it is unclear how this relates to the private sector.
Furthermore, the report goes on to say that all of these developments need to be advanced with social equity and current economic trends in mind. This is where the example of offshore oil workers comes in, where renewables can be launched while also directly shifting jobs from the fossil fuel industry. The report does not provide a directive for cases where this is not possible. The report does not make a normative statement on what should be prioritized in cases where social equity and the transition away from fossil fuels collide. Nonetheless, the report proposes a multi-layered policy framework that should facilitate a just energy transition.
In Figure 1, the authors of the report illustrate these policies with multiple concentric circles that each represent one layer of the strategy. The center of the circle represents the strategies directly focused on renewable energy itself. Mandates and regulatory targets are mentioned as examples. The red arc represents the structural, indirect and long-term policies that act as supporting measures for the energy transition. These include R&D innovation policies and labor market reforms. In this case the red arc supports the orange arc and its policies (i.e. labor market and social assistance help level the playing field). The orange arc in turn supports the yellow arc (ensuring reliability of technology leads to a more flexible system). Finally, the yellow arc supports the ultimate goals of the green core (Alignment of energy efficiency and renewable energy policy helps with regulatory pricing)
Critical Infrastructures
The report identifies certain key challenges for infrastructure and proposes a recourse to address them. The infrastructure requirements for renewables are often considerably higher than for fossil fuels meaning extra attention needs to be paid to the importance of transmission and distribution networks for energy. International cooperation and interconnectivity are stressed as important tools to make the system as a whole more reliable and error proof. Because different countries are suited to different renewables connecting them on a grid may help compensate for the drawbacks of each individual method.
Planning is another aspect of focus for the report. It is stated that all planning must be rigorous and based on detailed data collection. This seems like a logical approach, but it is unclear what type of data should be collected and what the analysis of said data is supposed to look like. The report also puts a strong emphasis on different needs of different stakeholders and a locally tailored approach to planning the energy transition.
In this section investment comes up once again, according to IRENA the current planned global investment in renewable energy is at $3.4 Trillion and should be increased to over $4.4 T. The World Economic Forum published their numbers for 2022 claiming only $2.4 T investment in renewable energy. It is not clear how this discrepancy can be rectified. The authors put the onus on the public sector to shoulder the upfront cost of the energy transition, which will in their opinion encourage private investment. This is not demonstrated or explained sufficiently. It is not obvious how public investment on its own can incentivize private R&D and innovation.
The transition report reflects on the possible alternatives to legacy fossil fuels and how to implement them. It details several different challenges that certain countries might face in view of the phasing out of fossil fuels. It claims that the energy transition provides opportunities for all countries, including ones whose economies are based on fossil fuel exports. This segment could be further elaborated to indicate strategic alternatives to decarbonize their energy demand and how hydrocarbon rich economies could benefit from reducing their economic reliance on commodity extraction. Especially since they rightly point out the increasing need for electricity as developing countries electrify their energy consumption.
Figure 2 displays the report’s climate investment platform representing the different aspects of the energy transition and how they are linked together. The figure explains how each of these steps is central to the effort of making renewable energy more attractive to the private sector. This starts by setting goals and making them as specific as possible. This should then lead to policies and regulation designed to reach those targets which will in turn help in de-risking sustainable investment together with financial instruments like SDG-linked bonds. The interest rate paid by the issuer depends on them reaching certain sustainability goals. Finally, it is proposed that an improvement of the marketplace for green investment will help increase funding for the energy transition.
Innovation in energy efficiency will be play an important part in reducing energy wastage but such gains are getting harder and harder to achieve. However, as most of the existing higher efficiency solutions are not universally implemented, investing in the modernization of existing infrastructure may yield significant efficiency gains. The example of cooling in buildings is used to show how most countries do not use the most efficient equipment available to them, meaning there is a lot of room for improvement. The report then goes on to list a similar list of steps to the one in the figure above. These following steps should help improve energy efficiency: Regulation, Information (using labeling), Tax incentives, increasing demand through public and private spending. These seem like logical strategies, but they are also already widely used and have been in practice for decades. The report seems to contradict itself by recommending these common strategies, while pointing out existing flaws and room for improvement in the current system.
Transport
The UN report claims that transport constitutes a quarter of GHG emissions and, according to Statista, it is the fastest growing contributor. Additionally, transport related emissions pose a significant health risk, especially in urban areas where the concentration of transportation is highest.
The authors recommend that governments implement a avoid-shift-improve strategy which involves three different approaches to decrease emissions from transport. This idea is outlined in the following graphic:
This involves changing the structure of our transport system by making adjustments to the infrastructure in order to avoid, shift or improve the means of transportation as the name implies. The authors see electrification as the main way to improve individual transport. However, they stated that this does not apply to bigger more heavy duty transports like shipping and freight transport as well as aviation, where they envision a future driven by biofuels and hydrogen. It is important to note that shipping, aviation, medium and heavy trucks are economically important transport types which emit roughly 50% of all emissions in the transport category, which translates to 12% of global emissions. If decarbonizing transport is to be achieved, a systems change in logistics in concert with the stakeholders will be necessary.
Hard-to-Abate Sectors
The last part of the report is dedicated to the so called “hard to abate” sectors of the global economy. This concerns all industries that cause large amounts of emissions but do not have an obvious green replacement. This includes heavy industry like steel, cement and petrochemicals as well as aviation. In this case the authors estimate that a full shift to sustainable alternatives will not be possible. Therefore, they suggest that more emphasis should be placed on making these sectors more efficient, as well as reducing demand for their products and services. This is once again mainly accomplished through tax incentives and other demand regulation tools.
Another important aspect is the reduction and replacement of fossil fuels in the production process of these industries, as well as in their use of raw materials.
This concludes the second part of this two part series on the UN report for the global energy transition. The report itself does a good job of outlining the challenges and necessary actions related to the energy transition. It does however demonstrate a lack of accuracy in certain areas of its explanation. It often becomes clear that the authors had to sacrifice comprehensiveness for length of the report. This means that certain concepts and mechanisms are not clearly demonstrated or proven. This can obviously be damaging for the persuasiveness of the report, which should be one of its main assets since it tries to convince its audience of the urgency for action regarding climate change.
Writer: Max Suter
References
Theme report on energy transition - towards the achievement of SDG 7 and net-zero emissions, High-level Dialogue on Energy - New York (2021)
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