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Challenges and Opportunities in the Energy Transition



Photo: K.H. Reichert / Flickr. Licensed under CC BY-NC 2.0


The transition to a carbon-neutral, greener economy and world should bring benefits for all countries, at least in theory. Many countries will rely less on fuel imports, countries that mine/produce the materials needed for the new, decarbonised reality will see their economies soar as a result, and everyone around the planet will be happy to be living in a less dangerous world.


In practice, this transition will be arduous and complex. The current status quo, set in place since the dawn of the Industrial Revolution, has produced a lot of powerful winners, which will go to great extents to preserve both their power in the global stage and the associated economic benefits. The games in the shadows between the old world order and the unavoidable change will prove to be massive, and cataclysmic if not properly handled. 


Alignment of agency between so many different actors and players has often seemed like an impossible task, as discerning what the world could be after the energy transition remains largely undefined.


Changing the consumption patterns, adapting the flows of commerce and supply chains to adjust to this new reality will bring with itself a wide array of challenges, but also opportunities.


What can stand in the way of a successful, timely energy transition?


State-led oil mega corporations (NOCs)


ADNOC of the United Arab Emirates (UAE), PDVSA of Venezuela, QatarEnergy from Qatar and Saudi Aramco from Saudi Arabia are some of the biggest and most powerful corporations on earth, and combined possess enough reserves of oil and gas to keep up current extraction and production rates for the next four decades.

As a result, these companies are investing less in energy transition than privately owned corporations, and stand to reap a much larger proportion of the benefits if the prices of fossil fuels stay as high as they are today. Regardless of more or less commitment to a green transition, the vast majority of the more impactful actors show no desire to commit their growth or enrichment for a greener world any time soon, and therefore remain aligned in the opposite direction to most countries and governments in North America and Europe.


In addition to a very apparent lack of desire to accelerate the energy transition, the NOCs also know one thing: it will get worse before it gets better. By most forecasts, the worldwide oil demand is not expected to slow down any time before the end of the decade, quite on the contrary, with the outlook for gas and coal demand looking even more grim. On the other hand, societal and investor pressure means that projects targeting the exploration of new found fossil fuel deposits will probably be monopolised by state actors and companies which do not have to answer to the aforementioned societal and investor pressures.


This in turn will mean that, between the mid 2020s and the time when the fossil fuel demands begin to subside, the revenues and associated geopolitical control from producing fossil fuels en masse will be further and further concentrated into the hands of a few countries. This counter-cycle behaviour will mean that continents like Asia, Europe and Africa will be paying high amounts for fossil fuels as they try to steadily progress into greener economies, which in turn can lead to socioeconomic backlash due to high energy prices, which could slow down the transition even further.


Sovereignty, security and the green transition


The yields on investment for logistical and practical energy transition tools has been dwindling recently, as a result of multiple factors, namely higher interest rates and geopolitical insecurity at some of the places where these investments could yield the most visible socioeconomic return. The global south, today the fastest growing customer for  energy such as electricity, remains an unsafe investment target, which both delays investment and curbs its scalability.


Furthermore, the growing layers of protectionism and lobby driven bureaucracy that have been seen across the US and the EU also show that, even if the desire is there to ramp up the energy transition and the green economy, making it a reality will cost much more time and money than many policymakers would like it to. For example, up until recently the outpour of solar panels into the EU market from China had been perceived as a net positive. However, the latest intervention by high policy officers including the European Commission president Ursula Von der Leyen might put a stop, or at least mark a decrease, of bloc-wide import of Chinese goods. The appetite and understanding of the value, both for the climate and the economy, of greening large economic blocs like the EU and the US is tangible for all. However, the development of green supply chains in the EU and the US is still in very infant stages, and current global geopolitical and economic developments have shown that this desire might not be enough to jumpstart a worldwide transition. ”Sovereignty might have a cost, but it also has no price”, according to Cyril Piquemal, France’s deputy ambassador to the EU, quoted by the Financial Times. The battle between regional sovereignty and greening of the economy seems set for years to come.


Energy-gobbling generative AI and cryptocurrency mining


Graphics processing units (GPUs) are the cornerstone of widely spreading technologies, currencies and communications. These units are mostly known for powering the systems and data centres that have powered crypto mining for decades, but they are now back in the front pages due to massive dependency of open AI models (like Chat-GPT 4) on them for their computation needs. Even more worrisome is the fact that not only massive amounts of energy are required to run the GPUs, keeping them cool as they operate also requires tremendous amounts of energy. At a day and age where AI based models’ usage and development are running rampant, outpacing the development of viable, clean energy sources, this can lead to a massive step backwards in the decarbonisation of the global economy and supply chains. If eventually consumer directed industries (like EV cars and renewable domestic energy) come head to head with the ever increasing energy consumption of AI related technologies, it might lead us back to a world of not only expensive energy but fossil backed energy as well. Sam Altman, one of the founders of OpenAI, believes the cost of AI and energy will fall sharply and in unison over the upcoming years. However, reports from the International Energy Agency (IEA), claim that, in the more extreme forecasted scenarios, the energy consumed by data centres may double by 2026, which would add much unnecessary strain to an already anaemic energy market.


It is far too early to make long term forecasts on how the energy economy will absorb this rapidly growing demand, but the first signs seem far from inspiring.


Whatever happens, and however the energy supply adapts to this new energy consuming behemoth, it does feel like it will prove to be a hindrance rather than a benefit to the global energy transition.


Logistical obstacles to the connection of energy producers to energy grids


The energy transition is a great opportunity from an economic standpoint, as plenty of companies and economic ecosystems have the chance to sprawl out as a result. However, the energy transition is only as strong as its weakest link. The increase in clean energy production will prove underwhelming should the connection of said production be inefficient or, at worst, impossible. There is, in high level terms, a great appetite at a global scale for production and development of alternative sources of energy, as most energy related companies see the writing on the wall regarding fossil fuels. However, as of today, making sure the produced energy can connect to the grids and subsequently reach its needed consumers is proving to be an ever growing challenge. Multiple grid operators across Europe have spoken out at their difficulty to handle the surge of renewable electricity that is now eager to connect to their infrastructure. The mix of bureaucracy and flat out time it requires to update and reinforce energy grids across Europe has meant that a lot of renewable projects have been delayed or scrapped altogether, due to an uncertainty ofconnecting them to the energy grids and therefore making them profitable. Multiple technological advancements and further policy support will be required to make sure the energy transition goals can overcome their logistical challenges.


Hard to abate sectors and their unspoken part in decarbonisation


Hard to abate sectors are defined as sectors that “are harder to decarbonise due to their physical, technological or market-specific circumstances”. In these sectors we include industries such as heavy-duty trucking, shipping, aviation, iron and steel, and chemicals and petrochemicals. These sectors account, according to reliable sources, for about 1/4 of global energy consumption and 1/5 of total CO2 emissions.


However, even within the hard to abate sectors, the scrutiny is wildly differentiated. Industries like aviation and transport have been heavily scrutinised, mainly due to the fact they are mainstream activities and often directly in the public eye. On the other hand, industries like iron and steel have largely fallen out of the public perception. There are multiple reasons for this, namely the fact most people are not confronted with the fact high rises, vehicles, medical equipment and many other essential goods are built using these materials. In addition to this factor, iron and steel have long been industries that generate high amounts of employment, and have historically been protected by the governments where this activity is most present. This means the benefits of decarbonising such industries are less noticeable by end consumers, and the harm heavily impacts the people employed by them. This factor highlights a broader problem within the energy transition: making it visibly positive is as important as making it effective. Inability to show widespread societal benefits will mean driving meaningful change and a costly energy transition will become an impossibly hard endeavour. A lot of these industries have been able to successfully lobby the delaying of decarbonisation due to the fact they operate mostly in the shadows, as opposed to for example aviation, where the usage of private jets by celebrities such as Elon Musk and Taylor Swift has sparked anger and reprehension from various echelons of society, despite it producing far less CO2 that the iron and steel industries.


The situation does however appear to be changing, as we see more and more cost effective carbon capture and decarbonising technologies being developed for the hardest to abate sectors, as well as a growing desire to drive this change from a policy standpoint. Whether it will prove effective or not remains to be seen.


What opportunities may arise as we attempt to ramp up the energy transition?


Africa as a short and long term energy and commodity powerhouse


Africa owns large swathes of gas reserves, oil reserves and almost unlimited renewable energy potential. Being able to secure positive, long-lasting relationships with the continent and its largest state actors could translate into energy security as well as a successful energy transition in the short to mid term future. Prior to the war in Ukraine, the world economy’s dependence on African energy, namely LNG, had been decreasing for decades, mostly as a result of ever reducing political security in the continent’s greatest fossil fuels producers. The fact natural gas is widely perceived as the greener fossil fuel has led to a lot of fossil giants (re)starting multibillion euro projects all throughout the continent, as Africa is now widely perceived to have the highest potential for lucrative LNG projects on earth. Being able to align local agency with international and market interests will of course prove a challenge, but should Africa be able to meet its energy potential, it could redefine both itself and its position in the global geopolitical stage.


As a continent rife with rivers, deserts and windy plains, Africa’s green energy potential has been often debated. However, until recently, the logistical challenges to export the green energy it produces have been an insurmountable obstacle to the scalability of its industry, as the local markets do not justify massive increases in supply.


With assured demand from exports, local players could potentially garner better and faster investment, with the collateral effect of this way being able to better and more efficiently supply local markets.


As states around the world look to energy sources like green hydrogen (the EU and the US both have stated their clear intention to both produce and import ever increasing amounts in the next decades), more and more studies have shown that large swathes of Africa, namely Egypt, Mauritania, Morocco, Namibia and South Africa, boast tremendous potential for green hydrogen production. This in turn has attracted multiple international projects that have committed to bring jobs locally and reduce energy costs at both a regional and global level.


The lack of sustainable political stability, as well as the frequent concentration of resources in the upper echelons of society, may prove to be a deterrent for even more grandiose foreign investment, but if Africa plays its cards right, it can become a reliable, long term energy partner for most of the countries around the world.


The EU has a chance to build a track record of working energy and carbon policies 


Europe's greening progress is well on its way, with reports announcing carbon emissions have fallen by as much as 15.5% in 2023, as a result of reduced carbon emissions from electricity generation and industry. The creation of the carbon trade system has proven to be a success, with the sectors covered by it having reduced their emissions sharply since 2003, when the scheme was created. As the number of carbon permits sold will continue to decrease until reaching zero in 2040, it is predictable that the cost of being a heavy carbon polluter will keep rising to a point where more and more corporations will opt for greener options and initiatives. The war in Ukraine has also made both policymakers and end consumers more aware of the practical consequences of remaining oil-reliant on autocracies. This has in turn made it an easier political and social sell to advertise for greener options, and less dependency on autocratically owned energy sources.


The EU has long been known both internally and externally as a great regulating body, with the ability to guide and adapt behaviours of companies and consumers alike. It now stands a great chance of being able to show regulation can indeed have real world impacts in one of the most top of mind topics for millions of people across the bloc.


It has shown practical results and initiatives to foster the energy transition. Next steps like growing integration of the electricity market throughout the bloc would be a great step in the right direction. Today, the lack of integration of the electricity markets across Europe lead to storage costs and price inefficiencies. If Europe manages to further integrate its markets, on top of the proven carbon policies it has put in place, it stands a great chance of achieving even the more ambitious carbon cutting targets.


Potential to become an influential geopolitical actor for decades to come


As mentioned before, the state-run fossil fuel companies in countries like Venezuela and Saudi Arabia stand to make the most financial and political profit in the upcoming years, as some of the most oil rich nations in a world that’s attempting to decarbonise but is very much aware it cannot do so in the blink of an eye.


However, the other side of this coin is that exacerbated rents in years to come can drive these same countries to become ill-prepared for a world that, sooner or later, will need fewer and fewer hydrocarbons. This can as a result cause a violent and sudden reshuffling of the commodity economics, and which countries come out on top of this new world order. How it will look depends on how well different countries across the world optimise their competitive advantages, but also how well countries hedge their bets as they try to move forward in largely uncharted territory. Energy transition is anything but linear, and it will never come down solely to which countries have the most wind, sun or seashores, to name a few renewable energy sources.


The green rush will also (and it has already begun to) create a growing demand for metals such as cobalt, copper, lithium and nickel, instrumental building blocs for green power stations, wind turbines, solar grids and electric cars. However, a lot of the industries related to the mining/exploitation of these metals are still in their infancy, and the demand for them is still far from stabilised. This means that an ability for countries and companies to manage the unpredictability of these newly booming markets will be key in assessing which actors can come out on top of the unavoidable green transition. Unlike oil, deposit of these metals are widespread globally, meaning that the creation of an OPEC-like industry for them might prove difficult, if not impossible, due to sociopolitical differences. This may mean that the biggest benefits from exploring these green metals may befall the actors who have tried and tested experience in doing so with other valuable commodities. As mentioned before, Africa is heavily resource rich, and from a resource standpoint alone stands as a front runner to lead both the transition and establishment phases of a worldwide greener economy. 


However, resisting the temptation of flooding the markets with these metals and resources due to lack of know-how and sovereignty might have the exact opposite effect.


In a similar vein, renewable energy rich countries in Europe like Portugal, Spain, Italy and Greece, all well known for some of the highest sun exposure worldwide, must also understand that having the raw materials alone will not lead them to become worldwide powerhouses if they cannot match it with the right human capital and infrastructure. However, and unlike countries which have the metals and resources needed to fuel the earlier stages of the energy transition, these countries will hold the most long term valuable components of the energy revolution: the energy sources themselves. Political alignment and resilience in the green course can drive these countries to alter the longstanding socioeconomic status quo, or at the very least making them energy independent, a component that weighs so heavily in their population’s economics.


Ideally, the "winningest" countries of the energy revolution will be the ones that can produce fossil fuels in the short term, access the new set of precious metals at low costs and be geographically blessed to exploit renewables in scale. Which countries those will be remains to be seen.


Electrification


For decades, multiple industries have been deemed impossible to decarbonise. A lot of the “decarbonisation” of these industries was then inferred to have to come from carbon capture processes, if at all. As a lot of the hard to abate sectors require massive amounts of heat in their production processes, alternatives to fossil fuels have often been considered to be inexistent.


However, recently a new and novel idea has surfaced: electrification of industry. For the common person, electrification of something as massive as factories that span often across multiple square kilometres might seem like somewhat of a fairy tale. However, a few factors have begun to make electricity a reliable option. Firstly, the fact that wind and solar power costs have dropped dramatically in recent years has meant that electricity now has the potential to become less scarce in certain environments, such as industry. Using electricity to produce low level heat has been widely used in individualised or domestic applications, such as electric stoves. However, scaling this usage both in size and in temperature has often proven to be an obstacle. That is changing today. Multiple companies are developing technologies that are able to both produce and store heat for later usage, which can become especially useful with volatile electricity prices (producing high amounts of heat when the cost is low, to then use when costs of electricity soar).


Forecasters like the International Energy Agency (IEA) forecast that without a sharp decarbonisation of hard to abate industries, the 2050 carbon neutrality goals present all around the world are nothing more than a mirage.


The process of replacing fossil fuel generated heat for electricity generated heat is harder the higher the temperatures we are required to produce. As of today, companies in Europe, Asia and the US are able to produce cost competitive heating devices for temperatures up to 200°C, but the process grows exponentially difficult for industries that require higher temperatures or a more constant supply of heat. However, now that the Pandora’s box is now open, it is expected that cost effective mechanisms to produce higher heat around the clock will have more and better incentives to be developed, as need breeds innovation. Industry leaders are being faced with electrification of their production methods or heavy carbon taxes in the future, which can prove to be the ultimate motivation for the development of electricity intensive methods.


Another factor that can help drive the electrification of industry is building technologies that can quasi-seamlessly blend into existing production structures. If conversion from fossil fuel heat to electricity generated heat requires minimal logistical problems or adjustments, it stands a much better chance of being both adopted and evolved at a high rate.


As with a lot of technologies and paradigms, electrification of large swathes of industry is still in its very early stages. However, the moment it has been proven possible, it will probably prove to be unstoppable.


Egalitarian development and intergenerational connection


Today, in many places, industries and realities worldwide, energy represents the main obstacle for growth. The current extraction economic models which are widespread across the world have been mainly present since the Industrial Revolution, which caused a seismic shift on not only how we produce goods and services, but in the lives of all humans on earth. It opened up multiple development opportunities for both countries and different strata of society, which in turn were able to grow prosperous and break away from what had been the previous constraints of society.


However, as is well known, development and prosperity driven by the Industrial Revolution has not been equally distributed, both geographically and across time. Multiple countries, namely in Africa and Asia, have only very recently been able to begin taking advantage of the economic and societal benefits industrialisation can bring. Today, as the world comes to a reckoning with the dire impacts exploitation of certain resources has had on the planet, countries that were late adopters of industrialised mechanisms and technologies find themselves at a massive disadvantage compared to societies that were able to adopt said technologies much sooner.


Under this lens, a successful energy transition towards far greener and more abundant energy sources can itself prove to be a massive step towards creating a long lasting equal playing field.


Unlike what happened with the previous revolution, there are the tools and mechanisms today to ensure a more egalitarian distribution of the profits of such a needed change. Access to cleaner and more abundant energy will make one of the pain points in the development of so many underdeveloped societies much more manageable and removable, ensuring more countries and peoples stand a chance at fulfilling their utmost potential. While the energy transition may appear daunting or complex to many people in already developed nations, it has the potential to represent the exact opposite in developing countries. Something that started off as a survivalist need has incredible potential to both achieve its goal and drive a more prosperous and successful world for everyone.

In addition to driving more evenly distributed growth and development, the energy transition has often proven to be a cleavage point between younger and older generations. 


Generations like Generation X and older have seldom approached the climate emergency and climate goals with the same urgency as millennials, or the ferocity of Gen Z. However, today both Millennials and Gen Zs are coming into positions where they are able to enact meaningful change, both through voting but also through policymaking. This represents a paradigm shift that has been foreseen by many, but addressed by few in positions of power. Millennials and Gen Z, as the oldest generations who fear experiencing the globally impacting destruction of climate change, they perceive it as something that as to be addressed as such: a global catastrophe which may see their children or grandchildren living in an inescapable hellscape of unending extreme climate events and displacement of billions.


The energy transition then presents an unprecedented opportunity for older generations, still dominating political discourse and action, to show their younger counterparts that people do not exist as generational silos, but rather as the human race, and that only acting as such will allow us to prevent or reduce the catastrophic impacts of anthropogenic climate change. A lot of the younger generations feel like they have been hard done by their predecessors: higher housing costs, higher cost of living, reduced access to job opportunities, multiple economic and financial crises in their lifetimes and a dismayed outlook of the future. All of this is exacerbated by a very present fear of climate change and how it can very seriously and practically affect them.


It is well known that climate change cannot be stopped in an instant, as it was not created in an instant to begin with. Honest and transparent communication will go a long way in understanding how to address not only from an economic and political standpoint but also from a sociological one.


In a world where the generational disconnect and distrust feels at all time high, being told and shown by older generations that they are heard, cared for and that they genuinely care about not only their wellbeing but their children’s, grandchildren’s and the planet’s, will go a long way to help mend the generational gap, and address many of the other challenges we face as a civilisation. 


Climate change is impacting and will continue to impact all dimensions of human living and society. Younger generations will want to make sure they are not the only ones paying for it.


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