The Transition to #Renewables' Bumpy Road Ahead
Since May the price of a basket of oil, coal and gas has soared by 95%.
- Britain, host of the COP26 summit, has turned its coal-fired power stations back on
- Vladimir Putin just reminded Europe that its supply of fuel relies on Russian goodwill.
- US Gas prices have hit $3 a gallon
- Blackouts have engulfed China and India.
Green Energy's First Energy Shock
NEXT MONTH as world leaders gather at the COP26 summit pledging to set a course for net global carbon emissions to reach zero by 2050, the first big energy scare of the green era is unfolding before their eyes.
The panic is a reminder that modern life needs abundant energy: without it, bills become unaffordable, homes freeze and businesses stall.
The panic has also exposed deeper problems as the world shifts to a cleaner energy system, including inadequate investment in renewables and some transition fossil fuels, rising geopolitical risks and flimsy safety buffers in power markets. Without rapid reforms there will be more energy crises and, perhaps, a popular revolt against climate policies.
The idea of such a shortage seemed ridiculous in 2020 when global demand dropped by 5%, the most since the second world war, triggering cost-cutting in the energy industry. But as the world economy has cranked back up, demand has surged even as stockpiles have run dangerously low. Oil inventories are only 94% of their usual level, European gas storage 86%, and Indian and Chinese coal below 50%.
Tight markets are vulnerable to shocks and the intermittent nature of some renewable power. The list of disruptions includes routine maintenance, accidents, too little wind in Europe, droughts that have cut Latin American hydropower output, and Asian floods that have impeded coal deliveries. The world may yet escape a severe energy recession: the glitches may be resolved and Russia and OPEC may grudgingly boost oil and gas production. At a minimum, however, the cost will be higher inflation and slower growth. And more such squeezes may be on the way.
That is because three problems loom large. First, energy investment is running at half the level needed to meet the ambition to reach net zero by 2050. Spending on renewables needs to rise. And the supply and demand of dirty fossil fuels needs to be wound down in tandem, without creating dangerous mismatches. Fossil fuels satisfy 83% of primary-energy demand and this needs to fall towards zero. At the same time the mix must shift from coal and oil to gas which has less than half the emissions of coal. But legal threats, investor pressure and fear of regulations have led investment in fossil fuels to slump by 40% since 2015.
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