- COVID-19 has tested the skill of government to manage risk and change – important in a pandemic and in the energy transition.
- The ETI shows only 14 of 115 countries have made consistent and measurable progress on the energy transition in the past six years.
- The disruption reminds us that governments must prioritize resiliency, flexibility, good governance and equality into planning, design and decisions.
As the world is ensconced in a global public health crisis due to the rapid spread of the COVID-19 virus, and the related economic crisis and oil market crash, the path to a low-carbon future has become more uncertain.
It is more critical than ever to look at countries’ readiness for the energy transition. There are many paths to low-carbon energy systems, and many ongoing energy transitions. While generalizations are difficult, there are certain principles for policy design and implementation that can guide countries. There are also numerous interdependencies and areas of interconnectivity across countries and regions that need to be strengthened.
To add to this complex landscape, the pandemic has clearly highlighted issues of equity. Addressing the socioeconomic aspects of these energy transitions is equally important as the technical aspects. Distributional issues must move to the fore of energy policy design.
The functioning of institutions and associated governance issues form another critical aspect of navigating out of a crisis and into a more sustainable future. The World Economic Forum Energy Transition Index (ETI) – which benchmarks countries both on their current energy system performance as well as their energy transition readiness – generally tracks well in correlation to several metrics of governance, as we discussed a few years ago.
The pandemic has proved to be a huge shock, which has tested the skill of government to manage complex, scientifically informed yet politically difficult tasks. This matters because many governments have performed poorly and because high trust in government along with high skill are essential to dealing with the challenges of energy resilience and deep decarbonization. We need to think about these challenges less as matters of technological optimisation, and more as tests of institutional skill and political commitment.
What's the World Economic Forum doing about the transition to clean energy?
Moving to clean energy is key to combating climate change, yet in the past five years, the energy transition has stagnated.
Energy consumption and production contribute to two-thirds of global emissions, and 81% of the global energy system is still based on fossil fuels, the same percentage as 30 years ago. Plus, improvements in the energy intensity of the global economy (the amount of energy used per unit of economic activity) are slowing. In 2018 energy intensity improved by 1.2%, the slowest rate since 2010.
Effective policies, private-sector action and public-private cooperation are needed to create a more inclusive, sustainable, affordable and secure global energy system.
Benchmarking progress is essential to a successful transition. The World Economic Forum’s Energy Transition Index, which ranks 115 economies on how well they balance energy security and access with environmental sustainability and affordability, shows that the biggest challenge facing energy transition is the lack of readiness among the world’s largest emitters, including US, China, India and Russia. The 10 countries that score the highest in terms of readiness account for only 2.6% of global annual emissions.
To future-proof the global energy system, the Forum’s Shaping the Future of Energy and Materials Platform is working on initiatives including, Systemic Efficiency, Innovation and Clean Energy and the Global Battery Alliance to encourage and enable innovative energy investments, technologies and solutions.
Is your organisation interested in working with the World Economic Forum? Find out more here.
A key finding of the new report, Fostering Effective Energy Transition 2020, is about the pace and steadiness of change. Maintaining steady progress on the energy transition is a challenge for all countries. Of 115, only 14 have made consistent and measurable progress on their energy transition over the past six years. The pace of change can impact the ability of countries to manage the interacting pieces of the puzzle; moving too fast or to slow has implications for domestic politics as well as geopolitics.
ETI’s energy transition readiness index – the future-looking measurement – generally improved across most countries last year. Next year’s numbers from will be even more informative. This is the type of metric most closely associated with how countries can effectively manage risk and change towards resilient sustainable systems.
The transition readiness sub-index touches on innovative business environment, human capital and consumer participation, institutions and governance, regulations and political commitment, system structure, and capital and investment. It tends to track the wider ETI, but also has shown steady progress over the years.
Progress is not the same across the six areas of the readiness sub-index. The robustness of the institutional framework and system structure require enormous structural changes and tend to be slower moving as a result. A strong uptick in human capital and consumer participation in recent years is reason for optimism. Likewise, there is good momentum for capital and investment and regulations and political commitment, increasing by 12% and 6%, respectively, over the past six years, supported by technological improvements and public engagement while capitalizing on the economic expansion up to 2019.
While this index provides a useful picture of the energy sector and its transitions, the dramatic changes in the beginning of 2020 have altered many aspects of society, possibly for a long time. The priorities for policymakers and investors have likewise shifted, at least in the short term. How or when they will be able to refocus on energy transitions remains unclear.
The ETI benchmarks countries; markets appear in indicators. As one of us noted recently, “The most interesting change in pecking order is likely between state and markets. For five decades…markets have been on the rise. Where states demonstrate they can be trusted, the state seems likely to emerge on top.”
These current dislocations are highly likely to be further compounded by things like extreme weather events – creating a perfect storm of compounded disruptions, touching every corner of the planet. The era of compounded disruptions is a litmus test for the energy transition, asserting the importance of the twin objectives of robustness and resilience.
The framework for optimizing systems in planning or through policy has likely changed permanently. That is, a focus solely on least-cost perspectives is insufficient. Now, there is a clear need to incorporate not only environmental considerations, but also prioritize resiliency, flexibility, good governance and equality into planning, design and decisions.