How previous energy shocks have turned into opportunities

The world is currently facing an energy shock of unprecedented scale, with serious implications for the global economy, particularly developing countries. Since the oil shock of 1973 – also the result of geopolitical turmoil – energy-consuming countries have developed policies and institutions to strengthen resilience against such disruptions. We can learn from that work.

Perhaps most notably, the International Energy Agency (IEA), established in 1974, has played a central role in developing policies and coordinating responses.

The IEA’s decision on 11 March this year to release 400 million barrels of oil from emergency reserves was both swift and welcome. Having led the IEA’s work on oil markets and energy security from 1996 to 2001, I strongly applaud this decisive action. However, supplying emergency oil is only a temporary solution.

This crisis must serve as a wake-up call to accelerate energy saving and reduce dependence on fossil fuels.

The IEA’s March report underscored a basic and critical point: proven, low-cost measures to reduce energy use are the fastest way to enhance energy security. Doing so is not easy – our economies have, in many ways, been built on ever-growing energy consumption. However, the lessons from a number of events in history can help us to carve a path forward.

Following the oil shocks of the 1970s, consuming countries prioritized energy efficiency, optimized energy use and diversified away from oil. The G7 members, which consumed about 32% of global oil in 1978, placed ceilings on respective oil imports at the G7 Tokyo Summit in June 1979 after tough negotiations.

This coordinated action demonstrated the determination of these countries to cut oil imports by both saving oil use and shifting to alternative energy sources. This is a lesson in how coordinated multilateral action can serve to lessen the impact of a sudden supply shock.

And in Japan, after the Fukushima nuclear accident in March 2011 caused severe electricity shortages across the country, Japan reduced the peak electricity demand in the metropolitan area by 15–18% through disciplined saving, and significantly expanded its efforts on renewable energy. Electric power companies in Japan reported the real-time electricity supply and demand situation in weather forecast style “power forecasts”. This initiative drew the attention of the general public towards their electricity usage and savings.

In 1973, fossil fuels made up 87% in the global energy supply. Today, despite significant progress technologically and at the policy level, that figure is still around 80%.

Had the energy transition proceeded more rapidly and steadily after the crisis of 1973, today’s energy disruptions would be far less damaging. Instead, we have seen troubling climate backsliding in some major economies and even among leading multinational companies – a dangerous approach that leaves societies vulnerable not only to energy shocks but also to the long-term risks of climate change.

World leaders should seize this moment to reverse climate backsliding. Short-term measures such as broad fuel subsidies, that risk locking in fossil fuel dependence and weaken incentives to save, should be avoided. Priority should be given to energy saving and the rapid deployment of renewable and low-carbon technologies as there are many innovative and disruptive technologies yet to flourish.

These steps will reduce vulnerability to future shocks and strengthen the capacity to address climate change, a global common challenge of our time.

Times of crisis also open up room for more creative responses. Japan’s response after the Fukushima disaster decimated electricity production could be mirrored elsewhere.

Electric power companies already grasp real-time electricity data of their own service areas almost instantly. If this data was broadcasted or shared – perhaps in Japan-style “Power Forecasts” or via another means – people would have the chance to take their electricity consumption into their own hands. This would give normal people a chance to save on their bills, while bringing marco-level; relief to economies suffering from heightened energy prices.

At the policy-level, the necessary response is clear: continue investing in the energy transition and cooperating internationally.

With the adoption of the Paris Agreement in December 2015, the world committed to shifting from fossil fuels to renewables and nuclear power, improving energy efficiency and pursuing net-zero emissions. This was a landmark in the multinational climate arrangement. Continued adoption of the terms of the Paris Agreement, and investment in renewables, will help secure the planet against future fossil-fuel based shocks.

The bottom line is that this crisis should not be wasted. Let us turn this into a genuine and lasting breakthrough in the energy transition and leave a just and sustainable planet to the next generations. Time is running out.