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- Carlos Pascual
Keynote address.
The Biden Administration has set its goals for US energy policy: net zero emissions by 2050, carbon-free power by 2035, and 50-52% reduction in GHG emissions by 2030. The pathways to those goals have been stalled legislatively. Can the US Congress still play a significant role in national energy and climate policy? Can industry be the key technological and financial driver on this pathway? What regulatory measures should we expect in 2022 and beyond?
Sanctions and cyber warfare are the second and third battlegrounds opened by Russia’s invasion of Ukraine. US and EU sanctions will seek to impose economic pain on Russia that could spark public protest and pressure to end the war—even while trying to walk a fine line that contains the pain on importers of Russian oil and gas. Russia, as in the past, may impose its own sanctions, or simply reduce its oil and gas exports to ratchet up prices in a tight market. In the backdrop, Russian cyber attacks on the US, EU, and Ukraine will intensify—and the reverse is also true. Will these reciprocal attacks affect President Putin’s outlook on Ukraine? Could public sentiment affect political calculations—in all countries? How should governments and companies prepare for a cyber backlash?
Governments confront the dual challenge of meeting near-term industrial and residential energy demand and creating incentives to build the energy systems for a net-zero world. The 2021 gas and power crisis in Europe and Northeast Asia demonstrated the impact of supply shortfalls on economic activity and consumer prices. As countries plan their net-zero pathways, how realistic are assumptions on changes in demand? What strategies should be taken on hydrocarbon investment, and how should they vary based on national circumstances—such as the potential to substitute gas for diesel, or LPG for coal and wood? What strategies are governments employing to assure that deployments in low-carbon technologies align with diversification away from hydrocarbons?
Even as ESG pressures have driven many oil and gas companies to diversify away from hydrocarbons, demand for oil and gas is increasing. Presumptive underinvestment has led to near-term and anticipated future oil and gas supply shortages and market volatility. What will be the source of investment and production that will help sustain global economic growth? Do OPEC countries have the spare capacity to respond to market demand? Can US oil and gas companies meet investor demands for increased returns and still increase production? Can the oil and gas industry employ its engineering and technology capacity and ability to execute at scale to accelerate emissions reductions? Can oil and gas be the financial driver for energy and economic diversification?
COP26 affirmed the “what” of energy transition. Now the energy industry, investors, technology companies, and policymakers must focus on the “how.” The IEA, IHS Markit, and others have developed roadmaps to net zero, yet commercially competitive technologies must still evolve for almost half the necessary emissions reductions. What will drive this level of innovation? What will be the sources of capital? What risks lie ahead, and how can they be mitigated? What types of collaboration are needed among government, international financial institutions, and the private banking sector to finance a just transition?
Egypt is using industry partnerships to transform its energy security. Investments from international oil and gas companies partnering with Egypt have resuscitated Egypt’s gas sector, securing reliable power to households and industries. Gas generation is creating the baseload foundation for new investments in renewable energy. Can Egypt extend this partnership model through the East Mediterranean Gas Forum to transform regional energy relationships and create outlets to international markets? Later in 2022, Egypt will chair COP27. Will industry partnerships become a new model for engagement at COP27, bringing the engineering skills and capacity to operate at scale and create new roadmaps for innovation and emissions reductions? Can a new role for industry partnerships align the capacity to reduce emissions with global ambitions for net zero?
Asia has the world’s fastest growing energy demand and will see the largest rise in emissions in the coming decades. Its ability to manage both the climate agenda and energy transition—to deliver reliable and affordable access to power and to stem emissions and pollution—will be key to delivering on the region’s expectations for prosperity and sustainability. To address this challenge, Japan and several Asian partners have been developing the Asia Energy Transition Initiative. The region has the potential to transform into a global renewable energy hub. Recent energy shocks in Asia and Europe have demonstrated the critical importance of meeting natural gas demand for electrification, heating, and petrochemicals. How can Asia attract the investment it needs to meet these transitional challenges? What mechanisms can be employed for the Asia Pacific region to reach its net zero future while also guaranteeing a just transition?
Energy crises, hot and simmering conflicts, and disruptive politics and geopolitics during renewable energy deployment may reshape both global security structures and the pace and course of energy transition. The concept of a just transition is entrenched in climate diplomacy, but what is just for countries in Eastern Europe or Asia that must upend their coal economies, or for Africa, if it cannot develop its gas reserves to reduce dependence on diesel and firewood? If investments in oil and gas contract sharply when driving and flying habits change slowly, will market power concentrate in Russia and the Middle East? Could political backlash on high gasoline and electricity prices rattle commitments to net zero? What can we learn from energy shortfalls affecting the Russia-Ukraine crisis and its impact on European cohesion? Should the concentration of inputs for renewable power, batteries, and electric vehicles (EVs) concern governments as national security risks?
The pandemic has brought great challenges within the developing world—Latin America as a region has been hit hardest in terms of increased inequality and slower economic recovery. Now more than ever, energy transition toward renewables represents a powerful engine to combat poverty, create jobs, and contribute to climate action. Nonetheless, governments in the region confront the dual challenge of meeting near-term industrial and residential energy demands while also creating incentives to achieve net-zero pledges. As the region moves to mobilize investment and finance to expand energy access, how can it also tap into the wave of global innovation that will bring about the energy technologies of the future? How can the region achieve its potential as a future global energy renewable hub and diversify away from hydrocarbons?
The IEA estimates that about half of the technologies needed to deliver net zero emissions by 2050 are not currently commercially competitive. Innovation is fundamental to achieving national pledges for net zero, accounting for 90% of global GDP. What is needed to accelerate the chain from laboratories to commercial application to financing to deployment? Should multiple tracks—such as hydrogen, carbon capture, utilization, and storage (CCUS), and fusion—move forward in parallel to mitigate risk? Where should efforts be focused to achieve success?
Success in the energy transition will depend on the focused attention of major emitters (China, the United States, the European Union, India) and the engagement of emerging and developing economies that will account for over half of global emissions through 2050. Could intensifying conflicts—between the United States and China, between Russia and Ukraine, across the Middle East—derail major powers from delivering on climate pledges? How might domestic politics and national expectations influence action on climate change? What measures are necessary to ensure that developing economies support ambition for climate action?