Rising fossil fuel prices should not dampen optimism about the energy transition

Four months after COP26, the global energy picture has changed significantly – and not in the direction that COP negotiators had hoped. Far from declining, global coal consumption rose to record levels during the winter, leading to a spike in emissions. And that was before Russia invaded Ukraine, sparking a global energy crisis that forced countries, particularly in Europe, to look for ways to quickly wean ourselves off Russian oil and gas and the deadlines for fossil-reduction commitments reconsider fuels.

A recent study by McKinsey & Co estimates that the path to net zero will require investments of US$9.2 trillion each year by 2050. In the G20 countries, only 6% was allocated in 2020 and 2021 to areas would reduce emissions. While that means the investments were well below the $9.2 trillion needed, they amount to $840 billion — the largest investments ever made to reduce emissions in such a short period of time.

While the net zero road will require significantly more investment, there are reasons to be optimistic.

First, significant investments in alternative marine fuels for the shipping industry are increasingly being made in key trading zones. While the shipping industry accounts for only 3% of global carbon emissions, methane emissions from shipping increased by 150% from 2012 to 2018. Alternative marine fuels will help significantly reduce emissions from the industry.

The Suez Canal Economic Zone (SCEZ) is one of the most important trading hubs in the world. The global ocean fleet consists of 5,534 ships and the Suez Canal was transited by over 18,000 ships in 2019 alone. Since COP26, SCEZ has signed a letter of intent for a $5 billion project with Norway’s Scatec to build its first green ammonia plant, has agreed to a $2.6 billion green methanol plant and has signed a memorandum of understanding with the EBRD to launch a national low-carbon-hydrogen strategy that could help unlock the potential of Egypt and this important trading hub for a greener economy.

Another important factor contributing to the optimism is how countries that are historic hydrocarbon producers are significantly increasing their investments to support their energy transition. This signals their understanding of the need to develop and produce climate-friendly energy sources as their reliance on hydrocarbons for government revenue and economic growth will not last forever.

This week the government in Nigeria, together with the European Union and Germany, published the Environmental and Social Management Plan (ESMP). It aims to address renewable energy bottlenecks and enable the country to meet the goal of feeding 9,000 megawatts of electricity from renewable sources into the national grid by 2030. The ESMP is a critical step in Nigeria’s transition, simplifying the process of conducting environmental and social impact assessments, reducing costs for local developers and promoting renewable energy generation.

An impressive and important milestone was recently reached in Brazil. Renewable energy sources now make up more than 80% of the power matrix in Latin America’s largest nation. This is helping to underpin the reform goals of the country’s green agenda and bodes well for its long-term growth.

The UAE aims to become the first country in the Middle East to be carbon neutral by 2050, with plans to invest Dh600 billion (US$163.5 billion) in clean and renewable energy over the next three decades. The country is building major renewable energy projects, including the world’s largest single-site solar power plant in Al Dhafra – a project that will use some 3.5 million solar panels to generate enough electricity for 160,000 homes in the UAE and 2 .4 million tons reduce carbon dioxide per year. The country also plans to build the 5 GW capacity Mohammed bin Rashid Solar Park in Dubai and is also building the Barakah Nuclear Energy Plant, the Arab world’s first multi-unit nuclear power plant to be operational.

The global energy transition is often described by advocates as a quick, one-stop solution, rather than a transitional period likely to get worse before it gets better. Despite the war in Ukraine, there are many reasons to be optimistic on the way to net zero.

By Cyril Widdershoven for Oilprice.com

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