- On the 10th anniversary of the Energy Transition Index, here are 10 insights to support progress in the years ahead.
- They include the need to balance sustainability and socio-economic impact and focus on resiliency.
- Read the Fostering Effective Energy Transition 2021 report here.
The second half of the past decade established the initial momentum to transform the energy system for the decades ahead. The scaling of technologies nascent just years earlier and an increased focus on climate change placed global attention firmly on the decarbonization of energy systems.
However, the journey is only getting started in all earnest, and the jury is still out on the ability of policymakers, business leaders, investors, innovators and consumers alike to do what is required to achieve the critical objectives set out by the UN Sustainable Development Goals and the Paris Agreement. The time to act is now – we are in the decade to deliver.
In the context of the 10th anniversary of the World Economic Forum’s benchmarking of countries on their energy transition progress, the Energy Transition Index (ETI), and as we approach COP26 in Glasgow, we have taken the opportunity to look back at the key lessons learned from the past decade and draw 10 key insights that we hope can help steer the transition as we look to the journey ahead.
1. Deliver just transition for all.
Delivering a just transition for all means prioritizing measures to support the economy, workforces and society. Adopting a holistic assessment approach, such as the System Value Framework jointly developed between the Forum and Accenture, to evaluate economic, environmental, social and technical outcomes of potential energy solutions that will be key for energy policies and investment decisions.
2. Balance sustainability and socio-economic impact.
As it turns out, the energy–economic growth nexus can pose challenges for even high-ranking countries. Fewer than half of the 115 countries benchmarked were able to increase their overall ETI score while improving on their economic growth and development dimension.
There are emerging concerns about the affordability of energy. Advanced economies faced the biggest challenge as households saw, on average, a 25% real-term increase in their electricity tariff over the past decade. Over the same period, less than 40% of developing economies managed positive progress on both the environmental sustainability and economic growth and development dimension.
Overly focusing on one aspect of the transition increases the risk of widening global inequality and falling short on climate ambitions. Achieving a balanced transition requires managing sustainability, energy access and security, and economic development all at the same time.
3. Maintain focus and momentum on driving greater access to energy.
More than 70% of countries have improved their scores on energy access and security since 2012. Highest improvements were found in sub-Saharan Africa and emerging and developing Asia. However, progress is fragile and is threatened by COVID-19 and its compounding impacts on the economy. The number of people without access to electricity in sub-Saharan Africa is set to increase in 2020, pushing many countries farther away from achieving the goal of universal access by 2030
4. Energy transition is a team sport – share learnings and best practices openly and broadly to help close performance gap.
The Nordic and European countries have consistently remained in the top performers, driven by integrated power markets, strong political commitment and regulatory framework focused on sustainability and accelerated adoption of innovative energy technologies and systems. But the top 10 countries collectively only account for 3% of global emissions.
Emerging markets from China, India to Brazil have made great strides in scaling renewables resources, expanding universal energy access programs and reducing the energy intensity of their economies. However, a significant gap remains with advanced economies at the top of the ranking that could be bridged faster through increased international/regional collaboration and sharing of key learnings on innovation and policies.
5. Accelerate scaling of renewables and go beyond.
Environmental Sustainability scores rose to an all-time high, driven by a reduction in energy intensity of GDP, which fell by 12% between 2010- 2019. Renewables expanded rapidly over this period, with solar PV and wind capacity grew seven and three folds respectively. By December 2020, around 68% of the world’s emissions from fuel combustion are covered by some kind of net-zero target, up from just 16% a year earlier.
However, much more needs to be done to reduce overall carbon intensity which has remained broadly flat over the same period. Electricity generation from coal in absolute terms has been on an upward trajectory since 2010, largely driven by the Asia-Pacific region. In this context, beyond the expansion of renewables resources, accelerating the adoption of clean energy technologies from hydrogen, carbon capture, utilization and storage (CCUS) to demand response will be crucial to meeting climate action goals.
6. Sharpen focus on resilient transition.
Only 13 out of 115 countries have made steady gains in ETI scores in the past decade, highlighting that progress has been uneven. Systematic shocks from COVID-19 to debt crisis could upend transition roadmaps. These roadmaps and commitments need to be rooted in economic, social and political practices to accelerate the uptake of renewables and low carbon fuels, improve energy efficiency, enhance regulatory frameworks and support system integration and access goals. More must be done now to ensure irreversible energy transition progress and mitigate emerging risks that can undo or slow progress
7. Collaborate across sectors and ecosystem.
New models of cross-industry and public-private collaboration can create the necessary solutions to support investment in low-carbon technologies and extend the possibility frontier for the transition. For the oil and gas industry, companies must collaborate not only within the industry ecosystem, but also with companies in other sectors such as transportation, power, and hard-to-abate industries to open major opportunities for sectoral convergence to accelerate transitions that are currently untapped. A relevant example of this would be the adoption and scale-up of solutions for decarbonization of industrial clusters and urban areas.
8. Double-down on public-private sector collaboration.
The IPCC estimates that annual investments in clean energy and energy efficiency need to increase by a factor of six by 2050 compared with 2015 levels to limit warming to 1.5˚C. Despite the growing inflow of capital into the sector, significant funding gaps remain, particularly in emerging markets and technologies. Countries can enhance investor interest and confidence by adopting long-term, ambitious clean energy strategies, including net-zero commitments, as well as levelling the playing field through phasing out fossil-fuel consumption subsidies.
Collaboration between public and private sectors, sharing risk as low-carbon solutions mature, with targeted public finance and remuneration mechanisms that foster competition, such as auctions, will attract the diversified, resilient sources of capital needed for the multi-year and even multi-decade time horizons investments into the energy systems.
9. Accelerate the adoption of a minimum set of common rules and metrics to ensure sustainable value creation.
Adoption of a common framework such as the stakeholder capitalism framework to report progress on sustainability performance will catalyze greater cooperation and alignment among business leaders, investors and policymakers and ensure more efficient allocation of capital into the sector.
10. Drive behavioural change to accelerate consumer participation in the energy transition.
A combination of economic, legal, infrastructure policies as well as fiscal interventions are needed to drive and support behavioural change and consumption patterns by influencing and incentivising sustainable behaviour. It is clear countries could not all follow the same path, but it is critical to identify ways to make change at the individual level more attractive and accessible.
Actions and progress in the current decade will determine if the global ambition to achieve carbon neutrality by 2050 will be realized. Policymakers and private sectors must act and work together now and seize the opportunities to build the foundation for a resilient energy transition—one that not only set us up for a sustainable future but also for long-term inclusive growth and prosperity.