News: The world is preparing itself for an energy transition from fossil fuel to green energy.
Around 133 countries have pledged to a “net-zero carbon emissions date. Most govts, corporates and civic entities have also shown determination to “phase down” and eventually phase out fossil fuels from their energy basket.
However, world is still highly dependent on fossil fuels. The natural gas and oil prices have also been turbulent in the past year due to demand supply mismatches and geopolitics.
What should be the factors that need to be considered while designing policies for green transition?
Any future energy policy would have to overcome a paradox b/w the aim for a clean energy system and the wide availability of fossil fuel resource.
1) Long and expensive: Fossil fuel-based economic system will have to be redesigned and, in parts, rebuilt for clean energy to achieve scale.
This will take decades and also require massive capital infusion.
No country or multilateral institution can finance this transition individually. The world will have to collaborate otherwise the financing deficit will push back the transition even further.
2) Fossil fuels will dominate the energy basket during this transition phase and their prices will be determined by the factors of demand, supply and geopolitics.
3) “OPEC plus” will have a huge influence in the market. Countries which have huge resources of petroleum like Saudi Arabia, the Gulf nations, Iraq, Russia, etc will gain greater control over the petroleum market as private companies move beyond fossils under pressure from shareholders and regulators.
4) Geology of the minerals and metals required for clean energy is skewed towards the geology of petroleum reserves: The Democratic Republic of Congo controls, for instance, more than 50% of the global supply of cobalt; Australia holds a comparably large share of the lithium market; and China bestrides the mining, processing and refining of rare earth minerals.
This inequity in terms of resource availability will create new centres of energy power.
5) National self-interest and short-term political ambition will be the defining determinant of future energy supply relations: Though US and China are into a Cold War and may even fall into the “Thucydides trap”. However, they are still coordinating on the energy front.
Example: A few weeks ago, the two countries decided to coordinate the release of oil stocks from their strategic reserves to cool off the oil market.
|Note– Thucydides trap is the idea that the rise of a new power, as a competitor to an existing superpower, likely leads to political escalation and war.|
What is the way forward?
– India must maintain and nurture its relations with its traditional suppliers of oil and gas. It must not assume that their role in the energy market will diminish.
– It should accelerate the build-up of the storage capacity for oil and gas; the former to hold strategic oil reserves, the latter to store gas for conversion to blue hydrogen.
– It must create a facilitative ecosystem for the search and development of the minerals and metals required for clean energy.
– A single point executive should be appointed which would act as a point of coordination for multiple stakeholders (governments, regulators, farmers) involved in this process and to develop common rules and standards.
– India should create a “clean energy Aatmanirbhar supply chain”
– It should also ensure that green transition must not lead to import dependency on raw minerals and manufactured inputs, especially from China.
Source: This post is based on the article “Preparing for green energy shift in 2022” published in The Indian Express on 3rd Jan 2022.