The International Energy Agency (IEA) recently sounded the bugle with its flagship publication, the World Energy Outlook (WEO) Report 2022. The report provides insights into the profound impact on the global energy supply triggered by the pandemic and further exacerbated by Russia’s invasion of Ukraine. As per WEO, it is not just the skyrocketing prices of these polluting fuels but also the fragility of the supply chains of critical minerals that would tip the scales achieved so far and derail the goals set by the Paris agreement. The receding demand indicates a shift from polluting fossil fuels to clean and sustainable green energy. This decisive shift toward a cleaner, more affordable, and more secure energy system would be contingent on an uninterrupted supply of critical minerals. The article summarizes some of these concerns raised by the IEA. It highlights the outlook of the IEA towards major economies transitioning towards green and clean energy and provides a few suggestions through which the economies can scale up their renewable initiatives. Additionally, this article provides an inescapable conclusion that there is a need for a concerted approach and blended climate financing; only then will the target of achieving global temperatures of 1.5°C be within reach.
The WEO very well illuminates global energy trends. The report paints a detailed picture of the soaring prices of fossil fuels in the conventional energy ecosystem. The current inflationary trend in natural gas, oil, and coal prices is attributable to the surge in short-term demand for energy. Specifically, natural gas has been an adversely affected energy source whose demand is expected to plateau by the end of the third decade of this century, contrary to its imperturbable rise forecasted previously. The severing of natural gas exports from Russia and higher European import duties have adversely affected the demand for natural gas. Due to higher near-term prices, the faster uptake of other flexible alternatives in the power sector has dampened the outlook for natural gas. With soaring prices, WEO has also predicted global emissions to peak around 2025, driven by over-dependence on fossil fuels and the absence of optimum renewable capacity.
While raising concerns about fossil fuel expansion, it also praises nations for scrambling to replace polluting fuels with clean energy technologies. As per the report, the war has been a catalyst for hastening the green transition and giving momentum to adopting renewable energy. With Russia’s invasion of Ukraine and rising energy prices, there has been an increase in global investment in renewables. Initially, demand for fossil fuels may peak or plateau, but gradually, as renewable energy sources like wind, solar, etc., get operational, there will be a subsequent drop in emissions around 2025. Based on estimations, there is an expectation that the acceleration in structural shifts away from fossil fuels will be the reason for the ebbing in demand and emissions post-2030.
This is explained by the report’s stated policy scenarios or STEPS which investigates the countries’ current energy policy initiatives and forecasts their energy trajectory. It acknowledges the nations’ efforts in accelerating the transition to a secure and sustainable energy system. The report mentions the peaking, plateauing, and gradual ebbing of fossil fuel demand by mid-century. The receding demand indicates a shift from polluting fossil fuels to clean and sustainable green energy. This decisive shift toward a cleaner, more affordable, and more secure energy system would be contingent on an uninterrupted supply of critical minerals.
The WEO mentions the ubiquity of the critical minerals in the clean energy transition. Minerals like nickel, cobalt, lithium, copper, rare elements, etc. form the essential ingredients of non-conventional energy systems. Solar panels, wind turbines, and other low-emission systems rely heavily on the availability and affordability of these critical minerals. The scarcity of these minerals may cause price volatility and a slower transition to clean energy. Achieving net zero emissions by the mid-century depends upon building an energy system powered by clean energy technologies, which translates into an acceleration of demand for these minerals. As per the reports, an electric car requires six times more minerals than a conventional car, and an offshore wind plant needs 13 times more minerals than a gas-fired power plant.
The escalation in demand has prompted Indonesia, the nickel capital of the world, to muse over forming a cartel and capitalizing on the critical minerals. This means that all the mineral-rich countries would be its members, and hence, as prescient, the critical minerals will be the new oil, which would further undermine the clean energy transition. According to reports, in the absence of renewable capacity expansion, there will undoubtedly be increased investments in conventional energy sources due to increased demand.
To avoid further price volatility due to shortfalls in energy, producers might resort to sources like oil and gas with short lead times. Therefore, to avoid putting the goal of 1.5 °C in jeopardy, the emphasis should be on scaling up investment in clean energy technologies and systems by capitalising on all the available sources for climate financing. One could be roping in private investors.
The “Net Zero Emissions” (NZE) scenario, which maps out a way for universal access to modern energy by 2030 and to achieve 1.5°C temperatures in 2050, provides a comparison of the expenditures on clean energy with their polluting counterpart. As per the NZE scenario, every USD 1 spent on fossil fuels will be outmatched by USD 5 on clean energy supply, and an additional USD 4 on efficiency and end uses by 2030. This expenditure, approximately five times the current USD 1.5 on clean technologies, necessitates increased private investment, particularly in developing and emerging economies. This would imply a $4 trillion increase in clean energy investments per year by 2030, up from the projected $2 trillion. As per the reports, it’s beyond the scope of the exchequer globally to finance clean energy systems. Therefore, there is an ever-increasing need for public and private climate financing.
IEA’s Outlook for India’s Energy Sector
According to the report, India will be the most populous country by 2025, with energy demand increasing at a 3% annual rate from 2021 to 2030 due to urbanisation and industrialisation. The pressing need to electrify India’s households and factories will necessitate the immediate availability of base load capacity for coal-fired power generation. Despite the use of renewables in this development, India may see the greatest increase in energy demand, especially for oil and coal, and a doubling of import bills over the next two decades. Coal is the more affordable energy source of the two, and with significant reserves of coal available in India, coal production is increasing exponentially. India will soon overtake Indonesia and Australia to become the world\’s second-largest coal producer. India depends on coal to ensure stability, energy security, and immunity from price shocks. This increases their current capacities and makes the gradual phase-out of coal subsidies contentious.
As India’s renewable energy sources continue to expand, this share of coal in electricity generation is expected to fall from 75% to 55% over the next decade. Clean energy technologies are also being deployed in new infrastructure projects such as Gati Shakti, e-mobility, Bharatmala, and others. The country’s efforts to establish a carbon market, increase energy efficiency in buildings through the implementation of building codes, and push for green hydrogen are commendable. To reverse the demand for fossil fuels over the next decade, India might witness convergence in the electrification of sectors not yet electrified and the decarbonisation of transportation. This convergence requires cashing in on opportunities and innovations in businesses and policies.
Though India has made remarkable progress in electrifying millions of households with low carbon footprints compared to other developed nations, the contribution of the private sector to this development is minuscule. The lack of a proper framework and guided policy measures to reduce Green House Gas (GHG) emissions by 2070 reflects a lack of vision for India’s energy sector, and it even discourages large-scale private investment.
India recognises this fact and has been initiating reforms. It has established a global benchmark with its production-linked subsidies scheme, which provides incentives for the components of renewable manufacturing. But the incentives alone will not lead to the achievement of our goal of zero emissions. There is a need to abate coal-powered energy in sectors like steel and iron. A tremendous economic opportunity for India lies in tapping its renewable energy sector. India has made strides in developing carbon markets and the energy efficiency of structures and appliances.
On international grounds too, India emerged as a global climate powerhouse. At the Egyptian conference in Sharm El-Sheikh, it launched missions and mobilised support for climate finance. India has spearheaded the Mission Life – Life for Environment, which aims to resurrect the environment. This leadership disposition of India should be maintained at the G-20, which comprises the most significant emitters and accounts for 80% of global greenhouse gas emissions. As India assumes leadership of the world\’s largest gathering, it can use the opportunity to build consensus for deeper emission cuts.
India’s commitment to producing 500 GW of clean energy, is the highest among nations. Besides, seeking an expansion in the 300 GW of current capacity, India’s most critical challenge is electrifying houses and powering factories with lower-carbon fuels. A transition to renewable materials, advanced carbon capture technologies, storage technologies, and green mobility solutions requires increased collaboration. It is through international cooperation and the continued globalisation of climate technologies that the most pressing problems can be addressed. With these initiatives, India needs to forge bilateral ties with mineral-rich countries to ensure there are no hindrances and no future supply chain shocks. India is the third-largest consumer of energy in the world and is also poised for economic growth. The path that India chooses for development and the sourcing of renewable energy will determine its success in green growth.
Along with India, nations’ pledges need clarity and commitment towards the clean energy transition, which would also provide a direction to the private sector and allow for a dedicated flow of funds to sustainable solutions. Besides seeking support from corporations in the form of blended finance, there should also be a regulatory mechanism that makes them accountable for their actions and punishes them for “greenwashing.”
According to historical precedent, the world will continue to be consumed by disasters unless emissions are reduced. The geopolitical tensions and brewing conflict between the United States and China, combined with a rise in consciousness among mineral-rich nations, will result in a spiralling of bills and a deepening of debts, particularly for countries with limited financial muscle. Because clean energy technologies are more mineral intensive than their fossil fuel counterparts, the green transition necessitates an uninterrupted supply of minerals and the diversification of supply chains. Through the indications in the WEO, the nations should carefully evaluate their initiatives for a green transition and rectify the actions that might lead to a surge in demand for fossil fuels. The report led to an inescapable conclusion that there is a need for a concerted approach and blended climate financing; only then will the target of achieving global temperatures of 1.5°C be within reach.