Industry Highlights – Forging Ahead Despite Challenges

The energy transition has been gaining momentum. The flurry of activities can be attributed to the commitments of various world leaders in Glasgow near the end of the year. When discussing the United Nations Climate Change Conference of the Parties (COP26), one of the most significant outcomes may be the prospect of accountability. Timelines for defined plans and progress checks have been shortened. This next decade is going to be decisive in our progress against climate change. A pivotal step forward is what the world urgently needs.

With the new year beginning, it is beneficial to take stock of where we are at. The International Energy Agency (IEA) had put out its recent World Energy Outlook (WEO) report in October 2021, emphasizing the benefits and risks associated with the current and prospective scenarios associated with global energy issues. There is a need to simultaneously analyze multiple pathways forward to understand where shortcomings lie. The WEO presents three scenarios where one reflects the policies already underway, the second presents the model updated with pledges made prior to publication, and a third, more aggressive, model that results in net zero emissions by 2050. Reviewing the WEO, the primary takeaway is that the current trajectory does not accomplish the goals set by the original Paris Agreement, which was to slow the rise in global temperature to less than 2°C relative to preindustrial levels.

Within the WEO, the third model, referred to as the Net Zero Emissions by 2050 Scenario (NZE), depicts a roadmap that can close the gap and help stabilize the global temperature change at 1.5°C.  This model could be considered optimistic but reflects plausible actions and aspirations. Models like this and the ones created by the Intergovernmental Panel on Climate Change (IPCC) exist to provide policymakers with the necessary knowledge and guidance to make informed decisions. The meeting in Glasgow was the pinnacle of two years of persistent diplomacy focused on elevating the 1.5°C dream into reality. The Glasgow Climate Pact formalized the agreement from Paris in 2015, upholding every country to their pledges as they updated them towards more aggressive action during the summit. Four main themes emerged as the primary foci of the concerted global effort: Mitigation, Adaptation & Loss and Damage, Finance, and Collaboration. The main takeaway was that immediate action on all four fronts is needed to keep anything remotely close to the NZE scenario alive.

With the synergy exemplified at COP26, 2021 closed on an encouraging yet hesitant note. This came after the world’s leading scientists joined together and stressed the severity of the situation, aggregating and presenting substantial evidence to back their findings. Globally, medical professionals had taken a stand and demanded action on climate change while deep inside a pandemic battle. Then international leaders came together to collaborate on action plans to move forward strategically and sustainably. Therefore, the year ended in a place of hope, albeit a somewhat fragile version of such.

So what has come from all this progress so far? In the European Union (EU), the European Commission has established the “Fit for 55” package, which is a comprehensive group of proposals that factors in all areas of economy and society, transforming the continent from the ground up. There are many factors considered within this proposal package that is working to directly align EU legislation with the 2030 goals. This includes but is not limited to an EU emission trading system, renewable energy integration, alternative fuels infrastructure, energy taxation, social climate funds, and many more. Over the last few months, the various industry-specific councils established by the European Commission have been monitoring progress towards implementation of the Fit for 55 package, checking on different sectors every two to three months. In the most recent review, a primary milestone was an agreement on how to strengthen the resilience of critical entities to ensure they can prevent, protect against, respond to, recover from and resist terrorism, natural disasters, or health crises.

In the US, there have been ambitious proposals for legislation towards climate and social spending. The “Build Back Better” Act would have put $550 billion towards the energy transition, funding things like methane fees and clean energy taxes. The lack of bipartisanship has provided setbacks for now. However, in November, there was a large infrastructure bill signed into law. Its focus went beyond just repair of deteriorating roads and bridges, providing funds for climate resilience initiatives like grid modernization.  Together, the “Build Back Better” Act and infrastructure bill would not reach the US goal for 50% reduction in greenhouse gas production by 2030, but they would have been foundational for reaching those emissions targets in the future. An updated version of the “Build Back Better” Act is already underway in hopes of achieving bipartisan acceptance in the near future.

The energy industry alone is expected to grow at an exponential rate due to the global movement towards decarbonization. According to Wood Mackenzie, the projected rate of annual capacity growth will reach 190 GWh by 2030. The ambitious goals set globally have driven deployment forward.

At this pace, the decarbonization movement is already running into challenges.  The energy transition is happening throughout the energy value chain but not all areas are synchronized. Wind and solar systems are penetrating the market much faster than the base electrical infrastructure can handle in the long run. Ultimately, this means that the grid is going to run into reliability issues. In addition, there is an imbalance in electricity services available to one-tenth of humanity. This means there is a need for grid investment towards equality. There are also supply chain issues that have become exacerbated by the exponential demand on materials and the varying limitations of the pandemic. Bringing a balance to the energy value chain growth is a formidable task but will be worth the investment in the long run.

Right now, the world is coming together to invest in many different pathways forward. This aligns with Nilar’s belief that there is no single solution that will be the answer; collaboration and concurrent progress are the key. Despite all the challenges, global aspirations of climate change mitigation and economic recovery are forging ahead.