Russia’s invasion of Ukraine lit a fire under energy markets and created a crisis of supply into western Europe. Apart from desperate short-term workarounds to keep the lights on amidst huge price spikes in coal, oil, and natural gas, what has been the longer-term impact on the “green transition” to move away from fossil fuels and embrace alternative energy sources?
The Economist magazine suggests the answer to this question is far more positive than many would have thought.
By making coal, oil, and gas more expensive, the war in Ukraine has given renewable power, which is mostly generated domestically, a significant strategic and economic edge. All over the world, plans to expand solar and wind energy are being unrolled, and governments are raising renewables targets and setting aside huge sums to bankroll a buildout.
Source: The Economist
The Economist examined a range of factors, including fossil-fuel consumption, energy efficiency, and renewables deployment. Their findings suggest that the energy crisis caused by the war in Ukraine may have fast-tracked the green transition by an amazing 5 to 10 years.
Sky high prices have led consumers and businesses to reduce their reliance on fossil fuels. Last year the world economy became 2% less energy-intensive – measured by the amount of energy it uses to produce one unit of GDP. The fastest rate of improvement in a decade. Efforts to consume less are most apparent in Europe, which has been assisted by a mild winter. All over the world, capital is being mobilised at scale to make the economy more frugal. Last year governments, households, and businesses spent $560 billion on energy efficiency.
America’s Inflation Reduction Act set aside $369 billion of subsidies for green tech; the European Commission plans to provide €250 billion to clean-tech companies and brought forward the target for doubling the EU’s installed solar capacity to 2025, from 2030. Last July, Germany raised its target for the renewable share in power generation by 2030 from 65% to 80%. China’s plan for energy, released last June, for the first time, sets a goal for the share of renewables in power generation (33% by 2025).
Globally, installations of rooftop solar panels have risen by 50%. A record 128 gigawatts (GW) of onshore-wind projects broke ground, marking a 35% increase from the year before.
Such indicators only cover a fraction of the activity that has taken place since the war, because selecting a site, obtaining permits, and designing large wind or solar farms can take years. A more encouraging metric is the amount of money flowing to new projects. Last year global capital expenditure on wind and solar assets grew from $357 billion to $490 billion, surpassing investment in new and existing oil and gas wells for the first time, and that investment will continue to rise. More money is also being raised for innovative technologies, such as green hydrogen.
The investment surge and tighter carbon emission targets should create a huge amount of renewable generation capacity, sufficient to accelerate the energy transition by 5 to 10 years. The International Energy Agency expects global renewable energy capacity to rise by 2,400GW between 2022 and 2027, an amount equivalent to China’s entire installed power capacity today. That is 30% higher than the agency’s forecast in 2021, released before the war. Renewables are set to account for 90% of the increase in global generation capacity over the period.
As green power is boosted and fossil-fuel use sags, the global economy is expected to generate much less carbon dioxide than had been predicted just 12 months ago, and once the decline starts, it should accelerate. The catastrophic war in Ukraine may have a silver lining.
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