In a series of posts related to the World Economic Forum’s New Energy Architecture report, Roberto Bocca, Head of Energy Industries at the World Economic Forum, sets out five recommendations on how to encourage the transition to a global clean energy economy. You can also read all of our energy reports and see our latest videos, including our New Energy Architecture Video on our Energy Issues Page.
Over the course of the past 30 years the energy industry has changed dramatically: oil and gas producers have moved into ever deeper water and unconventional plays. The utilities sector has been de-regulated and unbundled in much of the OECD world. Renewables have rapidly grown, following the emergence of climate change as a core issue on the international agenda.
Ensuring the sustainable, secure and affordable supply of energy over the next 30 years is going to be much more challenging. Energy demand will increase by 40% by 2035, requiring $38 trillion of investment in energy supply infrastructure. Based on a business-as-usual scenario, the emissions trajectory of meeting this demand will result in a long-term global temperature increase of up to 5°C.
Responding to these changing dynamics requires the creation of a New Energy Architecture – one based on a leaner, interconnected and electrified system, supplied by low-carbon fuels. We have been conducting a research initiative designed to help decision makers manage this transition. This has been based on a holistic approach that takes into account the impact of decisions across the energy value chain, and the need to balance competing imperatives.
Today marks the start of the Clean Energy Ministerial in London, where representatives from more than 20 countries will meet to discuss how to encourage the transition to a global clean energy economy. Based on the findings of our research we advise those involved in the CEM process to consider the following recommendations:
1. Understand the trade-offs being made in driving change, reducing the economic impacts of the write-down of legacy assets. This is particularly relevant for those with large legacy systems in place, as in the majority of OECD countries.
2. Consider boundary constraints, both internal and regional, when making decisions with regard to New Energy Architecture. The availability, or lack, of physical elements such as land and water to facilitate change, as well as the capacity of social elements to enact change, should shape decisions.
3. Benchmark progress, measuring performance over time to provide transparent insight into challenges and provide a solid basis from which to make policy and investment decisions, and prioritize opportunities for improvement.
4. Learn from archetypes – groups of countries that face similar challenges – to better understand the varying costs and benefits of different transition strategies, and to learn from the successes and failures of peers.
5. Create enabling environments, putting in place policy initiatives that provide the risk-return incentives that attract investors and facilitate development; the technology and infrastructure required to address specific challenges in a country or stage of the value chain and the market structures to enable producers to meet consumers’ need efficiently.
The decisions that we take today to drive the next phase of transformation in global energy systems will therefore have a profound impact on the world we live in for the next 30 years: we must get them right.
Author: Roberto Bocca, Senior Director, Head of Energy Industries, World Economic Forum
Photo: An electric car is charged during a demonstration ceremony to launch a charging station owned by the Moscow United Electric Grid Company (MOESK), in Moscow February 28, 2012. REUTERS/Sergei Karpukhin