Legal & Regulatory

What Keeps Energy Leaders Up at Night? It's More About Climate Change Than You May Think

COMMENTARY

This year, it seems hardly a week has gone by without a new report making us even more nervous about climate change. It’s as if the editorial theme for 2019 was: “It’s worse than you thought.”

Maybe this is part of an effort to bring home what many find difficult to grasp because it is happening in slow motion. The idea that sometime in the future the world’s ice sheets will collapse, shorelines will crumble, summers will get hotter, and species will go extinct is more difficult to take to heart and respond to than the idea that we may all be dead soon.

The Time to Act Is Winding Down

The United Nations (UN) said this year we have 12 years left to act. Then, the Breakthrough National Centre for Climate Restoration, an Australian think tank, came out with an even more shocking report, which says there’s a good chance that it will all be over for human society by 2050. The model the UN Panel on Climate Change used last year that forecast a 2-degree-C rise in global temperature was too conservative, its authors said. Their most-extreme scenario has global temperature increasing 3C in the next 30 years as a direct result of governments ignoring the science and doing almost nothing. Such reports have one message in common, that is, we must act and act now to address the manmade driver of global warming.

Yet, the impression is that decision-makers are fiddling while the world burns. Actually, that impression could not be further from reality. The truth is that energy leaders around the world, in all regions and in economies with different systems, are engaged in managing the transition from the current fossil-fuels-based energy system to one based more on carbon-neutral sources of energy. The intention is to reduce carbon emissions and mitigate the effects of climate change.

It may be argued—in some places more than others—action is too slow and too patchy. But the good news is that the inevitability of the energy transition is broadly accepted in many countries, if not most. The complexities of how the energy transition needs to be rolled out appropriately in their respective markets and jurisdictions is what keeps energy ministers and CEOs busy during the day and awake at night.

Prioritizing Actions

This is the finding of the latest World Energy Issues Monitor, an annual survey by the London-based World Energy Council, which came out earlier in the year. The 2,600 officials, executives, and experts in the global energy sector from 86 countries who participated said they are dealing with a transition that is driven by digitalization, decarbonization, decentralization, alternative transport, and renewables. They also identified four strategic priorities.

The first concerns market design as they seek to reform the rules about electricity trading, grid operation, and other aspects of the market. This is necessary to integrate intermittent renewable energy and move toward a less-centralized system. With these changes, there is a need to maintain investment in electrical supply security, grid reliability, and resilience. This calls not only for advanced technology, but also for innovative policymaking and regulations.

A second issue is the accelerating pace of electrification with renewable energy sources used to decarbonize the energy sector.

Third, they worry how the rise of nationalism and trade barriers could impact the progress of the transition. The issues causing the energy leaders to suffer the greatest headaches appear to be sudden policy changes in China and the U.S. in recent years, and the trade tensions between the two countries.

And, last, but not least, the secure supply of lithium and cobalt is now emerging as a critical risk in the commodity market with the increased use in renewables and the consequent greater need for energy storage. Traditionally, oil and gas price fluctuations were the main transportation concern. However, with the battery representing half the cost of an electric vehicle, the price stability of lithium and cobalt has become vital to the progress of electrification in the auto sector. On the contrary, cobalt rose from $32,000/ton in 2017 to $81,000/ton a year later, indicating the impending risk.

If, as I say, energy leaders are kept awake at night by this transition, it is clear that more needs to be urgently done. As the UN has indicated, we are not moving fast enough to meet its climate goals and head off disaster for the next generation. Drilling down, we find that the desirable changes in the progress of the energy transition must be driven by coordinated efforts between the private and public sectors at both the technological and policy levels.

That is where the increased focus for implementation needs to be. What can propel us into a more sustainable future for all is perhaps the innovative collaboration among those energy leaders who are awake at night. ■

Younghoon David Kim is chairman of the London-based World Energy Council, and chairman and CEO of the Daesung Group.

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