The coronavirus pandemic risks cancelling out recent progress in transitioning to clean energy, with unprecedented falls in demand, price volatility and pressure to quickly mitigate socioeconomic costs placing the near-term trajectory of the transition in doubt.
Policies, roadmaps and governance frameworks for energy transition at national, regional, and global levels need to be more robust and resilient against external shocks, according to the latest edition of World Economic Forum’s Fostering Effective Energy Transition 2020 report published today.
COVID-19 has forced companies across industries to adapt to operational disruption, changes in demand and new ways of working, and governments have introduced economic recovery packages to help mitigate these effects. If implemented with long-term strategies in mind, they could also accelerate the transition to clean energy, by helping countries scale their efforts towards sustainable and inclusive energy systems.
“The coronavirus pandemic offers an opportunity to consider unorthodox intervention in the energy markets and global collaboration to support a recovery that accelerates the energy transition once the acute crisis subsides,” said Roberto Bocca, Head of Energy and Materials, World Economic Forum. “This giant reset grants us the option to launch aggressive, forward-thinking and long-term strategies leading to a diversified, secure and reliable energy system that will ultimately support the future growth of the world economy in a sustainable and equitable way.”
The report draws on insights from Energy Transition Index (ETI) 2020, which benchmarks 115 economies on the current performance of their energy systems – across economic development and growth, environmental sustainability, and energy security and access indicators – and their readiness for transition to secure, sustainable, affordable, and inclusive energy systems.
The results for 2020 show that 75% of countries have improved their environmental sustainability, even as the global average score for this dimension remains the lowest of the three categories assessed. This progress is a result of multifaceted, incremental approaches, including pricing carbon, retiring coal plants ahead of schedule and redesigning electricity markets to integrate renewable energy sources.
However, this hard-won progress highlights the limitations of relying only on incremental gains from existing policies and technologies to complete the transition to clean energy. The greatest overall progress is observed among emerging economies, with the average ETI score for countries in the top 10% remaining constant since 2015, signalling an urgent need for breakthrough solutions – one threatened by COVID-19.
The Energy Transition Index 2020
Sweden (1) leads the ETI for the third consecutive year, followed by Switzerland (2) and Finland (3). France (8) and United Kingdom (7) are the only G20 countries in the top 10. They share common attributes, such as limiting energy subsidies, reducing reliance on imports (thereby improving energy security), achieving gains in energy intensity of GDP, and increasing political commitments to pursue ambitious energy transition and climate change targets.
Performance is mixed among the rest of the G20. Emerging centres of demand such as India (74) and China (78) have made consistent efforts to improve the enabling environment, which refers to political commitments, consumer engagement and investment, innovation and infrastructure, among others.
In China’s case, problems of air pollution have resulted in policies to control emissions, electrify vehicles, and develop the world’s largest capacity for solar PV and onshore wind power plants. For India, gains have come from a government-mandated renewable energy expansion program, now extended to 275 GW by 2027. India has also made significant strides in energy efficiency through bulk procurement of LED bulbs, smart meters, and programs for labelling of appliances. Similar measures are being experimented to drive down the costs of electric vehicles.
Meanwhile, the trend has been moderately positive in Germany (20), Japan (22) and South Korea (48) and Russia (80). Germany has demonstrated strong commitment in coal phase-out and decarbonization of industry through clean hydrogen, however affordability of energy services has been a challenge. Both Japan and Korea face natural disadvantages as net energy importers. However, innovative business environment, infrastructure development, and political commitment remain key enablers in both countries. In Russia, the energy sector remains a strong pillar of the economy and continues to lead globally on energy security, though progress on environmental sustainability has been moderate.
On the other hand, the ETI scores for United States (32), Canada (28), Brazil (47) and Australia (36) were either stagnant or declining. The challenges confirm the complexity of trade-offs inherent in energy transition. In the United States, the headwinds have been mostly related to policy environment, while for Canada and Australia, the challenges lie in balancing energy transition with economic growth given the role of energy sector in their economy.
The fact that only 11 out of 115 countries have made steady improvements in ETI scores since 2015 shows the complexity of energy transition. Argentina (56), China (78), India (74), and Italy (26) are among the major countries with consistent annual improvements. Others, such as Bangladesh (87), Bulgaria (61), Czech Republic (42), Hungary (31), Kenya (79) and Oman (73) have also made significant gains over time.
On the other hand, scores for Canada (28), Chile (29), Lebanon (114), Malaysia (38), Nigeria (113), and Turkey (67) have declined since 2015. The United States ranks outside the top 25% for the first time, primarily due to the uncertain regulatory outlook for energy transition.
More than 80% of countries have improved performance on energy access and security since 2015, but progress in developing countries in Asia and Africa remains a challenge. Energy access programs in these regions need to prioritize community services, such as street lighting, district heating and cooling, cold storages for food and pharmaceuticals preservation, urban sanitation and traffic management.
In advanced economies, “access” is defined by affordability. Utility bills represent growing share of household expenditure, a challenge that could be exacerbated by the economic uncertainties created by COVID-19. Furthermore, energy security is increasingly vulnerable to extreme weather events such as hurricanes, floods and wildfires – which have been rising in frequency and intensity – and cyber-attacks.
While the gaps between what is required, what is committed, and what is likely to be achieved remain large, the compounded disruptions from COVID-19 have destabilized the global energy system with potential short-term setbacks.Ultimately, greater efforts are needed to ensure that recent momentum is not just preserved, but accelerated in order to achieve the ambitious goals required.
Archipelagic Economies: Spatial Economic Development in the Pacific
A new World Bank report on the challenges facing the Pacific region’s outer island communities identifies investment in people and livelihoods as a key for inclusive economic growth.
Archipelagic Economies: Spatial Economic Development in the Pacific looks at the challenges Pacific governments must address to provide services and infrastructure to populations spread across hundreds of islands spanning the vast Pacific Ocean. The report puts forward a series of practical steps that countries can take to overcome these challenges in a way that supports resilient and inclusive economic growth.
“Many Pacific countries are faced with significant challenges in delivering services and connecting remote, outer island communities; with difficult decisions around resources and how to best invest often limited resources into outer island communities,” said the report’s lead author, World Bank Lead Economist for Fiscal Policy and Sustainable Growth Robert Utz.
“This report aims to provide Pacific governments, development partners and decision-makers with evidence to assess options for fostering development for the people in those outer islands, so they can make stronger contributions to the larger economic development of the whole country.”
The report identifies six guiding economic policy principles:
1) Policy solutions that seek to achieve equitable increases in living standards need to be grounded in an understanding of the economic implications of the Pacific region’s unique economic geography.
2) Outer islands’ development should be assessed from a spatial perspective; one that considers interactions with the country’s main island and the region beyond.
3) A balanced approach that combines investments in urban areas to accommodate migration from outer islands to main islands with support for outer island populations is likely to achieve better welfare and equity outcomes than an approach that neglects one side or the other.
4) Growth-enhancing investments should be guided by clearly-identified opportunities, rather than by a desire to try to equalize economic opportunities across islands.
5) With limited scope to close the gap in economic opportunities between outer and main islands investments to promote livelihoods and human development should be given preference.
6) Outer islands are subject to a complex political economy of intra-island and outer island-main island relationships that need to be considered in development interventions.
“This is an important and timely study,” said Denton Rarawa, Senior Economic Advisor at the Pacific Islands Forum Secretariat. “The current COVID-19 crisis has highlighted the need to address the institutional, service delivery and capacity gaps of nations across the Pacific. As we strive for greater vaccination rates and begin to think about how we’d like to rebuild after the pandemic, I believe this report has a lot to offer the future of the Pacific, especially in our efforts to leave no one behind.”
The Archipelagic Economies report is a companion publication to the World Bank’s Pacific Possible series, which in 2017 and 2018 looked at opportunities for economic growth in Pacific Islands Countries across key sectors including tourism, fisheries, and labour mobility.
The World Bank works in partnership with 12 countries across the Pacific, supporting 87 projects totaling US$2.09 billion in commitments in sectors including agriculture, aviation and transport, climate resilience and adaptation, economic policy, education and employment, energy, fisheries, health, macroeconomic management, rural development, telecommunications and tourism.
Global economic recovery continues but remains uneven
The global economy is growing far more strongly than anticipated a year ago but the recovery remains uneven, exposing both advanced and emerging markets to a range of risks, according to the OECD’s latest Interim Economic Outlook.
The OECD says extraordinary support from governments and central banks helped avoid the worst once the COVID-19 pandemic hit. With the vaccine roll-out continuing and a gradual resumption of economic activity underway, the OECD projects strong global growth of 5.7% this year and 4.5% in 2022, little changed from its May 2021 Outlook of 5.8% and 4.4% respectively.
Countries are emerging from the crisis with different challenges, often reflecting their pre-COVID 19 strengths and weaknesses, and their policy approaches during the pandemic. Even in the countries where output or employment have recovered to their pre-pandemic levels, the recovery is incomplete, with jobs and incomes still short of the levels expected before the pandemic.
Large differences in vaccination rates between countries are adding to the unevenness of the recovery. Renewed outbreaks of the virus are forcing some countries to restrict activities, resulting in bottlenecks and adding to supply shortages.
There is a marked variation in the outlook for inflation, which has risen sharply in the US and some emerging market economies but remains relatively low in many other advanced economies, particularly in the euro area.
A rapid increase in demand as economies reopen has pushed up prices in key commodities such as oil and metals as well as food, which has a stronger effect on inflation in emerging markets. The disruption to supply chains caused by the pandemic has added to cost pressures. At the same time, shipping costs have increased sharply.
But the Interim Outlook says that these inflationary pressures should eventually fade. Consumer price inflation in the G20 countries is projected to peak towards the end of 2021 and slow throughout 2022. Wage growth remains broadly moderate and medium-term inflation expectations remain contained.
The report warns that to keep the recovery on track stronger international efforts are needed to provide low-income countries with the resources to vaccinate their populations, both for their own and global benefits.
Macroeconomic policy support is still needed as long as the outlook is uncertain and employment has not yet recovered fully, but clear guidance is called upon from policymakers to minimise risks looking forward. Central banks should communicate clearly about the likely sequencing of moves towards eventual policy normalisation and the extent to which any overshooting of inflation targets will be tolerated. The report says fiscal policies should remain flexible and avoid a premature withdrawal of support, operating within credible and transparent medium-term fiscal frameworks that provide space for stronger public infrastructure investment.
Presenting the Interim Economic Outlook alongside Chief Economist Laurence Boone, OECD Secretary-General Mathias Cormann said: “The world is experiencing a strong recovery thanks to decisive action taken by governments and central banks at the height of the crisis. But as we have seen with vaccine distribution, progress is uneven. Ensuring the recovery is sustained and widespread requires action on a number of fronts – from effective vaccination programmes across all countries to concerted public investment strategies to build for the future.”
Ms Boone said: “Policies have been efficient in buffering the shock and ensuring a strong recovery; planning for more efficient public finances, shifted towards investment in physical and human capital is necessary and will help monetary policy to normalise smoothly once the recovery is firmly established.”
Financing Options Key to Africa’s Transition to Sustainable Energy
A new whitepaper outlining the key considerations in setting the course for Africa’s energy future was released today at the 2021 Sustainable Development Impact Summit. The report, “Financing the Future of Energy,” outlines Africa’s electricity landscape and financing options in context with the global drive to reduce carbon emissions.
Africa’s power sector will play a central role in the transition from fossil fuel-driven power generation to a renewable-strong energy mix. According to the whitepaper written in collaboration with Deloitte, the migration to a multi-stakeholder-oriented net-zero power grid is being driven by “the 3Ds:”
- Decarbonization: moving from fossil fuel sources to renewables
- Decentralization: Shifting from centrally managed generation, transmission, and distribution to decentralized systems
- Digitalization: Leveraging digital technology to advance the transition
The report contends that new coalitions and investments with developed nations and NGOs including the World Economic Forum must coordinate and enable countries to leapfrog existing technologies and infrastructure.
“The need for digitally smarter utility platforms and sustainable development programs will guide global leaders in helping to shape equitable and inclusive recovery programs,” said Chido Munyati, Head of Africa at the World Economic Forum. “The entire continent remains vulnerable, but this whitepaper offers a view on what are viable financing options that exist today for clean energy sustainability and equitable recovery for all of Africa.
Funding will be the biggest hurdle to ensuring Africa’s sustainable transition to Renewables at scale; there are many financing solutions available,” said Mario Fernandes, Director, Africa Power Utilities and Renewables, Deloitte. “Africa’s winners will be the ones that are able to leverage what exists while creating an enabling environment for the private sector through a Renewables Energy Investment facility.”
Case studies in China and India showed that financing solutions for a clean energy transition often involve long cycles. Economic booms in these countries resulted in a significant shift in carbon emissions. Since similar economic booms are expected across Africa, the report highlights how crucial it is to anchor growth in technologies that can enable lower emissions.
While Africa’s contribution to greenhouse gas emissions from fossil fuel significantly lags behind those of other continents, it still carries a huge potential to accelerate the transition to a net-zero future. Currently, half of the continent lives without adequate access to electricity. As energy demands increase, the energy gap could be bridged through clean energy alternatives, if the financing solutions are employed now.
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