Updated: Dec 29, 2020
Catchy and addictive, buzz words are popular jargon for a period. At the beginning they are relevant eventually losing value becoming a bad cliché. Whether from misuse or abuse, overused buzz words can make you a cringe. They stimulate auditory fatigue, making you roll your eyes thinking “Oh no....not again!”
Then there are words that define a generation. Not on everyone's lips, but the momentum grows. These words you will find are not buzz words at all but instead words of reiteration. They bear repeating and are disguised as buzz but convey an important message. Words of a generation start social movements. They inspire cultural shifts.
The energy transition are such words. They promote a shift from centuries old use of fossil fuels (coal and oil) to alternative energy known as renewables (wind and sun). Its mention creates discomfort in some quarters as it signals that business as usual has come to an end. In other quarters, it is seen as another greening attempt, a fad or much ado about nothing. For most, it is reflective of the urgency to change. It is an avenue to meet steep climate targets.
There are 6 issues fueling the energy transition and these will illustrate why it is becoming such a global movement.
The Energy Transition: 6 Things You Need To Know
1. The Science Behind The Energy Transition
The global warming trend is linked to human induced expansion of the greenhouse effect. Carbon dioxide (CO2), nitrous oxide (N2O), methane (CH4) and chlorofluorocarbons (CFC) are the primary greenhouse gases (GHG).
These gases absorb and emit radiation at specific wavelengths in the earth's atmosphere which lead to the greenhouse effect. When the atmosphere traps heat radiating from earth towards space it causes global warming and climate change.
Climate change poses a major risk to the global economy. Climatologists are highly confident that human activities are dangerously warming the earth. These scientists also believe that these changes introduce potentially irreversible threats to human societies. Multiple studies published in peer-reviewed scientific journals show that 97 % or more of actively publishing climate scientists agree that climate-warming trends over the past century are extremely likely due to human activities (NASA). In addition, most of the leading scientific organizations worldwide have issued public statements endorsing this position. This has been creating a compelling picture. In so doing, it has convinced nations to act decisively and participate constructively in the energy transition.
2. The Paris Agreement
Paris Agreement is a landmark environmental accord that was adopted by nearly every nation in 2015 to address climate change and its negative impacts. The deal aims to substantially reduce global greenhouse gas emissions. This is intended to limit the global temperature increase in this century to 2 degrees Celsius above preindustrial levels, while pursuing means to limit the increase to 1.5 degrees.
The agreement includes commitments from all major emitting countries to cut their climate-altering pollution and to strengthen those commitments over time. The pact also provides a supportive framework whereby developed nations can assist developing nations in their climate mitigation and adaptation efforts. The unifying force of this agreement is propelling the energy transition not only a federal level but also at a corporate level. It is recognized that a solid collaborative approach is needed to meet these environmental targets.
Given the urgency and global nature of the problem, cooperation was sought from the widest amount of countries to elicit an appropriate international response. The ultimate objective being to accelerate the energy transition by reducing global greenhouse gas emissions which has been cited as a key contributor to weather related disasters.
3.The Social Displacement of Climate Change
Change affects the wealth of societies, access to resources, the price of energy and the value of companies. It also likely to increase social displacement and therefore worsen the current global migrant crisis. According to Oxfam, 40,000 people leave their homes because of conflict every day. The UN has documented that there have been 80 million people who have fled their homes worldwide due to conflict, violence, persecution or poverty. This means that a person is forced to flee their home every 2 seconds.
Climate change is likely to exacerbate this situation. It is predicted that a key impact of Climate change would be reduced availability of water in the Tropics, Mediterranean, Middle East, Southern tip of Africa and South America. Conversely, water availability would increase in Eastern Africa, Indian Sub-Continent, China and Northern Latitudes (Brookings).
This introduces forced displacement as climate change can produce environmental effects which can pose challenges for people to survive where they reside. As the frequency and magnitude of hurricanes, desertification and submersion of territories increase, it will impact housing as well as food security making millions of people at risk of becoming destitute.
Globally more and more people are getting sensitized to the crises facing human and animal habitats. The Energy Transition is meant to prevent these social issues from getting worse by pushing for societal action to protect the territories that are likely to be the most vulnerable.
4. The Waning Attraction of Fossil Fuel Investment
Capital is shifting. There is growing evidence that fossil fuel investments are yielding reduced returns. Way before the pandemic, banks began to grow reluctant about continuing to provide loans financing to oil and gas companies.
This is due to a prevailing sentiment that the value of fossil fuels will wane as the world grapples with the required responses needed to halt climate change. They see more opportunity in low carbon and climate resilient portfolios. Producers and Investors are now re-channeling resources in anticipation of this outlook.
Fund managers are developing investment products to invest in companies that make a positive contribution to addressing the climate change challenge. These international companies include Impax Asset Management, Calvert, Climate Change Capital, and Allianz. JP Morgan has committed to helping clients align their business with Paris Agreement emission targets and HSBC has announced up to a $1 trillion in green energy funding (Reuters).
Governments have also gotten onboard in signaling where their funds should go. The European Union had as a prerequisite for its distribution of its pandemic recovery fund of $878 billion (750 billion euro) that at least 37 % of the money be used for green energy projects. As such investors, financiers and even federal banks are serving as social activists. They are driving the energy transition by influencing corporate behavior, policy and how market functions.
5. Stakeholder Pressure In Response To Climate Change
As consumers become more aware of the dangers of climate change, they are pressuring businesses to respond. Globally, 73 % of consumers have changed the products and services they use due to concern about climate change (IPSOS, 2019). Nielsen has noted that 81% of consumers feel that companies have a role to improving the environment.
These consumers are also employees. They in turn influence their coworkers who are putting pressure on employers to respond. More than 200 of the world’s largest companies have already committed to a 100% renewable energy supply through their membership with the global collaborative, RE100 (there100.org). 7% of the RE100 members are retailers, including international brands such as Walmart, Target, Lululemon, IKEA, and H&M.
By consumers expressing their concern about the environmental impact of their purchases, companies are embedding sustainability into their brand. Consumers in the form of investors are also expressing their sensitivity to how their money is invested. Large asset owners like Japan’s Government Pension Investment Fund, are pressuring the companies which manage their money to attend more to the environmental, social and governance.
Laws are also cropping up to protect the customer rights in these matters. The Commonwealth Bank of Australia was sued for misleading investors by failing to disclose climate related risks in its 2016 annual report.
The central bank of Brazil now requires banks to explain how they treat environmental risks when determining their capital requirements. The central bank of China incorporates environmental factors into its monetary policy framework and financial stability assessments. As more stakeholders express their dissent with the status quo, markets will be reformed in response. This will create a more nurturing environment for energy transition goals to be achieved.
6. The role of Technology in the Energy Transition
Participation in the energy transition has increased due to availability of affordable technology. Access to energy has fostered the growing trend of governments and utility providers making investments in technology upgrades. This is in response to their concerns over climate change. Their concerns over security of supply, volatile prices and energy consumption have also influenced these investments.
The transport sector which accounts for 28% of global final energy demand and 23% of global CO2 emissions from fuel combustion (IEA) has seen digital technologies improve energy efficiency and reduce maintenance costs across all transport modes. In the aviation and marine industry, planes and ships are equipped with sensors that generate data that is used to optimize route planning and reduce fuel use.
For buildings that consume 55% of global energy demand (IEA), smart grids, smart metering and onsite renewable generation are assisting with energy management. As a means of addressing power system costs, digital data and analytics are leveraged to reduce unplanned outages, improve network efficiency and extend asset life.
The energy transition has been granted a great chance of success through distribution of energy efficiency and renewable energy technologies. This has been further supported by advancements in information technology. It is expected that enabling infrastructure , policy frameworks and financing mechanisms would foster the environment for greater deployment and market expansion therefore redefining the way the public uses and accesses energy.
The energy transition means different things to many. Resistance to it is starting to wear thin. The Energy Transition is not a buzz word. It is defining a new way of living. Perhaps history will mark the energy transition era as momentous. Perhaps it will be called the “Great Global Deflection”. Hopefully, it can be remembered as a time the world saw its future with stark frankness.
The world united and forged a new way to change its dark direction!
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