‘A New Global Energy Economy Is Emerging’ says IEA Chief

GLobal leaders argue for decades that climate change is urgently addressed and long-term opportunities to invest in renewables will eventually drive the transition from fossil fuels towards clean energy.

By adding security concerns to the equation, the Russian invasion of Ukraine early this year has accelerated the move, says Fatih Birol, the executive director of the International Energy Agency, and may serve as “a turning point in the history of energy policy.”

“Looking at all the numbers day by day across the world, I see a new global energy economy is emerging,” he said in a Sept. 13 interview. “This is wind, this is efficiency, this is heat pumps, this is nuclear power, this is hydrogen, and others.”

Evidence of an accelerating transition towards a new energy economy can be seen all over the world as policymakers respond to multiple pressures. Birol pointed to the U.S. Inflation Reduction Act ($369 billion), the European Union’s RePowerEU program at $210 billion, and Japan’s $146 trillion Green Transformation program. All three rely on government spending to foster low-carbon energy sources at the expense of fossil fuels and advance the countries’ promises to reduce emissions.

“The consequence of this global energy crisis may end up being that fossil fuels, all of them, have an outlook less optimistic than it was before,” says Birol.

These huge government programs can have serious security and climate implications. However, they are a strong competitive force as countries work to increase domestic energy production. An IEA report released last year found that global investment in clean energy could total $4 trillion annually by 2030 if countries pursue rapid decarbonization—and countries want to capture as much of that market as possible. “This competition does help [address] climate change,” Birol says. “We don’t know who will be leading, this or that technology, and which countries—is it Europe?, is it China?, is it the United States? But at the end of the day, we are going to see that the global fight against climate change will benefit.”

It will take many years for the advantage jockeying to happen. In the meantime, all countries are facing short-term pain, as high energy prices continue to rise, in particular in Europe. Natural gas prices are the main problem. They have risen nearly 500% since the invasion and reached their peak around mid-summer when Russia reduced its imports via pipeline. Prices have fallen in response to the EU’s plan to get through the winter, but observers remain concerned that a harsh winter would lead to economic and political trouble.

Birol said that the energy crunch precipitated by Russia cutting off natural gas supplies to Europe makes for a “big challenge” with energy rationing and negative effects on economic growth both likely. He said that he was most worried about the political consequences of the current energy crisis. If countries in the European Union support each other with agreements for gas and electricity trading they will emerge with “minimal bruises.” On the other hand, countries might act only in their individual self interest, which would not only worsen the energy crisis but also hurt the EU’s credibility more broadly. “The European Union is now at a crossroads in terms of how we are going to respond to this crisis,” he said.

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