Charger for change

Stakeholders should not relax their efforts to progress the energy transition despite the stumbling block of COVID-19

This year was supposed to be a turning point for a global energy transition from fossil fuels to renewables. The production and consumption of energy accounts for two-thirds of annual global anthropogenic emissions, making the energy transition central to delivering the promise of the Paris Agreement.

Countries were expected to take stock of their nationally determined contributions to meet the Paris Agreement's goals and potentially strengthen their commitments to keeping global temperature increases to well below 2 C, with the ambition of reducing this figure to no more than 1.5 C. The year 2020 arrived with a sense of gathering momentum as the world entered its decade of delivery.

China is one of the few countries to have made consistent year-on-year improvements on its energy transition since 2015. The improvement has been balanced across all three dimensions of the energy triangle－economic development and growth, energy access and security and environmental sustainability.

But over the course of the past few months, China and the rest of the world have been reacting to a low-probability, high-impact catastrophe of global proportions. The speed, scale and intensity of the pandemic caught the world off guard, necessitating the reallocation of resources and a collective conviction toward limiting the extent of the damage and restoring normalcy to the economy and society as soon as possible.

The pandemic has proven to be a black swan event, threatening to undo the gains from the longest period of economic expansion in history.

The disruptions from COVID-19 have exposed vulnerabilities in the energy system. The short-term outlook for the energy transition is therefore at risk. The unprecedented speed and extent of the drop in energy demand, and the accompanying price volatilities and geopolitical implications have destabilized the global energy system.

The extreme price volatility has fiscal implications for countries and impacts the livelihoods of millions of energy sector workers. It also alters the competitiveness of renewable energy technologies and reduces incentives for energy efficiency. Resilience, not just in markets and infrastructure, but also in policy and cooperation mechanisms, will be critical for an accelerated recovery of the energy transition.

There are signs of revival, as energy demand seems to be gradually picking up. However, it could take some time before the global economy reclaims the lost ground. Given the uncertain economic outlook, purchases of automobiles and domestic appliances might be postponed, infrastructure development could be paused, and non-essential industrial activities might take longer to restart.

This decline in energy consumption has an immediate effect on the environment, as skies have cleared in even the most polluted areas of China and elsewhere in the world. While this may be a blessing in disguise for the environmental sustainability agenda, it should not be mistaken for progress, and also demonstrates the cost we need to pay for an effective energy transition.

Along with a sustainable and thriving ecosystem for future generations, an effective energy transition is also essential for economic growth and social development. In an increasingly turbulent global paradigm, disruptions are the new normal, and energy transition road maps need to integrate robustness against these disruptions. The resilience of energy transition, in the long-term, necessitates a strong enabling environment that allows the system to bounce back from unforeseen or exogenous disruptions. This includes the presence of strong political commitment, stable capital markets and access to investment, a steady pipeline of innovations, modernization of infrastructure and training human capital for future energy systems, among other things.

The World Economic Forum's Energy Transition Index (ETI) benchmarks countries on these fundamentals for energy transition, along with the performance of their energy system on economic growth, environmental sustainability and energy access and security. From the recently completed analysis for this year's index, the evidence of gradual progress in the energy transition is strong.

Since 2015, more than 80 percent of the countries have increased their score on the ETI. Encouragingly, the gap between emerging economies and the leading countries seems to be narrowing, but much work remains to be done. China is among only a handful of countries that have been able to make steady annual progress on the ETI over the past six years, which demonstrates the complexity and challenges of energy transition. Improving levels of regulations and political commitment, capital and investment, and the development of technology have been critical to unlocking this progress globally.

While China improved its ranking to 78th out of 115 countries on the 2020 ETI, its share of electricity generation from coal remains high. Over the years, China has been gradually transforming to an innovation-led economy away from labor and energy intensive processes, which might be the key to its successful energy transition.

When we finally manage to put the global tragedy of COVID-19 behind us, there may be some valuable lessons learned. The energy transition challenge is similar to the pandemic in terms of scale, cascading effects across social and economic systems, its severity for vulnerable populations, and the necessity of a decisive, timely and concerted response. Stakeholders need to be conscious that the fight against COVID-19 does not set back global energy transition, otherwise the losses resulting from the virus will take an even greater toll on humanity.

Roberto Bocca is head of Shaping the Future of Energy and Materials at the World Economic Forum. Harsh Vijay Singh is project lead of Shaping the Future of Energy and Materials at the World Economic Forum. The authors contributed this article to China Watch, a think tank powered by China Daily. The views do not necessarily reflect those of China Daily.