The Energy Transition and the Extractives Sector


   1. What do we mean by the energy transition?

 

The energy transition, necessary for successful implementation of the Paris Agreement and the delivery of the SDGs, refers to the gradual switch from a fossil-based energy system to a sustainable energy one, fuelled by clean energy sources. A significant feature of the energy transition is its speed. Renewable energy installations, electric vehicles and battery technologies require significant amount of minerals and metals, and supply scarcity and volatility risks threaten the speed of energy transitions. Adaptability of oil and gas companies, and oil exporting countries to the transition will also play a key role in timing of the transitions. What does this mean for Extractives Sector stakeholders?

 

 

 

Energy transitions refers to the gradual switch from a fossil-based energy system to a sustainable energy one, fuelled by clean energy sources.

 

The phasing of the energy transitions will be different across each nation, however decarbonisation and the move to lower carbon energy resources is a common, inescapable goal. For this gradual shift to a low carbon economy to be successful, tangible and multidimensional, changes will need to be employed in the energy system and beyond, such as the introduction of widespread carbon pricing in all countries. This is a fundamental shift that may bring uncertainty for the future of global energy governance. The complexity of the energy challenge requires an inclusive approach to the problem that enables innovation, openness and diversity, and facilitates the emergence of best practices.

The change will not be imminent, and resource exporting countries have an opportunity to manage and influence global low carbon policies and the speed of the energy transitions.

Energy transitions and climate change should however be tackled in a just and equitable manner. The majority of developing resource rich countries have not been successful in diversifying their economy away from oil and gas, and their citizens will be impacted the most from the transformation unless these governments participate in the collective agenda and play an proactive role in driving global action towards energy transitions. In this, establishment of frameworks for fair distribution of the burden is indispensable.

 

Energy transitions brings uncertainties and challenges for the industry in terms of future consumption trends, global investment flows, technology advancements and energy choices. The clean energy transition is unique as it will have to be driven by policy instead of the market, therefore political economy is extremely important. This project of UNU-WIDER gathered experts from different disciplines across the world and assessed the political economy of energy transitions, bringing in both developing and developed country perspectives. The project concludes that a clean energy transition is not necessarily an impediment to the growth aspirations of the developing world and that developed countries should assist developing countries in realising a clean energy transition. This assistance could be in the form of financial assistance or the transfer of technology.

Global frameworks

Paris Agreement

The Paris Agreement is the main instrument driving the energy transitions agenda today. The most important element of this binding treaty is setting a global target to keep global average temperatures from rising by 2°C compared to temperatures pre-industrial revolution by the end of the century, otherwise we will face dramatically higher seas, changes in weather patterns, food and water crises, and an overall more hostile world.

 

The Paris Agreement is signed by over 190 countries however it does not detail exactly how the countries will achieve the GHG reductions targets. Instead, it requires parties to prepare, communicate and maintain successive Nationally Determined Contributions (NDCs) which embody efforts by each country to reduce national emissions and adapt to the impacts of climate change. Countries submit progress reports which are assessed through a “technical expert review”, where experts identify areas of improvement and capacity-building needs. Both the reports and review reports are made publicly available at the UNFCCC website. This transparency allows other countries and the public to review and analyse the information provided. The sharing of data also enables information exchange and best practices to emerge to build confidence among the parties to the Paris Agreement. There is no defined sanction for breaching the Treaty but parties are expected to act in a culture of accountability.

As developed countries emit much higher GHG emissions than developing countries, the Agreement requires richer countries to provide "climate finance" to fund poorer nations adaptation to climate change and switch to renewable energy. This climate finance amounts to US$100 billion per year to 2020, and is set to increase thereafter.

The Paris Agreement reinforces the urgency of decarbonisation across sectors, but in particular in the energy sector as it poses a significant threat to the climate. A rapid transition is aimed for to accommodate the penetration of low-carbon technologies. The Paris Agreement acknowledges the importance of energy technologies for achieving climate goals. However, today development of these technologies (which are very material intensive) are not yet at a sufficient level. In fact, in October 2018, the Intergovernmental Panel on Climate Change (IPCC) issued a special report on the impact of global warming of 1.5 and noted that the world is now completely off track, heading instead towards a 3°C temperature rise.

 

The IPCC report also assesses the synergies between the ambitious objectives of reducing greenhouse gas emissions, achieving the Sustainable Development Goals (SDGs) and reducing poverty and inequality. The key message is that if climate change mitigation measures are not carefully managed, they may have negative impacts on the most vulnerable populations, including poverty, hunger, water and energy scarcity. Managed well, limiting GHG emissions would have important positive contributions, including on health, clean energy, cities and oceans.

Sustainable Development Goals (SDGs)

The transition to a low-carbon economy also needs to be a sustainable transition. The UN SDGs, a blueprint for the planet’s development to 2030, are a collection of 17 global goals set by the UN Development Programme. All countries of the world have agreed to work towards achieving these goals. Climate change and the SDGs are closely interlinked. The energy sector contributes most to global carbon emissions, followed by deforestation and forest degradation, and the global transportation sector. The energy transition is a crucial component of the UN Sustainable Development Goals. While the Millennium Development Goals (MDGs), which ended in 2015, made no mention of energy, SDG 7 focuses on ensuring access to affordable, reliable, sustainable and modern energy for all.

SDG 7 cannot however be implemented in isolation from all other goals and targets of the UN 2030 Agenda, which are built around cross-disciplinary themes such as food, water and objectives related to the economy, environment and social development. Policies in the energy sector should simultaneously meet global sustainability goals and also generate substantial economic, environmental, and social development benefits. These benefits at the local level are different in each country. In low-income countries, the priority will be on providing access to modern energy services (replacing traditional biomass for instance) and in many developed countries the focus will be on reduction of greenhouse gas emissions (GHG) and increased energy efficiency.

Renewable energy technologies not only reduce GHG emissions but also allow access to energy in remote communities through smart centralised and decentralised grids. Ensuring universal access to renewable energy will constitute a major challenge for least developed countries. In order to give an overview of priorities that should be included in their energy policy framework, the next section will provide examples of recent energy transition and climate change initiatives and legislation from different parts of the world.