Global Energy Transition Continues, Despite Geopolitical Interference – Analysis

By Lantao Li *

The escalation of the conflict between Russia and Ukraine poses a major influence on the global energy market, bringing a profound and long-term impact on the future global energy transition.

Efforts for energy transition has been ongoing under the backdrop of global climate change. However, the Russia-Ukraine conflict has disrupted this process, and brought huge geopolitical risks in the global energy supply system, especially in Europe, in addition to aggravating the risk of regional energy security. For the global energy-consuming countries, in the short term, the question of the availability of energy is obviously more pressing than the question of environmental concerns. Germany and Belgium, for example, have postponed nuclear energy withdrawal dates set previously, while France has also announced a strategy to boost nuclear energy development. On the top of that, Germany and other countries have adjusted the timetable for the withdrawal of coal power, which gives the impression that the global energy transition is taking a few steps backwards.

As a matter of fact, even before the Russia-Ukraine conflict, Europe had already made certain preparations in case of the occurrence of an energy crisis. The EU’s energy strategy has undergone some subtle changes, tending towards a more pragmatic side. One of the signs is that both the United States and European countries are striving to find stable supply channels for traditional fossil energy such as oil and natural gas. For instance, Germany’s Federal Minister for Economic Affairs and Climate Action Robert Habeck visited the Gulf’s oil producers Qatar and the United Arab Emirates from March 19 to 20 to seek new gas orders. Earlier, he also visited Norway, another natural gas exporter, to seek cooperation.

Britain, which once planned to phase out coal by 2024, has also held talks recently with French multinational electric utility company EDF over the West Burton A coal-fired power plant, exploring the possibility of continuing to generate electricity from coal after the plant shuts down at the end of September. Not long ago, the United States has also taken the initiative to dispatch a delegation negotiating with Venezuela, which was sanctioned by it, to discuss the possibility of ditching sanctions in exchange for Venezuela’s increased oil production. Another example is that the European Commission issued a policy document in January 2022, which clearly listed the investment and financing of natural gas and nuclear energy projects as “sustainable financing”, a move that annoyed international environment protection activists and political forces alike.

Is it possible that the global energy transition has been reversed as a result of all of these? Certainly not. Indeed, the outbreak of the Russia-Ukraine conflict will ultimately accelerate the pace of energy transition in Europe. For example, the German government has since planned to accelerate the expansion of renewable energy power generation. The new goal is to use renewable energy to meet all power generation needs by 2035, which is five years ahead of the previous timetable. The European Commission has proposed a renewable energy directive, the core of which is to accelerate the expansion of wind energy and other renewable energy sources.

In view of the contradiction between the adjustment of energy policy and the pursuit of energy transition in these countries, researchers at ANBOUND suggested that there are actually short-term and long-term needs in the energy-consuming countries. The impact of geopolitical events on energy demand can be divided into both short-term shocks and long-term shocks. The short-term impact is that there would be an increase in energy purchases, rising risk premiums, soaring energy prices and that oil and gas prices will remain high for a period of time, which will bring short-term booming in traditional fossil energy such as oil and even coal. However, in the medium and long term, the major energy-demanding countries will still consider the issue of energy security from a long-term perspective. For example, if Europe wishes to stabilize its energy market, it must diversify its imports of oil and natural gas in the short term and reduce its energy dependence on Russia. In the long run, it must take control of its own energy system the soonest it can, thereby eliminating its dependence on Russia’s oil and gas. With this, it can be more self-reliant in developing renewable energy like solar energy, wind energy, hydrogen energy, nuclear energy, etc., to accelerate its energy transition.

In the current global development trend, reverting to fossil fuels is not the ideal option. Any move to develop fossil fuel resources, which takes a long time from project conception to the first production, will neither solve energy security in the short term nor alleviate current price pressures. Furthermore, the pressure of global climate change will continue to emerge in the future, not forgetting that the issue of global warming has become critical. Several meteorologists have lately noticed abnormally high temperatures in both the North and South Pole regions. Some locations see temperatures that are 30 to 40 degrees Celsius higher than the average for the same period in prior years. The North and South poles are now in opposite seasons, but it is extremely unusual to see extreme heat at the same time. Climate change is approaching a tipping point in the scientific community’s debate, and this is bad news for the rest of the world.

Although wars and pandemics remain the focus of the world today, climate change will eventually become a vital issue of concern. Driven by the carbon reduction agenda, returning to the development of fossils is something that should be avoided.

It should be emphasized that in the process of realizing energy transition, vigorously developing and strengthening the utilization of hydrogen energy are becoming more widely recognized as a viable source of low-carbon energy. European Commission President Ursula von der Leyen made it clear in her speech to the European Parliament that hydrogen energy will play an important role in replacing dependence on Russian natural gas and ensuring energy security. In the long run, the EU will need to switch to renewables and hydrogen to be truly energy independent. Juxtaposing renewable energy with hydrogen, she highlighted the importance of hydrogen in the future energy transition. This is very similar to the concept of building a “hydrogen energy society” advocated by ANBOUND in the past. In our opinion, building a hydrogen energy society is not just an industrial concept, but a huge system that includes technology, industrial production, market application and social support. Its economic and strategic importance will be huge once it matures into a complete socioeconomic system. The ability of a “hegemonic” country with a developed non-hydrogen energy society to impose effective sanctions on a hydrogen energy society would be difficult, and energy-consuming countries would be spared the energy supply problem. Achieving this goal, the development of hydrogen energy will go beyond the meaning and value of the energy transition itself.

*Lantao Li graduated from Beijing Normal University in 2013 with a PhD degree of Natural Resources and Harbin Institute of Technology with a bachelor degree of Transportation, is an assistant researcher in macroeconomics at Anbound Consulting which is an independent think tank headquartered in Beijing.