What needs to happen now to support the energy transition?

• 2 years ago (2022-01-25)
• Junior Isles

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By Stefan Bojanic, VP Sustainability at Emex

As the world continues to work towards sustainable energy targets, current efforts required to reach Sustainable Development Goal 7 will fall short. The challenge of the SDG7 is not only to manage a transition towards a greener and modern energy, but also to ensure that vulnerable groups are not left behind. At the current rate of progress, a projected 620 million people would still not have access to electricity by 2030. Unfortunately, while significant progress has been made, we are still a long way off those objectives being met and our current model is still not sustainable.

At the same time, each crisis is the opportunity for a society to question the path it is taking and understand lessons learned to adjust its long-term trajectory. Disruptions to global supply chains have also wreaked havoc on both energy providers and consumers ability to pay for them as prices continue to rise. As most households can then attest to, the energy transition is not coming swiftly enough. Gas prices have surged to record levels, fossil fuels still dominate the global energy mix, while big question marks loom over some alternatives such as nuclear power.  The COVID-19 pandemic has only further highlighted the need for affordable and reliable energy – for health, education, and access to vital information.

If we are to achieve net zero by 2050, the energy sector needs to change – drastically. That is the warning of the International Energy Agency. In the short term that translates into an urgent directive requiring “the immediate and massive deployment of all available clean and efficient energy technologies, combined with a major global push to accelerate innovation”. While many corporates and governments are throwing their weight behind this goal, actions matter more than rhetoric.

The role of business

Engaging with the realities of the energy transition is no longer an optional exercise. It is an existential challenge – an incredibly complex one at that. Even where there are no formal regulatory requirements, businesses would do well to approach it with a proactive mindset. Their future and ability to serve their stakeholders may depend on it.

Companies then need to consider not only the cost associated to energy needs, but their full environmental, social & economic impact when they take business decisions. This becomes difficult if a business relies mainly on fossil fuels like logistics companies for example. It’s equally tricky for those where the manufacturing process, like the cement industry, requires a chemical reaction (called calcination), which then produces CO2 emissions. This obviously requires further innovation on how best to undertake this chemical process and further lower or recycle the emissions produced.

Internal carbon pricing is fast becoming best practice and a requirement from investors and rating agencies. To be effective though it needs to be well communicated and integrated in all decision-making tools. Mature organizations are not only integrating sustainability into the decision-making process but are also rewarding managers with financial incentives based on sustainability criteria for pursuing the ‘best’ course of action. It’s not only about explaining the impact of decisions but ensuring that managers are taking decisions aligned with the company strategy. All this can be done by having the right tools and analytics platforms to support these behaviours.

The role of energy suppliers

Businesses do not exist in a vacuum and should not be operating on that basis. Doing so overlooks the complex realities at play. Nowhere is this more relevant than in the way in which emissions are often captured.

Having the best in house technologies and the most efficient energy efficient factory is good but ultimately not very helpful if the raw material comes from an inefficient partner located on another continent. Businesses are interconnected and bound together. Emissions have knock-on effects and consequences beyond the immediate or obvious context of where they originate.

This is where scope 2 and scope 3 emissions come in. This means that having the right partners and suppliers is key. It also necessitates that energy suppliers obtain the right “smart” infrastructure and have analytics software in place for usage monitoring, energy load management, and sustainability reporting. Doing so helps deliver a more accurate, overall emissions picture to a business’s stakeholders.

The role of governments

While governments and public authorities around the world are responding to the energy transition in different ways, they share a similar challenge: find the right pace of change – pivot rapidly while keeping the negative economic fallout at bay.

Setting clear and conducive rules is key. It is also a natural part of a government’s mandate. The rules can be delivered through regulation, processes, and the open sharing of information. Each government has its own methods to enact change, depending on culture and context. The EU taxonomy is a case in point, and sets out what is needed to drive investment to meet energy targets for 2030. It also communicates a shared understanding of what is classified as a sustainable economic activity and what is not.

Regulation tied to the Taskforce on Climate- Related Financial Disclosures (TCFD) is also poised to be made mandatory across G20 countries. The UK recently signalled it will the lead the way in this regard, forcing over 1,300 businesses and financial institutions from April 2022 to disclose climate-related financial information. Other countries will follow suit.

Businesses will also need a clear road map and tailored advice from governments in order make meaningful changes at pace. But sustainability talent is scarce and knowing how to best support the energy transition – without compromising financial performance – can fall outside the expertise of some business leaders and their teams.

Financing can also be a challenge. Incentivising or providing loans can help take some of the remedial hesitancy out of investing in greener technologies like smart metering or more advanced reporting analytics. Investment also needs to be added at the national level, too, providing the right infrastructure – planning the energy grid. All this will help reassure businesses that a greener energy supply is not only good for the planet but also for their bottom lines.

The global energy transition is perhaps the most ambitious infrastructure project in human history. And where historically such transitions have spanned decades and centuries, now the timeline is significantly compressed – and businesses should be marshalling every tool at their disposal. Data and reporting solutions can provide an integrated way to support, incentivise and reward companies that rise to the demands of the moment. Ultimately, all stakeholder groups need to take up their roles to create a new sustainable energy landscape. The energy transition will only accelerate once discussion starts to be converted into action. But the time in which we have to act is running out.