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Economists Grapple With Transition's Complexity

Copyright © 2021 Energy Intelligence Group
Energy Transition Winners, Losers Start to Take Shape

The energy transition — with so many different moving parts to consider — has made the complex analysis that energy economists engage in even more challenging.

“The complexity of the job ... the number of industries and trends that you need to follow, has grown exponentially," Marianne Kah, a senior research scholar at Columbia University, told a panel at the recent Energy Intelligence Forum.

Estimating the cost of the energy transition and factoring in the intermittency of renewable energy are two of the biggest challenges that economists face.

Kenneth Gillingham, a professor of energy economics at Yale University, told the Forum that the electrification of the light vehicle fleet and the transition to cleaner electricity generation "are two areas where we're nearing tipping points."

"And there's a lot of interest in understanding when that tipping point might happen," he added.

Despite the uncertainty and challenges involved, economic analysis can play an important role in assessing the impact of proposed policies, panelists agreed.

Scenarios that provide decision-makers with potential outcomes can be useful, as long as there is a clear understanding that it's impossible to attach precise probabilities to different scenarios.

Energy transition analysis should seek to quantify the most efficient and cost-effective way to reduce greenhouse gas emissions reduction, but there must also be clarity about the trade-offs involved in taking different paths.

Developing countries' access to capital is another thorny issue, as is the willingness of rich countries to transfer funds to poorer countries so they can also take part in the transition, even though they are primarily focused on the affordability of energy.

The question of how to maintain sufficient investment in oil and gas during the transition to low-carbon energy is an important one too, but often overlooked.

"I also wonder whether oil and gas can play a role and accelerate the transition at lower costs, using the existing assets and infrastructure, rather than a policy ideologically excluding them as a matter of principle," said Kah.

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