Crisis May Stunt, Then Hasten Transition

The Ukraine war, high commodity prices and shifts in energy policy may stunt near-term progress in the energy transition, but the trend could reverse later in the 2020s as policy pressures rise and clean energy costs fall. The short-term challenges to the transition are clear, with acute energy security concerns, high oil and gas prices and increased costs for clean energy technologies and raw materials. The impact of these forces varies by region. While Europe is redoubling its transition efforts to help it wean itself from Russian oil and gas quicker, the signals elsewhere are mixed. Still, underlying climate trends persist, and investors remain closely engaged on long-term emissions goals despite current concerns about fossil fuel supply shortages. A “slower now, faster later” trajectory would see a bold mid-decade inflection point in which the transition moves faster than previously mapped later in the 2020s, according to Energy Intelligence’s Energy Transition Service. While current headwinds from rising raw materials costs may impact adoption of some clean energy technologies, such as electric vehicles (EVs), renewables remain competitive in the power sector, thanks partly to soaring oil and gas prices. Meanwhile, the scientific community keeps calling for more urgent climate action, as demonstrated by the UN’s latest climate report. Victories by Labor candidates and other climate-friendly parties in Australia’s recent general elections show that climate change remains an important issue and that social pressures to address it will continue for policymakers. Meanwhile, investors remain committed to mid-century net zero goals, even if some see scope for greater near-term outlays in fossil fuels.