Expectations of a rapid, linear transformation
of the global energy system have proved misplaced. A major
rethinking is in order
NEW
YORK, Feb. 25, 2025 /PRNewswire/ -- The energy
transition will be more difficult, costly, and complicated than
expected, according to a new article by Daniel Yergin, Vice Chairman, S&P Global;
Peter Orszag, CEO and Chairman,
Lazard; and Atul Arya, Chief Energy
Strategist, S&P Global.
Writing in the March-April edition of Foreign Affairs,
they say that it is time to rethink priorities, polices and
investments in light of the complicated realities today.
"What is becoming clear is that the shift in the global energy
system will not unfold in a linear or steady manner," Yergin,
Orszag and Arya write. "Rather, it will be
multidimensional—unfolding differently in different parts of the
world, at different rates, with different mixes of fuels and
technologies, subject to competing priorities and shaped by
governments and companies establishing their own paths."
It has not been and will not be the energy transition that many
envisioned, they say.
The substantial (though temporary) reductions in energy demand
and carbon emissions during the COVID-19 pandemic gave many the
false impression that a rapid and singular transformation of the
global energy system would be feasible.
"This ambition, however, has collided with the magnitude and the
practical constraints of completely overhauling the energy
foundations of a $115 trillion global
economy in a quarter century," they write.
The disconnect is evident. The world is far from on track to
achieve the often-stated target of reaching net-zero emissions by
2050, and there is no clear plan for delivering the massive
investment that would be required to do so, the authors say.
"Part of the problem is the sheer cost: many trillions of
dollars, with great uncertainty as to who is to pay for it. Part of
the problem is the failure to appreciate that climate goals do not
exist in a vacuum. They coexist with other objectives—from GDP
growth and economic development to energy security and reducing
local pollution—and are complicated by rising global tensions, both
East-West and North-South," Yergin, Orszag and Arya write. "And
part of the problem is how policymakers, business leaders, analysts
and activists expected the transition to go, and how plans were
shaped accordingly."
"A new North-South divide has emerged on how to balance climate
priorities with the need for economic development. This is a key
factor behind rethinking the pace and shape of the energy
transition," they write.
The path forward will require significant tradeoffs and a more
pragmatic approach—one that considers a multitude of factors such
as the need for economic growth, energy security and energy access,
they say.
"The first step in this rethinking is understanding why the key
assumptions behind the [energy] transition have fallen short,"
Yergin, Orszag and Arya write. "That means grappling with the
geopolitical, economic, political, and material tradeoffs and
constraints rather than wishing them away."
The complete article is available at:
https://www.foreignaffairs.com/guest-pass/redeem/YxSIFt7hbEA
Selected excerpts:
(Edited slightly for brevity only)
More Energy "Addition" than Transition
"What has been unfolding is not so much an 'energy transition'
as an 'energy addition.' Rather than replacing conventional energy
sources, the growth of renewables is coming on top of that of
conventional sources…. This was not how the energy transition was
expected to proceed."
"The fundamental objective of the energy transition is to
replace most of today's energy system with a completely different
system. Yet throughout history, no energy source, including
traditional biomass of wood and waste, has declined globally in
absolute terms over an extended period."
"In 2024 global production of wind and solar energy reached
record levels—levels that would have seemed unthinkable not long
before…. Yet 2024 was a record year in another regard as well: the
amount of energy derived from oil and coal also hit all-time highs.
Over a longer period, the share of hydrocarbons in the global
primary energy mix has hardly budged: from 85 percent in 1990 to
about 80 percent today."
How Much—and Who Pays?
"Past transitions, such as the shift from wood to coal, were
motivated by improved functionality and lower costs, incentives
that are not yet present across much of the entire energy system.
The scale of the transition means that it will also be very
costly."
"Based on such estimates [from the Independent High-Level Expert
Group on Climate Finance], the magnitude of energy-transition costs
would average about five percent a year of global GDP between now
and 2050.
"If global South countries are largely exempted from these
financial burdens, global North countries would have to spend
roughly 10 percent of annual GDP—for the
United States, over three times the share of GDP represented
by defense spending and roughly equal to what the U.S. government
spends on Medicare, Medicaid, and Social Security combined."
Energy Security
"Russia's invasion of
Ukraine and the subsequent
disruption to global energy markets put the issue back on the
table."
"Governments simply cannot tolerate disruptions to,
shortages of, or sharp price increases in energy supplies. Energy
security and affordability are thus essential if governments want
to make the transition acceptable to their constituencies."
"Assuring that citizens have access to timely supplies of energy
and electricity is essential for the well-being of populations.
That means recognizing that oil and gas will play a larger role in
the energy mix for a longer time than was anticipated a few years
ago, which will require continuing new investment in both
hydrocarbon supplies and infrastructure."
A New Divide
"In the global South, the transition competes with immediate
priorities for economic growth, poverty reduction, and improved
health. The trilemma of energy security, affordability, and
sustainability looks very different in Africa, Latin
America, and developing Asia than it does in the United States and Europe."
"At the moment, almost half the population of the developing
world—three billion people—annually uses less electricity per
capita than the average American refrigerator does. As energy use
grows, 'carbonizing' will precede 'decarbonizing.'"
"The clash of priorities between the North and the South is
especially striking when it comes to carbon tariffs. Many global
North governments have, as part of their efforts to reduce
emissions, put up barriers preventing other countries from taking
the same carbon-based economic development path that they took to
achieve prosperity."
Big Shovels
"A global economy in transition depends on another transition—a
shift from 'big oil' to 'big shovels.' That means much more mining
and processing, driven by major new investments and resulting in
much-expanded industrial activity. Yet the complexities surrounding
mining and critical minerals represent another major constraint on
the pace of the energy transition."
"The International Energy Agency has projected that global
demand for the minerals needed for 'clean energy technologies' will
quadruple by 2040….
"This is extremely unlikely, considering that, based on S&P
data that tracked 127 mines that have come online globally since
2002, it takes more than 20 years to develop a major new mine; in
the United States, it takes an
average of 29 years."
Great-power Rivalry
"The energy transition is increasingly intertwined with the
great-power rivalry between the United
States and China. That is
true not just when it comes to implementing targets, but also when
it comes to the 'green supply chain.'"
"The growing tensions will likely slow the deployment of clean
energy technologies, add costs, and constrain the pace of the
energy transition. Governments are now mobilizing to 'diversify'
and 'de-risk' supply chains. But in practice this is proving very
difficult because of costs, infrastructure constraints, time
required, and the substantial roadblocks to getting projects
permitted."
Electricity Surge
"A new challenge for the energy transition has emerged: assuring
adequate electricity supplies in the face of dramatically increased
worldwide demand. This is the result of a quadruple piling on: a
coming surge in consumption arising from "energy transition demand"
(for example, for electric vehicles); reshoring and advanced
manufacturing (for example, of semiconductors); crypto
mining and the insatiable energy appetite of data centers powering
the AI revolution."
"Some estimates have suggested that data centers alone could
consume almost ten percent of U.S. electricity generation annually
by 2030; one large tech company is opening a new data center every
three days."
"Electrification trends suggest that power demand in
the United States will double
between now and 2050."
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News Media Contacts:
Jeff Marn
S&P Global
+1 202 463 8213
Jeff.marn@spglobal.com
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SOURCE S&P Global
