Context

Political leaders find themselves currently amid a messy reality. The seemingly “irresistible force” for clean energy has met, it would appear, the “immovable object” of an embedded fossil fuel energy system.

Changes in the energy sector in 2021

• Commitment to Net-zero: One hundred and thirty-three countries pledged to a “net-zero carbon emissions date” and most governments, corporates and civic entities have shown determination to “phase down” and eventually phase out fossil fuels from their energy basket.
• Price volatility: The petroleum market seesawed and was expectedly volatile.
• High price: Natural gas prices reached stratospheric levels as demand exceeded supplies and geopolitics compounded the imbalance. 

Five trends that will shape the emergent energy landscape

[1] Transition to clean energy will be long and expensive

• Redesign and rebuilding: The fossil fuel-based economic system will have to be redesigned and, in parts, rebuilt for clean energy to achieve scale.
• The process will take decades and require massive capital infusion.
• No country or multilateral institution can finance this transition individually.
• The world needs to collaborate: The world will have to collaborate and if it fails to do so, the financing deficit will push back the transition even further.

[2] Fossil fuels will dominate the energy basket during the transition

• Fossil fuels will dominate the energy basket during this transition phase.
• Contributing factors: As has been the case so far, its market will be defined by the “fundamentals” of demand, supply and geopolitics and the “non-fundamentals” of exchange rates and speculative trade.
• The price movements will be sharp, volatile and unexpected.

[3] The resurgence of market influence of OPEC plus after private companies move beyond fossil fuel

• The “ OPEC plus” will resurge in market influence.
• The low-cost, high resource petrostates (Saudi Arabia, the Gulf nations, Iraq, Iran, Russia) will, in particular, gain greater control over the petroleum market as private companies move beyond fossils under pressure from shareholders and regulators.

[4] Transition will create new centres of energy power

• The Democratic Republic of Congo controls, more than 50 per cent of the global supply of cobalt; Australia holds a comparably large share of the lithium market; and China controls the mining, processing and refining of rare earth minerals.
• It is difficult to tell how and when these countries will exercise their market power but it is clear that the “green transition” will create new centres of energy power.

[5] Nationalism and political opportunism will influence energy policy

• The US and China are currently embroiled in a “Cold War” over technology, trade, cyber issues and the South China Sea.
• The US and China appear to be in a similar face-off. But that has not come in the way of their energy relations.
• A few weeks ago, the two countries decided to coordinate the release of oil stocks from their strategic reserves to cool off the oil market.
• The underlying reality is that national self-interest and short-term political ambition will be the defining determinant of future energy supply relations cutting across values and rhetoric.

Suggestions for India

• Nurture relations with traditional suppliers: India must assiduously nurture relations with our traditional suppliers of oil and gas.
• It must not assume their role in the energy market will diminish.
• Increase storage capacity of strategic reserves: It should accelerate the build-up of the storage capacity for oil and gas; the latter to hold strategic oil reserves, the former to store gas for inter alia conversion to blue hydrogen.
• Ecosystem for search and development of minerals required for clean energy: It must create a facilitative ecosystem for the search and development of the minerals and metals required for clean energy.
• Clean energy supply chain: It should create a “clean energy aatmanirbhar supply chain”.

Conclusion

The green transition must not lead to import dependency on raw minerals and manufactured inputs, especially from China. The current policy to incentivise the manufacture of semiconductors is a step in the right direction.

UPSC 2022 countdown has begun! Get your personal guidance plan now! (Click here)

Get an IAS/IPS ranker as your 1: 1 personal mentor for UPSC 2024

Attend Now