In 2023 most countries will strike two pacts with the devil. In the short term they will embrace fossil fuels in return for security. In the long term they will adopt state-led industrial policy to promote renewables
Save time by listening to our audio articles as you multitaskThe crunch caused by Russia’s invasion of Ukraine has been painful. By September 2022 a third of the rich-world inflation rate of 9% was attributable to energy. President Vladimir Putin’s strangling of gas supplies to Europe forced firms and consumers to cut consumption by a 10% year on year and sparked fears of deindustrialisation.
By November spot gas prices in Europe had eased owing to cutbacks by industry and warm weather. Nonetheless in 2023 global energy markets will remain febrile. By depleting its gas-storage tanks, Europe will make it through to the spring. But by then it will be clear that years of energy austerity beckon: Russia supplied 36% of Europe’s gas and even the accelerated pace ofimports in late 2022 offset only a third of that.
What will this look like? After the 1973 oil shock consumption and emissions dipped and high prices triggered an investment boom in new sources of supply such as Alaska, and in alternatives such as nuclear. This time there is a shock but so far no investment surge. In 2023 capital spending by the world’s top 500 energy firms is forecast to be only 9% above pre-pandemic levels. Firms are put-off by geopolitics and the uncertainties of the green transition.
The green transition creates a further source of uncertainty that inhibits investment. New gas projects may have their lives cut short by tighter emissions rules, unless they can be adapted for new technologies such as green hydrogen. Investment in renewables remains too low and price caps and windfall taxes on generators, introduced by many countries in 2022, are hardly incentives to ramp up spending.
Like all Faustian pacts the new energy deals will involve dangers that become clearer over time. The state backing of fossil-fuel deals will create a new generation of polluting assets that will have to be shut down prematurely in 5-10 years to meet emissions targets, at great expense. And the embrace of more nationalistic, protectionist philosophy will mean the $50trn global clean energy build-out over the next decade is less efficient.
Belgique Dernières Nouvelles, Belgique Actualités
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