The global energy crisis is a ‘shock of unprecedented breadth and complexity,’ IEA warns, but it may also be a ‘definitive turning point’

Wide shot of two engineers talking while walking through a wind turbine farm
The global energy crisis could be a historic turning point.
Wera Rodsawang via Getty Images

The world is plunging headfirst into one of its worst energy emergencies in decades, but where there is crisis, there could also be opportunity.

The upheaval, caused by the Ukraine war and the COVID pandemic, may end up being one of the biggest catalysts for the clean energy revolution, the International Energy Agency, which provides energy policy recommendations to governments, said in an annual report published Thursday

“Energy markets and policies have changed as a result of Russia’s invasion of Ukraine, not just for the time being, but for decades to come,” IEA chief Fatih Birol said in a statement in conjunction with the report’s release. 

“Even with today’s policy settings, the energy world is shifting dramatically before our eyes. Government responses around the world promise to make this a historic and definitive turning point toward a cleaner, more affordable, and more secure energy system,” he added.

The global energy crisis

Russia’s invasion of Ukraine in February scrambled global energy markets. The U.S. has already banned Russian oil imports, with Europe set to do so in December. In response, state-owned energy companies in Russia have reduced natural gas flows to Europe.

Global energy supply was already crunched before the war. Since the early days of the pandemic, natural gas production has slowed as global energy demand stalled. OPEC—the global alliance of oil-producing nations—approved unprecedented cuts in oil production in 2020 to counter plummeting prices, and did so again earlier this month in another bid to raise oil prices. 

And while the energy crisis is severe in advanced economies like Europe’s, developing countries including Bangladesh and Pakistan have been unable to afford the higher energy prices and are grappling with widespread blackouts and power outages.

“Today’s energy crisis is delivering a shock of unprecedented breadth and complexity,” according to the IEA’s report, which added that the biggest “tremors” have been felt in natural gas, coal, oil, and electricity markets.

The energy crisis could become even worse, the IEA warned, with few to no new fossil fuel projects expected to come online anytime soon. China may also play a big role if its energy demand—currently suppressed by the country’s COVID-19 policies—begins to rise again.

But a silver lining to the crisis so far has been the bigger focus on renewables, including wind and solar, as well as clean technologies such as energy-storage batteries and electric vehicles. These energy sources and technologies have softened the blow in many parts of the world, according to the IEA. 

“In the most affected regions, higher shares of renewables were correlated with lower electricity prices,” the report read.

Clean energy revolution

High fossil fuel prices have translated into surging utility bills globally, the IEA warned, with the natural gas prices alone accounting for 50% of rising electricity generation costs.

Prices for renewable energy, meanwhile, have only played a “marginal role” in raising electricity costs, which means a clean energy transition could be a solution to the energy crisis, according to the IEA.

Russian President Vladimir Putin has blamed Europe’s green drive for the continent’s current energy woes. But the IEA noted that there was “scant evidence” to suggest that climate policies or net-zero carbon emission commitments by various countries had contributed to high prices. 

The collapse of demand for Russian fossil fuels, meanwhile, could be a death sentence for that country’s economy as many nations switch away from Russian fuels. The IEA warned in its report that Russia’s energy exports would “never return” to prewar levels.

The organization noted that, despite greenhouse gas emissions rebounding to record levels last year, massive interest in renewables and clean technologies including electric vehicles after the energy crisis ends could even outpace current emissions reduction targets in some parts of the world.

The IEA warned that current levels of renewable energy use were “far from enough” to provide relief to consumers during the current energy crisis. Meanwhile, many countries have so far failed to implement more detailed plans on how they intend to reduce their planet-warming emissions. At a United Nations summit in Scotland last year, 193 nations pledged to provide updated plans before next month’s climate summit in Egypt, but so far only 24 have done so, according to a new UN report released this week.

But the IEA predicts that renewed investment and interest in clean energy projects could change that. Global clean energy investment is expected to rise to more than $2 trillion annually by 2030, according to the IEA, or more than 50% higher than today. 

Sign up for the Fortune Features email list so you don’t miss our biggest features, exclusive interviews, and investigations.

Read More

Path to ZeroEnergyClimate ChangeElectric VehiclesSupply Chains