Global Energy Transition Index

World Economic Forum (WEF) announced that India has moved up two positions and has ranked 74th on a global energy transition index.  With a better ranking, India has shown improvement in key parameters of economic security, economic growth, and environmental sustainability.

• WEF is a Geneva-based international organisation that is for public and private cooperation. Releasing the ranking it further stated that the ongoing COVID-19 crisis will compromise the transition to clean energy by both the developed and developing countries.

Key Highlights:

• World Economic Forum in its report stated that as per its study for measuring the readiness for the transition to clean energy, out of 115 economies 94 have shown progress since 2015. But even with the progress, environmental sustainability is still behind.
• Sweden has acquired a top position on the Energy Transition Index (ETI) for the third consecutive year and has been followed by Finland and Switzerland in the top three.
• Out of G20 countries, only France at 8th rank and UK at 7th rank have been in the top 10.
• The theme of WEF 2020 is Stakeholders for a Cohesive and Sustainable World.
• It is basically a networking event where countries project themselves to garner investment.
• The Energy Transition Index, a composite score of 40 indicators, benchmarks 115 countries on the current performance of their energy system, and their readiness for transition to a secure, sustainable, affordable, and inclusive future energy system.
• The global energy transition has been moving at a slow, but steady pace. Of the 115 countries benchmarked on the ETI, 94 corresponding to more than 70% of global CO2 emission have improved their scores since 2015. The gap between countries in the top quartile, and the rest of the countries seems to be narrowing – which highlights the emerging global consensus on the necessary priorities for energy transition, and increased sharing of best practices among countries.

COVID-19 has stress tested the energy system

• The economic development and growth dimension of energy transition is currently being challenged by the cascading effects of COVID-19. There has nonetheless been unprecedented collaboration among leading Oil & Gas producing countries to provide stability to markets, but the recent price volatilities will be a stress test for the energy system
• Over the past five years, most countries have reduced the level of energy subsidies, reflecting the movement towards cost-reflective pricing. Cost of utility bills, already a sensitive issue in many countries, will exacerbate the affordability challenge as unemployment rises due to economic consequences.
• The progress on environmental sustainability remains slow, but 2019 was a landmark year. Central banks recognized the systemic risks from uncoordinated and abrupt transition, world’s largest asset managers cited the importance of ESG considerations in investment, and many countries and companies announced net zero goals. COVID-19 might result in a shift in stakeholder priorities in the near term.

Goals and Challenges:

• Distinct fall in investment flows and trade flows
• Protectionism 
• Many economists are projecting that by the end of 2020 there might be a mild global recession.
• All the major, fastest-growing economies including India and China have slowed down presently. Most of the European economies are showing a growth of less than 1%.

Systems approach: building the fundamentals for energy transition

• Energy transition readiness is captured by the stability of the policy environment and the level of political commitment, the investment climate and access to capital, the level of consumer engagement, the development and adoption of new technologies, etc. 
• Some of these factors are beyond the scope of the energy system but nevertheless determine the effectiveness and future trajectory of energy transition in a country. 
• Those countries that are most energy-ready have adopted diverse pathways to improve their readiness. 
• They have simultaneously improved on multiple enablers, underscoring the importance of a systemic approach to energy transition.

The cascading effects of COVID-19

The transformation of the energy system over the past decade, although slower than required to achieve the objectives of the Paris Agreement to combat climate change, has been unprecedented. But this hardearned momentum now risks being lost, as the ongoing COVID19 pandemic continues to cause economic and social damage.

Beyond the uncertainty over its longterm consequences, COVID-19 has unleashed cascading effects in real time:

• The erosion of almost a third of global energy demand
• Unprecedented oil price volatilities and subsequent geopolitical implications
• Delayed or stalled investments and projects
• Uncertainties over the employment prospects of millions of energysector workers

The crisis has forced the unthinkable. Society has had to relinquish valuable commodities and freedoms to collectively address the global outbreak. An effort of similar proportions is required for a successful energy transition.

• Effective energy transition is timely, inclusive, sustainable, affordable and secure. It provides solutions to global energy-related challenges, while creating value for business and society, without compromising the balance of the energy triangle.
• While a long-term vision and objectives are necessary, remaining flexible in a dynamic environment is also critical. Given the complexity and scale of the energy system, which includes different fuel sources, technologies for extraction and conversion, and end-use sectors, an effective energy transition needs to balance the priorities of diverse stakeholder groups.
• The World Economic Forum’s initiative on “Fostering Effective Energy Transition” offers a platform to foster common understanding among all stakeholder groups on the destination of energy transition, necessary imperatives, market and policy enablers, and the resulting human impact
• Importers vs exporters:
• Since 2015, fuel-importing countries have improved as a faster rate than fuel-exporting countries. Key points of differentiation are on environmental sustainability, capital and investment in new energy infrastructure, and the inertia from legacy energy system structure.
• Sweden leads the overall rankings for the third consecutive year, followed by Switzerland and Finland. The performance of G20 countries is mixed. France and United Kingdom are the only G20 countries in the top 10. China, India, and Italy made consistent improvements on overall ETI score since 2015, while Russia, Japan, South Korea and Germany made moderate gains. Scores for United States, Canada, Brazil and Iran were either stagnant, or declining.
• It’s a generational thing
• Calls from youth surged in 2019, demanding fast and decisive action on climate change. The World Economic Forum conducted a survey of the Global Shapers’ community and an overwhelming 70% of the respondents said they feel the speed of energy transition in not fast enough. They are also more willing to pay for the increased costs associated with energy transition, and are more accepting of lifestyle changes required for energy transition.