ESG | SEPTEMBER-OCTOBER . 2023

BY DR KENNETH PEREIRA

Recently , I was invited to speak at an international conference in Kuala Lumpur . The conference ’ s theme prompted whether energy transition is a realistic objective for the Asia-Pacific region . The theme suggested that the expected outcomes of Asian countries during this phase of the energy transition were difficult to achieve . Is this the case ? What can be done to make the Asia-Pacific energy transition successful , delivering meaningful and impactful outcomes ?

NET ZERO AND ENERGY SECURITY

To understand if an objective as significant as delivering a successful energy transition for the Asia-Pacific can be delivered requires that the workings of the Energy Trilemma are examined . At the core of the Trilemma are three dimensions :

• Energy must be affordable ,

• Energy sources must be sustainable , and

• Energy sources must be accessible with long-term security of supply of paramount importance . The consulting firm of Oliver Wyman and the World Energy Council developed this idea of the Trilemma . They also maintain rankings of the countries which excel in each of the dimensions of the Trilemma . At different times , specific dimensions of the Trilemma have an increased relevance ( Figure 1 ), depending on the dynamics of global geopolitics .

Figure 1 : Each dimension of the Energy Trilemma may take a different level of significance at certain times , driven by the dynamics of global geopolitics

Before the 2015 United Nations Climate Change Conference or COP21 , which was held in Paris and is memorable because 196 parties entered “ The Paris Agreement ” ( a legally binding international treaty on climate change ), the affordability of energy was paramount . Post COP21 , the element of sustainability advanced to the fore as the implementation of the terms of the Paris Agreement became the thrust of the

Trilemma in 2016 .

By 2019 , it was Covid-19 that pushed affordability to the top and centre of the narrative as the global pandemic negatively impacted the livelihoods of millions . For COP26 in Glasgow , Scotland , in late 2021 , the long-term well-being of humankind again rose in importance , and the position of sustainability as the prime element of the Energy Trilemma was restored .

Unexpectedly , however , paradigms had to be reset when Russian military forces made an incursion into Ukraine in early 2022 . Since then , it has been Energy Security , the critical priority given that much of the European gas supply traditionally came from Russia .

The difficulties do not end there for the policymakers . Pursuing a green agenda is vital to keep governments in office , but practically , it is challenging to co-prioritise both energy security and sustainability . More recently , a new consideration has entered the mix to add further complexities . Meeting specific climate goals requires discipline using the available carbon budget . The question then becomes how this budget should be allocated .

It brings us to the idea of the Energy Quadrilemma . Here is a manifestation that our world is getting more complex . Emerging nations are claiming their share of energy and the remaining carbon budget that they feel is due to them reaching at least the same levels of wealth as those who live in the developed nations .

Resolving the net zero and energy security equation is not a simple task

Figure 2 : The Energy Quadrilemma

for any government , globally or in the Asia-Pacific .

ENERGY SECURITY IS CRUCIAL

Figure 3 and Figure 4 show a strong positive correlation between GDP / Capita and Global Primary Energy Consumption . In addition , life expectancy increases as GDP / Capita increases . In recent years , some of these relationships have been decoupling . But the solid fundamental fact , mainly based on historical data in most parts of the world , is that energy increases productivity and life expectancy . On the other hand , uncertainty in energy supply results in a lack of investment and a low level of economic progress . Areas deprived of sufficient power could also be subject to social problems , public disorder and health and security issues . Finally , if there is a sustained period of energy scarcity , poverty and widescale social issues are the inevitable outcomes .

Figure 5 provides a learning point for those of us in Asia on how vital energy security is to the policymakers and leadership of the European Union . In early 2022 , when Russian military forces entered Ukraine , Liquified Natural Gas ( LNG ) prices spiked . With nearly 40 per cent of the Western European gas supply originating from Russia , the commencement of a war in Russia meant that the security of the Western European gas supply was threatened .

With the winter season and implementation of various sanctions against Russia imminent , Western European countries quickly reacted , diverting LNG cargoes destined for other markets towards Europe . Prices spiked as Europe filled its storage whilst the emerging economies were either deprived of gas or were priced out of the market . To ensure minimal public dissatisfaction , subsidies and rebates were also introduced so that many European Union and British citizens did not feel the brunt of this price spike .

IS NET ZERO LIKELY ?

The Intergovernmental Panel on Climate Change ( IPCC ) is the United Nations body for assessing the science related to climate change . In its 2021 publication entitled “ Net Zero by 2050 – A Roadmap for the Global Energy Sector ”, the IPCC proposes a pathway to net zero exists for the planet . The Boston Consulting Group analysed this report and found that the IPCC plans entail :

• Renewables to increase from 12 per cent supply generation in 2021 to 70 per cent by 2050 .

• Solar and wind generation must increase ten-fold .

• Electric grids must expand by a factor of two and a half times , and

• The energy transition to net zero must happen three times faster than previous transitions . Indeed , the IPCC projections also suggest that less energy will be required in the future , the result of initiatives around energy efficiency , even though population increases are forecasted in the corresponding period and even more innovation is expected . Historical data ( Figure 6 ) shows that as innovation increases , so too does the quantum of energy consumed .

The IPCC assumption contradicts the historical data that is available . It also challenges the findings of Jevons , a British economist who claimed that :

“ Technological progress or government policy increases the efficiency with which a resource is used , but the falling cost of use increases its demand — increasing , rather than reducing , resource use .”

There is another piece of empirical evidence which cannot be ignored . When primary energy usage is reviewed throughout history , what has been typically observed is that prior Energy Transitions have never ended for any primary energy source ( Figure 7 ) except for that of whale oil ( which was always only of a minimal volume )!

From Figure 7 , we note that even wood , i . e . biomass , remains as present today in the energy mix as it was nearly one hundred years ago .

Returning to the IPCC Roadmap of 2021 , its publication preceded COP 26 in