Why tackling the energy crisis calls for collective action

This article is brought to you thanks to the collaboration of The European Sting with the World Economic Forum.

Author: Caroline Das-Monfrais, Chief Strategy Officer, Europe, Middle East & Africa, FTI Consulting, Elizabeth Adams, Senior Managing Director, Energy Transition, Strategic Communications, FTI Consulting

• Against a rapidly changing global landscape, the energy crisis looms large.
• The world is facing an ‘energy trilemma’ of security, sustainability and accessibility.
• A new report highlights the key issues concerning leaders today and signals the need for collective action.

Russia’s invasion of Ukraine has in a few short months altered our view of energy security forever. Governments, consumers and producers around the world are scrambling to adapt, while at the same time facing mounting pressure to drastically reduce the environmental impact of the energy we use and address a global supply chain crunch. Meeting the goals of security, sustainability and accessibility – the energy trilemma – is more difficult and more crucial than ever.

Set against this delicate and rapidly changing backdrop, FTI Consulting captured the views of more than 4,000 business leaders for our annual Resilience Barometer® across every part of the value chain, from big-name players and established leaders to up-and-coming companies whose day in the sun is just beginning. The results provide a unique perspective of the issues front of mind for the leaders of today and tomorrow.

Rising cost of energy

In the immediate term, the cost of energy, and with it the security of supply, is top of the agenda with 42% of Chief Operating Officers globally indicating concerns about surging energy prices. If the linkage between the two were ever in doubt, the conflict in Ukraine has shown how unequivocally connected they are. Even nations like the United States and United Kingdom – which have traditionally benefited from secure supply – have seen domestic prices impacted by global dynamics. And those price rises have reverberated across the entire economy.

Sustainability concerns

If climate has taken a back seat as the least immediate of the trilemma, it is only by the barest of margins. The most recent Intergovernmental Panel on Climate Change report has again reminded us that the clock is approaching one minute to midnight and the climate emergency is truly pressing. Economies failing to tackle climate change quickly was a top-five boardroom concern cited by energy business leaders.

Our findings clearly highlight the significant and mounting environmental pressures facing the energy industry today, including the threat of regulatory action; assets becoming stranded before the end of their operational life; pressure from investors and reduced access to capital; and activists leveraging every available tool, from the courts through to the corporate governance system, to enforce action. Nearly one in four energy business leaders said the inability of their business to keep pace with climate change regulations and attitudes would harm them in 2022.

Discover

How is the World Economic Forum driving the transition of energy to help stop climate change?

Energy, materials and infrastructure are the global foundations of strong economic growth. With increasing environmental, societal and financial pressures on these sectors, how do we help them deliver a fair, net-zero future?

The World Economic Forum’s Platform for Shaping the Future of Energy, Materials and Infrastructure works with five industries: electricity, oil and gas, mining and metals, engineering and construction, and chemicals and advanced materials. The platform enables business, government and society to grow sustainable economies, help stop climate change and foster equality worldwide.

• The Forum’s Net Zero Carbon Cities programme brings together business and government leaders to accelerate urban transitions to a net zero future, through the implementation of a toolbox of solutions and city sprints.
• The Forum’s Mining and Metals Blockchain initiative released a proof of concept to trace emissions across the value chain using blockchain technology.
• The Fostering Effective Energy Transition report summarizes insights from the Energy Transition Index in an effort to assist the world in readiness for energy transition.

Contact us for more information on how to get involved.

In a clear indication of the unique pressures facing the energy industry, environmental concerns not only top respondents’ priorities but also mark the biggest differential from their counterparts in other sectors. Over the next 12 months, 45% of energy companies surveyed believe that they will face increased pressure to improve ESG/sustainability as compared to 36% of companies from other sectors. But perhaps the strongest signal of a major shift in how seriously the sector is taking ESG and sustainability is that improvements in this area now ranks higher on leaders’ agenda, at 45%, than increasing profits, at 42% (in third place after improving ESG/sustainability and integrating technology/innovation).

Fear of cyberattacks

Elsewhere the threat of cyberattacks, a reflection of the increasingly connected nature of power grids and pipelines, tops the list of issues that business leaders believe may harm their company in 2022 with 32% saying this. The industry is mobilising to respond to these, but threats will continue to evolve at warp speed, reinforcing the necessity of investing heavily in enhanced preparation and resilience capabilities.

Set against this backdrop, the complexity of fundamentally overhauling the global energy system can all too easily lead to paralysis and infighting over the benefits of one solution against another. Helpfully, our Resilience Barometer© findings suggest that a degree of consensus may be beginning to emerge on some of these solutions.

Path to decarbonization

Decarbonizing the road transport system will require a huge expansion in global electrification and in turn a huge investment to transform our grid. The 21^st century grid will need to overcome not inconsiderable challenges relating to intermittency, inertia, directional flow, and pricing volatility.

Similarly, the deployment of hydrogen as an energy carrier offers huge potential to decarbonize at-scale emissions that are otherwise hard to abate. Critically, we must avoid being distracted by factional and internecine arguments over the benefits of different hydrogen “colours” and instead focus on bringing down cost, building out infrastructure, and minimising the environmental consequences of using hydrogen.

Advancing energy equity

In addition to providing a stark indication of the once-in-a-generation challenge facing all parts of the energy industry, this report is a clear reminder of the centrality of energy to modern life. The war in Ukraine has shown in the clearest terms what energy means for the functioning and stability of the global economy and society. Energy inaccessibility and unaffordability result in disproportionate impacts on some parts of society – driving further inequality and the possibility of societal unrest.

Energy transition needs urgent action

Perhaps the logical extension of this point is that addressing the pandemic, international conflict, and climate change will require a systems change mindsets that harness all parts of society, government, and the private sector. We have seen in action how it is possible to move at pace and scale to address major challenges, for example developing a COVID-19 vaccine, or more recently, the EU’s latest effort to accelerate the energy transition and security with RePowerEU, in which hydrogen, renewable and efficiency targets have been increased.

The energy industry, with its ability to not only finance but execute highly complex, technically challenging projects, will need to be at the very heart of the process to address climate change. The Barometer shows all too well the scale of the challenge and the urgency with which it must be met.