Over the last years, major steps have been taken by international organizations, companies, investors and governments alike to commit to climate change action. The focus has increasingly been put on the reduction of carbon emissions and water consumption. Billions of dollars are being invested in implementing industry or nationwide schemes to mitigate the effects of industries and governments. Still, there is more to be done to further contain the overall impact on climate. The need for climate adaptation, across a vast spectrum of issues such as flood and wildfire prevention, resilient agriculture, clean water supply, infrastructure modification, and population resettlement, is still not understood fully by the parties involved. As already stated in a report of the Climate Policy Initiative in 2021, climate adaptation initiatives receive only 7% of climate-related investment. At the same time, the business opportunities are clear, as Bloomberg reported that Bank of America analysts estimate that the climate adaptation market could be worth $2 trillion a year within the next five years.
For any industry expert, it suffices to look at some of the flagship projects, which were launched to address climate change, and one will see that the overwhelming majority of projects are designed to counter emissions or water consumption. The conclusion is simple: climate adaptation is misunderstood or undervalued.
This is a missed opportunity as climate adaptation combines not only changing organizational and institutional infrastructure as well as practices coupled with technological upgrades in areas that require them the most. It is particularly important to any region in the world currently hit by risks of flooding, rising sea levels, droughts and heat waves.
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The summer of 2022 has made it clear to most that these risks have become increasingly visible, and have a major impact on humanity and biodiversity. Europe’s unprecedented heat waves during the last months of summer, with temperature levels rising to 40C or beyond in Northern Europe, intense drought periods, or the immense rain experienced in Pakistan, India and other places, should be a sign more needs to be done to counter these effects. Just last week, several hurricanes have hit the south of the USA, the Caribbean, and Asia.
At present, governments and industries should realize that the current global energy mix is still highly hydrocarbon based and will remain so for foreseeable future. While optimism about renewables is clear and visible, as they accounted in 2021 for more than 80% of all new power generation capacity, the total share is just 4% of the global energy mix. Furthermore, renewable-energy investment globally exceeded $365 billion last year, whereas combined investment in areas relevant for climate adaptation – energy storage, carbon capture, and the hydrogen value chain – was only $12 billion. It seems that the focus is partly lopsided, with a major emphasis on the production of electricity, but other options or needed infrastructural investments are still partly forgotten.
The year 2022 has also brought back with a major bang the issue of global energy security. For years, the steady supply of energy has been taken for granted, especially in the West (USA, UK, EU), but geopolitical developments and the Russia-Ukraine war has put energy security and security of energy supply back on the front page. After a decade of believing that renewable energy could already supply energy security, it now has become clear that oil, gas and even coal, are still the major fundaments of the energy mix for a long time to come. Extreme high electricity and natural gas prices in the world’s most liberalized market, Europe, are showing that a new approach to a future energy mix is needed. That is not to deny the key role and future potential of renewables, but to underline a need for a more realistic energy transition approach than currently has been put in place.
One of OPEC’s leading producers, the United Arab Emirates (UAE), has been pushing for a reassessment of strategies and simultaneously charting its own course. The UAE’s approach to energy transition involves a multifold approach, in which a commitment to supply hydrocarbons to meet global demand is combined with a full-fledged and applicable strategy of climate adaptation measures. Both are equally further enabled by increased investments in a new energy system for the future.
A perfect example is the fact that the UAE has set up a functional and region’s first industrial-scale carbon-capture program, while Abu Dhabi’s national oil company ADNOC is supplying all its electricity from zero-carbon nuclear and solar power. This is a world’s first, especially looking at the scale of operations in place on- and offshore, midstream and downstream.
To back up this new strategy, the UAE has set up three of the world’s largest single-site solar plants and it has invested in renewable projects in over 40 developed and developing countries, with plans to have a renewables portfolio of 100GW by 2030. As renewables alone are still not in a position to ensure a full-scale 24/7 power system, nuclear power capacity serves as a back up for the UAE, while the infrastructure for a hydrogen economy is currently being set up. It seems that, in the eyes of the UAE, all elements of the energy mix are crucial to achieving net-zero emissions.
Against this backdrop, a broad discussion of climate change mitigation and climate adaptation is needed. Only looking at emissions reductions or water usage is not going to bring the solutions needed to change the future. The next 18 months will be crucial for the world, as new strategies and a new reality are going to be discussed at COP27 (Egypt) and COP28 in the UAE. A full-scale multi-phased approach is needed.
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By Cyril Widdershoven for Oilprice.com
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Still, what the world needs to realize ahead of COP27 is that the notions of a post-oil era, peak oil demand, total energy transition to renewables and net-zero emissions are myths.
1- There could never be a post-oil era because there will be no alternative to oil as versatile and practicable as oil itself in the next hundred years.
2- Nor could be a peak oil demand because of rising world population and a growing global economy. While global oil demand growth may decelerate slightly as a result of more efficient ICEs and a bigger penetration of EVs into the global transport system, it will still continue to grow.
3- A total transition to renewables is impossible because of their intermittent nature. Renewables on their own couldn’t satisfy global electricity demand without major contributions from natural gas and also nuclear energy and coal.
4- The global economy will continue to be driven by fossil fuels throughout the 21st century and probably far beyond. Therefore, net-zero emissions will never happen in 2050 or 2100 or ever.
5- Energy diversification is the name of the game. Renewables have to compete with fossil fuels for a bigger share at the global energy market. This means that the bigger the share of renewables in global electricity generation the less natural gas, coal and oil will be needed.
6- For countries of the world, economic growth and energy security will always take precedence over climate change and energy transition.
Dr Mamdouh G Salameh
International Oil Economist
Global Energy Expert