The International Energy Agency’s (IEA) latest energy projections put ongoing fossil fuels expansion in Canada under the spotlight. The IEA’s World Energy Outlook report is an annual series of estimates about the supply and demand of energy in the coming years. Governments and major corporations around the world use the projections to make investment decisions.
According to the 355-page report, electric vehicles are gaining traction, the cost of clean energy sources is dropping dramatically, and demand for all fossil fuels will peak by 2030. The green energy transition is “unstoppable,” states Fatih Birol, the IEA’s executive director.
Despite these findings, environment critics point out that Canada continues to invest in new oil and gas projects – whether it’s planned offshore oil development on the East Coast, or new liquified natural gas terminals on the West Coast.
The timing of the IEA’s projections are expected to tilt negotiations at this year’s climate change conference in the United Arab Emirates (COP28), which kicks off later this month, on November 30. It is widely expected countries will debate the phase-out of fossil fuels but the war in Ukraine and the conflict in the Middle East have thickened the plot.
With major fossil fuel-producing countries in key positions of influence this year, and global conflicts ongoing, there are political reasons to expect pushback on strong agreements that signal the end of the fossil fuel era.
With this in mind, our globe-trotting climate finance expert, Andrea Zanon, provides his thoughts on the global energy transition and the challenges ahead.
How could ongoing conflicts in the Middle East affect global oil supplies, and what are the implications that this might have on the pace of green energy transition regionally and globally?
The Israel-Hamas war is bad news for the energy market. Oil supply is already tight, driven by Saudi, Russia, and Iraq recent supply cuts. In part these cuts were done to keep prices high as these countries have national policies and geopolitics ambitions (including Russia’s war in Ukraine) that require high oil and gas prices. The conflict will lead to more oil price volatility with potential medium-term trend bring the prices back towards $US 100-110 per barrel. High oil prices will continue to keep inflation high eroding family purchasing powers particularly in lower income households in the MENA [Middle East and North Africa] region. On the positive front, unless there is a regional conflict escalation resulting in a military strike against Iran (the ninth largest oil producer) there will not be a severe spike in crude oil prices.
On the other hand, the war will affect some of the global climate negotiations, as national priorities take the center stage during times of crisis, and country may shelve ambitious decarbonization targets. Some positive momentum will be lost, and climate investment towards MENA vulnerable countries will be delayed but the overall transition towards green growth cannot be stopped nor slowed significantly. In fact, conflict may accelerate the Net-Zero transition, as countries shift to renewable energy to become more energy secure and less dependent on unstable energy supply actors. Europe is the perfect example that has embarked in a dramatic renewable energy transition since Russia (which supplied over 30 per cent of natural gas to Europe) was embargoed to supply to Europe following its invasion of Ukraine in February 2022.
Is the war likely to accelerate or decelerate global efforts towards achieving climate change goals due to changes in oil prices?
An expansion of the Israel-Palestine conflict would impact both oil prices and economic growth. However, since the Levant is not a large oil producing region, the war is unlikely to impact oil supply in the short term. If a regionalization of the conflict takes place, which I deem highly unlikely, we will see more oil price volatility and upward pressure towards the $100 a barrel or higher. If this happens, high prices will drive more drilling of oil and gas around the globe, as fossil fuel companies rush to cash in. As a result, this will make oil abundant and affordable again increasing demand for oil, which could result in a deceleration of a Net-Zero movement. In my view though, the biggest threat to the green transition is oil price volatility, as the swing in pricing deter many ESG investor to take to market renewable energy projects.
How might geopolitical tensions in the region influence international collaborations on green energy projects and climate initiatives?
While the short-term debate has shifted towards geopolitics and regional security, the energy transition and broader green growth will continue strong. The IMF and World Bank Annual Meetings that ended in Morocco on October 15, sent a strong message to showcase the great Green Growth Momentum. The forum was however anchored on the understanding that “crisis” — economic, climatic, and conflict-related — is the new normal and global financial architecture transformations need to adjust to this. The new President of the World Bank (who is from the Global South having been born in India) highlighted the WB’s climate finance has tripled from $11 billion to $39 billion. Participants at the event acknowledged that to address climate risk, $4-6 trillion dollars a year need to be invested going forward.
From the capital market side, climate tech investments from venture-capital and private equity fell less than other sectors which are all affected by a technical recession. Green tech investment was down 40 per cent in 2023 as economic uncertainty and geopolitical conflict affects investor confidence, according to data from PWC. However, the overall climate partnership and climate tech investment is performing better than other sectors, which slowed by 50 and 60 per cent from last year.
How could climate disruption accelerate decarbonization for greater energy security?
Increased climate variability, heat waves, and heavy precipitation will increase the intensity and frequency of natural hazards such as floods, wildfire, sea-level increase, and droughts, thus interrupting oil and gas supplies with greater impacts on livelihoods. According to Verisk Maplecroft [a risk modeling firm], 30 per cent of global oil and gas reserves are at “high risk” to climate disruption. This risk is increasingly catalyzing the establishment of a more renewable and localized energy system. These systems would be less dependent on a few energy baron producers from unstable countries.
Could the ongoing war disrupt supply chains for renewable energy technologies, given the region’s significant role in the global energy sector?
The conflict in Palestine/Israel, similarly to the war in Ukraine, is likely to speed up rather than slow down the global transition away from fossil fuels and toward cleaner technologies like solar, green hydrogen and electric vehicles. Having said that, in order to meet the Paris Climate Accord, and limit temperature increase below 2 degrees Celsius by the end of the century, we need to reach $4 trillion in clean energy investment by 2030 instead of the current $2 trillion investment per year. Additionally, I do not believe that the ongoing conflict will have significant negative impact on supply chains for renewable energy tech, as the regionalization of the conflict is unlikely to happen.
What about the potential for disruption at COP28 with its timing during the war(s)?
The ongoing conflict between Hamas and Israel is overshadowing global cooperation and with that CEO of COP28 President Al-Jaber’s ambitions. The potential for conflict regionalization is possible, however, escalation from Hezbollah and other Iranian-backed groups are unlikely as these will result in severe retaliation from the US. This tension is shifting global attention away from net zero, and towards regional stability and security of energy supply to global markets. At the end of September, every major newspaper had climate tech, green growth, and green hydrogen in the first few pages of the newspapers. Now you need to scroll to the end of the paper to find anything related to COP28.
Also, having participated in five COP events over the last 20 years, I expect massive civil society protests to draw attention about how an escalating Israeli invasion in Gaza, and its destruction of energy and water systems, is making the Palestinian even more exposed and vulnerable to climate change.
Do you feel U.S. is currently more focused on the conflicts, and as a result might decelerate its focus on its climate action goals?
The U.S. will continue to leverage maximum diplomacy to de-escalate the Israel-Palestine conflict, using economic tools to bring regional actors to the negotiating table. The climate investments in the U.S. will not slow down as the regulators and the capital markets are clear there is a massive risk and an opportunity to tackle. To substantiate that, congress approved more than $370 billion in spending in 2022 for such technologies through the Inflation Reduction Act. Based on market assessment, the US investment in clean tech may be in the neighborhood of $1 trillion. This massive investment created a domino effect in the EU, Japan, Canada, India, China, and South Korea which are all prioritizing a similar investment approach.
According to the IEA, global clean energy investment rose from $1.5 trillion in 2022 and it is expected to pass the $2 trillion annually by 2030. Essentially the ongoing conflicts are pushing countries towards greater energy independence and security, prioritizing investment in innovation and decarbonization in order to be self-sufficient, more innovative and more competitive.
When it comes to the energy transition, how does Canada measure up to our global climate action allies?
Canada is doing is part to position itself as leading exporter of green hydrogen and other cleantech services. Canadian Prime Minister Justin Trudeau has set a goal of net-zero carbon emissions by 2050, and all new cars sold from 2035 must be zero emissions. Car manufacturers in Canada are already highly integrated, are in the process of pivoting toward building more electric vehicles (EVs). By scaling up rapidly its clean technology, to battery manufacturing, to electric vehicles, Canada can become a global leader in the rapidly growing green economy.
Featured image of United Nations headquarters. Credit: Unsplash/Mathias Reding
