In focus: Energy transition caught between cooperation and fragmentation

The world’s business and political leaders gathered this week for the World Economic Forum’s annual event in Davos to discuss global challenges and the way forward.

The topic of the weeklong event is ‘Cooperation in a Fragmented World’, highlighting the need to work together to overcome the perfect storm.

“We need to recreate global growth. It has to be inclusive, it has to create jobs. But without growth, there will be no prosperity. And we also know that we have to stop the fragmentation that we are currently seeing of the global economy. We have to continue to trade with each other, to invest with each other,” Børge Brende, President of the World Economic Forum, said.

Working together is key to catalyzing energy transition as policymakers, technology developers and political leaders need to cooperate to reverse the rise in temperature by the end of the century and leave a better world for future generations.

However, the current pledges of global governments need to be more ambitious and projects need to be accelerated and ramped up, otherwise “we are flirting with climate disaster”, as explained by António Guterres, Secretary General of the United Nations.

The potential is there for renewables to replace fossil fuels. Nevertheless, massive investments must be unlocked to achieve the much-needed progress.

“You have around $1 trillion being spent right now globally, but we have to get it up to $4.5 billion every year for the next 30 years to turn things around,” John. F. Kerry, U.S. Special Presidential Envoy for Climate, said at the event. “We need to be deploying renewables six times faster than today in order to be able to hit the 1.5°C target.”

That being said, we are seeing that certain governments, such as the United States and China, are launching policies favoring local companies, creating leverage by giving them access to massive financial resources.

Speaking at Davos 2023, Ursula von der Leyen, President of the European Commission, said that Net Zero transformation was already causing huge industrial, economic and geopolitical shifts driven by an unprecedented investment in clean technology.

“Cleantech is now the fastest-growing investment sector in Europe, doubling its value between 2020 and 2021 alone. And the good news for the planet is that other major economies are also stepping up,” she said.

Japan’s green transformation plan aims to help raise around €140 billion, through green transition bonds. India has put forward the production-linked incentive scheme to enhance competitiveness in sectors such as solar and batteries. The UK, the U.S., Canada and many others have put forward their investment plans in cleantech.

With the Inflation Reduction Act, a $369 billion cleantech investment plan, the US and EU are putting forward almost €1 trillion to accelerate the clean energy economy.

The President of the EC noted that “certain elements of the design of the Inflation Reduction Act raised a number of concerns in terms of some of the targeted incentives for companies”, adding the EU was working with US partners to enable EU companies to benefit from the regulation.

“Our aim should be to avoid disruptions in transatlantic trade and investment. We should ensure that our respective incentive programmes are fair and mutually reinforced and we should also set out how we can jointly benefit from this massive investment,” she noted, adding that:

“Europeans also need to get better at nurturing our own cleantech industry.“

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“Trade has to be an important part of the global recovery, but we cannot afford to fragment or decouple,” Ngozi Okonjo-Iweala, Director General of the World Trade Organization, said in Davos.

“If we decouple into just two trading blocks, we will lose 5 percent in real GDB over the longer term, which equals the economy of Japan.”

There is some light at the end of the tunnel, as investments in green sectors overshadowed the oil and gas funding for the first time last year, Rystad Energy, an energy market intelligence group said.

The investments in low-carbon projects will increase by $60 billion this year, which is 10 per cent higher than in 2022, led by wind developments and helped by a significant rise in funding for hydrogen and carbon capture, utilisation and storage (CCUS) infrastructure. Rystad Energy research shows that the growth in total low-carbon spending is a slowdown from recent years, which averaged 20 per cent annual increases.

While spending on green sectors surged 21 per cent in 2022 to overtake oil and gas investments for the first time, inflation-spooked developers seem set to rein in spending growth this year, although, as inflationary pressure weakens, the energy intelligence firm expects spending to rebound.

Cleantech and hydrogen have been at the forefront of this week’s developments.

Clean Hydrogen Joint Undertaking, also known as the Clean Hydrogen Partnership, has launched its 2023 call for proposals for the development of clean hydrogen technologies.

The call was launched on 17 January with a total of €195 million to be made available for projects that support the creation of cutting-edge clean hydrogen technologies.

The US Testing Expertise and Access to Marine Energy Research (TEAMER) program has selected 12 projects to receive technical support for testing marine energy technologies as part of its eighth call for applications.

British energy company BP has revealed plans to evaluate the feasibility of building a new hydrogen hub and utilise repurposed oil and gas facilities to transport hydrogen in Germany.

According to BP, the project would be located in Wilhelmshaven and include an ammonia cracker which could provide up to 130,000 tons of low-carbon hydrogen from green ammonia, per year, starting in 2028.

The company’s plans include utilising the existing infrastructure of the Nord-West Oelleitung (NWO) terminal at Wilhelmshaven, where it is a participating shareholder.

The US, Canada, and Mexico have ‘committed to combatting the climate crisis’ by working together on the development of a clean hydrogen market in North America. The countries agreed to work together in six areas, including methane emissions reduction, electric vehicle chargers, and hydrogen.

India is also making headway on its decarbonization strategy which focuses on the production and utilization of green hydrogen and its derivatives. India has declared that it plans to become energy independent by 2047 and a net zero country by 2070.

As part of this plan, the country will require the Shipping Corporation of India (SCI) to retrofit at least two ships to run on green hydrogen or other green hydrogen-derived fuels by 2027.

Meanwhile, in the middle east, the United Arab Emirates’ Masdar and the State Oil Company of the Republic of Azerbaijan (SOCAR) have entered into a partnership on offshore wind and green hydrogen projects in Azerbaijan.

Under a joint development agreement, signed in Abu Dhabi on 15 January within the framework of Azerbaijan’s President Ilham Aliyev’s business visit to the United Arab Emirates (UAE), SOCAR and Masdar will together develop offshore wind and hydrogen production projects totalling 2 GW in capacity.

The two companies also signed joint development agreements on 1 GW of solar photovoltaic (PV) projects and 1 GW of onshore wind.