Today, fossil fuels are responsible for three quarters of greenhouse gas emissions and almost 90 percent of all carbon dioxide emissions (United Nations). Achieving net zero without an energy transition towards renewable energy is unrealistic. The global demand for energy will not decrease any time soon, given the existing and growing populations. On the contrary, it will continue to rise, from industrial to individual demands. Everyone on the planet will need an abundance of energy. According to the IEA, the number of people living without electricity worldwide was estimated to increase by almost 20 million, reaching nearly 775 million in 2022. Referring to the Modern Energy Minimum, it is contended that ‘sufficient energy consumption is a necessary input to economic activity everywhere — and its absence is a binding constraint on income and development in many places.’
Energy transition is one of the most important drivers of decarbonization. How can we drive forward the energy transition while continuing to support the basis for fair and sustainable economic activity for people on this planet? (WE Forum). This is not an easy question for stakeholders involved. The United Nations pointed out that fossil fuels still account for more than 80% of global energy production. However, the good news is that, cleaner energy sources are on the rise. Today, around 29% of electricity comes from renewable sources (IEA). The imperative next step to achieving carbon neutral will be to increase this percentage. This article attempts to provide a roadmap for the energy transition: how to tackle the biggest challenges, which renewables should we focus on, and how can investors participate in the energy transition?
Tackle the biggest challenge: managing our cities’ hunger for energy
Our population today are mainly lives in urban areas. About 75% of Europe’s population lives in cities (European Commission); around 4.6 of more than 8 billion people worldwide live in towns or cities, which represents 57% of the global population (Statistisches Bundesamt). Cities need large energy supply. To run their activities, cities require an uninterrupted supply of energy. They consume about 75% of global primary energy and emit between 50% and 60% of the world’s total greenhouse gases (UN Habitat). In cities, energy demands range from industrial activities, food productions, distribution, transportation, construction, the operation of buildings, daily operational needs such as lighting, heating, cooling, insulation, cooking, cleaning, and so forth. How can this huge energy demand be met? Can we switch to sustainable renewable energies to fill this demand?
Source: IEA – Share of electricity final consumption by sector, 2019
The shift to clean, renewable energy is inevitable to live sustainably on a healthy, livable planet today and for generations to come, as this article outlines in five reasons: Renewable energy sources are all around us, they are cheaper, healthier, create jobs and make economic sense. This roadmap should start with the energy transition in cities and deciding which renewable energies we should focus on.
Renewable energies in focus
Renewable energy is energy from sources that will not run dry. They are natural and self-replenishing and usually have a low or zero carbon footprint. These include hydropower, solar energy, tidal power, wind energy, geothermal energy, hydrogen and fusion energy. However, not all renewable energies have a carbon-free footprint. Biofuels and biomass are renewable, but they are not carbon-free. Growing plants absorbs CO2, but burning them as fuel releases CO2. Not everything that is carbon-free is also renewable. For example, nuclear energy is carbon-free because a nuclear power plant does not emit CO2 or other greenhouse gases. However, it is not renewable because nuclear reactors use uranium, and uranium is not renewable (Climate Portal MIT).
What is the best renewable energy source? This question is quite difficult to answer. Renewable energies all have their individual challenges and opportunities. Problems arise from the materials for production, the process of production, distribution and energy storage. In terms of materials, the production of batteries for electric vehicles, for instance, can offset the emission of CO2 and other greenhouse gases. However, the production of lithium batteries in many mining areas is not the most environmentally friendly process, as water is heavily extracted from the ground and creating a drought in the surrounding areas (Insider News; FT Film; CNBC). The production of electricity from biomass releases CO2 emissions, and the use of wind and solar energy depends on the amount of wind or sunlight available.
The challenge also lies in distribution, as the place where renewable energy is generated is not automatically the place where the consumers are located. This requires distribution channels such as infrastructure for long-distance energy transmission, grid balancing and energy storage. These processes require a high level of financing as they are asset-heavy products. Ideally, we want the solution that offers the most environmentally friendly renewable energy and is affordable for end customers.
Reality check
Investors participation in the energy transition
The estimate of energy investment in 2023 was around $2.8 trillion, of which more than $1.7 trillion went to clean energy, including renewable power, nuclear, grids, storage, low-emission fuels, efficiency improvements and end-use renewables and electrification (IEA). The same source estimates that the remainder, just over $1 trillion, went to unabated fossil fuel supply and power, of which about 15% went to coal and the rest to oil and gas. The progressive news is that for every dollar spent on fossil fuels, $1.7 is now spent on clean energy, which was a different ratio five years ago: 1:1.
The transition to clean energy is also widely supported by governments in countries such as the US, Europe, Japan, China and other (IEA). The industry is getting some incentives from the enhanced policies and increasingly friendly regulations. As a result, investment in renewable energy is being improved in many parts of the world. The remaining homework lies in a comprehensive transition from fossil fuels to renewable energy.
Source: IEA – Growth-stage venture capital investment in clean energy start-ups by technology area, 2015-2022
Conclusion
Shifting away from fossil fuels is essential for a healthier and more sustainable planet. This move is crucial for combating the anthropogenic contribution to global warming. Consequently, transitioning to clean energy sources is imperative. However, the transition to renewable energy presents diverse prospects and challenges. Renewables like wind, solar, and hydropower are carbon-free, while others, such as biomass, are not entirely devoid of carbon emissions. Moreover, some renewable energies, like biofuels derived from monocultures, contribute to deforestation and biodiversity loss, despite being renewable.
Achieving decarbonization requires us to embrace a variety of renewable energy sources. Various regions possess distinct renewable energy resources based on their geographical locations. However, it’s crucial to discern which carbon-free renewables are truly environmentally friendly, ensuring they don’t create or exacerbate future challenges.
Achieving decarbonization requires us to embrace a variety of renewable energy sources. Various regions possess distinct renewable energy resources based on their geographical locations. However, it’s crucial to discern which carbon-free renewables are truly environmentally friendly, ensuring they don’t create or exacerbate future challenges.
