The Global Energy Transition Story of the World is in Midstream

The last 250 years have been characterised by multiple transformations of the global energy system. Each of these transformations - from biofuels to coal, and then coal to oil and gas and now from fossil fuels to renewables - were caused by a combination of the discovery of new resources, technological innovation, economic factors. Given the enormity of the changes in the past, they led to economic, social, and geopolitical shifts in the world. The shift to the current range of alternative energy sources is introducing far-reaching changes too, but it is uncertain if the current suite of energy solutions is of the magnitude that oil and gas were for coal and steam-based industries and the great political powers of their day.

Certain transitions have the potential to (i) drive greater power for those that master them and for early movers provide important economic, military, and political leverage, (ii) drive value creation and growth through trade and new industries that result in surplus wealth and job creation and (iii) drive long-lasting changes in the world order by altering the relative power and relationships between countries.

The on-going energy transition away from fossil fuels has several characteristics that suggest that it is the beginning of an inexorable and transformational shift for several reasons. Firstly, the primary impetus to the transition comes from the existential threat of global warming. Secondly, the transition is already having a high impact on behaviours, altering patterns of both consumption and production, reshaping domestic and international policy, standards, and regulations, and is starting to change the criteria for investment decisions in the biggest and most advanced economies and therefore is set to change the flow of capital between projects, companies, sectors and industries and countries. Thirdly, and importantly, these changes are spurring the search for new technologies and energy breakthroughs that could either accelerate the transition or completely change the nature of the energy basis of the world system.

The global energy transition is playing out within the broader transition from the Industrial to the Information Age which has been accelerated by the changes to the use of technology and remote working brought about by the pandemic during isolation. This period of isolation has forced a new model of consumerism on the world. It is one that is still information but it is already clear that it is changing the old industrial model based on mass urbanisation, physical retail, and global supply chains and multinational industries that made and supplied products and services for a high touch world. The pandemic therefore has the potential to be an inflection point for both the energy and information transitions and mark a time between a carbon energy-based past and a potentially very different future.

This month’s Sign of the Times is a simple one. It draws on ten pieces of analysis to tell a story, there are many to tell, of the dramatic global energy transition underway that are a sign of our times and augur in a brave new world.

The Global Energy Transition Story

The existential threat of climate change is in turn driving a rapid shift in the nature of the global energy system, and the underlying pattern of supply, demand, and efficiency, which together have the potential to balance the world’s growth and development imperatives with its energy needs.

Looking ahead, while the transformation of the energy system has resulted in renewables emerging as a commercially attractive source of energy at scale (at the cost of oil), the path to a net zero emissions future is still a long one with significant investment and effort required over the next thirty years, estimated at US$120 trillion4.