IEA vows to pursue energy transition and net-zero transition simultaneously

The International Energy Agency (IEA) has secured new mandates to promote a net-zero transition to counter climate change, with minerals and metals critical to the transition highlighted as an area of focus.

The development comes amid mounting concerns from government officials and business executives that countries are pursuing policies that will push up demand for fossil fuels when dealing with potential energy supply shortages in the fallout of Russia-Ukraine war.

Founded by some Organisation for Economic Co-operation and Development members during the 1973-1974 oil crisis, the IEA was officially tasked with securing energy supplies, even though its research areas expanded to cover the low-carbon transition in recent years.

After a ministerial meeting 23-24 March, the Paris-based organization's 31 member states said in a joint communique: "In addition to ensuring global energy security, the IEA has a new guiding principle: supporting countries in the global effort to attain net-zero greenhouse gas emissions in the energy sector by mid-century.

"Recent volatility in markets has placed a burden on consumers at a critical moment of economic recovery. However, we resolve to accelerate clean energy transitions as a lasting solution to prevent energy price spikes, such as the recent ones, and to ensure sufficient affordable energy supply," the communique added.

In a press briefing, Executive Director Fatih Birol said the IEA is taking on the new task as energy policymakers face "a turning point … in the history."

"I believe the fight against climate change shouldn't be a victim of Russia's invasion … We have to make sure that the energy security concerns that all the countries have today should be an additional driver to reach our clean energy goals," said Birol, adding that the IEA will help countries develop net-zero roadmaps.

Member states agreed to add another €20 million ($22 million) to the funding for the Clean Energy Transitions Programme, which focuses on green energy investments in emerging economies.

To promote the energy transition, the IEA will have new mandates that include finding ways to ensure the "availability, security and responsible sourcing" of critical materials like lithium, cobalt, copper, nickel, and rare earth used in batteries and renewable equipment, according to the communique.

In a study published in May 2021, the IEA said the average amount of minerals needed for a new unit of power generation capacity had increased by 50% since 2010 amid renewables expansion.

"In the context of clean energy transitions, inadequate mineral supply could result in more expensive, delayed or less efficient transitions. Given the urgency of reducing emissions, this is a possibility that the world can ill afford," the report said.

US Energy Secretary Jennifer Granholm, who chaired the ministerial meeting, said a supply chain bottleneck for critical material will hamper the low-carbon transition. The IEA will make sure that "we've got those critical minerals that are sustainably extracted and processed," she added.

Dependence on fossil fuels

But the IEA's more immediate task is to mitigate potential energy supply shortages, with disruptions of oil, coal, and natural gas flows from Russia, one of the world's largest exporters of the fossil fuels,

Earlier this month, the organization proposed 10 energy conservation ideas that could reduce crude oil demand by 2.7 million barrels per day (b/d), including more car sharing and lower speed limits on highways.

Separately, IEA member states have released 61.7 million barrels from their emergency oil stocks to the market, the largest release in the IEA's history.

At the country level, however, some national policies designed to counter high energy prices and low supply could result in higher GHG emissions.

Some European nations, including Germany, are considering more coal power generation to reduce their reliance on Russian gas. In the UK, the government has cut the fuel duty by 5 pence per liter.

On the supply side, US crude production will increase from 11.6 million b/d in December to an average of 12 million b/d this year before a further hike to a record 13 million b/d in 2022, according to the Energy Information Administration. LNG exports are expected to average 11.3 billion cubic feet per day this year, a 16% increase from 2021, with record flows to Europe.

"We do what we can to increase supply, so that those who have been very reliant on Russian fossil fuels have other places to turn to," Granholm said.

But UN Secretary General António Guterres suggested countries' fossil fuels-friendly policies might not be reversed even when the crisis eases, putting the world on track to climate disasters later this century.

"As major economies pursue an all-of-the-above strategy to replace Russian fossil fuels, short-term measures might create long-term fossil fuel dependence," Guterres said in a web forum earlier this week.

"Countries could become so consumed by the immediate fossil fuel supply gap that they neglect or [renegade on] policies to cut fossil fuel use. This is madness.

"Addiction to fossil fuels is mutually assured destruction, as current events made all too clear our continued reliance on fossil fuels puts the global economy and the energy security at the mercy of geopolitical shocks and crisis."

Some from the private sector suggested governments should seek to facilitate more low-carbon investments rather than fill the supply gap with fossil fuels.

"Wasting what will surely be billions in alternative fossil fuel supplies by prospecting new sources, re-opening uneconomic oil and gas fields or coal mines, fracking, or re-commissioning decrepit nuclear plants is as mad as burning dollar bills," said Michael Jansen, founder and CEO of US-based tech firm Cityzenith.

"These were on the way out anyway as cleantech leaps ahead, so we would never recover that short-term outlay; it could be invested instead in energy transition technologies," he added.

Nigel Green, CEO of financial advisory deVere Group, said green energy should remain investment focus despite the current geopolitical crisis.

"We are in extraordinary times, but these do not last forever—as financial history teaches us—and investments should remain future-focused," he said. "Climate change remains the greatest risk to economies and communities around the world—and there are major opportunities and high rewards for those who invest in a more sustainable future."

"A flip side"

Some officials from IEA member states believe countries can produce more fossil fuels while concurrently developing emissions abatement technologies.

"I think there's always concern about increasing infrastructure that would lock in problems related to greenhouse gas emissions. But there is also a flip side," Granholm said. "This accelerates the movement towards technologies like carbon capture and sequestration."

Angus Taylor, Australia's Minister for Industry, Energy and Emissions Reduction, suggested that governments and the private sector can work together to increase the deployment of low-carbon technologies.

"Along with securing supplies of gas and oil, low emissions technologies are essential to long-term energy security and are the cornerstone of practical emissions reduction strategies," he said. "An acceleration in the deployment of low emissions technology will only be achieved by driving the costs of these technologies down."

Posted 24 March 2022 by Max Tingyao Lin, Principal Journalist, Climate and Sustainability

This article was published by S&P Global Commodity Insights and not by S&P Global Ratings, which is a separately managed division of S&P Global.