Reaching a grand alliance in energy

The United Nations, in the Emissions Gap Report 2022, has warned the international community is falling far short of the Paris Agreement goal of limiting global warning to 1.5°C this century. To save the planet from an imminent climate crisis, responses from governments need to be commensurate with calls for concrete and immediate actions.

Following which, subsequent negotiations at COP 28 resulted in more than 200 nations signing an agreement towards an accelerated energy transition. The path forward includes tripling global renewable capacity and doubling energy efficiency by 2030.

A massive transformation

The world needs to reduce greenhouse gases (GHG) by unprecedented volumes and at unparalleled speed, which is achievable only through a large-scale, rapid and systematic transformation. According to the UN Environment Programme, to hold global warming to 1.5°C, emissions must fall by 45% from those forecast under current policies by 2030. Even to reach the 2°C target, a 30% cut is needed.

The Intergovernmental Panel on Climate Change (IPCC) states that the largest share and growth in gross GHG emissions occur in CO₂ from fossil fuels combustion and industrial processes, followed by methane. Lowering GHG emissions will require a significant curtailing of the demand for fossil fuels — that is, oil, natural gas and coal.

The world’s primary energy mix continues to be dominated by fossil fuels, which provide 82% of global energy used, with 7%, 4% and 7% coming respectively from hydropower, nuclear and modern renewable energy. Oil continues to be the most-used fuel, and consumption of all fossil fuels continues to grow, as outlined by the Energy Institute (2023).

Affordability and reliability

Energy security has always been an important pillar of energy policy among net importers. The International Energy Agency (IEA) states that long-term energy security mainly concerns timely investments to supply energy, in line with economic and environmental needs. Short-term energy security focuses on the ability of the energy system to react promptly to sudden changes in the supply-demand balance. Energy enables people to meet basic needs, and its cost represents a large share of the expenditures of many households. High fuel prices may therefore trigger undesirable political reactions. Second, inter-fuel substitution cannot happen immediately unless the technology and infrastructure for the reliable production, storage and use of renewable energy is readily available, including global expansion of electric grids. Hence, maintaining investment in all sources of energy to meet existing demand remains key to ensuring future reliable supplies.

While volatility in prices has always been a feature of fossil fuel markets, the energy crisis of 2022 has also shown that fossil fuels can respond to that volatility rather swiftly. This is a key capability that is not currently available with green energy, such as solar or wind.

Climate goals

Despite recent setbacks, progress has been made on the climate front. Investment in renewable energy continues, governments are not cancelling climate targets and companies are adopting measures to reduce their carbon footprints. Carbon markets emerging in geographies, such as Indonesia, are already creating market incentives in those locations. A similar economic phenomenon is already happening with purchases of carbon credits in major carbon removal processes, such as the Bison Project in the US, by the major cloud data centre companies and airlines.

While emissions have grown worldwide, for many countries, rates have plateaued or even begun to decrease in recent years. Technology has played a central role in accelerating the energy transition, as it improves the efficiency of operations and reduces the carbon footprint of conventional fuels, while supporting the deployment of green energy. Digital technologies — the Internet of Things (IoT), mobility and cloud technologies, machine learning and artificial intelligence (AI) in particular — are transforming the way the world produces and consumes energy.

In a 2022 report, the IPCC argues that such technologies can contribute to the mitigation of climate change and the achievement of several sustainable development goals (SDGs). The report cites AI as improving energy management in all sectors, increasing energy efficiency and promoting the adoption of many low-emission technologies, including decentralised renewable energy. Digital technologies to support decarbonisation are now reaching the phase of industrial scaling, which will require partnerships for further development. For instance, Europe’s SARAS refining group has partnered AspenTech to deploy an advanced emissions management solution to closely track and reduce emissions and improve ability to monetise carbon emissions credits. Nissan Chemicals is employing industrial AI software from AspenTech to operate ammonia production plants with steam methane reforming better, reducing steam and energy use by several percent. Saudi Aramco and AspenTech are collaborating to introduce a generative AI-based solution to strategically plan for decarbonisation of assets.

A balanced energy transition

GreenTech and energy transition approaches require the right regulatory and market framework, as well as the necessary funding, to flourish. In this respect, the government’s role in providing an enabling environment is essential — but there are dangerous consequences that can come from the enactment of certain policies.

In particular, the excessive use of subsidies for green energy technologies has raised several concerns. Because poorer countries lack the funds to subsidise green technology, the drain on their capital reserves raises another important aspect of the energy transformation, that of a just energy transition.

The World Energy Council (WEC) publishes the energy trilemma index, which ranks countries in terms of progress on three competing demands: energy security, equity and environmental sustainability. The countries that have achieved the best performance on those three criteria are rich countries, whereas poorer countries typically score lower. Poorer countries, however, are often rich in hydrocarbon resources, as well as various metals and minerals needed for the energy transition. In those countries, people have complained about what they described as “climate colonialism”, which can negatively affect support for and the speed of the global energy transition.

A grand alliance

The oil and gas industry has an important role to play in enhancing energy security by ensuring reliable supplies, as well as accelerating the energy transition. With technology, there is always a new and better way of doing things. The infrastructure used for oil and gas activities can play an important role in the deployment of green technologies, including carbon capture and storage (CCS) and offshore wind power. The industry also has the capital to fund green projects and the know-how to execute them.

Saudi Arabia, the world’s largest oil exporter, is building the world’s largest plant to produce green hydrogen at scale. The industry also has skills that can be deployed to support a rapidly growing green sector. The world’s largest national oil companies are diverting substantial revenues from their traditional business to fund green projects.

It is hard to imagine meaningful progress without collaboration and cooperation between various stakeholders everywhere in the world. Former British Prime Minister Winston Churchill once described the alliance between Great Britain, the United States and the Soviet Union as the “Grand Alliance”, which was key to victory in World War II.

Today, the climate crisis has far-reaching consequences that will affect generations to come. Averting it requires another Grand Alliance between various stakeholders around the world. It requires a unity of purpose between security, affordability and sustainability.

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