Energy Autarky in the EU: Can our Energy Sector cope with the Transition?

On 4 May 2021, our association had the pleasure to host an online event on the topic of Energy Autraky in the EU: Can our Energy Sector cope with the Transition? We were delighted to welcome Dr Mechthild Wörsdöfer and Dr Massimo Niccolazzi as our guest speakers. Dr Mechthild Wörsdörfer has been the Director of Sustainability, Technology and Outlooks at the International Energy Agency in Paris since 2018 and she worked previously for the European Commission as a Director for Energy Policy. Dr Massimo Nicolazzi is currently active as a Senior Advisor for Energy Security at the ISPI institute in Milan and has more than 35 years of experience in the hydrocarbon sector. The event was moderated by Prof. Matteo Di Castelnuovo who is an Associate Professor of Practice in Sustainability, in the Operations and Technology Management Knowledge Group at SDA Bocconi School of Management.

The discussion was opened with a brief statement by Prof. di Castelnuovo who underlined the importance of including energy polices in the fight against climate change. In this respect, it is essential to bring long-term targets closer to the present political life since most of our current politicians will not be in power by 2050 and might not have grasped the magnitude of climate change yet.

Thereafter, Mrs Wörsdörfer continued and outlined her perspective on the evening’s topic with a presentation on the effects of the COVID-19 pandemic on the energy sector. Overall, 2020 was an unusual year in terms of overall energy output and C02 emissions. Due to several containment measures such as lockdowns, the worldwide energy demand has dropped by 4%, while investments in the energy sectors have fallen by 18%. However, thanks to a stronger electricity production, renewables were most resilient and experienced the smallest drop in demand.

Whereas the drop C02 emissions in 2020 might appear positive on the first glance, it was mainly due to an interruption of economic activities and not due to improved environmental policies. This is also reflected in the current 4.8% rebound of C02 emissions that has its roots in an increased demand for oil and gas in Asian countries and in particular China. In addition to that, coal and nuclear power plants have long assets lifetimes. Thus, many Asian countries have fewer incentives in phasing out coal power plants soon, as most of the newer plants are located in Asia.

One of the major arguments of the presentation was that climate policy should not only put its focus on the energy and transport, but the whole economy and so called hard-to-abate industries that consume large amounts of fossil fuels, such as the chemicals and steel industries. These industries still have a strong dependency on fossil energy sources and have not yet succeeded to find suitable climate-friendly energy sources.

“We cannot decarbonize in the future without a major effort in innovation and technology” - Dr. Mechthild Wörsdörfer

According to Mrs. Wörsdörfer, policies should aim first at increasing energy efficiency through a diverse set of instruments, such as labelling or eco-design measures. But most importantly, policies should foster R&D and accelerate the innovation cycle. For instance, three quarters of clean energy inventions for the heavy-industry sector are still not mature and stuck mostly in a prototype stage. Improving efficiency is not enough to achieve the climate targets and therefore innovation is key to lowering greenhouse gas emissions.

When referring to the European Union and the COVID-19 related economic crisis, Mrs. Wörsdörfer pointed out that the next two years of policy making will be essential to get closer to the net 0 emissions target. The economic recovery programme should not repeat the mistakes of 2008 and explicitly include sustainability targets. And indeed, the European Recovery plan accounts for that by mandating that 37% of the allocated funds should go into green investments.

In following part of the event, a presentation on the current state of the energy sector was held by Mr. Nicolazzi. Although the share of oil and coal as a source of primary energy has been falling for the past 5 years, we have still not reached the peaks of fossil fuel demand in absolute terms. According to a McKinsey’s Global Energy Perspective 2021 study, the overall demand for coal has been falling since 2014. However, the demand of oil is projected to reach its peak by 2029 and the demand of gas by 2037 in absolute terms. This means that the overall consumption of energy is still growing worldwide and that potential improvements in current energy efficiency are offset. Energy sourcing processes have become more complicated over time, turning energy transition into a complex affair that requires large amounts of investment. Moreover, changing energy sources is not sufficient for a successful transition. Often overseen, so-called converters are also important since it is not possible to charge a combustion engine vehicle with electricity. In this regard, public support is key to a successful energy transition, as the “market won’t do the job”. And besides new technical solutions, the government should also work on ensuring social acceptance and a favorable investment framework in the field of new, green energy technologies. Taxes, subsidies and a diverse range of regulations might be appropriate tools to reach the goal.

Furthermore, finding an appropriate climate-friendly alternative source of energy is a difficult task. Hydrogen, for instance, has two major issues: its low efficiency as compared to other sources of renewable and fossil energy, and its strong dependency on the quality of the sourcing, i.e., that hydrogen is as green as the energy it is produced with. In addition to that, we must also deal with the issue that global fossil reserves outweigh global carbon reduction targets substantially, eventually creating and over-supply of oil, gas and especially coal.

Finally, the Q&A session was introduced with a question directed to Mrs. Wörsdörfer’s views on the hard-to-abate sectors in Europe. In her answer, Mrs. Wörsdörfer pointed out that the current tendency of the EU to tackle more the industrial sectors is good, such as the growing use of hydrogen as a fuel. Unfortunately, less than 1% of hydrogen production is green, whereas the remaining share is produced with fossil fuels. Thus, it is necessary to scale up green hydrogen.

Two other questions on the economic and societal issues of energy transition were asked. In his response to a question on rare earths, Mr. Nicolazzi, underlined the importance of finding a solution to the social issues related to the mining of rare earths, especially in the context of those that are mined in very few countries such as China or Kenia. When it comes to oil companies and oil producing countries, there is a real threat that those might experience severe financial problems, in case of a drastically falling demand for oil. Whilst Middle Eastern countries such as the United Arab Emirates or Quatar have a chance to remain economically stable thanks to their diversification of funds, other countries, such as Angola or Nigera, might face serious gaps in their state budget. Therefore, foreign policy should also tackle this issue, so as to mitigate potential humanitarian crises.

Lastly, a member of the audience asked whether Exxon’s investment into carbon capturing could pose a threat to the energy transition process that is currently supported by the administration of the US President Biden. According to Mr. Nicolazzi carbon sequestration, i.e. avoiding its emission, is useful if it works. The main concern here is the safety and efficiency of the process.

We thank all guest and speakers for their lively participation and interest in the event. In particular, we would like to thank Dr. Mechthild Wörsdörfer and Dr. Massimo Nicolazzi for their valuable contributions and Prof. Matteo de Castelnuovo for the moderation. Since this is our last event of the semester, we wish you a pleasant summer break and hope to see many of you again in September.