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And while the green energy transition gained momentum in 2021, an energy supply crunch led some policymakers to take a more open-ended approach on plans to roll back fossil fuels out of fear that their constituents would get squeezed by higher costs.
“Well, the fact is the politics are moving faster than the infrastructure for renewable energy,” Eurasia Group President Ian Bremmer said on Yahoo Finance Live (video above). “And that means prices are higher. And that means some backsliding as you need transition energy to continue to run your global economy.”
The reports posits that over the long run, the transition will continue — though the road ahead in the near term could be rocky.
“The tension between green goals and the need to keep energy costs down will prove politically toxic this year, with rising energy costs, greater price volatility, and mounting pressure on consumers to change their behavior,” Eurasia Group's Bremmer and Cliff Kupchan wrote. “This upward pressure on costs will intensify in 2022 and force governments to make an unpleasant choice: mollify anxious voters with policy that delays climate goals or tough it out in a hostile and unpredictable energy market environment.”
A 'difficult-to-impossible task'
In 2021, the COP26 climate summit in Glasgow brought about a new framework that secured new 2030 emissions targets from 153 countries and called on many nations like Saudi Arabia, Australia, and China to strengthen their pledges by the next annual summit in November 2022.
“I think that there was more progress on climate in terms of net-zero commitments on carbon, in terms of methane emissions, in terms of deforestation commitments, and reducing it, as well as carbon pricing coming out of the COP26 summit in Glasgow than most had expected,” Bremmer said. “And I think that the politics of that being driven by populations around the world, especially young people around the world, that are saying, ‘You are ruining our planet, and we're going to inherit it. We're really angry about it, so let's move towards renewables faster.’”
The Glasgow Climate Pact called on countries to remove fossil fuel subsidies and rapidly phase out coal, which is one of the worst polluters, a critical move to keeping global warming to relatively safe levels. Though in Europe and Asia, those goals have been at odds with the short-term energy needs, the Eurasia Group report noted. Reconciling these differences is a "difficult-to-impossible task," the authors wrote.
In the U.S., President Biden also signaled that climate would be a priority for his administration by reentering the Paris Agreement and through the bipartisan infrastructure bill, which includes $65 billion to rebuild the electric grid. Biden’s larger climate agenda, the Build Back Better plan, remains in limbo for the time being.
At the same time, however, U.S. inflation has also grown substantially — a factor that is weighing on President Biden's approval ratings and threatens to generate backlash on his climate policies, Bremmer pointed out.
A clear example is gasoline prices, which rose in recent months amid a resurgence of demand and supply crunch due to a constellation of factors, including the pandemic, disruptive weather events, and limited production.
As a result, the administration ended some tariff disputes, urged OPEC+ to increase oil production, and released 50 million barrels of oil from the Strategic Petroleum Reserve — “anything you can do to make life for the consumers a little bit better,” Bremmer said.
Energy transition: 'Getting from here to there is going to be a challenge'
The energy transition is just beginning.
About 15.7% of the global energy consumption came from low carbon sources as of 2019 (11.4% from renewables, 4.7% from nuclear). In U.S., the share of low carbon energy consumption was roughly 21% in 2020, with 12% coming from renewables and 9% coming from nuclear energy.
The learning curve associated with renewable energy has shown falling costs as more units are installed. That decline of solar and wind prices in the last decade, in particular, is notable since it is now cheaper to build renewables than burn fossil fuels.
Yet the switch from oil, gas, and coal has been anything but straightforward. Existing energy infrastructure, storage options, and the issue of intermittencies, among other factors, make the high-emitting energy sector difficult to transition.
On Wednesday, the Biden administration announced an initiative to address some of these issues. Seven federal agencies are set to implement clean energy infrastructure projects that range from holding an off-shore wind lease sale in the Northeast, an initiative to deploy more electricity transmission lines, and improving access to renewable energy sources in rural communities.
In its latest short-term energy outlook, the U.S. Energy Information Administration (EIA) forecasted that U.S. crude oil is also set to rise in the next two years and could average 12.4 million barrels per day in 2023, a record high.
The EIA also forecasted U.S. carbon emissions to rise in 2022 and 2023, though still coming in lower than 2019 levels.
“This is largely a positive story for people that are hoping that the world is finally going to start addressing more seriously climate change realities,” Bremmer said. “But getting from here to there is going to be a challenge for everyone that has been relying on fossil fuels for our lifetime.”
Grace is an assistant editor for Yahoo Finance.