Energy Transition at an Inflection Point?

With Davos currently underway, the future of energy and ESG is a hot topic. How do you square commitments made by companies/countries’ net zero initiatives with current energy market dynamics, rising inflation, conflicts, and recession fears? What realistic path can we now expect for the energy transition in North America and the EU?

The current geopolitical, energy and economic environment makes the case for a low-carbon transition only stronger, as it will cut costs, remove volatility, ensure energy independence and minimize climate change (hence limiting longer-term environmental, economic and social risks). Therefore the long-term direction towards low carbon remains unchanged, and global leaders and regulators remain focused on accelerating change (e.g. EU action plan on sustainable finance doubling down, EU energy targets raised, new SEC rules on climate disclosure, etc.). Short-term challenges involve diversifying energy supply, building new gas terminals, potentially prolonging the lifetime of some nuclear plants, some government intervention to control energy prices, but none of that changes the long-term perspective.

For the construction and real estate sectors in Europe there are various aspects that will push the decarbonization initiatives: 1) The Green Deal’s Renovation Wave Strategy pushing countries to set programs like the French “Décret Éco-énergie Tertiaire,” whereby tertiary buildings need to reduce energy consumption by 60% by 2050, with tracking starting in 2022. 2) The EU Taxonomy pushes real estate actors to be clearer on their ESG and climate activities – this affects players like Amundi RE, BNPRE, Unibail-Rodamco-Westfield, and many others exposed to ESG ratings. As already observed in their URDs, they’ve started to mention the Taxonomy-aligned information. Manufacturing is also impacted, as seen by the Taxonomy Compass. 3) The geopolitical situation pushes for supply chain security and independence.

The global ambition toward a no-carbon/low-carbon economy by 2050 faces a myriad of challenges. With the current economic challenges, a realistic path to decarbonizing the energy sector will involve the large industrial players and countries committing to buying low-carbon products and developing sustainable supply chains that will in turn demand green energy technologies. Having green energy technologies developed and deployed in the heavy carbon emission industries such as steel, concrete, aviation, and shipping is one of the highest-impact paths in the energy transition. There are a number of these technologies on the horizon that already have proof of concept, and the needed next step is development and deployment of these technologies on a large scale.