The ABC of Energy Transition: Part 1

March 11, 2024

Things you didn't know you didn't know

The energy transformation is perhaps among the most difficult and, at the same time, most important tasks humanity has ever had to face. Experts unanimously agree that we are running out of time and that this extremely challenging task can only be tackled in a joint global effort. In these ABCs of the energy transition, Jonas Puck, Academic Director of the Executive MBA Energy Management at the WU Executive Academy, debunks the most common myths about the topic and expounds on background facts about little known correlations in a field that will shape our planet’s future more than anything else.

the ABC of energy transition
All images in this article have been created in ChatGPT with DALL E
ABC of energy transition - A

Arguments Against Nuclear Energy

Many countries around the world have classified nuclear energy as a renewable or “green” source. But that’s not being entirely honest. Although the production and use of this energy does, in fact, cause hardly any carbon dioxide emissions, that’s certainly not true in terms of other kinds of emissions. On the contrary: the nuclear waste produced along with the energy needs to be stored and has – depending on the radioactive elements contained – a half-life ranging from several decades to many millions of years. And if anyone ever believed that nuclear energy was 100% safe, the incidents in Chernobyl or Fukushima or the military fights close to Europe’s largest nuclear power plant in Zaporizhzhia in Ukraine have proved the opposite to be true. But virtually no energy source is 100% safe, and the frequency of major disturbances or outages is, in fact, much higher in other kinds of energy production. The problem with nuclear energy, however, is not the likeliness of an incident but the potential ramifications should such an incident occur – the exclusion zone around Chernobyl is a stark reminder of that. Whether or not nuclear energy could serve as a useful bridge technology while we are still scrambling to develop renewable energy sources we can fully rely on is therefore mostly up to how political decision-makers interpret the risks.

ABC of energy transition - B

Battery Boom

To successfully realize the shift from fossil fuels to renewable energy sources, we will have to find more efficient ways to store energy (particularly electricity) in order to provide people with energy also at times when it is not being produced. Particularly where renewables are concerned, this is anything but trivial: wind turbines will only produce energy when there’s enough wind to power them, and without sunshine, there is no energy to be gained from photovoltaics. To solve this problem, lithium batteries are currently all the rage.

What’s particularly tricky here is that we need rare earths to produce these batteries. And as their name implies, they are much harder to find than other raw materials. In economic terms, the extremely uneven distribution across the world poses a challenge. With a share of more than 60%, China dominates the production: reserves of 44 million tons are estimated to be hidden in the country’s soil. That is twice as much as Vietnam’s resources, which come in second. If rare earths become the “oil” of the 21st century, how will this impact the world’s geopolitical power structures?

ABC of energy transition - C

Ceaseless Configuration: the Circular Economy

A perfect perpetual motion machine: a circular economy in which all resources fed into a system can be re-used in some way or other is any economist’s dream – a never-ending and by definition sustainable circle. If that sounds too good to be true, that’s because it is – scientists agree that this idea violates at least one of the laws of thermodynamics. However, shaping production and consumption in ways that ensure existing materials and products are shared, leased, reused, repaired, reprocessed, and recycled for as long as possible would go a long way towards turning the zero-carbon society into reality and making the energy transition a success – even without the perpetual motion machine of a fully circular economy.

ABC of energy transition - D

Digitalization Dilemma

Shouldn’t innovation contribute to a surge in energy efficiency and thus an improved energy balance? This assumption, unfortunately, does not hold in times of digitalization. Time and again, we have seen that innovation does not automatically translate into a reduction in energy use. A survey by Morgan Stanley, for instance, has outlined that mining cryptocurrencies requires a lot of energy: the mining of Bitcoin alone gobbles up an amount of electricity comparable to the annual use of the Netherlands, or 0.5% of world-wide energy consumption. Particularly the global rise in the use of AI has prompted an exponential increase in the demand for computers and computing output, which goes hand in hand with a hunger for more and more of the rare earths needed to produce the respective hardware. In the future, this could, in fact, become a show stopper: the currently unrestrained growth in the realm of digitalization would grind to a halt as the resources needed to fuel this rapid development become unavailable. The result: a global race for resources, just the way we have seen it in the recent past.

ABC of energy transition - E

E-Mobility Euphoria

Although driving electric vehicles does not cause CO2 emissions and they are much more efficient than cars with combustion engines, they are not as green as one might think: the raw materials needed for their batteries and the production process itself cause massive emissions. What’s more, an e-vehicle’s carbon footprint hinges on the source of electricity used to power it. Also, the way the cars and, even more significantly, their batteries are disposed of after their lifetime plays a huge role. The recycling mechanisms available at the moment still leave much to be desired. At the end of the day, we might have to think about whether the concept of owning a car might not be outdated and how public transport could replace it in a meaningful way – particularly in rural areas.

ABC of energy transition - F

Functions of the Finance Sector

The finance industry will play a major role in financing the energy transition, which won’t come about without large-scale investments. Recent studies show that more and more investors want to bet on sustainable causes. In the end, however, they decide if and how much to invest in energy projects based on the financial prospects: which ROI can be expected at which probability? In many energy segments, the profits and the chance to actually receive them do not live up to investors’ expectations. There are many reasons for that, for instance the fact that many new technologies come with increased risks. Yet other aspects are specific for the energy sector. In most countries, to give an example, energy prices are controlled by the government to ensure that also low-income households can afford them. This is a prerequisite to ensure a just transition. From a market perspective, however, these regulated prices are often too low, so that investments in this field hardly pay off. Going forward, a healthy balance must be achieved between social responsibility goals and commercial appeal for investors.

ABC of energy transition - G

Grid Guessing

A major challenge to be tackled in the course of the energy transition is adapting electricity grids to the new realities. This is not only a problem for developing countries, but also Europe and the US will need to considerably upgrade their grids in time. Interestingly, the grid issue is so complex because more electricity from renewable sources is fed into them. Electricity providers’ jobs have become much harder as green electricity is more volatile regarding the time and intensity at which it is produced compared to, for instance, electricity from gas power plants. With heavy fluctuations, grid overloads and outages occur more frequently. What’s more, electricity is often fed into the grid at places that are a long way from final consumers. And even in many industrialized countries, both regional and supraregional grids have deteriorated and do not meet the latest standards, necessitating quite substantial investments to remedy this situation. And developing countries have even more catching-up to do. This means that a desired and necessary transformation can give rise to the need for change and investments also outside any areas directly related to its implementation. In the short term, this can run up quite the tab, but in the long term, it will result in a heightened security of supply. It’s also important to keep in mind that even without the energy transition, considerable investments would be needed due to the age and state of many grids.

ABC of energy transition - H

Hydrogen Hope

Many people consider hydrogenium, i.e. hydrogen, a promising source of energy. This is particularly the case in sectors that have proved hard to decarbonize, among them parts of the chemical industry and steel production. What’s sometimes overlooked, however, is that the storage and transport of hydrogen are costly and require elaborate technology. Also its production consumes a considerable amount of energy. For the moment though, hydrogen massively contributes to reducing emissions in particularly energy-consuming processes. Only green hydrogen, which is produced from renewable sources, is truly emission-free. Grey hydrogen is produced by reforming natural gas – a process during which CO2 is emitted. Experts are divided over whether hydrogen will be a game-changer for the energy transition: while some consider it the holy grail, others see it as a mere fad that will soon be replaced by different technologies.

ABC of energy transition - I

Inspirational International Initiatives

Climate change can only be tackled in a joint global effort. Only if a large number of countries do their part will it be possible to reach global climate protection goals. The challenges surrounding the global regulation of emissions are a case in point. Countries with strict rules regarding emissions are less attractive for high-emitting companies than countries with loose regulations. With resulting higher costs of production, this is just simple math. Numerous studies have shown that companies producing a lot of greenhouse gas emissions prefer to build their factories in countries with weak regulations. The regulation of emissions thus often only leads to a shift of production sites from some countries to others instead of forcing enterprises to invest in reducing emissions. The same principle is put to use by tax havens such as the British Virgin Islands, Bermuda, and Switzerland, which realize their economic profits on the backs of more heavily regulated countries. If emissions are to be regulated, there is thus simply no way around doing so in a globally concerted way.

ABC of energy transition - J

Juggling the Just Transition

We can all agree that it would not do for the energy transition to be realized at the cost of social justice, as is epitomized in the often-heard call to make it a “just transition.” Fading out CO2-intensive business practices will not only require technological innovations but also social progress. How can jobs in fossil industries be maintained or transformed? What to do with energy prices which are frequently way too low at the present to generate a different mindset, particularly in the Western world? Price hikes would substantially slow down economic growth particularly in less developed regions of the world. This would be unfair as it would punish those that are, historically speaking, the least to be blamed for global warming. Against this backdrop, countries must keep an eye on the social consequences of every technological solution they ponder, both on the individual countries’ and the supranational level. This is the only way to make this transition a just one.

ABC of energy transition - K

Kick-Starting Climate Communication

We must find effective ways to communicate how urgent the fight against climate change is and that environmental protection is a complex task. Conveying measures effectively is essential if we want to increase people’s awareness and acceptance of climate protection measures, motivating them to adopt different behaviors. Particularly when it comes to behavioral changes, more targeted and coordinated national and international campaigns could go a long way: just think of what would be possible if every individual were aware of the emissions savings potential linked to even the smallest changes in habits without a decline in prosperity levels. Small steps can make a huge difference when taken consistently: buying regional products, making conscious shopping decisions (1.3 billion tons of food are thrown away across the world, which amounts to a third of the overall production; at the same time, agriculture is among the world’s largest CO2 sources), reducing the room temperature by 2°C in winter, turning off the lights and adjusting the room temperature when going to bed, etc. The list is practically endless. What it will take are clear and convincing arguments shared in thought-out and coordinated communication efforts that are suitable for and speak to the population at large.

ABC of energy transition - L

Lifestyle Lectures

Numerous studies have pointed out that increasing wealth correlates with a rise in CO2 emissions. This also means that the bulk of emissions produced so far stems from industrialized nations, while countries such as China, India, or Brazil, which currently emit huge amounts of CO2, hardly contributed to global warming in the past 100 years. We can’t really blame them now for aspiring to reach the same level of prosperity Western countries have enjoyed for decades. So what we need is a clever strategy for breaking or at least weakening the link between rising living standards and increased CO2 emissions. There can be no doubt that this cannot be achieved without effective international cooperation, which, in turn, underlines the role of treaties such as the Paris Agreement: combating climate change only bears a chance if countries all over the world fully cooperate in this endeavor.

The other half of the ABC of Energy Transition is coming up soon!

Find out more!

Share this