Recent crises have left countries continually struggling to balance energy security, equity and sustainability.

The energy transition is at a critical inflection point amid a series of shocks with compounding effects (Figure 1).

Energy supplies and infrastructure have been heavily weaponized during the Russia-Ukraine war, exposing the vulnerabilities of the energy security architecture. Countries with otherwise mature energy infrastructure and sophisticated supply chains were forced to resort to emergency measures to ensure adequate energy supply. Following the disruption of pipeline gas supply from Russia, a combination of strong policy measures, alternative fuel supply agreements, accelerated liquefied natural gas (LNG) infrastructure development, demand management and curtailment, regional collaboration on the use of storage reserves, and a milder than expected winter have helped Europe avoid energy shortages.

Simultaneously, a concentrated fuel mix, reliance on few trade partners and underinvestment in energy systems emerged as important risk factors. As a result, oil and gas flows may have been permanently redirected, leading to the most significant rebalancing of the energy geopolitical landscape since the 1970s. Gas market volatilities spilled over to electricity markets, prompting considerations for electricity market reforms. Competition for scarce LNG cargoes globally led to some emerging economies being priced out, resulting in blackouts in Pakistan and Bangladesh. The recent energy crisis is the first with a global scope due to interconnected energy supply chains and calls for comprehensive rethinking of energy security strategy in the face of the emerging risks landscape. The crisis has also shown that, under pressure and led by strong policy measures, faster energy system changes are possible, as seen with Europe’s diminished dependence on Russian gas.

The global energy crisis also highlighted multiple dimensions of the inclusiveness of the energy transition. The unprecedented surge in energy prices severely affected affordability, with poor households that spend a larger portion of their income on energy affected the most. High energy prices sparked food inflation, leading to a cost-of-living crisis in many countries. Energy market volatilities also affected the competitiveness of energy-intensive industries in some regions. Increasingly, firms are seeking to shift operations to markets with cheaper and more reliable energy, raising concerns over employment in local communities. The fiscal response to mitigate the effects of the energy crisis on consumers and businesses imposed a heavy financial burden on governments, with estimates of fossil fuel subsidies in excess of $1 trillion in 2022.¹ Emerging economies, already dealing with price shocks, are under an increasing debt burden due to monetary policy responses to control inflation. This exacerbates the challenge of attracting low-cost capital on a large scale to finance the energy transition in emerging economies. Just Energy Transition Partnerships (JETPs) have emerged as novel bilateral arrangements to support coal-dependent emerging economies in accelerating the phase-out of fossil fuels while addressing social impacts.

The march of sustainable energy has kept pace through this period of extreme volatility. Last year, for the first time, investments in low-carbon energy technologies surpassed a record $1 trillion.² Bilateral finance flows and early stage financing continued to grow, and global climate tech venture capital funding totalled $82 billion.³ In response to the energy crisis, landmark legislations were put forward, including the US Inflation Reduction Act, which was passed, and the proposed EU Net-Zero Industry Act to ramp up clean energy, drive innovation and set the scene for accelerated decarbonization. The electric vehicle market saw record growth as unit sales surpassed 10 million in 2022 and 14% of new cars sold were electric.⁴ More companies are committing to net zero. As of June 2022, 702 of the world’s largest firms had set net zero targets⁵ though credibility gaps remain, leading to increasing scrutiny on the validity of targets and accountability of implementation. Post-pandemic recovery of energy demand and the energy crisis may have led to a rebound in coal, with the slowest rate of coal plant closures in eight years.⁶ The latest Intergovernmental Panel on Climate Change report warns that emissions need to be cut by almost half by 2030 to limit warming to 1.5°C.⁷

In light of these developments, it is now more important than ever for countries to further accelerate their energy transition in a way that balances and delivers on the need for an equitable, sustainable and secure energy system, ensuring that it is right for the present and future. Policies will be at the core of shaping a balanced energy transition by encouraging investments in clean energy, promoting innovation, encouraging energy efficiency and ensuring that the transition benefits all segments of society.