The world’s energy transition has made slow and steady progress over the past five years, but the COVID-19 crisis risks derailing long-term progress. Will recovery and the shifting global energy order shape new opportunities for picking up the pace?
Why benchmark energy systems?
The Energy Transition Index (ETI) is a fact-based ranking intended to enable policy-makers and businesses to plot the course for a successful energy transition.
The benchmarking of energy systems is carried out annually across countries. Part of the World Economic Forum’s Fostering Effective Energy Transition initiative, it builds on its predecessor, the Energy Architecture Performance Index. The ETI does not only benchmark countries on their current energy system performance, but also provides a forward‑looking lens as it measures their readiness for the energy transition.
The cascading effects of COVID-19
The transformation of the energy system over the past decade, although slower than required to achieve the objectives of the Paris Agreement to combat climate change, has been unprecedented. But this hard‑earned momentum now risks being lost, as the ongoing COVID‑19 pandemic continues to cause economic and social damage.
Beyond the uncertainty over its long‑term consequences, COVID-19 has unleashed cascading effects in real time:
- The erosion of almost a third of global energy demand
- Unprecedented oil price volatilities and subsequent geopolitical implications
- Delayed or stalled investments and projects
- Uncertainties over the employment prospects of millions of energy‑sector workers
The crisis has forced the unthinkable. Society has had to relinquish valuable commodities and freedoms to collectively address the global outbreak. An effort of similar proportions is required for a successful energy transition.
“The new Earth 2.0 that will emerge after COVID‑19 will be a “new normal”, but many fundamental challenges will still exist. Chief among them is the imperative to collectively work towards an effective and inclusive energy transition.”— Roberto Bocca, Head of Shaping the Future of Energy & Materials, World Economic Forum
And this year's winners are...
What does an effective energy transition look like?
Effective energy transition is timely, inclusive, sustainable, affordable and secure. It provides solutions to global energy-related challenges, while creating value for business and society, without compromising the balance of the energy triangle.
While a long-term vision and objectives are necessary, remaining flexible in a dynamic environment is also critical. Given the complexity and scale of the energy system, which includes different fuel sources, technologies for extraction and conversion, and end-use sectors, an effective energy transition needs to balance the priorities of diverse stakeholder groups.
The World Economic Forum’s initiative on “Fostering Effective Energy Transition” offers a platform to foster common understanding among all stakeholder groups on the destination of energy transition, necessary imperatives, market and policy enablers, and the resulting human impact.
Energy transition in numbers
55.1%Global average ETI score in 2020, an improvement of 2 percentage points since 2015
94Countries have improved their ETI score since 2015, representing 70% of the global population
11Countries have made steady progress each year since 2015
<1%Increase in the average ETI score of countries in the top quartile since 2015
20%Of global population uses as much energy as the remaining 80%
3%Expected decline in coal power generation globally in 2019, according to Carbon Brief analysis
70%Of young people consider the speed of energy transition to be either stagnant or too slow, according to a World Economic Forum survey of the Global Shapers’ Community
The technical bit
Slow but steady progress
The global energy transition has been moving at a slow, but steady pace. Of the 115 countries benchmarked on the ETI, 94 corresponding to more than 70% of global CO2 emission have improved their scores since 2015. The gap between countries in the top quartile, and the rest of the countries seems to be narrowing – which highlights the emerging global consensus on the necessary priorities for energy transition, and increased sharing of best practices among countries.
COVID-19 has stress tested the energy system
The economic development and growth dimension of energy transition is currently being challenged by the cascading effects of COVID-19. There has nonetheless been unprecedented collaboration among leading Oil & Gas producing countries to provide stability to markets, but the recent price volatilities will be a stress test for the energy system.
Over the past five years, most countries have reduced the level of energy subsidies, reflecting the movement towards cost-reflective pricing. Cost of utility bills, already a sensitive issue in many countries, will exacerbate the affordability challenge as unemployment rises due to economic consequences.
The progress on environmental sustainability remains slow, but 2019 was a landmark year. Central banks recognized the systemic risks from uncoordinated and abrupt transition, world’s largest asset managers cited the importance of ESG considerations in investment, and many countries and companies announced net zero goals. COVID-19 might result in a shift in stakeholder priorities in the near term.
Global average scores on energy access and security are highest among the three dimensions. Large gaps exist however, especially on access and quality of electricity supply. Building upon the progress on energy access over the past two decades, future programmes need to be designed to ensure access to different forms of energy-enabled services – including household, industrial and community services.
Importers vs exporters
Since 2015, fuel-importing countries have improved as a faster rate than fuel-exporting countries. Key points of differentiation are on environmental sustainability, capital and investment in new energy infrastructure, and the inertia from legacy energy system structure.
Sweden leads the overall rankings for the third consecutive year, followed by Switzerland and Finland. The performance of G20 countries is mixed. France and United Kingdom are the only G20 countries in the top 10. China, India, and Italy made consistent improvements on overall ETI score since 2015, while Russia, Japan, South Korea and Germany made moderate gains. Scores for United States, Canada, Brazil and Iran were either stagnant, or declining.
It's a generational thing
Calls from youth surged in 2019, demanding fast and decisive action on climate change. The World Economic Forum conducted a survey of the Global Shapers’ community and an overwhelming 70% of the respondents said they feel the speed of energy transition in not fast enough. They are also more willing to pay for the increased costs associated with energy transition, and are more accepting of lifestyle changes required for energy transition.
Systems approach: building the fundamentals for energy transition
Energy transition readiness is captured by the stability of the policy environment and the level of political commitment, the investment climate and access to capital, the level of consumer engagement, the development and adoption of new technologies, etc. Some of these factors are beyond the scope of the energy system but nevertheless determine the effectiveness and future trajectory of energy transition in a country. Those countries that are most energy-ready have adopted diverse pathways to improve their readiness. They have simultaneously improved on multiple enablers, underscoring the importance of a systemic approach to energy transition.