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Summary
- Governments across the globe have come up with policies that encourage companies to change to alternative energy modes.
- Though there is more awareness now, it is also essential to look into the sustainability of these energy models.
- Increasing demand would have an impact on the supply chain and prices of raw materials.
After years of neglect over climate change, countries have gradually realised the reality. Governments across the globe have come up with policies that encourage companies to change to alternative energy modes.
A recent report published by the International Energy Agency (IEA) said that while businesses have been ravaged by the Covid-19 pandemic, renewables seem to have bucked the trend and grew at its fastest last year, since 1999. The annual capacity of renewables additions in 2020 jumped 45 per cent on year to almost 280 GW, the report found.
As recently as last week, oil and giants ExxonMobil and Chevron Corporation faced investor pushback to bring down their fossil fuel demand and switch to cleaner alternatives. Royal Dutch Shell (LON:RDSA) was pulled up by a Dutch court that asked the company to cut down by 45 per cent its greenhouse emissions by the end of 2030.
Global warming control
While there is an increasing awareness around cleaner energy forms and a push to shift to those alternatives, it is also essential to look into the sustainability of these energy models, if the world has to strictly adhere to the commitments made in the Paris Agreement. Key among them is to restrict global warming to less than 2 degree Celsius over pre-industrial levels.
For the whole world to be able to transition to cleaner electric vehicles as a mode of commute, the supply of minerals and metals used in batteries have to shoot up dramatically. Electric vehicles cannot function without charging stations and batteries. To adhere strictly to the Paris Agreement, emissions-heavy sectors like steel would have to decarbonise by creating completely new technologies and figure out a roadmap to net-zero steelmaking.
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Cost of green energy shift
Raw materials necessary for the shift to more sustainable energy forms, like manganese, copper, graphite, and lithium, among others, are neither produced in most of the countries of the world nor are available in large quantities to make a shift to cleaner variants.
According to certain estimates, the price of aluminium and copper would represent approximately 20 per cent of the total investment on the grid. This means that steep prices would affect the adequacy of the particular investment.
As per an IEA forecast, the share of clean energy in total demand would increase significantly in the next 20 years. For copper, it would increase to over 40 per cent, close to 90 per cent for lithium and about 60-70 per cent for cobalt and nickel. This would have obvious implications on the supply chain and prices as excess demand gets aggravated.
For the oil and gas sector, strict emission rules would lead to losing out of business for companies in the sector, and that would impact the profitability of these companies.
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Companies whose average production costs are higher are finding it difficult to implement the new technologies meant for the reduction of emission.
Despite there being a strong demand for shifting to alternative forms of energy, a complete or even a majority transition is a distant dream. Both business leaders and policymakers would have to collaborate on how to navigate the changing energy landscape.
