Davos 2023: Energy transition is a way out of gloomy global outlook

Clean technologies, renewable energy sources, and industry decarbonization should be the response to the current global crisis, said participants in the annual meeting of the World Economic Forum 2023 in Davos, held under the slogan “Cooperation in a Fragmented World.” Global leaders from finance, business, and politics called for stronger international cooperation in renewable energy supply chains, noting that the current global crises, war, and economic recession paint a rather gloomy picture of what lies ahead.

The global economic and political elite met this week at the annual meeting of the World Economic Forum (WEF) in Davos, Switzerland. The starting points and topics at the summit of top people from politics, finance, and business were the global economic, climate, and energy crises.

The Global Risk Report conducted by the WEF preceded the meeting in Davos. According to the report, the main risks and threats to the future of humanity come from climate change and a looming environmental collapse.

According to the WEF report, multiple negative economic, environmental, and social factors will intertwine in the age of polycrisis, which will mark the next decade.

Two-thirds of chief economists believe there will likely be a global recession this year

According to surveys conducted by the WEF, two-thirds of chief economists believe there will likely be a global recession this year, and over 70% of worldwide CEOs think global economic growth will decline in 2023. Since the WEF conducted such a survey for the first time 12 years ago, this is the most pessimistic outlook.

War, inflation, the energy crisis, and a possible recession are the grim context from which the Davos summit sought a way out.

“In the past the main driver for #energytransition was environmental reasons, now the biggest driver is #energysecurity: #renewables are pushed for energy security reasons, renewables are energy of peace, the long lasting solution will go through renewables” – Fatih Birol, IEA pic.twitter.com/zs1qUshQEc

— WEF Energy (@wefenergy) January 17, 2023

World elites considered, among other things, the role of clean technologies, decarbonization of the economy, and renewable energy sources, which, unlike fossil fuels, could become a guarantor of peace and catalyst of international cooperation.

Energy security driving the green transition

Executive Director of the International Energy Agency (IEA) Fatih Birol said that a long-lasting solution to the global crisis would come through renewables, which, as he foresees, are “ the energy of peace,” as opposed to fossil fuels.

He pointed out that until recently, environmental concerns were the main driver of the energy transition, adding that now the biggest driver is energy security.

Birol: the main drivers of the energy transition were environmental concerns, and now it is energy security

The global energy sector is set to transform in the coming decades from a predominantly fossil fuel-based sector to one increasingly dominated by renewables and other clean energy technologies, said Birol.

Plan for industry decarbonization in the EU

President of the European Commission Ursula von der Leyen presented a plan to decarbonize industry in the EU. It contains a new legislative framework for clean technology, rules on state subsidies, and EU-level funding.

Von der Leyen: the road to net-zero will be the greatest transformation of our times

Von der Leyen pointed out that the energy transition means developing and using a whole range of new clean technologies across the economy. She noted that the road to net-zero will be the greatest transformation of our times.

“The aim will be to focus investment on strategic projects along the entire supply chain. We will especially look at how to simplify and fast-track permitting for new clean tech production sites,” von der Leyen said.

EU’s response to US Inflation Reduction Act

Last year, the United States passed the Inflation Reduction Act (IRA), which provides about USD 370 billion in subsidies and tax benefits for domestic companies in the US. However, the law has sparked outrage in the EU, as the IRA protects the US economy and “discriminates” against European companies.

The European green industry plan will be, among other things, a response to the IRA and the protectionist green investment policy in the US.

Von der Leyen: Competitiveness and trade are crucial to accelerating clean technologies and climate neutrality

Competitiveness and trade are crucial to accelerating clean technologies and climate neutrality, and Europe should also take better care of the cleantech industry, von der Leyen said.

The road to net-zero will be the greatest transformation of our times.

Europe has what it takes – talent, researchers, industrial capacity.

And it has a plan for the future ↓ https://t.co/wtwm5yBBUp

— Ursula von der Leyen (@vonderleyen) January 17, 2023

The EU intends to mobilize subsidies and prepare the establishment of a “sovereignty fund.” The new EU plan aims to make Europe a clean technology and innovation hub and to make European industry more competitive against American and Asian companies.

US sees money and investments as a climate solution

US climate envoy John Kerry said the only way to avoid catastrophic damage caused by climate change is for governments and companies to spend big.

Kerry: the only way is for governments and companies to spend big

Substantial investments and money are needed to give the world any chance of achieving the goals of the Paris Agreement, the US envoy stressed.

A shift in government climate policies

On the occasion of the global summit in Davos, the director of the IEA noted that the world is entering a new industrial age of clean energy technology.

Birol said the good news is that governments are taking action and competing to be leaders in the new energy economy. He expects the US Inflation Reduction Act (IRA) to boost investment in clean energy.

Birol: good news that governments are taking action and competing to be leaders in the new energy economy

There are also the Fit for 55 package and REPowerEU plan, Japan’s Green Transformation program, the PLI scheme in India that encourages the production of solar photovoltaics and batteries, and China’s well-established policies that include its latest 5-Year Plan, the IEA director said.

Ensuring a secure supply chain for renewables

The risk to supply chains in the domain of clean energy is represented by “geographical concentration” of both the manufacturing of technologies and the materials on which they rely, Birol believes.

China dominates in manufacturing capacity for every renewable energy technology

In the field of wind, batteries, solar devices, electrolyzers, and heat pumps, China dominates the manufacturing capacity for each of the technologies. China currently has 75% of the global production capacity in electric car batteries alone, the IEA director noted.

For most countries, it is unrealistic to compete across all parts of the clean energy technology supply chains. They will need to identify their strengths and build on them, be it a mineral resource, low-cost clean energy supply, or workforce development with relevant skills, Birol explained.

For most countries, it’s unrealistic to compete across all parts of clean technology supply chains, making international collaboration vital.

This includes strategic partnerships & direct investments. By working together, countries can become more than the sum of their parts.

— Fatih Birol (@fbirol) January 12, 2023

But since no country will be in a position to do everything at once, collaboration should be a key element of countries’ industrial strategies. He expects more strategic partnerships to develop between countries in the coming years, aimed at strengthening their clean energy supply chains.

Healthy international trade in clean energy technologies is essential to accelerating the energy transition. However, the current trend appears to be moving in a different direction, Birol noted.