Energy transition is a process of gradual shift from using traditional energy sources such as coal, oil and gas to cleaner and more environmentally friendly sources such as solar and wind energy.
The goal of this transition is to reduce environmental pollution and greenhouse gas emissions as well as to create a sustainable energy system, which is less dependent on fossil fuels and using more renewable energy. In the past, these transitions were smooth, occurring in accordance with innovation cycles and gradual structural changes in economy.
The modern transition differs significantly from previous energy transitions (for example, shift from wood to coal or from coal to oil). Thus, transition to low-carbon energy is distinguished by its speed and pace, and it is carried out rapidly, in less than a quarter of a century (fig.). This is due to an increase in the average temperature of the earth’s surface and the accelerating climate change processes, which limit governments to time and requires incredible efforts to implement low-carbon policies.
In addition, the transition from fossil energy sources to renewables (RES) requires a fundamental restructuring in energy system and production structure in the next couple of decades. The transition does not only lead to a number of challenges, especially for low-income countries, but also it opens up space for economic and social progress.
Figure. Periods of energy transitions.
Source: Visual Data-Based Economics in Vaclav Smil’s book “Energy Transformations: Global and National Perspectives” (2017).
Thus, at the stage of the fourth energy transition, the basis is not so much the economic attractiveness of new energy sources as a qualitatively new factor, namely combating global climate change and the need for decarbonization.
All these processes form certain global trends characterizing future economic development:
– reducing dependence of economic growth on increased energy consumption. According to scientists, in recent years in the leading economies of the world, including the United States, China and the EU, primary energy consumption has remained unchanged. In countries such as the United Kingdom, Japan and Germany, GDP growth is accompanied by a decrease in energy consumption;
– reducing the industry energy intensity under the influence of structural shifts, improving technological processes, introducing more efficient equipment, and so on. Progress will be more observable in the countries investing large amounts of resources on innovations, new technologies and scientific discoveries. These include the United States, EU countries, as well as large developing countries such as China. According to the National Development and Reform Commission, China’s energy intensity decreased by 26.4% over the 2013 to 2023 period;
– the flow of capital from energy-intensive to less energy-intensive industries. Revaluation of commodities and assets taking into account climate risks requires businesses to expand their strategic horizons and redirect capital flows to finance the industry assets meeting global decarbonization purposes. Stated by the IMF, an increase in investments in low-carbon projects is required from $900 billion in 2020 to $5 trillion per year by 2030. As a consequence, the green finance market will grow. According to a research report published by Spherical Insights & Consulting, the global green finance market was estimated at $4.18 trillion in 2023, and is expected to reach $28.71 trillion by 2033;
– reducing energy consumption in the transport sector per unit of GDP. The reduction will accelerate in the future. According to DNV (international organization for security and risk management), global transportation will consume 9% less energy, and the use of oil for transportation will be reduced by 46%. It is also worth mentioning the shift from road freight to rail transportation, from production of internal combustion engines to the manufacture of electric vehicles;
– transformation of global production and supply chains. Carbon emissions coming from global supply chains are growing faster than emissions from other sources. In addition, modern consumers care not only about obtaining a product that meets their needs. They want products improving their lives, with production and supply chains that meet ethical standards and are environmentally responsible. Solving the problem requires a revision of many aspects of trade and transport and transit policy;
– transformation of the labor market. Accelerating the pace of transition to sustainable energy sources provokes replacing existing jobs in high-carbon sectors with new jobs in low-carbon sectors, while some jobs may disappear. This transformation may be accompanied by an increase in the unemployment rate in certain sectors, a decrease in the income level of the population, and social upheavals. Thus, according to the ILO (International Labour Organization), 18 million jobs may be created by achieving sustainability in the energy sector by 2030, while introduction of a cyclical economy may create another 6 million jobs. At the same time, there will be job cuts in oil production and refining, coal mining and coal power generation.
The aforementioned trends describe only a small part of changes that many states are already facing these days. This demands rethinking the prospects of the implemented economic policy in the long term.
The ongoing processes have both positive and negative impact on the economies worldwide. As a result, the progressive economies may move forward even more, while the less progressive ones may end up worse off.
Thus, the fourth energy transition has many underlying problems. International experts, in particular Daniel Yergin, identifies at least four key problems: energy security, macroeconomic consequences, the gap between North and South, and the limited supply of minerals. Each of these problems is not easy to overcome due to their interconnectedness and interdependence.
In conclusion, it is important to note that the modern energy transition is caused by a variety of explicit and implicit factors that fundamentally change both modern economic and political dynamics of many states, which requires them to think deeply and choose the optimal strategy for further development.
Assel Aben, Chief Expert of the Department of Economic Policy Analysis at the KazISS under the President of the Republic of Kazakhstan
