The world is in the grip of a major energy crisis, with countries worldwide affected by extremely high and volatile prices, particularly of fossil fuels. This situation has acted as a crucible for recent trends in the energy market. Over the preceding two years, the energy market experienced extreme price volatility, such as during the pandemic, when demand was reduced and supply contracted; the ensuing surge in demand outpaced supply.
The conflict in Ukraine has further disrupted fossil fuel supplies and the overall market, in which the Russian Federation is the leading exporter of natural gas and the second largest exporter of oil.
Rising energy prices may price out many developing countries, with a high level of impact on the most vulnerable citizens, from energy markets. Such a situation is already impacting hard-won gains in the provision of access to energy and the reduction of poverty, and progress had already been set back due to the pandemic. This dynamic is compounded by the food and finance crises also experienced in these countries due to the conflict between Russia and Ukraine and the pandemic, which have placed significant social and fiscal pressure on countries. A potential “scramble for fuel”, in which only those countries paying the highest price can gain access, would be devastating for a multilateral system based on trust and proportionality.
Sky-high prices and growing social discontent are putting many Governments under pressure. However, even short-term energy-related decisions can have important long-term consequences. In this context, the best policies will mix urgency and strategy. Without such policies, there is a risk that some countries, especially those without adequate funding, might, under pressure, set a course for high-emission, expensive energy in future.
Measures are divided into short-term, medium-term and long-term policies which, notwithstanding their duration, must be undertaken today in order to be successful.
In the short-term, countries, especially developed countries, must seek to manage energy demand. This may be done through the implementation of new technologies and behavioural changes related to the use of heating, cooling and mobility. The efficiency and demand reduction have the additional benefit of being the fastest and most costeffective and quick-win interventions through which to mitigate price impacts in the immediate term. Developing countries will be pressed to ensure the energy they have powers business to sustain the economy and also reaches all citizens, targeting vulnerable populations, to provide solutions for accessing and affording energy. High prices on their own add pressure to reduce demand, yet the right policies are needed in order to ensure that such a reduction is controlled, strategic and equitable.
Medium-term and long-term measures in government energy policy and investment must align with the Sustainable Development Goals and the Paris Agreement. The crisis has emphasized the need for resilience and a push for renewable energy sources. High fossil fuel prices serve as an opportunity in the renewable energy transition; although the prices have also significantly increased, the comparative increase in fossil fuel prices renders the renewable sources cost competitive. To accelerate this transition, a focus on policies and framework conditions is required, to attract investment to expand clean energy access through on-grid connections and decentralized, off-grid solutions. Addressing potential bottlenecks in the renewable energy supply chain and fairly and sustainably capturing its benefits will also be key. Most importantly, confident, no-regrets leadership is needed to steer the world on a course to meet the 1.5°C target, ensuring a just transition.
Source: UNCTAD
