Recent performance trajectory
Globally, countries improved in all three dimensions of the triangle between 2013 and 2018. The improvement was primarily driven by higher performance in economic development and growth, followed by security and access, and environmental sustainability (Figure 5). On a more detailed level, improvement has had various causes, with 10 out of 12 indicator categories showing positive changes (Figure 6).
Of the 114 countries covered in this index, 93 have experienced improved performance. Out of those 93, 45 countries have improved their energy systems in all three dimensions of the energy triangle. This indicates an overall positive trajectory. However, accelerated improvement is required to capture opportunities and address the challenges of energy transition.
Economic development and growth
Progress in economic development and growth, the dimension with the biggest change, has been driven by fossil fuel subsidy removal. Countries in the third performance quartile48 showed the highest average improvement, which allowed them to narrow the gap with the top half of the ranking.
Generally, countries benefitted from lower commodity prices, which can be described as non-structural improvement, driven by external factors. Assuming 2016 commodity prices for 2013, the improvement rate in the economic development and growth dimension would be smaller by two-thirds (Figure 5).
Security and access
Improvement in security and access was driven by increased electrification and better quality of supply, especially for countries in the bottom half of the performance ranking. These countries also narrowed the gap with the top performance quartile and made strides towards the goal of universal access to modern forms of energy. Almost all countries without universal electricity access improved in this dimension. In absolute terms, however, the number of people without access to electricity is not declining quickly enough to meet the UN objective of universal electrification by 2030, and still exceeds 1 billion people globally.49 The gap between security and access scores of the top and bottom performers remains the largest within the three dimensions of the triangle.50
Among the three dimensions of the triangle, environmental sustainability poses the biggest challenges, with the lowest performance and improvement rates. The numbers indicate a complex journey towards an energy system that supports the targets of local air pollution and greenhouse gas emissions in line with the Paris Agreement. Between 2013 and 2018, 45 countries saw decreasing scores in this dimension. Also, air pollution remains a major challenge, with PM2.5 emissions worsening for 67 countries, causing around 6 million premature deaths per year globally.51 Carbon intensity scores stayed flat and even countries in the top performance quartile have potential for further improvement.
Energy intensity improvement has been driving progress in environmental sustainability. Decreasing energy intensity and improving efficiency are two of the key levers to achieve the goals of the Paris Agreement. However, the current energy productivity improvement rate of 1.8% p.a. is falling short. The Energy Transitions Commission estimates that a reduction rate of 3% p.a. is required to limit global warming to below 2°C.5253
Figure 5: Average performance scores, 2013-2018
Source: World Economic Forum with support from McKinsey & Company
Figure 6: Global performance improvements, 2013-2018
Source: World Economic Forum with support from McKinsey & Company
Box 5: Sector-specific approach to carbon emission reduction
Progress in environmental sustainability has been more challenging to achieve among the three imperatives, so it is important to learn how to improve within this dimension. The following analysis focuses on how to foster more effective carbon emission reductions in the energy system.
After decades of continuous growth, global energy-related emissions began stagnating in the last three years.54 To build on this trend and reduce carbon emissions in line with the Paris Agreement, a sector-specific approach is required. Electricity and heat account for approximately 40% of global carbon emissions, followed by about 25% from transportation, 25% from industrial activity, and 10% from the residential and public services sector.5556
The carbon intensity of energy systems around the world varies depending on the nature of primary energy supply, economic activity, climate, etc., and ranges from coal-heavy energy systems to systems with a mainly low-carbon energy supply.57 The sectorial breakdown of carbon emissions also varies widely among countries. For instance, with a carbon-free electricity system, Paraguay’s carbon emissions are almost exclusively from transport (>90%), while over two-thirds of Estonia and Bahrain’s carbon emissions are from electricity and heat generation. China and Vietnam have a relatively high share of emissions from industry (>30%), while a comparatively large share of Switzerland and France’s emissions are from residential and public buildings (>30%).
Hence, countries will have varying strategies and a different mix of methods to reduce emissions – such as increasing energy efficiency, reducing carbon intensity in the electricity sector through lower-carbon alternatives, greater electrification of the economy, carbon capture utilization storage and lower-carbon alternatives in industrial processes.58
Several countries with already low-carbon-intensive electricity sectors are now pursuing transport electrification. Norway, the Netherlands, Switzerland, Sweden and France are among the front runners on e-mobility.59 China – also among the leading countries in e-mobility – may not capture the same emission reduction benefits of the electrification of transport due to a high share of coal in its power generation mix, although e-mobility will help reduce inner-city air pollution.60 India, another country with air pollution challenges, announced the ambition of ensuring that all new cars sold from 2030 will be electric cars.61
Japan, with comparatively high carbon emissions from the power sector, is pursuing another strategy to reduce emissions. It plans to make hydrogen fuel (expected to be produced from clean energy in the long run) a pillar of its energy system. A potential additional benefit would be the reduction of import dependency (if produced domestically) and the diversification of supply risks.
An assessment of global carbon emissions between 2010 and 2014 shows that simultaneously improving along all sectors of the economy is challenging. Less than 10% of countries reduced carbon emissions while increasing their economic output during that period. The decarbonization of power and reduction of emissions from the residential sector were the largest improvement drivers for countries with the highest carbon emissions improvement rates between 2010 and 2014.62 These countries rank in the top half of the ETI, and six of them show top quartile readiness scores. Electricity systems progressed on decarbonization in the same period, with more than 60% of countries improving the carbon intensity of electricity and heat generation. With renewable-power generation-capacity additions exceeding conventional generation since then,63 further decarbonization of the power sector is expected.
In the transportation sector, less than 30% of countries had reduced carbon emissions between 2010 and 2014 – the lowest number in the aforementioned four sectors. This can be observed in the United States, the country with the highest reduction of absolute tons of CO2 emissions.64 While carbon emissions from electricity and heat generation fell by 9% between 2010 and 2014, emissions from transportation increased by 3%, despite slightly improving carbon intensity in the transport sector.65