The energy system, driven by factors such as rising demand, technological innovation, geopolitical shifts and environmental concerns, is undergoing a pivotal transformation. While energy systems have always been in transition, the current energy evolution is unprecedented due to the modern energy system’s scale. Although faster than historic transitions, today’s pace may not be fast enough. According to a 2018 special report of the Intergovernmental Panel on Climate Change,1 global anthropogenic emissions will need to drop to net zero by 2050 to limit the global temperature increase to less than 1.5°C above the pre‑industrial level. The energy system contributes two‑thirds of global emissions and lies at the heart of this challenge. This is no trivial task, considering the size and inertia of the current energy architecture and the fragmented decision‑making landscape.
Recent evidence highlights the complexity of transitioning to a lower‑carbon energy system that fosters inclusive economic growth and provides affordable and secure supply. For example, even with the increased level of attention the Paris Agreement brought to this issue, global CO2 emissions were expected to increase by more than 2% in 20182, the highest in recent times. Coal consumption increased in 2018, after declining for three years.3 And, with the average age of Asian coal plants at 11 years, it will be decades before they are retired.
Electrification, critical for decarbonization, makes up only 19% of the total final consumption of energy.4 Investment in fossil fuels, as a share of total energy supply investment, grew in 2017 for the first time since 2014.5 The share of fossil fuels in total primary energy supply has remained stable at 81% for the past three decades.6 These trends cast a shadow of uncertainty on the effectiveness of energy transition efforts and underscore the need to accelerate them.
This document summarizes the findings from the second edition of the ETI, covering 40 indicators from 115 countries. Countries from Western and Northern Europe continue to lead the rankings. Sweden retains the top spot from last year, followed by Switzerland and Norway. The top 10 countries are diverse in their primary energy mix, energy system structure and natural resource endowments, which indicates the importance of country‑specific circumstances in energy transition planning. However, a strong enabling environment is a common thread among top‑ranked countries, evidenced by high scores on the transition readiness component. Laggards have poor energy system performance and transition readiness because of weak regulatory frameworks, lack of policy stability, ongoing geopolitical conflicts or strong path dependency from fossil fuel‑powered energy systems.
Globally, energy transition has slowed. The year‑on‑year increase of the global average score on the Energy Transition Index was the lowest of the last five years. Three years after the global milestone of political commitment through the Paris Agreement, this lack of progress provides a reality check on the adequacy of ongoing efforts and the scale of the challenge.
Energy security and access continues to show greater improvement, driven by strong gains in access to electricity in Emerging and Developing Asia and by increasingly diversified import counterparts among fuel‑importing countries. On average, 135 million people gained access to electricity each year between 2014 and 2016.7 The scores on environmental sustainability increased only marginally, indicating the lack of progress consistent with the evidence cited above. Due to rising household electricity prices and fuel import bills, the average scores on the economic development and growth dimension declined compared to the previous year.
Stages of economic development, social development priorities, institutional arrangements and the role of fossil fuels in the economy vary across countries. Fossil fuels have a direct impact on countries’ challenges and priorities relating to energy transition. In this report, countries with similar characteristics make up peer groups for analysis. Key insights from this analysis are:
- Advanced Economies rank high on the ETI, but still face the challenge of balancing economic growth and environmental sustainability. The rate of decline of the average energy intensity of Advanced Economies slowed in 2017, with no significant improvement in the average carbon intensity8 of primary energy supply and per capita carbon emissions. Household electricity prices have been rising faster than electricity prices for industry, raising concerns about the equity considerations of energy transition, as evidenced by the recent Yellow Vest protests in France and the momentum of the Green New Deal in the United States.9
- Strong economic growth, urbanization and improving living standards are important factors driving the growth of energy demand in Emerging and Developing Asia. Coal maintains a significant share of the energy mix. Navigating the balance between growing the economy, meeting rising demand and improving environmental sustainability represents the key challenge for energy transition in this region.
- Apart from persistent gaps on universal access to electricity and clean cooking fuels in Sub‑Saharan Africa, affordability and reliability of power supply are important challenges. A strong regulatory framework, policy stability and effective governance are essential to attract investment in capacity expansion and modernization, and to reap the economic dividends from the region’s natural resource endowments.
- The Latin America and the Caribbean region has the highest environmental sustainability score among all peer groups due to large hydroelectric capacity and rapid progress made on installing renewable sources of electricity. With these characteristics, electrification of transport could unlock further improvement in environmental sustainability. Developing capacity for regional integration of electricity markets, improving operational efficiency of oil and gas extraction and harmonizing policies and standards could help improve other dimensions of the energy triangle.
- Energy transition in the Middle East and North Africa region requires that economies transform structurally so that gross domestic product does not have to rely as much on exports of fossil fuel. Diversifying the fuel mix, developing human capital for the future energy system and reducing fossil fuel subsidies are essential for an effective energy transition in this region.
Peer‑group analysis shows that challenges and priorities are differentiated across country archetypes. A complex energy transition, which includes the interaction between different systems, leads to diverse challenges. Effective energy transition is not restricted to shifts in fuel mix or dominant technology for energy extraction, conversion or consumption. Rather, accelerating the energy transition will require coordinated action across economic, technological and sociopolitical systems:
- Energy–economy system: Economic growth in modern economies is closely associated with increasing energy consumption. Decoupling energy consumption from economic growth will require economic diversification to less energy‑intensive industry sectors, energy efficiency in production processes and increased cooperation between developed and developing countries for technology transfer and capacity building.
- Energy–technology system: A wider toolkit of low‑carbon technologies needs to be developed for widespread commercialization. Moreover, to keep up with society’s requirement, this needs to be done at a faster pace. Policies and incentives for research and development, as well as an entrepreneurial environment, are essential to deploy new technologies more quickly. Overcoming technology lock‑ins from legacy systems will require redesigning institutions and engaging consumers to ease adoption of new technologies.
- Energy–society system: Disruptive unintended consequences, such as distribution of the cost of energy transition in society, livelihood concerns of communities that depend on fossil fuel extraction or conversion, and stranded infrastructure will need to be managed to ensure equity of energy transition.
Accelerating energy transition will require faster progress on all fronts, including research on and deploying technology, large amounts of investment, consumer participation, and formulating and implementing policy. Given the scale and complexity of energy transition, and its interdependencies across different systems, no stakeholder group can unilaterally achieve faster and more impactful progress. Long‑term roadmaps informed by a transparent fact base, reflecting country‑specific circumstances and addressing interdependencies of energy transition with different parts of the society and economy, are required for an effective energy transition.