The year 2020 marks the beginning of the “decade of delivery” on energy transition. The ongoing COVID‑19 pandemic has put a stop to business as usual, setting off a chain of events disrupting all sectors – including energy. The current status of the energy transition and progress in multistakeholder collaboration have been slow to achieve and costly to build, and efforts must be made to ensure the clock is not reset. Resilience, in economic, financial, regulatory and infrastructure terms, is a crucial prerequisite for an effective energy transition.
This report presents the findings from the Energy Transition Index (ETI) 2020, summarizing insights on countries’ energy system performance and their energy transition readiness. The indicators reflect trends in the global energy transition leading up to 2020. The circumstances were radically transformed in the first few months of 2020 due to compounded disruptions from COVID‑19. Analysing the drivers of progress in the past can offer lessons for accelerated recovery in the near future.
Countries are transforming their energy systems, but the improvements are not consistent across countries or over time.
- Of the 115 countries monitored, 94 countries have improved their composite ETI score over the past six years. These nations represent more than 70% of the global population and 70% of global CO2 emissions from fuel combustion.
- Maintaining steady progress on the energy transition is a challenge for all countries. Of the 115, only Argentina, Bulgaria, China, the Czech Republic, the Dominican Republic, India, Ireland, Italy, the Slovak Republic, Sri Lanka and Ukraine have made consistent and measurable progress on their energy transition over the past six years.
- The world’s largest energy consumers differ in their energy transition trajectories. Emerging demand centres like India and China show strong and steady improvement, while scores for Brazil, Canada, Iran and the United States are either stagnant or declining.
- Fuel importing countries continue to outperform fuel exporting countries, as the gap between their average scores increased. The key parameters of differentiation are environmental sustainability, access to capital and investment in new energy infrastructure, and political commitment to the energy transition.
The gap between average ETI scores for countries in the top quartile and the rest is gradually narrowing, reflecting growing global consensus on the priorities and speed of the energy transition.
- Sweden leads the rankings table for the third consecutive year, followed by Switzerland and Finland. France and the United Kingdom are the only G20 countries in the top 10. The list of top 10 countries has been roughly the same over the past six years, highlighting the robustness of their energy transition roadmaps.
- Countries in the bottom quartile are gradually narrowing the gap with countries in the top quartile. While this illustrates that emerging economies are slowly moving the needle on their energy transition, it also highlights the ceiling of incremental gains from the current set of policies and technologies in advanced economies, raising the urgency for breakthrough and radical measures.
- Energy transition readiness improved across countries, mainly due to an increased level of political commitment and better access to capital and investment. Sustained progress requires a similar momentum along other enablers, such as human capital preparedness, robust institutional frameworks and innovative business environments. Colombia, the Czech Republic, Hungary, Kenya, Morocco, Thailand and the United Arab Emirates have achieved substantial gains on their transition readiness, by targeting improvements along multiple enablers.
Economic development and growth
- Prior to the precipitous decline in the second quarter of 2019, wholesale natural gas prices had increased in all regions except North America since 2016, undermining the competitiveness of heavy industries and the replacement of coal in power generation. Infrastructure and supply chain constraints as well as different price determination mechanisms were contributing factors.
- An increasing number of countries are adopting cost‑reflective energy pricing, as 82% of the countries that improved their ETI scores over the past six years also reduced pre‑tax energy subsidies. However, pricing instruments are yet to tackle the rising externalities associated with energy production and consumption, such as global warming, health risks, traffic congestion and road accidents.
- The affordability constraints of electricity and heating in advanced economies are compounded by the combined effects of above‑average tariffs and high per capita consumption levels, highlighting the importance of energy efficiency.
Energy access and security
- Building upon substantial gains in energy access over the past two decades, energy access programmes need to be redesigned to prioritize accessibility to a diverse range of energy services, energy‑enabled community services, affordable and efficient appliances, and the quality and reliability of the electricity supply.
- Economic inequality and energy poverty are mutually reinforcing, there being a strong correlation between the two. Energy consumption levels within and between countries are highly unequal. Countries need to leverage natural advantages to bridge the gap, tapping into resources with more uniform distribution, especially renewable sources of energy.
- Energy security and reliability implications from frequent and widespread extreme weather events, and an increasing vulnerability to cyberthreats, call for resilience in physical and digital energy infrastructure.
- Although political commitment, public engagement and investor attitudes towards environmental sustainability continue to advance, average scores and gaps between countries remained lowest on this dimension. This implies the continued prioritization of economic and social considerations above environmental sustainability.
- Global CO2 emissions from fuel combustion remained flat in 2019. However, methane emissions from natural gas production increased, as North American shale gas operations accounted for more than half of global methane emissions. A mix of affordable technology options, mandates and emission pricing instruments are required to control methane emissions, recognizing the need to maintain the competitiveness of natural gas against coal.
The rhythm and momentum of the energy transition will potentially be impeded by the COVID‑19 pandemic. Cascading effects have led to an unprecedented energy demand and price shocks, and the reallocation of public funds and private investment towards healthcare, social security and business continuity. While necessary measures must be taken to protect lives and livelihoods, the risks to the future of the human civilization from climate change remain, with important lessons to be learned.
- The current environment of compounded shocks is a simulation of the scale of potential disruption from climate change, offering a grim reminder of the urgency of action. The energy transition needs a similar sense of urgency and global cooperation, rooted in scientific evidence and endorsed by all stakeholders.
- Disruptions are the new normal. In the past two decades, multiple public health crises, military escalations, recessions and international trade disputes have threatened global stability at frequent intervals. The disruptions brought about by the COVID‑19 pandemic constitute unmatched economic instability fuelled by compounded disruptions from demand destruction, an oil production surplus and the rise of populism that are further enabled through what seems to be challenges in international cooperation. Energy policies need to be long term in scope, with a robust design and resilient recovery mechanisms.
- Stimulus packages and policies to mitigate the economic fallout resulting from COVID‑19 can help leapfrog the inertia of carbon lock-in by prioritizing policy responses that minimize additional costs for businesses and consumers, and place job creation at the heart. Allocating stimulus money towards large‑scale new energy infrastructure, such as carbon capture, utilization and storage, clean hydrogen and grid modernization, can create multiplier effects in economic growth and employment.
- Low fuel prices and falling consumer demand in advanced economies offer opportunities to initiate structural economic transformation and diversification in emerging economies and fuel exporting countries, which could prove challenging otherwise in normal circumstances.