12 Global Energy Policy Conference Takeaways

FactSet had the chance to attend Columbia University’s School of International and Public Affairs conference, “Winter is Coming,” on global energy and climate policy. Several speakers addressed topics such as Europe’s upcoming winter, the climate and energy crisis in emerging markets, the future of climate policy, and the impacts of the war in Ukraine. We’ve summarized many of the comments by topic. Links to the Policy Summit’s proceedings can be found here https://www.energypolicy.columbia.edu/columbia-global-energy-summit-2022

1. The arc of global energy policy was given from 20 years ago when U.S. energy was in decline and sustainable supply was of concern; to then energy inflation; to pivoting to the shale revolution; to then turning to solar, wind, and batteries; and now, with climate having been in the forefront, we’re seeing energy security back as a topic of collective international interest. Regardless of views of globalization, it is an integrated world, evidenced by how quickly risks have spread.
   Most speakers agreed that the prioritization of climate concerns in recent years has exacerbated the current energy crisis, which had already been simmering but which was brought to a high boil by the Russian war in Ukraine. The focus on adding renewables and reducing fossil fuel investment when overall energy demand has grown, and renewable capacity cannot be added fast enough, has helped set the stage for higher energy prices today. And those higher oil prices have not “worked” as hoped from a climate standpoint as power generators have turned to coal burning and biomass burners find cleaner oil and gas alternatives even more expensive.

2. It’s Complicated. Many speakers alluded to the current market period as being unusually complex. Issues on the supply side include Russia, LNG, China, Iran, and OPEC, whereas the demand side is being impacted by the recession debate and China’s COVID policies. In many contexts, speakers noted how each country has unique situations for innovation, demand change, fuel mix, government policy, etc. and that simplistic, blanket policies need to become more differentiated. Oil exporting countries, for example, generally are in a better place than oil importing countries. But not all. Some oil exporting countries also have huge fuel subsidies to their populations which are eating up their higher oil revenues and not allowing other needed spending to be funded.
   Further, it was bemoaned by several that energy policy debates in the US, which used to be regional in nature, have now become more partisan and contributed to the difficulty of talking about the issues. Too many in the debate are coming at the complex yet common problems with extreme positions on different facets. Policy makers were looking for needed compromise—which should be a progressive thing—while many constituencies were seeing compromise as unacceptable.

3. Top policy ideas offered during the day were to motivate efficiencies, to increase energy supplies of all kinds, including fossil fuels, to improve the infrastructure needed to achieve climate and energy security needs, to underpin financing in “riskier” technologies and locations, to encourage hybrid vehicles, and to continue to assure markets longer term to derisk investment. Less supported were buyer cartels (price cap attempts on Russian oil). However, a U.S. Treasury representative explained the effort quite effectively, intending to achieve supply assurance and limit Russian revenue.
   
   
4. Food Crisis. It was noted several times how quickly the energy crisis is leading to a food crisis. Climate-induced losses in crop and herd sizes, rising costs of fossil fuel-based fertilizer, diversion of scarce gas resources away from fertilizer production, and changed energy trade flows are each having an impact.
   
   
5. Passage of the Inflation Reduction Act (IRA) was genuinely complimented for what it could mean for climate change efforts. Spending to derisk new technologies, support financing, jumpstart construction, and support existing workers in coal, for example, were all applauded. The Act was also seen as smart, too, because it directs money through existing programs making it more easily passable. One speaker from the DOE anticipated a number of announcements on climate change technologies and capacity by companies that were waiting to see the shape of IRA’s features and pending Treasury guidance on programs. All that said, while the Act was large, several noted that a quantum jump in spending is still required to do what needs to be done.
   
   
6. Permitting and Industrial Policy. The IRA’s provisions and DOE moving more money towards demonstration and new technology deployment led to some debate on the need for essentially a much stronger federal industrial policy. This seemed to tie directly to a fairly universal call for improving the permitting process to expedite infrastructure needed to improve both energy security and address climate change. This didn’t sound like it would change the aspects of a project that were reviewed but it would attempt to get more of them running in parallel fashion.
   
   
7. Technology. Key thoughts around evolving technologies are summarized as 1) wind, solar, and batteries were key but also with a coupling to ideas about continued base load capacities; 2) additional new fuels such as hydrogen that will feed into increasingly fragmented energy sources; and 3) carbon removal technologies are needed as longer-term fossil fuel use will likely need to level off at 30% of global energy consumption. Ironically, too, any new energy technologies must be accommodated into the grid with more interconnected, basic infrastructure. Underpinning it all were calls that technology needs additional continuity of policy rather than an environment of one-year funding cycles and, hopefully the IRA helps with this.
   
   
8. Emerging Markets are in a difficult situation. Many don’t have the cushion to absorb energy and food inflation. Some are concerned that U.S. IRA funds will stay in the U.S. and will reduce monies available internationally. The flight to stronger currencies, such as the U.S. dollar, was noted as really making the current situation worse. At the same time, reducing biomass energy is untenable with the alternative and cleaner fossil fuels so expensive and with those fossil fuels considered bad policy choices by climate-only focused funding sources. Emerging market issues have negative implications for the pace of energy transition as well as improvements in health care, infrastructure, education, etc., and in the extreme, the ability to service debts. Some countries are fearful of not only having stranded assets but becoming stranded countries.
   
   
9. Global Finance. Global spending on emerging market decarbonization was $150 billion last year compared to the $1 trillion per year estimated necessary to successfully manage the energy transition. Policy suggestions were less about climate goals and more about governance and finance. Suggestions included improving north-to-south capital flows, new instruments to enhance financings (e.g., guaranteed floors to limit longer term risks, grants plus traditional lending to limit project risk, foreign currency accommodations), and continued support for needed oil & gas development. Lenders were also called out for needing to stay engaged rather than simply selling out or no longer lending.
   
   
10. European Energy Issues may extend for the next couple of years. Time is required to build out renewables, gas storage, LNG regasification units, and global LNG liquification capacity. At the same time, nuclear is declining. Trust between Russia and European customers was expected to take a long time to rebuild. Customer alignments for Russian oil and coal are shifting toward Asia Pacific, which could have lingering global trade flow impacts. The crisis has revealed the importance of supply security, affordability, and climate. However, the crisis has also brought with it the weaponizing of energy supply (with supply of almost any other commodity or product such as microchips as potential “weapons” as well).
    
    
11. Interpreting OPEC. There were some differing interpretations of OPEC’s recent decision to reduce global oil supplies by an estimated effective 800,000 bbls/day. Views seemed to pivot somewhat on timeframe. From an economic standpoint, oil-producing countries are doing relatively well with the higher oil prices and there is some level of price needed to stabilize their budgets. So there is a longer-term desire to have higher oil prices. Yet in few months leading up to the recent OPEC decision to reduce supplies, prices were falling from their peaks and the organization may have felt that the market needed something strong to change the direction of sentiment. This interpretation is in contrast to the view that OPEC’s move was designed against the U.S. and in favor of Russia.
    Also impacting the market are the pending early December sanctions in Europe on Russian oil. While the U.S. is involved in setting up a system to let Russian volumes to flow as long as they are sold under a price cap is attracting some volumes, there is uncertainty about how much supply will flow over the winter which may also have influenced OPEC’s actions.

12. Three big risks to watch. Areas of greatest risk were noted as Africa, because the energy crisis is rapidly becoming a food crisis; Europe, because Germany as the engine of Europe is at risk economically; and China, because it is experiencing economic issues during this energy crisis.

Global policy makers are dealing with a number of large, moving and interrelated parts in which simple answers and simple explanations are insufficient. One hopes for consistency in effort, the end to hostilities in Ukraine, continued technological advancement, additional climate-related funding, and a spreading appreciation for individual situations in a multi-variant world to all add up to progress in the years ahead.

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