Sustainable energy supply needs international policy

Blog series: bridging the energy transition gaps | #4 Demand and supply

Energy experts Jan Willem Velthuijsen & Nicoline Dikmans on the challenges in the energy transition in terms of supply and demand."

The European Green Deal and regulations such as the Climate Act and CSRD are intended to accelerate the energy transition. The goal is to achieve global climate neutrality by 2050. To achieve this, several major gaps still need to be bridged. This also applies to meeting the growing demand for energy with a sustainable supply. According to energy experts Nicoline Dikmans and Jan Willem Velthuijsen, Europe plays a crucial role in this transition.

The global energy demand increases by one percent each year, an amount equivalent to the total energy demand of Italy. Therefore, it is not sufficient to replace existing production with renewable energy - we need to significantly expand renewable energy. In order to meet the expected demand by 2050, we need to generate as much as eight times more renewable energy than in 2021. And that presents us with significant challenges.

The issue with the energy transition is that we are accustomed to linear progress. We expect that small adjustments, such as a few more wind turbines or an increase in solar energy, will be sufficient to address the problem. But in order to make the transition from fossil fuels to renewable energy sources, we need to make much larger leaps.

Unintended effects of climate policy

The pace and scale of these changes often catch us off guard. We simply are not accustomed to the magnitude and complexity of this transition. This is also reflected in policy decisions. Often, a measure is introduced without fully considering the consequences. For example, the abolition of tax benefits for electric vehicles in itself is understandable. You don't want to continue subsidizing affluent lease drivers indefinitely. But what turns out is that this causes the demand for all electric vehicles to collapse, including the second-hand market. And that was never the intention.

In addition, the measures that contribute to a successful long-term energy transition, such as carbon pricing or reduction policies, often create friction in society in the short term. As a result, the planned measures are not implemented at all, implemented too late, or implemented in a watered-down way. Furthermore, policy measures are often implemented at the national level without considering international coherence. This sometimes leads to inefficiency and "carbon leakage," where companies simply relocate their polluting production to countries with less stringent environmental regulations. 

An additional problem with renewable energy, such as solar and wind energy, is the dependence on natural conditions. We can generate energy when the sun is shining and the wind is blowing, but what happens when it's dark or the wind dies down? In the Netherlands, where we have long months of dark winters, this can lead to energy shortages. This makes storage capacity crucial. And storage doesn't simply mean home batteries, but rather enormous systems to hold onto the energy when it's not immediately being used.

In addition to the production of renewable energy, the transportation, infrastructure, and storage capacities also need to be drastically expanded. Where in the past a few power plants were enough to supply cities with electricity, we now need to integrate thousands of solar panels and wind turbines into a network that distributes energy throughout an entire society.

Europe plays a crucial role in the energy transition

One of the most effective ways to address these challenges is to incorporate price incentives. By, for example, pricing CO2 emissions, you create scarcity and give market players the freedom to find innovative solutions. This principle can also be applied on a smaller scale. Take the issue of grid congestion; by pricing scarcity, you can encourage people to not charge their electric vehicles during peak times or prompt businesses to operate their heavy machinery at different times.

Europe plays a crucial role in this global transition. By implementing smart price signals and investing in green technology, Europe can not only achieve its own climate goals but also support other countries, such as developing nations, in their energy transition. The annual increase in energy demand by one percent is currently driven by the economic growth of Asia and Africa - two continents that strive for growth and prosperity, just like Europe and the US did in the past centuries. Assuming that the world population continues to grow, global energy demand will continue to rise.

Realizing CO2 ambitions by looking beyond borders

Although we are fully engaged in the European energy transition, it is also high time to look beyond our borders. By sharing expertise, investing internationally, and ensuring global price agreements, we can help the developing world achieve their CO2 ambitions. Collaboration, long-term vision, and coordination are essential in this regard. Because being climate neutral by 2050 is above all a shared goal. A goal that can only be achieved if we help each other accelerate in the Netherlands, in Europe, and beyond the borders of our continent.