Reducing demand for fossil fuels is more important than acting on supply
- The world is still dependent on fossil fuels, the energy transition must focus on reducing demand rather than supply. It is undesirable to reduce supply when demand is still high. A transition that focuses on the deployment of renewable energy would prevent future consumers from succumbing under the weight of the energy costs faced by today’s consumer.
- There is a need for greater flexibility in both supply and demand to make the market less sensitive to shocks. The growth of the global LNG market makes the links between energy markets tighter, so shocks in one sector or region can be transmitted quickly to another. A broadening of supply sources is needed.
- Consumer countries need to mitigate the geopolitical risk that globalisation poses to energy security by strengthening domestic production and developing supply lines between more economically, politically and culturally related regions.
- When low-carbon energies have displaced a greater share of fossil fuels, their costs to consumers and the costs of upgrading the power grid will ease. Until then, the solution to helping people at risk of energy poverty may be to use tax and spending policy, although cuts in energy taxes risk dampening the price signals that prompt users to reduce consumption.
- The only way to achieve an electrified energy system, based on zero-carbon generation, will be through technological innovation, which proves crucial to both energy security and climate change.
This crisis has exposed the weaknesses of energy systems.
Energy efficiency can be an important way to curb demand and reduce vulnerability to price shocks, but only if there is a global policy and price signals strong enough to unlock it.
Governments should seek to shift demand away from fossil fuels rather than trying to curb their supply.
Barriers to investment in low-carbon energy should be removed as much as possible, with simplified permitting procedures to accelerate development. During the transition, governments should cushion the impact of fossil fuel price volatility.