Prepare for more shocks in global transition out of fossil-fuel addiction

THE energy crisis in China, as well as in Europe, is spilling over into economic forecasts and supply chains, and threatening to derail global growth.

China - the world's largest factory that is primarily powered by coal - is scrambling to lay its hands on more coal as a supply crunch is forcing the country to ration power, resulting in electricity blackouts that are hobbling nearly half of its industrial production. Key suppliers to technology giants such as Apple, Tesla and Microsoft have ceased or cut operations. With agricultural processing plants forced to go dark too, food costs are expected to rise. Over in Europe, a confluence of factors - ranging from low natural-gas stockpiles and overseas shipments, lacklustre output from the region's windmills and solar farms, and maintenance work that has put nuclear generators and other plants offline - have caused a surge in electricity costs.

Both crises are wake-up calls for the world as it transitions from dirty fossil fuel to clean energy. While climate goals are critical and urgent, clean energy transition must be done in a calibrated manner. A hurried or knee-jerk shift can spell trouble and result in a series of energy crises that would have far reaching consequences on global growth, and may even be counter-productive.

Chinese President Xi Jinping's promise to bring carbon emissions to a peak by 2030 and achieve net zero by 2060 is welcome news given that the country is both the largest producer and consumer of coal. But cutting coal production alone is not the solution.

Transitioning to clean alternatives has to address the demand side of the equation, not just the supply side. While the switch to renewables needs to be hastened, the world will need to handle this carefully and take into account technological constraints, economic considerations, and many other factors - only then can we avoid causing the kind of energy crisis seen in Europe and China. Yes, renewables are a growing technology which holds the promise of being able to produce amounts comparable, and even superior, to what can be delivered with fossil fuels. But not all existing infrastructure has as yet adapted to these new forms of energy.

Here lies the crux of the problem: While renewables do not inflict the enormous external costs typical of fossil fuels in terms of environmental degradation, the new technologies are not easily accommodated in the existing energy system and infrastructure. No existing alternative energy technology can compete with fossil fuels in terms of reliability, flexibility, low cost, safety, transportability and high returns to investment. Abandoning coal too quickly at a time when it is still widely consumed and while much existing infrastructure remains reliant on fossil fuel has repercussions, as seen in China where coal accounts for the majority of its energy source.

Globally, the energy transition is in progress, but it is going to be complex, costly and at times challenging to implement. Regulators and policymakers must act to de-risk the new landscape, and foster investment in the new technologies. Businesses need to be able to stay commercially viable and compliant, while also keeping up with the industry changes.

Until a new equilibrium is found between these new energy sources and infrastructure, global markets must be prepared for further shocks and inflationary pressures as the world seeks to rid itself of the centuries-old addiction to fossil fuels.