BAKU – Modern life requires a tremendous amount of energy. Without it, lights go out, homes freeze, and businesses shut down. Since early 2021, the price of oil, gas, and coal has nearly doubled. Supply chains are impaired globally, logistics and infrastructures cannot keep up. In China, millions of households are affected by blackouts. In India, power stations are running dangerously low on coal.

Meanwhile, in Europe, natural gas is trading at the equivalent of 230 USD per barrel in oil terms – a sum more than eight times higher than a year ago. It’s an energy crisis the like of which hasn’t been witnessed since the 1970s. Governments are working around the clock to reduce the impact on consumers, but as bills start to bite, reality will sink in. While investments in hydrocarbons have dropped, renewable means of energy generation haven’t yet come online. The mismatch aggravates a globalized economy that is rebooting from COVID lockdowns. Now, winter is coming, and with it comes a worldwide energy crunch that could last decades to come.

The science of climate

On January 49 BC, as Julius Caesar crossed the Rubicon with his column of Roman legionaries and changed the course of civilization, the level of carbon dioxide in the Earth’s atmosphere was about 278 parts per million, and it stayed so as new powerhouses emerged and old societies collapsed in the centuries following. Things started to change on the eve of the Second Industrial Revolution in the mid-19th century. As industries began burning fossil fuels, the CO2 level climbed and reached nearly 300 parts per million by 1910. Today, the CO2 level is measured at 413 parts per million. In little over a century, the Earth’s climate had undergone a transformation that was a hundred times greater than in the previous millennium.

Carbon dioxide, or CO2, is a greenhouse gas that is harmless in small quantities, but when levels rise, it can have complicated, far-reaching consequences. CO2 enriched air is good for plant growth; that’s why the agricultural sector uses carbon dioxide fertilization to increase yield in the double-digits.

But carbon dioxide also absorbs infrared radiation, a light wave beyond human sight. We detect infrared radiation as heat. Thus, a surplus of carbon dioxide translates into a warmer planet. Since the mid-19th century, greenhouse gases have steadily increased the Earth’s average surface temperature by at least 1.1 degrees Celsius. That may sound insignificant, but a warmer planet means more severe, more frequent droughts and heatwaves. It means that large portions of permafrost start to melt, that the Arctic ice sheet shrinks in size, and that sea levels rise globally, all of which changes weather patterns and results in more powerful storms and hurricanes.

Off to a bad start

In 1992, the United Nations sounded the alarm bell when the CO2 level had reached 356 parts per million. The leaders at the time decided to set up an international treaty known as the Framework Convention on Climate Change and pledged to stabilize greenhouse emissions in the atmosphere. What was, in fact, signed, was a commitment to end the age of fossil fuels.

You see, besides farming, much of the change in the carbon dioxide level was brought about by burning fossil fuels to generate electricity. This had been instrumental to the formation of modern economies, so much so that fossil fuels may be considered as having had the greatest impact on the human condition, second only to the development of agriculture. Yet, that development came with a price.

Fast-forwards to 2015, the international community makes a dramatic commitment in Paris: to “holding the increase in the global average temperature to well below 2 degrees Celsius above pre-industrial levels and pursuing efforts to limit the temperature increase to 1.5 degrees Celsius pre-industrial levels” In other words, the agreement looks to stabilize the climate by reducing the CO2 level from today’s 413 parts per million to the preindustrial level of about 278 part per million. The way to do this is by encouraging net-zero emissions, which is to say balancing between anthropogenic emissions and removal of greenhouse gases. This then should cool down the planet.

The flaw of the Paris Agreement is the time frame. Since no consensus was reached, the agreement states that it should come about as soon as possible, preferably somewhere in the second half of the 21st century. Each nation is to set its own deadline and roadmap to get to that point, but in truth, most lawmakers are making empty promises with no plans of how to get to net-zero emissions.

As of this writing, scientists, diplomats, entrepreneurs, lobbyists, and media gurus from across the world have gathered for the UN Climate Change Conference in Glasgow, Scotland. They’re discussing ways to curb global carbon emissions to zero, but since the summit has consensus-building at its heart, the pace is set by the least-willing participants. 

The task of stabilizing the atmosphere is so overwhelming that all options must press ahead at once. Hydrocarbons need to be reduced, stopgap resources need to be boosted, while massive long-term investments need to pour into renewables. And all this needs to happen simultaneously so that the fundamentals of supply and demand in energy markets remain constant.

Mismatch in supplies

One of the key complications is the mismatch between global power supplies. A graphic by the International Energy Agency illustrates how crude oil has steadily declined as a means of electricity generation. And, herein lies the problem. Investments in fossil fuels have dropped swiftly, while renewable means of energy generation haven’t yet come fully online. This, in addition to the rebooting of the global economy following the COVID lockdowns, has resulted in a steep increase in prices. The speed at which the discrepancy is taking shape is socioeconomically destructive. 

The remedy is natural gas, which is on the rise and will continue to do so. The thing about natural gas is that the CO2 emissions are about half that of coal. That makes natural gas a transitional energy source; it’s not as clean as renewables but not quite as dirty as other hydrocarbons. In the coming three decades, nations will seek to temporarily shift to natural gas as they ditch coal before renewables ramp up in the 2040s and 2050s. That is the goal. So, there is not going to be an immediate jump from coal to renewables. The process is going to take decades, and natural gas is the key in that transition phase. Securing gas reserves and pipelines is thus of geopolitical importance.

However, even with natural gas as a transition source, there isn’t nearly enough investment in renewable energy and technology. The embrace of hydropower dams made a strong case for renewables in the 1970s, but further increasing the share of renewables in electricity generation requires nothing short of a complete transformation of the global energy system. Currently, investments in renewable energy are running at half the level needed to reach net-zero global carbon emissions by 2050. More spending on research and development is necessary, much more. It’s not just solar panels and wind turbines that are needed, but entire subsea grids spanning oceans and end-use networks. All this requires around 4 trillion USD every year. That’s an astounding sum of capital, and it currently sits about half that level. To finance the undertaking, taxes and public bills will have to increase. There is no other way to finance it.

Paying the price

The energy recession that is currently ongoing in Europe and Asia is tied to the COVID lockdowns and the way supply and demand works. In China, the coal shortage, which is triggering blackouts for households and forcing factories to cut production, is due to Beijing’s climate pledge to use less coal and fossil fuel to generate power. But, as the global economy has rebooted, demand for Chinese-made goods has surged. Now, there isn’t enough power to go around.

The result is a global frenzy where investors anxiously await to see if their supply capacities can meet demand this winter. That anxiety is causing energy markets to break away from the fundamentals of supply and demand. Every state is now rushing to buy and stockpile extraordinary reserves of coal, oil, and gas. The panic is driving up energy prices. India, which uses coal to generate about 70 per cent of its electricity, is running dangerously short of coal. As many as 63 of its 135 coal-based power plants have only a few days of supplies. Never before have prices increased so high, so fast.

The dynamics are reverberating globally, but the world may yet escape the next energy recession. What is more distressing, however, is that there is no long-term relief in sight vis-à-vis renewables. The costs of climate change and the upcoming energy programs mean that more severe and long-lasting growing pains are underway.  Governments must take care to make the transition as smooth as possible. Otherwise, public opinion could turn against climate policies as high energy prices start to bite. To that end, you never want to blow out a candle in a dark room unless you are certain the light switch works.

Lachin Garibli

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  1. Underground fire in Jharia coalfield, India – Wikipedia
  2. Whitelee Wind Farm, Scotland – Wikipedia
  3. Bełchatów Power Station, Poland – Wikipedia



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