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Sunday, April 14, 2024

Global energy crunch: A silver lining?

The article has been authored by Ananya Raj Kakoti and Gunwant Singh , scholars of international relations from Jawaharlal Nehru University.

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Power scarcity is causing factory shutdowns and turning out streetlights in China. In Brazil, the poor are having to choose between eating food or paying electricity bills. The lack of adequate natural gas supplies in Germany is causing serious economic distress. The entire continent of Europe is in fear of blackouts, factory shutdowns, and a deep recession.

The entire world is crippled by an energy crunch, caused mainly due to the Covid-19 pandemic which was further exacerbated by the ongoing Russia-Ukraine war coupled with climate change-induced natural disasters. A lack of adequate supply has resulted in a rise in global oil and natural gas prices, making lighting and heating homes unbearable for the masses. It has further worsened the already existing inflationary pressures on the world economy. This energy crunch can easily cause a global economic crisis, having severe consequences for nations.

Europe has been the worst affected due to the squeeze on natural gas of which it imports around 90% of its entire requirement. Russia is the biggest exporter of gas to Europe and has cut down on gas exports in retaliation to western economic sanctions. The Nord Stream 1 pipeline, which is the main source of gas transport to Europe, was recently shut down by Russia. The certification of the newly constructed Nordstrom 2 pipeline was suspended by Germany in the midst of Russian aggression in Ukraine as a part of western sanctions. Russia’s decision to interrupt the gas supply has put Europe in a crisis as winter is nearing.

Climate change has caused extreme weather events in recent years globally. These events have also threatened energy security in various parts of the globe. In 2021 Brazil saw the worst drought in almost 100 years, which threatened its electricity supply, as Brazil relies heavily on hydropower for its electricity needs. Europe saw its driest summer in almost 500 years in 2022. This will have serious consequences for hydropower generation and nuclear power plant cooling systems. In Norway, hydropower generation was affected, and France also faced issues with cooling nuclear reactors. Higher than normal rainfall in South and South-East Asia has made it difficult for countries like China and India to mine coal, thereby disrupting electricity production.

In China, to deal with power shortages the government has extended power restrictions in 20 provinces in the northeastern region. The entire area where power restrictions were placed accounts for more than two-thirds of the country’s Gross Domestic Product (GDP). Due to power disruptions, factories are not performing to their optimum level, accelerating supply chain shocks. Being one of the largest consumers of coal in the world, India is facing power shortages due to scarcity of the aforementioned commodity. Several Indian states faced power cuts during the peak summer months. In Europe, the government is carrying out an awareness campaign and is asking its citizens to lower their energy use to avoid power disruptions in the coming winter. The European Union (EU) has asked member countries to cut their electricity consumption to deal with the current ongoing crisis.

The EU has proposed to impose a windfall tax on those power plants that generate electricity using wind, solar, nuclear, and hydropower. Using this revenue, the government will provide a cushion to consumers and industries against rising energy prices. Under this, a price limit of €180 per megawatt will be provided to these generators until March. Another proposed measure is to ask companies that have made an excess profit by selling oil and gas at record prices to contribute financially to help distressed citizens and industries. The proposed measures, however, do not include a gas price cap. This is because this proposal has not yet received a consensus from the majority and hence the commission is still discussing the matter. Denmark, Germany, and the Netherlands are against a gas price cap as they believe that it could make countries struggle to gain supplies in a competitive global market. On the contrary, Italy and Poland believe that this could significantly lower consumer bills.
In the medium-term, one of the solutions for the ongoing crisis can be energy efficiency which is usually overlooked as a reliable option. Being efficient in energy consumption will lower demand-side pressures and will play an instrumental role in subsiding high energy prices which are currently affecting households, industries, and economies. Energy efficiency helps not only reduce costs but can also reduce the reliance on imported fossil fuels. Thus, energy efficiency is one of the most impactful strategies to tackle the ongoing energy crisis. Energy transition to new renewable sources of energy can take almost 30 years to develop and nuclear and hydropower typically require 20 years to establish. Even solar, which is the quickest to establish, takes at least two years. However, energy efficiency can be implemented immediately and its effects can be seen sooner than other measures.
The unfolding energy crisis, especially in Europe, can also be a silver lining in the long term. This is because it is these events that can force one to undergo a transition that in normal circumstances is difficult to implement. This threat to energy security has forced policymakers to look beyond conventional energy resources and to undertake drastic steps to transition to renewable sources of energy on a mission mode. In the short term, governments can provide the necessary support to consumers through price fixing mechanisms, power restrictions, and so on. But in the long run, it is necessary to provide policy support for research and development. This will enable us to create cutting-edge technologies that can make renewable energy more affordable and accessible to people across strata. There is a pressing need to transition into a new energy model which is based on a sustainable and fossil-fuel-independent energy mix. This crisis will act as a catalyst to pave the path toward a new energy model, upon which our future relies.

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