Around the world, we are already living with the destructive power of climate change. Whether it’s millions of acres scorched by wildfires or coastal communities subsumed by storm surges, global economies are being forced to deal with the consequences of rising greenhouse gas emissions around the globe. And we are literally running out of time to reverse that tide.
Addressing the climate problem might have been the global focus in 2020, were it not for the deadly coronavirus pandemic. Ironically, the one positive effect of COVID-19 and the shutdown of economic activity that accompanied it has been the lowering of carbon dioxide emissions for most of the year. While COVID-19 will eventually be conquered, business is not going to be able to return to normal when it comes to climate and emissions.
The energy industry is coming to accept the need to change, and business models are shifting to reflect a move toward a low-carbon economy. But when we discuss achieving net-zero by 2050, companies are not always appreciating how much work they will need to do over the next 10 years to have any hope of reaching that target. The investment must be made today in the new technologies that will allow companies to both grow and cut emissions. Companies will need to be agile and innovative in the way they operate, responsive to mounting demands from the financial community and public. The existential threat from climate will place risk management at the center of almost all future strategic thinking, especially as financial institutions and investors increasingly incorporate climate into corporate risk assessments.
The coronavirus pandemic hasn’t introduced new flaws in our energy systems, but it is a wakeup call that climate change has taken us down a path that we cannot reverse. The Energy Transition introduces opportunities for us all to make a difference for ourselves and for generations to come---and we’re all in it together.Francois Austin, Partner and Global Head of Energy
Governments are also waking up to the need to accelerate decarbonization. Some are even connecting COVID-19 relief funds to the climate change issue by requiring companies to use some of the financial aid to implement strategies to reduce emissions.
This isn’t about flicking a switch to make a change. This is about a decades-long transition that will require companies to simultaneously embrace and nurture environmentally friendly sources of energy like renewables, while still depending on traditional sources like oil and gas to fund low-carbon innovation. It is a transformation no less significant than the global economy’s embrace of electricity, internal combustion, and the internet, bringing with it the same degree of disruption but also opportunity for growth. This may be more of a marathon than a sprint but all stakeholders — companies, banks, investors, governments and the public — are recognizing the need to significantly pick up the pace.
Our fifth edition of The Oliver Wyman Energy Journal reflects our thinking about the challenges and opportunities ahead. We hope you will find the ideas useful as you carve your path through the global Energy Transition.