The war has caused upheaval in the energy market and countries are under pressure to find solutions. A UN report could have the answer.
Winter is fast approaching and the stand off between Russia and western countries is threatening to cause a global scramble for energy. If countries are to stave off a crisis, they must tax fossil fuel giants, conserve energy and boost renewables, according to a new UN report.
Presenting the report on Wednesday from UN headquarters in New York, Antonio Guterres, UN secretary general, framed it as the “energy equivalent of the Black Sea Grain Initiative”. Brokered by the UN and Turkey last week, the deal between Russia and Ukraine to unblock grain exports through the Black Sea has provided some relief for stressed global food markets.
The UN chief did not hesitate to place the blame on oil and gas companies for profiting from the economic crisis and on wealthy countries for jeopardising global climate goals by reopening coal plants and subsidising the fossil fuel industry.
“It is immoral for oil and gas companies to be making record profits from this energy crisis on the backs of the poorest people and communities and at a massive cost to the climate,” Guterres told reporters.
What is happening? Russia is the world’s top natural gas exporter and the second largest exporter of oil. The US bans on Russian oil, gas and coal imports and a partial embargo by the EU on the country’s oil and petroleum products have disrupted supply, sending fossil fuel prices through the roof. The price of crude oil is up by 26 per cent while the price of natural gas has soared by 150 per cent, compared with the prices prior to the invasion. There are fears that Russia could halt its gas supply to Europe, fueling market uncertainty.
On the ground, it is poor households that are bearing the brunt, while also having to deal with the hike in food prices. According to UN estimates, at least 71 million people worldwide could be pushed into extreme poverty while 41 million are on the brink of hunger because of the war. Developing countries are also drowning in debt as inflation drives up interest rates.
Targets to lower greenhouse gas emissions to keep the globe from heating up further are also in peril as countries like Germany, Austria, France and the Netherlands, prepare to reopen coal plants, fearing an energy crunch.
What the report says. The document is the third of a series of reports by the UN’s Global Crisis Response Group on Food, Energy and Finance. The group was set up in March by the UN chief to address the ripple effects of the war in Ukraine. After a first briefing on how the war was affecting food, energy and finance systems worldwide, and a second one specifically looking at the cost of living crisis, the third report offers recommendations for how countries can ward off an energy crunch.
- Curb energy use. Developed countries, which make up for the lion’s share of energy use, should lower consumption levels, the report states. It suggests, for example, tackling the transport sector, which consumes nearly 60 per cent of global oil supply, by promoting public and railway transportation, reducing air travel and lowering car speed limits. Turning down the heating and cooling temperatures and revamping buildings to make them more energy efficient could also help reduce energy use in the short term.
“This will help bring down the energy demand and allow to build reserves for winter,” said Rebeca Grynspan, secretary general of the UN Conference on Trade and Development (UNCTAD) and coordinator of the Crisis Group’s task teams, welcoming the EU’s plans to cut natural gas consumption by 15 per cent.
- Tax fossil fuels. To help poor people cope with high energy, countries should put in place cash transfers and other mechanisms and finance them by slapping windfall taxes on oil and gas excessive profits, the report stated. Guterres slammed the industry for their “grotesque greed” as the biggest energy firms made a staggering $100bn in profit during the first quarter of 2022 while the rest of the world reeled from the economic consequences of the war.
The measure could also send a signal to markets and stabilise prices, the UN chief argued. But it is unlikely to please the industry and could prove difficult for governments to adopt.
- Ramp up renewables. The green transition towards cleaner energy sources was slowly but well underway before the war started, with solar and wind energy prices dropping to the levels of fossil fuels. But countries might hit the brakes on the shift as they revert their focus towards dirty fossil fuels. The report tells wealthy countries, financial institutions and the private sector to scale up investments on renewable sources of energy, especially to help developing countries with the green transition.
The International Energy Agency has estimated that investments in the developing world should increase seven fold up to $1 trillion. “Developing countries don’t lack reasons to invest in renewables. Many of them are living with the severe impacts of the climate crisis, including storms, wildfires, floods and droughts. What they lack are concrete, workable options,” said Guterres.