## THE SCRAMBLE FOR ENERGY

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**Canonical URL:** [THE SCRAMBLE FOR ENERGY](https://www.imf.org/-/media/files/publications/fandd/article/2022/december/yergin.pdf)

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### Overview
- The global disruptions in energy markets and the war in Ukraine have strengthened the push for renewable energy and net-zero carbon emissions, while simultaneously clarifying substantial obstacles to achieving those goals.
- The article identifies four interrelated, principal challenges to the energy transition: energy security, timing/speed of the transition (macroeconomic impact), a North-South divide on priorities and responsibilities, and supply-chain constraints for critical minerals.

### Energy security
- Energy security has re-emerged as a prime requirement: adequate and reasonably priced supplies are needed to ensure public support and avoid severe economic dislocations and dangerous political consequences.
- The current global energy crisis began in late summer of 2021 as post-COVID-19 rebound raised energy consumption and tightened oil, natural gas, and coal markets, revealing insufficient supply.
- The shortfall in investment is described as “preemptive underinvestment,” driven by government policies and regulations; ESG considerations by investors; poor returns after two price collapses in seven years; and uncertainty about future demand.
- The mismatch between supply and demand has been called “the first energy crisis of the energy transition.”

### Historical context of energy transitions
- Past energy transitions unfolded over long periods (often a century or more) and were driven largely by economic and technological advantages rather than policy.
- Examples and milestones in past transitions as presented:
  - Coal became a distinctive industrial fuel in January 1709.
  - It was not until 1900 that coal supplied half the world’s energy demand.
  - Oil was discovered in the United States in 1859; oil overtook coal as the world’s number one energy source in the 1960s.
- The current climate-driven transition aims to be both rapid (little more than a quarter century) and transformative, intending coal to disappear and hydrogen to provide 20 to 25 percent of the European Union’s total energy by 2050, while hydrogen provides less than 2 percent today.
- The author characterizes the objective as “to entirely change the energy foundations of what today is a $100 trillion global economy—and do so in little more than a quarter century.”

### Speed of the transition and macroeconomic risks
- There is strong pressure to accelerate some 2050 carbon-emission targets toward 2030, but the scale of the change may be underestimated.
- Jean Pisani-Ferry’s concerns cited in the article:
  - Accelerating net-zero targets too aggressively could create an “adverse supply shock—very much like the shocks of the 1970s.”
  - “Climate action has become a major macroeconomic issue” and requires more rigorous, peer-examined macroeconomic analysis.
- The author emphasizes that policymaking should be informed by methodical assessments of potential costs and benefits of alternative action plans.

### North–South divide
- A sharpening North-South divide has emerged over how the transition should proceed, who is responsible for cumulative and new emissions, and who pays.
- Developing countries emphasize balancing emissions reductions with urgent priorities: health, poverty, and economic growth.
- Specific examples:
  - Billions still cook with wood and waste; many developing countries view increased use of hydrocarbons as integral to raising living standards.
  - India is building a $60 billion natural gas distribution system while committing to renewables.
- Political tensions: the European Parliament’s September 2022 condemnation of an oil pipeline from Uganda through Tanzania highlighted divergent perspectives and provoked strong backlash in Uganda; the article notes per capita income in France and Belgium is about 20 times greater than in Uganda.
- Western banks and multilateral financial institutions have “shut off finance for pipelines as well as for ports and other infrastructure related to hydrocarbon development,” constraining developing-country options.

### Finance shut off and minerals / supply-chain constraints
- Major policy initiatives (Inflation Reduction Act, REPowerEU, and others) will accelerate demand for minerals required for renewable energy systems.
- The transition is moving “from a fuel intensive to a mineral intensive energy system,” described as a move from “Big Oil” to “Big Shovels.”
- S&P Global analysis (summarized in the article) on copper:
  - An electric car requires at least two-and-a-half times more copper than a vehicle with a conventional internal combustion engine.
  - To achieve stated year-2050 targets, copper demand would have to double by the mid-2030s.
- Supply-side constraints:
  - At current rates of supply growth (new mines, expansions, recycling, substitution), available copper will be significantly smaller than required.
  - The IEA estimates it takes 16 years from discovery to first production for a new mine; some mining companies say more than 20 years.
  - Copper production is geographically concentrated: three countries produced 40 percent of world oil in 2021—the United States, Saudi Arabia, and Russia—and two countries produced 38 percent of copper—Chile and Peru.
- Market dynamics noted:
  - Copper prices have fallen about 20 percent from their high point this year, reflecting recession risks; post-recession, demand from the energy transition is expected to push prices up again.
  - Rising demand and prices could intensify tensions between resource-holding countries and mining companies and could be caught up in great-power competition between China and the United States.
- The author warns that although wind and solar have the “free benefit” of wind and sun, the physical inputs (minerals) required are not costless, and pushing significant parts of 2050 goals toward 2030 will likely confront significant physical constraints.

### Interactions and implications
- The four challenges—energy security, macroeconomic impacts, North-South divide, and minerals—will interact and compound effects on how the energy transition unfolds.
- Recognition of these challenges is necessary to deepen understanding of the issues and requirements for pursuing the transition successfully.

### Policy-relevant observations and recommendations (as presented)
- Anchor the energy transition in energy security—ensuring adequate and reasonably priced supplies—to maintain public support and avoid severe economic dislocations.
- Subject acceleration of net-zero targets to more rigorous macroeconomic analysis to assess potential costs, benefits, and risks of alternative plans for action.
- Balance developed-country climate priorities with developing-country needs for health, poverty reduction, and economic growth; recognize multiple paths to transition and the role of hydrocarbons for development in some contexts.
- Anticipate and address supply-chain bottlenecks for critical minerals by expanding mining, permitting, recycling, and supply-chain resilience to meet projected mineral demand for electrification.
- Be mindful of geopolitical dimensions, including potential resource competition and great-power tensions affecting mineral supplies and investment.

*Source: Daniel Yergin, "The Scramble for Energy," Finance & Development, December 2022.*

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_Source: https://www.imf.org/-/media/files/publications/fandd/article/2022/december/yergin.pdf_