Make Fuel Affordable For Effective Energy Transition, BCG Advises

Policymakers and marketers in Nigeria and other parts of the world have been advised to play an active role in ensuring that people have access to affordable fuel while executing their country’s energy transition plan.

The global management consulting firm, Boston Consulting Group (BCG), in its new report entitled “An Inflection Point for the Energy Transition” stated that during this period of economic upheaval and geopolitical uncertainty, finding the right balance between energy security, affordability, and environmental sustainability is more urgent.

For decades, companies and policymakers have struggled to balance the three goals of ensuring a secure and reliable energy supply, at an affordable cost, with minimal environmental impact. But the redoubling of global ambition on climate change at COP26, followed by Russia’s invasion of Ukraine, makes the challenge even greater, as the prices of energy and other commodities surge across the globe.

“Our commitment to Nigeria’s critical energy transition goals should be unwavering in the face of macroeconomic realities. Urgent actions needed to stay on course include proper management of gas as an energy transition fuel, prevention of fuel scarcity, introducing energy-efficiency measures and implementing plans aimed at reducing dependency on fossil fuel,” said Oluseun Solanke-Ebhojie, Partner and Associate Director, BCG Nigeria.

BCG stated that some regions could experience a backlash against climate action if end users’ expectations and costs are not managed carefully and identified eight realities that will shape the energy future, which is:

The Power of Policy Making

Policymakers will continue to rewrite the rules of the game over the next 12 months, and the effect of these policies may endure for decades. Energy security policies can have far-reaching effects. Often, they create constituencies with an incentive to retain or even expand the policies further.

New Energy Security Challenges

The global dependence on hydrocarbons will likely decline over time. But new dependencies on critical minerals and technology will arise, requiring careful management. The minerals powering the energy transition will need additional investment across multiple countries and along the entire value chain.

A Shortage of Energy Efficiency Measures

Reducing the consumption of energy through more-efficient use is often referred to as the “first fuel,” because this approach can reduce use the most and be implemented relatively quickly. It also has positive cost and climate implications. To that end, the IEA has put out a ten-point plan to reduce oil demand by 2.7 mmb/d within four months, largely by changing consumers’ behaviour.

But no country has to date enacted policies to immediately restrict energy use or sharply increase efficiencies.

Higher Decarbonization Costs

Higher costs are forcing governments to make tougher trade-offs between affordability and decarbonization, a situation that often favours fossil fuels in the very near term. In several countries, it is now cheaper to replace natural gas with coal, which has approximately 40% more carbon emissions and contains particulate matter that worsens air quality.

Greater Energy Price Volatility

Volatility levels for Brent oil have risen nearly 100% since February 2022, compared with the same period in 2021. Because of high price volatility, oil and gas companies are delaying investment decisions.

Insufficient Energy Supply

The global energy supply was not receiving sufficient investment before the invasion. It must now be ramped up significantly to avoid price spikes. Investments to boost oil and gas production have been too low in recent years, even if peak demand has been near at hand.

Inadequate Energy Access in the Developing World

One hundred million people lost access to energy because of the economic impacts of COVID-19, reversing the growth in access that had occurred during much of the past decade. Food and fuel protests are quickly becoming a regular occurrence in many parts of the world.

Solanke added, “Investments in other new technologies need to grow substantially if we are to meet environmental and energy security goals. Businesses and households should be deliberate on ensuring energy efficiency. The $100 billion funding pledged under COP21 to help developing economies during the energy transition should be tapped to manage the rising costs of fuel. Businesses must also be responsive and flexible in the face of changing regulations.”

Learn more about the report here.

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