Current energy crisis won't be the last – why firms need to adapt as economies move to clean power

Wed 6 Oct 2021
Posted by: William Barns-Graham
Trade News

The current global energy crisis could be the first of many as economies transition to clean power and reduce their reliance on fossil fuels, international strategy experts have argued.

Consequences could range from periods of energy-driven inflation, greater income inequalities, power outages, and lost economic growth and production.

“You’re definitely moving into a system that’s more vulnerable,” Nikos Tsafos, chair for energy and geopolitics at the Center for Strategic and International Studies, told Bloomberg.

Power down

Supply chains around the world have been hit by energy issues with global demand for power increasing as economies got back up to speed following the pandemic.

Gas supplies have been scarce while renewables, in the form of wind and water, have been unable to pick up the slack because of low output, due to slower wind speeds and low rainfall in areas such as Norway.

As covered in the IOE&IT Daily Update, Chinese factories have also recently faced shutdowns after regions-imposed state-mandated power cuts to meet carbon reduction commitments.

Supply chain rethink

Climate change is creating more volatility in supply chains, with disruptions by severe weather events leading to moves away from international shipments and a greater reliance on suppliers closer to home.

Lloyds Loading List reports that the car sector in particular is rethinking its supply because of climate change, as well as the recent disruption caused by the pandemic. Actions include the greater use of air freight, regionalisation, and insourcing.

Dave Dudek, global automotive and tire sector lead for automotive supply chain specialist CEVA Logistics, said OEMs (Original Equipment Manufacturer) have changed procurement to spread risk.

“Companies are creating multi- and local sourcing activities. They are looking at their supply chains, so they have more than one solution in the future,” he said. “Components are no longer single sourced.”

‘Moonshot fund’

The global shipping industry has also pledged to reduce its emissions output to zero by 2050, but will only do so if governments agree a mandatory levy on shipping fuel.

The money raised would go to a $5bn ‘moonshot fund’ to develop new low-carbon technology, reports the Guardian.

Ships run on dirty, low-grade fuel oil, which is high in carbon and air pollutants. Shipping makes up about 3% of global emissions but this could rise to 17% by 2050 if unregulated.

Cut shipping emissions

The International Chamber of Shipping (ICS), which represents the global shipping industry, submitted the plans to the International Maritime Organization (IMO), the worldwide regulator that is part of the UN.

It is aiming for a 25% cut in emissions by 2030, moving to zero emissions from shipping by 2050.

Unrealistic

Green campaigners have labelled the ICS’s plans unrealistic and accused it of obstructing progress on alternative measures such as the EU’s plan to extend its existing emissions trading scheme to cover shipping.

This would generate an estimated $70bn over the next decade for green technologies.

Plastic tax

In the UK, traders are being told to prepare for new ways of doing business as the government accelerates its own plans to decarbonise the economy.

One such measure traders are being told to prepare for is a new plastic tax that begins in April 2022.

The tax will affect manufacturers and importers of more than 10 tonnes of plastic packaging per year. It will apply to plastic packaging manufactured in or imported into the UK that does not contain at least 30% recycled plastic.

Recycling push

The aim of the tax is to provide a clear economic incentive for businesses to use recycled plastic.

In turn this will stimulate increased levels of recycling and collection of plastic waste, diverting it away from landfill or incineration.