In the latest issue of our Energy Journal, which is focused on the main vulnerabilities that affect the energy transition and their possible solutions, we have asked for the opinion of Sara Moarif, head of the Environment and Climate Change Unit at the IEA. “The current crisis has also highlighted the importance of energy security and diversification in Europe. Existing environmental and climate policies will improve energy security and there is no reason to discontinue them”.
Below, you can find the second part of the interview. The first part is available here.
Sara Moarif has been Head of the Environment and Climate Change Unit at the IEA since late 2019. In this role, she oversees a range of internal and external work on energy and environment policy issues, from carbon pricing systems in the power sector to the climate resilience of energy systems, along with IEA participation in the OECD-IEA Climate Change Expert Group and parts of the IEA’s international climate-related engagement.
In some countries there is a debate on the suspension of the Emissions Trading Scheme to support some sectors in crisis due to the increase in energy costs. In your opinion is it a useful and viable choice?
The short answer is no. Calls for a temporary suspension of the EU emissions trading system (ETS) do not stem from the current energy crisis but started in late 2021 when EU ETS price soared. The main arguments in favor of temporary suspension are that carbon prices contribute to the overall energy price increases and high EU ETS prices may result from speculative market manipulation.
On the first point, however, suspending the EU ETS would not have a significant impact in stabilizing and reducing energy prices, as only a small share of the rises in energy costs to date can be attributed to the higher carbon price. Prices in the EU ETS have been steadily increasing since 2017, reflecting long-term climate fundamentals. What the energy market is currently facing is a supply shock.
Energy prices historically are much more volatile than CO2 prices, and the increase in gas prices last year was much more significant than that of CO2 prices. The European Commission has found that the effect of the gas price increase on the electricity price is nine times larger than that of the carbon price increase.
Increasing income support for low-income households, fostering energy efficiency measures, and new incentives for clean energy investment, would be more effective measures in the short term than suspending the ETS.
In the current crisis scenario, what are the areas in which it is important to keep investing for increasing the energy sector climate resilience?
Uncertainty on how the Ukraine crisis will impact today’s investment decisions doesn’t mean we can’t and shouldn’t keep investing in climate resilience, which remains important over the coming decades. More than ever, the crisis illustrates the need for climate-resilient energy infrastructure to strengthen energy security.
Our energy infrastructure is facing an increase in physical risks from the changing climate. The IEA estimates that around a quarter of the world’s electricity networks face a high risk from destructive cyclone winds, while over 10% of dispatchable power generation plant and coastal oil refineries face the threat of severe coastal flooding. A third of freshwater-cooled thermal power plants are located in areas that face high water stress. These risks are set to increase over time, highlighting the urgent need to enhance the resilience of energy systems to climate change irrespective of the present crisis.
A lack of resilience in electricity systems can obstruct energy transitions, especially in regions where electricity infrastructure is vulnerable to long-term changes in climate and more frequent extreme weather events. The current crisis illustrates what can happen when energy supply is disrupted: greater energy-sector climate resilience will help limit these disruptions and speed up recovery.
The benefits of building resilient energy systems are much greater than the costs in most energy scenarios given the increasing impact of climate change. The United Nations estimate that for every United States dollar invested in climate-resilient infrastructure, six United States dollars are saved. Moreover, operational measures adopted as early actions can cost less than physical hardening at a later stage.
Operational measures can include better assessments, planning, regulations, and incentives for changing how energy providers invest in and deliver services. Physical system hardening can avoid critical damage for generation, transmission, and distribution assets. The relocation of generation assets from flood-prone areas to higher ground can reduce damage from flooding. A transmission system with upgraded towers and a distribution network with underground lines will also be more resilient to strong winds and high storm surges.
The benefits of investing in climate resilience are likely to become tangible only after a few years or even decades, while the capital cost of implementation is incurred immediately. But if there is one thing this crisis has taught us it is to be prepared and not to act when the problem arises as the consequences will already be felt.