BCG outlines the pathway to accelerate a sustainable and equitable energy transition

Asked to name 2022’s biggest global economic drivers, most people would answer with inflation, Russia’s war in Ukraine, and climate-related disasters.

While separate issues in many ways, the three are inextricably linked when it comes to energy costs, energy security, energy policy, and a just energy transition.

The war in Ukraine has driven up global oil and gas prices, pouring fuel on the inflation fire, and pushing energy security to the top of government agendas. The necessity of these concerns – and consumer outcry over astronomical prices “at the pump” – have driven rapid policy action.

While many companies are hard-hit by the geopolitical turmoil, oil and gas companies are enjoying record profits. Are some of these gains being invested in decarbonisation efforts? Of course. But they are also spending on their traditional assets – given the need to continue to supply hydrocarbons – as well as rewarding shareholders.

Against this year’s turbulent backdrop, the question of how we can accelerate a sustainable and equitable energy transition while ensuring access and affordability assumes a fierce urgency. The rapid actions to combat security and inflationary concerns, and in some cases capture windfalls, may run counter to sustainability goals.

But as governments and the energy industry, we cannot afford to pause in our efforts toward a just energy transition. This “energy trilemma” is not new. But 2022 so far highlights that we are at an inflection point: business and government must develop new strategies to ensure that the pursuit of parallel and sometimes competing critical energy goals remains on track.

BCG has been working with industry players and national governments to view these challenges through the lens of a Just Energy Transition (JT) – one that shares decarbonisation’s benefits and costs fairly across the broad spectrum of society. Our approach rests on four pillars or principles, developed as part of our work with the Council for Inclusive Capitalism: Universal Net-Zero Energy; Workforce Evolution; Community Resilience; and Collaboration and Transparency. How can they help businesses and governments find new solutions to the energy trilemma?

Universal Net-Zero Energy

We recognise that higher costs are forcing governments and, to some extent energy companies, to make difficult trade-offs between affordability and decarbonisation – often favoring fossil fuels in the short term.

Nevertheless, ambitious carbon neutrality targets and timelines must become the starting points for all policy and business decisions. This means reframing geopolitical turmoil, challenges to energy security, inflationary pressures, as opportunities to accelerate toward these commitments. For governments, this may include supercharging efforts to scale renewable energy sources to the point where they are affordable and economically competitive.

Maintaining an unwavering focus on net-zero energy also encourages governments to view affordability and security challenges through the lens of universal energy access. This perspective prioritises collaboration with local governments, businesses, and communities to support projects providing better access to affordable, reliable, cleaner energy, as well as solutions for meeting community needs using less energy.

Workforce Evolution

In the race toward net-zero energy, the workforce must evolve at pace. The ability to retrain and redeploy people is a business imperative, allowing companies to keep good employees, manage costs, and innovate with agility. It is also a government policy priority, especially during times when affordability and inflation top citizens’ concerns.

Accelerating workforce evolution means developing transition employment plans that support workers, minimise lay-offs, identify upskilling opportunities, and provide the necessary programmes and resources for retraining. It may also mean businesses and governments crafting innovative, collaborative solutions to support workers who cannot be redeployed.

Community Resilience

Helping communities become more resilient in the face of price and supply volatility, and with more control over their energy usage and supply, addresses all three prongs of the “trilemma”. Recognising that needs and resources may differ greatly, even within a single country, governments must establish policies and initiatives that support local communities through their transition towards sustainable energy assets.

These means working with energy companies and communities to spur local initiatives and create sustainable employment opportunities. It may also involve earmarking funds for community grants or loans, and redistribution of asset ownership to communities.

An important way that energy companies can help foster community resilience is through nurturing competitive local supply chains. This may involve identifying and investing in local suppliers and expanding decision criteria to prioritise factors beyond lowest cost. Businesses can work with governments to incentivise the growth of new suppliers, and with their existing suppliers to encourage more local presence.

Often called the “first fuel”, reducing energy consumption through more efficient usage is another way for communities to become more resilient, and should be a government priority. It can be implemented relatively quickly, bringing both cost and climate benefits.

Collaboration and Transparency

Governments and businesses need forums for stakeholders to share energy-related ideas, concerns, and demands, and ways to integrate stakeholder feedback into their decarbonisation projects and plans.

Energy companies should continue to seek novel ways to partner across sectors for the purpose of scaling new low-carbon ventures, stimulating local economies, and creating sustainable, forward-looking employment opportunities. This may include collaborating with community groups and small businesses to support local ownership of just transition initiatives. It also means sharing research, knowledge and best practices with supply chain partners, industry competitors, and other organisations.

Ultimately, energy affordability and access, a secure supply, and a minimal carbon footprint are in everybody’s best interest. The events of this year highlight that we – as energy industry and government leaders – are at an inflection point. Our actions today will reverberate for decades to come. Our opportunity is to collaborate on solving intensifying issues in productive, sustainable new ways.