For investors, what are the most important trends in the energy transition? Where is the market overestimating change, and where is it underestimating it?
The most important trend for investors is that the energy transition is no longer driven by climate policy alone. Energy security, industrial strategy, and national security have become equally important and increasingly inseparable.
Markets may be overestimating the speed and linearity of the move away from fossil fuels. Every oil and gas shock strengthens the case for electrification, but wanting secure and affordable energy does not necessarily mean moving quickly off all fossil fuels. This crisis, for example, pushed several Asian countries toward coal—Japan allowed greater use of older plants, South Korea lifted limits on coal-fired generation, and India accelerated a $4 billion coal-to-chemicals plan—and the IEA expects record global coal consumption this year. Some governments may also conclude that if the nightmare scenario proved manageable, the practical course is to invest in the resilience of the oil and gas system rather than to move beyond it.
Investors should understand both today’s headwinds and its tailwinds for the energy transition. On one hand, clean energy is more capital-intensive, which is especially challenging in an era of higher interest rates. Moreover, in a world of geopolitical fragmentation, governments are shifting from “just in time” to “just in case”: storage, redundant pipelines and ports, strategic reserves, domestic refining, and trusted supply chains. The desire to de-risk from global supply chains dominated by China will lead many governments to feel a growing pull toward energy autarky—the ability to meet one’s own energy needs. The problem is that prioritizing redundancy and domestic manufacturing and extraction is inflationary for clean energy.
On the other hand, the drive to reduce exposure to geopolitically risky oil and gas markets will lead many governments to try to reduce imports, giving a push to electrification and domestic sources of electricity, including clean-energy technologies such as solar, wind, geothermal, storage, and nuclear. Electrification, such as EVs and heat pumps, and clean sources of electricity are themselves tools of geopolitical resilience; indeed, energy security, which has returned to the forefront as a policy concern, can be a more powerful driver of clean energy than climate change alone.
About the Interviewee
Jason Bordoff is Founding Director of the Center on Global Energy Policy, and Professor of Professional Practice in International and Public Relations at Columbia University SIPA. Bordoff is also Cofounding Dean Emeritus of the Columbia Climate School.
Bordoff joined the Columbia University faculty after serving until January 2013 as Special Assistant to President Barack Obama and Senior Director for Energy and Climate Change on the staff of the National Security Council, and, prior to that, holding senior policy positions on the White House’s National Economic Council and Council on Environmental Quality. One of the world’s leading energy and climate policy experts, Bordoff places research and policy interests at the intersection of economics, energy, environment, and national security.
He has written prolifically about how to address our greatest energy and climate change challenges and has developed innovative programs and tools to train future leaders to bridge the gap between academic research and policy, focused on delivering research insights in formats and time frames that are accessible and useful to decision-makers outside of academia.