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ENERGY & FORECASTS
ogy-producing countries are not participating in existing or recently decommissioned assets. This
sanctions against Russia and could retain access is not because renewable alternatives are not
to supplies, potentially leading to uncertainty in economical or available or cannot be deployed.
cost impacts for their trading partners. Likewise, Rather, these alternatives would take time to de-
the prospect of the ongoing shortages is already ploy, and the rise in energy prices poses an im-
spurring a wave of prospecting for alternative mediate economic and political crisis that must
sources, which would likely have a positive impact be addressed. Furthermore, a move to diversify
in the medium term. sources of fossil-fuel imports is likely, in the in-
Finally, it is important to note the near-term impact terest of both price and energy security, although
on a critical but often overlooked natural resource diversifying away from Russian gas would require
for the net-zero transition: land. In addition to their time to overcome logistical hurdles, contract ne-
role in exporting a wide range of minerals, Ukraine gotiation, pipeline-capacity restrictions, and im-
and Russia are important producers of key ag- port-facility development, as demonstrated by
ricultural commodities. Shortages resulting from Europe’s purchase of more than $46 billion in
sanctions and destruction of Ukrainian production Russian gas since the invasion of Ukraine. Finally,
centers are likely to reduce the availability of key where lowering price is not possible via increased
agricultural commodities including wheat and fer- domestic production or source diversification,
tilizer. Additionally, climate forecasts for 2022 indi- a shift back toward cheaper but more emissive
cate it could be a below-average period for bread- fuels, such as coal, is likely, and already being
baskets globally, resulting in an additional reduction observed in, for example, Germany. As for paral-
in supply. Supply shortages and price increases in lel investments in accelerating the deployment of
agricultural markets could lead to conversion of ad- net-zero technologies, there may be a contention
ditional land to agricultural production across the for resources with other immediate needs such
globe, which would increase deforestation rates as defense, mitigation of the most regressive im-
and agricultural emissions. pacts of energy price increases, and humanitar-
ian action.
In the near term, the impact on In the United States, the near-term trend is also
effective economic and societal likely toward increasing fossil-fuel production to
address domestic price rises and to support the
“adjustments would vary across diversification of European supply. The medium-
geographies to long-term trend is less certain. Given abundant
domestic fossil-fuel reserves, the United States
is less susceptible to energy price increases, but
The economic and social adjustments needed to equally exposed to shortages of key net-zero ma-
reach net zero in a more orderly manner depend terials. The economics of transition may not im-
on management of demand shifts and unit costs, prove as much in the United States as they could
compensating mechanisms to address the so- in Europe, nor would the concerns about energy
cioeconomic impacts of transition, and effective security be as severe. One potential impact on
capital allocation and financing structures. In the the medium-term energy landscape in the United
near term, management of demand shifts and unit States could be an acceleration of the displace-
costs could be positively affected, as increased ment of more expensive and more carbon-in-
energy costs move forward the break-even point tensive oil on the global market with Permian oil
for decarbonization solutions for many hard- from the US Southwest, which is a key step for
to-abate industries, and commodity shortages a successful net-zero transition, given that some
boost movement toward increased recycling. level of oil demand will remain through to the late
However, the war in Ukraine has introduced new stages of the transition. We would also note that
domestic priorities in many countries—including the United States also faces a unique opportunity
increasing defense spending, blunting the regres- to reduce its fossil-fuel consumption through the
sive impacts of rising energy prices—and provid- implementation of broad energy-efficiency policy,
ing humanitarian aid. This could negatively affect discussed in more detail below, which could low-
compensating mechanisms, particularly with re- er costs for consumers, improve energy security,
spect to the flow of capital from the Global North and make progress toward its climate goals.
to Global South. Even before the war, the flow of Finally, in Asia there is a risk of a shift back to
capital to developing nations was already almost coal in the near term. If sanctions reduce access
20 percent below the developed nations’ pledge to the pipelines Russia primarily uses to trans-
of $100 billion in annual aid by 2020. port oil and gas to Europe, it will take time for
Overall, we believe that the dominant near-term Russia to build alternative pipelines to tap the
impact on economic and social adjustments Asian market. With the market for natural gas
would be a shift in capital allocation and financing likely to tighten substantially, the resulting price
structures toward increased fossil-fuel produc- rise could push less economically robust con-
tion in response to rising prices. sumers in Asia out of the market and back to-
In Europe, rising energy prices would drive an in- ward coal, which is abundant, cheap, and more
crease in short-term capital allocation to fossil-fu- lightly regulated.
el production and consumption, particularly from
28 28 Impiantistica Italiana - Luglio-Agosto 2022