There are strong arguments that uncertainty has been the defining economic feature of the past three years. From the US-China trade war to COVID-19 and the supply chain crisis of 2021, markets have been constantly up or down with remarkably few (and generally short) periods of stability in between.

2022 has only continued that trend so far. As the New York Times reports, stock markets have experienced several wild swings this year alone, with the S&P registering record losses (including its longest losing streak since 2011) amidst intermittent rallies.

Likewise, global events such as the Russia-Ukraine war, rising inflation, and enduring COVID tailwinds are contributing to this uncertain state of affairs.

Consequently, market participants and stakeholders are reacting with increased caution. CNBC, citing an Allianz Life survey, reports that 43% of investors say they’re “too nervous” to invest within this market, especially considering the lack of clarity as to what comes next. Stakeholders and participants may have to wait longer for clarity though, because, as I argue below, the unsure state of the market is only likely to continue. Here are the top reasons why.

Slowing global economic recovery

Mid-2021 produced higher than expected global growth figures, fueling an optimistic outlook for a global economic rebound. The pace of that growth slowed down before year-end though, due to chronic supply shortages and a resurgence of new COVID variants omicron and alpha.

This year has not brought any improvement in the situation. As the World Bank reports, global economies continue to experience decelerating growth due to the exhaustion of pent-up demand and unwinding fiscal support. Likewise, a sharp incline in global inflation rates has impacted consumer spending as greater income shares go to necessaries and less allocation to savings and investment.

Tightening monetary policy

I’ve mentioned tightening fiscal policy above, but it’s worth a closer inspection. Central banks in Europe, Japan, and the US intimated earlier in the year that they would be exploring a tighter monetary policy in a bid to combat rising inflation. Consequently, we’ve seen the Federal Reserve raise rates recently and the European Central Bank has given a clear signal on rate hikes in July.

As the New York Times reports, investors and industry are reacting to the news with caution as they consider the potential implications of these rate hikes and how they are likely to play out. Consequently, I expect decelerated borrowing activity while the industry gauges incoming measures.

Russia-Ukraine conflict

War is generally bad for stability, but in the case of the Russia-Ukraine war there are more reasons why this is the case. Russia is a major player in the global energy market, but its energy obligations to trade partners and general global supply are more susceptible to shocks due to the specter of war.

Global supply runs the risk of damage to critical Russian transmission infrastructure, such as the key pipelines running through Ukraine and other supply channels. Damage to these pieces of infrastructure may further congest an already inflated market, resulting in even higher prices and less of the product.

It’s unclear how long the conflict will last. Consequently, the energy sector will likely continue to experience elevated prices and uncertain supply.

COVID-19 tailwinds

Another important factor, which is largely being ignored for the moment, is the continuing effect of the pandemic on global trade. Enduring concerns over COVID variants, new and large-scale outbreaks in China, and attendant supply chain congestion are all contributing to a highly uncertain market state.

Considering that vaccine hesitancy is still wide-spread and vaccine penetration levels continue in the low figures (particularly in emerging economies), we’re likely some way off complete clarity in this area as well.

For companies still reeling from pandemic tailwinds and last year’s supply chain shocks, the Russia-Ukraine conflict couldn’t have come at a worse time.

While most organizations were focused on consolidating growth gained within the past year, new concerns raised by the war have forced boardrooms back into crisis mode as they grapple with rising energy and supply costs.

Likewise, further constrictions resulting from sanctions on Russian entities and individuals have impacted certain businesses, forcing them to either abandon or suspend ventures with Russian-linked partners.

As a remedial policy, the EU recently adopted new support measures to aid businesses that have been put at risk by the conflict and attendant sanctions meted on Russia. The measures, which went into effect on 23 March 2022, will provide financial aid up to €400,000 for some affected businesses and state guarantees on bank loans to qualifying companies.

Support measures for war-impacted companies

According to Margrethe Vestager, European Commission VP of competition policy, the state aid measures are adapted under a Temporary Crisis Framework (TCF) that aims to mitigate the impact of the war and existing sanctions while retaining competition in the Single Market.

Three types of aid are available under the TCF:

• Financial aid: Member states are allowed to establish schemes under which impacted companies in agriculture, fisheries, and aquaculture can receive an up to €35,000 grant. Companies in other sectors may receive up to €400,000, and in both cases, states may provide the grant in any form, including direct money transfers. Notably, the aid provided here is not linked to specific costs or liquidity issues.
• Liquidity support: The TCF provides liquidity support in two categories. The first category includes state guarantees in subsidized premiums to support existing loans owed by affected companies. The second category offers subsidized rate public and private loans. In both cases, maximum loan limits will apply depending on each qualifying company’s operational needs, energy costs, turnover, and liquidity needs.
• Energy assistance: Perhaps the most immediate impact of the Russia-Ukraine war is the current energy squeeze being experienced by individuals and businesses. The EU is a major energy trade partner with Russia, but that trade has mainly been suspended due to current diplomatic strains. These events hurt many companies, but the EU is providing some stimulus to subsidize rising energy costs. There are also caps to this aid, though. Companies can only receive 30% of eligible expenses, up to €2 million. If operating losses ensue, companies may receive additional assistance above the €2 million cap – up to €25 million for energy-intensive companies and a ceiling of €50 million for firms in specific industries, including aluminum, glass fibers, and basic chemicals.

Conditions attached to aid and duration

These measures carry additional conditions that states must apply regarding qualifying companies. The EC calls these “safeguards” designed to protect economically-viable businesses, ensure that aid reaches companies in need, and foster the long-term sustainability goals of the EU.

Accordingly, states should establish a link between the impact on affected companies, the scale of their economic activity, and the amount of aid they can collect. They might take each company’s turnover and energy expenses into account in this determination. Likewise, aid to energy-intensive companies is envisaged to mean companies whose energy expenses constitute at least 3% of production value.

Lastly, states are encouraged to consider tying aid to sustainability goals for the affected business, but in a non-discriminatory manner.

The TCF is slated to expire on 31 December 2022. Although, before expiry, the EC will convene to determine if there is a need to extend the framework.

Globally, transportation is fingered as a major climate polluter with between 15-20% of total yearly emissions. Consequently, the sector has received significant attention in green research leading to breakthroughs in alternative fuels like hydrogen and the advance of electric vehicles.

What is fossil-free steel?

Fossil-free steel is created with sustainable practices that do not rely on fossil-fuel energy and which avoid the dirty byproducts of traditional steelmaking.

Traditionally, steel is made from iron ore which is converted into iron pellets that constitute the key ingredient in steel production. Under the process, iron ore is converted into iron by removing the oxygen in the ore. The procedure relies on a blast furnace powered by coke and coal.

However, the process is energy-intensive and the “coking coal” burnt during the conversion releases vast amounts of carbon into the atmosphere.

In contrast, fossil-free steel uses a procedure dubbed HYBRIT – Hydrogen Breakthrough Ironmaking Technology – to convert iron ore into sponge iron using green hydrogen rather than coking coal. The conversion process relies on sustainably-powered electric arc furnaces which remove oxygen from iron ore using electrolysis with water as a byproduct.

The procedure was created by a joint venture between mining company LKAB, steelmaker SSAB, and energy company Vattenfall.

Potential impact on global emissions

Considering that steelmaking contributes 7% of global yearly emissions, I believe there’s great potential for fossil-free steel. Research from the Carbon Brief, cited by Forbes, puts that number at 9% of global emissions from 553 conventional steel plants, meaning fossil-free steel could make a serious dent in total transport pollution.

LKAB President and CEO Jan Moström notes that fossil-free steel “is a crucial milestone and an important step towards creating a completely fossil-free value chain from mine to finished steel.”

Currently, there’s evidence that fossil-free steel is comparable to traditionally-made types in all respects, including strength and durability. SSAB delivered the first shipment of the green steel to Swedish automotive company Volvo which has in turn unveiled the world’s first fossil-free steel vehicle – a mining load carrier.

Considering that the International Energy Association forecasts global steel production to grow by 33% by 2050, this new innovation may be significant in the race to net-zero.

However, as I see it, there are still a few rough spots to work out. SSAB says their steel won’t be ready for industrial-scale use until 2026 at the earliest. In addition, price will be a significant concern as fossil-free steel production costs an estimated 30% more than conventional steelmaking. Even though fossil-free steel is more energy-efficient, needing 41% less energy than traditional steel, the technology will need to become cheaper before mainstream adoption.

Nevertheless, fossil-free steel is a welcome development in both the transport and steelmaking industries.

Although Buy Now Pay Later (BNPL) emerged before the pandemic, the attractive e-commerce payment option is soaring on post-COVID adoption.

BNPL provides short-term financing to online shoppers, allowing them to split the cost of purchases into affordable installments. For most shoppers, BNPL is a comfortable payment alternative since it lets them enjoy goods instantly while experiencing the benefit of spread-out, potentially interest-free payments.

While the trend began with innovative Fintech companies, global payment processors and banks like MasterCard and Goldman Sachs have taken notice. Consequently, BNPL is on an explosive growth trajectory, and estimates are that spending using the service will reach nearly $700 billion by 2025.

But what is behind the BNPL rise and how does it work?

How BNPL works

As the name suggests, BNPL lets buyers purchase goods, typically online, and pay later either in a lump sum or installments. As I see it, the process involves three parties: the merchant, the customer, and the BNPL provider.

Between the customer and the BNPL provider, the agreement is that goods will be bought and paid for at a later date (a grace period of sorts), usually within a few weeks or months of the purchase. During this grace period, the buyer can pay installments or the full debt at no interest.

But if the buyer does not make payment within the agreed period, interest may begin to run. Likewise, if the buyer misses an installment, they may be liable to pay late fees in addition to the outstanding installment.

Between the merchant and the BNPL provider, the agreement is that goods bought will be paid for immediately by the BNPL provider. This way, the merchant need not wait potentially several months to receive full payment and can enjoy optimal liquidity. In exchange, the merchant agrees to pay the BNPL provider a percentage of the sale price (between 2-8%) for the service rendered.

Due to the fact that BNPL provides ease and convenience for both buyers and sellers, the payment trend has secured wide approval. Some of the major BNPL providers globally include firms like Affirm, Ant Financial, Afterpay, Klarna, Zilch, Flava, MasterCard, Visa, and PayPal.

Rapid spread of BNPL

As described by e-commerce platform VTEX, BNPL is currently the “fastest growing way to pay in the developed world.” To underscore just how fast the payment trend has grown since COVID, one study reports that BNPL use quadrupled in 2020.

While the trend is highest amongst younger shoppers, the affordable payment option is popular amongst adults of all ages, according to the BBC. Compared to credit cards, users see BNPL as a simpler and more transparent alternative since it avoids the complex terminology and conditions associated with bank cards.

The top reason why people adopt the payment method is its ease and convenience. Because it is instantly available and potentially more forgiving than credit card loans, buyers feel more confident adopting this payment option.

Likewise, merchants possibly attract higher average order volumes because people tend to spend between 10-40% more with BPNL. They’re also more likely to overcome buyer hesitancy because BPNL encourages more convenient returns – it’s easier to test out a product when you don’t have to pay immediately. It also works wonders for cart abandonment. In fact, Afterpay reports that 69% of millennials and 42% of Gen Z shoppers are more likely to complete the buying journey when BNPL is offered.

However, despite its clear advantages to buyers and merchants, there are several unavoidable red flags with BPNL. In my opinion, unrestrained lending will only help perpetuate the ongoing global consumer credit debt crisis. Besides, consumers are naturally prone to underestimating risks and overestimating benefits, which might work to put many people in more debt than they expect.

While countries like the UK are already working on potential regulations for the sector, the question is: can they work fast enough to pass needed guidance before consumers get in way over their heads?

In the past two decades, national banks pumped trillions into their economies to grapple with recession and stimulate economic growth in a process called Quantitative Easing (QE).

However, with inflation at a 40-year high, the Federal Reserve, alongside other central banks, is backtracking from this policy in a bid to raise interest rates and disincentivize borrowing, according to Business Insider.

While QE may have defined the response to the 2008 global recession and COVID-19, Quantitative Tightening (QT) is “the new watchword”.

But with plans to shave roughly $2 trillion off the biggest central banks’ balance sheets, there are concerns over the potential impact of the policy. Just as QE was novel when adopted in 2009, QT has never been done on this scale. How could the Fed implement QT and what effects are likely to result? Here’s what I think.

What is Quantitative Tightening?

Quantitative Tightening is a monetary policy aimed at reducing the size of a central bank’s balance sheet – that is, its assets and liabilities. The policy, also called balance sheet normalization, is the exact opposite of Quantitative Easing. In QE, the central bank buys long-term government bonds in a process that actively increases the size of its balance sheet, thereby flooding the economy with needed liquidity that in turn pushes interest rates down.

As Bloomberg explains it, when a central bank implements QE, “it increases the supply of bank reserves in the financial system, and the hope is that lenders go on to pass that liquidity along as credit to companies and households, spurring growth.” The Fed implemented this policy during the 2008 financial meltdown, increasing its balance sheet from $1 trillion to $4.5 trillion by 2018, and again during COVID-19, leading to an all-time high balance of nearly $9 trillion.

In contrast, the central bank reverses its policy under QT, instead working to lighten its balance sheet and reduce the money supply in the economy. It does this by cutting down on reinvestment of proceeds from maturing government bonds and raising interest rates. The Fed has announced its intention to move forward with QT plans, and analysts quoted by Business Insider suggest that could be as early as summer this year.

How could the Fed implement QT?

As I see it, the Fed could adopt the same approach it took previously when it briefly implemented QT between 2017 and 2019. The first stage involved a steady tapering of its monthly bond purchases, which were roughly $120 billion a month as of November 2021. Current indications are that the Fed plans to end purchases by mid-March 2022.

At the next stage the Fed maintained its balance sheet for a three-year period during which it focused on raising interest rates. It took the first step towards a rate hike in December 2015, says the Federal Reserve Bank of St. Louis, and completed an increase from 0% to 2.5% by 2018. The Fed could take the same approach this time, although at a much faster speed.

QT will likely start gradually and then build up as it proceeds. Last time, the Fed started shedding its bond holdings at $10 billion a month, which eventually increased to $50 billion monthly at its peak. Projections are that the coming QT will proceed at a much more aggressive pace, possibly at $100 billion per month according to JPMorgan Chase & Co.

The big question though is: what effects will QT likely have on the economy? In theory, if QE helped lower interest rates and increase liquidity, QT should do the opposite and help bring down inflation. But no one, not even the Fed itself, really knows.

The last time the Fed attempted QT, the results weren’t encouraging. While the process started smoothly, stocks fell within three months (the S&P 500 fell by more than 6%), and after ten months of roller-coaster stock prices the central bank eventually pulled the plug. Might the same effects result this time around? I believe only time will tell.

The general view is that energy efficiency is good for the environment. After all, the less energy a device consumes, the better an outcome that provides for the environment.

Therefore, if devices consume less than they would have because of technological advancement, it seems logical to pursue and encourage those advancements that provide efficiency.

However, as I see it, the problem with this position is that while energy efficiency might help individual devices perform better and use less energy, that’s not necessarily good for the environment. If the goal is to eventually create a sustainable future that protects our natural environment, then energy efficiency does nothing for this in real terms.

Instead, energy efficiency only makes power easier to use and access since it is cheaper and more available, thereby increasing energy consumption in real terms. As a result, I argue in this article that while energy efficiency might provide nominal gains in energy usage, the eventual goal should be energy sustainability and sufficiency. And this should not merely be a shift to sustainable energy sources either, but a move towards less energy use overall, and I explain why here.

Why energy efficiency might amplify energy use

Take the example of LED lighting vs. incandescent lightbulbs. A single incandescent lightbulb consumes roughly 60 kilowatt-hours (kWh) of electricity every 1,000 hours. Compared to this, an LED lightbulb uses 70% less energy, meaning a consumption rate of roughly 18 kWh per 1,000 hours.

Millions of devices, appliances, and other energy-consuming products operate on this same premise: comparing the device’s energy usage now versus what it could have been. Considering this, the world should consequently see a net reduction in energy use since millions and millions of everyday devices and industries now prioritize energy efficiency.

However, since energy efficiency became a big deal in the 2000s, the world has not seen a net reduction in usage rates. Instead, energy use has ballooned – global energy consumption has increased by 1% to 2% almost every year for the past half-century (per 2019 figures). The only exceptions are 1980 and 2009.

Putting this information in graphic terms, the World Atlas of Light Pollution reports that 83% of the world’s population (and 99% of Europe and the US) live under a night sky that is 10% brighter than normal. And estimations are that the world’s energy demand will only increase by as much as 37% by 2040, according to the International Energy Agency.

Why is unbridled energy use wrong?

The basic answer is that energy resources are not infinite. On the contrary, they are limited, particularly in the case of fossil fuels, and will eventually run out.

But I’m sure this is no news. A significant part of the green energy drive is founded on the acceptance that the development of renewable energy sources is necessary to prevent (or at least prolong) the depletion of fossil fuels.

However, rampant energy use is still undesirable, even with limitless amounts of renewable sources to call on. I have written in the past about how the exploitation of resources for sustainable energy can be detrimental to the environment, society, and economies of the countries where these resources are sourced.

The experience in countries like Venezuela and the Congo, which are significant producers of cobalt – a primary resource in lithium-ion batteries, is a testament to the dangers of an unbridled pursuit for greater efficiency.

Perhaps rather than look to create more efficient electric vehicles, we should promote bicycles and the use of public buses. Also, maybe buildings should incorporate more natural lighting and ventilation rather than mega installations of HVACS and temperature control systems.

The UAE’s recently launched rail and transport project concretizes the country’s commitment to drastically reducing carbon emissions within its borders.

As scientists warn, global warming poses an existential threat to humanity, and the UAE is doing its part to avert this dire prophecy. As one of the world’s largest oil and gas exporters, the UAE is also amongst the world’s top carbon emitters.

However, the country has set itself a “very ambitious” goal to reach net-zero emissions by 2050, announced in October 2021, thereby becoming the first Gulf state to make a green public commitment of such magnitude. According to Aljazeera, this came on the heels of an earlier $165 billion clean energy investment pledge by Dubai ruler Sheikh Mohammed bin Rashid Al Maktoum.

With the rail and transport project, the UAE is forging ahead on its climate goals, and I believe this might provide the push that helps other Gulf petrostates firm up on their green resolve.

The UAE Railways Program

The rail and transport project christened the “UAE Railways Program,” was announced in December 2021. The program provides an integrated system for the country’s railway sector, blending freight and passenger carriage that is planned to span all eleven UAE emirates.

Crown Prince of Abu Dhabi, Sheik Mohamed bin Zayed Al Nahyan, announced the program at the Dubai EXPO 2020 as part of the “Projects of the 50”, a series of economic and industrial projects aimed to accelerate development in the UAE.

The program’s central theme is national integration and sustainability, as captured by the Crown Prince in his speech. “The National Railways Program reflects the true meaning of integration into our national economic system,” says Sheik Mohamed bin Zayed Al Nahyan, “… it comes to support a national vision to connect the country’s key centers of industry and production, open new trade routes and facilitate population movement….”

Likewise, Sheik Mohammed bin Rashid Al Maktoum noted that “the project comes in line with the environmental policy of the UAE and it will reduce carbon emissions by 70-80%.”

I should note that, while the UAE Railways Program was only recently announced, it forms part of ongoing transport initiatives that the UAE launched earlier in 2016. The program includes three strategic projects:

• The Freight Rail, which includes Etihad Rail Freight Services (completed in 2016);
• The Rail Passenger Service, which is end-user focused and aims to connect eleven UAE emirates running at speeds of 200 km/h; and
• The Integrated Transport Service, which includes an innovation center focused on developing and integrating intelligent transportation solutions

The program also includes developing and deploying software applications to support planning, bookings, and integrated logistics solutions.

Economic and environmental impact of the program

The rail and transport project is expected to contribute immensely to climate progress in the UAE. Current estimates suggest that the country could cut up to 80% of emissions within 50 years. However, it’s not clear how the rail and transport project will achieve such wholesale emissions reductions by itself or if the reductions touted are only expected within the transportation sector.

Nevertheless, I expect that eliminating millions of truck, vehicle, and train trips should make a dent in the country’s total emissions. For example, the UAE projects that roughly 36.5 million passengers should ply the railway by 2030. Similarly, the Etihad Rail service is reported to have already transported over 30 million tons of granulated Sulphur (saving approximately 2.8 million truck trips).

One point that citizens will praise is the internal focus of the investments underlying the program. For example, the railway program will gulp around AED50 billion, 70% of which is targeted at the local economy. Likewise, the program is projected to create approximately AED200 billion in economic opportunities and thousands of jobs.

The World Bank has warned in a recent report that, due to headwinds such as inflation and vaccine inequality, the world faces a two-speed recovery that could damage prior strides in global economic development.

Although there’s likely to be a general slowdown after the strong rebound in 2021, the results and any eventual recovery that follows are liable to create unequal outcomes.

In the same vein, I believe the anticipated “hard landing” that will create a chasm between the growth rates of advanced and emerging economies was also predictable. International development institutions such as the World Bank, the African Development Bank, the International Monetary Fund (IMF), and the Organization for Economic Cooperation and Development have warned of this.

Speaking at the time on the 6% global growth projected in 2021, Kristalina Georgieva, IMF Managing Director, noted: “The composition of the 6% is changing, with advanced economies broadly accelerating growth, whereas most emerging markets and developing economies are falling further behind. This is a dangerous divergence.”

However, despite early warnings, the world looks to be on track for precisely this dangerous divergence. The World Bank said that, while advanced economies will likely see a growth decline from 5% in 2021 to 3.8% and 2.3% in 2022 and 2023, respectively, they will return to pre-pandemic levels by 2023. But growth declines elsewhere will be steeper.

Comparably, 2023 will see emerging and developing economies still 4% below pre-pandemic levels. Worse, fragile and conflict-affected economies will fall 7.5% below their pre-pandemic path by that time, and small island states will likely be even lower, at 8.5%.

The rich forge ahead, as the rest fall behind

The causes of this anticipated two-track recovery are obvious and have been here for a long time. Massive debt levels, income inequality, infrastructure deficits, and reliance on commodity exports (subject to notorious boom-bust cycles) already put developing and fragile economies on a path that would see them unable to respond robustly to the pandemic.

As a case in point, while advanced economies could push massive spending budgets to aid their economies and provide stimulus, emerging and vulnerable economies either could not afford a stimulus or had to withdraw them before recovery in response to inflationary pressures. Unsurprisingly, Financial Times, quoting the World Bank, noted a 5% rise in per capita income within advanced economies in 2021, compared to a 0.5% increase in low-income countries.

Likewise, vaccine inequality, exemplified by the developed world purchasing five billion more doses than it needs for its citizens (enough to vaccinate Africa twice), and the stuttering rate of global vaccination showcases the difference in outcomes.

In the aftermath of the pandemic, these emerging and vulnerable economies are now faced with the bill of nearly a year of lockdowns and painful health-motivated restrictions. They are in deeper debt (global debt is at its highest levels in 50 years), inflationary trends are contracting savings and investments, and they now have less money to fund capital projects and economic initiatives.

As a result, we’re now going into a critical period for world peace and stability. Prosperity increases stability and vice versa. With the harsh incoming times for the developing world, we could see the hard-fought gains in global development over several years wiped away in just a few, making political and economic instability more likely.

I think the lesson here is that global peace and prosperity are a collective effort. The world now has a difficult task to manage the incoming challenge to foster and preserve a collective global charge in the right direction post-COVID.

Rapid industrialization and economic development have made China one of the world’s most influential and prosperous countries. The country’s meteoric rise in just under three decades is nothing short of amazing. However, the same factories and industrial centers that fueled Chinese economic growth also threaten its natural resources and create health problems for its citizens.

To the government’s credit, rather than deny the threat of climate change or double down on ineffective rhetoric, they made a concrete commitment to a green future and set out actionable policies to achieve this.

Today, China has made giant strides in its dedication to reducing pollution and, in my opinion, is also staking a credible claim as a global climate leader. As the Center for Strategic International Studies (CSIS) reports, while the country is currently the world’s largest emitter of greenhouse gases, it is also a powerhouse in renewable energy and is leading the race towards a sustainable future.

How did things change, and what did China do to reach this point?

China’s green track record

When China started its drive towards economic prosperity in 1978, it was fueled primarily by coal. However, with the country taking over as the world’s largest climate offender in 2006 and spurred by studies establishing pollution as a cause of one million Chinese deaths yearly, the government has made sustainability a core policy goal, and this commitment is paying off.

China currently leads the world in the production of renewable energy sources. The country is the largest producer of wind and solar energy worldwide. Likewise, it is the largest foreign and domestic renewable energy investor and is one of the foremost manufacturers of green tech globally. In 2019, the country held the most world-class patents in water, waste treatment, and recycling. Likewise, Chinese environment-related patents have ballooned by 60x since 1990, compared to just 3x in the OECD area.

With the government’s move away from coal, the World Economic Forum reports that “huge progress has been made on air quality, and there are now fewer smog days in China’s largest cities.”

How did the country get here?

As I see it, China has achieved its current sustainability status due to concrete and measurable planning towards climate goals. The country has made the drive to a green future a part of its government planning since 2001. Since then, each of the country’s five-year plans (FYPs) has included revised and steadily improving objectives for reduced pollution and greater climate action.

Further, as the Mercator Institute for China Studies reports, the country progressed under its 13th FYP (2016-2020), with virtually sixteen out of sixteen green targets met, thereby laying a foundation for more significant action in the 14th FYP.

The government has backed its climate commitments with funding too. In July 2020, the country set up an ecological environment fund that raised 88 billion Chinese yuan (CNY) as of January 2021. The fund is on track to become the second-largest national fund in the country.

Apart from this, China is using various strategies to procure its climate change objectives. This includes designating special green development zones such as Shenzen, Guilin, and Taiyuan. These cities focus on specific sustainability goals such as sewage treatment and waste utilization, desertification, and air and water pollution.

Private companies are also participating vigorously in the green drive. For instance, Alibaba helped create a Green Digital Finance Alliance, pulling other private corporations into the sustainability race, and launched an app (Ant Forest) to gamify carbon tracking. The app is already reported to have helped save 150,000 tons of CO2 as of February 2017.

There’s still work ahead

While the Chinese progress has been impressive, it’s important to clarify that the country can still do more. For instance, the Chinese share of renewable energy in overall power generation is still 12.7% (as of January 2021), compared to 14% in the EU. Also, while the country continued to implement many green targets in 2020, China added nearly 20 gigawatts of coal capacity in the first half of the year and approved another 48 gigawatts of additional power from new coal-fired plants.

However, as I see it, the Chinese progress on climate looks likely to bear positive fruits for the overall transition to clean energy. Western nations will be hard-pressed to emulate the Chinese to compete in green tech and allied advancements and show that the West is just as invested as the East in the move to arrest harmful climate change.

I have closely followed the recent upsurge in energy costs that characterized the end of 2021. According to global reports, coal, gas, and electricity prices rose to decade-high levels in the final months of the year, and projections were that the energy shortfall would continue well into 2022.

The International Energy Association reports that gas prices are at a record, with costs as of 3rd quarter 2021 at ten times the price a year ago.

In addition, coal prices increased 5x compared to 2020 prices, and natural gas prices tripled in October 2021 to their highest levels since 2008.

Many factors have been fingered as culprits for the energy squeeze, but one that seems to be thrown in now and then is the effect of reduced investment in fossil fuels and capital transfer to fledgling green energy projects.

Right off the bat, I would like to emphasize that investment in green energy is not the cause of the energy crisis. Moreover, as both the International Monetary Fund and the IEA clarify, blaming the clean energy transition for the situation is “inaccurate and misleading.”

Instead, there are various factors involved, not least of which are the 2014 and 2020 commodity price collapses and the resurgence of energy demand after a COVID-induced hiatus. I will briefly outline some of these causes and how we can expect things to evolve.

Why are energy prices so high?

While it seems like the energy crisis hit out of nowhere, there are longstanding reasons for the situation, and they mainly stem from the collapse of oil prices in 2014.

At the start of the 2010s, strong growth in the price of commodities created an oil industry boom, with prices sitting around $100 per barrel. The boom encouraged greater investment in the sector, significantly increasing supply. Similarly, developments in energy efficiency reduced worldwide demand, thereby creating an oil glut. However, major oil-selling countries failed to respond by lowering supply, and as a result, oil prices fell by 70% from 2014 to 2016.

One implication of this collapse was that investors lost appetite for new fossil fuel investment. Second, abundant oil also created a natural gas glut, making gas cheaper and a viable alternative for coal. Due to this, gas-fired plants gained ground, and the electricity systems worldwide began to rely more on gas instead of coal.

By the time COVID came around, the pause in fossil fuel investments was already several years old, and as Bloomberg reports, supply was already falling behind demand. COVID-19 tanked energy production globally due to lockdowns, the rampaging pandemic, and health regulations. While demand rebounded faster and stronger than expected, supply quickly fell further behind due to unexpected outages, a sizable maintenance backlog, and supply chain inefficiencies. Households and power plants began to compete for limited gas supply, which helped increase prices even more.

Currently, OPEC and Russia seem unwilling to intervene and help stabilize prices with increased supply. At the same time, the EU and other countries in the Northern Hemisphere have all but depleted their reserves in response to unseasonal weather, thereby leaving them unable to ease the supply hardships within their territories.

That said, I should note that climate policy is not exactly blameless in the overall operation of forces leading to this crisis. For example, increasingly stringent emissions targets in Europe, North America, and China have contributed to policies favoring gas (which is cleaner) over coal. But in the general scheme of things, climate policy has had a negligible effect on the crisis.

What will the new year bring?

The causes behind the current energy crisis are myriad, so it’s uncertain how things will develop within 2022. While major oil producers will likely open up their stores and help provide stability at some point during the year, other factors such as maintenance difficulties and destructive weather events are less certain.

I believe one potential solution could be to increase investment in renewable energy sources to help make the global system less vulnerable to wild swings in commodity prices. With decentralized energy production and renewable sources enjoying more production capacity, the world can recover from these commodity cycles quicker and suffer less damage as a result.