After a minor COVID-induced drop, global energy investments rebounded to pre-pandemic levels in 2021 ($1.9 trillion) – an increase of 10% over 2020 – reports the International Energy Association (IEA). And in what will be music to the ears of policymakers and green energy advocates, much of the investment attention shifted from traditional fuel production to power generation and end-use sectors, with electricity attracting the lion’s share of renewable energy funding.

Amidst the tumult and uncertainty of the global pandemic, a strong theme advocated by governments and international agencies was the opportunity the crisis provided to “build back better.”

Indications from 2021 energy investments suggest that has been the case, at least as it concerns renewables. Here, I briefly discuss the extent of those investments and how they augur for a move towards net-zero and green economy.

Performance of global investments in renewable energy

Following projections that global energy demand would increase by 4.6% in 2021, energy financing experienced a general uptick as interest in infrastructure, and new projects surged during the year. Noting the upward trend in financing mid-2021, the IEA proposed that “the anticipated upswing in investments in 2021 is a mixture of a cyclical response to recovery and a structural shift in capital flows towards cleaner technologies.”

The IEA reports that global power sector investment accounted for a large chunk of 2021 energy spending, increasing by 5% to over $820 billion in 2021. Most of that financing ($530 billion) was directed toward new power generation; renewables accounted for over 70% of this amount. Asides from this, investors also saw more bang for their buck, with a dollar spent on wind and solar photovoltaic installations producing four times more electricity than ten years ago.

“Electrification was also a major driver of investment spending by final consumers,” says the IEA. “Electric vehicle sales continue to surge along with a proliferation of new model offerings by automakers, supported by fuel economy targets and zero-emissions vehicle mandates.”

In the same vein, BloombergNEF reported in January 2022 that the previous year saw a 27% rise in low carbon energy investments, with nearly half emanating from renewables investment in Asia. As a result, total yearly spend on energy transition was $755 billion, a new record in sustainable energy spending.

However, I must say that despite the encouraging short-term news, global energy investment has yet to breach the levels required to forestall climate disaster. The IEA also agrees, noting that “clean energy investment would need to double in the 2020s to maintain temperatures well below a 2°C rise and more than triple in order to keep the door open for a 1.5°C stabilisation.”

The big question, though, is where will that money come from? Blended finance might provide an answer.

Blended finance in green energy projects

Blended finance, a type of public-private partnership, combines public concessional funding with private investment to de-risk certain project types. As the World Bank puts it, “blended finance, which combines concessional public funds with commercial funds, can be a powerful means to direct more commercial finance toward impactful investments that are unable to proceed on strictly commercial terms.”

Renewable energy projects are frequently “constrained by investors’ perception of high risk and low returns,” Consequently, the flow of private capital into these projects is often halting. However, concessional financing in the form of debt, equity, or grants, appropriate risk-mitigation measures, and suitable seniority in terms of loss protection and the security of returns can make these projects attractive to investors.

The World Bank reports that blended finance could be vital in attracting larger investments in clean energy, and sub-Saharan Africa provides a model for how these partnerships can work.

Data privacy and security are a key focus for CFOs, says a 2019 survey by management consulting firm Protiviti. The survey, which polled 817 CFOs and finance leaders worldwide, reported that 84% of respondents rated data privacy/security as their top priority overall and second-highest budget item.

“Company-wide efforts – particularly regarding transparency, assurance, accounting and reporting insights – are now considered to be within the CFO’s expanding domain of accountability,” says PwC. “Areas like cybersecurity and data privacy need funding to provide preemptive action.” But the CFO’s work is pushing even those bounds of duty, as they must not only procure and channel the needed funds to IT and data security but also be actively involved in procuring cyber insurance to help meet the risk.

Key risk factors for CFOs

In a finance industry increasingly ruled by electronic data, it’s understandable that keeping customer information and internal corporate processes safe is top of mind. And considering the now commonplace incidence of expensive data breaches and security infrastructure failures, the stakes are higher than ever. Even a single breach can compromise the data of millions of customers, exposing companies to significant financial losses, severe brand damage, and expensive litigation.

For context, the average cost of a data breach was $3.79 million in 2015. But as of 2021, a data breach costs over $4.2 million, says IBM’s Security Cost of a Data Breach Report. And the longer the breach stays uncontained, the more expensive it gets, costing companies $1.26 million more if it takes 200 days or more to contain.

While the problem seems clear – companies cannot afford laxity when it concerns cybersecurity – any potential solution suffers from multiple complexities. For instance, how people interact with data is a serious risk factor for finance organizations. Data can move from permanent drives to the cloud and back easily, often with the aid of “shadow IT” or unsanctioned services. And the way that people use these services changes often, enhancing the risk that IT departments and CFOs must grapple with, both externally as it concerns their customers and internally in relation to staff.

Additionally, CFOs themselves are often targets of cyberattacks. As individuals who handle sensitive financial information with a high access level, CFOs are ideal candidates for Business Email Compromise (BEC) schemes. A threat actor may masquerade as a legitimate vendor to hijack transactions, divert funds, or steal critical financial information.

Reducing risk for CFOs

The risk for CFOs is clear, but how do they mitigate cybersecurity risk and implement solid programs that offer frontline protection? I believe the first step is knowledge-based.

As Protiviti states in its 2018 survey, “in all likelihood, most finance leaders lack sufficient understanding of the technical aspects and requirements of appropriate security and privacy measures, resulting in a fear of the unknown and substantial reliance on the effectiveness of others.”

Therefore, plugging these knowledge gaps will be indispensable to formulating and executing the required approaches to meeting cyber risk. A low-hanging fruit for CFOs in this regard is to pursue active collaboration with IT and security teams “to articulate and implement specific controls for and protections against cyber-risk.”

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.

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.

There is a lot of interest and hope in hydrogen, but what exactly are we discussing?

Hydrogen is an extremely common element: 90% of the universe is composed of hydrogen (H) atoms. It is important to note that, like electricity, hydrogen is an energy carrier. It is an element that is used to transport energy from point A to point B.

The main advantage of hydrogen is its high energy density. One kilo of hydrogen can store three times more energy than one kilo of petrol, and one hundred times more than the best electric batteries!

This characteristic makes it possible to consider hydrogen as a very interesting alternative for the transport sector. Hydrogen increases the range of vehicles, especially those that travel long distances (cars, trains, heavy vehicles). Moreover, hydrogen is a gas; filling up a vehicle with a gas is much faster. While it takes 6 to 8 hours to recharge a vehicle’s electric battery, it only takes a few minutes for an electric vehicle that runs on hydrogen. Hydrogen allows both more energy to be carried, and therefore allows for longer distances to be travelled, and for a faster recharge.

During the past year, freight prices have been increasing nonstop and have now hit a record high. Bloomberg has highlighted that the rate to ship a forty-foot container to Rotterdam from Shanghai has jumped by 485% year-on-year, following a 3.1% rise over a week, according to information released by the Drewry World Container Index.

The new price slightly exceeds the threshold of 10,000 USD, reaching 10,174 USD. Between 2016 and 2020, this rate never rose above 3,000 USD.

I also look at the composite index data, which is drawn up by a UK analyst firm and keeps track of a number of major shipping routes worldwide, rose by 2% within a week to 6,257 USD, recording another massive year-on-year growth of 293%.

Neither of these values have been seen in records before, which date back to 2011.

The Maritime Executive reported additional results from Xeneta, another market intelligence firm which collates financial data from shippers. The numbers show similar growth, with the global benchmark recorded as having risen by 34.5% since the beginning of 2021.

What I’m seeing that rates have increased in all major trade corridors over those five months, with routes between the Far East and Europe taking the lead and witnessing price spikes of more than 50%.

Bloomberg attributes these huge rate increases to the low availability of twenty- and forty-foot containers in comparison to demand.

I can foresee that freight rates will eventually settle back into ‘normal’ levels, but until then, shipping companies will have to endure the uncertainty around when that will happen and find ways to keep up with the logistics costs they are facing in the meantime.

US Trade Representative Katherine Tai announced that “these extraordinary times and circumstances call for extraordinary measures.

It is reported that 10-15 billion vaccine doses are needed to stop the spread of the virus; by April 2021, there had only been 1.2 billion doses produced worldwide.

The way I see it, US’s stance is circumstantial and in a way symbolic; the WTO negotiations could last for months curtailing to have an immediate impact in ending this present health crisis. Nevertheless, I believe this is very big news.

With this declaration US administration is following India and South Africa, which in early October 2020 issued a proposal for temporary suspension of IP rules in the context of Covid-19. In this regard, EU Commission President Ursula von der Leyen also said she was “ready to discuss any proposal that would tackle the crisis in an effective and pragmatic way.”  WHO Director-General Tedros Adhanom Ghebreyesus and UN Secretary-General Antonio Guterres were overjoyed with the news and congratulated the US on this historic decision.

Not surprisingly, the pharmaceutical industry took the White House’s decision very badly. They argue that developing countries lack the skills and resources to manufacture COVID vaccines based on new technologies. They also say that it will undermine the pandemic response, risk-taking and innovation in vaccine research. In my view, one thing is clear; this waiver, if can be applied timely on WHO scale, will deprive the big pharma of monopoly profits during this pandemic.

The big pharma prefers the donation of vaccines to patent infringement. There, however, promises have not been kept so far. The COVAX Facility, the global pooled procurement mechanism formulated by WHO for COVID-19 vaccines, was supposed to distribute two billion doses by the end of 2021 to the poorest countries, has not received enough deliveries, being able to provide only 53 million doses so far. Despite this largest vaccination campaign in history, one in four people in developed countries have been vaccinated to date, while in low-income countries it is one in 500. Can we give a better example of inequality?

On the flipside of the coin, there are also geopolitical concerns. Thus far, China and Russia exported their vaccines in quantity and have engaged in significant technology and knowledge transfer, forging partnerships around the world, and helping to speed up the global vaccination effort. This has been clearly an act of benevolent power to the world. The US and the EU are surely taking this perspective into account as well.

In today’s world, I think it is nearly impossible to think outside of the box of Big Data. Generous and benevolent they all seem, these programs will help to gather huge amounts of valuable medical information and records in less developed countries, where privacy and data protection regulations are much more lax compared to developed countries.

Following almost a decade of negotiations, 15 countries in Asia and the Pacific signed a historically important trade agreement on November 15th, forming the Regional Comprehensive Economic Partnership, RCEP.

This China – led agreement aims to create a free trade area between China, Japan, South Korea, Australia, New Zealand and the ten ASEAN (Association of Southeast Asian Nations) countries, which include Indonesia, Thailand, Singapore, the Philippines and Vietnam. Its members account for 30% of the world’s GDP. In addition, it will affect more than 2 billion people.

The agreement provides for reductions in import taxes, harmonisation of customs procedures and also includes clauses on respect for intellectual property. It excludes, however, everything relating to the protection of workers and the environment.

According to my reading of several experts on the subject, the deal could add almost USD 200 bn annually to the global economy by 2030.