It may sound like a trivial name change, but it’s an important indication of where the priority lies for many countries, especially in Asia. Energy security is of paramount importance.
It is also important that Japan leads such a focus, as Tokyo will chair the Group of Seven Nations in 2023, giving it a powerful pulpit to shape the global agenda. Japan has not yet announced its G7 priorities, but I hear from diplomats in Asia that energy security will be a major priority.
In the world of natural resources, policymakers have long wrestled with a trilemma: how to achieve security of supply, keep prices down and protect the environment – all at the same time and for commodities from crude oil to wheat to aluminum. Such a trilemma often meant that one of the three gave way to the other two.
In the 1970s and 1980s, with fresh memories of the first and second oil crises, security of supply and affordability prevailed over sustainability. For example, in 1979, the G7 countries went so far as to pledge at their annual summit to “maximum use of coal” to reduce energy costs. The trilemma equilibrium began to change in the early 1990s with the rise of the modern environmental movement. And in the past decade, as evidence of global warming has mounted, climate change has become a priority.
The current energy crisis is forcing governments to reassess their priorities. Security and affordability are making a comeback. It is true that policymakers insist that they are not shying away from climate change. But it is clear that the environment is no longer the absolute priority. At best, it is first among equals. At worst, it takes second place.
Take the view of Yasutoshi Nishimura, Japan’s minister of economy, trade and industry, an extremely powerful body better known by its abbreviation METI. “Countries share the goal of achieving carbon neutrality while ensuring stable energy supplies,” he explained at the Bloomberg New Economy Forum conference in Singapore last week. Notice how he puts climate change and energy security on the same level.
The new emphasis on security is a major reason why COP27 made so little progress on what really matters in the fight against climate change: the need to reduce fossil fuel consumption and greenhouse gas emissions. Rich countries have taken a first step towards paying poor countries for the losses they suffer from climate change, but elsewhere the summit has done little. The European Union had to threaten to walk away in order to avoid further falling back on targets.
In many ways, this shouldn’t be surprising. Despite claims that the energy crisis would not derail the fight against climate change, it is simply impossible for governments not to rethink priorities. Even the richest countries grouped in the OECD club are suffering. This year, according to OECD calculations, they will spend 17.7% of their gross domestic product on energy, the second highest ever and almost equal to the 17.8% of 1980-1981 during the second oil shock.
Fortunately, the current energy trilemma is not as difficult as the energy trilemma that G7 policymakers wrestled with in 1979, when they ironically switched to coal as the solution at a summit in Tokyo. Four decades later, renewable energy makes it possible to both protect the planet and improve security.
As Vladimir Putin showed this year when he weaponized the gas supply against Europe, fossil fuels offer no better security than green energy. The G7 should push for more wind and solar energy, improve supply chains, increase research and development spending and accelerate project approval. One house, one solar panel should be the goal. Nuclear is also an excellent means of bringing the environment and safety together.
And the biggest contribution Japan could make to solving the energy trilemma is to focus on lowering demand. The best source of energy is that which is not consumed.
In the past, policymakers have mistakenly tried to address climate change by limiting supply while demand continued to rise. As a result, the global economy has underinvested in new oil and gas supplies and prices are likely to remain higher than they should have been. The solution is to work on lower demand – and fast.
That is of course easier said than done. For now, demand for fossil fuels is rising and oil, gas and coal are likely to set new consumption records in 2023. As long as that is the case, the world will go in the wrong direction.
But Japan can show that there is another way. In 1979 it consumed 5.5 million barrels of crude oil per day; this year it will only ask for 3.4 million. That’s a step toward solving the trilemma, but replicating it elsewhere will require a massive and costly effort to electrify everything from heating to driving. The G7 needs to go one step further.
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This column does not necessarily reflect the views of the editors or Bloomberg LP and its owners.
Javier Blas is a Bloomberg Opinion columnist on energy and resources. A former reporter for Bloomberg News and commodities editor at the Financial Times, he is the co-author of “The World for Sale: Money, Power and the Traders Who Barter the Earth’s Resources.”
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