Ukraine war one year on: Clean energy arms race triggered

MSCI predicts fossil fuel consumption will peak by the mid-2020s


Laura Miller

Increased demand for hydrocarbons triggered by the war in Ukraine is temporary, and could accelerate decarbonisation in the long run as countries seek to boost their energy security and limit exposure to volatile fossil fuel prices, according to analysis by MSCI. 

Russia’s invasion of Ukraine one year ago has since triggered a restart of idled coal and oil-fired power plants across the world, as Russia turned off the taps to much of its gas supplies.

But MSCI analysts predict fossil fuel consumption will peak by the mid-2020s, as the Russia-Ukraine war slows global economic growth and curbs hydrocarbon production in Russia.

Clean energy may meet most of the expected growth in demand through 2025, despite temporary headwinds from windfall taxes, trade conflicts and high interest rates, they added.

Mahmood Pradhan, head of global macroeconomics at Amundi Institute, commented: “The war may reinforce policymakers’ resolve to speed up the region’s climate agenda and its net-zero objectives.”

Reducing dependence on fossil fuels is a 10- to 15-year prospect, he added.

Energy transition

The war in Ukraine has led to the auctioning of new oil and gas leases in the UK and US, gas-import infrastructure expansion (particularly in Europe) and further support for coal buildout (especially in China and India) amid rising concerns about energy security and affordability. 

These factors and the easing of Covid-19 restrictions in China may drive a further increase in global fossil-fuel emissions until the mid-2020s, analysts at MSCI said.

This may be especially true in emerging markets, where projected company emissions were already misaligned with global temperature targets, based on MSCI’s Implied Temperature Rise (ITR) analysis.

However, in response to the war in Ukraine, countries have moved to enact policies that may allow companies to significantly boost their share of green revenues by increasing investment in clean technologies.

Countries are offering more-generous green subsidies, as in the case of the Inflation Reduction Act in the US and the EU’s Green Deal Industrial Plan and REPowerEU.

China has addressed permitting delays and overdue subsidy payments owed to clean-power companies, and Japan and South Korea have reversed nuclear-phaseout plans to boost long-term energy security. 

In Europe, the initial energy supply shock of the war in Ukraine amounted to a 4% hit, in terms of trade, to GDP and contributed to the very sharp and sudden increase in inflation, according to analysis by Amundi Asset Management.

Europe has used much of its fiscal power to buffer the impact on households and firms but will need a new energy mix to preserve the international competitiveness of its energy-intensive sectors, the fund house said.

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