It is not only climate change and the need to transition quickly to net zero that are placing demands on the energy sector, insurers and governments, but also ensuring energy security and affordability in the light of Russia’s war in Ukraine.

Statements by world leaders early in the summit offered some hope of recognition that the war cannot be used as a reason to depart from the transition away from fossil fuels, and instead should act as further motivation to accelerate efforts to renewables but consensus is hard to achieve and progress has been stuttering.

Despite this a wave of initiatives came out of yesterday’s Energy Day:

  • The Planning for Climate Commission, led by the Green Hydrogen Organisation, International Hydropower Association, the Global Wind Energy Council and the Global Solar Council, will focus on improving the planning and approval process for renewables and green hydrogen.
  • US Climate Envoy John Kerry and German Galushchenko, the Ukraine Minister for Energy, announced a pilot project - ‘Ukraine Clean Fuels from Small Modular Reactors’ - to demonstrate production of clean hydrogen and ammonia using small modular nuclear reactor and electrolysis technologies in Ukraine.
  • The ‘Africa Just and Affordable Energy Transition Initiative’ aims to accelerate preparation, financing and implementation of African countries’ energy strategies.
  • Turkey updated its targets for reductions in greenhouse gas emissions, committing to a 41% reduction by 2030 in comparison to its former target of 21% by 2030. The EU has also announced its plans to cut emissions by 2% to 57% by 2030.
  • Separately, at the G20 gathering in Bali, leaders announced the launch of the Indonesia Just Energy Transition Partnership aiming to raise finance to help Indonesia accelerate a just energy transition away from fossil fuels and towards renewables.

The potential economic benefits of the energy transition were highlighted in a report from the Africa Green Hydrogen Alliance and McKinsey. This said the economic potential of green hydrogen could increase the GDP of Egypt, Kenya, Mauritania, Morocco, Namibia and South Africa by US$126bn, or 12% of current GDP.

Transition risk comes into sharper focus

The scale of the transition away from just one fossil fuel, coal, was highlighted in a report released yesterday by the International Energy Agency, Coal in Net Zero Transitions: Strategies for Rapid, Secure and People-Centered Change. The report concludes that, to meet international climate goals, coal emissions need to drop around one third by 2030 and fall by 90% by 2050. The report also highlights the social and employment consequences of such changes, and IEA Executive Director Farih Birol said “while there is encouraging momentum towards expanding clean energy … a major unresolved problem is how to deal with the massive amount of existing coal assets worldwide”.

The insurance industry is in a unique position to support this transition within a realistic and sensitive time frame underpinned by innovative policies.

The Net Zero Insurance Alliance is a group of over 29 leading (re)insurers committed to transition their portfolios to net-zero greenhouse gas emissions by 2050. Some major groups have gone further, setting 2030 or 2040 as their target date. Recently, Munich Re Syndicate announced that from 1 April 2023 it will no longer invest in or insure contracts/projects exclusively covering the planning, financing, construction or operation of new oil and gas fields, midstream infrastructure related to oil, and new oil fired power plants.

Even with this progress, campaigners continue to up the pressure on the insurance industry to withdraw underwriting and investment support for fossil fuels. The energy crisis means insurers need to revisit the conversations they are having with their insureds, as well as internally on how their portfolios and investments can support the targets of the Paris Agreement.