As a result, energy prices all over the globe are at an all-time high. power crunch hits EuropeAnd Asia — and the International Energy Agency warned Wednesday that volatility is here to stay.

According to the Paris-based agency, there is an underinvestment in the future for energy consumption. This will lead to unstable transitions towards zero-emissions. 

Fatih Birol, the IEA’s executive Director, stated that “there is a looming threat of more turbulence in global energy markets.” “We don’t invest enough to meet… the future energy demands, and uncertainties set the stage for an unstable period.”

The current underinvestment is mainly due to uncertainty in demand and policy. 

As the Covid-19 global economic recovery continues, the perils of an energy system that is misaligned on both the demand and supply sides are being exposed. As businesses are reopened and people return to their pre-pandemic lifestyles, energy demand has increased. However, supply remains tight as producers remain reluctant to increase production.

After falling to records lows in April 2020 oil prices are now up over 60%. However, U.S. natural gasoline prices have nearly doubled since this time last year. Europe’s spot natural gas prices reached an unprecedented high in this fall. Meanwhile, coal prices continue to rise as the winter heating season approaches.

Consumers and businesses will see higher fuel prices, which could impact the economy’s recovery.

The report stated that consumers can be vulnerable to price rises as evidenced by the events of 2021. “Volatility as well as price shocks are not to be dismissed during this period of transition.”

In order to understand how the world’s energy system might look in decades, the World Energy Outlook report presents three potential scenarios.

1. Stated Policy Scenario: Based upon policies that are already in place;
2. Announced Promised Scenario: Factors in targets not reached but made. This scenario shows that the demand for fossil fuels will peak by 2025.
3. The factors that will make it possible to keep global warming below 1.5 degrees Celsius by 2050 are Net Zero Emissions.

It was noted in the report that although each scenario saw oil demand declining, it is not the same as in the projections. However, this does indicate that the pace of decline can vary greatly. Energy producers face new challenges as a result.

According to the report, “If oil or gas is withdrawn from the supply before consumers in the world do, the world may experience market volatility or tightening.” “Alternatively, if companies misread the speed of change and over‐invest, then these assets risk under‐performing or becoming stranded.”

The IEA estimates that net zero emissions will be achieved by 2050 if clean energy expenditures reach $4 trillion by 2020. Although the number seems high, it is actually achievable to reduce emissions by as much as 40% with technologies that are cost-effective, like improving efficiency or limiting gas leaks.

Still, the majority — or 70% — of the money will need to come from private developers, consumers and Wall Street. 

According to the report, there are “huge economic possibilities” for renewable energy technologies such as wind turbines, fuel cells, battery systems, batteries and lithium-ion. The IEA estimates that the green technology market will reach $1 trillion per year by 2050. This is roughly equivalent to what the oil market currently stands at. 

Policy makers must provide clear signals and guidance. According to the report, if there are no good intentions on the road ahead it will lead to a very bumpy ride.”