The war in Iran is exposing the vulnerability of the global energy system and could ultimately accelerate the transition to sustainable energy. That is what economist Ronald Huisman states in an interview with Erasmus Magazine. According to the Professor of Sustainable Energy Finance at Erasmus School of Economics, the persistent uncertainty surrounding oil and gas supplies is leading to a growing awareness that Europe must become less dependent on fossil energy.
‘Twenty per cent of the world’s oil supply passes through the Strait of Hormuz,’ says Huisman. ‘Now that route has been blocked for weeks, people sense that this crisis may have far longer-lasting consequences than previous energy crises.’ The conflict is already affecting virtually every sector of the economy. Not only are petrol prices rising, but food and plastics are becoming more expensive as gas is a key ingredient in fertiliser production and oil is essential for plastics manufacturing. Huisman believes this could lead to greater awareness of recycling, reuse and sustainable energy solutions.
Investment still falling short
Despite this, the energy transition remains challenging, according to Huisman. Many sustainable projects currently fail to deliver sufficient returns for investors. Offshore wind projects in particular have become increasingly difficult to finance due to rising labour and material costs. He also points to congestion on the electricity grid as a major obstacle. ‘We have invested heavily in wind turbines and solar panels, but not enough in the infrastructure needed to store and transport that energy.’ According to Huisman, both governments and investors still tend to think in isolated parts of the energy system rather than as an interconnected whole. ‘If you invest only in energy generation, but not in networks and storage, the entire system eventually grinds to a halt.’
Greater awareness of systemic risks
The war in Iran is also making investors more conscious of geopolitical risks, Huisman says. Pension funds and impact investors in particular are increasingly considering the consequences of energy crises for food security, industry and social stability. ‘Roughly a third of all investment assets in Europe are now invested sustainably,’ he explains. ‘More investors are realising that you cannot simply focus on individual shares, but must consider how the entire energy system functions.’
Reopening the Groningen gas field back on the agenda
Notably, Huisman also argues for a pragmatic approach to natural gas during the transition towards sustainable energy. He therefore understands the renewed debate surrounding the possible reopening of the Groningen gas field. ‘An energy transition takes years,’ he says. ‘You cannot switch from fossil fuels to sustainable energy overnight. During that transition period, fossil fuels are still necessary, and gas remains the least polluting option.’ At the same time, he stresses that the interests of Groningen residents must remain a central consideration in any decision-making process. According to Huisman, the current crisis above all demonstrates the importance of long-term thinking. ‘Geopolitical risks are part of the system. The only way to become less vulnerable to these kinds of shocks is to strengthen the energy system as a whole.’
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Read the interview from Erasmus Magazine here. For more information, please contact Ronald de Groot, Media & Public Relations Officer at Erasmus School of Economics: rdegroot@ese.eur.nl, +31 6 53 641 846.
