Accelerate energy transition to avoid collapse

LBS’s Ioannis Ioannou argues recent G7 decision to allow exceptional public financing of overseas fossil fuel project offers short-term fix only

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The G7 is set to allow exceptional public financing of overseas fossil fuel projects to continue provided that the investments are consistent with prior climate-change agreements in order to limit supply risk and avoid what has described as a Lehman-like collapse in the energy markets.

But how effective is this as a solution to the challenge faced by Europe in particular, as it races to replace Russian energy and to secure alternative sources of gas?

"The decision of the G7 is very concerning," says Ioannis Ioannou, Associate Professor of Strategy & Entrepreneurship and Academic Director of London Business School’s (LBS) Sustainability Leadership and Corporate Responsibility programme.

"As I argued recently in Forbes, we are collectively moving in an unwelcome direction. There wasn't much in the G7 announcement to alleviate concerns about the negative long-term implications of this decision. Of course, they would say that any new financing should be consistent with climate goals, but, practically, it is not clear how they are going to implement such a commitment. After all, what is a ‘short-term’ gas project, really?"

Typically, these projects take time to implement and remain in place for decades, Dr Ioannou explains.

"We would essentially be creating more stranded assets. Who is going to monitor this new financing to ensure compliance with the Paris agreement? If there is no such monitoring and compliance - an accountability mechanism - then the G7 statement lacks credibility."

"The only viable, long-term way to avoid a Lehman-like collapse is to double down on renewable energy and accelerate the energy transition,” says Dr Ioannou.

“In an ideal world, the G7 would have also proposed innovative, creative policies and a multilateral approach toward reaching Net-Zero. Instead, we got a lot of short-term oriented fixes with dubious, at best, long-term implications for our climate."