Global Crisis Response Group (GCRG): 3rd Brief Launch
3 August 2022
Thank you very much Secretary-General, for your strong message and leadership and for accompanying us once more today. Good morning, everyone.
Let me thank you first the task team on energy, part of three streams that have been working in these briefs and I want to thank Damilola Ogunbuyi and Rachel Kyte and all the principals of the task team for their very good work.
While we are at a defining moment for energy politics and energy policy.
In the brief, we center our attention on people’s pain, but we also sympathize with governments and policymakers, who are now under huge pressure. Our brief focuses as the Secretary General said on the realistic options in front of us.
But we must be clear about one thing. Decisions by the countries that consume the most energy have global implications for the rest of the world, and especially for the smallest and poorest countries that have little influence in these markets. After two years of a pandemic that was marked by extreme inequality, especially in vaccines, the world cannot afford another scramble, these times on fuels.
Before I go into our proposals for energy policy, I want first to say a few things about the situation as a whole – about this interconnected, multi-dimensional, cost-of-living crisis; the worst in a generation.
Since our last press conference at the beginning of June, the situation in terms of commodity prices has improved.
Crude oil is now around 93 dollars the barrel, down from 120 dollars in June.
Wheat prices are down almost 50% from their peak. Corn and fertilizer prices are almost 25% down from a month ago. Shipping costs are about 10% lower since June.
Only natural gas has bucked the trend and is still higher than a month ago.
These are positive developments, as falling prices are key to breaking the vicious cycle of rising costs, rising inflation, rising interest rates, and rising poverty.
There are many factors behind these price falls. Let me mention first the Black Sea Grain Initiative, which brought down wheat prices by 6% the day it was signed. Since then, we saw the first ship leave the port of Odessa. And today we can say prices are lower than before the deal.
Falling prices are good news but the efforts to improve the humanitarian situation are only starting. Prices have already been too high for too long. Since June, when we last met, forecasts for extreme poverty and food insecurity have risen by 71 million, and 47 million, respectively.
And we are also worried about the finance dimension of the crisis. Since inflation was rising in all regions of the world, and especially in developing countries, interest rates rise, and debts as the Secretary General said, are becoming much more expensive to pay. Bond spreads in developing countries are increasing by about 15% since June. The IMF now says that not only are 60% of low-income countries debts in or near debt distress, but also 30% of middle-income country debts or near debt distress. Also, about 40 billion dollars have left emerging market funds since the beginning of the year. And Global South currencies have also depreciated against the dollar, by about 5% since we last met.
As a result, imports in developing countries are becoming more expensive and domestic prices are increasing even as international prices fall. This is another sign of the interconnected nature of this crisis, of the vicious cycles we need to break. And this is proof, again, of the messages we have been giving in this Global Crisis Response Group since the beginning.
Let me now go very quickly into the energy policy recommendations of our Brief. These are our FOUR key messages.
First: In the short-term, the best fuel we have is the fuel we save.
On the demand side, the focus should be on reducing consumption in developed countries. This will help bring down the energy demand and allow to build reserves for winter. The decision of the European Commission last week to regulate gas consumption is a step in this direction, and we welcome it. In the brief we propose options in this direction for transport, heating, and cooling.
On the supply side, we can save almost 150 billion cubic meters of gas by reducing energy waste, such as gas flaring and methane leaks. This is close to two thousand terawatt hours of energy per year, almost two thirds of the EU’s yearly net domestic electricity generation.
Second: In developing countries, we need to make sure energy poverty does not increase and that the burden of this crisis is shared fairly and progressively.
Already one tenth of humanity has no electricity, and about a fourth has no access to clean cooking; disproportionally, women and girls.
Governments must target vulnerable households with publicly funded cash transfers and rebates through social protection policies. Governments should explore the most effective ways to fund these programs, including through windfall taxes on the largest oil and gas companies, whose combined profits as the Secretary General has already emphasized on the first quarter of the year were already close to $100bn.
A word of warning: countries are paying attention to what others are doing. We’ve seen developed countries setting in place blanket subsidies are their own gas stations and reopening coal plants. There are many proposed measures in the brief to avoid this, to not compromise the long term and sustainable goals through short-term measures.
Third: In the medium term, countries need to double down and recommit to renewable energy goals.
But developing countries need to be empowered to be able to transition. It is true that renewable energy is often the cheapest and most quickly deployable source of electricity for many countries. But this is only true if we ensure that supply chains work well and without bottlenecks, that the workforce has the right skills, and that enough funds will be made available for the initial investments. To meet these conditions, we have to scale up financing and technology transfer for the developing countries and the energy poor of the world.
Fourth and last; The energy transition should not be a luxury to those that can afford it.
According to the International Energy Agency as stated by the Secretary General, annual capital spending on clean energy in developing countries needs to be seven times bigger than it is now, to put the world on track to reach net-zero emissions by 2050. Today, developing countries are spending around 150 billion dollars on clean energy. They need to spend 1 trillion in investments.
This is why we say governments don’t need reasons to transition as the Secretary General said, they need options.
We propose many policies in this direction. Meeting the 100-billion-dollar pledge from advanced countries. Ramping up development finance lending, and accelerating the deployment of funds, specially by the multilateral development banks, who also have to support countries to leverage finance from public and private sectors. Funneling lending through carbon and sustainable debt markets. And government action is needed to increase private sector funding, by improving market transparency, de-risking investments; and sharing clear energy transition plans.
On top of what we have been asking for since our first Brief for a new emission of Special Drawing Rights, concrete solutions to the debt crisis in the developing countries, and galvanizing the coordination of international financial institutions.
Ladies and gentlemen, dear friends:
In a month, summer will be over, and the world will enter peak energy demand season, which is winter in the Northern Hemisphere. As the colder months draw near, the pressure governments feel today will get even worse. The only way to relieve this pressure is by working together.
By avoiding at all costs, a scramble for fuels. By shielding the vulnerable from energy poverty. By managing demand in a fair and equitable way. And by investing and doubling down on the energy transition. The short term and the long term start at the same time. And that time is now.