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Energy, the Economy, and Environment Nexus: Managing and Planning Energy is Critical

Professor Omowumi O. Iledare

The universal call to action is very explicitly stated in the agenda 2030 for Sustainable Development, which stakes high for energy by making access to modern, sustainable, reliable, and affordable energy by 2030. Planning and managing energy resources is a crucial part of economic progress, which is currently intimately related to sustainable development. Energy is an indispensable element for economic growth and social development. It is unquestionably the pivot for achieving sustainable economic and financial growth globally and especially for emerging African economies. Conservative knowledge holds that there is a significant nexus between energy consumption per capita and the level of economic and social progress that does exist. It is therefore challenging for governments to reduce energy consumption and, consequently, make significant lifestyle changes.

After the 1970s oil crisis, energy planning became a more popular topic of discussion. Global energy market evolution in the post-1970 period has been dramatic and its impact on the global economy and politics is weighty and unprecedented on several fronts. Such is evident in the cascading impact of oil and gas price volatility on the global economy and the Russia-Ukraine crisis impact on the already battered global oil market economy caused by COVID-19. According to the Organisation for Economic Co-operation and Development (OECD) (2022) global GDP growth would decline by over 1% point in the first quarter of 2022. These estimates would translate to global costs of between $380 billion and $950 billion in 2022.

The planning goals then mostly centered on diversifying resources and ensuring a sufficient supply of energy. But as time went on, the methods for energy planning shifted to find affordable energy options while keeping economic viability in mind as the crucial factor. These days, people’s lifestyles and overall quality of life are largely determined by their energy use. However, when energy is transformed into a process for consumption, it is always accompanied by environmental footprints in the form of greenhouse gas emissions, which have grown to be a major problem on a worldwide scale.

The world is using a lot of fossil fuels, particularly in emerging countries such as China to supply the rising need for energy. A large amount of the associated gas has been flared over the years at enormous economic and environmental costs locally and globally. Utilizing Africa’s gas resources to benefit the region will be a major challenge in the quest to achieve expanded energy access in the region. Currently, the use of gas is minuscule compared with its potential industrial and power use and LNG export should help eliminate all flared gas in the region. This condition not only contributes to climate change and global warming on a worldwide scale, but it also has serious local consequences by degrading environmental quality. Thus, energy management has evolved into a complicated problem in today’s world, necessitating careful consideration of economic and environmental cost-benefit analysis using the 3Es concept, i.e., the energy-environment-economic nexus.

Globally, energy and economic planning alongside environmental considerations have become a key focus. The criteria settings required for policy and decision-making in this regard consider environmental concerns, energy demand and supply, cost functions and a variety of constraints altogether. Most of these energy planning approaches are now well worked out by employing computer-based energy modelling tools. The developed countries are far ahead in addressing the concept of 3Es and have developed their national-scale energy models which are updated regularly, and are actively used for setting economic, environmental and energy security goals. Consequently, there are intricacies in the energy transition and the processes are beyond just the replacement of fossil fuels with renewables. Nevertheless, certain developed Asian nations, such as China and India, are developing energy strategies that tackle both air quality and emissions issues while simultaneously accommodating the anticipated growth in energy requirements.

China has prioritized using natural gas in displacing residential and commercial heating by using coal (Johnston et al., 2020). The dynamics of the energy transition have elevated certain global important questions for petroleum and trade. However, certain oil and gas companies around the world are retorting in different means. These include diversification of business models, provisions of support for the growth of decarbonization technologies such as capture and storage, reexamination of geopolitics and geography to reduce exposure, and adoption of an environment that focuses on climate and social governance into business models.

While some of the 3Es models are quite well developed, the economic, energy, and environment models are still in the evolutionary stage. There are two general types into which all 3Es models can be divided: top-down and bottom-up. The engineering methodology used in the bottom-up models is more technologically detailed in terms of energy supply, demand, and system-wide energy transformation. These models serve the goal of environmental impact assessment and are primarily concerned with the upstream and downstream operations in the energy system.

Unfortunately, emerging countries, particularly those in Africa South of the Sahara are confronting the worst energy crisis in the form of electricity and natural gas shortages which has led to the policy of forced load shedding in these countries. The electricity supply outages in the country over the last decade ranged from 8-12 hours per day in urban areas and up to 18 hours in rural areas. The reasons behind the failure of the energy system are the growing gap between demand and supply, followed by depleting energy resources and financial constraints. Low-income countries account for less than seven percent of global energy consumption. These disruptions perpetrate grave concerns for development, growth, and survival. The issue of equity will be raised when emerging oil producing economies in Africa are required to invest in more expensive sources of energy projects and not in less expensive sources that are costly to the citizens. This is because renewables such as solar and wind are intermittent, which makes it difficult to predict and rely on them.

Many people, particularly those in low-income and marginalized communities, lack access to modern energy services, relying instead on traditional and often inefficient and unhealthy sources such as biomass, kerosene, and diesel generators. Many people around the world lack access to modern energy services, with as many as 789 million people still without access to electricity, according to the International Energy Agency. This energy poverty is often concentrated in rural areas and in low-income households in both developing and developed countries. Lack of access to energy services can limit opportunities for education and economic advancement, contribute to health problems and environmental degradation, and exacerbate social inequalities.

Achieving energy equity requires addressing several challenges, including addressing energy poverty, improving energy infrastructure in underserved communities, and promoting the use of clean energy sources. This can involve expanding access to electricity and clean cooking fuels, investing in renewable energy, improving energy infrastructure, and promoting energy-efficient technologies. Policies and initiatives that promote energy equity can include expanding access to affordable financing for energy improvements, increasing investment in energy infrastructure in low-income and marginalized communities, supporting community-based energy projects, and promoting energy efficiency and renewable energy technologies. The massive abilities to utilize petroleum to expand energy access lays the fundamental foundations to embark on industrialization, which drives economic growth and development.

In conclusion, the relationship between energy and the economy is intricate. Economic growth often correlates with increased energy consumption, as industries and households require energy to function. Many countries have been working towards diversifying their energy sources to ensure energy security, improve resilience, and reduce dependence on a single energy type. Transitioning towards renewable energy sources has gained momentum globally, driven by factors like environmental concerns, policy support and technological advancements. This transition is expected to impact various economic sectors, creating new job opportunities and fostering innovation. It is not necessarily a trilemma but additional economic opportunities in emerging economies that are energy insecure in terms of accessibility, affordability, adaptability, and availability.

Further, the environmental impact of traditional energy sources, such as fossil fuels, has led to increased attention on sustainable alternatives. The burning of fossil fuels contributes to air pollution, greenhouse gas emissions, and climate change. The shift towards renewable energy, including solar, wind, and hydropower, is seen as a crucial step in mitigating environmental damage. This transition aims to reduce carbon emissions, promote cleaner air and enhance overall environmental sustainability. Technological advancements, policy incentives, and public awareness are driving efforts to adopt cleaner energy technologies and practices. Notwithstanding, it is not necessarily about reducing fossil fuels but more about reducing emissions.  Hence technological growth and technical progress and advancements in technology offer a clearer path to emission reduction than defunding fossil fuel without compromising the explicitly stated agenda 2030 for Sustainable Development.

Of course, the interconnection between the economy and the environment is vital. Economic activities can both positively and negatively impact ecosystems, biodiversity, and overall environmental health. Sustainable economic practices aim to balance growth with environmental conservation. Concepts like circular economy and green growth emphasize resource efficiency, waste reduction, and sustainable development. Policies and regulations play a crucial role in aligning economic activities with environmental protection goals. Many governments are implementing measures to encourage businesses to adopt environmentally friendly practices.

Finally, the outlook for the energy, economy, and environment nexus is likely to be shaped by ongoing global efforts to address climate change and achieve sustainable development goals. Technological advancements, international cooperation, and policy frameworks will continue to influence the transition to cleaner and more sustainable energy systems. Economic models that integrate environmental considerations, such as the true cost of natural resource use and environmental externalities, are expected to gain prominence.