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Regulation: Setback or solution for the energy transition? | 全国快3信誉最好的老平台-全国最大的快3平台
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Regulation: Setback or solution for the energy transition?

Photo of Katharina Beumelburg
by  Katharina Beumelburg
It’s no surprise that in a heavily watched industry like ours, the topic of regulation produces heated debates. Is there too much regulation? Too little? Both questions feel somewhat misguided, for it’s not the quantity of regulation that matters but the quality. Empowering the energy industry to accelerate its transition requires a well-crafted strategy combining long-term vision, lucrative incentives, timely approvals, and (of course) a clear intention to improve from industry players themselves.

We live in a world that needs more energy and less emissions. While these dual imperatives are often discussed in conflict, driven by competing priorities between governments, communities, and corporations, the reality is that they are deeply intertwined and must be solved together.

The energy transition presents an opportunity to achieve this balance by collaborating across the public and private sectors, bridging policy and innovation to reduce emissions today while ramping up the clean energy solutions of tomorrow. This work is well underway, but an element of the transition that still receives an immediate and polarizing reaction is the role of regulation.

I believe regulation is critical to achieving our energy transition ambitions, but it must be decoupled from short-term political agendas. Policies must be long-term in nature, shaped thoughtfully in a way that fosters investment, facilitates efficient decision-making, and empowers private sector leadership.

Here are three areas where regulation will play a pivotal role in the energy transition, either as a setback or solution:

Regulation drives confidence, and confidence drives investment

The International Energy Agency has stated that limiting global warming to 1.5 degC, clean energy investment would need to reach nearly USD 4.5 trillion per year by 2030. While this may seem staggering, it is simply the cost of developing and scaling first-of-a-kind (FOAK) technologies. For the private sector to deploy these levels of capital, companies need predictable project approval timelines, stable regulations, and confidence in future returns. Policy can play a central role in each of these areas by facilitating supply and demand throughout the value chain and helping make project economics work.

Over the past few years, a number of regulatory packages aimed at driving energy innovation, most notably the Inflation Reduction Act (IRA) in the US and REPowerEU in Europe. These packages have been very successful in driving investment and innovation by allocating tax incentives for clean energy generation, electrification, and low-carbon technologies.

Regulations like these, built on incentives rather than penalties, foster confidence in the market opportunity by derisking investments in research and development, as well as attracting potential customers. An example of this is the electric vehicle tax credit in the US, which reduces the barrier to entry for consumers by helping to offset the price difference of an electric vehicle. This, in turn, provides confidence to manufacturers that there will be consumer demand for the product, which encourages them to develop these vehicles and bring them to market. Importantly, these regulatory packages have also been highly tech-agnostic, encouraging the market to innovate different low-carbon pathways rather than mandating solutions—a critical element given the transition will require more tech, not less.

But technology can’t achieve the transition alone. The public and private sectors must work together to educate the wider population and build trust in the safety and reliability of new energy solutions, such as carbon capture and sequestration (CCS). Although CCS is necessary to achieve net zero by 2050, the permitting for CCS projects is often delayed by a lack of public support stemming from safety concerns. I believe there is an opportunity to learn from the success that the EU has had with hydrogen, where governments have spent decades educating their citizens on its benefits and helping it build momentum as a low-carbon energy source. This is an important lesson to replicate globally to drive widespread adoption of these exciting new energy solutions.

Regulation as an accelerator, not a bottleneck

Regulation is often criticized for its role in prolonging project timelines, particularly during the permitting stage. This is an essential area to solve, as the deployment of infrastructure is key to transition projects. To highlight the magnitude of this challenge, at the end of 2021, 79% of the US wind pipeline was in the permitting process versus the construction phase. And I can personally attest to the effects of permitting bottlenecks on our organization, as we had to wait nearly three years to receive permits for one of our new energy demonstration projects.

Speed is a particularly large challenge for FOAK technologies. To support the innovation needed to quickly develop and scale these novel solutions, we need to accept that we cannot simply copy and paste regulations that were designed around existing tech. In energy storage, for example, today’s rules are written almost exclusively around lithium batteries. If you are trying advanced technology for nickel-hydrogen batteries, you can run into regulatory slowdowns along the way.

We must be agile instead, developing new regulations for new technologies. To streamline processes, governments have started to roll out new regulations, including the Fiscal Responsibility Act of 2023 in the US and REPowerEU and the Renewables Energy Directive in Europe. These include provisions aimed at accelerating permitting timelines, but there is more to be done, particularly for FOAK technologies.

To put our permitting challenge into perspective, we need 2,000 large-scale CCS facilities by 2050 to achieve net zero, an increase of 100× compared to today. And while we have been discussing CCS for decades, less than 20 projects in the US have been approved. As permit requests for CO2 sequestration continue to accelerate in the US following the IRA and the revision of 45Q tax credits, the timeline to review and approve projects must be accelerated. And while there is no doubt the Environmental Protection Agency is increasing credibility in the permitting process with the release of transparent dashboards and commitment to reduce the permitting timeline to less than two years, we still have a long way to go.

An opportunity the World Economic Forum highlighted to expedite permitting is the enhanced use of digital technologies for automated workflows and process transparency. I expect the size of this opportunity to only increase as generative AI continues to scale, and it’s important that policymakers embrace this disruptive technology as an energy transition accelerator and staff up the teams involved in reviewing applications accordingly.

Private sector-led, government-enabled

While we typically start with the role of the public sector when discussing regulation, nobody understands the challenges and opportunities of the energy transition better than the energy industry. With our innovation capabilities and tech leadership, we are uniquely positioned to drive change, and we can do this by taking bold actions that go beyond regulatory mandates, replicating the success we have achieved with health and safety.

Methane is the most immediate opportunity to reduce emissions in oil and gas production, as most methane emissions are addressable using existing technologies. Rather than waiting for government mandates, our industry can take the lead by committing to transparent standards for monitoring and disclosure and holding each other accountable.

To do this meaningfully, we must embrace standardized frameworks and robust accountability measures, including third-party auditing. We must also ensure this is a collaborative effort across governments, industry, civil society, and academia. We are on the right track, as both the Global Methane Pledge, aimed at reducing methane emissions by at least 30% below 2020 levels by 2030, and the Oil and Gas Decarbonization Charter, including a commitment to end routine flaring by 2030, gained strong support at COP28. I am confident that these pledges provide concrete and actionable road maps for progress; however, we have an opportunity to be more comprehensive across the industry, and it starts by looking in the mirror.

Setback or solution?

After discussing a few of the opportunities and challenges tied to regulation, I believe we can agree that—when done correctly—regulation is definitely a solution, accelerating our path to a successful energy transition.

Through thoughtful regulation, we can navigate the complexities of our energy needs and environmental responsibilities to elevate global living standards and foster economic growth while safeguarding our planet against the most severe consequences of climate change. I am confident that together, we will be able to drive supportive energy policies that balance the needs of all stakeholders.

Contributors

Katharina Beumelburg

Chief Strategy & Sustainability Officer

Since joining 全国快3信誉最好的老平台 in 2021, Katharina has led the company as the first in the energy services industry to announce a 2050 net-zero carbon emissions target inclusive of Scope 3 and has been instrumental in building and executing the corporate strategy for the energy transition. Before joining the company, she spent more than 15 years in global leadership positions focused on business strategy and excellence, energy systems, especially power generation, hydrogen, and transmission, and consulting. Katharina holds a degree in industrial engineering from Universität Siegen, a degree in mechanical engineering from Universität Stuttgart, and a PhD in robotics and automation from Universität Stuttgart.