" energy transition is inevitable, but it must be "managed in an orderly manner" to avoid "climate chaos". This was stated Fabio Panetta, Governor of the Bank of Italy, during the G7-IEA conference “Ensuring an orderly energy transition.” In his speech, Panetta outlined the risks of a disorganized process and highlighted the opportunities and benefits of careful and coordinated management to “not compromise the results already achieved.” Governments of the world’s major economies must take a leading role, promoting investments in low-carbon energy and avoiding “stop and go” policies, which generate uncertainty and hinder private investment. Only through a well-planned strategy, which balances long-term costs and benefits and fosters solid international cooperation, will it be possible to avoid reaching “catastrophic climate tipping points.”
An inevitable transition, but one that must be managed in an orderly manner
For Panetta, there is no doubt: "The energy transition is inevitable", but he warned that it must be carefully managed to avoid “climate chaos”. And he issued a warning to those tempted to give up at the first signs of difficulty: “After a series of important steps forward following the 2015 Paris Agreement, we are now seeing signs of dissatisfaction with the energy transition, with some political backlash and redemptions from sustainable investment funds”. Despite this, there are also positive signs. “Global investment in clean energy is now double that in fossil fuels” and he praised China’s progress in the renewable energy sector.
However, the number one of Via Nazionale warned, there is no room for reluctance: the long-term benefits far outweigh the costs and “the risk of postponing further emissions reductions” could lead us straight towards “catastrophic climate tipping points”.
The Cost of Transition and International Cooperation
Panetta certainly did not hide behind false illusions: "The green transition will be expensive." Very expensive. The necessary investments, estimated “at over 3 trillion dollars for 2024”, are still “insufficient compared to the $4,5 trillion annually needed by 2030 to meet climate goals”. He highlighted that there is a lack of investment in emerging countries: “Despite representing a third of global GDP and two-thirds of the world’s population, emerging and developing economies, excluding China, account for only 15% of global clean energy investment. This underinvestment is partly due to difficulties in raising capital, as financing transition-related projects in EMDEs can be twice as expensive as in advanced economies”.
And here Panetta pulled out a proposal interesting: create a “Global Carbon Reduction Incentive” (GCRI), a scheme that would see high-emitting countries offsetting lower-emitting ones. An idea that, he said, would not only help close the financing gap, but would create stability and confidence in national climate policies, encouraging private investment, essential to achieving the goals set.
Avoiding New Addictions: Critical Minerals and Energy Security
But be careful, the Governor warned: “We must not fall into new forms of energy dependence”. Russia’s invasion of Ukraine has highlighted the urgency of reducing dependence on fossil fuels, but warned that simply reducing their use will not be enough if we end up dependent on the critical minerals needed for the transition – lithium, cobalt and copper, to name a few – whose production is dominated by a handful of countries. “China is the world leader in mining Rare lands, controlling around 70% of global production”, but “is also a leader in the production and diffusion of technologies such as wind and solar photovoltaic” he observed, noting how this dependence represents a significant risk for energy security, especially in Europe.
La solution? “Diversify sources of supply and strengthen relations with countries rich in critical resources,” to avoid a new vulnerability that could jeopardize the transition itself. He also cited “the Resilient and Inclusive Supply-chain Enhancement project” as a key initiative to improve the integration of critical mineral supply chains, supporting low- and middle-income countries in participating in the energy transition.
A nice puzzle to solve, but Panetta is confident that, with a little ingenuity and a good dose of European cooperation, it can be done.
Technology: ally or enemy?
The energy transition is not the only challenge we face: there is also the digital transition. Two phenomena that, as Panetta highlighted, are closely intertwined and both require “huge investments”. If on the one hand, digital technology is energy-intensive – think of data centers and artificial intelligence, which “now represent 2% of global electricity consumption but this figure is expected to more than double by 2026” – on the other hand, it can be aprecious ally, “helping electricity grids integrate intermittent renewable sources, improve forecasting and assessment of climate risks, and reduce the costs of sustainability reporting.”
As both the energy and digital transitions are inevitable transformations, it is up to us to “reap the maximum benefit, ensuring we maximize their combined potential and reap all the benefits, not just the costs.”
A shared and inclusive path
To conclude, Fabio Panetta touched on a fundamental theme: the public consensus. Without the support of the population, transition policies risk failing, and the most vulnerable will pay the highest price. “The least well-off households, whose consumption is heavily oriented towards energy goods, will be disproportionately affected,” he warned. “Similarly, companies in the most difficult to decarbonize sectors will have to adapt technologies and business models, facing significant risks to their survival.” He stressed the importance of addressing the issues with “adequate policies”. “Governments of the world's major economies must lead by example,” he said, calling on international leaders to promote low-carbon investments and avoid haphazard policies that create uncertainty and block private investment.
A successful transition requires a “comprehensive, credible and inclusive strategy” that simultaneously considers the environmental and social aspects of the problem, finding the right balance between ambition and feasibility. compensatory mechanisms, such as redistribution of revenues from carbon pricing programs, “are essential to mitigate the impact of the transition on less well-off families and on the competitiveness of the production system,” ensuring that no one is left behind.
Furthermore, it is crucial to “communicate the benefits with a clear, transparent and evidence-based approach” to increase legitimacy and trust among citizens.
Panetta left no room for doubt: the path towards an orderly energy transition will be difficult, but we have no choice.
Giorgetti: “Energy transition is also a social and economic challenge”
Also the Minister of Economy and Finance, Giancarlo Giorgetti, contributed to the conference via video link, defining the transition to net zero as “the main challenge of our time”. With his speech, Giorgetti highlighted that this transition goes far beyond the mere technological aspect: it is a far-reaching, social and economic challenge. He in fact underlined the need for a “rethinking of our policies, the reorientation of financial flows, the redesign and development of infrastructures and the diversification of our supply chains”, suggesting that only with an integrated and long-term vision can we face this global transformation successfully.
In the meantime, to ensure an orderly energy transition, “global spending must grow” significantly, “from the current level of around $2.000 trillion a year to as much as $5.000 trillion a year by the beginning of the next decade.” This was the central point of the intervention of mary Burce Warlick, Deputy Executive Director of the International Energy Agency (IEA), at the G7 and IEA conference held in Rome at the Bank of Italy. Warlick explained that this increase is essential to support the rapid evolution of clean technologies, improve network infrastructure and accelerate the electrification of the hardest to decarbonize sectors, such as heavy-duty transport and industry. She stressed that “this requires not only an unprecedented mobilization of financial resources, but also close collaboration between governments, financial institutions and the private sector.” To address these challenges, it is essential to adopt a clear and coordinated strategic vision, in order to avoid discontinuities and ensure an effective and sustainable energy transition.
