Economic and Political Determinants of Energy—Contemporary Challenges

Dear Colleagues,

The world economy still relies on fossil fuels and oil, coal, and gas play dominant roles in global energy systems. According to the International Energy Agency (IEA), 81% of the total supply of primary energy to the global economy comes from coal, oil and natural gas. Since the first quarter of 2020, the prices of the three main traditional energy sources have increased by 350%. Since our civilization is still fueled by fossil fuels, the world economy has plunged into crisis.

The recent increases in energy prices and the resulting surge in the prices of other goods are unprecedented in the history of the modern economy. Additionally, these upsurges are total. They affect electricity, heating, transport, manufacturing and all other areas. Unprecedented prices surge affect producers (who are forced to reduce production), consumers (who reduce consumption), but also politicians (who are obliged to create plans for the provision of economic resources).

On the one hand, the crisis paves the way for the fossil fuel industry to continue operating longer than previously anticipated. However, the challenge in this respect for most economies is the low elasticity of fossil fuel supplies. Keeping energy costs down requires significant investments. However, capital expenditures are not growing at a pace that ensures adequate adjustments, leading to increases in energy prices. On the other hand, it seems that the energy crisis will accelerate the green transformation. Europe has the most energy-efficient economy in the world and was already at the forefront of the green transition before the crisis. The current energy crisis is likely to further accelerate the energy transition in Europe. Thus, Europe has a chance to become a leader in the field of energy technologies. As a result of the transformation, the European energy sector will become more competitive, paving the way for export success. Despite the fact that China is the largest producer of photovoltaic panels, Europe will also play a leading role in this field in the future.

The green transformation accelerates electrification, which is associated with stimulating the development of non-fossil energy sources. The progress of the green transformation depends on the availability of effective energy storage technologies. Green energy sources tend to produce an oversupply of electricity at certain times that needs to be stored. Technologies with prospective applications in this area include the conversion of electricity into hydrogen through water electrolysis and fuel cells, as well as batteries and electric vehicles used as network load stabilizers.

The experience of the energy crisis will probably induce many countries to reevaluate the idea of energy self-sufficiency. Following Europe's drive to become independent of Russia for resources, Africa will need to fill this gap. As a result of such a turn, Europe will begin to compete with China for resources in this area. Such direct and long-term rivalry will undoubtedly lead to new geopolitical tensions.

Globalization has been the driving force behind low inflation in the world economy in recent decades. In financial markets, the progress of globalization has been crucial for equity markets and emerging markets. Hence, the slowdown of globalization processes will put pressure on inflation growth. There are many indications that the energy crisis will accelerate deglobalization and the world economy will divide into two competing systems. The energy crisis will lead to reshuffles in the global economy. It will potentially initiate a slowdown in development in some regions of the globe, and initiate development in other regions. Africa is perceived as a continent with the potential for a revitalization. Deglobalization will cause chaos in countries with structural trade surpluses. Among the consequences of deglobalization, threats to the US dollar as a reserve currency are also mentioned.

Each crisis situation is unique. Nevertheless, it is the reaction to it that determines future development opportunities, and, as past experience shows, it can push society onto a new path of development. Due to the complexity of developmental patterns, society moves from one crisis to another in its evolution. Despite a number of negative effects, from this perspective, crises can also be seen as turning points on the path of development.

Dr. Jacek Artur Strojny
Dr. Johan Van Ophem
Dr. Anna Krakowiak-Bal
Dr. Jarosław Knaga
Guest Editors

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