What is energy equity and why is it stalling globally?

After a decade of progress, what many are terming the 'polycrisis' has caused the global energy transition to plateau, according to a new World Economic Forum report, Fostering Effective Energy Transition 2023. While headway towards clean, sustainable energy has been made, there are emerging challenges with the equity of the transition, especially in developing countries.

The gap in energy transition progress between advanced and developing economies is now starting to widen again. This is putting developing countries at risk of losing their momentum to provide access to clean and affordable energy, and taking us further off course from the global target of net-zero emissions by 2050.

Here’s why energy equity is important, and why it is stalling globally.

The idea of energy equity is rooted in principles of social justice, and assumes that affordable and reliable energy should be a fundamental human right and a vital component of reducing poverty and improving our quality of life.

However, recent progress is stalling and the Forum’s latest Fostering Effective Energy Transition report shows countries are shifting their focus to energy security at the expense of equity, which could slow down the energy transition.

"While ensuring energy security and sustainability is critical, so is maintaining and building energy equity. This will require large-scale international financial support to low-income countries and such a ramp-up is crucial to ensure an inclusive transition that benefits all nations, regardless of their economic status," says Roberto Bocca, Head of Energy and Materials at the World Economic Forum.

The report draws on insights from the Energy Transition Index (ETI), which seeks to benchmark 120 countries in two areas: the performance of their energy systems in terms of equity, energy security and environmental sustainability; and readiness for the energy transition. It also evaluates countries’ “transition momentum” for the first time, to highlight the need for consistent progress on a timely and effective transition.

The index shows that out of 120 countries, 114 countries have made progress over the last decade, but this has broadly levelled out in recent years. This means the UN’s Sustainable Development Goal of affordable, reliable and sustainable energy access for all by 2030 will likely be missed.

The ETI also highlights a drop in equity, which is not just impacting the time it takes to complete the energy transition but also making life harder for people today. The report suggests that 75 million people who had recently gained access to electricity can no longer afford to pay for it, and 100 million people are likely to revert to using biomass for cooking – a less healthy and more polluting method of preparing food.

The top scorers in the “equitable” domain are Oman, Canada, the US and Sweden, all of which have high electrification rates, low industrial energy prices and low fuel subsidies. The four poorest performers – Democratic Republic of Congo, Zambia, Tanzania and Senegal – are all in sub-Saharan Africa and have low scores on electrification progress.

The overall ETI scores have plateaued in the past three years, putting energy equity under pressure. The chart above covers key shocks to the energy system over the last three years. Notably, energy supply got tighter in 2022, particularly in Europe, which led to an increased focus on energy security. But with security prioritized, energy prices rose rapidly and equity fell.

The increase in energy prices disproportionately affected poorer households, using up a higher percentage of households’ overall income and potentially cutting off energy access to the poorest. If inflation continues to rise, there will be more price surges in energy commodities, which will put vulnerable countries at risk of reversing gains in affordable energy access, the report says.

Fossil fuel subsidies are also an issue for equity, and reached record highs of $1 trillion in 2022, after a period of declining subsidies. Last year ended the slowdown, as oil subsidies rose by 85% while natural gas and electricity consumption subsidies nearly doubled.

Fossil fuel subsidies are meant to protect consumers from volatile energy prices but can add financial burdens on governments who may have to choose between subsidizing fossil fuel projects and other energy priorities.

While the energy transition could create economic opportunities, if not managed properly, it could bring high costs and inequalities, particularly for the world’s most vulnerable populations, the report’s authors say.

Making sure the energy transition is consistent and balanced is a key challenge, but very few countries are achieving a balance of equitable, secure and sustainable.

Leaders need to “make difficult choices, particularly in emerging and developing economies, to support economic growth that maximizes social welfare, while ensuring access to abundant and diverse forms of energy at affordable prices”.

And more speed is required in the energy transition. The focus needs to be on enhancing an equitable transition, which has been traded off rather than enabled by the focus on “secure” and “sustainable” energy, the report concludes. Resilience needs to be built into the transition to maintain progress across ongoing and future disruptions, and developing countries should not fall behind because of a lack of fiscal resources.