The Energy Trilemma: Balancing Transition, Sustainability and Security
Energy policy has long sought to strike a delicate balance between multiple objectives: ensuring sustainability, affordability, access, and security. For many nations, this balancing act extends into development policy, enhancing competitiveness and driving industrialization. However, the room for trade-offs has become increasingly narrow. Falling short on any objective risks undermining not only the energy sector but also broader goals such as economic growth, competitiveness, and achieving sustainable development.
As energy is fundamental to economic progress, its secure supply remains a top priority for policymakers worldwide. However, secure energy alone is insufficient. Energy must also be affordable, promoting economic competitiveness and ensuring universal access while maintaining public support for transitions. High energy costs disproportionately impact low-income households, creating significant burdens in both developed and developing economies. In the latter, where incomes are lower and access remains a critical issue, affordability is an even more pressing concern. At the same time, energy systems must align with global climate targets, requiring fundamental changes to infrastructure, investment strategies, and international cooperation.
This article explores key dimensions reshaping the energy transition, from the evolving role of hydrocarbons to financing challenges and the geopolitical landscape.
The Role of Hydrocarbons Reconsidered
Despite the global push towards renewables, oil and gas remain integral to the energy mix in most regions. The challenge lies in minimizing greenhouse gas emissions associated with hydrocarbons. For decades, oil and gas players competed on operational costs, capital efficiency, and reserves replenishment. Today, the competition has expanded to include lowering carbon intensity and reducing emissions—a critical component of maintaining a social license to operate.
Achieving these goals demands significant investments in electrifying platforms, carbon capture and storage (CCS), and low-carbon fuels for aviation and transport. It also requires harmonizing standards for emissions measurement, reporting, and verification.
The resilience of hydrocarbons also remains vital. The Russia-Ukraine war highlighted the dangers of over-reliance on single energy suppliers. While this over-reliance stemmed from policy failure rather than market failure, it underscored the importance of infrastructure investments made over decades. Gas markets demonstrated remarkable adaptability, redirecting trade flows and rationalizing demand through pricing signals.
Nevertheless, these adjustments came at significant costs, particularly to low-income countries.
Similarly, oil markets have weathered substantial shocks, including COVID-19, geopolitical conflicts, and interventions such as embargoes and price caps. These events have transformed trade flows, increasing logistical complexity and costs. Despite these challenges, the resilience of the oil sector has ensured continued supply stability, with prices stabilizing in the $75–$85 range throughout 2023.
Investment in Infrastructure
As renewables and hydrogen gain prominence and electrification extends to new sectors, infrastructure security and resilience are crucial. Robust investments in supply chains, storage, transmission, and distribution networks are essential to ensuring affordability and reliability.
Attracting large-scale investment requires sustainable business models, supported by government mechanisms that price emissions and share risks between public and private sectors. Scaling emerging technologies is vital for cost reduction and achieving net-zero goals. Even for renewables, which have seen declining costs, addressing supply chain issues and integrating infrastructure remains critical.
Financing the Energy Transition
The scale of investment needed for new energy infrastructure places immense pressure on financing systems. While global capital markets are deep enough to support the transition, the challenge lies in directing capital where it is most impactful—particularly to developing countries, where energy access and emissions reductions remain pressing issues.
Many developing nations face deteriorating financial conditions, rising borrowing costs, and underdeveloped local markets. This creates a reinforcing cycle: limited investment in climate projects reduces resilience and creditworthiness, further increasing financing costs. Breaking this cycle requires intervention from multilateral development banks (MDBs) to provide stable, affordable climate finance.
The Rise of Industrial Policy
Industrial policy is experiencing a resurgence as governments seek leadership in clean technologies and energy supply chains. China’s dominance in solar and critical minerals supply chains underscores the success of targeted industrial strategies. Recent US initiatives, such as the Inflation Reduction Act, aim to establish leadership in clean technologies while enhancing economic competitiveness.
Europe has responded with the Net Zero Industry Act, designed to accelerate domestic renewable manufacturing. These policies reflect a broader trend, raising questions about technological diffusion, global competition, and the inclusion of resource-rich but technologically underdeveloped nations.
The Geopolitical Context
The energy transition unfolds against a backdrop of geopolitical polarization, exacerbated by conflicts like the Russia-Ukraine war and deteriorating US-China relations. Divergence between the Global North and South has widened over issues like climate finance and loss-and-damage compensation.
As countries seek to reduce reliance on foreign energy and minerals, supply chains are becoming increasingly localized. However, this fragmentation comes at a time when global cooperation is most needed to address shared climate goals.
Navigating the energy trilemma—balancing sustainability, affordability, and security—requires coordinated efforts across policy, investment, and innovation. The energy transition must integrate emerging technologies, robust infrastructure, and inclusive financing mechanisms, ensuring no country is left behind. By addressing these interconnected challenges, the global community can pave the way for a more sustainable, secure, and equitable energy future.
