I have closely followed the recent upsurge in energy costs that characterized the end of 2021. According to global reports, coal, gas, and electricity prices rose to decade-high levels in the final months of the year, and projections were that the energy shortfall would continue well into 2022.

The International Energy Association reports that gas prices are at a record, with costs as of 3rd quarter 2021 at ten times the price a year ago.

In addition, coal prices increased 5x compared to 2020 prices, and natural gas prices tripled in October 2021 to their highest levels since 2008.

Many factors have been fingered as culprits for the energy squeeze, but one that seems to be thrown in now and then is the effect of reduced investment in fossil fuels and capital transfer to fledgling green energy projects.

Right off the bat, I would like to emphasize that investment in green energy is not the cause of the energy crisis. Moreover, as both the International Monetary Fund and the IEA clarify, blaming the clean energy transition for the situation is “inaccurate and misleading.”

Instead, there are various factors involved, not least of which are the 2014 and 2020 commodity price collapses and the resurgence of energy demand after a COVID-induced hiatus. I will briefly outline some of these causes and how we can expect things to evolve.

Why are energy prices so high?

While it seems like the energy crisis hit out of nowhere, there are longstanding reasons for the situation, and they mainly stem from the collapse of oil prices in 2014.

At the start of the 2010s, strong growth in the price of commodities created an oil industry boom, with prices sitting around $100 per barrel. The boom encouraged greater investment in the sector, significantly increasing supply. Similarly, developments in energy efficiency reduced worldwide demand, thereby creating an oil glut. However, major oil-selling countries failed to respond by lowering supply, and as a result, oil prices fell by 70% from 2014 to 2016.

One implication of this collapse was that investors lost appetite for new fossil fuel investment. Second, abundant oil also created a natural gas glut, making gas cheaper and a viable alternative for coal. Due to this, gas-fired plants gained ground, and the electricity systems worldwide began to rely more on gas instead of coal.

By the time COVID came around, the pause in fossil fuel investments was already several years old, and as Bloomberg reports, supply was already falling behind demand. COVID-19 tanked energy production globally due to lockdowns, the rampaging pandemic, and health regulations. While demand rebounded faster and stronger than expected, supply quickly fell further behind due to unexpected outages, a sizable maintenance backlog, and supply chain inefficiencies. Households and power plants began to compete for limited gas supply, which helped increase prices even more.

Currently, OPEC and Russia seem unwilling to intervene and help stabilize prices with increased supply. At the same time, the EU and other countries in the Northern Hemisphere have all but depleted their reserves in response to unseasonal weather, thereby leaving them unable to ease the supply hardships within their territories.

That said, I should note that climate policy is not exactly blameless in the overall operation of forces leading to this crisis. For example, increasingly stringent emissions targets in Europe, North America, and China have contributed to policies favoring gas (which is cleaner) over coal. But in the general scheme of things, climate policy has had a negligible effect on the crisis.

What will the new year bring?

The causes behind the current energy crisis are myriad, so it’s uncertain how things will develop within 2022. While major oil producers will likely open up their stores and help provide stability at some point during the year, other factors such as maintenance difficulties and destructive weather events are less certain.

I believe one potential solution could be to increase investment in renewable energy sources to help make the global system less vulnerable to wild swings in commodity prices. With decentralized energy production and renewable sources enjoying more production capacity, the world can recover from these commodity cycles quicker and suffer less damage as a result.

There is a lot of interest and hope in hydrogen, but what exactly are we discussing?

Hydrogen is an extremely common element: 90% of the universe is composed of hydrogen (H) atoms. It is important to note that, like electricity, hydrogen is an energy carrier. It is an element that is used to transport energy from point A to point B.

The main advantage of hydrogen is its high energy density. One kilo of hydrogen can store three times more energy than one kilo of petrol, and one hundred times more than the best electric batteries!

This characteristic makes it possible to consider hydrogen as a very interesting alternative for the transport sector. Hydrogen increases the range of vehicles, especially those that travel long distances (cars, trains, heavy vehicles). Moreover, hydrogen is a gas; filling up a vehicle with a gas is much faster. While it takes 6 to 8 hours to recharge a vehicle’s electric battery, it only takes a few minutes for an electric vehicle that runs on hydrogen. Hydrogen allows both more energy to be carried, and therefore allows for longer distances to be travelled, and for a faster recharge.

During the past year, freight prices have been increasing nonstop and have now hit a record high. Bloomberg has highlighted that the rate to ship a forty-foot container to Rotterdam from Shanghai has jumped by 485% year-on-year, following a 3.1% rise over a week, according to information released by the Drewry World Container Index.

The new price slightly exceeds the threshold of 10,000 USD, reaching 10,174 USD. Between 2016 and 2020, this rate never rose above 3,000 USD.

I also look at the composite index data, which is drawn up by a UK analyst firm and keeps track of a number of major shipping routes worldwide, rose by 2% within a week to 6,257 USD, recording another massive year-on-year growth of 293%.

Neither of these values have been seen in records before, which date back to 2011.

The Maritime Executive reported additional results from Xeneta, another market intelligence firm which collates financial data from shippers. The numbers show similar growth, with the global benchmark recorded as having risen by 34.5% since the beginning of 2021.

What I’m seeing that rates have increased in all major trade corridors over those five months, with routes between the Far East and Europe taking the lead and witnessing price spikes of more than 50%.

Bloomberg attributes these huge rate increases to the low availability of twenty- and forty-foot containers in comparison to demand.

I can foresee that freight rates will eventually settle back into ‘normal’ levels, but until then, shipping companies will have to endure the uncertainty around when that will happen and find ways to keep up with the logistics costs they are facing in the meantime.

US Trade Representative Katherine Tai announced that “these extraordinary times and circumstances call for extraordinary measures.

It is reported that 10-15 billion vaccine doses are needed to stop the spread of the virus; by April 2021, there had only been 1.2 billion doses produced worldwide.

The way I see it, US’s stance is circumstantial and in a way symbolic; the WTO negotiations could last for months curtailing to have an immediate impact in ending this present health crisis. Nevertheless, I believe this is very big news.

With this declaration US administration is following India and South Africa, which in early October 2020 issued a proposal for temporary suspension of IP rules in the context of Covid-19. In this regard, EU Commission President Ursula von der Leyen also said she was “ready to discuss any proposal that would tackle the crisis in an effective and pragmatic way.”  WHO Director-General Tedros Adhanom Ghebreyesus and UN Secretary-General Antonio Guterres were overjoyed with the news and congratulated the US on this historic decision.

Not surprisingly, the pharmaceutical industry took the White House’s decision very badly. They argue that developing countries lack the skills and resources to manufacture COVID vaccines based on new technologies. They also say that it will undermine the pandemic response, risk-taking and innovation in vaccine research. In my view, one thing is clear; this waiver, if can be applied timely on WHO scale, will deprive the big pharma of monopoly profits during this pandemic.

The big pharma prefers the donation of vaccines to patent infringement. There, however, promises have not been kept so far. The COVAX Facility, the global pooled procurement mechanism formulated by WHO for COVID-19 vaccines, was supposed to distribute two billion doses by the end of 2021 to the poorest countries, has not received enough deliveries, being able to provide only 53 million doses so far. Despite this largest vaccination campaign in history, one in four people in developed countries have been vaccinated to date, while in low-income countries it is one in 500. Can we give a better example of inequality?

On the flipside of the coin, there are also geopolitical concerns. Thus far, China and Russia exported their vaccines in quantity and have engaged in significant technology and knowledge transfer, forging partnerships around the world, and helping to speed up the global vaccination effort. This has been clearly an act of benevolent power to the world. The US and the EU are surely taking this perspective into account as well.

In today’s world, I think it is nearly impossible to think outside of the box of Big Data. Generous and benevolent they all seem, these programs will help to gather huge amounts of valuable medical information and records in less developed countries, where privacy and data protection regulations are much more lax compared to developed countries.

Following almost a decade of negotiations, 15 countries in Asia and the Pacific signed a historically important trade agreement on November 15th, forming the Regional Comprehensive Economic Partnership, RCEP.

This China – led agreement aims to create a free trade area between China, Japan, South Korea, Australia, New Zealand and the ten ASEAN (Association of Southeast Asian Nations) countries, which include Indonesia, Thailand, Singapore, the Philippines and Vietnam. Its members account for 30% of the world’s GDP. In addition, it will affect more than 2 billion people.

The agreement provides for reductions in import taxes, harmonisation of customs procedures and also includes clauses on respect for intellectual property. It excludes, however, everything relating to the protection of workers and the environment.

According to my reading of several experts on the subject, the deal could add almost USD 200 bn annually to the global economy by 2030.