The Iran war triggers the largest energy supply shock in history, demanding accelerated innovation. CFR’s Global Energy Innovation Index shows laggards like the US must match China’s commitment to clean technologies for long-term resilience and climate goals.
Energy Innovation Policy is currently undergoing a radical transformation due to the ongoing conflict in the Middle East. While prices spike, a robust Energy Innovation Policy is required to stabilize global markets and foster long-term security. Without a proactive Energy Innovation Policy, nations remain vulnerable to supply shocks, making Energy Innovation Policy the ultimate tool for future resilience.
Crises Reinvigorating Energy Innovation Policy
The energy landscape is being radically reshaped by war in the Middle East. Spiking prices are prompting emergency measures in much of the world. They should also reinvigorate energy innovation policy. Accelerated innovation is vital to softening or averting future crises, but countries are not all prioritizing innovation to the same degree or in the same way. That is why CFR’s Climate Realism Initiative has launched a new, interactive Global Energy Innovation Index.
The largest energy supply shock in history is still unfolding. Petroleum and liquefied natural gas (LNG) prices have risen significantly since February 28, and many analysts expect them to continue to climb. Fuel shortages in some countries have led to rationing, shutting schools and workplaces.
Emergency Measures and Energy Innovation Policy
Necessity, as the old saying would have it, is giving birth to invention. But in emergencies, options are limited. Fuel-switching, such as coal for liquefied natural gas (LNG), is feasible in some places. Others must make do with coping strategies like turning off computers during lunch breaks (Philippines), limiting private vehicle operations to alternate days (Myanmar), or allowing workers to wear shirt sleeves in less-cooled offices (Thailand).
Another old saying: chance favors the prepared mind. Emergency stockpiles have helped to buffer the shock. The International Energy Agency (IEA), which was created in response to the 1973 energy crisis to perform precisely this function, coordinated the largest stockpile release in history. Yet, stockpiles are dwindling as prices continue to move upward.
Durable Options via Energy Innovation Policy
Innovative energy technologies create more durable options. Nuclear power helped push petroleum out of electricity generation in France, the United States, and elsewhere after the 1970s oil shocks. Breakthroughs in hydraulic fracturing technology transformed natural gas extraction in the 1990s, easing Europe’s pain in the 2022 energy crisis brought on by Russia’s invasion of Ukraine and insulating the United States from the present crisis that it precipitated.
Such innovations, however, do not occur spontaneously or quickly. They require foresight, diligence, and patience. Government investments in research, development, and demonstration (RD&D) lay the technical foundations for them. Private sector investors and entrepreneurs build on these foundations, turning them into commercial opportunities. Tax, regulatory, and procurement policies enable these opportunities to ripen, bringing innovations to maturity, so they can compete with incumbents on level terms over the long run.
Measuring the Index and Energy Innovation Policy
CFR’s Index measures the many dimensions of energy innovation. It finds that some key indicators have leveled off or even declined in recent years. Global consumption of energy derived from clean resources, like nuclear power and renewables, has barely budged, for instance, while patenting of promising energy inventions has stagnated. Fewer options will be available to respond to future energy crises unless these trends reverse.
Global Leaders in Energy Innovation Policy
The Index also shows that not all countries contribute equally to the global effort. European countries, led by Sweden, dominate the rankings. Canada is the only country outside of Europe to make the top ten. Although China’s rankings are lower than these higher-income countries, it is so large and its pursuit of energy innovation so vigorous, that its efforts are offsetting contractions in the United States and elsewhere. As a result, the most effective new options available to respond to the present crisis—affordable solar panels, batteries, and electric vehicles—are predominantly made in China.
Future Urgency for Energy Innovation Policy
It’s time for the Index’s laggards—particularly the United States, which has long seen itself as the world’s innovation leader—to match China’s commitment. Extraordinary technologies, such as systems that can extract virtually unlimited energy from underground heat and store it for weeks or months, are on the cusp of commercial viability. The deepening reality of climate change, caused by combustion of fossil fuels, intensifies the urgency of bringing these clean, secure resources to their full potential.
Whether the world is responding to immediate crises like the closure of Hormuz or the slow-rolling disaster of climate change, energy innovation provides options that will meet human needs and expand human flourishing rather than force austerity.