Climate crisis a major risk in 2024

Climate crisis a major risk in 2024

Expected to be the hottest on record – the coming year will focus minds on efforts to reduce emissions, rebooting investment into renewables and electric vehicles

Companies have been on a rollercoaster ride for the past few years as the pandemic, soaring commodity prices, high-interest rates and political disruption have resulted in good profits for many and bankruptcy for a few. According to the Economic Intelligence Unit (EIU), most of these factors will persist into 2024 in a more muted form, but accompanied by the added twist of accelerated climate change and El Niño. The year – expected to be the hottest on record–will focus minds on efforts to reduce emissions, and rebooting investment into renewables and electric vehicles (EVs). It will also increase demand for products to minimise the effects of climate change, such as air conditioning and the electricity needed to power it.

Global growth to slow

Meanwhile, the IMF’s baseline forecast is for global growth to slow from 3.5% in 2022 to 3.0% in 2023 and 2.9% in 2024, well below the historical (2000–19) average of 3.8%. Advanced economies are expected to slow from 2.6% in 2022 to 1.5% in 2023 and 1.4% in 2024 as policy tightening starts to bite. Emerging markets and developing economies are projected to have a modest decline in growth from 4.1% in 2022 to 4.0% in both 2023 and 2024. Global inflation is forecast to decline steadily, from 8.7% in 2022 to 6.9% in 2023 and 5.8% in 2024, due to tighter monetary policy aided by lower international commodity prices. Core inflation is generally projected to decline more gradually, and inflation is not expected to return to the target until 2025 in most cases.

Companies will fail to meet emission goals

Despite climate change triggering economic challenges across the world. Companies will mostly fail to reach the ambitious targets that they have set themselves on emissions: global use of fossil fuels will increase, according to EIU. The costs of coping with climate change will become increasingly onerous, not just for sectors directly affected (such as airlines, healthcare, insurance and food production) but also for many companies and governments. EIU expects pushback to increase in the EU, where emissions targets are imposing high costs on companies and straining competitiveness.

EU to impose stricter ESG regulations

US attitudes will polarise further ahead of November’s elections. Stricter ESG reporting regulations–which in the EU will cover the whole supply chain–will add to the pressures. One result will be a stand-off over taxation, which has soared during the pandemic even as fiscal deficits and sovereign debt levels have risen. In 2024, the OECD will wade into the debate by encouraging countries to adopt the global minimum corporate tax rate of 15% agreed in 2021. Although the EU and others will comply (and the US already has a 15% rate), some countries may take the opportunity to cut taxes to attract investment.

Climate change will face geopolitical issues

Geopolitical tensions, particularly those between China, Russia, the EU and the US, will also complicate efforts to tackle climate change and add to business challenges in 2024. These tensions will affect supplies of critical minerals needed for the energy transitions as well as government support for the EV market. For example, the EU will be continuing its investigation into China’s support for its EV sector, with a view to imposing import tariffs or reformulating its own subsidies.

Race for critical minerals to heat up

The race to secure critical minerals and supplies needed for the energy transition will move to the seabed and other less explored locations. The tensions will continue to affect investment in technology, particularly data, semiconductors and artificial intelligence (AI) – with healthcare technology likely to be next in line. Regulations and trade barriers are likely to change rapidly, just as companies worldwide step up their investment in AI to benefit from recent developments in large-language models.

Energy consumption will increase

Energy consumption will accelerate in 2024. Fossil fuels will continue to dominate, despite soaring demand for renewables.

  • Growth in global energy consumption will accelerate to 1.8% in 2024, supported by strong demand in Asia despite still-high energy prices.
  • Global coal, gas and oil demand will reach record levels, setting back efforts to reduce emissions. High commodity prices will continue to drive investment into oil and gas production.
  • Momentum in renewable energy will continue, with combined solar and wind energy consumption growing by about 11% year on year globally. Many countries will also rush to build more hydrogen production capacity.
  • Hydropower production will remain low as climate change continues to lower water levels in many regions. Nuclear power will also be adversely affected. Energy demand will get healthier.

The post-pandemic recovery in energy consumption will accelerate to growth of 1.8% in 2024, up from just 1.2% in 2023. This will be supported by strong demand in Asia, where consumption is expected to expand by 3.1%, despite the clouds over China’s economic outlook.

Growth in energy consumption will also be strong in the Middle East, particularly if the climate there continues to warm, bolstering demand for air conditioning. However, EIU expects that energy demand in Europe will record its third consecutive year of decline as the region continues to battle against high energy prices and limited gas supply.

Europe better prepared to meet energy demand

Nevertheless, the situation in Europe has improved from 2022-23;so, any rationing to gas consumption during 2024 is not expected. Growth will also be only marginal in North America and Latin America, where EIU forecasts soft economic growth. Global fossil-fuel demand will reach record levels in 2024.

EIU expects that global demand for oil, gas and coal will reach record levels in 2024, despite the pressure to reduce carbon emissions. Of the three fossil fuels, gas will be the most subdued as high prices pull down demand in Europe and North America. We do not expect gas demand in Europe to return to levels seen before Russia’s invasion of Ukraine during our 2023-24 forecast period.

Gas consumption in Asia & ME to increase

On the other hand, gas consumption in Asia and in the Middle East will grow rapidly, driven mainly by strong demand from the power generation sector. Coal consumption will rise for the fourth consecutive year, as governments continue to focus on energy security. Indeed, we expect global coal demand to continue growing until 2026, when it will simultaneously peak globally and in China.

However, in Europe (excluding Russia) the increase in coal demand seen in 2022, when gas supplies suddenly slumped, will prove short-lived. European coal consumption will decline sharply in 2024 as France and the UK phase out coal-fired power generation. Oil demand will expand by 1.7% year on year in 2024, mainly driven by Asia, Latin America and the Middle East, where demand continues growing fast despite high oil prices.

In the developed world, demand growth will be timid, expanding by only 1.1% in North America and staying flat in Europe. Supported by high prices, oil and gas production will continue to grow. High commodity prices and EU efforts to replace Russian energy supplies will continue to attract new investment into fossil-fuel production in 2024. EIU expects global natural gas production to expand by 2.2% year-on-year.

The main sources of increased production will be North America, Norway, the Middle East, North Africa, Azerbaijan, Turkmenistan, China, Australia, and Mozambique. US exports of liquefied natural gas are set to increase in the coming years as export capacity expands. This will support domestic production growth, which EIU forecasts will increase by 1.9% in 2024.

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