The Energy Transition Can Encourage Social Development
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The Energy Transition Can Encourage Social Development

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María José Goytia By María José Goytia | Journalist and Industry Analyst - Fri, 09/09/2022 - 11:55

The shift away from fossil fuels in favor of decarbonization creates unprecedented opportunities to redesign business models, leading to approaches with a greater focus on comprehensive sustainable development that places social welfare at the center of strategies.

"The energy transition, if implemented correctly, will be a lever for social development," said Freddy Obando, Commercial Vice President México and Central America, AES. Consolidating this transition brings both opportunities and challenges for the energy industry and global economic dynamics, however.

There is a clear business opportunity in this transition toward sustainability. Energy demand from RE100 companies, the 370 most influential global companies, will continue to grow in the coming years. However, these companies have committed to reaching net-zero emissions by 2050.

"The trick is to match the economic opportunity of growing demand for clean energy with a positive social impact that enhances the development and well-being of societies," Obando added. To increase renewable power production capacity, countries must create attractive investment environments. To do so, clear regulatory frameworks that remove barriers and enable the integration of renewable energy into the grid are of the essence.

Latin America is rich in natural resources and human capital, but also has strong social inequality. This context creates specific challenges for the successful implementation of the energy transition.

First, an optimal diversification of the energy matrix must be safeguarded. Geopolitical situations prove that an overdependence on a single energy source of power can jeopardize the energy security of countries.

The energy transition will be carried out at different speeds, according to the capabilities and resources of the country. To optimize the transition, Latin American states must maximize the use of existing infrastructure, thereby reducing costs for the system.

A great opportunity to boost development is to take advantage of new investments in renewable energy projects to integrate local markets into the required value chains. These areas include banking, industry and the labor market.

One option promoted in Mexico to achieve this local is the issue of Green Jobs. "These are dignified jobs that contribute to preserving or protecting the environment, improving energy sources and production inputs while minimizing carbon emissions and waste production," Obando explained. The promotion of green jobs is in line with the transition to a sustainable circular economy model.

While the energy transition has been criticized as indirectly causing the disappearance of jobs, the reality is that it will also generate new job opportunities. Data from the International Renewable Energy Agency (IRENA) supports this trend. According to IRENA, the contribution of jobs to the sector in the US was 10 times greater than all jobs derived from the fossil fuel industry in 2020.

Likewise, the International Labor Organization (ILO) estimated that by 2030, there will be 24 million jobs created by the new green economy, while the Global Renewables Outlook 2020 study predicted that the renewable energy sector will provide 42 million jobs by 2050.

With Mexico being one of the largest energy markets in Latin America, it has the potential to become a benchmark in the creation of green jobs. "Investment in renewable energy is generally considered passive, but in reality, it nurtures positive dynamics with other projects and indirect industries," said Obando.

By taking advantage of the value chains that renewable energy creates, Mexico can integrate more local human capital into the market under decent working conditions, improving social justice and reducing poverty.

Mexico has a unique opportunity to take advantage of geopolitical shifts to boost its energy and industrial sectors. Thanks to nearshoring, multiple value chains are migrating closer to their hubs. Due to its strategic location and its integration into North American value chains through the USMCA, Mexico has great appeal for companies looking to relocate.

The supply chain crisis that occurred during the pandemic led many companies to rethink their location and move their production closer to demand centers. Its young and skilled population, competitive energy prices and proximity to the US are competitive advantages that Mexico should take advantage of to drive the energy transition in conjunction with its economic and social development.

Mexico can become a major supplier of inputs for the energy industry of the future. Taking advantage of this opportunity would bring multiple benefits to Mexican society, especially to the most vulnerable sectors.

"During this transition period. we must see the private sector as an essential ally and not only as a creator of inputs and jobs," said Obando. The private industry is an example of going the extra mile to drive sustainable development objectives within business models.

"Under the criteria of sustainability and social responsibility, companies are taking advantage of the transformation of the energy transition to modify their dynamics and improve their profitability in conjunction with a positive social impact that improves welfare and brings about social justice," concluded Obando.

Photo by:   MBN

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