Countries and companies are increasingly committing to net-zero goals that would require them to significantly reduce carbon emissions on relatively short timelines. The transition to a lower-carbon world won’t be easy, given global economies’ dependence on access to carbon-intensive energy, materials and products. Innovation will continue to accelerate progress, but success will depend on stakeholders’ ability to embrace a variety of approaches, many of which are new and rapidly evolving.

We worked with companies across sectors that are at different points in their energy transition journey. Below we highlight some areas we focused on in 2021. 

Renewables accelerate

Technological advances continued to drive prices down for critical applications, such as solar and wind generation. But 2021 also witnessed important developments in areas that will enable deployment of renewables. 

In the US, the Build Back Better Act contained numerous incentives for the renewable energy industry, including expanded tax credits for a range of renewables and funding for the national buildout of electric charging stations to accelerate the transition to electric vehicles. The Biden administration also rolled out reforms that open US waters along the Atlantic and Pacific coasts to offshore wind, and many non-US companies with offshore experience are already helping to accelerate offshore development in the US. Similar initiatives are underway in regions around the world.

As adoption gathers speed, renewables projects are growing in size and complexity. In 2021, financing closed on what will be the largest single-site solar project in the world, in Abu Dhabi. And demand for electrification will continue to rise, as companies embrace cleaner tech. 

Managing the flow of power from the growing number of nontraditional, intermittent and distributed sources requires development of new infrastructure, such as microgrids and battery storage facilities, that raise novel construction and contracting challenges.

Ultimately, success will call for a continuing focus on the cutting edge. Looking to the future of renewables, policymakers and regulators around the world are creating incentives for the development of hydrogen power, which could revolutionize fuel-intensive sectors such as heavy industry and transportation. 

And though batteries will enable energy transition, mining the minerals used in their production carries environmental costs, which mining development projects must consider. Stakeholders must ensure battery materials are recycled, reused and repurposed, and not discarded in ways that exacerbate the problems batteries would help to solve.

Traditional energy sources adapt

Traditional fuels remain critical in keeping the economy running, even as renewables proliferate. Natural gas is particularly important because it’s relatively clean, which is why countries continue to build LNG facilities to import gas for power generation and other uses. 

Carbon capture, utilization and storage will enable companies to extract carbon from emissions and either funnel it to productive uses or sequester it so that it is not released into the atmosphere. In either case, the overall volume of carbon emitted is reduced. 

And the trend toward distributed generation could revitalize nuclear power, which does not emit carbon. Companies and governments around the world, including the US and the UK, are signaling support for small modular reactors that can be sited in a broad range of settings to meet targeted power needs. 

Governments and the private sector have important roles to play in financing the energy transition. Governments can invest in R&D to develop proofs-of-concepts for new technologies, share risk for investment in green energy infrastructure, support the private sector through clear policy and regulation, and provide funding for green/energy transition projects. 

Energy transition is also driving M&A, as companies adjust their portfolios to reflect evolving strategic objectives. There was a significant uptick in US power M&A, European offshore wind M&A and in global SPAC activity related to electric vehicle companies. 

In the US and UK, shareholder activism is likely to spur additional ESG-focused campaigns and dealmaking, as activist funds like Third Point and Engine No. 1 increasingly press for action based on the logic of energy transition. And in Japan, activist shareholders are increasingly concerned with ESG issues.

Climate litigation rises 

It has been clear for some time that sustainability demands are fueling legal risk. Climate change-related disputes have evolved beyond damages-based claims to a new and diverse class of climate change-related actions. Two high-profile cases in Europe that could significantly expand liability and impose broader restrictions on companies highlight the evolving nature of climate disputes around the world.

Although climate change litigation is steadily increasing worldwide, few cases have so far been filed in Africa. Yet the success of rights-based litigation in Europe is likely to influence the future of climate litigation in Africa, with more cases expected in the coming years. 

The global increase in climate change-related actions has amplified pressure on legislators, regulators and legal institutions to facilitate the prosecution of such actions, and many regulatory authorities have responded with procedural developments designed to foster the pragmatic use of legal remedies. 

Arbitration has been gaining recognition as a potential forum for the resolution of disputes related to climate change. And new voluntary rules and guidelines on how to manage the risk of climate change issues are also being developed, highlighting the increasing attention that climate change is attracting in the corporate governance setting.

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