Setting the Energy Transition Tone for 2025: RRA in conversation with Lord Adair Turner

As we commence 2025, the energy sector is poised to progress in its transformation journey, with the transition to sustainable energy sources set to continue. The developments in 2024 set a solid foundation, characterized by a notable increase in energy capacity and a global investment of $2 trillion in new energy initiatives. These changes highlight an international commitment to reshaping energy landscapes, spurred by technological progress, strategic investments, and an increasing need to address climate change. Moving into 2025, the focus will be on leveraging these advancements to guide the world towards a cleaner, more resilient, and inclusive energy future, with innovation and collaboration playing key roles.

The energy sector is set for further growth driven by focused investments in solar, onshore wind, low carbon fuels, and biogas. Innovative decarbonization solutions continue to be developed for the hard-to-abate sector, particularly in Europe. The Middle East continues to announce further commitments to new energy investments. Additionally, private capital is playing a crucial role by adopting a counter-cyclical investment strategy in offshore wind, recognizing the long-term value despite short-term market fluctuations. The path, however, will likely not be a linear one, with major actors like the United States under the Trump administration scaling back on commitments made in the past.

Russell Reynolds Associates recently hosted the fifteenth installment of our Energy Matters series, inviting Lord Adair Turner to reflect together with investors and industry leaders on emerging themes for 2025.

Lord Adair Turner Chair, Energy Transitions Commission

Lord Turner chairs the Energy Transitions Commission, a global coalition of companies, NGOs and experts working to achieve a net zero economy by 2040.

He was appointed as an independent peer to the House of Lords in 2005 and is also an honorary fellow of the Royal Society (the UK academy dedicated to promoting science excellence). He became a Trustee Emeritus of the British Museum after serving on its board of directors from 2013 until 2020.

Lord Turner advises regularly climate and government bodies - including the COP Presidency and ministers in the EU, UK, China and Australia, and is often featured in global media as an expert on the energy transition, including in the Financial Times, Economist, BBC, CNN and Bloomberg.

He holds several roles in industry: he is the Chairman of insurer group Chubb Europe and Chairman of UK bank Oaknorth Ltd. Until October 2024, he was on the Board of AESC Japan, the manufacturers of lithium-ion batteries for electric vehicles. More recently he was appointed adviser to Watershed Technologies Inc., and to Renew Power (India).

During his public policy career, Lord Turner chaired the Financial Services Authority (2008-2013) where he played a lead role in the redesign of global banking and shadow banking regulation. From 2008 to 2012 he chaired the Climate Change Committee, an independent body advising and overseeing the UK’s government on their path to a zero-carbon economy. The recommendations set out in their first report "Building a low-carbon economy” were adopted by the UK government in full. Between 2002 and 2006 he chaired the UK Pensions Commission and recommended the creation of a system of defined contribution pensions which included an ‘opt-out’ element that proved transformative. He also chaired the Low Pay Commission (2002-2006), and was Director General of the Confederation of British Industry (1995-2000).

Lord Turner is the author of “Between Debt and the Devil” (Princeton 2015), and Economics after the Crisis (MIT 2012).

The role of the US & opportunities for Europe, China and emerging economies

The political climate in the US will likely set back several global energy transition efforts, as the new Trump administration has frozen the IRA and exited the Paris Agreement, encouraging investment in conventional power instead. The new administration’s attitude towards tariffs hinders collaborative US – China relations, which are crucial to driving energy transition efforts at scale. While the US’s scale back on energy transition commitments may feel like a significant blocker, it creates the opportunity for Europe, China, and emerging economies to take a leading role and secure further investment.

Momentum has been building in China and East Asia. China is elevating the global expansion of renewable energy capacity to new heights. The IEA has forecasted that by 2030, China’s share of renewable energy installed capacity will grow to 60% of global capacity. In addition to this, China has been a significant disruptor in the renewables manufacturing space demonstrating tremendous agility and ability to improve processes and drive costs down in solar panel, wind turbine and EV car manufacturing. As such, there remain ample opportunities for Europe to partner outside of the US to continue to drive the energy transition.

Perspectives on the UK

The UK continues to be a pivotal player in the global energy transition, particularly in the realms of biogas, Sustainable Aviation Fuel (SAF), and offshore wind. With the Labour party in power, the country's commitment to decarbonizing the power system will see significant advancements. The UK has already made remarkable progress, reducing carbon emissions by 50% between 1990 and 2022 through the expansion of renewables and the transition from traditional gas turbines. However, the focus now shifts to mastering energy storage solutions and demand management. As the UK develops a robust system for intermittent renewables, it will continue to innovate business models for investment, and it will likely become the global benchmark for decarbonizing the grid.

Additionally, the integration of biomethane, carbon capture and storage (CCS), and hydrogen underscores the UK's forward-thinking approach and recognition of its growth potential with these technologies. With long-term mandates for SAF emerging across Europe, the UK is well-positioned to capitalize on this burgeoning opportunity, making it an attractive landscape for investment in the next five years.

The reality of the Carbon Border Adjustment Mechanism sinks in for harder-to-abate sectors and their consumers

The Carbon Border Adjustment Mechanism (CBAM) is already being rolled out. CBAM is a policy tool designed by the European Union (EU) to address carbon leakage and ensure that imported goods are subject to the same carbon costs as products manufactured within the EU. As part of the EU's broader climate strategy, the CBAM aims to prevent companies from relocating production to countries with less stringent carbon regulations, which would undermine global climate efforts. Hard to abate companies such as steel and cement manufacturers face the added pressure of ‘green cost premiums’ if they choose to incorporate sustainable solutions such as hydrogen in their production processes. Without government subsidies or policies, the costs of these measures will eventually be passed down the consumer.

The speaker discussed that potential increased costs imposed by the CBAM, however, are much lower if compared to the upfront investment consumers need to make to purchase a heat pump or an electric vehicle. The prices of both heat pumps and EVs continues to remain high for the average consumer who is also faced with rising costs in petrol across the Western world.

Supply chain considerations

The renewables supply chain remains a concern. Both the US and China have made strides in terms of developing manufacturing operations and logistics in an efficient way. Europe is lagging in terms of supply chain efficiency, while the other geographies have been adept at insourcing versus outsourcing. Some projects, such as X Links, have already taken to directing investment to their own factories to ensure supply. China’s manufacturing sophistication has matured, as evidenced by their ability to produce renewables technologies at a more affordable price point.

AI and the journey to Net Zero

There are several proven use cases for artificial intelligence (AI) in the context of the energy transition. The sector is now grappling the emergence of the data centers as large energy consumers. AI is already being successfully leveraged to drive energy efficiency. Over time the use of AI will be a net positive for the energy transition. There have been continued efficiency improvements, both in hardware and software. Given the pace of technological advancements, we would be able to successfully leverage AI to drive efficient energy use in data centers.

Authors

Chris Nicholson is a senior member of Russell Reynolds Associates’ Global Industrial & Natural Resources Practice, covering the Energy markets. He is based in London. 

Abigail Skerrett is a member of Russell Reynolds Associates’ Global Industrial & Natural Resources Practice and leads the firm’s Global Energy Transition Practice. She is based in London. 

Irina Dascalu is a member of Russell Reynolds Associates’ Global Industrial & Natural Resources Research team. She is based in London.