Energy risks shot up the rankings even more dramatically than geopolitical tensions in this year’s Future Risks Report from AXA.

The global survey measures and ranks the evolution of perceptions of emerging risks.

According to the report, now in its ninth edition, energy risks rose by more than 10 positions to rank 4th with experts and 5th with the general public. The two are linked, it adds: geopolitical turmoil has put the spotlight on this risk, in particular as countries that have historically relied on energy from Russia seek urgently to find alternative sources.

Both experts (61%) and the public (58%) say their main reason for choosing energy risks as a priority was rising prices and supply problems. These worries, according to AXA, are particularly acute in Europe, where energy supplies are most directly affected by Russia’s invasion of Ukraine. Indeed, energy risks ranked higher in Europe than anywhere else, reaching 3rd position among the general public. In Germany, where Russia accounted for 40% of natural-gas imports in the first quarter of 2022, the general population ranks it in 2nd position.

As the report notes, worries about rising prices and supply interruptions affect businesses as well as families and individuals. When asked if they feel personally vulnerable to a risk in their daily lives, both experts (73%) and the general public (71%) were more likely to say yes in relation to energy risks than almost any other. Similarly, experts were more likely to think the general public is aware of energy risks than any other risk in the list.

The Future Risks Report also suggests that energy risks bring together both geopolitical concerns and climate change, which demands a transformation of energy sources to transition to a low-carbon economy. As such, only 19% of experts believe that public authorities are well prepared to deal with energy risks – and, as with many other risks, they say collaboration between the public and private sectors should be the top priority for proposing innovative solutions to navigate the current crisis and expedite the energy transition.

Balancing energy security and long-term climate ambitions

As AXA notes, disruptions caused by political crisis are feeding through into higher prices, rising supply uncertainty, and – especially in Europe – greater government intervention in markets to reduce the impact on consumers:

“The Russian invasion of Ukraine highlighted Europe’s energy vulnerability, but oil supplies have also been squeezed by OPEC’s discipline and the focus of US shale producers on cash-flows over growth. Meanwhile, energy demand is likely to continue to grow inexorably over the next decade. If governments are to ensure sufficient energy flows in the future, they will need to provide policy and regulatory clarity to encourage long-term investments.”

However, it adds, none of this means sacrificing long-term climate ambitions and efforts to reach net-zero emissions by mid-century:

“The Inflation Reduction Act in the US will provide a major boost to emissions-reduction efforts without sacrificing energy availability or economic growth. Europe’s RePowerEU is an even more ambitious illustration that energy security and long-term decarbonisation are not mutually exclusive – even as EU governments are being forced to step in to manage short-term availability constraints created by the curtailment of Russian gas flows.”

Technological drivers

The Future Risks Report also says that, as these policies transform how energy is produced and consumed, new technological drivers will galvanise new geopolitical risks:

“Growing concern over China’s decade-long rise to be the top global supplier of clean energy systems is causing Western allies to embrace supply-chain diplomacy and targeted domestic industrial policy in ways not seen for decades. Skyrocketing demand for critical minerals to feed the production lines has sparked a new wave of resource nationalism across countries such as Indonesia and Chile. In this new energy landscape, control of intellectual property and technology transfer will be as critical as control of resource extraction has traditionally been.”

Energy security fears

AXA also suggests that government and business responses to energy security fears caused by price spikes and supply constraints will shape the overall arc of transition. For instance, it says, it is not just China and India that have increased their short-term reliance on coal in response to global natural gas prices  this year; Germany has done the same. It adds that governments in Beijing, New Delhi and Berlin remain committed to long-term emissions reduction; but keeping the lights on and powering their economies is a first priority, even if this means huge fiscal support and the imposition of efficiency measures.

Indeed, the report also suggest that governments are falling short in setting the agenda. As it says, “the financial industry can play its part with disclosure policies and capital-allocation decisions based on the decarbonisation and climate demands of their investors and shareholders. But rising public concern over energy security, fuelled by the geopolitical crises of the past year, is going to put growing pressure on governments for global cooperation.”

To access the full edition of AXA’s Future Risks Report 2022, click here.

As the report notes, worries about rising prices and supply interruptions affect businesses as well as families and individuals. When asked if they feel personally vulnerable to a risk in their daily lives, both experts (73%) and the general public (71%) were more likely to say yes in relation to energy risks than almost any other.