Infrastructure and the energy transition: the way beyond the war

Emilio Rossi is an Italian economist who specializes in energy, innovation and infrastructure. He has worked for major global economic analysis and forecasting firms, including Standard & Poor’s and IHS Markit. He is currently senior advisor at Oxford Economics.

“In the coming months, the world’s advanced economies will have to face certain challenges, including the impact of the war on businesses, the risks of a slowdown in the energy transition process, and the central role of infrastructure as a force for growth and sustainable development.”

Economist and analyst at Oxford Economics Emilio Rossi says that these are the key challenges that must be met with in the near future in immediate response to the effects of the Russian invasion in Ukraine.

The international crisis linked to the conflict has brought the issue of energy self-sufficiency back to the forefront. What can both Europe and Italy do to become self-sufficient?

“For Italy to become self-sufficient would mean replacing much of the 33 billion cubic metres (33 trillion litres) of gas that are imported from Russia each year. To pull this off, we could make an immediate response, a more medium-term approach or a longer-term, more strategic response. In the short term, resolving the possible lack of gas flow from Russia shouldn’t be a problem, because the amount of available stocks is likely sufficient. Also, in the immediate term, there’s the possibility of increasing gas flows from Algeria and other Mediterranean countries and, of course, the hot-button issue of postponing closures of coal-fired power plants.

In the medium term – within a year or so – we can intervene by investing in doubling the TAP gas pipeline. This wouldn’t mean building another pipeline, but making investments in the compression stations, facilitating a doubling of the gas flow capacity.

But over the long term, the only viable strategy is to continue to focus on the energy transition and the movement toward “greener” approaches. However, the debate on nuclear power is still open, too, even though it’s something that should be decided on swiftly, since, on average, it takes ten years to build a nuclear power plant.”

Do you think that the war in Ukraine and the consequent energy crisis are accelerating the energy transition process, or do we now risk taking a step backwards?

“Regarding the potential impact of the war on the energy transition and its speed, there are two main things to consider. Unfortunately, one of these is the fact that in the short and immediate term, an increase in emissions will be inevitable. However, most of the solutions that have been presented also bring opportunities, because in the long term the answer will be clean energies. Essentially, though we risk some short-term setbacks, in the medium- and long-term, the energy transition process will be accelerated.”

What impact might the war have on the performance of the Italian economy?

“The Russian invasion of Ukraine will have a major impact on European countries, and Italy will be one of those most affected. Though on a global level, a major impact is not expected, perhaps 0.4% less growth in 2022, the problem is primarily European, in particular for Germany, Italy and the countries closest to Russia. Rising gas prices will have an inevitable impact on inflation, reducing households’ spending power and slowing down economic activity.

If the conflict lasted only a few weeks, we might see the impact as significant but passing. We could compensate for it with more growth in the coming year. In this situation, we’d calculate a drop of a couple of percentage points of Italy’s GDP in two years.”

The infrastructure sector is investing heavily in ESG-related areas. How important is infrastructure modernisation to achieving truly sustainable development?

“Infrastructure modernisation is essential to achieve truly sustainable development. Not just in Italy, but also in the U.S. and various European countries, investments in infrastructures have been at a standstill for years. I’d say decades, even. Infrastructure modernisation was in the cards even in spite of the events of the last two years. Digitisation, local public transport, modernization of electricity transmission and distribution networks are all areas in which we need to intervene as soon as possible.”

High-speed rail is one of the key strategic projects that the government has identified in the NRRP (National Recovery and Resilience Plan). Is sustainable mobility a tool for achieving this energy transformation while simultaneously promoting economic growth?

“In this historical era, in which humanity is being called upon urgently to decarbonise the planet, sustainable mobility is fundamental, alongside the use of less polluting sources. More generally, high speed rail is essential to improving the country’s productivity. The positive impact on emissions will also depend on the extent to which it’s possible to support creating an integrated transport and logistics system, which would involve not only transport infrastructures but also major port and airline hubs.”

From the United States to Europe, many countries have launched development plans centered specifically on upgrading infrastructures. Are we facing a new infrastructure-driven season of growth, as happened in certain periods over the last century?

“Globally, there’s an awareness of the need for more modern and efficient infrastructures, especially those with a lower environmental impact. It’s a bit early to say whether this is a period of ambitious infrastructures and investments. We’ll have to see if follow-through comes after the plans and promises. Of course, though, at the basis of the promises are the premises, and I have to say that in both the United States and Europe, the groundwork for modernising the sector is all there.”