North America’s Role in Leading the Energy Transition

Given pressing climate challenges, acting to protect the earth against climate change is more important than ever. Through direct government intervention and leadership of private companies, the US has the potential to steer the energy transformation by redefining investment priorities, building commercial momentum through innovation, impact, and economics. In this video, Peter Parry, chairman of Bain’s Global Energy & Natural Resources practice, and Bain Partner Aaron Denman discuss the opportunities for North America to help shape the energy transition in the years to come and the steps needed to fulfill the promise of a sustainable future.

Read a transcript of the conversation below:

PETER PARRY: Hello, I'm Peter Parry, the chairman of our global Energy & Natural Resources practice here at Bain & Company. I'm very honored to open today the Reuters North America Energy Transition Conference.

AARON DENMAN: Hi, I'm Aaron Denman, and I'm so glad to be joining you all today to begin the discussion on North America's role in leading the energy transition. Now, acting to protect the Earth and its inhabitants from climate change is the challenge and opportunity of our time. For me this topic is personal; it's a reminder of the mission to land on the moon, the mission that galvanized the nation.

JOHN F. KENNEDY: "We choose to go to the moon in this decade and do the other things, not because they are easy, but because they are hard."

PARRY: North America has led on a number of critical industrial and human challenges of the recent past and now has the potential also to lead on the energy transition, to rebuild the modern world and protect the planet. North America uniquely has a capacity for capital formation, the innovation muscle, and the ability to move with haste when a global challenge has a commercial edge. The tech boom, the retail changes of recent times, even the shale oil boom, medical advances, and a track record of industrial-scale restructuring as we've seen recently illustrated by the phaseout of coal in power generation in less than a decade.

Today, the US has the largest equity market, it has the most private equity dry powder in the world, and in the US, a government that spends at a rate of around $6.5 trillion a year. Harnessing these attributes will have a profound impact on the scale and the speed of energy transition. Even with these attributes, leadership is a daunting challenge and will require delivering on three aspects together: innovation, impact, and economics.

The global energy transition will reshape economies, industries, and global influence for decades to come. We've seen in Europe already a push forward, and arguably establishment of a leadership position. North America has the capacity and the capability to catch up and even overhaul in the next 5 to 10 years. As governments are racing to demonstrate, for example, in Europe the Fit for 55 package to reshape the entire industry.

Today, financial institutions and investors are rewriting the rules of the game to accelerate the transition and redefine their investment priorities. The war for talent -- this will intensify to drive innovation, accelerate commercial momentum, and to navigate shifting profit pools. The early innings of the transition are already starting to reshape global power and influence. At COP26, we heard a strong consensus on the need to move both faster and at greater scale to tackle climate challenges, for leading countries and regions to lean in to support those less able, and for the deployment of significantly greater amounts of capital. The type of challenge ahead suggests that North America will not just play a vital role but a leading one.

DENMAN: The importance of the energy transition and the US's influence requires North America to play a demonstrable leadership role in building an ambitious but pragmatic transition. By the numbers today, the US represents 20% of global emissions, with roughly half of emissions coming from transportation and power generation alone. It's the largest economy, with the largest equity market and over a trillion dollars of private equity dry powder, and a government that spends at a rate of $6.5 trillion per year.

This region has also had an outsized influence on the world's most important issues for decades, including the rapid scaling of shale oil and gas that has enabled this region to become a net exporter of energy in less than two decades and accelerated the rapid retirement of coal generation. Harnessing these unique attributes positions the region to have a profound impact on the scale and the speed of the energy transition. Doing so also creates a tremendous financial opportunity that will drive direct global investment of over $100 trillion, with at least $15 trillion in the US.

The investments underpinning the energy transition and the path to net-zero can be summarized by four categories. First, we need to consume less. We must find ways to drive a step-change in the efficiency for how we consume energy. Second, we must decarbonize or electrify, shifting away from fossil fuel consumption and looking for alternatives such as hydrogen or synthetic aviation fuel to help decarbonize those hard-to-abate sectors. Third, we must then green the electric supply. This will need to be an all-of-the-above approach towards zero-carbon sources, with a heavy focus on renewables. Lastly, carbon capture of some scale is essential to deliver on our collective ambition.

Investment across these four will require significant change, particularly in supporting the conversion and building of new infrastructure. Leadership will require action across a number of fronts. We must accelerate known solutions such as renewables, and remove the barriers to their development, including the permitting and construction of transmission. This will also require a great transformation of labor in terms of movement to new industries and the upskilling of talent.

We must create the incentives to scale leading technology such as electric vehicles. And we must invest, support breakthrough innovation, including the development of low-cost clean hydrogen and next-generation nuclear, including fusion. We must also reduce the consumption of fossil fuels but in a manner that enables an orderly transition. The recently passed US bipartisan infrastructure deal is a jump-start on many of these fronts, from the acceleration of EV charging to the upgrading of our power infrastructure.

But beyond direct government intervention, energy and natural resource companies must also take on a greater leadership role in shaping and delivering the energy transition and capturing their fair share of the investment opportunity. Leading energy and natural resource companies get three aspects right. Innovation: developing breakthrough technologies and solutions while transforming business models to develop new engines for growth. Impact: navigating the transition to minimize the impact on communities we serve and protecting the most vulnerable. And economics: delivering the financial returns required to attract the capital to build the modern world humanity wants and deserves.

PARRY: While the path to a net-zero world in 2050 is an enormous task, along the way there are critical milestones, and the next 5 to 10 years clearly has to lay the foundations. With the requirements of these energy transition foundations and the role North America can play, it opens up tremendous and exciting opportunities. We don't have all the answers by any means, but applying the capital, the innovation, and targeting short-term impact as North America has already demonstrated the capacity to do, it will take collaboration, ambition, and fortitude. Thank you very much.