A global economy struggling with the beatdown delivered by the COVID-19 pandemic has a chance to rebuild in a way that greatly accelerates the transition toward cleaner fuels and away from fossil fuels, experts said on a recent online symposium hosted by Reuters.
Whether it will is not a foregone conclusion, however, because the road from policy to practice is paved with contradictions. For example:
- The European Union has been moving toward adoption of renewables and a low-carbon economy for years and German lawmakers recently voted to abolish the use of coal—but not until 2038; and
- China has made a major push toward gas-fired power generation to combat its air pollution problems, but a movement is gaining traction to include construction of hundreds of coal-fired power plants in the country’s next five-year plan.
“We are not seeing green, low-carbon programs emerge as the dominant method that policymakers are using in their COVID response,” said Jennifer Layke, global director, energy program at the World Resources Institute, a Washington, D.C.-based non-profit focused on climate change and other issues. “I am a technology optimist, and I remain a believer that the [green energy] solutions … hold much more promise. Unfortunately, the institutional incumbency continues to make those political economy questions really, really challenging.”
Stimulus funding is one clear indication. Layke said her organization had identified about $509 billion intended to be spent on high-carbon industries around the world with very few conditions for their use. Low-carbon industries, on the other hand, will likely be granted just $12 billion to $13 billion in funding, she said.
There is also a danger in assuming the U.S. will, or can, adopt the European model.
“I’m a little bit more cautious simply because what’s happening in Europe right now is built on the back of momentum from things that have been going on for a decade,” Kenneth B. Medlock, senior director of the Center for Energy Studies at Rice University’s Baker Institute for Public Policy, told HartEnergy.com. “It’s not like they just pivoted to unroll this EU hydrogen plan [to produce 40 GW of power by 2030], for example, that was laid out recently, and think about green stimulus. These are things that were already in play.”
The movement toward green power is much more recent in the U.S., but Medlock sees opportunities to advance it through legislative action to support infrastructure development.
“One of the biggest problems with these grand bills is they end up rolling other things in that there’s opposition to,” he said. For example, when Rep. Alexandria Ocasio-Cortez (D-N.Y.) and Sen. Ed Markey (D-Mass.) rolled out their Green New Deal, its goals reached beyond reducing emissions to include ending poverty, income inequality and racial discrimination.
“Where you might have won some support, you just lost it in certain spaces,” Medlock said.
On July 14, former Vice President Joe Biden, the presumptive Democratic nominee for president, unveiled his $2 trillion climate plan, one that was developed with input from Ocasio-Cortez and other progressive leaders. While the proposal could provide the government funding that Layke found lacking, it is anything but a sure thing. Passage would likely require Democrats to capture the White House and Senate in November as well as maintain its majority in the House.
Presidential influence is also limited even when a particular party is in control. Declarations at the start of the Trump administration that the “war on coal” was over have not kept coal production for power generation from falling 21% between 2016 and 2019.
Layke noted stimulus programs are not necessarily a good bet because they can be geared toward short-term measures that support a quicker political benefit, like immediate job creation, instead of a long-term strategy. Rather than rely solely on policy action, her organization also targets other economic players, seeking to encourage long-term investment.
Engie, the French utility with a market capitalization of about $30 billion, made the tough call to drop coal as a feedstock in 2015, at a time when it accounted for 10% of the company’s business, Judith Hartmann, the company’s deputy CEO and CFO, said during the symposium. Since then, the company’s internal doubters have affirmed the strategy, she said. Engie’s power plants that are scheduled to be completed in the 2020s are designed to use renewable “green gases” such as biogas or biomethane, instead of fossil fuels.
“I believe that that is our responsibility and I hope other boardrooms are moving that way in terms of taking positions on what it means for the planet because those are related,” Hartmann said. “If you don’t build solutions for the future then, quite frankly, reality will catch up with you.”
‘Hard to Decarbonize’
The oil and gas sector is in transition, Carbon Trust CEO Tom Delay said during the symposium.
“Whether it’s peak demand this year, last year or next year is, frankly, anybody’s guess,” he said. “I think that transition is now clearly underway. It’s being felt by different companies and different aspects of the sector very differently.”
Delay’s sentiments were similar to those of Parsley Energy CEO Matt Gallagher, who told Financial Times that U.S. crude production has already peaked. Delay does not minimize the challenges facing the energy transition.
“The world that we’ve built is hard to decarbonize,” he said. “It’s very sticky. We can make progress, but unbuilding what has already been built is hard. Working with economies where economic growth is still in place, where there’s going to be an ambition, post-COVID, to build that, that’s going to be an incredible opportunity to build differently and build better.”
Making the Business Case
Driving the argument for cleaner fuels will be economics, Delay said. He sees renewables as a major growth market and, ultimately, as a profit center. In the medium term, Delay expects renewables to be a big driver of employment.
In the short term, jobs are driving the transition conversation. Biden’s economic plan promises “millions” of jobs in the transition to cleaner energy.
Environmental Entrepreneurs (E2) and E4TheFuture released a report on July 15 estimating that $100 billion in stimulus would create 860,000 jobs and $330 billion in economic activity over five years in the sectors of energy efficiency, renewable energy and grid modernization.
Delay is convinced that energy transition makes a solid business case, if not a particularly sexy one.
“It’s often a lot of hard work for a good return and a good sustained return,” he said. “An awful lot of organizations want something big and shiny—a new market, a new product—and the alternative being energy efficiency is always hard to sell.”
Now is a good time, with economic stimulus funds in abundance, to make that case, Delay believes.
“Where it’s hard to get the leverage of the capital markets,” he said, “that’s where you can really bring in the benefits of longer-term thinking, more patient capital that governments can come up with.”
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