06 01 2019

Climate Change – what is needed now is action!

We have just seen a flurry of new reports on Climate Change, and they are not funny reading. Before we fall into gloom and accept that the end is nigh, the good news is that with what we already know and the instruments we have at hand, it is absolutely within our reach to avoid the worst climate change scenarios, and the cost is absolutely not scaring. But it needs bold and determined policies and willingness to take risks. The lack of capacity for this is the biggest risk we are facing.

It is understandable that many feel helpless. One gloomy report after another. We are sleep walking into a climate disaster, and what we see is endless quarrelling. There are those telling us that we should all take responsibility in our personal life, stop eating meat, stop travelling or whatever. This is the assured road to hell. Of course, we should all make our contribution according to our means, but climate change can only be tackled by determined collective action. This is like if we got the news that there is a 90% probability that an asteroid will hit earth in 20 years, destroying most life on earth, and we were told that each of us should do what we can, individually, to prevent it. This is simply not good enough.

The 2015 Paris agreement was that we should keep the CO2 in the atmosphere at a level that secures that the increase in the temperature of our planet is kept “well below 2 degrees”. We know that it really ought to be kept under 1.5 degrees, but as this could not be agreed upon, “well below 2 degrees” was the best possible, we are told. Below is an illustration from a report from IRENA, which shows our options.

IRENA CO2 Budget timeline

The yellow line is “business as usual” with the political commitments already made to reduce CO2 emissions, and as the emissions are cumulative, it implies that around 2038 we have already used our “budget” for CO2 to keep the temperature increase below 2 degrees. So if we go along this path we will end up with an increase in temperatures of 2.6-3.0 degrees in 2050. Briefly: disaster.

The green line is what the IRENA report proposes (called “REmap case”), and which will make it possible to reach “well below 2 degrees” (with two-thirds probability – this is not exact science). The grey area is what is required to keep the temperature increase below 1.5 degrees (with 50% probability). The main message is: we have a window of opportunity of 10-15 years to avoid the worst scenarios, if we act now. The more we postpone it, the more challenging it will be.

And what is required? It is a long list, but basically it is:

1. Transform our electric power system so it is based 85% on renewable energy (instead of oil, gas and coal). This means mostly wind and sun, but with some contributions also from biofuels, geothermal and nuclear.

2. Electrify transport, heating and industry as much as possible (electric cars, heatpumps, biofuels for cement and steel plants etc.) - and fast.

3. Increase energy efficiency so growth in the future means less, not more, energy.

The “realists”, and they are many, tell us this is impossible. The influential International Energy Agency, IEA, also used to be among the “realists”. It has in the past systematically underestimated the potential in renewable energy, and I think they still do, but in their latest report they have – grudgingly it seems - accepted the Paris agreement as one of their scenarios. However, their basic scenario still implies that our world will be based mainly on coal, oil and gas in 2040, and their main concern appears to be that not enough is being invested presently in new oil and gas fields, so there is a risk of oil and gas shortage in the near future. So much for climate change.

The world invests heavily in the energy sector every year (1.8 trillion USD, or around 2.4% of world GDP in 2017), and IEA expects that to increase to 2.8 trillion USD per year in the longer term, of which around 40% will go to fossil fuels against only a meagre 13% to renewables. To live up to the Paris agreement, the investments would have to increase with around 13 % up to 2040. The share that goes to renewables should increase to almost 19% of this, while the share for fossil fuels should decrease to around 22%. This EIA estimate is very conservative and is no doubt in the low end: the above mentioned IRENA report estimates that a 30% increase in energy investments is necessary in their “REmap” case (living up to the Paris agreement).

Whatever the more precise numbers – there will always be an enormous uncertainty when looking forward to 2040-2050 – the message is clear: we will need to invest more in the energy sector, and we will need to shift the investments away from fossil fuel and towards renewables and energy efficiency, particularly in heating and industry. However, the funds needed are not at all scaring compared to what is being invested presently in the energy sector, mainly in fossil fuel, so it is not a big sacrifice that is required. If we compare with the future cost of repairing the damages caused by climate change, it is a much cheaper solution. The difference is of course that it implies that we will have to pay for it ourselves, instead of pushing the cost on to our grand and great-grand children.

But even if it is technically and economically possible, will it actually happen? This is a complicated political economy question. The most important favourable factor is that as the price of sun and wind energy continues to fall, the markets increasingly favour renewable energy for the simple reason that it is cheaper than fossil fuel. The results of these changing market conditions are starting to show up. In 2017 the world added a net electricity generation capacity of around 250 Gigawatt, of which an impressive 69% was renewables, 4% nuclear and 27% fossil (coal and gas).

The catch is that the distribution of energy is a natural monopoly and the electric grid needs heavy investments to adapt to the increased electrification and the increasing share of intermittent, renewable energy. So we are back to politics, as this will require political intervention, not only at national level but increasingly in interconnecting countries and regions. Political requirements are also needed for energy storage. A tough task will be to muster the political will to force existing fossil electricity generation plants out of production, while they are still fully functional – what is called “stranded assets”. It is easy to doubt that the political system can take on these challenges, both because of the prevailing neoliberal ideological leaning worldwide, and because of the vested interests in the fossil energy sector. But on the positive side, as the renewable and energy efficiency industries continue grow, they are starting to act as a counterweight to the powerful oil and gas lobby.

There are other potentially positive factors. There is the “China factor”, as the Chinese have gone in full scale in renewable energy, electrification, electric mobility etc. and seem to have the political clout to take tough decisions and make the funds available for scaling up, at least for the moment. And there is the famous "S-curve” for the penetration of new technology, which means that adoption may be slow initially but then tends to accelerate rapidly.

But for it to happen, the political system needs to get rid of its fear of “picking winners” (most economists abhor that) and stop non-sense talk on tech-neutral solutions – we shall be open to all technological options, but at a given moment we need to make choices. If tech-neutrality had been the way of doing things, China would have no solar energy sector, Denmark would not have a thriving wind energy industry, and Japan would not produce cars. Errors will be made, but without political determination and willingness to take risks, we are deemed to continue sleep walking into climate disaster.

We are living in an era where the “realists” tell us that in a globalised world, we have to accept increasing inequality and that it is impossible to tax the rich, and in particular the super rich. Hence, the cost burden of the energy reversion has necessarily to fall on the middle class and the working poor. This creates the fertile ground for the myth that climate change is an invention cooked up in a conspiracy between the “green industry” and the political establishment, and we will see more back-lashes as the recent one in France (the “gilets jaunes”), which started as a protest against a green tax on fuel. This pitfall has to be avoided, and again, it requires political courage.

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Thorbjorn Waagstein

Thorbjørn Waagstein, Economist, PhD, since 1999 working as international Development Consultant in Latin America, Africa and Asia.

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