United Nations Secretary-General António Guterres recently issued a kind of prescription for mitigating climate change by accelerating the critical energy transition underway.
Predictably, it is about dramatically increasing the deployment of renewable energy (RE) technology, but it goes further by setting out broad pillars on a global scale for policy makers on major areas of work needed to scale up deployment. Of course, there are huge obstacles to each, but what stands out is that these difficult workflows must each be pursued.
Its first field of work, or “demand”, is to make RE technology a public good. This is difficult, given that the intellectual property is the result of years of investment in solar, wind and energy storage technologies, first by Western companies and laboratories, and over the past fifteen years, by Chinese companies, particularly in the solar sector. As we speak, billions of dollars are also being invested in refining storage technologies. IP owners are not going to give up their rights just like that. Guterres provides no plan on how these companies can be compensated for sharing their IP addresses.
Guterres’ next request is to improve global access to components and materials. For manufacturing capacity to expand globally, more companies need both access to raw materials to manufacture specific components in regional and national markets.
Again, this is much easier said than done. The automotive industry provides an example of how large ecosystems of suppliers can be created on a global, somewhat decentralized basis by OEMs. However, these ecosystems have been built over decades of close cooperation, favorable policies for corporate globalization, and a largely stable economic environment over the past few decades. For scaling renewables, we have none of these supporting prerequisites. And why would China cede pole position in global mineral control?
Secretary General Guterres then calls for leveling the playing field for renewable energy technology and creating national policy frameworks to encourage adoption. This is an area where there has been good progress. There are several examples in India, such as RE ‘zones’ that reduce land access overhead, grid connectivity, and policy changes that can nudge various regulatory bodies in the right direction. Yet this, too, must be done much more quickly.
His latest two demands are to shift subsidies from fossil fuels to renewable energy technology and to triple investment in renewable energy across the world. Subsidies of nearly $6 trillion in 2020 alone have been handed out, cited by Secretary General Guterres because political populism and the unequal impact of high fuel prices almost necessitate lower fuel prices, lower inflation and faster economic growth in the short term. People, rich and poor, like free and cheaper things, regardless of the hidden costs. Likewise, for renewable energy investments to occur on a larger scale, at around $4 trillion per year through 2030, global financial institutions (FIs) will need to look at investments from a different perspective.
The shift in subsidies and increased investment in renewable energy is also happening, but accelerating it would require governments to take on the local pain in the short term, to achieve global benefits in the somewhat longer term. Can we trust politicians and citizens around the world to do this?
However, all is not dark and catastrophic. The energy transition is moving at a rapid pace, albeit slower than Mr. Guterres calls for, and we need it. So let’s look at what works, and can the same forces get us across the finish line, in time?
What works is a series of “organic” factors: funds and reinsurance companies are asking for strategy changes in the boardroom; consumer and citizen activism – demanding through wallets and votes that governments and businesses act on climate change; and the continued increase in climate and geopolitical risks felt by businesses and governments around the world.
The results are looming: a snowballing increase in environmental, social and governance (“ESG”) focused investments, a drying up of investments/increasing cost of capital for fossil fuel investments resulting in a decline shareholder value for fossil fuel companies; and a global increase in sustainability-related R&D. Overall, the action is unprecedented and was inconceivable ten years ago.
The INDC targets set in Paris and ratified at COP26 by the countries are also making their way into the policy making of the respective countries. Corporate emissions reporting is gradually moving towards an audited and compliance-based activity. These are all very positive developments that are visible, which are just the tip of the iceberg of underlying changes in strategy and investments in the corridors of power. Even the most energy-intensive industries, from cement and real estate to airlines and shipping, are moving in the right direction.
Many of the decisions needed for the energy transition have been made or are being made in conference rooms, boardrooms and offices around the world. Organizations learn to understand, calculate and track their impacts on emissions and find ways to mitigate them. Leaders and managers are beginning to make decisions and adapt to a fundamentally different way of doing business.
Even with all the positives, the work ahead is a Herculean undertaking! Imagine the enormous effort and time required to turn around with a very large tanker stuck in a narrow channel. Now multiply it by thousands of times.
While General Secy Guterres’ roadmap may seem unachievable, his demands are real: Achieving the energy transition within the available timeframe and carbon budget will be up to us collectively. The fact that we are already seeing a large movement in this direction from civil societies, markets and the public sector only proves that the results described by Mr. Guterres would not be achieved through coordinated action, but through “upward” push from citizens and businesses. , working for profit and a better future, and a slow alignment of interests in favor of our future generations.
So there’s a more than good chance that Guterres’ wishes for the accelerated energy transition will come true, through a set of different paths. Whether we get there in time is more than a trillion-dollar question: it’s about whether our future generations will have a future, struggling for survival in the face of climate catastrophe or coexistence with nature.
The opinions expressed above are those of the author.
END OF ARTICLE