The clean energy transition: good for business, communities and the economy

Moving from brown to green energy is not an option, but necessary to achieve inclusive, people-centred growth, a better economy and better lives. While barriers remain, many technologies and business practices already exist to accelerate the clean energy transition, argue Jan Corfee-Morlot, Michael Westphal and Rachel Spiegel from the New Climate Economy

Energy is ingrained in all aspects of human life: it powers our homes, schools and hospitals, our businesses, factories and transportation. Yet, one billion people live without access to electricity and nearly three billion without clean cooking. Making energy sustainable, efficient and clean can deliver large benefits for people and business, from better human health to more reliable and affordable energy supply to power economic growth.

Fossil fuels remain the dominant source of energy, accounting for 80% of global primary energy consumption and 75% of greenhouse gas emissions. Fossil fuels drive a rise in economic vulnerability, where countries and businesses are subject to volatile fuel prices and many are reliant on costly energy imports, and increase human vulnerability. Dangerous outdoor air pollution due to fossil fuel burning kills 4.2 million people a year globally, according to the World Health Organization.

Renewables have the potential to eliminate these risks while providing a range of opportunities for businesses and communities to thrive. The challenge is not only to meet our current energy needs, but also those of a projected 10 billion people by 2050 and to do so with low-cost, zero-carbon energy. Decarbonising the power sector and the electrification of energy use can deliver roughly two-thirds of the carbon emissions reduction required from the energy sector by 2040 to meet a 2˚C trajectory. Energy efficiency improvements could contribute the remaining third of the required reductions.

Bold action on climate could deliver $26 trillion in economic benefits to 2030 compared with business-as-usual, shows the 2018 New Climate Economy report. It could also generate over 65 million new low carbon jobs and avoid over 700,000 premature deaths a year from air pollution.

Many proven technologies and business practices exist to accelerate the clean energy transition, yet impediments remain. Governments and business leaders have a use it or lose it moment to make change happen given the scale of infrastructure expected to be built in the coming years.

Four axes for action can structure an ambitious response:

1. Eliminate fossil fuels subsidies and put a price on carbon: Globally subsidies and other support to fossil fuel production and consumption have declined from recent levels, but still amounted to $373 billion a year in 2015. Subsidy reform combined with carbon pricing could generate an estimated $2.8 trillion in annual government revenues or savings by 2030. Evidence from the 70 national and subnational economies that have put a price on carbon or are about to shows it does not slow economic growth, but provides a clear and steady signal for business, industry and consumers to shift course. Even where carbon pricing is not yet in place, businesses and development finance institutions can take effective leadership to put shadow carbon prices in place to steer investments away from increasingly risky fossil fuel options. These measures will help reveal the value proposition of renewables and energy-efficiency and to level the playing field for investment.

2. Step up investment in energy efficiency: Innovative financing for improved energy efficiency in buildings is already powering economic growth. There is a need to step up and expand the scope of policies to get investment to flow. Setting standards for buildings and appliance efficiency, better public procurement, combined with innovative financing and leveraging public-private partnerships have demonstrated results across the world. In India, a government backed company, Energy Efficiency Services Limited, pools procurement to grow markets for high-efficiency lighting and appliances. This delivers over 35 billion kilowatt hours in annual energy savings and $2.3 billion in cost savings. Other programmes, for example the Property Assessed Clean Energy Programs (PACE) in the US and those led by KfW in Germany, provide low-cost financing for energy efficiency investments with impressive results. Combined these programmes and partnerships have saved billions of dollars over less than a decade of operation. Energy efficiency investment also generates up to three times the number of jobs for the same investment in fossil fuels.

3. Create the conditions for phasing-out coal: Diversifying economies, particularly those that are fossil fuel-rich, is not easy. Although renewable energy companies employed 10.3 million people worldwide in 2017 and are the fastest growing source of jobs in several countries today, there will be transitional impacts at a regional and community level. Even businesses that stand to gain from a phase out of coal will benefit from government-led initiatives designed to deliver a just transition.

Businesses can also play a proactive role. Italy’s ENEL management-led transition out of coal and into renewable energy by building or other technology hubs, is generating employment in affected communities. Disclosure policies to reveal climate-related financial risks can also help shift private investment. Over 500 companies have committed to support the recommendations of the Taskforce for Climate-related Financial Disclosures and a number are starting to apply them. Such policies provide investors with the information needed to develop transition plans and strategies to manage these risks, such as for stranded assets in the power sector due to continued investment in coal.

4. Improve access to electricity and clean cooking: By 2030 population growth combined with policy and financial gaps are expected to leave nearly 700 million people without power, and more than 2 billion without clean cooking. The potential for universal clean energy access to deliver economic and human health benefits is huge. Solar breakthroughs combined with high efficiency lighting and appliances are lowering costs of household electricity, while innovative consumer finance is improving affordability and expanding markets for decentralised solutions.

Policy reforms are needed to incentivise private finance and investment. There is also opportunity to better target and blend public finance to scale investment and attract the private sector to the next frontier of energy access technologies, notably renewable mini-grids and clean cooking. Development finance will be needed to support a diverse range of renewables, including off-grid and mini-grid options, and to scale up attention to clean cooking. In clean energy businesses, training and support for women entrepreneurs has shown promising results and making women’s employment a priority could accelerate market growth and the benefits of action.

Moving from brown to green energy is the direction of the future, one that is ripe with business opportunities and near-term benefits such as cleaner air and new jobs. It is not an option but an imperative to achieve inclusive, people-centred growth, a better economy and better lives.

This Opinion is based on the energy chapter of the New Climate Economy (NCE) 2018 report Unlocking the Inclusive Growth Story of the 21st Century. The authors would like to acknowledge the full author team including contributors from SystemIQ and the World Resources Institute.

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