The views expressed are those of the author and do not necessarily reflect the position of FORESIGHT Climate & Energy
The world is not on track to avoid catastrophic climate change. Current policies are putting the Earth on a trajectory that is up to 3.9°C hotter than the pre-industrial average. At this temperature level, we will see heat waves, droughts, and floods of a magnitude humankind has never experienced before.
The United States is the second highest emitter of greenhouse gases in the world after China and has the highest CO2 emissions per capita. The election of Joe Biden as the 46th president of the United States in November has therefore brought renewed hope that the world can avert the direct consequences of a warming planet. Biden’s climate plan—drawn up with vice-president-elect Kamala Harris—is a pragmatic acknowledgment of the challenge ahead and a burning manifesto for building a more resilient and sustainable economy. Meanwhile, the nomination of John Kerry—who signed the Paris Agreement on behalf of the US in 2016—as the first ever US climate envoy also underscores the president-elect’s commitment to make the climate a top priority of his presidency.
Innovation is widely recognised as a key to achieving the goals set out in the Paris Agreement. It is telling, however, that Biden’s climate agenda uses the term only in connection with the development and commercialisation of clean energy technologies. This reflects a traditional understanding of innovation, one that has dominated climate action in the past two decades. Yet it may no longer be appropriate for addressing the problem in front of us.
As we enter what many call the “decisive decade”, climate change is no longer primarily a problem of technology development but of technology deployment. The world has all of the building blocks it needs to lower the economy’s emissions and strengthen society’s resilience. That is not to say that having cheaper batteries and more efficient solar cells would not be helpful. But unlike ten years ago, when President Obama’s American Recovery and Reinvestment Act pushed traditional research and development, our most urgent priority now is accelerating the scale-up of what we already have.
The challenge, though, is that even where compelling technology is available, its route to market is not guaranteed. The UK’s Green Deal—a finance mechanism for building retrofits launched in January 2013—provides a cautionary tale. While heralded by the then-government as “Europe’s most innovative and transformational energy efficiency programme”, it was a spectacular public policy disaster, achieving a meager 0.3% of its original ambition.
The president-elect’s climate plan wants to upgrade four million buildings over four years to make them more energy efficient. How can this be done? There is no straightforward answer, but what is clear is that technology alone will not do it. Single-point technical solutions designed to incrementally improve existing economic systems will not be able to unleash change at the scale and pace required. What we need is to weave a new fabric of society with a yarn spun not only from technological advances but also from cultural, political, social, and economic innovation. This requires a radical change in innovation paradigm, moving from single-point solutions to systems innovation.
In systems innovation, technology still plays its part but so do policy and regulation, education and re-skilling, consumer behaviour, and finance. Systems innovation also emphasises the need for new narratives and other forms of social and cultural innovation, particularly in those communities for which fossil fuels are a source of identity and belonging.
In addition, system innovation prioritises the involvement of citizens through new participation mechanisms and governance innovation. This is critical to ensure the local effectiveness of climate action and strengthen its acceptance. It will also help to instill a sense of agency and environmental justice within the communities most affected by transformative change, a key objective of the Biden-Harris plan. One example is provided by the American Just Transitions Fund, which supports coal communities in New Mexico in creating equitable, sustainable, and inclusive economic futures.
The implications of adopting systems innovation are manifold. It requires a marriage of top-down policies with bottom-up interventions that allows for the inclusion of citizens and the emergence of locally optimal climate strategies. And it warrants different partnerships, with entrepreneurial governments leading the way and joining forces with the private sector and with innovation actors outside the R&D mainstream.
Take Governor Gavin Newsom’s recent announcement to ban the sale of new diesel and gasoline cars in California by 2035. Over the next 20 years, the fifth largest economy in the world will have to build a zero-carbon transportation infrastructure. Simply replacing each of the 15.1 million carbon-emitting cars on California’s roads with electric vehicles is not going to deliver this goal. The state will also have to aggressively build out public transport, reduce urban sprawl, lower transportation demand, and upgrade its power grid. It must also trigger a mindset shift amongst its citizens away from individual car ownership toward walking, cycling, public transportation, ride sharing, and virtual mobility. To pull this off, the government will need to engage all the levers of change at its disposal in a concerted and connected manner.
In Europe, the paradigm shift from single-point solutions to mission-oriented systems innovation is already underway. Horizon Europe, the bloc’s new multi-year research and development framework, has been designed with a missions-mindset and applies systems thinking to a diverse set of topics ranging from conquering cancer to protecting oceans and waterways and restoring soil health.
Before following suit, the US may first have to overcome its steadfast belief in the “technology will save us” dogma and its romance with the Silicon Valley entrepreneur that characterises its present-day econo-cultural identity.
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The views expressed are those of the author and do not necessarily reflect the position of FORESIGHT Climate & Energy
There has been growing support in recent years for the concept of stakeholder capitalism and a recognition of the importance of creating long-term value. It is a commitment that, surprisingly to some, has remained strong despite the economic pressures that have risen from the covid-19 pandemic.
Stakeholder capitalism is a philosophy based on the belief that companies have an obligation that goes beyond simply providing returns for shareholders. It suggests that companies should be mindful of, and responsive to, their impact on society and the environment. This can involve: creating secure jobs for employees, embracing sustainable practices, serving customers loyally, cultivating long-term supplier relationships, paying fair taxes or working to minimize the environmental footprint of operations.
This form of inclusive capitalism is not new—it was popular in the 1950s and 1960s—but it is now making a comeback, and this time it is closely linked with ESG issues such as climate change, diversity and human rights. Pre-covid-19 examples of the move away from pure shareholder capitalism include: the Davos Manifesto from the World Economic Forum (WEF), the Business Roundtable’s Statement on the Purpose of a Corporation, and the Embankment Project for Inclusive Capitalism created by the EY organisation and the Coalition for Inclusive Capitalism.
There had been fears that with the emergency response to the pandemic, and with many companies facing an existential crisis, the focus would move away from ESG issues. But, in many respects, the opposite has occurred. It seems the crisis has accelerated the transition to a more purposeful and inclusive capitalism. Although many organisations are in survival mode, ESG issues are likely to remain critical, and essential to resilience and long-term recovery.
When businesses discuss economic risk and significant trends, and when they consider specific threats, such as climate change and pandemics, they tend to take decisive action only when they believe that those risks are likely to impact them in the short term. Now that one of those risks has become a reality, that may change.
Encouragement is not lacking for this change of approach. Pressure is mounting, mainly from the public, with people issues (the “S” in ESG) coming to the fore. Companies that have treated their staff and suppliers well during the crisis have likely improved their corporate reputations and potentially gained more business.
Some companies, however, abandoned their declared purpose as economies started to dip. Such actions may have eroded trust and damaged reputations. Their actions may be remembered by potential customers and may echo in the minds of employees for a long time. It is likely that those companies that did not stand behind their values may lose business and, when economies rebound, their best talent may be looking elsewhere.
Pressure is also coming from the side of governments. Government responses to covid-19 in many countries included large stimulus packages tied to “green outcomes,” with specific focus on accelerating the transition to a zero-carbon economy.
There have also been other, more targeted government interventions. The European Commission’s proposed €750 billion fund to help the bloc recover from the pandemic came with a requirement that 25% be set aside for climate change mitigation.
There is also pressure from companies themselves. A good example is WEF’s recent white paper Measuring Stakeholder Capitalism: Towards Common Metrics and Consistent Reporting of Sustainable Value Creation, which proposed a set of universal ESG metrics that could be published in annual reports. The metrics were created by WEF’s International Business Council (IBC) of leading CEOs in collaboration with professional services firms.
Another example is the Build Back Better movement, where a coalition of CEOs published an open letter calling for the creation of a post-covid-19 global economy that boosts society, the planet and shareholders for future generations. The CEOs want to promote “purpose-first” businesses as a fourth sector of the economy to join the existing public, private and nonprofit sectors.
But, significantly increasing pressure is from investors, who are focusing their attention on ESG issues and stakeholder capitalism. According to Larry Fink, CEO of asset management company BlackRock, the companies that focus on all their stakeholders are going to be the winners in the future. He recently said that stakeholder capitalism is only going to become more important.
The growing significance of ESG issues to investors can be seen in the recent 2020 EY Climate Change and Sustainability Services (CCaSS) Institutional Investor survey. The survey found that, of the 98% of investors surveyed who assess ESG, 72% carry out a structured review of ESG performance, compared with just 32% in the previous survey conducted two years earlier. Moreover, many of those who currently use an informal approach, plan to move to a more rigorous regime (39%).
Institutional investors are aligning their portfolios toward better ESG performance. This signals a different approach from focusing on “responsible funds,” and instead seeing ESG issues as fundamental to the performance for all investments.
In the report, one institutional investor, Vincent Triesschijn from ABN AMRO, sums up the views of many investors. “It is our conviction that companies that perform well on ESG are generally less risky, better positioned for the long term and possibly better prepared for uncertainty,” he says.
Nonfinancial performance is now considered more frequently when investment decisions are made, when compared with the results from the 2018 survey. Around 9 out of 10 investors surveyed say that nonfinancial performance played a pivotal role in their investment decision-making over the previous 12 months.
Looking at the survey findings, it is clear that a focus on ESG performance will likely be critical to success in a post-covid-19 world. Rather than distracting us from the need to drive a sustainable future, the pandemic has helped reinforce the imperative. The covid-19 pandemic has demonstrated the possibility for significant carbon emission reductions and rapid behavioral changes.
The transition to a decarbonised future is likely critical to the long-term resilience of companies, the economy and the planet as a whole. Strong ESG strategies and frameworks should be vital to economic recovery and for companies to thrive in the long term.
ENERGY SECTOR OPPORTUNITIES
Different pressures are now converging to create the market conditions for rapid transformation within sectors. Energy is a prime example. Alongside regulatory support for renewables, and an ever-decreasing cost base for solar, wind and battery-storage solutions, stakeholder forces are focusing on decarbonisation and the realignment of assets toward lower-carbon alternatives.
By 2040, according to the International Energy Agency, over half of all electricity supply will be from low-carbon sources. With increasing demand for electrification of transport and industrial processes, and greater funding through green bonds and green loans, opportunities for this sector to capitalise on decarbonisation should be plentiful.
Companies that focus on ESG issues and realign themselves to the stakeholder capitalism agenda may have a competitive advantage over those that try to return to business as usual.
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To heat, cool and light buildings, we use 40% of the energy consumed in the European Union which results in 36% of the EU’s greenhouse gas emissions. Therefore our buildings will need to be a big part of the solution to achieve the European Commission’s 2030 target of reducing emissions by 55%. The EU will need to reduce buildings’ greenhouse gas emissions by 60% so we need to act urgently to upgrade them.
A colossal 75% of European building stock is not energy efficient, falling short compared to the current applicable building standards. Newer buildings tend to consume 50% less energy than those built even twenty years ago but more than 220 million buildings—around 85% of the EU’s building stock—were built before 2001, and most of these will still be standing by 2050.
Despite incentives to decarbonise buildings and improve standards, there are persistent investment gaps in building and renovation. Deep renovation that brings about sizeable energy savings is seldom carried out as it involves higher investment and increased planning.
Relatively small, step-by-step, individual renovations are the norm, but each year only 11% of European building stock undergoes some level of renovation. These updates, however, rarely address energy performance—the weighted annual energy renovation rate is low at some 1%. Often only better-off consumers include energy efficiency measures during renovation.
The European Commission’s Renovation Wave strategy to decarbonise national building stocks, and to contribute to national energy and climate plans and energy efficiency targets will increase the availability of financing and simplify rules to promote access to this finance. It could help create an additional 160,000 green jobs in the EU construction sector by 2030. More than 90% of companies in these sectors are small and medium-sized businesses, hit hard by the economic impact of the pandemic, so easier access to more funding will be invaluable.
The Renovation Wave strategy also addresses multiple, entrenched problems, including a lack of understanding of a building’s energy use and potential energy savings and renewable options, market failures, lack of expertise by providers of renovation, insufficient workforce and the need for scaling up training and green and digital skills, and regulatory barriers. The new strategy provides solutions with the potential for high social and economic returns.
Simply improving the terms and availability of debt for energy efficiency projects is rarely enough. Many investment opportunities are not taken up even when they offer acceptable payback periods because of the problems and barriers they can encounter.
The European Investment Bank has invested around €13 billion annually since 2014 largely in energy efficiency, renewables and grids. We provide financing and technical assistance to overcome investment barriers through the European Local Energy Assistance facility (ELENA), a joint initiative between the European Investment Bank and the European Commission.
Building on ELENA, the European Investment Bank is working on creating the European Initiative for Building Renovation, which will allow us to provide tailored financial support, ranging from traditional long-term loans to guarantees, equity or receivables financing. The initiative can make it easier to combine technical assistance, project development assistance, loans and grants as a single package to increase the volume and impact of lending for energy efficiency of buildings.
We encourage the setting up of standardised one-stop shops at national, regional and local levels for delivering tailored, independent and competent advice and financing solutions to accompany homeowners and small businesses as they prepare and implement their projects.
The benefits of alleviating these blockages are clear. For those with poor living conditions and in energy poverty, there will be better homes and workplaces that are cheaper to run. Affordable building renovation should create jobs and stimulate the economy, increase social cohesion and make energy performing and sustainable buildings more widely available, with particular positive effects for medium and lower-income households and vulnerable areas.
This will be a crucial element in the global action package, which will address the urgent need for energy efficiencies in heating and cooling, climate resilience, circularity, renewables uptake, pollution cuts and e-mobility infrastructure that are required to achieve the Paris Agreement objectives.
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The covid-19 pandemic is revealing the shortcomings of the current architecture of international finance. Debt and covid-19 are creating a vicious circle; countries need access to finance to deal with the health crisis, meanwhile economies are paralysed and countries are cut off from the very finance which they need access to. The circle results in increasing costs of capital and debt levels.
The covid-19 emergency is happening irrespective of responsible economic management. Its devastating economic impacts on the global economy are shown by the International Monetary Fund (IMF) forecast of an unprecedented recession followed by an uneven and uncertain recovery.
The G20 finance ministers and central bankers will unveil a Common Framework for Debt Treatment in a meeting on November 13th. It remains to be seen whether the proposals are simply a sticking plaster for struggling economies, or can represent the first step on a path to a green, just and resilient recovery.
Emerging economies have weathered the first phase of the pandemic relatively well and have used much of their available fiscal space—budgetary room that allows a government to provide resources for public purposes without undermining fiscal sustainability—in doing so. However, this leaves many countries dangerously exposed to a prolonged crisis and the knock-on effects of the pandemic.
Historically, the IMF and Multilateral Development Banks (MDBs) have helped cushion the impact of external shocks to emerging economies. The IMF has played a key role in providing liquidity of last resort to countries in debt crisis, while MDBs provided countercyclical support and, above all, technical assistance. These support mechanisms, however, are finding their resources insufficient to meet the scale of covid-19.
Currently, emerging economies have financing needs of at least $2.5 trillion. The MDBs can provide approximately $240 billion, along with the IMF’s up to $1 trillion but this leaves a shortfall of over $1.2 trillion. Since covid-19 started the IMF has provided 22 emerging market economies with approximately USD 72 billion in financial assistance.
However, framing the current debate in terms of pure debt relief and debt cancellation is limiting. The Debt Service Suspension Initiative (DSSI) initiated by the IMF and World Bank demonstrates why. The DSSI was proposed in April 2020, with the view of providing debt relief to 76 emerging economies in the form of postponed interest payments until at least mid-2021.
However, the uptake of the DSSI by countries in debt distress has fallen short due to concerns about rating downgrades, whilst its benefits have been limited by non-participation of both the private sector and China’s state-owned enterprises. The DSSI approach ignores the fact that this is going to be a multi-year crisis; it is both too short-term and insufficient for the current circumstances.
More broadly, even in “normal” conditions debt relief measures leave emerging countries playing a zero-sum game where they have to choose between spending priorities like health, education or climate. These governments struggle to assign capital to longer-term initiatives like clean energy when money is tight.
Debt relief measures also neglect to consider that different countries have different levels of access to financial markets and that volumes of external support vary by country. In current conditions, failing to recognise that countries need different levels of support only exacerbates the vicious cycle between debt and covid-19.
The current narrow thinking on debt should be revisited. In the near term, G20 finance ministers should consider extending financing to emerging economies that goes beyond debt relief.
The most sure-fire option for the ministers to consider would be to facilitate greater financial support to emerging economies and low-income economies from MDBs or donor countries. An additional advantage of working through MDBs is that they already have the expertise to ensure that spending is effective and is directed towards specific development objectives.
There are several other options, including increasing MDB capitalisation. This may be slow to implement for political reasons but support could be ramped up more swiftly if shareholders allow them to make fuller use of their callable capital—a guarantee from shareholders which has never been “called”. This could be a way of deploying money rapidly at a time of crisis and a prelude to a wider recapitalisation initiative.
However, the G20 have yet to put forward meaningful proposals that address the increased vulnerabilities of emerging economies. To paraphrase IMF chair Kristalina Georgieva, as economies began their long ascent out the crisis they would only be as strong as the weakest climbers. It is in the interests of developed economies to help break the vicious circle of debt and covid-19.
This is not only a matter of solidarity. National economies do not exist in a vacuum and emerging and developing economies, which represent over half of the global economy, offer its best prospects for long term growth. The ability of developed countries to recover from the impacts of covid depends on the other half of the world still having functioning economies to trade with.
Developed countries should see the support they provide to emerging economies as a duty to their own economies as well. The G20 finance ministers should recognise this and act accordingly.
Over the course of the last decade the European Union (EU) has progressively recognised energy poverty as an issue of significant policy concern. As a result, internal energy market directives now require Member States to protect vulnerable consumers and monitor its incidence with the aid of EU Energy Poverty Observatory indicators.
In doing so the EU demonstrates that it cares about ensuring essentials, such as domestic energy, necessary to achieve a decent standard of life for its citizens. Complementary to those efforts, the Horizon 2020 research and innovation funding programme launched a dedicated call on mitigating household energy poverty in 2018. The EmpowerMed project (Empowering women to take action against energy poverty in the Mediterranean) is a beneficiary of that programme.
As part of preparatory work for the EmpowerMed project, we evaluated 20 initiatives funded through the Intelligent Energy Europe (IEE) and Horizon 2020 programmes over the last ten years that deal with energy, environment and societal topics. We found that EU climate and energy innovation needs to be more conscious of energy-related vulnerabilities, and gender and spatial inequalities.
A number of EU-funded projects often rely on behaviour change for delivering energy savings and carbon emission reductions. This becomes controversial when it explicitly refers to energy poor households, which by definition are unable to attain an adequate level of energy services at home. It conflicts with the everyday reality of energy vulnerable households who often engage in very careful domestic energy consumption practices resulting in underconsumption.
For this reason, projects dealing with vulnerable populations—and not just those focused on energy poverty—need to carefully avoid further suppressing the demand of households whose level of energy service consumption is below the minimum required for a life with dignity. In this sense, we argue that energy poor households should not be charged with the responsibility to deliver energy and carbon savings.
Projects also often miss or downplay the gender dimensions of domestic energy use. In some cases, they even reinforce stereotypes through uncritical representations of dominant household models.
Initiatives that target families and involve children as agents to motivate change in energy habits are also far from gender neutral because of the deeply gendered nature of childcare.
Another risk is the perpetuation of a ‘gender myth’ that sees affected women as vulnerable, helpless and oppressed despite ample evidence to the contrary.
Disproportionate levels of energy poverty occur in the Mediterranean and Central and Eastern Europe regions. This means special attention must also be paid to regional factors.
In the case of Mediterranean coastal areas, this includes conflicting summer and winter indoor temperature demands, low levels of insulation and central heating, common use of electric modes of heat and cooling provision, and seasonal unemployment patterns related to tourism-based economies.
We also notice a North-Western Europe bias in the way EU-funded projects prioritise electricity and natural gas as energy carriers. They often miss post-socialist conditions where district heating, firewood and coal prevail as sources of domestic heat across urban and rural areas of Central and Eastern Europe.
Omitting solid fuels and other pre-purchased forms of energy, like bottled gas or prepayment meters, is particularly problematic because these are more often present in vulnerable households and may lead to self-disconnection or self-rationing.
The precarious everyday life conditions faced by the households affected by energy poverty take a toll on physical and mental health.
While the morbidity impacts of living in a cold home are well known, the mental health dimensions of energy poverty are largely absent in EU projects. The latter include emotional stress and discomfort such as the emotional burden of debt from unpaid utility bills, the difficulties in navigating increasingly complex energy markets or the barriers for accessing support mechanisms.
A 2017 pan-European study with data from 32 countries concluded that being in energy poverty statistically increases the likelihood of self-reported bad health, poor emotional well-being and likely depression. In Barcelona, Spain, incidence rates of likely anxiety and depression have been found to be significantly higher among households facing a supply disconnection or foreclosure.
Emerging forms of energy poverty caused by ongoing changes in energy systems call for protecting households at risk of being left behind in the transition to new energy supply and consumption arrangements.
However, most EU funded energy transition initiatives assume or reinforce dominant energy provision modes based on privately owned, for-profit supply, despite noteworthy exceptions that challenge the status quo with progressive narratives around collective ownership and notions of energy sobriety, solidarity and efficiency.
Creating more democratic, just forms of energy governance and ownership is a prerequisite for the underprivileged to participate in the low-carbon transition on an equal footing.
In October 2018, the Intergovernmental Panel on Climate Change (IPCC) pressed start on the world’s climate change catastrophe countdown clock. Two years on, we have little over a decade left to prevent irreversible damage to our climate and, echoing the sentiments of General Assembly president María Fernanda Espinosa Garcés, we are the only generation that can stop the clock.
When the energy transition began, there was a wide margin for action. Think of it like a funnel. At the wide end, most businesses and countries were safe from climate-related extinction. We had time to explore all manner of potential solutions, reach a dead end and circle back to try something else.
But that time has now passed. As the world’s tolerance to carbon emissions decreases and population and consumption patterns increase, society is under increasing pressure to transition to sustainability—the funnel’s walls are closing in. Stray outside of the funnel’s edges, and climate catastrophe awaits. We need to begin consolidating our ideas.
Europe has raised its ambition accordingly. The European Commission’s Just Transition Mechanism will help mobilise at least €150 billion from 2021-27 to ensure no one is left behind by the energy transition. At the same time, the European Investment Bank has pledged €1 trillion for climate action and environmental sustainability investments to 2030.
But then the covid-19 pandemic happened; the scale and gravity of which could have very easily derailed the plan. But as the old adage goes, when life gives you lemons, make lemonade (and sell it for a profit too, if you are the enterprising kind). The near stop of the climate change clock thanks to the temporary reduction in carbon emissions, has created a once in a generation opportunity to make an even greater leap forward in the energy transition, one that was simply not possible before.
To make the most of this pause, we must reset our focus. We need a new litmus test for energy innovation: can this innovation transcend borders?
Millions of people are still without access to electricity, and billions still rely to some extent on fossil fuels. We no longer have time for innovations that can only be applied to a small corner of the world. Instead, we need innovations with strong global business cases that can be scaled to benefit millions of people at a time.
A focus on scalability requires an important change in the way we problem-solve as an industry. If an energy innovation works in Zimbabwe, will it also work in Germany or Malaysia? If not, can the application be tailored to suit, while the underlying premise of the innovation remains the same?
In a nutshell: innovators should think about solving a problem, not about a technology or a product. And, especially in sustainability, climate change problems are global. As with viruses, there are no borders for climate change.
And the same attention should be paid to the entire energy transition ecosystem—from investors and industry to entrepreneurs and markets and graduates and employers to researchers and students. We no longer have the time to double up on research or chase incremental improvements. We need to cross-pollinate all our work to accelerate the energy transition.
This is one of the stand-out learnings from highly-successful pockets of innovation such as Silicon Valley. Nearly half of all the entrepreneurs and innovators who work there are not American; diversity is part of its fibre. Ideas, learnings, research, and know-how from every corner of the world all connect there and forge synergies. The shift to virtual events, such as EIT InnoEnergy’s TBB Connect creates another opportunity to connect across borders.
Silicon Valley in its entirety will never be wholly replicated elsewhere. But Europe, with its 26 legislatures and cultures, can take inspiration to forge its own path. With more connections, we stand to multiply the opportunity by finding others that align with our objectives who can share in our plans.
EIT InnoEnergy is often the bridge between two worlds. When we see a challenge that has relevant implications, or an opportunity to deepen the impact of an energy innovation we crowd in everyone necessary so that it can play out at scale.
Much like the human towers of Catalonia, innovation needs many components to support it and for it to reach the highest level possible. These human towers are not so much about the physics but about the community that creates it; highly committed and talented individuals that share a common purpose.
With the recent focus on a sustainable recovery, there has been a flood of news, initiatives, and issues to think about. Decisive in its nature, a litmus test can cut through to where industry needs now to focus its attention.
The test is simple: whatever your thought or action, ask yourself, can I scale it so that it is widely applicable? If the idea or innovation cannot be of benefit to millions globally, then it may no longer make enough of an impact to help us beat the clock.
In October 2020, the European Commission unveiled its Renovation Wave strategy bringing to the table a basketful of fresh ideas for how to stimulate deep energy renovation of the building stock in the European Union. The strategy was accompanied by an action plan and a number of flanking publications, including on financing and on energy poverty. It brought to an end a long period of intense interaction with stakeholders on what should be included and it was the starting gun for the real concrete actions.
I congratulate the European Commission on its strategy and on the courage it has shown in proposing a forward-looking, broad and coherent strategy. Its overriding objective is to at least double the rate of energy renovation within the EU, taking care to ensure high quality, deep renovations will be the norm and that worst-performing buildings and public buildings are the first segments to be addressed.
Among the striking elements included in the strategy is a commitment to examine the phased introduction of minimum energy performance standards for all types of buildings as part of the now-planned revision of the Energy Performance of Buildings Directive (EPBD) during 2021. This is a particularly welcome development as many stakeholders have realised in recent months that the most effective way to scale up the quality and rate of renovations is to regulate the performance level that must be achieved and to require that performance to be achieved within a fixed timeframe, while ensuring that support, both technical and financial, is available.
The proposal also includes a close look at the energy performance certificate framework with a view to make it more effective, more transparent and more comparable across borders within the EU. The strategy goes even further to suggest that the creation of digital building logbooks provides an opportunity to incorporate all information on a building into one digital place. This would include: the energy performance of the building; the smart-readiness of the building; the renovation roadmap that will capture the full savings potential of the building; and the level(s) categorisation of the building, describing its sustainability characteristics.
This would benefit many stakeholders from the building owner to the local and national authorities. It would facilitate planning and development policies in a way that would allow for easier identification of the best districts or building segments to target in rolling out the needed renovation strategies that will put our building stock on its way to becoming highly energy efficient and decarbonised by 2050.
The strategy goes on to point out the main sources of EU funding that are available for Member States to draw on to finance the deep energy renovation of their buildings. Unfortunately, this part of the strategy is not presented in a way that allows for a full understanding of the types of funding that are available and how best to access them. A first mapping of these funds that begins to decipher the sources and complexity of EU Funding has been prepared by Renovate Europe for REDay2020 (October 27th).
Finally, the strategy recognises the need to boost the availability of technical and project development assistance, pointing out several sources of such help like the very successful European Local Energy Assistance (ELENA) programme that will continue during the next EU Budget period (2021-2027). It also talks about the practical usefulness of one-stop shops (OSS) as centres for independent and reliable advice to building owners and project developers. It will make a commitment to support the establishment of standardised OSS at national, regional and local levels in the short-term.
The accompanying narrative in the strategy recognises the critical role that addressing energy waste in buildings can play in helping the EU to achieve its long-term climate goals and its headline commitment to transform the EU into a climate-neutral economy by 2050. In doing so it also highlights the multiple benefits that many studies have demonstrated will result from ambitious energy renovation programmes. These include the creation of hundreds of thousands of local quality jobs, big improvements in indoor environmental quality leading to greater well-being and health among citizens.
In my opinion, the publication of the Renovation Wave strategy and its accompanying action plan is just the end of the beginning. Stakeholders have reacted positively to the high-level recognition the buildings sector is receiving and rejoices that our voices have been heard. Now the real work will start, and it will be on two levels.
First, more policy-orientated work will be required to engage in a constructive and meaningful way with the legislative revisions that are now planned by a hard-working and committed European Commission. In addition to the revision of the EPBD, mentioned above, 2021 will see several other linked legislative pieces being reviewed. These will include the Energy Efficiency Directive that is expected to significantly raise the EU energy efficiency target for 2030; the Renewable Energy Sources Directive as cleaning the energy supply is crucial to decarbonisation; the Construction Products Regulation; and several other pieces of legislation that will impact on the buildings sector.
The second, arguably more important, piece of work is to motivate the national governments across the EU and the whole construction value chain to take on the challenge of rapidly increasing the rate, ambition and quality of energy renovations. This will involve more than just sourcing financing, extending to a review of how the construction sector is organised, how digitalisation and industrialisation of renovation approaches can help and how to ensure a large, skilled workforce is made ready to carry out the works to the millions of buildings that are targeted by the ambition of the strategy.
On this last point, the renovation sector is very well placed to absorb a large proportion of the workers that have unfortunately lost their jobs in the tourism and hospitality sectors as a result of the economic fallout from the ongoing public health crisis. I hope that those workers will be ready to transfer to our sector and engage in the physical transformation of our built environment for the creation of a better future for all—one in which under-performing buildings are permanently made a thing of the past.
Subsidies for biomass burning are jeopardising South Korean renewables. It is time to speak up against this polluting and climate-damaging fuel.
Burning wood as a “renewable” fuel in power plants emits more greenhouse gas compared to fossil fuels and can degrade the forests that are harvested for fuel. Nonetheless, similar to what happened in the European Union, the South Korean government has promoted forest biomass as an emissions-free renewable energy with generous subsidies, leading to a surge in new wood-burning plants and old power plants co-firing wood pellets with coal.
In recent years, South Korea has become the third largest importer of wood pellets in the world, spending $460 million on importing 3.4 million metric tons in 2018 alone from Vietnam, Indonesia, and as far afield as the United States and Canada, where wood pellets are increasingly being sourced from forests that are hundreds to thousands of years old.
Furthermore, data from the South Korean biomass industry shows that wood burning releases as much, or even more, harmful air pollution as coal per megawatt-hour, in a country that last year saw emergency powers passed to curb the “social disaster” of air pollution and the temporary closure of a quarter of the coal fleet.
But the damage goes even further. As in Europe, subsidised biomass burning in South Korea is not just encouraging environmental degradation, it is competing for funding and grabbing market share from genuinely clean renewables like wind and solar. Between 2014 and 2017, bioenergy projects received nearly 40% of all Renewable Energy Certificates issued by the government—more than any other type of “renewable” power.
With these generous subsidies, use of biomass for energy increased more than sixty-fold during the same period, with more than two-thirds being co-fired with coal, thereby extending the life of these polluting plants which we so desperately need to phase out. The situation is now so acute that South Korean solar operators have taken the unprecedented step of challenging biomass subsidies in the courts.
South Korea’s government followed the European Union’s lead in promoting biomass as a “zero emission” renewable energy. But now, as the destructive consequences of that choice emerge, the EU story and Korea story share common features. Wood use for energy is hollowing out forests and increasing greenhouse gas emissions. And the financial costs are also heavy, with EU member states allocating over €6 billion a year to subsidise biomass burning; subsidies that could instead be allocated to truly zero-emissions renewable energy.
As the European Commission considers reforming the Renewable Energy Directive to take account of a higher 2030 target for renewable energy, much is being made of attempts to restrict the harvesting of wood for energy to by-products from other industrial and forestry activities, such from sawmills.
But this policy simply has not worked in South Korea and appears to have led to the quadrupling of so-called ‘unused biomass’ production in the first half of 2019, compared to the second half of 2018 when these amendments were brought in.
There are many other examples globally of this kind of practice with the essential problem being that governments keep expanding the definition of what constitutes ‘unused biomass’ due to a strong industry lobby, leading to large volumes of whole wood being harvested for electricity generation.
As the European Commission increases the ambition of its renewable energy and emissions reduction targets under the European Green Deal, lawmakers would do well to set a good example for South Korea and others to follow. Truly clean energy like wind and solar will only flourish and deliver its benefits to our climate only when countries end their dependence on polluting wood biomass for renewable energy.
The idea behind BCAs is relatively simple: the EU would impose a charge on goods imported into the EU from foreign producers who operate without a carbon price to protect its domestic producers, who face a carbon price, from being undercut. In practice, however, designing and implementing BCAs requires overcoming a seemingly endless list of technical, legal and above all political challenges.
Despite the many concerns voiced by experts and the fact that there are other tools that could achieve the same ends more effectively, the European Commission (EC) is moving forward at pace with its plans to make BCAs a reality.
In her State of the Union address last month, Commission president Ursula von der Leyen reiterated her plans to introduce BCAs to “motivate foreign producers and EU importers to reduce their carbon emissions”. The Commission has launched its second public consultation on the topic and at the July European Council, heads of state and government mandated the Commission to put forward a proposal for BCAs in the first half of 2021.
But for all these signals and the seemingly fast-moving timeline, there is a long road ahead. We are still far from seeing this controversial measure implemented.
The technical challenge is immense. Policymakers must make a series of decisions: What sectors to include? What scope of emissions? How to assess the carbon content of products produced in third countries? The broader the scope, the larger the data gathering and verification exercise.
The political challenges are manifold. Within the EU, member states and industries hold vastly different expectations for how a BCA should be designed. France, the Netherlands and Spain have come out as champions. Germany with its more export-oriented industries has struck a more cautious note, raising concerns over sparking a trade war.
On the legal front, there are two main sets of constraints. First, WTO rules against protectionist measures. Second, the principle of common but differentiated responsibility in UNFCCC negotiations, whereby countries have a shared but not equal responsibility to take climate action. BCAs, depending on how they are designed, could theoretically impose an equal responsibility on all trade partners to match the EU’s environmental standards.
Internationally, trade partners have been quick to decry BCAs as protectionist measures that are unlikely to be in line with World Trade Organisation (WTO) rules. The risk of retaliatory trade measures is high. Indeed, the EU has some experience with this. In 2012, the EU was forced to “stop the clock” on the introduction of international aviation into the EU ETS, due to a concerted backlash from major trade partners.
The EU is clearly targeting major economies—China, the US and Russia—with its call for enhanced climate action and BCAs have been useful in keeping high-level political attention on climate in these economies. In Russia, president Vladimir Putin’s top adviser on climate warned big businesses that they need to start preparing for harsher EU rules or face difficulties selling products.
But the politics of BCAs have only become more complicated in the wake of the covid-19 outbreak. With true commitment to multilateralism being put to the test and countries around the world focused on dealing with this crisis, putting forward BCAs as an ‘incentive’ for climate action risks being seen as overly punitive. BCAs could impact a number of emerging and developing economies for whom this approach will seem particularly unfair in the current context, unless they are accompanied by extensive cooperation and capacity building measures.
If the EU is serious about implementing BCAs, it must also get serious about engaging with trade partners on this issue. There is no point designing the perfect mechanism, only for it to be dead on arrival because the EU has not laid the groundwork for a cooperative approach.
Significant diplomatic effort will be required to demonstrate that BCAs do not amount to protectionism and to explain their true—and limited—impacts on trade. The Commission should ensure that the analysis of the cross-border effects of BCAs are integrated into impact assessments for these policies. Such an assessment would need to focus on developing countries and on major trade partners.
The EU should also try to develop a coalition with other jurisdictions that are seriously engaging in carbon pricing and/or have signed up to pledges to decarbonise heavy industry. The EU will also need to engage in dialogues with developing countries on how BCAs might affect them and what technical and financial assistance measures might be taken to manage any impacts.
Finally, the EU should seek to turn the potentially negative issue of BCAs, into a broader and more positive discussion with international partners on how to accelerate the decarbonisation of heavy industries. BCAs should be addressed as part of a set of issues, including coordination on ambition, technology, standards, policy learnings and sustainable finance to help develop zero carbon industrial sectors in partner countries.
China’s announcement that it will aim for carbon neutrality by 2060 is a chance to put a more cooperative approach into practice. The Chinese government has signalled that it will speed up the pace of its carbon market development—rolling it out to heavy industry sectors, steel, cement and petrochemicals. These are sectors that would theoretically be impacted by an EU BCA.
The EU has an opportunity to engage in a dialogue with China on the policies needed to meet its ambitious pledge, including strengthening its carbon market. BCAs or the development of other anti-carbon leakage measures, such as product requirements, could be one plank of that conversation.
Von der Leyen has spoken about BCAs as a measure of last resort, to be deployed if other countries and regions do not live up to the EU’s climate ambition. China’s surprise pledge gives the EU an opportunity to more clearly articulate the carrot to the BCA stick.
My kitchen window looks onto a small park. A few years ago, a series of field maple trees were planted there. Initially they flourished, their light green leaves increasingly visible to us as the trees grew. But recent summers have been very dry. The heat and lack of water have taken their toll. One of the trees is now dead, several are dying.
Their grey skeletons are a daily reminder to me of the way a warming climate is affecting everything: just one small footnote on a terrifying spectrum of far bigger impacts we are already seeing including food shortages, wildfires, flooding, glacier melt and increased diseases.
It is clear the world is facing a climate emergency. And there is no way of tackling this that does not involve the European Union making drastic, near-term cuts in the greenhouse gas emissions which cause climate change.
This must—and can—be done in parallel with recovering from the covid-19 pandemic. The massive public investment needed for the current crisis must provide the means of tackling the next one.
The European Commission has just proposed a target of at least 55% lower net emissions by 2030. But the proposal falls far short of what is needed, and the changes to legislation it is suggesting are seriously flawed.
Firstly, the target level itself is far too low. The UN emissions gap report suggests a cut of at least 65% is needed for the 1.5°C goal in the Paris Agreement, and that is without taking into account the EU’s responsibility for historical emissions—which puts the onus on the bloc to do more.
Secondly, the type of target suggested muddies the waters. The Commission is proposing that, unlike the current climate target, the new one should include all carbon dioxide removals by ‘carbon sinks’ like forests.
In practice this means that the ‘55%’ target is actually rather lower: probably only around 50-53%, according to the Commission’s data. It is tricky to calculate emissions and removals in the land use sector, meaning the whole target becomes much less certain and open to interpretation. And as we have seen with recent wildfires in the United States, we cannot count on forest carbon stocks remaining stable.
The best way for the EU to encourage emissions removals by natural sinks is via a separate target. This would not only help drive carbon dioxide reduction, it could also reward individual member states for increasing their land use sink. Currently, the EU’s renewable rules allow members to burn trees for energy and claim it as carbon neutral. This is wrong. Forests should be allowed to regenerate.
A higher emissions reductions target of 65% by 2030, and a separate carbon removals goal, are crucial to fighting the climate emergency. But is such a target merely a pipe dream of green campaigners, or is it achievable?
Climact—a consultancy—looked into the implications of reducing emissions by 65% by 2030, and concluded that it “is feasible through rapid action on both technology deployment and lifestyle improvements”. The 65% target would: force electric vehicles to reach 60% to 90% of new sales by 2030; a rapid decarbonisation of the power sector with coal power removed by 2030; and the renovation rate of buildings to double or treble.
Climate Action Network Europe and the European Environmental Bureau, showed that through building renovation and industrial modernisation, energy savings could be ramped up alongside increased renewables and electrification. Together, with a limited use of green hydrogen, this would allow a 65% emissions reductions target to be reached.
The EU wants a ‘green recovery’ from the covid-19 pandemic, and is giving €750 billion to try and make that happen. If that money is used for sustainable, green projects, we can take massive steps forward.
Cutting emissions by 65% on 1990 levels in the next ten years is challenging but feasible, and the financing to do so is available. Taking this step would bring huge benefits. Primarily, it would help tackle the existential threat of climate change. But going further would also bring the EU to the forefront of low-carbon economy technologies and policies, plus help reduce the total cost of the transition by pushing innovation early and avoiding carbon intensive lock-ins.
What is crucial is that this increased climate action takes place in a way that brings opportunities for every part of Europe and leaves no-one behind. There are regions where the economy has depended on coal mining for years and while many of those regions are keen to move to more sustainable models, they need financing to help them get there. The EU’s Just Transition Fund—which will total €17.5 billion—was set up to provide some of that support. But there is a risk that it actually undermines the shift to clean sectors and locks regions into a high-carbon economy if it lends to fossil gas projects as some members of the European Parliament want. As the fund is discussed and agreed between the EU institutions in the coming months, the EU Commission and Council must hold their position and ensure all fossil fuels are kept out of EU funds.
The opportunities are huge, and with the threat of ever worsening climate impacts, not acting is simply not an option. If we increase the 2030 climate target to at least 65% emissions reductions, separately step up efforts on the carbon sinks side, and make the transition to climate neutrality socially just, our economy will become more resilient and our society fairer.
European countries led the way on industrialising their economies, and with that, also emitting vast quantities of greenhouse gases. Now, we can lead the way once more in the next industrial revolution, transforming our economies again by embracing sustainability, climate action and the promise of a clean, green future.
If we do so, it will not just be my local park which benefits. It will be all of us.
Looking back, almost any development in our private and business lives looks like a logical chain of events that we could have anticipated earlier. What if we turn this around and look at trends to explain the present and anticipate the future?
For several years, green hydrogen produced from water using green electricity with the help of electrolysers, has been seen as a long-term option to tackle almost all difficult to decarbonise areas. This specifically relates to applications that technically are very challenging to be addressed by other options, like heavy transportation, high temperature applications, seasonal storage or chemical feedstock, where decarbonised gas or its derivatives facilitate solutions.
However so far, any application has lacked financial viability compared to fossil fuel-based alternatives. But there is always the hope that prices could come down. In the old days, you would sit and wait to see if, and when, green electricity and electrolysers became cheap enough for green hydrogen to compete with fossil alternatives.
Now, green hydrogen is mentioned everywhere. Did green electricity substantially drop in price? Did electrolysers get a lot cheaper? Did oil or gas get more expensive? It was none of that.
The push on the topic that has lingered for some years, happened with the developments around Greta Thunberg’s Fridays for Future initiative and the success of green parties in the EU parliament elections in 2019. Green alternatives, particularly more innovative ones, gained support. The covid-19 pandemic has accelerated the sustainability trend with a green element being central to the EUs and national recovery programmes.
At the same time, there is now a big appetite in politics for solutions that do not only address a partial problem. It has become increasingly obvious that each part of the energy transition is interrelated. This is a change from ten years ago where—in the Brussels “energy arena”—solutions for parts of the problem were well received.
To win support, any solution needs to prove it fits into all other developments, forming a “complete” picture. The versatility of green hydrogen is very alluring in that sense, it provides answers to a lot of the different challenges. While it has as many obstacles that other new technologies or infrastructure has, there is a determination and confidence among lawmakers and within the sector to overcome these barriers. Its envisaged benefits outweigh the difficulties.
Beyond the view on specific applications, a macroeconomic view also kicked in: it seems likely that we will have more demand for renewable energy in the future than we can produce in Europe.
Such a gap needs to be closed by international imports of renewable energy. The most credible way to do this is by producing hydrogen and its derivatives in areas where renewable electricity can be produced at the lowest possible price and shipping it to Europe.
If sustainability is the driver, resilience will influence the direction. To be resilient towards future developments, the new value-chains need to avoid being too dependent on hydrogen. A future energy system needs as few dependencies as possible.
We will therefore probably see trade agreements with many different countries. Meanwhile, Europe needs to limit these dependencies by continuing to strategically develop other solutions like energy efficiency, electrification with renewable energy or district heating/cooling.
This leads us to the policies of governments that will strive to secure sustainability and resilience at acceptable costs. At the same time, companies will establish their own strategies on how they can address these developments for the benefit of their clients, playing on their strengths or boldly going into new or adjacent areas. This is where innovation around hydrogen will take place.
This points to a future picture of international hydrogen trade produced elsewhere on the globe and used in Europe. Europe should build and learn from the current pilot hydrogen projects, but we must also prepare for a future where production of green hydrogen will be outside Europe, with a variety of solutions for distribution and application in Europe.
This would not be a completely new thing. The first commercial drilling for oil, the fuel that powered the victory march of the automobile, took place in July 1858 in Germany. In the end, Germany became famous for its highways and cars, not for its oil.
The fallout from the coronavirus pandemic has not eclipsed our decarbonisation commitments. This year so far, 66% of Europe’s electricity was generated by renewable and nuclear sources, almost 20 percentage points higher than a decade ago. Within the same timeframe, reliance on fossil fuels diminished, cutting the CO2 intensity of electricity by 23%.
Are this year’s figures a trend or an exception? For sure, the first half of 2020 was special. Weather conditions reduced the need for heating and were very favourable to renewable production. And the economic slump, triggered by the coronavirus crisis, also dampened energy demand, which in turn increased the pressure on fossil fueled electricity production due to their higher marginal costs.
But the phase out of fossil-fueled capacity is real and will continue, as will the rising share of renewables. By 2030, as much as 80% of the EU’s electricity could be fossil-free, if the barriers for further deployment are removed. Moreover, two thirds of the coal-fired capacities will be closed by then with 21 European countries already committed to shutting down their coal-based power plants by the end of this decade.
If we increase the pace of wind and solar installations we will not only meet the current 2030 renewables and CO2 emissions reduction targets, but we could go even further.
Renewable energy technologies have become the most cost-effective form of new generation capacity, but their deployment still faces headwind. Simplifying the permitting procedures, strengthening the distribution grids and increasing public acceptance for new projects are three key issues that must be tackled.
Moreover, with higher targets for cutting the carbon dioxide emissions, comes a greater need to establish measures that alleviate the impact of climate policies on vulnerable populations. The €17.5 billion under the EU’s Just Transition Fund is a good start to help create business opportunities and enable those active in the exposed sectors to move towards a net-zero emissions economy. But the headline figure should increase and be followed up in future EU budgets. Measures to cushion negative distributional effects for individual households should be considered as well.
The nexus between electrification and carbon neutrality is now stronger than ever. As a result of a continuous and solid decarbonisation effort by the power sector, electricity is now an efficient solution to cut emissions from carbon intensive sectors, such as industry, buildings and transport. While their potential for electrification is huge, a steady path towards climate neutrality requires an extra effort.
Around 28% of the transport sector should be electrified by 2030 to steer the wheel towards a deep decarbonisation.
When it comes to passenger cars, recent industry figures reveal that the sales of battery electric vehicles and plug-in hybrids are ramping up. This year, they have accounted for 16.5% of the market shares, registering a 57% growth. But in order to reach the targets, the figures must see an even steeper incline. One way to bring this transformation forward, and reduce the harmful exhaust fumes emitted by road transport, is the electrification of vehicle fleets owned by private companies and public authorities.
Recent innovations and emerging technologies demonstrate that clean electricity could play a key role in decarbonising the maritime sector, via direct or indirect electrification.
In some countries already, electric ferries and boats are being introduced for short distance transports, thanks to the numerous innovations that have turned batteries into cheaper and better alternatives. For long-haul shipping, however, where direct electrification is not yet the solution, renewable-based hydrogen could be used for the production of novel maritime fuels, such as ammonia.
Today, Europe’s buildings consume 40% of all the energy used across the continent, with heating and cooling representing half of this demand. As heat is mostly generated by burning fossil fuels, the building sector is responsible for 36% of EU’s overall CO2 emissions. But this can change.
Green, digital and cost-efficient technologies, such as heat pumps, are three-to-five-times more energy efficient than traditional fossil-fueled boilers. On top of that, they have lower running and maintenance costs for consumers. Moreover, even higher benefits can be achieved in combination with solar panels, batteries and integrated energy management systems, in well insulated buildings.
Through the upcoming Renovation Wave, the EU has a great opportunity to bridge the power and thermal needs by removing the barriers to energy efficient and low carbon solutions. This transformation would cut the energy demand, and subsequent costs, thus improving citizens’ standard of living.
Beyond prioritising the electrification of heating and cooling, the Renovation Wave should seize the opportunity to turn our homes and work spaces into energy efficient, smart buildings that can dynamically interact with the power system. But smarter buildings need to interact with smarter grids, and therefore this transformation needs to happen in parallel.
Moreover, we need to look into the synergies between buildings and transport. Around 40 million electric vehicles should drive on Europe’s roads by the end of this decade. As 90% of their charging takes place at home or at the workplace, it is critical to accelerate the deployment of smart-charging infrastructure in residential and commercial estates.
The ambition to build a greener economy should not be eclipsed by the fallout from the coronavirus pandemic. On the contrary; we must seize this opportunity to invest in a greener and more sustainable European economy.
Mobility is responsible for one third of all energy consumed and for one quarter of global CO2 emissions. According to a report from Navigant Research, electrification of transport will be the greatest lever to leap from business-as-usual climate catastrophe to limiting global warming to an increase of 1.5°C.
If all urban areas in Europe, China and the United States electrified their private and public transport, the resulting emissions reduction will contribute 28% to the required total to remain within the Paris Agreement goals. E-mobility has the potential to become the climate crisis game-changer.
In this time of pandemic and financial crisis, E-mobility can help us to revive our economies sustainably and create much-needed economic growth. Stimulus packages include measures to foster the sale of electric vehicles and the expansion of charging infrastructure. The French government issued an €8 billion rescue plan for its car industry, aiming to become the leading producer of EVs in Europe. Germany has doubled its contributions for EV purchases until the end of 2021, granted investment of an additional €2.5 billion for the expansion of charging infrastructure and in research funding for electric mobility and battery cell production.
At the same time, automotive manufacturers are accelerating their EV launch plans. By 2022 we will be able to choose from 500 car models globally. EVs will reach price parity with internal combustion vehicles in most segments by mid-2020—even without generous subsidies.
However, numbers of EV adoption are sobering. The global market penetration stands at just 2.4% in 2019. The adoption of electric vehicles is increasing, but in most markets, it still is a niche player.
Charging an EV must become as easy and convenient as charging a smartphone.
Research group BloombergNEF’s EV Outlook report describes charging infrastructure quite simply as “a challenge in our forecast”. Meanwhile, a consumer survey by consultancy McKinsey shows that more than 50% of the participants see charging or range as a top concern. Drivers will not replace their combustion engine vehicle with an electric car if there is no reliable charging infrastructure in place.
Large, city-wide infrastructure projects would move the needle, but the costs are prohibitive. We need to be smart in how the infrastructure is put in place and think of a charging ecosystem rather than a one-size-fits all solution.
Using existing infrastructure for EV charging is a one option. What if we could turn every lamp post into a charger? In the UK, we have been working with the energy start-up Ubitricity to turn existing lamp posts into charging points. Installation typically takes less than an hour. Roughly, 1,300 lamp posts across London provide on-street charging capability, powered by 100% renewable energy. Local councils and other local bodies can drive the switch to electric vehicles for residents and businesses.
Considering that 80% of charging happens at home or at work, companies can play a larger role in widespread EV adoption. While in some countries this is enforced by near-term policy requirements, many companies still set carbon reduction targets of their own. Offering enterprise charging is a way for companies to reduce their carbon emissions, to demonstrate commitment to a zero-carbon future and to encourage employees to buy and drive an EV. This is especially so in the EU where company cars account for about 50% of new cars.
As sustainability has become a priority for many businesses, companies should not miss out on integrating fleet electrification into their climate action plans. The logistics company DHL made a pledge to expand its green fleet and to reach 70% clean operations of last-mile pick up and deliveries by 2025. Amazon’s CEO Jeff Bezos announced last year that the company has placed an order for 100,000 electric delivery vans from startup Rivian. Any large fleet owner should make fleet electrification part of its journey towards a net-zero future. This will not only help the image but also cut Scope 1 emissions and make the fleet future-proof.
NEW BUSINESS OPPORTUNITIES
Office-based chargers can be made public when not needed for employee charging during off-hours and weekends. This could open up new revenue streams. Though the know-how and capacity to maintain and manage the charging infrastructure as well as to handle technical problems are often not part of the companies’ core business. Professional services such as technical operation, remote monitoring, and maintenance of the hardware are required. Charger-as-a-service models are a worry-free option for a variety of companies and businesses.
Any business with off-street parking, like retailers, shopping malls or hotel chains, could purchase and install chargers from a manufacturer and have control over the rates of customers who want to charge their EVs while shopping. Or a store owner could partner as a host with an EV charging network provider that retains ownership and sets prices for the public stations in its network. Diversification of revenue streams through offering grid services such as ramping and frequency regulation could also help margins.
All these smart but practical innovations are solutions that will ultimately help to tip the balance towards full E-mobility. Electrification of transport is an energy efficient and sustainable way to decarbonise the economy. Government efforts and subsidies create the right momentum, now we must drive expansion of charging infrastructure.
As we continue to face new challenges, there is no doubt that we are more aware than ever of our impact on the environment and our planet. Recent events have demonstrated the earth’s power of recovery and have also shown that we have to take responsibility for our actions on climate change and global emissions.
According to the Global Carbon Project, 2020 could see a 5% fall in global carbon emissions (or 2.5 billion tons), while some experts believe we could witness the largest short-term decrease in emissions caused by human activity this century.
That is why World EV Day (September 9) is so important. It is a chance to recognise how far we have come on our EV journey and a powerful opportunity to shine a light on the need to maintain momentum around emissions reduction so we safeguard future generations.
DRIVING THE CHANGE
With over 600 new EV models set to be launched by 2025, and governments mandating transitions to electric fleets, World EV Day is a positive platform to increase awareness of the benefits of driving electric vehicles and celebrate people and organisations that have already embraced the commitment for cleaner transportation.
While transportation accounted for 28% of global greenhouse gas emissions in 2018 there is still widespread scepticism and more work needs to be done to educate consumers on the benefits of driving an EV versus a traditional internal combustion engine (ICE).
We recognise that electrification is the main lever for the decarbonisation of road transport.
We must therefore take decisive action to ensure that the positive climate performance of EVs can be realised. The facts speak for themselves; over a full life cycle, including vehicle production, driving an EV produces on average 50% less greenhouse gases than the average ICE vehicle. As more and more renewable energy sources, such as solar and wind, replace traditional fossil fuel power generation resources such as coal, this statistic will only improve.
Most greenhouse gases produced by EVs come from the manufacturing process. However, these manufacturing emissions will be paid back within two years of driving, compared to that of a typical vehicle. And, as EV production volumes continue to increase, we will see more automated processes, similar to those already in place for ICE production, which will bring emissions down even further.
In addition to improving the air quality of our towns and cities of the future, broader adoption of EVs will also reduce noise pollution, so that we make our spaces more enjoyable and sustainable.
INNOVATING FOR THE FUTURE
ABB’s new e-mobility headquarters and laboratory on the university campus in Delft, the Netherlands, is designed in such a way that we can test pantograph charging of a bus or truck inside the building.
Working closely with vehicle manufacturers to advance vehicle-to-charger communications and increase charging speeds will improve the charging experience for drivers.
In addition, the development of bi-directional charging solutions will further justify EV adoption through new revenue streams, enabling drivers to sell power stored in vehicle batteries back to utilities during peak energy rates. This will all have a huge impact on adoption rates; when cost parity is met, consumers are much more likely to pick an EV over an ICE model.
As an industry, we must also focus on charging innovation so that we make the process more seamless and improve the overall user experience. This will drive autonomy in mobility, and we predict we will see a marked shift, where everything is connected electrically, and shared mobility becomes the norm.
Ultimately, the road to an EV future is in our hands. We have the evidence to support a cleaner future; we now need to use the will of governments and consumers to make sure that we leave our planet as a safer, smarter and more sustainable place for future generations to come.
Imagine if we could achieve the majority of the carbon-emission reduction targets with solutions already at hand. The socio-economic savings by investing in energy efficiency is a route that deserves more attention. If we invest in already-known technologies, we can introduce renewables at a higher pace and in a more cost-efficient way to achieve carbon neutrality.
All fingers point to scaling-up sustainability and developing green cities, sustainable products and lifecycle assessments, plus renewables with improved energy-efficiency as a prerequisite for this development.
Urban areas account for two-thirds of global energy demand and 70% of carbon dioxide emissions. One of the obvious ways to bring down urban energy consumption levels is to invest in energy-efficient heating and cooling in buildings and to electrify transport. If all urban areas and cities in Europe, China and the US invested in energy-efficient buildings, to provide a significant reduction of the energy need for heating and cooling, they would make a significant contribution to keeping global warming within the 1.5°C target.
In Denmark alone, energy-efficient building technologies are expected to reduce CO2 emissions by two million tonnes by 2030, based on an investment of DKK 23 billion (€3 billion).
UPDATE WITH NEW TECHNOLOGY
Cities are in need of a vast number of fans to secure fresh and clean air in tunnels and parking basements, as fire prevention fans, and for heating and cooling in buildings. But today’s current building stock uses outdated technology, including inefficient centrifugal and axial fans with non-optimised aerodynamic design.
New solutions are already available. Some of the latest fans have efficiency levels as high as 92%, where older fans only hit somewhere between 50 to 80%. If we replace these older models with new high-efficiency solutions, it is a quick and financially expedient route. The payback time for new fans is short – one-to-three years, depending on operation hours of the fan – which also reduces the need for investment in renewables afterwards.
New fan solutions are also designed and produced with recyclability in mind, and up to 98% of each unit can be recycled. Additionally, the use of high-tech frequency drives that can run a motor at variable speeds enables intelligent building ventilation, helping to save energy and improve system efficiency.
As they are technologies that have been continually developed and refined, they meet the highest emission and efficiency targets. Replacing old fans would lead to lower heat generation as newer products give off less heat gain and have lower sound levels.
LACK OF ACTION
To bring about this change, we have to embed good intentions into the specific product specifications driven by ambitious EU legislation and by companies taking on the responsibility.
This is the only way we can ensure that the goals for high energy efficiency levels are put into practice in the production and supply chain. If green legislation is not ambitious enough and is not embedded in the processes and procedures at a company, city or country level, we will simply not reach the global climate targets.
The potential of investing in energy-efficient and sustainable solutions is evident, but there is a need for legislation to overcome the barrier which the higher cost for raw and recycled materials poses.
The legislation should support green initiatives and products, so the cost difference is only minimal – because, in the end, the initial cost drives the decision to buy new products for the majority of owners and developers.
On paper, the European wind industry had a robust start to 2020.
It contributed to a reliable energy supply throughout the Covid-19 pandemic and increased its share in Europe’s electricity mix to 17%. Renewables’ 40% share of EU electricity in the first half of the year was the first time it exceeded fossil fuel generation, which supplied just 34%. Meanwhile, Europe managed to install 5.1 GW of new wind capacity in the first half of the year. And the 3.9 GW of new onshore wind installations was an increase compared to previous years.
To be honest, the first half of 2020 was anything but business as usual. Wind energy has shown remarkable resilience.
The challenging months due to the Covid-19 pandemic caused reduced free movement of people and goods, supply chain disruptions, national lockdowns and mandatory plant closures. Among the most affected countries were important markets like Spain and Italy. As a result, both construction activities, as well as operation and maintenance services, were delayed. Analysts consider that new installations for the year will fall roughly by 20% in 2020, which we originally forecasted to be 17.7 GW.
But make no mistake – wind energy will come back from this crisis stronger than before.
Our data shows increased investments in new wind energy projects. A record €14.3bn was invested during the first half of 2020 – despite the developments around Covid-19. This underlines investors’ appetite in wind energy projects that offer reliable, long-term revenues.
It is not just investors that are committed to renewables. Governments across Europe are too. They are now benefiting from the National Energy and Climate Plans (NECPs), which are pledging 268 GW of onshore and 71 GW of offshore wind by 2030 in the EU-27. These plans provide the industry with much-needed, long-term visibility. They are crucial to maintaining stable deployment of wind and to create vital new jobs in the sector.
Despite the progress, we still have a lot of work ahead of us. If we want to reach those targets, permitting needs to get improved as soon as possible – this is the main bottleneck for getting us on track to reach carbon neutrality. Such an increase in generation capacity will require additional grid infrastructure. And we must fast-track repowering of wind turbines as well as increasing the electrification rate of our economy.
Finally, we need to ensure that enough new volumes of wind energy are auctioned.
MORE TO DO
The wind industry is uniquely positioned to contribute to Europe’s recovery from the Covid-19 pandemic. The European Council recently agreed on a €750 billion recovery plan and specified that 30% of all recovery funds must be spent on climate protection and must contribute to cutting greenhouse gas emissions.
Electrification, storage technologies and renewable hydrogen production are other important areas and natural partners for wind energy. The EU Recovery Plan still needs to be approved by the European Parliament, but it already seems that the members will strengthen the green elements of it.
When national governments prepare their recovery and resilience plans, underpinned by EU funds, wind energy should be one of their priorities. Investments in wind energy create jobs in Europe, boost economic activity, and build a more resilient energy system. For many countries, wind energy is the cheapest source of electricity production today.
As electricity demand increases due to the electrification of the transport, buildings and industry sectors, wind energy will be tasked to generate more electricity. Electric vehicles are getting a foothold on the European market and the EU’s new Hydrogen Strategy calls for large quantities of renewable electricity to decarbonise hard-to-abate sectors like steel and heavy-duty transport with renewable hydrogen, further demonstrating the need for wind power to grow quickly.
The views expressed here are those of the author and do not necessarily reflect the position of FORESIGHT Climate & Energy
The Covid-19 pandemic has forced us to face a valuable paradox: humanity has had to accept its limits and humbly acknowledge that we are a vulnerable species while, at the same time, working together to find a way out through knowledge and research. If we can take lessons from this difficult period, we will come out of this crisis better prepared and more aware of how to face another, bigger problem threatening our planet, which we can no longer ignore: global warming.
Analysts have asked if the fall in the oil price caused by the pandemic, might change the direction of energy transition. We don’t think so. The fall of oil prices in recent years was magnified by the Covid-19 pandemic as demand plummeted, but it is good to remember the oil industry lives on cycles. We believe we will see an adjustment in supply in the medium term and a recovery in prices.
What will happen to investments in renewables as a result? The answer lies in the past. In the late 1970s, after two oil crises, non-oil producing countries invested in renewable technologies and resources seeking to reduce dependence on oil and to strengthen energy security. In Brazil, this resulted in the Proálcool biofuel programme.
In the 1980s, Denmark and Germany advanced in the development of wind and solar technologies and opened up a new world of possibilities. More than three decades after initial investments, the technological improvements have turned renewable energies into competitive sources of power generation across the world. As a result, there is major competition for affordable renewable energy projects and after Covid-19 has subsided, investors will prioritise projects that bring a better quality of life — with renewables firmly in their sights.
The pandemic has opened our eyes to the unavoidable fight against global warming. And in this fight, low-carbon sources are our best bet. We believe the momentum for the energy transition will be stronger than before the pandemic and it is here to stay. Naturally, in the short term, the speed of the transition could decrease, due to the drop in demand, however in the medium- and long-term its trajectory will accelerate.
Renewables are the obvious choice as the energy carrier of the future and for the fight against global warming. The positive social and economic impact will be fundamental to a post-pandemic future. In June, the Global Wind Energy Council (GWEC) launched the “Wind energy: A cornerstone for the recovery of the global economy – Rebuilding better for the future” study. In it, GWEC demonstrates how investment in wind power creates jobs and positive effects for communities and innovation and proposes economic actions in support of renewable energies which contributes to a fair and more sustainable society.
We believe this could also apply to other renewables, such as biomass and solar. In Brazil, the good news is that we have a great diversity of clean sources for energy and the government has already made it clear that the expansion of the electrical matrix will happen with renewables.
The post-pandemic world we encounter will be different. Our hope is that in this new world, we will have learned that we, as human beings, cannot go against nature and its laws, that we have our limits and that we need to learn to live in harmony with the planet. And, having faced our limits in these dark moments, like children who discover that they cannot do everything without consequences, we can mature with humility and modesty and make more sensible choices, leaving a better planet for future generations.
If you are in pain, you go to a doctor who prescribes a painkiller. This cheap, proven and readily available treatment relieves your pain and temporarily solves your problem. However, if you continue to take the pills, you risk the considerable downside of long-term reliance without addressing the cause sustainably.
For many households experiencing energy poverty — where a household is unable to access or afford sufficient energy services to meet its needs — their prescription has been a gas boiler.
Energy poverty programmes in the UK have relied heavily on providing efficient gas boilers, in some cases converting direct electric heating or installing new gas heating systems, to reduce energy costs and warm up homes. Pilot programmes have even seen doctors “prescribe a boiler” by referring households into an energy poverty programme. Gas regulation also supports new connections to the gas grid for low-income households through a commitment to spread the cost across other users to avoid charging the low-income household.
Like a pill prescribed for your pain, connection to gas is relatively cheap, proven, available — when publicly funded — and provides immediate relief in terms of lower bills and warmer homes. But, like medication, reliance on gas in the long term, and the difficulty in getting off gas, poses a huge risk.
In specific situations, symptoms are so extreme that using gas to provide temporary relief is justified, coupled with a long-term plan to transition away. Poland is a notable example, where the air quality crisis brought on by burning coal for home heat seriously affects public health. As a more general rule, new gas connections can tie households into an unpredictable future.
Route maps to decarbonisation point out that the future of domestic heat is electric or district. Government incentives and clean heat programmes encourage better-off households to move away from gas to renewable heating systems. But we have to ask ourselves if we are leaving low-income households behind in the energy transition and locking them into dependence on gas that leads to high costs or uncertainty? At what point does prescribing a gas boiler do more long-term harm than good?
A CRYSTAL BALL FOR THE COST OF GAS
Gas is, on average across Europe, three to four times cheaper than electricity per kilowatt-hour for households. Of the final cost of gas, the price of the fuel accounts for around 50% of the average bill; the other half is divided between infrastructure costs and taxes. I won’t try to predict future gas prices and their fluctuations across Europe, but the following insights allow for speculation.
As for the fuel itself, according to its carbon content, gas is underpriced. Electricity bills often shoulder more of the costs of carbon than gas. This is largely due to the price of carbon in the EU Emissions Trading Scheme, which adds to electricity prices, not gas. If the current European Green Deal proposals — to extend the Emissions Trading Scheme to buildings and better align the Energy Taxation Directive with the carbon content of fuels — go ahead, the carbon price added to gas will rise, and with it, the cost of gas.
Many European countries are already implementing a future which is much less reliant on gas. A number of Member States have policies which prevent the use of gas heating in new homes — like the UK or Ireland — or aim to wean all homes off gas entirely, like the Netherlands. These sticks, along with the carrots of renewable heat incentive programmes, create a future in which smaller numbers of households are connected to a country’s gas infrastructure. A smaller number of users means each household would need to pay a greater share of the infrastructure costs.
Furthermore, timescales for infrastructure investment are long. Yet, as households move away from gas, large parts of this infrastructure will become redundant. Therefore, gas companies need to recoup infrastructure investment over a shorter period of time. Fewer users and a shorter timeframe over which to spread the costs mean higher costs of infrastructure for each household that remains on the gas grid.
UNCERTAIN COST OF FUTURE FUELS
The future cost of fossil gas and its replacements is the million-dollar question.
As demand for fossil fuels in the next decades drops, we can expect the wholesale price of fossil gas to fall. This has been seen, in an extreme way, during the coronavirus lockdown. The sharp retraction of industrial and commercial activity, and therefore demand for energy, contributed to rapidly falling wholesale gas prices.
But fossil gas is not the fuel of 2050. Hydrogen appears to be waiting in the wings to replace fossil gas in the grid. However, hydrogen is unlikely to be available in large quantities across Europe for home heating, as the available hydrogen goes first to those uses that rely on high temperature heat – which hydrogen can produce but electricity cannot. In the various 2030 and 2050 European decarbonisation scenarios, hydrogen for use in buildings is almost absent in 2030 and provides a small share of energy consumption in only some 2050 scenarios.
Importantly, projections show hydrogen will likely be significantly more expensive than a heat pump for home heating, and adapting to hydrogen will require upgrades of both the grid and home heating systems.
The availability and cost of hydrogen for domestic heat are at best uncertain. If low-income households are disproportionately reliant on gas, they will pay higher costs for infrastructure and be open to the uncertainty and price shocks of replacement fuels.
ENDING THE DEPENDENCY ON GAS
Getting off gas will not be easy, and it will be harder still for low-income households who face greater barriers to electrification — the upfront cost of renovation and heat pump technology, lack of space in smaller homes for heat pumps and heat storage, and the lack of control over fuel choice in rented homes.
In our rush to alleviate energy poverty, the prescription of the cheap painkiller risks saddling households with a dependence that may cost them dearly in the long run. Soon, we will need to start enabling low-income households to decarbonise, not just reduce fuel costs in the short term. This means aligning decarbonisation and energy poverty strategies, and funding energy poverty programmes that provide clean heat solutions, or at least enable future electrification.
Promote clean heat for low-income households first rather than last.
The views expressed here are those of the author and do not necessarily reflect the position of FORESIGHT Climate & Energy
According to International Renewable Energy Agency’s (IRENA) 2020 Global Renewables Outlook report, in order to set the world on a pathway towards meeting the aims of the Paris Agreement, energy-related carbon dioxide (CO2) emissions need to be reduced by a minimum of 3.8% per year – that is 70% less than today’s level by 2050, with continued reductions thereafter.
Within this scenario, the share of renewables would need to increase to 28% by 2030 and 65% by 2050. Wind power would be a major electricity generation source, supplying more than a third of total electricity demand, which would require 6 TW of onshore and offshore wind (compared to 650 GW installed as of 2019).
While the wind industry is poised for this growth, all industry leaders must ask: How can we deliver this growth – scaling up everything including product size, manufacturing footprint, equipment and logistics – in a safe, cost-effective, sustainable way?
As we push forward with innovations in materials and design, we cannot forget about the basics. We need to clean up our waste and to avoid creating that waste in the first place.
NOT ALL WASTE IS VISIBLE
When people think about waste, it is natural to first think about the objects that end up in the bin. That is the waste you can see. But we need to also consider the waste that is less visible, like excess electricity usage, CO2 emissions throughout the product lifecycle and manufacturing inefficiencies.
Regarding visible waste, all manufacturing businesses have some amount of wasted material in production. This represents both a waste of valuable resources and a cost to the business; why pay for materials and then pay again to dispose of them without using them in your product?
Blade manufacturers report approximately 20% waste during the manufacturing process. To continue to deliver on our clean energy and sustainability promise, it is imperative for the wind industry to reduce waste during manufacturing. At the same time, it must also develop materials that can be recycled into a circular economy following the production process and also at the wind turbine blade’s end-of-life.
In this sense, more value can be gained from the virgin materials, as they can be recycled into new blades, or recycled into another value chain. Extending the life of the materials also significantly reduces CO2 emissions from the wind turbine blade lifecycle.
When it comes to less-visible waste, improvement begins with strong data and processes. For this reason, LM Wind Power began reporting on sustainability indicators in 2010 as a signatory to the UN Global Compact and became the first carbon neutral business in the wind industry in 2018. Building on this data and processes, we were able to identify opportunities to save on emissions and cost. Through energy efficiency initiatives $2.6 million was saved on energy bills already in the first year of LM Wind Power’s carbon neutrality programme.
We need to stop talking about sustainability programmes or projects as separate from business objectives to reduce cost and improve efficiency. To me, emissions equal waste. Reducing these emissions is both a driver and result of a lean mindset.
Being lean is neither a set of tools nor an initiative; it is a mindset that must become embedded in everything we do, as a way of working across the organisation, starting with the factories. The same should be said about sustainability.
I have worked in a manufacturing environment, including the automotive and power generation industry, for many years and applied a lean methodology to improve operational efficiency, reduce defects and create customer value. This practice can be applied in the wind industry to drive waste reduction and recycling, but also to improve productivity, quality, safety and overall efficiency, resulting in cost savings.
There are tools that you need to apply to get to the root of the problem and find a sustainable solution:
Once we embark on this journey, we bring about cultural change in the organisation, influence people’s behaviours and actions and empower them to incorporate sustainability into their overall priorities. I strongly urge wind industry captains to reduce both visible and invisible waste as a lever to achieve sustainable, cost-effective growth in the years to come.
The pandemic caught EU countries by surprise. The lockdowns put in place to combat the spread of the virus have sharply reduced both energy demand and prices.
Fossil fuel prices, which were on a downward trajectory since before the pandemic, have sharply declined since end 2019 with gas, coal and oil falling 50%, 35% and 60%, respectively. Similarly, CO2 prices have also decreased by -40% on the back of lower greenhouse gas emissions. This means fossil fuels will become more competitive if the pandemic keeps fossil fuel prices at low levels for a long period, which seems likely.
The levelised cost of renewable electricity today is comparable to fossil fuels electricity in locations with good renewable resources. However, for variable renewables such as wind and solar, their levelised cost is not the right benchmark to assess their competitiveness, because they generate additional costs in order to cope with their intermittence. These costs increase when the share of renewables in the system rises.
The pandemic has increased the share of renewables on the grid because of the lower demand. Flexible resources, such as demand management, network interconnection and storage, aid renewables integration in the electricity system but add to the costs.
As most of the additional renewable capacity will be provided by solar and wind energy projects, the total electricity cost may increase in the medium term, even if the levelised cost of renewables decreases.
The higher cost might be significant: 25-35% when renewables’ share is 50% of the total electricity production and 75% for a 75-80% share, according to recent studies. This cost might be lower if flexible resources can be developed at low costs.
The way renewable energy projects are remunerated has considerably changed over time and varies across the EU. In the case of utility scale wind and solar projects, most EU countries adopted feed-in premiums, and a few apply Contract for Difference (CfD) systems. In the case of feed-in premiums, it receives an additional remuneration on top of the revenues from selling the electricity in the electricity market.
Therefore, if the electricity market prices decrease, because of the pandemic, profitability diminishes as well. A recent new development is corporate Power Purchase Agreements (PPAs) and merchant power plants that can operate out without financial support from the government. They account for a small part of the total. The revenues of those plants can come from selling to electricity consumers through Power Purchase Agreements (PPA) or from selling in the wholesale electricity market. But these projects are highly exposed to electricity price risks and thus the pandemic may affect them substantially, notably merchant power plants.
In principle, periods of low electricity prices should have been considered in the decision to develop a specific project. However, it is unlikely that the sector had foreseen a pandemic, and therefore it cannot be ruled out that some projects will need to restructure their debt or even go into default as a result of the pandemic.
Even if their competitiveness against fossil fuels is negatively affected by falling prices caused by Covid-19, renewables deserve to be supported by governments. It is quite likely that renewables will require more public support than expected before the pandemic, mainly via the electricity tariffs. This will test the commitment of EU governments to fight climate change.
The next challenge is to develop flexible resources at a low cost, if they want to remain consistently competitive.
The views expressed in this opinion are those of the author and do not necessarily reflect the position of FORESIGHT Climate & Energy
The size and scale of the economic response to address the Covid-19 crisis will inevitably shape the economic landscape for the coming decade, if not longer. Decisions made in the next three to six months will determine whether our economies can be resilient in the future by staying within “safe” climate limits.
Worldwide, finance ministers now find themselves in a unique position – how they react to the crisis will shape the scale and pace of the economic recovery, its social ramifications, and whether we create real sustainability and resilience in the face of climate change.
The Network of Greening the Financial System, a group of central banks and supervisors supporting the clean energy transition, has stated the response to the health crisis should be “to act now to lay the groundwork for an orderly transition to a more sustainable economy and climate-resilient financial system – a ‘green’ recovery”.
But the Coalition of Ministers of Finance for Climate Action, an alliance composed of leading finance ministers from around the world committed to accelerate actions to implement the Paris Agreement, has yet to issue a statement on their vision for national responses to Covid-19. Doing so would provide an opportunity for members of the Coalition to clearly state their commitment to both green their country’s response and deliver a more resilient economy, and they should not delay.
The Helsinki Principles, which Coalition members adopted in 2019, offer a theoretical framework for ensuring a green recovery, but the challenge now is to make certain it translates into real-world policies. For many countries this is a daunting task.
There is no doubt in the current crisis, finance ministers are under huge amounts of pressure. They are struggling for the capacity to look beyond the current phase of their response. However, if they raise their eyes from immediate concerns, they will find that they are not alone.
Finance ministers can access external technical assistance and fiscal support from Multilateral Development Banks (MDBs) and Climate Investment Funds to ensure a green recovery. They can also draw on the private sector to share the financial load.
The twin act of making a clear statement on ensuring a green recovery and accessing external assistance to deliver it will send a clear signal to private investors that the Covid-19 response will reshape the economy along more sustainable lines. The private sector is standing ready to invest in the green economy and global investors have made their preferences clear for a green recovery rather than for fossil fuels; as Mark Carney – former governor at the Bank of England – said, this is the greatest commercial opportunity of our time.
Making this declaration early and loudly will increase its effectiveness but we need more than talk.
As we saw in the 2008 financial crisis, where there was positive rhetoric around a clean energy growth but in reality only 16% of the stimulus was actually green with the rest flowing to support ‘business as usual’. Moreover, a lack of clear commitment from governments at the time meant there was no impetus for realigning and modernising the economy. Countries soon returned to their previous unsustainable economic models.
To deliver a different outcome from 2008, we cannot treat climate action as a separate element of the response. Instead, it should be central to all aspects of recovery planning; a just and green recovery is the only way to enable a resilient future economy. Finance ministers should begin by aligning domestic and international resources in support of a clean recovery. Leveraging MDBs’ ‘know how’ at an early stage can also help finance ministries keep sight of their longer-term goals, even as they contend with a once-in-a-generation economic shock.
Of course, all countries are different and will enter each phase of crisis response at a different time. This disparity in timelines can present a challenge for clear and coordinated action. However, while economic and institutional landscapes differ between countries, their desired outcomes are similar. The levers to achieve a green recovery may be placed or timed differently in different jurisdictions, but their functions are the same.
Setting a clear goal and seeking technical assistance to deliver it also signals to credit rating agencies that a country has a strategy for a green recovery. Developing such a plan to promote sustainable growth should make a ratings downgrade less likely, which is a major concern for finance ministers. The case for building a green economy is heightened by the work credit rating agencies are doing to incorporate climate risks into their country analysis.
We have already heard positive noises about greening the recovery coming from central bankers, financial regulators and the Network of Greening the Financial System. Nevertheless, the heavy lifting ultimately sits with those in charge of the pursestrings and the fiscal measures they devise.
Finance ministers are facing unprecedented challenges but making a clear and strong statement about a green recovery, and then turning to international institutions to provide tailored support will give them the resources they require to turn a once-in-a-generation crisis into the foundations of a net zero and resilient economy.
The views expressed in this opinion are those of the author and do not necessarily reflect the position of FORESIGHT Climate & Energy
The latest figures from the International Energy Agency (IEA) make grim reading. It estimates, for the first time in nearly two decades, growth in new renewable energy capacity will be lower this year than last year. Disruptions to construction and supply chains as a result of the Covid-19 pandemic will slow many projects this year, while a global economic slowdown will particularly hit small-scale solar and distributed storage markets.
A slower economy is also vexing power markets, depressing demand and prices and, as a result, undermining the economics of merchant renewables projects that rely on wholesale prices. Overall, the IEA expects an increase in renewable energy capacity of 167 GW this year, a figure that is 13% lower than last year’s growth, and 10% lower than its previous forecast.
But this is only part of the story.
On a more positive note, the IEA forecasts growth will return in 2021, predicting a return to the levels seen in 2019 as we move beyond the impacts of the pandemic and as pressure to decarbonise the global economy builds. Certainly, we are seeing continuing strong demand from institutional investors for clean energy assets, while numerous players within the ecosystem see opportunities for acquisitions and expansion; notably, outside their local markets.
So, as developers and investors begin to think about a post-Covid-19 global economy, how is the renewable energy landscape evolving, and where is the next stage of market growth likely to take place?
The latest EY Renewable Energy Country Attractiveness Index (RECAI) offers some insights. The big change was the US taking first place for the first time since 2016. There, an extension to the crucial federal renewables incentive – the Production Tax Credit – has created a scramble to get projects underway. In the longer term, the increasing cost-competitiveness of wind and solar, and expectations for strong growth in offshore wind, promise continuing high levels of investment.
China fell to second place suffering from its exposure to two critical negative pressures for the renewables sector: one short-term, and the other with potential to pose medium-term challenges.
The first was the effect of the Covid-19 pandemic and the economic slowdown. The shutdown in the first quarter slowed project development and, even now, as China’s economy restarts, social distancing measures are acting as a drag on recovery. The second is the Government’s shift away from subsidies towards a more competitive landscape; increasingly, renewables projects in China are expected to compete in wholesale power markets rather than rely on state-guaranteed tariffs.
The RECAI also highlights a trend towards merchant renewables in a number of jurisdictions. This was expected to drive significant growth in the market this year and beyond, as continuing cost reductions make renewables increasingly viable without subsidies. However, the decline in wholesale power prices is putting pressure on these projects and their developers.
Around the world, the renewable energy market is split into two camps: projects that are continuing to benefit from fixed feed-in tariffs or from price floors, and those that are at the mercy of spot power prices. The latter are expected to struggle more in the months to come.
This dynamic means that, just as taxpayer support was becoming less relevant for the renewables sector, the role of government is expected to become important again. In some jurisdictions, climate change is at the centre of recovery efforts. In the EU, at least 25% of the €750 billion Next Generation EU fund will be targeted at measures to address climate change, while the European Investment Bank will provide support for projects close to financial close, and auctions will look to secure 15 GW of new capacity over two years.
However, the reality is that there is likely to be less support for renewables from governments that are less able to deficit-finance economic support packages. Prior to Covid-19, a number of African jurisdictions were attracting interest from renewables investors; there, we anticipate that progress will slow. In addition, low prices for natural gas may discourage renewables expansion in regions such as Central America and the Caribbean.
Meanwhile, growth in residential solar and small-scale energy storage is also likely to slow. Difficulties in selling and installing equipment during lockdowns have already trimmed installation numbers, while an economic slowdown will make many householders reluctant to make large discretionary investments. This coincides with lower power prices also reducing the economic attractiveness of self-generation.
In summary, the combination of Covid-19 and economic slowdown may, in the near term, slow the growth of renewables and change the relative attractiveness of various technology types and jurisdictions. But we expect this to be a bump in the road, rather than a car crash.
We continue to see growing interest among institutional investors for clean energy assets; they recognise that the longer-term imperative to decarbonise the global economy will underpin continued growth in renewables, and that well-structured projects still promise attractive, predictable yields.
Indeed, in some respects, recent months have given us a preview of what a decarbonised power sector will look like. As demand fell, renewables accounted for a much larger percentage of power supplied. The Covid-19 slowdown offered a trial run in how to integrate renewables and balance grids where fossil-fuelled supply fell away. That grids passed the test without disruption has helped make the case for ever-deeper penetration of renewables into power markets.
The views expressed in this opinion are those of the author and do not necessarily reflect the position of FORESIGHT Climate & Energy
Representing the Youth Climate Council (Ungeklimarådet) in debates about climate action and energy transition, I often meet scepticism about the relevance of young voices. “What can young people contribute that lawmakers and industry leaders do not already know?” some ask.
In the cases where the question does not come from ageism, or from the misconceptions that knowledge is static and youth equates incompetence, it is a fair question.
Disregarding younger voices in the workplace or in political debates means missing out on diversity of experiences, perspectives and ideas that might make your decisions smarter. As well as having a more recent education based on updated research, young professionals are often familiar with different methods and networks than their older peers. These are not necessarily better ones, just different.
It is human nature to underestimate the consequences of our actions when they will only arise far in the future. On issues like climate change, it seems there is also a tendency to overestimate how far in the future the consequences will arise. Perhaps it is frightening or overwhelming to realise how soon 2050 actually is?
But overestimating the timeline and therefore undervaluing future consequences of our decisions is dangerous. It leads to a lot of talk about “future generations” but a reluctance to accept that it is already current adults who will be paying the taxes, running the businesses and living with the societal consequences of how slowly we are currently taking action on climate change.
Young people have a different perspective on prioritising between the short term consequences of our decisions and the medium to long term consequences. We see the timeline differently, and this viewpoint is crucial if the necessary emission reduction targets are to be met.
I am 27 meaning that in 2050, I will still have another 17 years left in the labour market. I will literally pay the cost of inaction if urgent decisions are not taken this year in the stimulus packages after the economic crisis, and in every other decision in the next ten years. These seemingly short-term decisions are too often made with the next five years, or less, in mind, leading to a failure to acknowledge the full value of the long-term consequences.
It is well-documented the cost of inaction on climate change is higher than the cost of prioritising green transition.
If we took that knowledge seriously, every country and every business would already be implementing green transition. It is not only a moral responsibility but simply good business to minimise the future costs associated with climate adaptation as well as the risks arising from disruption of global value chains. Not many business leaders would like to run their company in a world where, for example, the ecosystems they rely on deteriorate, millions of people become displaced, and water-related conflicts start posing threats to global security.
These problems are not all solved by listening to younger voices and understanding the timeline they live on, but it is a good start. Some of these voices are going to be angry and shout “quit wasting my future tax money”, or they may remind you about the uncomfortable truth that people are already dying from climate change, but they are still valuable.
The younger generation has grown up in a more globalised world and are more globally connected than older generations. Having contact with friends who live on islands that are going to disappear, or in areas with increasingly frequent extreme weather, gives our generation yet another perspective.
This sense of a global perspective makes young people more likely to see that, even though the responsibility of one business, or even one small country, can seem tiny compared to the global scale of the climate crisis, you still have to do your part. Because if everyone ignores their own responsibility, the sum of each tiny negligence will result in a global catastrophe.
Young people are not just capable of being activists and shouting in the streets. In your workplace, there will likely be young professionals being overlooked due to their perceived lack of experience. But by overcoming the assumption that experience equals wisdom and facilitating younger employees to also weigh in on decisions, you might be surprised to find erudite young people with thorough research behind their ideas.
Try reaching out to organisations for young climate and energy professionals and students – especially since these are your future colleagues. Studies show that prioritising sustainability increasingly becomes a factor in businesses’ attractiveness to recruit young talent.
Sustainability is no longer “nice to have” or something that can be parked in a CSR-department. It must be mainstreamed into all departments in order to protect the future of the business.
Taking on new ideas that contradict the status quo may be challenging; fossil fuel based energy was seen as one of the most reliable investments for a long time. Now, investors and decision makers need to get used to the idea that sustainable energy investments outcompete fossils not only in environmental and social metrics but even on the financial bottom line.
If I were leading a business dependent on fossil-based incomes, I would start seeing the writing on the wall. The winners will be those who turn their attention to 2050 first, and listening to young people might help you do that.
A year ago, I announced that we had replaced our six-year-old, reliable gas boiler with an air source heat pump. “Ripping out a perfectly well functioning gas boiler before the end of its natural life and replacing it with a heat pump is misguided. It won’t reduce much carbon,” I was told.
“Let’s find out,” I thought, and estimated the carbon savings we could expect. All of this was based on probabilities and benchmarks from previous studies. People have asked me many times about the actual impact and how it compares to my estimate from a year ago.
The gas boiler in our house in the UK used about 12.1 megawatt-hours (MWh) of gas a year. According to the meter, the heat pump used around 4.4 MWh of electricity. Factoring in the 2.2 MWh of electricity not used for heating, we reduced our energy use by 54%, fairly close to the 60% reduction I predicted in 2019.
When we installed the heat pump, however, we also enlarged our house from 89 square metres to 140 square metres. Based on the floor area, we actually used 71% less energy.
The carbon savings are more difficult to calculate.
Previously, I used the marginal emissions factor, a number that is used for calculating carbon emissions from small changes in electricity demand. For 2020, the UK has established a marginal emissions factor of 296 grams of CO2/kWh for the domestic sector.
Using the marginal emissions factor, though, could be too conservative. We run our heat pump in such a way that it avoids the peak hours from 4:00pm to 7:00pm. Emissions are highest during peak hours, when additional and often more carbon-intensive generation is used to produce electricity. This means it is not only important how much electricity we use, but it also increasingly matters when we use it.
National Grid, the UK’s transmission system operator, provides half-hourly figures for the carbon emissions per kilowatt-hour generated in different parts of the UK. These can be used to calculate the carbon emissions from using electricity more accurately than using an average marginal emissions factor.
Luckily, we have a smart meter that allows us to track our electricity use also in half-hourly intervals. Based on when we used electricity and how much, I estimate the actual carbon emissions for heating our home was closer to 204 grams of CO2/kWh.
So how much carbon have we saved? Based on the figures above, I calculate savings between 46% using the marginal emissions factor, and 58% using the half-hourly emission factors from National Grid. Per square metre of floor area, the savings range from 66% to 73%.
Initially, our costs stayed about the same, but we have since switched to an “agile” tariff from UK provider Octopus Energy that changes every 30 minutes. This means our electricity is more expensive during peak hours. By using an app, which tracks the lowest tariffs, we can schedule our heat pump to avoid operating during peak times. As a result, our electricity prices average around £0.07/kWh (€0.078/kWh), less than half of what we previously paid.
Each year, we now pay about £500 (€557.47) for all of our energy needs, 60% less than the £1,200 (€1,338) we paid before. Per square metre, we have seen 74% reduction in energy costs.
Adding in the payments of the Renewable Heat Incentive, a financial support programme by the UK government, it should only take ten years to recoup the outlay for the heat pump entirely, whilst we will continue to benefit from much lower energy bills.
LIFE WITH A HEAT PUMP
Using a heat pump over a gas-powered boiler is different in so many ways, mainly for the better. Previously, on a cold day, we turned the heating on in the morning and the house was warm after about 30 minutes. With the heat pump, the temperature of the water in the pipes is a lot lower, which allows it to operate more efficiently but this means it takes longer to change the temperature from cold to warm.
Yet, rather than having to worry about when to turn on the heating, we tell the system what temperature we want and when. Our app works out the cheapest way of meeting that temperature and operates the heat pump accordingly. It took us a while to get used to these changes, but we now simply appreciate walking into our warm kitchen every morning.
The Covid-19 pandemic has unearthed many questions about the resilience of our economic and financial systems and has highlighted the need for international cooperation to secure a better and brighter future. Amid the global economic downturn, one clear direction of travel has emerged: a green recovery.
Today, on World Oceans Day, it is worth highlighting ocean-based renewable energy – including offshore wind, tidal, wave and floating solar power – as the next transformative force to reshape our energy systems and power a green recovery.
Up to 1,400 GW of offshore wind energy could be delivered globally by 2050, providing one-tenth of the world’s electricity. This is an enormous scaling-up from the 30 GW of offshore wind already installed around the world, which has drawn more than $150 billion of investment over the last decade. These opportunities have been unlocked by massive cost reductions, making offshore wind a mature, scalable, affordable and clean energy technology.
The ocean covers more than 70 percent of the planet, with many areas that have untapped potential for offshore wind. The development has been concentrated in OECD markets, but other countries like Vietnam, India and Brazil have immense ocean resources and opportunities.
OREAC’s ambition of 1,400 GW by 2050 goes far beyond current global forecasts, yet it would be entirely possible with a collective effort by government and industry. Market leaders like the UK, Germany and China have demonstrated that strong frameworks which prioritise policy stability, market transparency, and environmentally responsible and collaborative development enable offshore wind to thrive and coexist with other ocean uses such as fisheries.
By supporting local job creation in manufacturing, construction and services, offshore wind has a critical role in economic growth. For example, an emerging offshore wind market like Taiwan is on-track to generate 20,000 local jobs and nearly $30 billion in inward investment by installing 5.5 GW by 2025. Sector jobs can particularly support the revitalisation of coastal towns and communities, and strengthen the mitigation efforts of low-lying, climate-vulnerable countries.
Based on IRENA methodology, around 24 million full-time jobs could be generated if offshore wind capacity reaches 1,400 GW by 2050. This job creation potential covers the full value chain of offshore wind, from procurement to construction to maintenance to decommissioning.
According to a report commissioned by the High Level Panel for a Sustainable Ocean Economy (Ocean Panel), ocean-based renewable energy could deliver around 10% of the global CO2 emissions reductions required by 2050 to sustain a 1.5-degree pathway, essential if we are to avoid the worst impacts of climate change. Offshore wind provides most of this decarbonisation potential and deserves greater attention from lawmakers charting plans for sustainable development.
Later this year OREAC will launch its roadmap for 2050, which will outline the actions needed to support industry and lawmakers in achieving the 1,400 GW vision. This report will serve as an important guiding document for industry, government and other ocean stakeholders to harness the power of ocean-based renewable energy to decarbonise our energy systems while contributing to the prosperous coexistence of ocean energy projects with other ocean uses and maintaining the integrity of the marine environment.
The worst may not be over – if economic activity is encouraged to return unchecked by sensible climate-related considerations, our recovery could steer us deeper into the climate crisis. Instead, leaders must forge a path from global recession to clean growth. Putting ocean energy at the heart of that pathway will deliver the clean, affordable power and economic stimulus that the world needs now more than ever.
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THE PLAN The 2030 climate action plan for business presented by the Confederation of Danish Industry proposes green tax reforms in the belief regulatory and fiscal design can mitigate any potential risks of slower economic growth when companies divert investment into funding the green transition
EXPERT VIEW More clarity is needed about what exactly needs financing to achieve ambitious carbon reduction goals and what is the best approach. Legislation is important to push companies to adopt change in-house and throughout their value chains
KEY QUOTE “Industries are already investing billions in the green transition and the plan fails to examine where money should be invested, how much and the best ways to invest.”
“Together we create green growth” is the title of the 2030 climate action plan from the largest business organisation in Denmark, The Confederation of Danish Industry (DI), which represents around 11,000 companies. The initiative, revealed in September 2019, presents a 70% by 2030 carbon reduction target mirroring the aspirations of the Danish government’s Climate Act. Prime Minister Mette Frederiksen praised the plan as a “giant leap forward” and plenty of cash has been pledged to create change, but energy experts warn it could fail to live up to expectations without a better understanding of exactly which projects need most investment and how best they can be financed.
The 2030 plan is a “together we move faster” statement from business to politicians and a financial plan outlining how Denmark can achieve its goal. The plan proposes green tax reforms grounded in the belief that regulatory and fiscal design can favour companies willing to fund the green transition, without impeding growth. In the plan, public funding will amount to €2.16 billion from 2020-2030 to realise 31 decarbonisation proposals. This sum includes €135 million a year in subsidies and grants to promote energy efficiency in industry and €337 million annually to increase investment in research and development. The government will also set aside €385 million in 2030 to compensate for losses to its wallet from reduced electricity and surplus heat tariffs.
By making Denmark a low-carbon technology leader, the plan as a whole is expected to stimulate national growth, adding at least €14.7 billion to the economy by 2030 and creating 120,000 new private sector jobs.
The Danish business sector is “signing up to invest massively in decarbonisation efforts and clean energy technology,” says Troels Ranis, sector director at DI. “We present a clear plan for how growth and the green transition can go hand in hand.” But the plan is short on specifics for reaching the 70% goal. “We cannot accurately say how much companies will have to and are planning to invest,” says Ranis.
The lack of specifics prompts energy expert Brian Vad Mathiesen from Aalborg University to describe the plan as a “vague political wish list”. He supports its ambitions and intentions, but decries the lack of detail. “Industries are already investing billions in the green transition and the plan fails to examine where money should be invested, how much and the best ways to invest.”
DI published its plan three months after the 2019 general election in Denmark brought the centre-left Social Democrats to power. They increased Denmark’s carbon dioxide reduction target to 70%. The Danish business community was quick to signal with the plan that it would not passively await government instructions, but wants to play an active role in drawing up the 2030 decarbonisation roadmap.
A swathe of DI member companies were invited to participate in the making of a Climate Action Act and Prime Minister Frederiksen launched 13 climate partnerships representing almost all Danish industries, with each group presenting proposals aimed at reducing carbon emissions from their respective sectors. The Climate Act was due to be finalised in 2020, but discussions were put on hold as the country dealt with the Covid-19 crisis. Despite the global economic downturn caused by the pandemic, DI and its members have actively encouraged the government to focus on climate investments to help get the Danish economy back on track with calls for greater investment in infrastructure and green research and innovation.
Vad Mathiesen hopes the climate partnerships will ultimately contribute to “clearer roadmaps of what the companies should invest in and how — especially when it comes to electrification, surplus heat, biogas and the other mechanisms we need in place to reach the 70%”. The estimated payback periods for green investments are a central issue for him that needs further thought. “Most industrial companies invest with a payback period of three to five years, but research reveals that a time horizon of eight to ten years will accelerate decarbonisation significantly,” he says.
CARROTS OR STICKS
DI’s plan is based on an “if I scratch your back, you’ll scratch mine” approach. In return for business support for climate action, companies expect the government to create an attractive environment for green investment through changes in tariffs, new legislation, the expansion of infrastructure and attractive clean energy tenders. “We hope to see significant political focus on support for companies’ green investments,” says Ranis. “Flexibility, stability and predictability are key.”
This view is supported by vice president of Scandinavian Airlines (SAS) Simon Pauck Hansen. “We want to invest, but it is important that when we invest, there are no regulatory barriers applied on top,” Pauck Hansen says. “If regulation makes it much more expensive for us to buy fossil fuels, we will not have money to invest in the green transition.” Lars Saltoft Kristoffersen, CEO of DSV Transport, a middle-sized transportation company, takes a similar stance. “We need political will and courage to reform taxes to promote the green transition and to invest in new technologies that do not use fossil fuels, for instance through public tenders,” he says.
DI recommends the government adopts economic “carrots”, such as more favourable tariff regimes for lower emission fuels and technologies, rather than “sticks”. It argues that measures such as carbon taxes would damage growth by encouraging companies to relocate to countries with less strict regulation. But research does not support this line of thinking. A study by the London School of Economics concludes there is little evidence that protecting the environment impacts competitiveness in the long term and suggest the opposite is true. “The benefits of environmental regulations often vastly outweigh the costs,” state the researchers. Evidence shows such legislation “induces innovation in clean technologies and discourages research and development in conventional (polluting) technologies…[and] can help economies break away from a polluting economic trajectory and move to a clean one”, they add.
THE JOB OF GOVERNMENT
Anne-Louise Thon, co-founder of SDG Invest, a sustainable finance fund, believes economic sticks are vital for change. She advocates for legislation that pushes companies to adopt new financing models and green taxonomies, and clean up their value chains. She cites France, where a recently passed Vigilance Law requires companies to create and implement publicly available vigilance plans for which they can be held accountable, forcing them to address potential corporate and social risks in their supply chains. “The effect is that more companies in France live up to SDG Invest’s screening criteria and are acceptable for our portfolios,” says Thon. This case shows a hard law principle can help create sustainable companies with profitable returns, while the soft law principles in Denmark mean few Danish companies take sustainability seriously and often do not live up to SDG Invest’s criteria, she adds.
Politically there is broad support in Denmark for financing the green transition through taxes and a carbon emissions tax proposal has been welcomed by parties across the political spectrum, but industry opposition could ultimately quash the idea.
Despite a lack of support from business for certain political proposals, there is general agreement that backing for DI’s climate plan from a wide range of companies — from those with no plans to decarbonise to those with strong ambitions — is good news. “It is positive they are collectively setting the bar very high,” says Thon. “The 70% creates a sense of urgency throughout the Danish business community.”
ØRSTED AND SAS
Ulrik Stridbæk, vice president at energy company Ørsted, which aims to be almost totally carbon neutral by 2025, agrees. He says the DI plan is the result of many years of discussions and negotiations within the organisation and can be a stepping stone towards a more joined up roadmap and further investments in the green transition by companies and the Danish government. Ørsted plans to invest €27 billion globally by 2025 in green energy infrastructure.
The company has come a long way in a few years, abandoning its identity as a coal-intensive utility and oil company to be ranked as the world’s most sustainable energy company in 2019, having reduced the carbon intensity of its energy generation by 83% compared to 2006. “For us, decarbonisation is a clear business case,” says Stridbæk.
For SAS the case is different. Decarbonising heavy transport, in particular aviation, is a massive challenge. Its aims are more modest than those of Ørsted. SAS plans to reduce emissions by 25% by 2030 and ensure 17% of its highly polluting fossil fuels are replaced with biofuels. Between 2005 and 2019, the airline reduced its emissions by a mere 3%. A lack of international regulation and the need for huge investments are at least part of the reason for this slow pace of change. “A 25% reduction is as ambitious as we can be right now if we want to continue to be a viable company operating in a global market,” says Pauck Hansen. “Without more ambitious European and global regulation, we cannot move any faster.”
SAS says it will not, and cannot, sacrifice the growth of its business to reduce emissions. Rather than fewer flights and passengers, it argues that more business, not less, is needed to finance change. “We are facing massive investments in stimulating and growing the supply of sustainable aviation fuels and in R&D related to new types of airplanes,” says Pauck Hansen. Some of the funding will have to come from consumers, he says. “It will likely become a bit more expensive to fly more sustainably in the future,” he continues. “The solution is not to reduce air traffic, but to implement more energy-friendly solutions that can lower emissions, while growing the market. This year we expect our capacity to grow 3% and reduce our carbon emissions by 2%.”
SMALLER COMPANIES, BIGGER CHALLENGES
While both Ørsted and SAS are big companies with global reach, DSV Transport believes it is often more difficult for smaller companies in sectors that are harder to decarbonise to play much of a role. Saltoft Kristoffersen says DSV Transport “fully supports” DI’s climate action, but the company has no emissions reduction targets and no plans to invest heavily in any major decarbonisation efforts. “Our sector is faced with a number of challenges, which gives us very little manoeuvrability to carry through such a transition,” he states.
Biofuels are likely to play a role in decarbonising the road haulage sector, but a lack of financial and political support is slowing change, he adds. “We have very uncertain political signals and we lack the reduced tariffs and tolls we have seen in Germany and Sweden on gas and other alternative fuels.” Since the 1920s, the average carbon emissions of fuels have been used to calculate tax rates in Sweden, leaving sustainable biofuels exempt from carbon taxes.
In Denmark, politicians have been reluctant to give tariff relief to biofuels and have focused more on the potential to electrify transport. Saltoft Kristoffersen says only a few public tenders for fuels support climate action. He cites the municipality of Aarhus that has introduced hydrotreated vegetable oil (HVO) in tenders for its refuse collection vehicles. HVO can replace diesel and reduce CO2 emissions by up to 90%.
Without legislation to give more climate-friendly fuels and technologies a competitive advantage over more polluting fossil fuels, little will change, says Saltoft Kristoffersen. When it comes to larger vehicles in Denmark, it is still only primarily public bus fleets that are becoming electric, he adds. “It is not economically feasible for the private sector to change. If I offer a client a climate-friendly solution such as HVO fuel or gas trucks that costs 20% more they opt out. The transport sector is very competitive and subject to fierce competition nationally and internationally.”
Vad Mathiesen agrees the lack of certainty is a problem. “We need political clarity that can help eliminate the price gap between fossil and climate neutral fuels,” he says. “Our politicians must be open to many solutions if we are to succeed in transforming the transport sector. When formulating the Climate Action Act, it is important to keep in mind the need to invest in a line of different technologies.”
A different tariff system for transport is being examined by the climate partnerships and this could include a new financing model promoting biofuels, but until this happens DSV Transport is not budging. “We are ready to invest when the technology and the solutions are there,” says Saltoft Kristoffersen.
The Corona crisis has put jobs, growth and investment squarely at the top of the agenda for the months and years ahead. The creation of a hydrogen economy must be part and parcel of Europe’s economic recovery. It will enable the EU to proceed in earnest with the shift to climate neutrality by 2050 while providing regions and nations with a new source of work, wealth and industrial leadership.
Moving to a low-carbon economy is expected to create more than one million jobs by 2030. The ecological and digital transitions together will generate new jobs that need new skills. In the next five years, 120 million Europeans are expected to need upskilling or reskilling. This was how the European Commission described the jobs challenge in its EU industrial strategy unveiled on March 10, 2020. That was the day before the World Health Organization (WHO) labelled the Corona crisis a global pandemic. The stakes have never been higher.
LIFELINE FOR INDUSTRY
In its industrial strategy, the Commission proposes a “Pact for Skills” including governments, industry and social partners. The focus will be on sectors with high growth potential and those facing the greatest change. Emission-free hydrogen and energy-intensive industries are prime examples of each. Pairing them up can help deliver a just transition that keeps industry and jobs in Europe.
The decarbonisation of industries such as steel, cement and refining is a “top priority”, says the Commission in its industrial strategy. One way to do this is to replace the “grey” hydrogen currently used as feedstock or fuel with emission-free hydrogen. This would ultimately be “green” or “renewable” hydrogen made from renewables-powered electrolysis. En route, it could be “blue” or “decarbonised” hydrogen made from natural gas with carbon capture and storage (CCS).
Trade unions such as IndustriALL, which represents workers in metals, chemicals and energy among others, argue that CCS is an essential part of the just transition because it can help secure a future for energy-intensive industries in Europe.
Emission-free hydrogen offers a low-carbon lifeline to regions such as Drenthe, which has for decades hosted a thriving natural gas industry. It is at least in part because of this legacy — and the infrastructure and know-how it embodies — that the Northern Netherlands has won a €20 million EU grant to build Europe’s first “hydrogen valley”.
“If the EU gets the industrial strategy and the Green Deal framework right, we will not be talking about lost jobs for gas and phase-outs of industry sectors,” said James Watson, Secretary General of Eurogas, a trade association for the European gas industry in early March 2020. “We will be talking about phase-ins and new clean technology industrial leadership.” Trade unions and Eurogas will launch a new study next year on how the energy transition could affect the gas sector in terms of jobs and skills.
MILLIONS OF NEW JOBS
The green hydrogen economy could create 1-1.5 million new jobs in the EU by 2050, estimates consultancy Navigant. About a third of those would be direct jobs and half would be in renewable electricity production. Most of the work is expected to require highly qualified personnel. Overall, green hydrogen would account for over half of all the new jobs created by renewable gas, including biomethane from anaerobic digestion and thermal gasification.
The global CEO-led Hydrogen Council imagines a hydrogen economy employing more than 30 million people worldwide. A similar industry-led report for Europe echoes its figures and reasoning. The Hydrogen Europe Roadmap gets to about one million jobs in hydrogen in Europe by 2030 and 5.4 million in 2050. That is roughly three times the number of jobs in the EU chemical industry today.
The Hydrogen Europe Roadmap gets to a much higher figure than Navigant — 5.4 million versus up to 1.5 million new jobs in 2050 — because the two studies have a different scope. The roadmap considers employment opportunities across the value chain, including all end-use-related developments, whereas Navigant focuses on the upstream part, namely electricity and hydrogen production, transport and storage. The roadmap also takes into account export-related revenues.
From the roadmap’s perspective, about half the jobs in a European hydrogen economy would be in the manufacture of hydrogen production and distribution equipment, plus infrastructure for end-use. Another third would be associated with fuel cells. Competitive fuel cell electric vehicles could help “retain” the European automotive industry “while a switch to only BEVs [battery electric vehicles] risks delocalisation of value chains overseas”.
The European figures roughly tally with a Netherlands-focused study carried out by experts for Gasunie, the Dutch gas network operator, in 2018-19. This estimates that green hydrogen could create 50-100,000 new jobs in the Netherlands in 2050. You get to the upper end of that via the roadmap figures, if you assume the Netherlands makes up 3.6% of total EU employment and emission-free hydrogen creates twice as many jobs as the fossil fuel phase-out loses.
The bottom line is that the shift to a low-carbon energy system is expensive, but good for job creation because such a system is more decentralised and labour-intensive.
Professor Catrinus Jepma, lead author of the study for Gasunie, highlights three key parameters that shape job creation estimates for emission-free hydrogen. First, there is no standard multiplier to describe the link between direct and indirect jobs. Jepma and his team used a conservative 1.5, but a range of 2-5 is found in the literature. Second, end-use matters. Jepma et al assume that in 2050, about a third of hydrogen would be used as feedstock and two-thirds as energy (up from virtually all of it being feedstock today). Most of the job creation potential is in the energy part.
Jepma and his colleagues also estimate that about two-thirds of the hydrogen used as energy would go to industry and about 10% to each of transport, buildings and agriculture. The more that goes to transport and buildings, the more jobs are created, Jepma says. Most of the job creation potential is in end-use and maintenance.
A study by research institute CE Delft in 2018 concluded that the transport sector and vehicle maintenance, in particular, will dominate job creation in the green hydrogen economy. That study estimated about 50,000 additional permanent jobs in the Netherlands in 2050, plus another few thousand short-term opportunities annually along the way. The latter could include building hydrogen production facilities, retrofitting natural gas infrastructure or installing hydrogen boilers. The lasting jobs would be in the production of facilities and fuel cell vehicles, plus their operation and maintenance.
Like Corona, the climate crisis requires investment today for jobs tomorrow. “We will lose jobs in the energy transition, but we will gain many more,” sums up Jepma. The green hydrogen economy will become a key factor for local and regional authorities like in my own region, the Province of Drenthe.
Scrutiny of oil and gas sector methane emissions is continuing to build, even as the US federal government continues its regulatory rollback. Companies are finding themselves in a bind to demonstrate, to both investors and climate-conscious gas buyers, that they are taking voluntary action to reduce these emissions.
An increasing number of companies are including methane mitigation activities in their Environmental and Social Governance reports. Several have joined coalitions focused on methane emission reductions, including the US Environmental Protection Agency’s Natural Gas Star programme, the ONE Future Coalition and the Environmental Partnership, to name a few. There is a lot of scepticism, however, about how much of a difference these voluntary initiatives can make and calls for transparency about actual emission reductions are growing.
Enter the differentiated gas market. Producers have been toying around with the idea of environmentally “better” gas for a few years now. The idea initially emerged at the height of hydraulic fracturing movement in the mid-2000s, when producers sought to demonstrate, via certified practices, that they were minimising groundwater and community impacts.
These early differentiators have taken on more of a climate-oriented flavour over the past few years, with examples including a 2019 transaction between Shell and Tokyo Gas for “carbon-neutral” liquid natural gas in June 2019 and a “responsible” gas transaction between Seven Generations Energy and Energir in February 2020.
Independent Energy Solutions (IES) was an early mover in the differentiated gas space and last month it announced that it is taking its TrustWell standard in a new, climate-oriented direction with a new “Verified Attribute” for low-methane gas production. First earned by Jonah Energy, a gas producer in Wyoming’s Green River Basin, this “badge” can be earned by companies that are also pursuing certification for several other environmental attributes under the TrustWell programme.
This is indeed a promising development as industrial gas buyers are increasingly focused on the methane emissions associated with the gas they procure. A real challenge to the IES approach appears to be a lack of transparency regarding the components of its standard, as well as the company’s practice of auditing against its own standard rather than engaging a third party, and then deciding whether to issue a certificate to the company that is paying them for the audit. This clear conflict of interest is a real risk for scalability of the IES standard, as is the cost- and time-intensive nature of certifying TrustWell producers on a well-by-well basis.
We need a differentiated gas standard that takes a different approach. Progressive industrial gas buyers are looking first and foremost for gas with better climate performance. A standard focused squarely on “setting the bar” for acceptable methane emissions management at a facility-wide scale, backed by clear, credible, and independently verified information about which operators are meeting that bar, fills this gap. This will be key to transforming the global gas market.
Rocky Mountain Institute (RMI) is currently focused on developing a methodology for such a standard and is engaged with an ecosystem of subject matter experts that play essential roles in creating a credible standard, ranging from operators to auditors to certificate registries and gas traders. We are also in deep conversation with gas buyers, ranging from utilities to gas distribution companies to manufacturers, to understand what they really need from this product.
If you are interested in joining us in our efforts to define the future of differentiated gas, please contact us at email@example.com
The global experience with the coronavirus crisis is shining light on the precariousness of everyday life for low-income and vulnerable households. As we are forced to stay at home, higher household energy bills put further pressure on already stretched household budgets. The pandemic is also reminding us that good outcomes for all rely to a great extent on good outcomes for each and every one of us. This sentiment is closely echoed in the European Commission’s communications on the green transition, “it must work for all, or it will not work at all”.
GREEN AND FAIR ECONOMIC RECOVERY
As European Commission President Ursula von der Leyen commits that the Green Deal will be Europe’s “motor for the recovery” after Covid-19, the pledge to make Europe’s response to the climate crisis “just and inclusive” is more important than ever.
To this end, the European Green Deal package includes a Just Transition Mechanism, designed to support economic transition, job creation and reskilling in regions that rely on coal and carbon intensive industry and, therefore, will be hit hardest as a result of decarbonisation. But justice in transition must be delivered for all citizens, not just those in designated transition regions. How social justice is served for all citizens, across every region, is more complicated to achieve and yet less tangible in the Green Deal package than support for transition regions. We need to ensure that all citizens contribute to the costs of the transition in line with their ability to pay and that the benefits can be enjoyed by all, with special focus on low-income households across Europe.
SOCIAL JUSTICE AND CLIMATE JUSTICE ARE INTERDEPENDENT
Policymakers need to examine all transition policies carefully through a distributional lens, one that considers who pays and who benefits. Assessment of the impact policies will have on all citizens, poorest to richest, rural dwellers and urban, young and old, too often happens only after their introduction. As we learned last year from les gilets jaunes protesters in France, these assessments and clear communication of the findings are absolutely essential to bringing all citizens along with the energy transition.
WHO PAYS AND HOW
Costs of clean energy policies that are passed on to consumer energy bills need special scrutiny. Unlike taxation, which is generally structured so that the richer pay more, funds raised through energy bills increase the cost burden more for low-income households. In a new report, the Regulatory Assistance Project (RAP) takes a hard look at the costs and benefits of clean energy policies paid for through household energy bills.
How costs of energy infrastructure and clean energy policy costs on consumer bills are shared among different types of energy users and within user groups is key to their distributional impact. When individual groups of users, for example energy-intensive industry, are exempted from contributing to policy costs, it places a greater cost on other groups. Not only does this undermine the polluter pays principle but it places a greater share of the costs onto households.
The use of exemptions for industry has received significant media attention, with large figures catching headlines, but the way costs are shared within consumer groups — for example, among household energy users — can be at least as impactful but less widely discussed.
How the costs of energy infrastructure and clean energy programmes are distributed across similar types of consumers through their bills is complex and not always transparent. But they currently make up about 40% of the average European household energy bill. Broadly, costs are passed on to household bills using either a fixed charge or a fee per kilowatt hour. The choice between these two approaches matters if you use relatively small amounts of energy, as do most low-income households.
When the costs of infrastructure are passed on to consumers on a fixed basis, low energy users pay up to two and a half times more than high energy users per kilowatt hour for their use of the grid. Not only do they pay more than their fair share for the infrastructure, but a larger part of their bill is “fixed” so they cannot reduce it with changes to their energy use. Worryingly, the use of fixed charges to pass on network costs is growing in many EU member states.
The benefits for low-income households that are able to take part in renewable energy and energy efficiency programmes are even greater than for their more well-off neighbours. Cash savings, health and comfort benefits can more than eclipse the costs on bills. Low-income households, however, face significant barriers to participation in these programmes, meaning that the benefits largely go to better-off households. In response, a number of European countries, including the UK, France, Ireland and Austria, have ring-fenced support within their energy efficiency programmes for low-income households. Energy efficiency is the most cost-effective, long-term solution to energy poverty and to long-term bill reduction for low-income households. Other countries would do well to follow this lead.
Equally important, clean energy programmes do not just benefit those who receive subsidies to put solar PV on their roofs or insulate their homes. They benefit everyone but in largely invisible ways. These programmes reduce energy demand and increase renewable generation, helping avoid future system costs for generation, transmission and distribution. Avoided costs save money for all and can more than offset the cost of the programme. These invisible benefits need to be balanced against the costs.
BENEFITS BEFORE COSTS
Weighing up costs and benefits can feel like a paper-based exercise — one that overlooks when these impacts are felt by households. What matters for people suffering long-term energy poverty or the economic impacts of the coronavirus is that benefits can be felt today. Short-term measures such as social or bill support can help reduce the immediate cost burden of the energy transition, but we need ways to bring forward the long-term benefits of the clean energy transition to help those who are most disadvantaged now.
The clean energy transition needs to be just, not only for coal regions. “Clean” and “just” are interdependent, and Europe’s economic recovery must draw on both.
PHOTO Simon Pugh Photography
A well-functioning Emissions Trading System (ETS) and meaningful carbon price signal are poised to spur sustainable investments in power generation. Ensuring proper functioning requires addressing both the long and short-term supply of emission allowances. It also means making the two major mechanisms of the EU ETS the two pillars of carbon neutrality. These mechanisms are the linear reduction factor, which sets the trajectory of decarbonisation, and the market stability reserve, which controls the supply and demand of allowances.
These measures are essential to ensure the European Green Deal’s success in achieving climate neutrality by 2050, while stimulating economic growth.
ETS CAP GEARED TO NET ZERO WELL BEFORE 2050
The ETS trajectory needs to be revisited and aligned with possibly increased EU 2030 greenhouse gas reduction targets. The overall cap on the total volume of carbon dioxide emissions, known as the linear reduction factor, is currently set to decline annually at a 2.2% rate — insufficient to reach increasingly ambitious climate targets.
Timing is essential in this debate. If the linear reduction factor is adjusted upwards now, the reduction of emissions will be gradual. If it comes later, however, the adjustment needed will be higher. Any delay increases the risks of a steep and disruptive removal process in a short timeframe.
The speed and scale of emissions reduction throughout the whole economy is also highly and directly dependent on the burden sharing between ETS and non-ETS sectors, such as road transport and maritime. This proves how much each industry needs to contribute to overall decarbonisation goals.
Currently, fewer than 45% of all EU greenhouse gas emissions are covered by the ETS. This number will plunge in the coming years due to the increased decarbonisation of the power sector. The role played by the ETS in the decarbonisation of electricity proves undeniably that a meaningful carbon price on all sectors is needed if we are serious about climate neutrality.
MARKET RESILIENCE FOR A STABLE PRICE TRAJECTORY
A surplus of allowances in the ETS undermines the proper functioning of the carbon market in the short and medium term.
A stable and meaningful ETS price trajectory over the next decade can be ensured through the update of the design parameters, namely the intake rate and thresholds of the market stability reserve. The 2021 review must sediment the reserve’s ability to ensure prompt reaction to past and future sources of market imbalances, and continue to bring a meaningful carbon price.
A steep change in demand for allowances, triggered by a large volume of coal plant closures in a single year, raises concerns about this mechanism’s ability to manage large removals in the short term. Member states will need to execute voluntary cancellations of those allowances corresponding to the closure of coal plants in order to maintain sufficient scarcity in the ETS.
FUNDING THE TRANSITION
Compliance with more ambitious measures would bring about higher investment needs and potentially additional operational costs associated with the purchase of allowances. This would require earmarking of a significant percentage of EU ETS revenues for the transformation of energy generation, especially in the case of countries with high carbon intensity and low GDP per capita levels.
Currently, EU member states are encouraged, but not required, to do so. It is now essential to leverage ETS generated funding into clean power generation projects. As Europe takes global leadership in addressing climate change, European industry must be able to compete, while knowing that investing in decarbonisation efforts is a no-regret decision.
ALL EMITTING SECTORS NEED TO CONTRIBUTE
Progress in emissions reduction has been observably slower for sectors outside the ETS. All sectors must contribute to the achievement of climate targets. And that means putting a meaningful price on carbon.
In this sense, sectors which are not exposed to a CO2 price, like maritime, or have an insufficient CO2 price — such as individual heating in some member states — should be addressed. This means either extending the scope of the ETS or applying other carbon pricing measures, using the most efficient tool for each sector.
At a global level, the number of operational ETS schemes had grown to 21 as of January 2020. Many other jurisdictions, such Ukraine, Serbia and the other eight Contracting Parties to the Energy Community Treaty, are also looking into putting a price on carbon. This approach appears, in particular, to be a logical alternative at the EU’s borders, where countries are working on developing an EU-proof carbon pricing mechanism, which allows a potential extension of the EU internal energy market.
The path to reaching climate neutrality by 2050 requires ample policy solutions that preserve both the environmental integrity and the competitiveness of European industries. This is why the Green Deal should promote mechanisms that make domestic industries more carbon efficient and, at the same time, encourage third parties to become more climate friendly. An active European role in climate diplomacy is essential and should be reflected in all relevant debates with international partners.
Two side effects of the current pandemic are that air pollution has decreased dramatically in some cities and greenhouse gas emissions have temporarily dropped. These trends raise the interesting question as to whether it would be possible to achieve the same results, or better, without shutting down huge swaths of the economy and keeping people cooped up at home.
To those of us who study climate change solutions, the answer is clearly a resounding “yes”. The trick is to shift the narrative on climate action. Instead of talking about climate change as an issue we must sacrifice to address — implying that citizens must all limit their lifestyles — we can talk about the solutions to climate change, which amount to a massive and coordinated public investment in new infrastructure.
Personal behaviour change alone cannot solve the problem. Even with the current lockdowns, total emissions in 2020 are projected to drop by only 5%. This decrease is nowhere near the complete elimination of emissions the world must achieve by 2050. And the behaviour changes in question are only being achieved because the coronavirus pandemic is so acutely scary and because people know the sacrifice is temporary.
We need government action to kickstart significant change to the physical equipment that governs our lives. By swapping out every piece of technology that emits greenhouse gases with one that doesn’t (plus some work on agriculture and deforestation) the world can achieve net-zero emissions while still consuming energy to drive the economy.
Governments can achieve that 100% clean economy through mandates, incentives, financing, carbon prices, government procurement, public deployment, and partnerships with companies and other governments.
Given the current recession, the obvious approach for the next half-year or more is to use a combination of policies and direct initiatives to start massively deploying all technologies that are ready to go (such as electric vehicles and air source heat pumps). First, so their costs continue to come down and they can become affordable worldwide, and secondly to directly stimulate economies into long-term recovery and revitalisation. We are talking about manufacturing, construction and building retrofit jobs.
Beyond the next half-year, we will need publicly funded and coordinated research and development, demonstration projects, and more to bring new (or improved) clean energy technologies to the point that they can also be scaled up rapidly. Those investments will further stimulate the economy and lead to the growth of whole new industries.
It is time for political leaders to get on the same page around a commitment to reaching a 100% clean economy worldwide by 2050. We can have the clean air we are seeing today — and we cannot only reduce but eliminate greenhouse gas emissions — without needing a global recession. In fact, by using government leadership to scale up all the equipment needed for a 100% clean economy, the clean energy manufacturing boom is one of the best prospects for getting us out of the recession we’ve just entered.
Solomon Goldstein-Rose was elected to the Massachusetts legislature on a climate change-focused platform at age 22. He previously interned in the Obama White House and in Congress, and ran a statewide carbon pricing campaign. For more information go to SolomonGR.com
The digital transformation of buildings has experienced strong growth and sales of smart-building technology is predicted to increase in the region of 30% a year as organisations globally recognise their tangible benefits and seek to make their buildings greener. The sector is under considerable pressure during the current pandemic, but this should make smart buildings that much more attractive to retain tenants and staff.
Businesses want to consume less energy: first from a desire to reduce energy usage and create a cleaner environment; second from the corporate motivation to reduce expenditure. Their challenge is the capital cost of converting to smart buildings.
In essence, conversion to smart buildings turns a former cost into an enabler of business. Digitally enabled office space can be personalised, so the profile of the person working in a given area — immediately on login — dictates information access, security protocols, climate control preferences, room automation and services access/charging and much more. The building effectively becomes a multi-faceted administrative assistant, automatically managed and controlled through digital transformation. Everyone benefits — owner/landlord, operator, tenant and user.
Tangible financial benefits are gained through this transformation. Unwell staff cost UK businesses £77 billion annually in lost productivity, while in the US the annual cost of absenteeism represents around $226 billion. Building management systems can help to control temperature, varying it across different rooms or areas, depending on its use and the desire of its occupants. LED technology offers sophisticated colour and brightness combinations to manage occupant comfort, mood and improve staff concentration and productivity.
Buildings can also protect against crimes with increasingly sophisticated security systems. Improved pixelation can mean images are captured quicker, and 360 degree cameras mean that one camera can be used where several were once needed. In Sweden, nearly six out of ten businesses have been directly affected by crime in the last two years. Integrating the latest technology into properties can help minimise this threat.
While there are clear benefits from the digital transformation of the built environment, that transformation carries a cost. Smart finance is, however, helping to make conversion happen at low or no-cost. Smart buildings have the potential to save approximately 15% to 25% on energy costs, contributing to a cleaner, greener world. If those savings can be harnessed and used to pay for the initial cost of conversion, then owners and landlords can transform their buildings without major capital outlay.
Pioneering landlords and owner-occupiers are increasingly looking to solutions whereby the supplier of a service such as smart-building conversion bundles the conversion into a monthly fee across an agreed-upon contractual period. This is leading to the rise of a concept called “Smart Buildings as a Service“ — sometimes called “servitisation.” Landlords and owner-occupiers are conserving their capital for growth and improvement initiatives and are choosing to let integrated technology-service-finance companies fund the digital transformation of their buildings. There are a variety of modern financing models that allow this to happen, but the most attractive of these involves smart solutions partners that are able to do this at low or zero net cost for the building’s owner — public or private.
In conclusion, smart building conversion is attractive to all stakeholders, but perceived costs are proving an obstacle. Smart financing can remove that obstacle. Future energy savings can be harnessed to pay for the enabling conversion. The result is that landlords and building owners can go smarter, cleaner, greener, all without having to find precious capital to make it happen.
Will the pandemic pause the energy transition? It is a question many are asking as the energy industry is hit hard by the impact of Covid-19 on demand and supply chains. Industry shutdowns, enforced lockdowns and travel bans have seen load shift and demand drop dramatically – Italy’s electricity use fell 18% in just two weeks when strict restrictions were introduced in March, with similar reductions seen across Europe, India and the US. Meanwhile, the economic shocks of the virus are further contracting demand as business activity slows and markets brace for an almost inevitable recession.
The disruption follows and exacerbates the crash of oil prices in March and April, which saw US prices drop into negative territory and European prices fall to their lowest level since 1999. Now, with global economics facing significant headwinds, some are concerned that cheap oil may have a negative impact on the nascent electric vehicle (EV) market. Sales were already slowing in some key markets, including China and the US, though continuing to grow in Europe. More troubling, perhaps, is the impact of a disrupted supply chain and labour force on EV and battery production in China, the world’s EV powerhouse. The output of Chinese battery manufacturers is expected to fall by around 26 gigawatt hours in 2020.
At the same time, the effects of the pandemic raise concern that oil and gas majors will divert capital away from renewables and that the growth of solar and wind investment will slow. Already, some analysts have declared that, with supply chains disrupted, global growth in solar and wind will be effectively “wiped out” in 2020, and energy consultancy group Wood Mackenzie has scaled back its forecast for behind-the-meter batteries in the US by 31% (this still marks a rise from last year’s installations).
CLIMATE CHANGE DEVASTATION WILL DWARF COVID-19 IMPACTS
While a temporary pause in decarbonisation efforts may be unavoidable, the longer-term momentum towards renewables remains strong, largely due to the improving economics that underpin them and expected demand from electrification and from developing nations. The critical factor may not be what policy makers and investors do now, but how they plan for recovery and their ability to think beyond this immediate crisis to one with much larger, broader impacts.
This pandemic is first and foremost a human tragedy, but one that will also wreak unprecedented damage to our economy for years to come. As economists grapple with the fallout and look for clues as to the shape of the recovery, we must not ignore the fact that even the devastating impacts of this current crisis will be dwarfed by the ramifications of unchecked climate change:
Yet initiatives to limit global warming have been anything but radical with prevaricating governments, ambiguous policies, a lack of meaningful international collaboration and the continued subsidisation of carbon-intensive industries. Despite rampant growth in renewable technologies, fossil fuel generation remains at the same level it was 20 years ago. Many cities have declared climate emergencies but, in an emergency, time is of the essence. Can you avert an impending crisis with a timeline for change that stretches to 2050?
LEARNING FROM THE COVID-19 RESPONSE
In contrast, the response to Covid-19 has shown that governments can mobilise resources and respond at speed when needs dictate. Two key actions taken to fight the pandemic can teach us better ways to fight climate change:
• Bigger, bolder, faster actions can avert disaster. Within hours, borders have been locked, entire industries shutdown and policy changes enacted to protect lives and livelihoods. These drastic actions have shown us that bold government decisions are critical to drive meaningful changes and that the agility to update policies quickly as situations change is possible. Importantly, Covid-19 has taught us that policies can be designed to safeguard both our health and economic livelihoods. In the face of a health challenge that will eventually be far greater than that presented by this pandemic, we need the same urgent, courageous action from governments.
• The ability of countries to come together can make or break responses. International collaboration to fight the pandemic has been too little, too late. An absence of cooperation and inconsistent responses in the early days of the outbreak, it can be argued, not only delayed efforts to contain the virus but exacerbated its spread and impact. As governments start to reshape for recovery, now is the time to rethink priorities, work together and prioritise green stimulus packages to accelerate our move to net zero.
RECOVERY MUST PRIORITISE THE CLIMATE
But what if Covid-19 could actually accelerate its progress? It is possible if governments take the opportunity to tie economic stimulus to investment in low carbon projects. To date, we’ve seen worrying signs of decarbonisation rollbacks — in March, China approved more new coal plants than it had in all of 2019. That same month, the US’s $2.2 trillion stimulus package excluded support for renewables.
But economic recovery and climate action can go hand in hand. UN Secretary-General António Guterres argues leaders must act decisively to deal with both Covid-19 and the climate crisis, and that recovery packages should deliver new jobs and businesses that can drive a clean energy transition. In 2009, the US Government’s post-financial crisis stimulus package included a $4 billion investment in smart grids, which fast-tracked the country’s renewables industry.
By directing post Covid-19 investment to clean energy initiatives, governments can advance a more sustainable economy while accelerating decarbonisation, expanding capacity in renewables and accelerating deployment of smart meters. Environment and climate ministers from 17 EU countries have backed European Commission plans to place climate action and pursuit of the EU’s net zero emissions target at the heart of the bloc’s recovery plans.
At the same time, any economic support for carbon-intensive industries should be contingent on their adoption of energy efficiency initiatives. Car manufacturers must agree to additional focus on producing affordable, accessible EVs and developing the infrastructure to support them.
While the severity and duration of the Covid-19 pandemic is still unknown, it will eventually recede. But climate change is ongoing, with long-term impacts on all of us. The decisions investors and governments make now to recover from one crisis may determine how many more we will have to navigate in the future.
The views reflected in this article are the views of the author and do not necessarily reflect the views of the global EY organisation or its member firms.
For the latest EY insights and analysis on the energy transition, visit https://www.ey.com/en_gl/nextwave-energy.
Society is facing two crises.
One has emerged dramatically over a matter of weeks – Covid-19. It has led governments around the world to impose radical measures to curb social interactions and spend vast amounts of public money to put economies on life support. The success, or otherwise, of this response will become apparent within months and afterwards we will return to a new normal.
The other, climate change, has been developing over decades. Despite broad acceptance of the nature of the problem and the remedial measures required, the response of governments has been slow. The impacts are already apparent and getting worse. Within a few decades they could become catastrophic. More worrying is that these impacts cannot be reversed, and we will become locked into global weather systems for centuries to come.
The central policy challenge facing both the Covid-19 and climate crises is the same — we must be able to take big decisions and make rapid progress in the face of huge future uncertainty. The climate policy response has all too often involved a wait-and-see approach, deferring difficult decisions until more information comes to light. Alternatively, money is spread like confetti on numerous uncoordinated or business-as-usual actions which ultimately prove to be high cost or even counterproductive.
A NEW GOVERNANCE APPROACH
The climate crisis does not allow us the time to find out that delivery processes have failed, and to initiate a new policy development and implementation process. This is particularly true given the nature of big infrastructure decisions whose legacy will be felt for decades. A new approach to governance is required. The net zero target enacted under the proposed European Climate Law needs to be matched by forward-looking governance that can drive speedy implementation, ensuring innovation and infrastructure investment processes are aligned with the climate neutrality objective.
One obvious legacy of Covid-19 will be that huge amounts of money will have been spent in saving lives and stabilising the situation and there will be far less available to begin the process of rebuilding the economy. It will be essential that investments are not scattered randomly across a multitude of promising, but uncoordinated, activities. Instead, they should focus on achieving the highest value outcomes in line with the objectives of the European Green Deal. Policy alignment should be ensured by the governance system embedded in the proposed Climate Law. This is no easy task, however, given the number of possible pathways to 2050, each with their advocates and detractors.
A new governance system must be flexible and adaptive and link innovation processes with deployment activities. It must support EU cohesion by preventing some member states falling behind as a result of asymmetry in knowledge and resources. Also, it needs to co-ordinate actions across sectors and empower governments and regulators to wisely spend citizens’ money. In short, it must help to ensure that actions across key EU policy files are aligned. These include the TEN-E revision and the proposed gas package, as my colleagues lay out in a newly launched briefing paper, as well as the Multi-annual Financial Framework, and files related to research and innovation (Horizon Europe) and the just transition.
This new approach to governance requires a function or ‘observatory’ that brings together experts on the energy system transition to establish an independent science-based view of the path ahead. It would aim to shine a light on the future and to provide the clarity that will enable the EU and member states to make efficient and coherent infrastructure decisions. The observatory would answer a critical question: given where we are now and what we know now, what is the best way to invest our money?
The observatory would identify the latest best view of technology costs — now and going forward — and associated deployment potentials. This would consider geographical differences and, importantly, place equal emphasis on all options including those associated with smart and efficient energy consumption. This information would be used to explore different deployment pathways towards net zero.
The key output from the observatory would be advice on the big infrastructure choices that need to be made, when they must be made and what associated risks and innovation needs arise. It will provide system planners with a description of the future technology landscape for which we must be prepared, including where we need to support one pathway now and where we should continue to support several options until more information is available. This will also help focus the research and innovation agenda on solving the most important outstanding problems.
Any view of the future will be wrong. It is not about being right, but about learning and course-correcting as fast as possible. The observatory must lie at the heart of a learning process, regularly updating advice on infrastructure choices and innovation needs as more information comes to light. Importantly the evidence underpinning the advice should be fully transparent. The observatory will help those with a democratic mandate — member states, regulators, regional governments — make better decisions. They can always choose an alternative path if they wish, but resulting inconsistencies or new risks would be apparent and consequently could be managed.
Perhaps the best way to understand the value of such a function is to consider how a medical analogy might relate to the Covid-19 crisis. A body to pool medical expertise across the EU would have been established as soon as the threat was initially identified. It would regularly monitor information emerging from across the world and use this to recommend a course of action.
This approach would highlight where national differences might affect responses and be regularly updated as more information comes to light. This repository of information would have been available to all member states and the advice provided would be the basis from which national strategies could be devised. Each government would be able to point to the transparent scientific evidence upon which their national response was based.
Expertise matters and the pooling of expertise, as outlined in the proposed EU observatory, is a powerful tool for shaping the future we want. Dealing with crises mean we must transcend political points scoring and the special pleading of industrial lobby groups. It also means that we need to act quickly, despite future uncertainty. The EU can introduce a governance system that will deliver net zero emissions. It must take this opportunity.
The word “unprecedented” is beginning to feel a little overused, but the truth is that no-one alive today has experienced anything like this. At the time of writing, there have been more than 165,000 deaths worldwide, one-third of the global population is under lockdown, and the International Monetary Fund is predicting the worst economic downturn since the Great Depression. Far too many of those deaths could have been avoided had leaders followed scientific advice. Amidst all this, is it possible to find any grounds for optimism?
Despite the avalanche of dispiriting news — and there is plenty of it — there are signs that we are also witnessing unprecedented global dialogue, innovation and collaboration. Worldwide, everyone from citizens to scientists to industry are pooling their resources to fight the virus. We see it here at C40, where global cities have wasted no time in using well-established networks to share information, support and advice on tackling the emergency. Moreover, we are also beginning to see a shift in perception as to what can and can’t be achieved when we are faced with a crisis of this scale. This pandemic is showing what we are capable of when faced with an emergency that threatens us all.
2020 will certainly go down as the year that our ideas of what is possible shifted dramatically. Where increasing government spending to improve public services that benefit everyone was previously unthinkable, suddenly governments around the world are finding billions of dollars. Support for the health service, in particular, is at a palpable all-time high.
Across the world, we’ve been able to find beds for the homeless, when previously the tragedy of people living on the streets, even in the wealthiest societies, was accepted as impossible to resolve.
After years of being told it was unrealistic to expect people to fly and drive less, many businesses and government services have shifted to home-working and videoconferencing almost overnight, contributing to a massive reduction in road traffic and a 70% drop in flying worldwide. In my home city of London, where aggressive policy by Mayor Sadiq Khan had already reduced nitrogen dioxide levels by 35%, during lockdown pollution across the whole of London has fallen by a further 27%. And as we get closer to urban air that is fit to breathe, evidence is mounting of how air pollution may be a key contributor to Covid-19 deaths.
This global catastrophe has put the human capacity for compassion, adaptability and resilience on full display: among the inspiring sights to come out of this terrible situation are examples of radical innovation and cooperation, often community led, that are both saving and improving lives.
In diverse and geographically distant locations, citizens have been organising to support each other and protect the most vulnerable, with community groups in many places appearing almost overnight. In cities, municipalities are closing roads to increase the space for residents to exercise safely. Bogota, Milan, Mexico City, and Berlin have expanded cycle lanes to make it easier for people to move around the city while physically distancing. Recognising the importance of connectivity during quarantine, San Francisco has installed Wi-Fi “SuperSpots” to facilitate distance learning.
If we can learn anything from the response to Covid-19, it is that we can respond to shared emergencies cooperatively, and that we can do it fast, without complex structures and bureaucracy. Rapid action is possible from citizens, industry, academia and government at all levels. We also now know that individuals are willing to make personal sacrifices when the link between actions and consequences are understood. All of this says to me that, if we can get the messaging right, we are more than capable of doing the same for the climate emergency.
Climate and ecological breakdown is also a crisis that needs an urgent and radical response, but unlike the measures put in place to combat Covid-19, the change will need to be sustainable. We’ve seen how the pandemic response has led to clear skies and dramatic reductions in CO2 emissions, but as Professor Katherine Hayhoe rightly observed: “The pandemic isn’t likely to reduce carbon emissions long-term because [emissions] are currently being reduced by human behaviour changes that are not sustainable. But (and here’s the hopeful part), if the emissions reductions had been achieved through true climate solutions, then the impact on climate would have been enormous.”
Amidst the tragic loss of life, the anxiety, and the economic hardships, we’ve experienced a tiny glimpse of a different future. It’s become much clearer that we do have a choice: we don’t have to breathe dirty air, we can work and keep in touch with one another without burning fossil fuels, and we could find other uses for our public space than car traffic. Hardly surprising that a recent survey in the UK found that only 9% of people want to return to life as normal after the outbreak.
So, this radically altered way of living offers an opportunity to reflect: to what extent do we want to return to business as usual? Will we be in a hurry to re-open those pedestrianised roads to the most polluting vehicles? Will those expanded cycle lanes created for the benefit of health workers, and networks of support and connection that have sustained the most vulnerable members of our communities evaporate as quickly as they have appeared? Or will this be the turning point after which we decide we’ve had enough of dirty air, congested streets and the destruction of the life support systems on which we all depend?
To answer these questions, we must look forward to a better world, rooted in a determination to preserve what we have learnt and gained, while recognising the terrible loss that the pandemic has wrought on so many lives. Radical change, if realised in a way that improves people’s lives — through better air quality, regenerative economies, housing the homeless, universal basic incomes, and many other ways — will also deliver a sustainable planet on which future generations can thrive.
The Covid-19 crisis is far from over; we are likely to be focused on fighting the pandemic for the rest of 2020 at least. But it is not too early to start envisioning the future we want once the health emergency subsides. Globally, many voices are beginning to call for climate action to be entrenched in recovery packages. The city of Milan has announced ambitious plans to shift road space from cars to pedestrians and cyclists as part of reimagining the city after the outbreak. Likewise, C40 mayors representing cities from eight regions of the globe have formed a task-force to plan for a recovery that delivers the goals of social equity and planetary sustainability.
I look forward to seeing what we can achieve together.
The effects of Covid-19 affect all of us, citizens, businesses and policymakers, and put us in front of a highly disruptive and unprecedented situation. This emergency is forcing us to quickly find solutions to come out as soon as possible from a standstill that touches all aspects of our lives.
What is even more worrying, however, is that this crisis might not be unique in the upcoming years. Even before the outbreak of Covid-19, it was already well-known that challenges such as climate change, pressure on resources and social inequalities required deep transformations in our ways of producing, consuming, living and moving at every level, from local to global. The current crisis has made this clearer. As we plan the next economic recovery measures, we cannot limit ourselves to repair what has been broken. We must collectively build a more sustainable and resilient society to be able to prevent, or at least limit, damages from future shocks. To do this, common, coordinated action is necessary and the EU’s input and guide are precious.
That is why it is key to resist calls to water-down or postpone the European Green Deal from those arguing that in these difficult times supporting the economy no matter what should be prioritised over preparing our transition to a sustainable society. As an association representing strong, global businesses, we believe this dichotomy is false and counterproductive. On the contrary, the Green Deal is the best available, if not the only, growth strategy for the present and the future.
We will all benefit from the acceleration of investments stemming from the Green Deal and Europe’s drive towards climate neutrality will create opportunities that will help us out of the current economic standstill while preventing the future health, economic and environmental crisis that is likely to happen if we fail to keep the global temperature increase below 1.5°C. By basing economic stimulus plans on energy and resource efficiency, circularity and inclusion, European governments could boost economic recovery and job creation in key sectors such as construction, transport, energy, agriculture and manufacturing.
While helping workers and companies survive the current crisis, the European institutions should confirm and accelerate the EU’s path to carbon neutrality by 2050. A clearer roadmap for 2030 and 2040, fixing adequate targets of emission reductions in line with science, is needed. Moreover, we need an efficient and more easily accessible financial framework to help unlock and direct the enormous amounts of private and public investments that will be available in the next months. Finally, the planned revision and update of existing EU legislation, notably in the energy and circular economy sectors, must not be delayed.
In addition, if we are to build a sustainable, resilient and inclusive EU economy we need to overcome existing barriers. These include the insufficient implementation at national level of current legislation, particularly when it comes to energy efficiency and renewables; cumbersome procedures making green investment and the use of available resources difficult for those which could most benefit from them (such as SMEs, local authorities and communities); and hesitations and delays to realise the much-needed phase out of fossil fuels.
The Green Deal is not yet a given. It still needs to be clearly defined and its implementation faces today unexpected challenges. Still, we believe that business and societies are more and more aware that we cannot simply go back to where we were before. Europe needs a clear direction, sufficient resources and a sound and shared set of rules to move beyond the shock of Covid-19 and prevent future crises. Sticking to the climate neutrality path is the only way allowing to do both.
Sometimes great improvements come out of great tragedies, like health care, the universal vote and state pensions after the two world wars. Covid-19 could have a similar effect on climate action. The European Commission is campaigning for its Green Deal to be at the heart of the economic recovery package and 13 EU environment ministers have taken the same line. The next step is to win over treasuries and heads of state. Fear of high debt levels could convince them.
Many countries across the EU are already deeply in the red. Public debt is at least 100% of GDP in some cases, according to The Economist, and governments will need to borrow much more to finance stimulus packages to get back on their feet after the devastating impacts of the coronavirus.
Governments’ main insurance against default is the European Central Bank, which is currently creating over €100 billion a month — more than it ever did in response to the subprime and eurozone crises. The ECB is using these funds to buy up new government and corporate debt, reassuring investors (public and private banks, pension funds, insurance companies and others) that they will get their money back.
The goal is to keep interest rates affordable and borrowing possible. But how far can the ECB go and how sustainable is the debt? Over the past five years, the Bank has already bought up more than €2.6 trillion of loans, all of which must be repaid.
It follows that the safer the new debt, the better. This is why calls to green the Covid-19 recovery measures have such a good chance of going mainstream. Back in 2016, the ECB spent over 60% of its corporate purchase programme (buying company debt) on carbon-intensive assets. But that sort of policy is deeply irresponsible. It means saddling future generations of taxpayers, who must finance bailouts if debts go bad, with a crushing burden of high-risk loans.
By contrast, climate action measures like building renovation, renewables and green transport are safe investments. Adding 10% to a home mortgage for insulation and other retrofits reduces the risk of default: the home is worth more, energy bills are lower, people are healthier and it is good for jobs. Bundle a thousand of these mortgages together and you have a green bond for the ECB to buy.
So far so good. But there is one key challenge to overcome: figuring out how to rapidly increase the number of green investment opportunities. There must be projects for governments and businesses to fund if there is to be debt for the ECB and central banks to buy. Last year €100 billion worth of green bonds were issued in Europe. That is a spectacular increase compared to just a few years ago, but not yet enough to make a big impression on the ECB’s ‘debtometer’.
Make no mistake, this is a race. In the short term, EU leaders are prioritising all-important health, wage and cash supply emergencies. But at the same time, they are discussing and developing the economic recovery measures which must follow. This is where climate action will flounder or triumph. So much money is being created or borrowed that there are bound to be spending cuts later to repay the debt, as happened after the 2008 crisis. Put simply, green investment opportunities must be identified and prioritised now, to avoid being locked out later.
The Covid-19 pandemic has tested all aspects of our society: families and individuals in confinement, communities in collective self-isolation and local, national and international authorities struggling to manage the omnipresent effects of the crisis. Now is not the time to give up on our planet. Now is the time to unite for a more sustainable future.
Ambitious sustainable home renovation initiatives must be part of the EU Recovery Package to reboot economic activity, protect existing jobs and create new ones, while improving people’s quality of life and creating a Europe where every person feels comfortable and empowered at home.
Most Europeans have spent 99.9% of their time indoors in recent weeks, making the need for comfortable, healthy and sustainable homes to live, learn and work in more apparent than ever. Our homes have served as shelters, protecting vulnerable people and creating the social distance necessary to fight the spread of the virus. Homes have functioned as workspaces, affecting our productivity and concentration. Universities have moved online, and with schools and day-care centres closed, nearly 79 million children have been spending most of their time at home.
At the same time, our homes remain vital spaces for family life. This pandemic has proven the imperative of healthy, comfortable, connected and energy efficient homes equipped for rest, work, study, entertainment and physical activity. The crisis has also revealed that our homes are not prepared to face this reality.
Poor indoor environments with little or no ventilation can contribute to cardiovascular, respiratory and nervous system diseases which can be prevented with good air quality, natural lighting, thermal comfort and acoustics. Poor indoor environments result in additional healthcare costs, lost hours of productivity, unnecessary suffering and ultimately a negative impact on society and the economy.
Vulnerable groups often bear the brunt of these impacts. The Healthy Homes Barometer shows more than one-third or 26 million of all European children live in unhealthy homes with structural deficiencies (poor ventilation, lack of lighting, noise and a lack of thermal comfort) that can generate negative impacts on their health and reduce learning capacity. People living in damp, mouldy, dark homes are 40% more likely to develop asthma, making them particularly vulnerable to life-threatening complications from Covid-19.
The pandemic is costing people greatly from every point of view: medical, social, economic and psychological. Managing Director of the International Monetary Fund (IMF) Kristalina Georgieva said: “This is a crisis like no other. We have witnessed the world economy come to a standstill. We’re in recession. It is much worse than the global financial crisis of 2008-2009.” As the EU and Member States devise recovery packages, it is key to not fall into the trap of short-term thinking, only addressing economic fallout today at the risk of weakening our fight against the most dangerous global enemy of our time: climate change.
The EU Recovery Package is an unmissable opportunity to accelerate the clean energy transition by elevating the focus on renovating our homes and buildings. Boosting eco-sustainable home renovation will save the economy in the short-term while paving the way for sustained climate change mitigation over the long-term.
Sustainable home renovations bring a myriad of benefits that go well beyond energy savings, including continued job creation (19 jobs for every million euros invested in energy efficiency projects), alleviation of energy poverty, improvement in physical and mental wellbeing — which in turn alleviates pressure on public health systems — facilitating productive home working and studying environments, and the regeneration of distressed communities.
Moreover, boosting investment and supporting initiatives focused on home renovation supports the creation of innovative companies, promotes modern, digital and resilient business models, and can help modernise and professionalise the construction sector.
As the crisis may come in waves, we could be faced with yet another period of self-isolation during the colder part of the year. Heating and cooling already accounts for half of EU energy consumption. Cold-weather confinement could leave the 50 million families affected by energy poverty with the choice of putting food on the table versus keeping their homes warm. We as Europeans cannot afford to wait.
Now is the time to launch a highly ambitious Recovery Package which supports the economy and fulfils the Paris Agreement. Now is the time to make sure policy makers hear our voices and commit resources to ambitious sustainable renovation initiatives in the residential sector. We deserve the opportunity to not only survive this crisis, but to thrive because of it.
At GNE Finance, our mission is to help build more resilient and empowered communities through the development of integrated eco-sustainable home renovation programmes combining affordable financing with technical assistance to homeowners. We work with cities and regions to design the programmes accessible to all Europeans, including vulnerable ones
Climate change is one marker among nine of what scientists call “planetary boundaries” in the Anthropocene. We are crossing four at our peril: climate change, species extinction, nitrogen pollution and land system change. These represent far more than an environmental challenge. They represent an existential shift in our culture, one akin to the Enlightenment in the eighteenth century, provoking systemic changes in how we view the natural world and our role within it. The shift of the Enlightenment took nearly 100 years and many did not know it was underway until it was over. The cultural shift we are facing today will also take centuries to complete and many do not know it is already underway. But the signs are there if you look.
SHIFTING PUBLIC OPINION
Public acceptance of climate change has been growing in the United States. By 2018, 71% of registered voters thought global warming was happening, including 95% of liberal Democrats, 88% of moderate/conservative Democrats and 68% of liberal/moderate Republicans. Between 2013 and 2019, the people alarmed or concerned about climate change grew from 43% to 58%, while the number of people who are doubtful or dismissive declined from 27% to 20%.
Here are four reasons why this is happening. The first is the weird weather. Extreme hurricanes, droughts and wildfires are becoming the “new normal,” not just for people in other parts of the world, but here at home in the US. The second is that more people are speaking out on the issue, convincing people locally. The third is that growing youth movements are voicing anger that their future is at stake and changing the minds of parents and relatives. They are also changing the corporations that want to hire them. That is the fourth reason for the shift in public opinion.
CORPORATIONS DRIVING OUR CULTURAL SHIFT
One key distinction between the Enlightenment and our present time is the role of the market. Though some blame capitalism as the cause of the climate change problem, one must also recognise that the solutions must also come from the market. Business transcends national boundaries, possesses enormous resources and has unmatched powers of ideation, production and distribution. If there are no solutions to climate change coming from business, there will be no solutions at the scale we need.
And business is in the midst of a shift driven by two failures of capitalism — income inequality and climate change. Signalled by young people’s disenchantment with capitalism, political proposals to reign in corporate power and aspirational statements from the Business Roundtable, BlackRock, World Economic Forum and others, we are reexamining the purpose of the corporation from simply making money for the shareholder to making a positive contribution to society. This shift is critical to solving the climate challenge, as business uses its power to find solutions in three primary areas:
Adaptation: Businesses will be forced to adapt to climate change as costs reach hundreds of billions of dollars a year in lost labour productivity, declining crop yields, food shortages, early deaths, property damage, water shortages and more. The insurance sector will facilitate this shift as it changes, underwriting coverage and costs for what surveys show is the top concern among underwriters.
Mitigation: Beginning with pledges to reduce carbon emissions, companies have now moved to carbon neutral and carbon negative pledges, and are exploring solutions that are as radical as the objective.
Opportunity: Most importantly, businesses are beginning to see climate change as a market opportunity, one that will yield profound changes in what they do, and ultimately in how we live.
These shifts show that change is already underway. With it, we can examine trajectories for what the world will look in 100 years. Fossil fuels will eventually be seen as arcane sources of energy, while solar and wind energy, and battery storage will continue to drop in price. Consumers are playing an increasing role in how energy is distributed by using smart home devices to monitor their energy use, generate their own energy and purchase smart appliances that monitor energy use when grid demand is low. Thinking more holistically, some are examining ways in which our homes and transportation can become fully integrated in an electric lifestyle. Two way flows of energy and information, demand-side management and other innovations are already hitting the market.
The energy transition will also manifest itself in mobility as transportation becomes electrified and autonomous, eventually spelling the end of private car ownership (with some exceptions, such as farms). Today, many young people have a declining interest in owning a car. This shift will eventually mean fewer cars on the road (at any moment 95% of today’s auto fleet is idle) and a concurrent decline in petrol stations, parking garages and some streets. This shift will be aided by greater attention to the redesign of urban centres to become more focused on human walkability than their present focus on car habitats.
Going further, the growth of the alternative protein market suggests that most of the meat we eat will be plant-based or grown in vats. Recent events around Covid-19 foretell a future in which we will be less interested in travelling freely over vast distances, finding social media platforms a replacement for job interviews, in-person conferences and other forms of personal engagement. These are just some of the changes already underway that tell us how different will be the world in which our children will grow old compared to the one in which we are growing old. But in making such predictions, the most uncertain variable is human behaviour and this is something we can influence.
SHIFT THE POLITICAL CALCULUS TODAY
These shifts show that a transformed world is possible. But the challenge for today is to break down the remaining partisan divide that blocks us from embarking on this path. Though many right-leaning politicians privately admit they believe the science, they fear their voter base will turn on them if they acknowledge that publicly. That calculus is weakening as it is becoming harder to be sceptical of the science. Politicians need help in making the shift to a consensus position and business can help them by showing what human ingenuity can make possible.
In this way, business can offer hope, something the next generation — my students — need badly. Many are concerned, afraid and angry. They have the data and they know the problem. At this time, we may not be able to give them all the solutions, but we can give them hope. That can be our legacy. That is, what I hope to be my legacy.
Since the idea of a just transition first emerged from the labour union movement in the 1990s, the concept of climate justice has increasingly resonated around the world. In 2019, millions of people took to the streets to demand that principles of justice are placed at the heart of climate action. Growth in the popularity of the just transition has also led to an expansion of meanings — no longer the bastion of the coal miner, it has been mainstreamed into a tool to tackle the climate crisis and inequality issues as one.
For some, the urgency to act on climate change seemed to outweigh concerns about how people could be affected. The human face of climate action was obscured by potential silver bullet technological fixes and economic instruments. But it is now clear that climate justice is much more than a nice to have and may prove to be the key to unlock deeper and more ambitious climate action.
While most people will benefit from climate action, there is a risk that some people will be negatively affected. This possibility is particularly true for those with jobs in polluting industries such as fossil fuel-based energy, industry and transport, but also in less obvious sectors such as agriculture and forestry, particularly in poorer countries.
The just transition acknowledges that decisive action to tackle the climate crisis will impact many people’s lives. It acknowledges that tough choices will need to be made and that the people affected by those choices need to be included in the decision making process. It acknowledges past experiences of transitioning away from fossil energy and that if people are not included in making tough choices, government action will likely be met with strong opposition.
For low and middle income countries, where unemployment tends to be high and social engagement low, however, this can be difficult. Governments have to focus on creating new jobs, any jobs, making it hard to think about better and greener jobs. And people do not have access to tools or organisations to help them engage in political debate.
Low and middle income countries often also have large numbers employed in the informal economy. This large, unregulated and often illegal workforce is almost entirely absent from just transition narratives. But ignoring it can lead to unsuccessful green jobs strategies. In Colombia, a new sustainable transport scheme was introduced, with promises it would be good for workers, but in reality each newly created formal job replaced seven informal jobs.
What is more, confusion around definitions, questions over relevance and a lack of capacity means that many countries are not applying just transition principles in their climate plans. This failure will lead to less ambitions climate action and the risk that climate action could negatively affect people.
The new Climate Strategies report Incorporating Just Transition Strategies in Developing Country Nationally Determined Contributions discusses how the just transition can be practically used to create more ambitious and inclusive climate plans in low and middle income nations. It offers a template for those drafting national climate plans (NDCs) and provides guidance on how workers, consumers, citizens and communities can be engaged in the creation of ambitious climate actions. It recommends the creation of a labour market plan and highlights the importance of recognising and including the informal workforce in policy planning.
Until now, the just transition concept has failed to engage policy makers in low income nations. This report outlines how it offers crucial opportunities for reaching net zero carbon while tackling unemployment and poverty. It also addresses gaps in the concept which must be adapted for developing countries, such as the inclusion of the informal sector in planning. Finally, it identifies areas for further urgent work, including zooming in on selected low and middle income countries in Africa, Latin America and Asia, tailored stakeholder engagement strategies and access to finance.
Later in 2020, all countries are due to submit new climate change action plans to the United Nations. We hope that by applying the just transition principle of putting people first they will draft revise NDCs that show greater ambition for people and the planet.
The authors would like to thank Peter Glynn and Zoe Rasbash for their contributions to this opinion piece
On December 11, 2019, the European Commission announced its proposal for the European Green Deal. On March 11, 2020, the World Health Organization called the coronavirus a pandemic. Most countries around the world have introduced restrictive measures that would have been impossible for democratic societies just weeks earlier. Stock markets have collapsed, the forecast for global and national economic growth is grim. We are facing a sudden and deep economic crisis and a long recovery. So, what might happen with the European Green Deal?
Like many other policies it will be disrupted. Voices have been heard saying it is not the time for green ideas, that we should first recover. The Czech prime minister, Andrej Babiš said that we should forget the Green Deal. But such appeals are not justified, not least because energy markets have swiftly moved in support of the consumer. Oil, gas, power and carbon emissions prices have collapsed and provided short-term cost respite, if the energy sector passes the reductions down the line.
There is more. The European Green Deal is an economic stimulus package, and so it should be compatible with the pandemic and post-pandemic crisis, and economic recovery measures.
The call now is to save lives and save the economy. Saving the economy, however, also means saving lives, especially in the medium and longer term. In most European countries, the immediate economic response is rightly focused on preventing rapid job losses. We must also think, however, about the economic crisis response in a more complex way than just as short-term employment protection. The opportunities are many.
Low energy prices offer an opportunity to remove some of the subsidies enjoyed by conventional energy sectors. It would be unwise if the low prices were simply used to extend the life of otherwise ailing companies. The difficult question is how to decide what to support and what to sacrifice.
The European Green Deal offers a good strategic direction. Saving dying coal companies only to see them go bankrupt a couple of years later hardly makes sense. The economic stimulus packages could be used to accelerate the transition rather than delay it. In this way, jobs will be secured, probably increased, and the pain of the expected coal closures avoided. Think of it as two operations under one anesthetic.
Since the recovery will need vast public financial support it would be unfair to simply throw massive public funds into expanding low carbon energy capacity. The good news is that many new energy, and other industry, technologies are mature and commercially viable and would need mostly political and regulatory, rather than financial, support. Accelerated building of industrial size photovoltaic capacity on coal regions could create many short-term construction jobs, while reducing power prices and carbon emissions.
Faster integration of European and neighbouring electricity markets, and the scaling up of distributed energy storage and demand side management systems across the continent, will also help lower and stabilise electricity prices. As part of a faster transformation of the heating sector, the European Commission, and national and local governments, could support ambitious programmes for solar heating deployment — cost competitive technology popular in many European countries. Naturally a policy that could be supported is an increased rate of labour intensive mass building renovation.
The European Green Deal should be examined as a long list of measures that could keep and expand job numbers, while moving forward the carbon reduction and industry modernisation agenda. Concurrently, the green component of coronavirus economic stimulus packages should be significantly increased, not by lavishly subsidising selected businesses, but by finding ways to boost innovation and industrial transition.
China did that in 2008 by greening huge parts of its economic stimulus. This decision is one of the reasons why China is now running ahead in many low carbon industries and technologies. We must study the impact of the green component of the 2008 packages and learn our lessons.
Unlike 12 years ago, today we have low priced renewable energy and fast advancing energy storage technologies, which make the rapid expansion of zero carbon power supply much easier. The digitalisation of the energy sector also offers a wide range of solutions for efficient energy management and the transformation of industrial systems. The main barrier will be policy inertia and pressure by incumbents.
In 2020, we will see also a dramatic decline of travel replaced by distance working, socialising, learning and medicine. We will discover that much of our frantic travelling is not really needed, while the technology to replace it has been around for a long time.
Interlacing coronavirus crisis mitigation measures with the European Green Deal could enhance the impact of both. That approach will strengthen the economy and save many lives, now and far into the future.
The EU is currently reviewing its 2030 climate targets and has put forward a Green Deal for Europe. It is unsettling to see that the package of measures says nothing about heat, despite its critical importance for meeting Europe’s climate goals. Heating in buildings is responsible for almost a third of total EU energy demand. And most of that heat is met by burning fossil fuels.
The transformative challenge of decarbonising heating should not be underestimated. It will require strategic, ongoing policy and governance support. It requires a well-coordinated approach that cuts across several areas — buildings, individual and district heating systems, the power sector and existing heating fuel supply infrastructure.
Neither energy efficiency nor low-carbon heat technologies alone can achieve decarbonisation. A combination of the two is the most economical and practical approach. While there are uncertainties around the ideal technology mix for the future heating sector, it is clear that energy efficiency and electrification will need to play a significant role. It remains to be seen whether this will involve individual heat pumps or district heating networks powered by renewable electricity fed through large-scale heat pumps.
Recognising the increasing synergies between different sectors, the European Green Deal announced a strategy for smart sector integration by mid-2020. A new report by the Regulatory Assistance Project (RAP) develops four pragmatic principles to achieve clean heat through smart sector integration and a suite of policies to help deliver them.
Put “Efficiency First”: Regardless of the low-carbon heat technology adopted, energy efficiency is critical. It reduces heat demand, thereby lowering total system costs and the investment required to decarbonise heat. Efficiency also enables electrified buildings to act as a flexible grid resource, ensuring that low-carbon and zero-carbon heating systems operate at higher performance. By reducing demand for, and the associated costs of, zero carbon heating, energy efficiency can also support a more socially equitable heat transformation.
Recognise the value of flexible heat load: We can integrate a growing share of renewables and mitigate avoidable increases in peak load by viewing the additional electric loads drawn for heat as a potential flexibility service. Electrified heat has the potential to be very flexible and provide demand response by using the building and district heating networks as a thermal battery.