There is broad consensus on the need for action to build a sustainable, carbon-neutral economy. But how can we create incentives that align commercial and environmental imperatives, discourage short-termism and ensure that all stakeholders – including resource companies, financial institutions and governments – are moving toward this goal? And what does success look like?
‘Coal is the issue in terms of the carbon bubble.’
Simon Henry, Chief Financial Officer, Royal Dutch Shell
‘The single thing that would really help is the widespread acceptance that this transition is both needed, feasible and already happening.’
Michael Liebreich, Chairman of the Advisory Board and Founder, Bloomberg New Energy Finance
Key discussion points
The world is clearly in an energy transition – but the debate continues over how to manage the shift away from fossil fuels. The signs are clearest in the electricity sector, with Germany now using 29 per cent and the UK 19 per cent renewable power. Globally, the energy used to produce a unit of economic output has also fallen significantly for the first time. Meanwhile, some energy companies now accept that unabated fossil fuel use will need to be curtailed. The argument has shifted to which reserves should be left in the ground - with the spotlight focused on coal, the most carbon intensive fossil fuel.
At the same time, global energy demand is set to rise, raising challenges for sustainability, affordability and access to energy. Shell's lowest projection of the rise of energy demand is a 50 per cent increase by 2050, given a rising population, economic growth and urbanization, concentrated in developing economies.
Emerging economies face important choices over energy and resources as they industrialize and urbanize. For many, rising energy demand has translated into rapidly rising import dependence and to concerns over energy security. Many cities in emerging economies are also burdened with impact of air pollution, water scarcity and burgeoning waste. Given the urgent need to reduce poverty, provide access to energy and improve quality of life for urban residents, the benefits of efficiency and renewable energy for air quality, growth and ‘national security’ often provide a more powerful political imperative than climate change. There is also an important conversation about the distribution and quality of growth – and how these relate to energy and resource consumption.
Low carbon technologies are increasingly competitive, but scaling up remains a key challenge. The costs of renewable energy have been dramatically reduced rendering renewables the cheapest option in some cases. Investment in clean energy, however, has stalled at around 350 billion. Beyond renewable energy, smart technologies and systems are making a growing contribution to the ‘green economy’, and could spur a new industrial revolution. Initiatives like the new Global Apollo Programme offer a welcome boost in investment in science, but equal attention is needed on the huge infrastructure and finance needs implied by scaling up and commercialising green technologies.
Urbanization lies at the centre of the energy transition. Today 70 per cent of energy is consumed in cities. The way that energy is consumed, moreover, is vital to how resources more generally will be consumed and to investment decisions. Global scenarios suggest that half of the needed emissions reductions will come from efficiency, much of it in cities - whether in buildings, smart technology or better urban design. Urban air quality problems around the world are a major driver of the shift to cleaner energy and more sustainable modes of transportation. Beyond electricity and transport, more attention is needed on efficient, greener heat for homes and industry.
As climate negotiations enter a critical phase, governments need to keep a clear focus. While the challenges remain huge, solutions to climate change are now visible. Many leading businesses are now making serious commitments on climate change. Cities are taking concerted action on climate change as they compete for urban professionals based on quality of living. Attitudes are also starting to shift – with trends among younger people towards a lower demand for cars and less tolerance of unsustainable business practices. But climate negotiations matter more than ever: governments need to send the right long-term signals for a global energy transition. Even with the latest wave of more ambitious commitments by China and US, the world will still not avoid the critical measurement of a 2 degree rise under current action.
Leadership by developed countries can help unlock political barriers to ambitious action on climate change at the global level. Via action on energy efficiency and switching to greener energy, for example, India may be able to keep per capita emissions at 2.9 tonnes of CO2 in 2030, compared to a business as usual case of 4.9 tonnes – this would be an immense contribution to global climate security given the scale of its population. But developing countries like India cannot be expected to pursue ambitious decarbonization plans unless developed countries demonstrate serious commitment to tackling climate change at home.