Better Energy Will Lead to Greater Prosperity: The Energy Transitions Commission Makes Its Case

While the U.S. administration continues to surprise the world by focusing on bringing back coal, elsewhere in the world momentum toward a low-carbon energy system continues to build. Nowhere was this more obvious than this week in New York where, in the margins of the Bloomberg New Energy Finance Summit, the Energy Transitions Commission (ETC) launched a new report that makes the case for the energy transition.

The report, Better Energy, Greater Prosperity, argues that it is technically and economically feasible to grow economies and provide affordable, reliable, clean energy for all while meeting the Paris objective of limiting global warming to well below 2C°. You can download the report here.

The Energy Transitions Commission brings together a diverse group of individuals from the energy and climate communities: investors, incumbent energy companies, industry disruptors, equipment suppliers, energy-intensive industries, nonprofit organizations, advisors, and academics from across the developed and developing world. The ETC’s mission is to accelerate change toward low-carbon energy systems that enable robust economic development and limit the rise in global temperature to well below 2C˚.

I was pleased to serve on the ETC. It has always been RMI’s view that an accelerated transition toward a low-carbon future can be accomplished only by working together with energy industry incumbents as well as with new entrants disrupting the energy market. It therefore made sense to us that bringing together this unique collaboration between the diverse members of the ETC could lead to important insights that carry significant credibility.

THE ETC’S CONCLUSIONS

The report describes how to cut annual carbon emissions from 36 gigatons (Gt) today to 20 Gt by 2040 (compared to 47 Gt expected by 2040 in a business-as-usual scenario), and set the stage for the further emissions reductions that will be required in the second half of the century, while ensuring universal access to 80–100 gigajoules of affordable, reliable, and sustainable energy per capita per annum. According to the ETC, this can be achieved through four interdependent pathways:

1. Clean electrification—By 2040, half of emissions reductions compared to a business-as-usual scenario could come from the combination of the decarbonization of power generation and the electrification of a wider set of activities in the transport and buildings sectors. Provided appropriate policies are put in place, it will be possible within 15 years to build power systems that rely on variable renewables for 80 percent to 90 percent of power supply and that can deliver electricity at an all-in cost (including back-up and flexibility needs) of less than $70 per megawatt-hour (MWh), which is likely to be competitive with fossil fuel-based power generation. This reflects the dramatic reductions in the cost of renewables and batteries now being achieved and most likely to continue. Clean electricity should then be used in an increasing range of economic activities, with growing potential to substitute clean electricity for fossil fuels in light vehicle transport and heating.
2. Decarbonization of “hard-to-electrify” sectors—In addition, we will need to cut carbon emissions from activities that cannot be electrified cost-effectively in transport, industry, and buildings. This will become increasingly important as the potential for additional clean electrification is exhausted. But the technologies to do that—including bioenergy, waste heat, hydrogen, and the multiple forms of carbon capture and sequestration—are not yet achieving the cost reductions and scale deployment seen in renewables and batteries. Governments and companies need to make significant R&D and initial deployment investments to ensure that these technologies become cost-effective.
3. A revolution in the pace of energy productivity improvement—Energy productivity improvement could deliver a third of required emissions reductions by 2040, but this would demand greatly accelerated energy efficiency progress across the buildings, transport, and industry sectors, as well as structural changes in the economy to deliver more economic growth with less energy-intensive goods and services.
4. Optimization of remaining fossil fuel use—These transitions would result in a 30 percent decrease in fossil fuel use by 2040, but fossil fuels would still represent up to 50 percent of final energy demand. Meeting climate objectives therefore also requires a ramp-up in all forms of carbon capture and sequestration (conversion into products, underground storage, natural carbon sinks). In this context, fossil fuel use should be concentrated in highest value applications, which implies a rapid decrease in unabated coal consumption, a peak of oil in the 2020s, and a continued role for gas (provided methane leakages are reduced significantly).

ACHIEVING ACCELERATED PROGRESS

The transition to low-carbon energy systems across the world will require a much faster energy revolution than in the past 20 years, and a much faster transition than the promises made in the Paris agreement imply. Each year, energy productivity needs to increase by 3 percent and the share of energy from zero-carbon sources needs to rise at least one percentage point.

Strong public policies will be essential to achieve this. The ETC believes that these must include meaningful carbon pricing, phase-out of fossil fuel subsidies, R&D and deployment support for low-carbon technologies, robust standards and regulations, appropriate market designs, and public investment in transport and urban infrastructure.

In addition, the progress implies a major shift in the mix of investments in the energy system: investments in fossil fuels over the next 15 years could be about $3.7 trillion lower than in a business-as-usual scenario, while investments in low-carbon technologies and more energy-efficient equipment and buildings could increase by $6 trillion and $9 trillion respectively.

This means an extra $300 billion to $600 billion in annual investment. This does not pose a major macroeconomic challenge in a world where global savings and investment reach $20 trillion annually. But public policies that reduce risk are needed to reduce the cost of capital for long-term sustainable infrastructure investment and extra support will be required for developing countries with the greatest investment requirements and more limited access to capital.

GOVERNMENT ACTION

Around the world, politicians have been looking for the sort of collaborative, roll-up-your-sleeves leadership on the energy transition that the ETC aims to provide—a “yes we can” mentality that is neither provincial nor informed only by narrow self-interest; a view that looks beyond the horizon of the next election or the next quarterly financial report. I have been impressed with the unwavering commitment of my fellow commissioners to the goals set in the Paris Agreement, and the willingness to work together to create a shared understanding of what needs to be done. The contrast with the position of the current U.S. administration is therefore striking, but hopefully not unbridgeable.

This Saturday, I will be in Washington, D.C., to be part of the People’s Climate March. I go to this event to help build this bridge and with the comforting thought that energy leaders from around the world have just made a convincing argument that we can transition to an energy future that delivers both economic prosperity and a world well below two degrees. I wonder if President Trump will be listening.
Image courtesy of iStock.