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Tuesday, January 20, 2015

It's time: Let's change the economy!

The latest report published by the United Nation’s IPCC made the need to shift away from fossil fuels - coal, oil and gas - particularly clear. The report sternly warned about the need for an immediate ‘massive shift’ into renewables in order to control climate change.

Facts on the table: the International Energy Agency states that as of 2014, 82% of  world’s energy came from fossil fuels. Therefore, the most important question is as to how exactly would be achieve this ‘massive shift’ and who will be the major players?

Working parallel to this, the WWF funded a study on as to whether we could truly make this shift by 2050. Their report concluded that “we could get extremely close” , with a tinge of pessimism in their statements. But such a shift would necessitate major changes in systems that countries use to source their energy needs and tremendous investment in renewables! To enable this, fossil fuels must be made as unappealing to investors as possible by slowly phasing them out of the global energy markets.

The best example of steam gathering in support of a clean energy economy was when Carbon Tracker Initiative began highlighting the financial risk of holding carbon based assets that could become ‘stranded’ due to unexpected policy changes. They primarily targeted big players like Shell and Exxonmobil, both of who issued statements denying their assets would be ‘stranded’. (Website links to the statements attached)

So, if big energy companies are not going to drive the switch to renewables, then who would and how could this be achieved?

Highlighting figures from the Bloomberg New Energy Finance, an estimated $3 trillion has been invested every year (including subsidies) in renewables over the last couple of years. However big this amount may seem, it is still miniscule compared to the steadily increasing investments in new fossil fuels resources like the Shale in the US and Canada.

Lack of investor confidence?
Investors in the renewable market are still cautious because of the fact that regulations and government support can change with a change in the political setup. Such wavering commitments does not build investor confidence. Yet despite all uncertainty, there exists a definite but slowly evolving global political consensus to move into renewables. In Asia and Africa, this is driven by the need to produce more electricity (tapping the enormous potential for solar power), in China the motivation is to improve air quality and Europe is persuaded by the lack of security of energy supply (following tensions with Russia).

Question is would these changes encourage big energy companies to invest in a change. Unfortunately no. And many analysts say that this is a good thing, as the renewable sector has a different supply chain and management profile. They further state that big oil companies may fail in managing renewables!

A few months back when the Obama administration announced new emission regulations ordering power stations to cut emissions by 30% of 2005 levels by 2050, it was the first ever attempt by an US president to regulate CO2 emissions from a power station! The move has been hailed by the civil society, green campaigners, scientists and policy makers as an important step towards a global economy powered by clean energy.

The money required to invest in clean energy is available, but more work has to be done to create the right environment for these projects to succeed. The best method is to push renewables through community owned and community operated projects, wherein small communities produce their own power through renewables. Such projects, common in Germany, could be replicated in Africa and Asia - as an important mode of fighting energy security and poverty. Investors can develop a profitable business model that would benefit from carbon credits, sale of excess power and other government benefits.

The push for renewables should be from the bottom up, from the poorest communities to the richest enclaves. The push for renewables must make fossil fuels seem like ‘stranded’ investments. The push for renewables should be from places where energy insecurity plagues every day lives.

The simple truth is that this ‘massive shift’ is going to happen sooner or later. But the sooner the three biggest energy consumers - USA, China and India move towards renewables, the sooner we will reach the goal of a truly global green energy economy.

Hope it happens soon!

Royston Fernandes,
Author -