Energy and climate change: the transition to a low carbon world may be daunting, but it is also a huge opportunity for those willing to embrace it
By Danny Andrews
The vast majority of world’s scientists now agree that the changes occurring to our climate are caused by human activity and that they are likely to get a lot worse unless we change our behaviour. You would not be alone if you disagreed with them; there are still a few experts out there who don’t buy in to the science, and history has shown that the majority view is not always correct.
But increasingly the debate between climate sceptics and climate advocates – which has dominated discussions on this for over a decade – is irrelevant. That’s because, regardless of where you stand on the issue, it is now beyond doubt that many of the world’s biggest economies are about to embark on an unprecedented effort to reduce their carbon emissions.
On 23 October 2014, the EU agreed to reduce greenhouse gas emissions by at least 40% by 2030, and by 80-90% by 2050. Shortly afterwards, the US announced its intention to reduce emissions by 26-28% by 2025 and China announced that it would seek to ‘peak’ its carbon emissions by 2030, and peak its coal use by 2020.
These are significant commitments made by governments which – generally speaking – honour their promises. The EU commitments are legally binding. Taken together, they are paving the way for a significant and binding international agreement on global carbon reductions at the 2015 UN climate change summit in Paris, which will take place almost exactly one year from now.
The transition to this low carbon future is daunting for some and will of course involve costs. The New Climate Economy report, a recent in-depth study by a group of global economists, estimates that the infrastructure capital needed for a low-carbon transition will be 5% higher than maintaining our current trajectory. And there are several significant risks and issues, for example around fluctuating energy prices; the wasteful use of energy; and fossil fuel subsidies, which currently amount to around $600m globally and will have to be phased out if we are to meet carbon reduction commitments.
Managed in the right way, however, the transition need not be a burden on the global economy. On the contrary, it can be used drive growth through policies designed to support and encourage innovation, and through the vast investments required. Indeed this is already happening in pockets, with Laura Magna’s recent book Green Economy 2.0 demonstrating how some Italian businesses are leading the charge. The UK’s green sector continues to grow, having already carved out a £128bn share of a global market worth £3.4 trillion, and employing close to a million people in 2011-12. But global green growth has the potential to go much further than this, spurring a revolution of innovation and growth not just in the energy sector but across the whole economy.
The aforementioned New Climate Economy report offers a ten-point Global Action Plan for governments to deliver the required reduction in carbon emissions while continuing to promote and protect economic growth. Their recommendations include providing a stable policy and regulatory environment; significantly increasing public investment in clean energy; and focussing on better urban planning to make cities more connected and more compact, thus increasing their energy efficiency.
The UK has already taken a number of steps consistent with the report’s recommendations. Two pieces of UK legislation – the 2008 Climate Change Act and the 2013 Energy Act – provide a stable and legally binding policy framework for carbon reductions and enable around £110bn of investment in energy infrastructure by 2020.
We have created the world’s first Green Investment Bank, with an initial capitalisation from public funds of £3bn. This aims to spur investment in offshore wind; waste and bioenergy; and energy efficiency. Since it started operating in 2012, the Bank has invested £1.6bn in nearly 40 major projects. Every £1 of government money invested has generated £3 of investment from private capital.
We have also set up an Offshore Renewable Energy Catapult Centre, with £46m being invested over 5 years. This government-sponsored initiative aims to promote innovation between industry, government and academia, helping companies to bring new products to the market and supporting small and medium enterprises to participate in the sector. It is estimated that offshore energy has the potential to add up to £7 billion to the UK economy and create 150,000 new jobs by 2020. A further £20m of public money has been made available from the Regional Growth Fund for Offshore Wind, which supports suppliers to the offshore wind market.
Two of these programmes – and a lot of the headlines about UK renewables – relate to offshore wind. This makes sense, as we’re the global leader in this sector, with as much offshore wind capacity already installed as the rest of the world put together. But offshore wind cannot meet all of our demand for renewable energy. After wind power, bioenergy is expected to make the biggest contribution to UK renewable energy generation. This is an area in which Italy is at the very cutting edge, so there will clearly be significant opportunities for UK-Italy collaboration.
Finally, it is important to stress that the British government is not against fossil fuels. Oil and gas must remain an integral part of our energy mix for the foreseeable future if we are to meet global energy demands, which are projected to increase by a third by 2035. But we will need to radically change the way in which we use fossil fuels, becoming more efficient and rolling out carbon capture and storage more widely. Again, these changes will present major opportunities for innovation and investment. Shell, who generously sponsor the Pontignano conference, are already at the forefront of this in the UK, as the developer of the world’s first full-scale gas carbon capture and storage project at Peterhead in the UK.
Governments around the world are starting to set the long-term political and legal context for a new, transformed global economy. The time is ripe for the world’s top business, policy and thought leaders not only to prepare for the risks of this, but also to figure out how to exploit the huge opportunities associated with the transition. As with any major transformation, there are bound to be significant advantages for those willing to make the first move.
Danny Andrews is the head of Prosperity, Energy and Climate at the British Embassy in Rome. He has been a diplomat since 2009 after earlier careers in management consulting and international development. He has worked for the British Prime Minister's office as well as the diplomatic service, and has previously lived and worked in Brazil, Malawi, Bangladesh and the UK.