As we enter the political-economic maelstrom that will surely manifest during the United Nations Framework Convention on Climate Change (UNFCCC) 26th Conference of Parties (COP26), it is important to focus on the primary task at hand. It is not merely decarbonization of the world’s economy that is the need of the hour, it is its rapid decarbonization. In this regard, we in the world are far behind our rent payment to planet Earth, as highlighted in the most recent spate of “code red” scientific reviews of atmospheric change. Governments are proceeding at a languid pace. The aspirational goals of their Nationally Determined Contribution (NDC) pledges are not making sufficient headway against a 2°C target, let alone a 1.5°C level, according to the recently released UNFCCC’s NDC Synthesis Progress Report.
Policy leaders need to catch up to the departed ship of private sector sustainability actions
However, for private industry and private markets, the message has been more resounding, and they are poised to pour $1 trillion into green and sustainability bonds alone this year. Corporations around the world, worth trillions, are announcing net-zero commitments over sometimes aggressive timelines. And large institutional investors are eschewing fossil fuels for Divest-Invest strategies. These gains are urged on by market forces responding to empowered citizen voices for climate solutions. Policy leaders need to catch up to the departed ship of private sector sustainability actions and chart realistic courses to steer that momentum to the most productive ends.
Too many governments impede the pathway to decarbonization with badly conceived announcements that lack scientific and technologically sound investments, may be highly dependent on international cooperation rather than sound national policies, and require rational, steady, supportive programs that extend beyond immediate political cycles. In many cases, the net effect of these official sounding government pronouncements of climate change progress covers increased investment in coal, oil and gas extraction.
Foremost in this stream of distractions are prospects for carbon capture, utilization and storage (CCUS) and blue hydrogen (Blue H2), or hydrogen produced from fossil fuels that seek to use CCUS to abate emissions somehow. The buzz leading up to COP26 is that CCUS and Blue H2 are “proven” technologies that need modest incentives to scale up. The fact remains that the technologies are largely unproven or failed, with little hope of commercial scalability for decades – valuable time the world does not have.
Too many governments impede the pathway to decarbonization with badly conceived announcements
Over decades, industry and government alike have poured billions into CCUS research. In the United States, these expenditures have undergone Government Accountability Office (GAO) scrutiny, the gold standard for objective evaluation of government programs. Two major GAO audits, one covering the period 1997 to 2008 and another from 2010 to 2017, show that CCUS investments have not succeeded at large-scale coal plants. The Bush-Cheney administration, a major supporter of CCUS, canceled the program in 2008. To date, according to the GAO, only small-scale projects have shown some promise. The failure of carbon technology was graphically illustrated a couple of weeks ago in Mississippi with the demolition of Southern Company’s $7.5 billion Kemper facility. This doesn’t mean that CCUS derivative technologies may not have a role at some point, just not at this critical juncture. Spending billions on ongoing research may be warranted so that point might be reached. Spending additional hundreds of billions of dollars – in line with what fossil-aligned industry is calling for, on technology that has an 80% failure rate across multiple failure modes – is not merely folly but also a dangerous distraction from the urgent decarbonization task at hand.
Rapid decarbonization is required right now. The good news is that we have the technology available, ready to be deployed at scale, to do so. And those investments are within the reach and willingness of the capital available in the world today. We have witnessed solar and wind technologies’ incredible fall in prices and increases in efficiency in just a decade, now squarely at lower-cost both on marginal and full lifecycle bases, than fossil fuels. Unsubsidized, competitive bidding for renewable power capacity has shown how low prices can go, whether in Saudi Arabia, India, or Cambodia. Now, following closely, battery storage and electric vehicle technologies are traversing the same cost decline path. And despite the COVID pandemic, renewable energy investments are set to grow at its highest rate ever this year. This combination of technologies is formidable in efforts to combat climate change at a meaningful scale reliably.
We have witnessed solar and wind technologies’ incredible fall in prices and increases in efficiency in just a decade
It has been proven feasible to integrate large quantities of renewable energy into the grid. Yet it will take a deliberate, concerted effort in rolling out needed transmission and distribution grid enhancement investments to serve the world with sustainable energy reliably. China had the foresight to make massive investments in modern power transmission as a means of economic recovery in the wake of both the Global Financial Crisis and COVID. That dedication of $100 billion in investments is paying dividends, allowing for larger percentages of renewable energy uptake.
The private market and citizen voices can rally to teach governments interested in using public dollars to support the transition efficiently. The US relies on tax credits to drive investment, but how those credits are structured and distributed is what matters. Take the Section 45Q tax credit for CCUS; if the US renewable power generation and transmission sector received even half of 45Q’s proposed $80 to $120/tonne CO2 abatement, investments in new renewable energy would increase massively, and not in CCUS. And those renewable energy investments would be in proven, low-risk technology – precisely what is needed right now to rapidly decarbonize – not technological gambits with commercial viability decades away.
The argument for global equity, made most forcefully by developing nations, need not impede rapid, stable policy deployment. The question is not one of the volume of dollars, but of the structure of government policy and terms of investments. The dollars under discussion are investments in profitable technologies that need public support to help guide private investment to achieve scale profitably. In new markets with challenging physical, social and political terrain, profitable technologies can be deployed with support of determined political leadership. With the demonstrated volume of pent-up demand for viable green investments, the private money will follow the sustainable path, if governments show the way.
It has been proven feasible to integrate large quantities of renewable energy into the grid
The choice is between sustainable investment that is coordinated, or the destructive cost tallied by individual inaction. Investment will take place because the cycle of business development requires it. What that development is and how it takes place is the point of debate. Advancements in sustainable technology; efficiency gains in the use of materials, resources and energy; improved domestic energy security, increases in employment opportunities; improvement of public health from clearer skies – all in addition to reduced global climate disruption – make rapid uptake of workable, rapidly deployable solutions valid economic responses to a pressing moral challenge.
The world cannot afford delays by distraction or folly, and it will be watching developments at COP26 closely. The words of leaders must translate into attainable actions of real consequence.
Grant Hauber is an Energy Finance Analyst at IEEFA. He has over 25 years of global experience in energy and infrastructure development and project finance covering 40 countries. Grant has worked as a project developer, banker, market strategist, and served as a principal with the Asian Development Bank specializing in public-private partnerships.