Investing To Save the Earth

Joan MacNaughton CB Hon FEI is a Distinguished Fellow at the GFCC and an influential figure in energy and climate policy internationally, where she has held a variety of roles in both the public and private sector. She currently chairs the annual assessment of countries’ energy policies for the World Energy Council, the ‘Trilemma’. She is also Chair of the International Advisory Board of the Energy Academy of Europe.

It seems appropriate in light of Earth Day — and with the March for Science happening today — to reflect on how we desperately need science and innovation to deliver on the 2016 Paris Agreement. This is the world’s commitment to keep global warming under 2 degrees celsius compared to pre-industrial levels, and it’s as important now as it ever was.

That agreement was signed by 195 countries, and came into effect less than twelve months later — an unprecedented pace of ratification. Unprecedented pace is indeed what is needed here, for we are embarked on a retooling of our economies in a way which has never been done before, with the need to deliver ’net zero’ carbon emissions by the second half of the century.

Innovation will be key. But the good news is that its effects are already visible. Yesterday, for the first time since the industrial revolution, the UK generated all its electricity without any contribution at all from coal power. Renewables have come to the fore accounting for over half of UK power generation in the last quarter of 2016 — and innovation has made this possible, economically and technically.

As goes the UK, so it goes globally. Last year saw investment of nearly $290 billion in renewable energy. Although this was below the peak achieved in 2015, the capacity installed did not fall — testament to the progress achieved on costs — particularly in solar where 70 GW were added.

But as the role of renewables increases, so does the need for a smart flexible grid and greater storage. Here too there is good news — BNEF estimates that lithium ion battery costs have fallen by over 70% in the past six years and are set to fall further. Experimentation in matching demand to supply is continuing to reduce the need for expensive, underused, standby plant. And we are seeing the effective integration of amounts of renewable generation thought to be too challenging even a few years ago.

These developments not only contribute to reducing greenhouse gas emissions. They also help deliver a more secure and resilient energy supply. They improve productivity and act as a hedge against volatile fossil fuel prices. For although oil, gas and coal are cheap at the moment, no-one believes we have abolished the commodity price cycle and some rebound is inevitable. That is a major concern and particularly threatens those developing countries who rely heavily on energy imports, for which they usually have to pay in dollars.

For progress to continue, more — much more — needs to be invested in research, development, demonstration and deployment, with collaboration between the public and private sectors.

While many corporates recognise and act to secure the business benefits of such investment, some large scale, high risk bets on early stage technologies are beyond the capacity of corporate balance sheets even bolstered by debt finance. It is vital that governments step up to the plate, either with financial support or with appropriate regulation or both. Such interventions have delivered spectacularly in the case of solar, but many other areas, such as large infrastructure plays like carbon capture and storage, key to reducing emissions from industrial processes, require equivalent backing.

Those countries who get this right will be rewarded with new industries providing highly skilled jobs and great potential for growth. It makes sense for our economies — and for our planet.