- The transition from coal to renewables must be a priority if we are to achieve the emission reductions we need.
- Outside of Europe and the United States, however, coal still dominates power generation.
- Energy transition mechanisms could be a way to speed up the switch to renewable energies in developing countries. Here is how they would work.
As we move into 2021, a growing number of countries are announcing net zero targets. This is a most welcome set of New Year’s resolutions. But as with our personal commitments to getting in shape and losing weight, experience shows that most resolutions will fail unless they are accompanied by short-term actions and goals.
This is also true for climate goals. As if to delay the onset of a regime, each day we exceed the Earth’s capacity to absorb CO2 increases greenhouse gas (GHG) concentrations and requires even greater reductions in subsequent years to maintain warming. below 1.5 ° C or 2 ° C.
Figure 1 (below) shows the implications of the delay in starting GHG reductions. The purple line shows the gradual reductions planned in the IPCC’s first assessment report (1990) to keep global warming below 2 ° C. But the delay in action, and exceeding actual emissions over the past two decades, means the world must now make deeper and faster reductions – about 2.7% per year through 2100. context: COVID-19 is expected to cause GHG emissions to 4.6% drop in 2020. This means that achieving the 2 ° C scenario will require emission reductions equivalent to about one COVID-19 pandemic every two years through 2100, but without the associated human and economic losses.
Figure 1: 0 Global greenhouse gas emissions and warming scenarios
To avoid falling further behind, leaders need to match long-term net zero commitments with short-term reduction targets that are achievable with currently proven technologies, and buy time until strategies longer term such as hydrogen, carbon capture and storage, or direct air capture have proven to be economical and scalable. Fortunately, there is a huge opportunity that can be implemented economically on a large scale with the technology that exists now, and on which there is broad agreement: to accelerate the transition out of coal.
the IPCC 1.5 ° C warming targets recognize the key role of reducing electricity generation from coal. They call for a 36% reduction in production today to 9% by 2030 and virtually 0% by 2050, and to replace it with renewable energies. This transition is well underway in the United States and Europe, but in developing countries, where energy demand is increasing, the gap between coal-fired electricity and renewables is barely narrowing (see Figure 2 below). below).
Figure 2: Coal Still Dominates Outside the United States and Europe
Image: BP Statistical Review of World Energy
COP26 in Glasgow this year must go beyond vague promises and include concrete proposals for large-scale measures to accelerate the energy transition, especially for low-income countries that depend on coal. In many developing countries (see Figure 3 below), coal still dominates and the evolution of the energy mix has been slow at best. We know from the experience of European countries, like Germany, that it can be a decades-long challenge to convince different stakeholders to accelerate the retirement of carbon-intensive energy assets. and increase the demand for renewable energy. Encouraging developing countries to move away from coal-fired electricity over the next decade will require a massive and unified effort to finance, equip and enable the energy transition. To be politically feasible, this will need to include financial resources to enable a just transition for workers and local communities, and fair compensation for owners for the value of electrical installations to be shut down, in accordance with the rule of law.
Figure 3: Coal-fired electricity still surpasses renewables in many developing countries
Image: BP Statistical Review 2020, Ember Global Electricity Review 2020
An energy transition mechanism
Experts have put forward ideas to accelerate the energy transition. the Rocky Mountain Institute proposed a refinancing plan that could generate net financial savings of over $ 100 billion by 2025. A report by IEEFA suggests that reusing coal-fired solar and battery power plants in India could be more economical than dismantling them. These and other ideas would benefit from large-scale pilot projects in developing countries to prove their feasibility and thereby allay the concerns of local stakeholders, paving the way for larger-scale deployments to tackle the challenge head-on. of climate change.
To help fund ideas like the ones above, leaders in government, development finance institutions (DFIs) and the financial sector should consider creating Energy Transition Mechanisms (ETMs) for COP26 – broad public partnerships -private that would allow countries to remove political and socio-economic barriers, create sustainable jobs to support a post-COVID green recovery, and move much faster to achieve a just energy transition (see figure 4, below) .
Figure 4: Diagram of an energy transition mechanism
Image: author’s illustration
An ETM would be formed for a specific country in order to be efficient and based on that country’s energy needs and nationally determined contributions. It would consist of two complementary financial facilities: a carbon reduction facility (CRF) and a clean energy facility (CEF). The current owners agree to transfer their carbon-intensive energy assets to CRF in exchange for cash and possibly a stake in ETM. These owners of utility assets, which in many cases are state-owned power companies, should invest the money they received in renewable energy, grid upgrades, etc. ., and for a just transition for workers and local communities. The coal-fired power assets would continue to operate for an agreed period that is shorter than the current expected life but long enough to repay the investors / lenders of the ETM.
At the same time, the CEF works with national authorities and the electricity sector to strengthen the capacities and storage of renewable energies. As renewable energy expands, ETM withdraws assets from CRF.
The economy and speed of the transition will vary as each country has a different set of challenges. Now is the perfect time for executives to consider bold initiatives like eTM, given the vastly improved wind and solar energy economy and record low / negative global interest rates. Modeled financial data suggests that with low cost financing, a large percentage of existing coal-fired electricity could be replaced in 10 to 15 years on an economically affordable basis without waiting for technological breakthroughs. ETM can accelerate the demand for renewable energy 2-3 times. (see figure 5 below).
Figure 5: How ETM dramatically accelerates demand for renewable energy
Image: author’s illustration
What is urgent now is for experts and DFIs to do the groundwork to prove that ETM and other similar energy transition mechanisms are feasible and can work at scale (eg national). In doing so, COP26 can pave the way for developing countries (and their energy and climate authorities) to make real progress in replacing electricity with coal, without compromising availability, access or energy security. It is only by accelerating this transition that we will be able to move renewable energies from the margin to the general public and avoid any further exceeding of the climate objectives.
Donald P. Kanak is Chairman of Prudential Insurance Growth Markets, Co-Chair of the ASEAN Hub Sustainability and Investment Partnership (SDIP) Steering Group, and Senior Fellow of the Harvard Law School Affiliate Program on International Financial Systems.