- The energy transition is better understood as a series of industrial and agricultural revolutions.
- These revolutions begin locally - and will require tectonic shifts in political focus and strategy to succeed.
- Leadership from government, business and finance are needed today to ensure the future is both green and just.
In this year of climate summits – the White House event in April, the climate-focused G7 in June, the UN High-level Dialogue on Energy in September and culminating with COP26 in November – everyone is asking about how to make a rapid global economic recovery beyond 2021 as green and sustainable as possible.
Decarbonization and green recovery
Success requires recognition of the seismic political forces at work. The energy transition, as this process of decarbonization is often called, isn’t really an orderly transition. It’s a series of industrial and agricultural revolutions. Engineering will be important to this - but a continually evolving and agile political strategy will be key. The revolutions need a push from government and business, along with consumers and investors. The good news is that all the players increasingly recognize the tunes being played and the dance moves that will be required.
It’s also good news that the planet is no longer on track for egregious warming of 4-5˚C over this century, as was the case a few years ago. But the latest analysis by the UN Environment Programme and other sources suggest we are still headed for perhaps 3˚C, which will be disastrous. Global emissions this year are on track for their second-largest increase in history. On paper, many governments are now making bold commitments. All told, about 70% of world emissions come from countries that, today, have pledged for net-zero emissions by about mid-century. The problem is that it is hard to tell which of these pledges are backed by real plans. The new US climate pledge looks bold, but success will depend on a strong implementation plan that faces a narrow path to legislative success.
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For all the troubling news about emissions at the global level, the picture inside key countries and markets is a lot more encouraging. Nearly everywhere in the world, the least costly options for new electricity are wind and solar. More modest revolutions are playing out, as well, in advanced geothermal and perhaps even in advanced nuclear reactors – all sources of clean power. No longer is the renewables revolution concentrated in just a few niches, such as Germany and California. Today, it is playing out in economies as diverse as China, Egypt, Brazil and Kenya. In places where it has advanced the furthest, grid operators are now learning how to keep the grid reliable while relying on lots of variable power supplies. Similar revolutions are unfolding in electric vehicles – spreading outwards from early adoption in places like Norway and China. Even the so-called “hard to abate” sectors might be proving a bit easier to abate thanks to innovations such as those that are reducing the cost of producing hydrogen, or demonstrating the potentially transformative deployment of carbon capture systems.
Making the green recovery a global phenomenon requires building on these successes. Viewing deep decarbonization not only as a transition but as a technological revolution requires a tectonic shift in political focus and strategy.
But revolutions aren’t planned globally; rather, they emerge from niches. That’s why the renewables revolution, which is anchored in niches created decades ago by policy-makers and innovators, is such a smashing success today. And once those niches are created, other policies take over. For example, the pervasive spread of renewables today is rooted not just in better technology but also in new kinds of policies – such as auctions – that are driving costs even lower.
It’s crucial to look beyond electricity, where there’s a lot of progress thanks to renewables especially, towards other sectors where pioneering niches must be opened – such as with hydrogen, batteries, synthetic fuels and carbon capture and storage (CCS) that will be important for industrial systems that can’t easily be electrified. We are encouraged that the logic of this approach – a focus on creating evolutionary niches in key sectors – is now becoming widely adopted.
That’s the logic behind green recovery initiatives, running in parallel with COP26, to push progress in key areas, such as light duty vehicles, that will create and sustain revolutions. The reality is that this kind of campaigning requires small groups, at first; pioneers willing to pay the cost to get organized and to create new technological facts on the ground. Nearly everywhere, these pioneers are directing funds as part of economic stimulus packages to building these industries of the future while also advancing other priorities such as reskilling and rebalancing economic growth. Put differently, it is a vision of the politics of revolutionary change rooted in the logic of how technological revolutions occur.
But we must also remember that many communities could be left behind as the global economy shifts beyond carbon. We must do more to learn from experiences where these transitions have been handled well, and there are many such examples. Often the people within a community that benefit and lose from revolution are not the same because the skills in old industries don’t automatically transfer to the new. The UK town of Grimsby, for example, is now a leading centre for offshore wind, but that doesn’t help those affected by the decline of Grimsby’s centuries-old fishing industry. Among the many instruments needed for a just transition are ideas like bonds for utilities that are linked to decarbonization targets and other sustainability goals. Examples include bonds issued by utilities in Poland and Greece with the goal of accelerating their shift away from coal in a just manner, with a focus on mitigating the economic and social impacts on local communities and affected regions.
Accelerating green recovery
Success in opening niches and protecting the people left behind won’t be enough. Active efforts are also needed to accelerate the spread of the energy transition to deliver beyond decarbonization for accelerating energy access and delivering balanced growth. This means not just spreading technology; it also requires helping the world to learn what works and how it benefits the economy. This is where globalization, for all its flaws, is so important. It has helped spread the best technologies quickly and globally – such as solar power, where huge advances thanks to scale of manufacturing (mainly in China) have led to a huge drop in costs. A similar revolution through globalization is occurring in batteries and hydrogen (via electrolysers) today, hopefully delivering affordable solutions very soon.
What's the World Economic Forum doing about the transition to clean energy?
Moving to clean energy is key to combating climate change, yet in the past five years, the energy transition has stagnated.
Energy consumption and production contribute to two-thirds of global emissions, and 81% of the global energy system is still based on fossil fuels, the same percentage as 30 years ago. Plus, improvements in the energy intensity of the global economy (the amount of energy used per unit of economic activity) are slowing. In 2018 energy intensity improved by 1.2%, the slowest rate since 2010.
Effective policies, private-sector action and public-private cooperation are needed to create a more inclusive, sustainable, affordable and secure global energy system.
Benchmarking progress is essential to a successful transition. The World Economic Forum’s Energy Transition Index, which ranks 115 economies on how well they balance energy security and access with environmental sustainability and affordability, shows that the biggest challenge facing energy transition is the lack of readiness among the world’s largest emitters, including US, China, India and Russia. The 10 countries that score the highest in terms of readiness account for only 2.6% of global annual emissions.
To future-proof the global energy system, the Forum’s Shaping the Future of Energy and Materials Platform is working on initiatives including, Systemic Efficiency, Innovation and Clean Energy and the Global Battery Alliance to encourage and enable innovative energy investments, technologies and solutions.
Additionally, the Mission Possible Platform (MPP) is working to assemble public and private partners to further the industry transition to set heavy industry and mobility sectors on the pathway towards net-zero emissions. MPP is an initiative created by the World Economic Forum and the Energy Transitions Commission.
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We need more of this kind of good globalization - and finance will be a key ingredient. The deep decarbonization revolution will be more capital-intensive than earlier energy systems, so the role for finance will be even greater. We need to attract finance to where it is most needed, particularly to emerging markets.
The green transformation we need is nothing less than a revolution in technology. Creating that revolution and holding it in place will require political allies whose power gets stronger the more the revolution succeeds. Decades ago scholars studying trade policy discovered that the same was true for globalization. Free trade and its political support went hand-in-hand over time. The forces of decarbonization are at that same moment today. And while there is much to celebrate, it is crucial that advocates for a green recovery do not overlook what those seeking free trade did not learn well enough: that a failure to be strategic, to deliver benefits for essential communities, and to remain relevant to the core mandate can generate backlash. The paths of the energy revolutions must be continually repaved in ways that align with what society is willing and able to support. The success of such an energy transformation needs leaders from government, industry and finance with strategic vision, clear ambition, and laser focus on execution and implementation.