Investment alone will not solve our climate crisis

The outlook for renewables is bright, despite the shift towards more market-based systems. But although governments might no longer need to provide subsidies, they still need to offer leadership.

Just as we had crossed our t’s and dotted our i’s for this week’s commentary, news broke that Prime Minister Theresa May was going ahead with legislation that will commit the UK to achieving net-zero carbon emissions by 2050. That, on the face of it, is welcome news. The country will now join Norway and Sweden in putting such legislation into place, though with a later target date than the two Nordic states.

But what we also couldn’t help commenting on is a piece of news the Financial Times reported earlier this week: the inquiry by the House of Commons’ Environmental Audit Committee that the country’s credit export agency “undermines the UK’s climate commitments”. Of the £2.6 billion ($3.3 billion; €2.9 billion) that UK Export Finance lent between 2013 and 2018, 90 percent went towards fossil-fuel projects in low- and middle-income countries.

“While there has been an increase in the proportion of support given to renewables projects in high-income countries, this is not reflected in support to low- and middle-income countries,” the committee wrote in its report, noting that it was the latter countries in which there would be the greatest increase in demand for energy over the coming years. “Supporting fossil fuel energy infrastructure in these areas risks stranded assets or ‘locking in’ reliance on fossil fuel energy production for decades to come.”

Aside from being an example of really bad policy – and raising the question of whether UKEF understands the concept of ‘global’ warming – it also underscores how important government’s role is in helping – or hindering – the world in its transition to a carbon-neutral economy.

This is worth keeping in mind because, for the first time since 2001, growth in new renewables capacity stalled last year, according to the International Energy Agency. That was partly a function of the sector’s transition away from government subsidies and towards a more market-based system, as we wrote yesterday. But that’s precisely why good government policy is so important.

Take China, for instance. The country is by far the leader in renewables investment, yet Bloomberg New Energy Finance data showed that, at the end of 2017, more than 70 percent of its large-scale wind and solar projects had been installed in regions where there was limited demand for electricity and little in the way of export capacity.

Another example of poor government policy can be found in Australia. Electricity often has to travel more than 1,000 miles across the country between the generation source and the end user, and the authorities there have used marginal loss factors when calculating spot prices. Yet this system adds a level of uncertainty, since asset owners cannot know in advance how much they will be compensated for the power they produce.

In all three countries, the governments do not need to place additional burdens on their budgets by offering subsidies. They simply need to do their jobs better.

They could also be more proactive, with battery storage being another case in point. This is playing an increasing role in the renewables supply chain, where it is helping to address intermittency issues. However, what to do with the batteries once they are spent is another problem that requires a solution, since improper disposal can be damaging both to the environment and to human health. According to law firm White & Case, many jurisdictions – including the US, which is a leader in non-hydroelectric storage investment – have made little effort to develop recycling programmes.

The EU on the other hand, has passed a directive that sets specific recycling targets according to the type of battery. This is an example of something governments can do that does not require extra spending – just leadership and foresight. If the world is to limit global warming to below 2 degrees Celsius, a far greater amount of both qualities will be required.

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