Photo Credit: MarioGuti
We are facing a pivotal moment in history. The approach governments take to recover from COVID-19 will shape policy for the next 10 years, and the decisions that we make in the next 10 years will determine whether we can prevent the devastating impacts of climate change.
Shifting to clean energy is fundamental to reducing our carbon footprint, and will yield much higher returns to societies than continuing to rely on fossil fuels. But governments must create incentives to accelerate the shift to renewables, as current trajectories are too slow to avoid dangerous climate change and associated costs. The United Kingdom, as a host of the upcoming COP26 climate negotiations, has a key leadership role to play on the global stage in accelerating the clean energy transition.
We Can’t Afford to Wait
One of the key lessons from COVID-19 is that delays in responding to high probability and high impact risks come with extraordinary costs. And the costs of climate change – ranging from failing harvests and migration due to extreme weather events, to healthcare costs due to air pollution – will be orders of magnitude higher than those of COVID-19. If we do not cut global emissions in half by 2030, these costs are estimated to be as high as USD 600 trillion by 2100, and must ultimately be borne by taxpayers, governments and communities.
Luckily, transitioning to clean energy is cheaper than sticking to fossil fuels. The clean energy sector has seen rapid advances over the last decade. Prices of renewables have reduced significantly, with the price of solar panels dropping 89% and onshore wind prices falling by 70% in the last decade. We have now reached the point where the cost of sticking to the status quo is estimated to be three to eight times higher than the cost of a clean energy transition.
This means that between now and 2050, every pound spent on the energy transition will yield GBP 3 to GBP 8 in future savings. The energy transition will effectively pay for itself.
Despite this, low carbon transition rates have remained sluggish, and many countries are struggling to meet their long-term climate change mitigation targets as set in the 2015 Paris Agreement. With our current trajectory, the share of clean energy will only increase to 25% by 2050 – well short of the 66% target we need to keep the global rise in temperature below two degrees Celsius.
Even in clean-energy leading countries such as the UK, renewables only account for around 35% of electricity generation. Why? The larger the share of renewables in the energy system, the more profound structural transformations are needed. This includes reducing the costs of renewables, improving electricity storage capacity, and changing consumer behaviour. And we need to develop smart solutions to decarbonise the hard-to-abate sectors such as shipping, aviation, and construction. As all ground-breaking innovation in the past, realising the clean energy transition will require sizeable public and private investments.
Opportunity Amid Crisis
COVID-19 economic stimulus packages provide a key opportunity for governments to fund clean energy innovation, keep people in jobs, and create long-term economic growth. Crises allow governments to step back and re-consider their countries’ economic trajectories. Following the 2008 financial crisis, governments made some moves towards addressing climate change - vehicle efficiency gains were made in the U.S. and clean energy infrastructure was strengthened in the UK, for example. Now is the time to be more ambitious.
The pandemic and ensuing economic crisis have and will continue to affect fossil fuel demand until the global economy has recovered. The latest report from Carbon Tracker reminds us that we will reach peak fossil fuel demand in this decade, and may have already done so in 2019. With the right economic stimulus packages, we can ensure that renewable energies soak up any future energy demand growth across the board, so that fossil fuels never fully recover lost ground. This was the case with European electricity generation in 2008, where fossil fuel demand dropped drastically, and renewable energy secured all future growth. We should seek to scale up this success.
Innovation and Jobs in the UK’s Green Recovery
The unique nature of the COVID-19 crisis provides time and space for us to design comprehensive strategies that stimulate innovation, while implementing the right labour and education policies to help our people move into renewable energy jobs. This is a future-proof strategy - every dollar invested in renewables will generate twice as many jobs per pound of government expenditure as fossil fuel projects, and globally the renewable energy transition will create four times as many jobs in the energy sector as there are today.
Even now, there are many ‘shovel-ready’ projects available that can create social-distancing-compliant jobs, such as insulating the UK’s housing stock or building electric vehicle charging networks. To stimulate investment into these projects and increase our capacity to generate renewable energy, governments can provide tax incentives, investment grants, and loans for project developers, and reduce risks for capital-intensive renewable energy projects faced with tough macro-economic conditions.
The tax reform component of stimulus packages should create new tax rates for fuel, energy, or carbon, as well as other incentives to reduce carbon emissions. The recent drop in global oil prices and subsequent weakened hand of oil lobbyists offers a once in a lifetime opportunity to revisit the harmful fossil fuel subsidies currently in place across the world and redirect these resources to more effective growth opportunities - all while advancing a transition away from fossil fuels.
Moreover, to fully decarbonise our societies and to reach zero emissions, there is a mounting need for further innovation in clean energy technologies and business models. Large advances in hydrogen storage technologies, electric vehicle smart charging, and weather forecasting are needed to integrate high shares of variable renewable energy in power systems. Such truly radical innovation requires patient, long-term and committed finance, in which governments have a key role to play. Blending public and private capital is crucial to reach net zero.
The World's Eyes
The pandemic underlines the importance of staying at the forefront of innovation and inspiring other countries to make the switch to renewables as quickly as possible. A just energy transition is political, messy, and necessary. COP26 is a crucial time for countries to raise their ambitions to reduce carbon emissions as set out in the Paris Agreement, including clean energy transition goals.
For the UK, implementing green economic stimulus packages is a key opportunity to lead the way in achieving clean energy targets. As a host of the COP26, the first country to set a 2050 net zero emissions target, and a global leader in green finance and clean energy, the world’s eyes are on the UK to further accelerate steps towards decarbonisation, and to take other countries along its path. Now is the time for us to set the course for the next 10 years and beyond.