Energy transition 'needs pragmatism': Brookings

The European Union is setting its sights high with its determination to decarbonise, and this could jeopardise the target of a net-zero economy by 2050, according to Samantha Gross, the head of the Energy Security and Climate Initiative at Washington DC think tank Brookings.

Speaking at a panel that was examining how best to attract investment into clean energy projects in developing countries, she said that the bloc was providing some certainty for investors in the sector with its taxonomy: it told them which projects were green and therefore would be eligible for public funding.

And she said that the bloc, with its functioning carbon market, had been pushing for other countries in the developing world to take a similar approach as this brings down the cost of capital. She said there were a lot of investors waiting for a policy instrument such as a carbon market to take the risk down a notch. A market-determined value for carbon can justify the cost of decarbonising more securely than a government commitment.

Although some green energy projects might have very low operational costs, the hard part is raising the up-front costs for a project in a country with shaky financial and legal frameworks. Borrowing can be seven times higher in Nigeria for example than it is in advanced economies.

However, the focus on 'green perfection' means that the 'good' loses out in pursuit of the 'perfect' – a far cry from the US approach of 'get it done.'

She did not supply examples but there have been many to choose from, ranging from the electrification of transport – scientists want the European Commission (EC) to take a technology-neutral approach and consider the lifecycle emissions of electric vehicles – and the rejection of gas as a replacement for coal and lignite capacity owing to the carbon intensity bar being set too high for gas.

Elsewhere, the World Bank ruffled feathers in the LNG shipping community with its April report that the focus should be on hydrogen and ammonia, even though neither are yet commercially available. The bank said it should play only a "limited role in shipping decarbonisation, and will not be either a significant ‘temporary’ fuel nor a ‘transitionary’ fuel."

Kicking off the event was the International Energy Agency's head, Fatih Birol, whose May 18 report on the roadmap to net zero had also ruffled a few feathers. That was the centrepiece, he said, of a trilogy: the other two being on the possible risk posed by rising costs of rare or highly localised minerals such as lithium and cobalt as well as copper; and on financing investments in clean energy in developing countries – the focus of the panel discussion.

The report claims that never has the gap between aspiration and reality been wider than this year, when the sum of commitments to cut emissions is greater than ever, while the emissions themselves are at their second highest. And the money is going where it is needed least: it does not matter if North America and Europe achieve their goals if sub-Saharan Africa, large parts of Latin America and much of Asia fail to do so, Bitol said.

"If we do not all cross the line then the race is not over," he said.

However, he too showed some pragmatism, saying that even if the world missed its 1.5 °C temperature rise and only managed to limit it to 3 °C, that at least would be better than 6 °C increase. 

There was agreement too among panellists that the Paris Agreement did give multinational development banks (MDBs) the mandate needed to spend the cash they are sitting on. Both Rachel Kyte, the dean of the Fletcher School of Tufts University and Steven Rothstein, director of the Ceres Accelerator for Sustainable Capital Markets, said that this money needed a home. Rothstein named several major banks, such as Blackrock and State Street, that had pledged to lend, and said that "every bank" had environment, social and governance (ESG) metrics.

But while Rothstein said there were still great complexities hindering lending to emerging economies despite the ambitions, Kyte wanted to see a fundamental overhaul of the MDBs and how they leveraged the money. "The investment returns are there, and the matter is urgent, so why is the money not being spent?" she asked.

The IEA's report, co-written with the World Bank and the World Economic Forum, found that annual clean energy investment in emerging and developing economies needs to increase by more than seven times – from less than $150bn last year to over $1 trillion by 2030 to put the world on track to reach net-zero emissions by 2050. It may be found here.