Nov 12, 2014 - 4:30pm
Speech by John Connor, CEO, The Climate Institute, as part of a panel discussion with Bjorn Lomberg of the Copenhagen Consensus Centre. Delivered
12 November, 2014, Brisbane.
Thank you for the invitation. I have to say at the outset that it is a little absurd that two middle aged white guys from developed nations are here holding forth on what’s important for developing countries, but here we are.
With so many of you from the energy industry here, in a way I’m amongst family. My father worked for the NSW Electricity Commission and was in charge of their efforts in the area from Wagga Wagga to Broken Hill across an area we call the Riverina – probably as large as Mr Lomborg’s home country.
I occasionally travelled with Dad as he negotiated the roll out and upgrades of the grid across that area. As a teenager, I illicitly sampled the bottles of Campari that were untouched from the Christmas hampers we got from construction firms. And on holidays we occasionally dropped in on coal fired power stations – staring in awe into the furnaces.
Energy was good for me.
But, like some nights on the Campari, you can have too much of a good thing.
That is definitely true of carbon dioxide – it is vital for life - but the fact is we have put our climate and oceans out of balance with the extra 2 trillion tonnes of heat trapping carbon dioxide we have put into the atmosphere through industrial and agricultural activities.
This afternoon, as your official carbon offset on the program, I’ll discuss:
Though the reality is gritty, the cheap energy mythology of fossil fuels is ending;
While the concern is admirable, the solutions in getting access to basic energy for the world’s poorest lie mostly with renewables; and
When it comes to affordable, reliable AND sustainable energy we have to implement a decarbonisation strategy.
The cheap energy mythology of fossil fuels
As noted in the introduction, I was a convenor of the Make Poverty History campaign. I was in that role when the G20 was last in Australia at a time when it was a meeting of Finance ministers.
Then we struggled to get poverty onto the agenda in ways similar to the struggle to get climate change on this G20’s agenda.
Poverty, including energy poverty, is a critical issue of our time.
It is irresponsibility on a global scale that vast gulfs exist between rich and poor on this planet.
It is a significant achievement that half a billion have risen out of poverty in the last decade. This is the fastest rate of reduction for which we have data.
And yes the data seems to show that this improvement would have been powered by fossil fuels.
It coincided with the fastest rise in emissions on record.
With almost two and a half billion still surviving on less than $2 a day – a similar “improvement” would be disastrous for anyone taking climate change seriously.
That level of poverty is unacceptable, as are the facts that over a billion people don’t have access to electricity and almost half the world’s population do not have clean cooking facilities.
We have a huge challenge on our hands.
It is clear that access to basic electricity makes a material improvement in quality of life.
Cooking, cleaning, lighting and charging mobile phones are extremely important and are rightly at the forefront of poverty alleviation initiatives such as the UN and World Bank’s Sustainable Energy for All.
It is wrong that millions die prematurely every year because they rely on polluting biomass or coal to cook indoors.
But while indoor air pollution is a problem so too is outdoor air pollution, to which fossil fuels are the major contributor.
Similar numbers die from outdoor pollution as from indoor.
The mythology of fossil fuels as cheap energy depends on pretending away the costs and impacts of fossil fuels.
In China, it is estimated that mortality from air pollution costs the nation’s economy somewhere between four and ten per cent of GDP.
In India, where urban air pollution is often worse than in China, new research estimates that air pollution fossil fuels are significantly reducing crop yields – by over 1/3 in the case of wheat, and about 1/5 for the rice crop.
And of course fossil fuels are the primary source of global carbon pollution contributing to current and expected climate disruption and impacts.
These costs and associated risks are however more transparent than ever and are being integrated explicitly and implicitly in investment, pricing and regulatory processes.
That this is gritty and turbulent in its implementation is no mystery to us here in Australia.
This is gritty ground zero.
But elsewhere there is action.
China, of course, has famously declared “war on pollution”.
China’s desperate need to fix its toxic air is a key driver of efforts to cap carbon pollution and invest in clean energy alternatives. China is now the world’s biggest investor in clean energy. And the scale of China’s clean energy investment is transforming the energy economics of every other country.
From China to Chile and South Korea to South Africa carbon pricing mechanisms are being implemented to change longer term investment decision making. In each of these competitiveness and other elements mean the price isn’t perfect but the trend is clear.
Long-term institutional investors are also starting to realise that their investments in unabated fossil fuels are a direct threat to their investments in other asset classes such as property and agriculture.
They’re also starting to recognise that their fossil fuel investments are at risk of becoming stranded as the world gets its act together.
Leading institutional investors are beginning not just to divest but perhaps even more importantly to become more active owners and also shift their money into clean energy and other climate solutions.
These shifts in global capital are still in their infancy but it is little wonder that this prospect is alarming for some.
Even the U.S and Canada use estimates of the unpriced carbon subsidies or the social cost of carbon in decision making.
These estimates of the unpriced carbon subsidies are conservative – they tend to ignore impacts that are difficult to quantify or monetize and ignore cascading potential impacts like Arctic permafrost melt because their probability is uncertain.
This results in a systematic underestimation of the costs and risks of climate change.
This is a problem with many economic models too.
Nonetheless, it is important to get a sense of scale. The International Monetary Fund, using conservative numbers, estimated that fossil fuels are currently subsidised by about $2 trillion a year.
The IMF is pretty blunt on this:
“Many energy prices in many countries are wrong. They are set at levels that do not reflect environmental damage, notably global warming, air pollution, and various side effects of motor vehicle use. In so doing, many countries raise too much revenue from direct taxes on work effort and capital accumulation and too little from taxes on energy use.”
These subsidies also matter when it comes to energy decisions, as recent New Climate Economy report highlighted:
“In many countries, properly accounting for the cost of pollution erodes the cost advantage of coal. For example, coal-fired power has a financial advantage in much of Southeast Asia, at costs of US$60–70 per MWh. But properly accounting for air pollution can add a cost of US$40/MWh or more, enough to bridge or exceed the cost gap to alternatives.”
Failure to account for these differences can lead to lock in of long lived polluting infrastructure that lead to ongoing fuel, health and other expenses impairing a country’s development.
It is a golden rule in politics and economics that all subsidies are hard to unwind.
Even progress on the G20’s goal of unwinding fossil fuel’s explicit half a trillion dollar a year subsidies is slow at best – they should fast track their efforts in this regard.
Fossil fuel subsidies are perhaps the hardest to unwind not just because of the vested interests at play but because we are dealing with a service that makes a material difference to so many lives.
But while the reality is gritty, the mythology of fossil fuels as cheap energy is ending.
Basic energy access is mostly best serviced by renewables
So we need to face up to the real costs of existing energy infrastructure but we also need to deal with the material problem of energy access.
Now some argue that we should focus on research and development to make clean energy cost competitive while continuing with the existing model.
They say we should quarantine clean energy in the lab and keep it out of the market till it is ready.
This argument has already been overtaken by events.
Clean energy technologies are hitting parity or better in many markets and the trend for solar, in particular, is set to continue.
Bloomberg New Energy Finance finds the economics of solar have changed so much that utility scale solar will be cheaper than coal in china and India within the next five to ten years.
HSBC estimates wind is at parity with new coal in India, solar to join it by 2018.
And the biggest problem with the argument for more of the same is that the majority of those without access to energy live in remote or regional areas.
Of the 1.3 billion people without electricity, 95 per cent are in sub-Saharan Africa and SE Asia, and 84% of them are in rural areas.
For a large majority – 70 per cent - energy access is more cheaply and more swiftly provided through decentralised renewable electricity than by building new power stations and extending the grid.
In such areas, the International Energy Agency says 90 per cent of the required energy can already be provided more cheaply from renewable sources than fossil fuels.
And it is the IEA which says:
“Developing countries have the most to gain from moving towards clean energy investment quickly and vice versa the most to lose from carbon lock in.”
In its universal access scenario, the IEA estimates that three out of five households gaining access will do so via mini or off grid solutions
For higher energy use associated with urbanisation and industrialisation we need a portfolio approach.
Much can be done with smart grids incorporating renewable energy particularly when integrated with ambitious action on energy efficiency.
But clean technologies can’t immediately replace all fossil fuels, they will have a role for decades, but that needs to be a diminishing role.
It is now clear that we can bring down costs on the alternatives if we really try.
We need to replicate the success of solar and wind across a much wider array of technologies – including energy efficiency, energy storage, bioenergy, carbon capture and storage, and bio-energy with CCS.
Of course R&D is important, but it’s only a part of the solution—what’s crucial is that we harness the market’s capacity to innovate across all relevant areas of energy supply and use.
The “R&D first” view rests on a bet that non-market investment in R&D will dramatically slash technology costs. What’s unspoken is that if the bet fails we would be in a much worse position than before because of all the additional emissions and lost time.
And the bet is likely to fail, because this view ignores the role of real-world deployment in lowering technology costs. Cost reductions are driven much less by governments picking winners in labs than by learning by doing and economies of scale in the market place.
Delay matters because it brings real costs.
Delay means greater emissions, lock-in or stranding of energy assets, and higher costs of a late rush to replace an entire dirty energy system with a clean one.
The IEA last year warned that “delaying stronger climate action to 2020 would avoid $1.5 trillion in low carbon investments before 2020, but $5 trillion in additional investments would be required thereafter to get back on track”.
While there are issues that up front capital costs for renewables may be higher it is increasingly clear in the long term it is more effective to build low emission infrastructure.
Where necessary, international climate finance can and should help in this regard.
When it comes to financing some of the micro solutions so material to basic energy access, innovations such as pay as you go financing arrangements are important and are growing.
Looming up large in this question is the rapid development of storage systems and the capacity for stand-alone or hybrid systems to be a game changer in rural as well as urban areas.
There the shift from the labs to the landscape is pushing boundaries as electric cars and mobile telephone towers, that other leap frog technology, seek or offer integrated solutions.
Stand-alone storage systems to buttress intermittency management are also developing apace.
No sustainable energy without decarbonisation
Finally, I want to close on the point that you can’t talk of affordable, reliable and sustainable energy without a decarbonisation strategy.
To his credit, BHP’s Andrew Mackenzie recognised the linkage recently: “We must address energy poverty and climate change together. Any attempt to solve one without the other is destined to fail.”
This is certainly the view of developing countries in the front line of climate change.
As the IPCC report outlined last week, we have about 1.4 degrees warming above pre-industrial levels locked in and we are on track for global warming of about 4 degrees by the end of the century.
This compares with the internationally agreed goals to avoid warming between 1.5 and 2 degrees.
The report states that there are already more negative impacts on crop yields than positive ones.
And it highlights a range of risks on food and water security that are greater for the poor in all countries.
However, it notes, feedbacks in the system could see that rise to 6 degrees or more.
Scenarios for 4 degree and higher warming levels pose, to quote, a “high risk of abrupt and irreversible regional scale change in the composition, structure and function of marine, terrestrial and freshwater ecosystems”.
Separately, research for the World Bank found that at 4 degrees, key areas would lose crop grazing lands and water supply to an extent that could be beyond adaptive capacity. Amongst other problems this would lead to large movements of displaced peoples within and between countries.
These impacts and others on coasts and key infrastructure have the attention of security analysts from the Pentagon to Jakarta.
You can call that alarmism if you like but in the language of risk, climate change has a fat tail of extreme risks.
We may be lucky and warming may be less than that which the vast bulk of climate scientists expect – but relying on that luck to come in is recklessness of the highest order.
Yet this is the gamble that many political and business leaders are making.
Greater rates of warming than those estimated by the bulk of experts should be considered.
This is an epic failure of good governance.
We don’t tolerate such wilful blindness in areas like medicine or workplace safety. We shouldn’t tolerate it in energy policy either.
Energy is the primary source of greenhouse gas emissions contributing to current and future climate disruption.
In its report last week – and this is a conservative, consensus document signed off by all governments as well as scientists - the IPCC’s recommendations for policy makers zeroed in on energy decarbonisation.
The IPCC warned that to achieve the 2 degree goal we need to cut energy emissions by 90 per cent from 2040 and to phase out all unabated fossil fuel use before 2100.
Almost all the models for avoiding 2 degrees require carbon removal from the atmosphere with technologies such as bio energy and CCS.
This is widely known, but sometimes blatantly ignored. Earlier this year Exxon did the world a major favour. Yes, you heard me right. Thanks Exxon.
To deal with some pesky shareholder activists Exxon agreed to reveal how it would be affected by decarbonisation and emission reduction efforts.
As it turned out, Exxon says that, in its view, neither government policy nor alternative technologies – would threaten any of its investments.
“Nothing to see here.”
In one fell swoop Exxon blew away any cover of global responsibility and saved thousands from the trouble of looking at any of their glossy sustainability reports.
Their report said candidly that the company believes the world will give up on avoiding 2 degrees.
The 4 degree world that the World Bank warns against and that we are heading for is just fine for Exxon.
As we say in Australia “she’ll be right”.
Not for the world’s poor for which we in this room are all so rightly concerned.
Exxon and others are fighting against the mathematics that comes from the realisation that this is a stock as well as a risk issue.
We already have dangerous levels of heat trapping greenhouse gases in the atmosphere and there is a limited number that can be added while we set about decarbonising and the task of carbon removal.
Carbon budgets are a critical tool in this regard and there’s no getting away from the fact that there are far more fossil fuel reserves on balance sheets that can be used if we are to avoid 2, 3, or more degrees warming.
The likes of Exxon downplay scenarios from the IEA and the IPCC showing that avoiding 2 degrees requires decarbonisation of energy systems including negative emissions from energy.
But doing otherwise is to countenance, poverty, disruption, health and security threats on immense scales.
Let’s be clear—decarbonisation is technically possible, but there is no single silver bullet, and countries and states will find the combination of policies and energy sources that suits them best.
For the G20 and its member nations it is important that they recognise the inextricable links between climate change, energy and economic policy.
They should be re-affirming the human, national and international interests in avoiding warming of more than 1.5 to 2 degrees warming.
They should be explicit about incorporating decarbonisation into economic and energy strategy in the way those radicals at the World Bank, IMF, IEA and even the OECD are doing.
They should be providing climate financing support whilst working with developing countries to create enabling conditions for even greater private financial investments.
They should be doubling down on fossil fuel subsidies, providing finance support for low carbon alternatives while turning off the tap on public support for unabated fossil fuel infrastructure.
And while they are at it they should consider export restrictions on fossil fuels to nations without linkage to decarbonisation strategies and full carbon capture and storage.
We link uranium export and proliferation issues, why not link fossil fuel export and climate ones – there are already import levies for clean energy investment so perhaps this is underway already.
The energy world that my Dad helped construct was a thing of wonder. It did bring great benefits to humanity.
But that world is rightly being transformed by more wonders of engineering in clean energy and smart grids.
Wonders better able to bring power to the large majority of people in areas untouched or indeed untouchable by centralised energy systems.
And wonders challenging the business models of existing centralised systems.
And, unbeknownst to him and others at the time, Dad’s energy world was bringing great and unpriced costs.
Contrary to the mythology this was not cheap energy, it was subsidised not just by its public financing but also by the exclusion of external costs.
The recognition of the economic, security and environmental costs of fossil fuel pollution and the multiple co-benefits in its restraint is changing the understanding of national and international interests.
This is a period of great volatility and one that can’t be washed away with smart slogans and spin.
Energy reforms and access will help no-one, least of all the poor, if it is not done with a recognition that carbon dioxide levels are at levels unprecedented in human history already bringing great risks and disruption.
We will deepen the epic failure of corporate, national and international governance if energy and broader economic reforms are not aligned with the priority of decarbonisation and the internationally agreed goals of avoiding 1.5 to 2 degrees warming.
I look forward to engaging with you all further on this challenge.
For more information
Kristina Stefanova, Communications Director, The Climate Institute, 02 8239 6299