The Global Commission on the Economy and Climate has dropped a landmark report on its investigation into the effects of climate change and calls for nothing less than a radical transformation of the world economy.
Although the alarm bells are loud and clear in the report, these are moved somewhat into the background in favor of the economic opportunities arising from international efforts to reduce carbon emissions.
We Mean Business, a new group of business organizations and companies, has formed to support the drive for action on climate change. The group aims to emphasize the business opportunities of a low-carbon economy as well as to highlight the costs of not pursuing one.
‘The good news is that economic growth and action on climate are not incompatible,’ says Sandrine Dixson-Decleve, director of the Prince of Wales' Corporate Leaders Group at the Cambridge Institute for Sustainability Leadership, in a statement. ‘On the contrary, there are myriad possibilities for all sectors to get involved in driving low-carbon growth and economic transformation. But we must not wait. The longer we leave it, the higher the costs. Governments and business must act together to ensure the decisions we make today are the right ones to deliver a safe and sustainable future for all.’
According to ‘The New Climate Economy’ report, about $90 trillion is expected to be spent over the next 15 years on infrastructure in the world's cities, agriculture and energy systems. The idea is to drive as much of this expenditure as possible into low-carbon sectors. Reductions in the price of solar and wind generation sources should enable over half of new electricity generation for the next 15 years to come from renewable energy sources.
In addition to reducing the cost of capital for renewable energy projects, the climate report is encouraging the financial community to internationalize the flow of investment funds. At a webcast hosted by Climate Nexus on the release of the commission's report, officials emphasized the need to spur public-sector funding of carbon-free energy projects because private money tends to be more selective than the policymakers would wish.
‘Right now, climate finance flows are less than half the $700 billion to $1 trillion per year that the World Economic Forum and others estimate are needed,’ says Rachel Kyte, vice president and special envoy for climate change at the World Bank Group. ‘The majority of climate finance comes actually from the private sector, which right now is investing primarily in renewable energy and primarily within its own domestic situation, within its own home country.’
According to the report, competitive markets and consistent government policies give private capital the assurances it needs to successfully develop renewable energy projects. In particular, the report authors stress the need for an international climate agreement to establish a stable carbon trading scheme.
‘Almost 40 countries and more than 20 cities, states or provinces use carbon pricing or plan to do so,’ Kyte says. ‘Some are doing it by capping emissions and creating carbon-trading markets to help businesses meet the cap, while incentivizing the bringing down of emissions. Others are using innovative forms of carbon taxes.’
As examples, Kyte points to China's recent efforts to build seven pilot carbon-trading systems in cities and provinces over the past two years with the goal of developing a national carbon market by 2017. California expects to collect at least $5 billion a year by 2020 through its carbon-trading system.
‘California is in its second year of its carbon-pricing system, and its economic growth and job growth are outpacing the national average,’ Kyte says.
A significant microcosm of this can be seen in the U.S. According to the U.S. Energy Information Agency (EIA), recent growth in wind and solar, which reflects policies such as state renewable portfolio standards and federal tax credits as well as declining costs of technology, has been the primary driver in the increasing market share of non-hydro renewable generation.
In its annual energy outlook report for 2014, the EIA says the impact of federal and state policies, along with fuel prices and other factors, has produced major variations in its solar penetration forecasts. According to the report, natural gas-fired plants account for 73% of capacity additions from 2013 through 2040, compared with 24% for renewables – with the balance being made up of new nuclear and coal sources.
Of the 83 GW of renewable capacity additions projected through 2040, 39 GW are solar photovoltaic systems and 28 GW are wind – with 60% of the latter occurring by the end of 2015 to take advantage of the production tax credits (PTCs). A similar rush is expected for solar power projects with the anticipated sunset of the federal investment tax credit (ITC) at the end of 2016.
The importance of federal and state policies is considered so vital to the accuracy of the forecasts – and so difficult to predict – that the EIA report splits its projections according to a number of possible scenarios. Under the ‘no sunset’ scenario, for example, 265 GW of new renewable capacity additions through 2040 is expected if both the PTC and ITC remain in play.
But again, the key to achieving higher levels of renewables penetration is in the pocket of government policymakers. This is why the U.S. Environmental Protection Agency's proposed Clean Power Plan to cut carbon emissions from the power sector by 30% below 2005 levels is seen as perhaps the most important opportunity for solar and wind power, particularly if the PTC and ITC go away.
A study conducted by the U.S. Department of Energy's National Renewable Energy Laboratory concludes that grid interconnection policies and net-energy metering are the two pillars upon which a state is most likely to build a thriving distributed generation solar sector. Another key finding is that the order in which a state implements solar policies – ‘policy stacking’ – has a major impact on the overall success.
The authors of the ‘New Climate Economy’ are cognizant of the costs and challenges facing renewable energy penetration. The report notes that expanding the use of solar and wind power depends on integrating these intermittent sources onto the grid. The report acknowledges that ‘very high levels of variable renewable power have not yet been attempted.’
At the same time, it notes that a 2014 study commissioned by PJM concluded that 30% variable renewables could be integrated with modest grid improvements and deployment of appropriate levels of gas-fired power plants to provide a baseline generating capacity.