Similar innovation in technology and policy development could be underway for renewable energy.
The mantra of green jobs and green industries from an expansion of carbon-mitigation activities like solar and wind farms, biomass and hydro systems, nuclear and other clean-energy sources has been around for a while, but the challenge is implementation.
Pronouncements by President Barack Obama to lead in sustainable energy have rekindled ambitions not just in the US but elsewhere.
Worldwide implementation may require getting comfortable with different culturally appropriate approaches. There are many ways to encourage carbon mitigation, but perhaps no single panacea. To move forward, expect to rely on a mix of voluntary and mandatory carbon schemes – even as purists aim for a single overarching global climate-emissions treaty.
Traditional means of implementing carbon financing have been through mandatory carbon economics, particularly that enforced by the Kyoto Protocol treaty drawn up in December 1997 and recently extended up to 2020 during COP-18, the November climate summit held in Doha, Qatar.
The treaty enforces the carbon development mechanism, or CDM, popularly known as “carbon credits.” Normally CDM pays for a small portion of projects, just to push them into viability.
Even now, the protocol covers only 15 percent of the world’s emissions. Because of the treaty’s instability prior to Doha COP-18, the price per tonne of greenhouse gases in the carbon markets dropped precipitously while the amount of CO2 emitted actually rose.
The treaty’s extension is expected to stabilise market jitters, at least until 2020, but the lack of countries pledging support does not bode well for the CDM.
Complicating matters are subsidies worldwide for the fossil-fuels sector, which distort pricing. This is a problem because of the unfair claim that renewables are expensive.
Subsidies for fossil fuels are not attacked, but those for renewables such as Feed-in-Tariffs are. Only if subsidies are removed can the true cost of renewables versus fossil fuels be measured.
Putting a price on carbon is especially difficult during a recession.
In December 2012 Bloomberg reported that rich countries spend five times more on fossil-fuel subsidies than they do on climate aid. According to calculations by Washington-based Oil Change International, 22 industrialised nations in 2011 paid $58.7 billion in subsidies to the oil, coal and gas industries and to consumers of these fuels, compared with climate-aid flows of $11.2 billion. So, removal of these subsidies is key.
Voluntary encouragement of carbon mitigation is also gaining ground, driven by corporates and individuals who pursue carbon mitigation no matter what governments do. Bloomberg New Energy Finance estimated the voluntary carbon market was worth US$576M in 2011. It emerged from the Kyoto Protocol CDM: Instead of relying on a mitigation treaty, the voluntary market relies on the desire of companies like Google and General Motors and even individuals who want to claim that their carbon footprint is zero by purchasing carbon offsets.
In the case of individuals, such as airline passengers, they purchase the offsets from the airline. The airline collects these and then purchases carbon offsets, either from CDM or the voluntary markets.
One pragmatic trend springing up in recent years is emphasis shifting away from a mandatory global climate treaty to programmes enacted by states, countries and cities.
China has enacted a cap-and-trade scheme , Australia has introduced a carbon tax and California has started its own cap-and-trade programme.
However, there has been strong resistance to many of these carbon-mitigation measures. Australian PM Julia Gillard has encountered opposition to the carbon tax, designed to help Australia meet emission targets. Her administration has resorted to giving cash bonuses to families hard hit by the tax. In California industry groups have argued the cap-and-trade measure is another reason for businesses to relocate out of state.
Worldwide subsidies for the fossil-fuels sector distort pricing, complicating matters.
Putting a price on carbon, viewed as the proper way to encourage moves toward low carbon, is especially difficult during a recession. Discussions about putting a price on carbon in the United States will most likely be blocked by Republicans.
Meanwhile, externalities such as health costs are not currently factored into cost-benefit discussions, which means that coal plants still show up in feasibility studies as the “least expensive” power source. Also, the variable costs of fossil fuel, including fluctuating prices, versus the fixed cost of solar and wind plants are not factored into long-term analysis.
The price of coal, for example, could suddenly rise because of world events or supply-chain breakdowns, while such scenarios do not affect solar and wind plants. But the finance industry prioritises fossil-fuel projects over renewables. Bankers’ commissions from work on renewables pale in comparison to the commissions from big power plants.
Energy efficiency is another approach for reducing dependence on fossil fuels. Many building and factory owners pay lip service to energy efficiency, but do not really want to replace older and less efficient systems, because they still work.
As long as subsidies are in place, savings in electricity costs are not incentive enough, and many property owners lack the upfront funds for widespread equipment replacement. Likewise, many hesitate, anticipating more technological advances in efficiency and conservation.
Technology progress and research continue to drive down costs: improvements in efficiency, such as the current approximately 20 percent efficiency of photovoltaic silicon-based solar cells; manufacturing cost reductions; and use of better but less expensive materials. A worldwide alliance of companies might be in order for the solar and wind industries despite their competition with one another.
While we all aspire to a single unifying climate treaty, as backup we must get comfortable with the many different plans underway.
Noticeable to long-time observers of carbon financing is the shift from the single unifying Kyoto Protocol treaty to one that has fragmented into many measures like carbon tax, cap and trade, and other schemes. While another attempt at a global treaty will again be made in 2015 using the Durban framework, to take effect after Kyoto expires in 2020, we need to recognise the reality as it is right now – that we now have many schemes.
More innovation is not a problem. People and countries around the world may have different approaches to problems. Some cultures might be comfortable with a top-down dictated approach, while others prefer voluntary action.
While we all aspire to a single unifying climate treaty and continue to pursue it in 2015, as backup we must get comfortable with the many different plans underway – whether that means voluntary action for some and mandatory programmes for others.
We do not always have to agree on the means in order to move forward towards our common objective – in this case, climate change avoidance.
This article by Dennis Posadas originally appeared on YaleGlobal Online. You can view the original version here.
Renewable energy versus fossil fuels: the debate rages on, worldwide. At stake is nothing less than the protection of our planet from the ravages of climate change. But the costs involved in making the switch to clean energy are daunting. How do we pay for solar and wind energy? Do we scrap all our gasoline-driven autos? How do we move forward?
Although the importance of this topic is hard to overstate, it nevertheless consistently fails to engage at the level that it so patently needs to. This is what has led technology expert and seasoned commentator Dennis Posadas to approach the issues in a new and intriguing way. Greenergized is a much-needed route into the issues surrounding the most serious debate our generation faces. And it pulls off the brilliant trick of being highly readable at the same time.
Dennis Posadas is an Asia-based fellow of the Washington, DC based Climate Institute and a technical consultant for clean energy projects. He is the author of Jump Start: A Technopreneurship Fable (Singapore: Pearson Prentice Hall, 2009) and Rice & Chips: Technopreneurship and Innovation in Asia (Singapore: Pearson Prentice Hall, 2007).