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Energy Transition, Who Pays and When?

06.08.23 | Blog | By:

Has the pandemic been the awakening for the multiple crisis raging on our planet, the 21st century version of the Four Horsemen of the Apocalypse, bringing pestilence, war, famine, death? Fact is that eco-anxiety and climate change have been making it to the mass media headlines much more frequently since the beginning of this decade. Meanwhile, the powers that be do struggle to include meaningful climate strategies in the political agendas, torn apart between opposite calls, to simplify, one for techno-solutionism, one for de-growth, both having their merits (calling for a mix of the two?).

For the latter, excesses of all kinds, the latest called “fast fashion”, justify, beyond efficiency, some more frugality, don’t they? If only to maintain a balance between limited, planetary for now, resources and basic, at least, needs of more than 8 billion human beings, which cannot be wiped out just for the sake of the good health of Mother Earth. For the former, we are neither short of innovations, nor of venture capital to fund their development. The typical objective is mostly to maintain a way of life that has dramatically improved over the course of the 20th century, fueled by economic growth, both in the West (at least, maintain) and in the Global South (to catch up with the West): capitalism turning from brown to green, in a nutshell.

Sure thing, our elites, democratically elected or autocrats hoping not to be overthrown, do prefer the second approach, politically easier to sell to mostly skeptical electors. The catch is in the pace needed to accelerate the transition: not so much what needs to be done, replacing fossil energy by renewables to cut CO2 emissions, but when. Promises of well-paid green jobs, cleaner food and air, smooth and noiseless transport, have been over-sold but under-delivered in terms of trajectory or deeds, with the foregone conclusion that the transition is too slow and that the clock is ticking ever louder toward a massive collapse, according to the advocates of de-growth.

A recent report, co-authored by a former top prospectivist for the French Prime Ministry, puts the cat among the pigeons. Breaking down the future of any energy transition in two successive parts:

  • Part one: To be fast enough to respect the spirit of the 2015 Paris Agreement (limit warming below 2, or better, 1.5 °C), a massive disappointment, blood, sweat and tears, is expected in the first 10 years.
  • Part two: The horizon clears up, eventually, and the benefits of the green transition start to materialize. What this two-episode short story means: upfront pay, pay, pay, before getting any return. Because the “green” investments do not generate growth or efficiency gains, they only replace the old, fossil-based, energy system. 10 years: two terms of office for a French President to weather the storm, two and a half in the USA. To explain the deal and get societal acceptance, which will imply social justice measures for the less-wealthy classes of the population, and for some in the industrial and commercial fabric of the society.

Assuming drastic de-growth is not a politically viable option, looks like nearing the climate cliff calls for an accelerating and massive investment effort, unheard of in history, unless we consider the Reconstruction just after WWII, implying, either more public debt, serious cuts in existing budgets or additional taxation.

More public debt: If every Nation goes for it, more debt to invest in key infrastructure, key for the climate here, is making sense and the finance community should happily lend, on long-lease terms, as such investments secure the long-term viability of the society, thus of the finance community as well. If every Nation goes for it. If only a few regions go for it, like the EU and North America, the early movers today, their local finance communities must be strong enough to support this strategy, anyway beneficial in the long-term in terms of the ability to reimburse the public debt. Not to forget: borders should be protected as well against imports with a lower sustainability standard. In conclusion: doable, all the more if investments, by nature innovative, eventually give an edge, technological or economical, compared to, i.e. against, laggard regions.

Serious cuts in existing budgets: Unlikely to meet the magnitude of the task, and subject to the conservatism of the bureaucracy, which will slow down the process. But zero-based budgeting is not a bad idea and could help unearth treasures, like repelling misguided financial support to “brown”, fossil-based, activities: low taxation of off-road diesel or aviation fuel, in low vs other similar activities that are normally taxed? Giving operating margins for the social justice measures, the societal tool that should combine with the financial tool of investment in low-carbon.

Extra taxation: The typical bad idea of the lazy-minded. Raising more taxes only fattens up the existing bureaucracy and does not help incentivize investors to place their money in promising projects. In terms of public policy, a stable regulation in the long-term de-risks investments in innovation, especially if returns are in the far future, when traditional capitalism favors short-term benefits. A mix of public and private financing, helping each other, may be the right answer to the wall of investments called for by the energy transition.

The energy transition and the Anthropocene way of life have yet to converge to a more sustainable occupation of our planet, rather sooner than later. Not only is the effort massive from an economic or financial point of view, but it is also a disruption of our hedonistic, selfish, societal approach, in the West, which calls for a strong will and fortitude at the political helm.

Philippe Marchand is a Bioenergy Steering Committee Member of the European Technology and Innovation Platform (ETIP).

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