Here Comes The Sun

Author: Ricardo Fuentes-Nieva (@rivefuentes)

Larry Elliot, the economics editor at The Guardian, has a rather interesting piece  on the hitherto unshakable dependence of the world economy on fossil fuels.

It’s a long read, but it’s worth the time. Elliot’s main point is this poignant question.

Can we imagine a future that is cleaner, greener and sustainable – one that avoids climate armageddon – without abandoning the idea of growth and, thus, forcing living standards into decline?

He is not overtly optimistic, but he’s got hope.

“The answer is that it will be hellishly difficult, but it is just about feasible if we make the right choices – and start making them now.

There has been recent news about the rapid rise of renewable energy in different settings. A few weeks ago, the Financial Times reported that, for the first time in 40 years, the world economy expanded while carbon dioxide emissions remained flat – a one data point sort-of-proof to respond to Elliot’s question.

There is more good news: there are reports that Costa Rica produced all of its electricity for the first 75 days of 2015 from renewable sources.  Neighbouring Nicaragua already generates about half of their electricity from renewable sources – a figure that’s projected to rise to 80% in a few years.

Elliot recognizes the development in green energy, but is unconvinced given the low starting point. He says,

Renewable technology is moving on apace. Investment in clean energy is growing at a double-digit rate. That is the good news. The bad news is that renewables will still only meet around 20% of energy demand by 2035, even using optimistic assumptions about future growth rates.

Is Elliot missing something? In the fascinating book The Second Machine Age, Erik Brynjolfsson and Andrew McAfee argue that absolute future changes in technology will happen faster than in the recent past because of the exponential nature of technological progress – “We Ain’t Seen Nothing Yet” should be the subtitle of their book. Brynjolfsson and  McAfee explain that, while the rate of technological growth might be constant, the large existing capacity will turn the next few years into the realm of science fiction – self-driving cars, digital 24/7 doctors, and financial analyst/robots are among the least imaginative predictions.

It occurs to me that technological change in energy production is what is needed to decouple economic progress from carbon emissions and fossil fuels – something they don’t explore and something that Elliot seems to miss in his article.

Could it be possible that there is already an explosion in renewable capacity, technology and investment underway that is not really being picked up by policy makers and media?

Let’s look at some numbers, starting with this graph from The Economist (h/t Max Roser).

Swanson_Effect

The depicted Swanson effect is akin to the Moore law – the rule of thumb that states that the cost and size of transistors halves every 18 months. The Swanson law suggest that, every time the production and shipment of solar doubles, the cost of these panels falls by 20%. And also this week, Noah Smith discussed a paper on similar progress on batteries for electric cars. He says,

A new study in Nature Climate Change, by Bjorn Nykvist and Mans Nilsson of the Stockholm Environment Institute, shows that electric vehicle batteries have been getting cheaper much faster than expected. From 2007 to 2011, average battery costs for battery-powered electric vehicles fell by about 14 percent a year.

Electric_Cars

This progress has been faster than previously anticipated by the International Energy Agency (IEA). As Smith points out, we are six years ahead of the curve.

Not a bad situation when you think about it: Solar power is becoming cheaper, storage is improving and investment in renewables is increasing. And this progress is (so far) exponential.

People are notoriously bad at evaluating exponential growth. In his article, Larry Elliot indicates that, “We could be living through the green technological revolution, in which energy has been decarbonised”.  After looking at the evidence, it seems clear that we are. Now the real policy choice is how to support and enhance these rapid changes in clean technology while dismantling fossil fuel subsidies, providing access to electricity for poor people and making sure the new energy system is progressive. But it’s hard to argue that technology and technological change will not be an important part of the solution.

3 thoughts on “Here Comes The Sun

  1. Isabel Kreisler Moreno

    Some data and thoughts that may shed light on the discussion:

    1. Twist and Shout!
    Creating expectations spurs technological innovations and helps expanding beyond the market niche (especially for those with first mover advantage, as pointed out in Elliot’s article). So let’s shake it up:
    - HSBC data and forecasts (often quoted by Nicholas Stern’s team) show that new investment in clean energy surpassed investment in conventional energy generation in 2010, rising to between US$ 180 and US$ 200 billion. Revenues from the global low-carbon energy market are projected to triple to US$ 2.2 trillion p.a. by 2020. Renewable energy is not the only promising clean market: energy efficiency is expected to surpass low-carbon power as the major investment opportunity by 2020.
    - According to UNEP data (cited by Andrew Simms, also in The Guardian this week): (the) “world investment, largely in solar and wind, went up by 17% to $270bn (£180bn) last year, reversing a two-year dip. The new generating capacity that represents is about the same as the total output of the current US nuclear system”.
    Evidence does suggest that a critical mass of investors has started to follow suit scientific and technology advances…

    2. We all want to change the world?
    … but evidence also suggests that all too many policy makers have not.
    The governments of the UK and Spain provide a case in point. After dazzling green investors with progressive policy packages to foster renewable energies (Feed-in Tariffs regimes were enacted in Spain in 2007 and in the UK in 2008), both countries have introduced backward changes in their regulatory frameworks, effectively killing the appetite of low-carbon investors in the case of Spain (payments due to renewable energy generators have led to companies and investment funds to sue the government). The UK chancellor has found room in the 2015 Budget (general election year) to come to the rescue of oil producers with tax-cuts to boost the North Sea oil industry. This can hardly be interpreted as a gesture for pampering low-carbon investors. In fact, these moves are the very opposite to the policy reward signals that green investors need to take risks and nurture innovation.
    The clean technology revolution seems to be taking off despite most governments’ abdication of responsibility. Governments should be creating an (credible and stable) enabling environment to de-carbonize the economy and using public investment to help the transition. Except in China, the Entrepreneurial State (where the public sector unleashes innovation by facilitating investors’ risk-taking in uncertain market contexts) has rather been conspicuous by its absence. For no good reason, but for a reason. Losers of the clean technology revolution are easy to identify, they oppose change and they lobby hard. Governance, vested interests and political capture are vital to understand the immobility of climate policy at the international level. Political economy of change should not be underestimated.

    3. Help (before I´m Sixty Four)
    Uncertainty is not a reason for inaction, but quite the opposite. Waiting is a poor and very expensive strategic decision. Elliot’s article touches upon the issue by quoting IEA estimates: “Delaying action is a false economy: for every $1 of investment in cleaner technology that is avoided in the power sector before 2020, an additional $4.30 would need to be spent after 2020 to compensate for the increased emissions”.
    The explanation is nicely threshed out in a paper commissioned by the New Climate Economy project in 2014: “Path-dependence, innovation and the economics of climate change”. If we delay strategic choices (in urban development, transport planning, expansion of electrical grids, etc.), conventional technologies will become entrenched and a later switch into low-carbon will become more expensive. Decisions that policy makers and planners are taking today can lock-in carbon-inefficiency for decades. Of course, this is particularly relevant in developing countries and emerging economies. About 620 million people in Africa need to gain access to electricity (IEA Africa Energy Outlook, 2014). Latin America’s power consumption is expected to nearly double by 2030 (according to World Bank estimates, 2011). China projects about 70% of its population will live in cities by 2030. Investment decisions in the next 15 years will determine the world´s climate system.
    Barriers to a bright exponential change are not technological or economic. They can escape to data modeling, but they exist. They are institutional and political, and recalcitrant.

    It does not mean the sun is not coming, it means that it will need more help (now).

    (N.B.: Readers in “strict mode” may advise to curb a little the shared enthusiasm about recent data on emissions abatement. In both China and Costa Rica, 2014 was an exceptionally good year for hydropower generation (largely dependent on rainfall). Also, China, the world´s largest investor in green energy and top emitter at the same time, may need to re-establish the reliability of its mitigation statistics; ref. “The gigatonne gap in China’s carbon dioxide emissions”, Nature Climate Change, June 2012).

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  2. Isabel Kreisler Moreno

    A bit of a downer, but it could illustrate some complexities:
    On the power and persistence of forces resisting fossil fuel divestment: “Carlos Slim moves to conquer the oil market in Mexico” (in Spanish, sorry: http://economia.elpais.com/economia/2015/04/14/actualidad/1429043648_253457.html). Is it a consequence or a cause of Mexico’s recent (and controversial) energy policy reform?
    This is happening in a country with an exceptional potential for renewable energies, a decade’s track record in mobilizing international investment (for wind power generation in the Isthmus of Tehuantepec in particular) , and that is fairly acknowledged for leading the way on climate change policies, legal frameworks and international commitments (http://www.brookings.edu/blogs/planetpolicy/posts/2015/03/27-national-contribution-climate-deal-edwards-roberts).

    Reply
  3. Ruth Mhlanga

    Very interesting article and echoes much of the optimism that has fueled RE growth which in the absence of concrete policy has been led by visionaries and in some case pure leap of faith (aided by smart technology) that things will work out. Some of the best indicators of the changing world is that previously elusive state of grid parity. In Germany, Italy, Portugal, Spain and Hawaii, solar is at grid parity . According to an HSBC report, wind energy is now cost competitive with new-build coal capacity in India, and solar is likely to follow suit sometime between 2016 and 2018 . Meanwhile, BNEF has concluded that unsubsidised renewable energy is already cheaper than electricity from new-build coal and gas-fired power stations in Australia . Deutsche Bank expects PV to reach grid parity in 50 States in the USA by 2016.

    But what is truly changing though, is public sentiment as RE becomes more visible on their roofs in the country side people see that it works . They are convinced that the world we want is feasible and with each installation the fear mongering by the fossil fuel sector about crashing grids and failed economies looks less credible. While the world we want is visible we still have a way to go before we get there with significant barriers in our way. But the writing is on the wall and just maybe the sun is coming up.

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