Summary of the 1st EUCERS/KAS Energy Talks 2017
The aim of this piece is to broadly capture the impact that the entering into force of the Paris Agreement on 4 November 2016 and the Trump administration taking office on 20 January 2017 might have on energy and climate policy. The piece draws on the positions and predictions made by experts in the framework of the first 2017 EUCERS/ KAS energy talk taking place at King’s College London on 7 March 2017. The event gathered energy and climate experts from think tanks, academia, governmental and private sectors. Speakers were asked to assess the potential impact of these two developments from various perspectives.
An important part of the talk was focused on discussing the implications of the Trump Presidency on energy policy on the mid and long term. For instance, a proper implementation of the Paris Agreement by the US and China that would lead to the global taxation of carbon will make renewable energy, as well as natural gas, more competitive by comparison with coal, although in the longer-term it will also reduce the prospects of natural gas as the worldwide decarbonisation envisages the phase-out of all fossil fuels. But President Trump supporting gas and other fossil fuels might encourage similar positions around the world. As indicated by Professor Friedbert Pflüger (Director of EUCERS), the Paris paradigm as such was not questioned before the 2016 US elections. However, now there are concerns regarding the degree to which the Paris paradigm will be watered down by the Trump administration coming to power and debates on whether a new paradigm is emerging. Julian Popov (former Minister of Environment of Bulgaria, Fellow at the European Climate Foundation) pointed out that in the year when Paris happened global investment in renewable energy surpassed the global investment in conventional energy and that this was triggered by a longer industrial process that preceded Paris and can be traced at least back to the 1989 environmental policies promoted by Margaret Thatcher. The impact of the Trump administration on the process of decarbonisation might end up being minimal. Popov pointed out that American innovation cannot be stopped, but the narrative promoted by Trump can frighten people around the world and change the behaviour of other states. It determines more decisive action from China and Europe in support of the agreement, according to Popov. Jonathan Gaventa (Director, E3G) indicated that the Paris Agreement is not just a signal of where we are going, but also ‘an expression of the different options on the table’ and that we can recognise Trump as a disruption that triggered involvement from the EU, China, India, etc., in implementing the Paris Agreement. The election of Trump triggers more uncertainty, more instability and impacts the energy transition in the United States, as Trump is no fan of climate policy, according to Gaventa.
Dr Frank Umbach (Research Director, EUCERS) challenged some of the points advanced by Popov and Gaventa. He warned that there is the danger of making Trump responsible for any kind of lack of progress on climate and making him a scapegoat for the inefficiencies of climate policies, while the Paris Agreement needs to be refuted on a series of grounds that have nothing to do with Trump. Umbach pointed to the fact that, even if states fully deliver on their commitments (nationally determined contributions), the world will warm up with 2.7-3.6°C (by contrast to the 1.5°C Paris compromise target) according to reliable new comprehensive studies. So the Paris mechanisms might not deliver as expected despite the high expectations associated with them. According to Umbach, several political challenges need to be discussed, including asking the question which countries are really decarbonising. For instance, Iran and Iraq fully plan their economy on the basis that they can use their huge oil and gas resources for their economic, political and social development and this will clash with the Paris Agreement’s provisions. According to Umbach, many important oil and gas exporting countries have not began to decarbonise their economy or thought of implementing strategies in this regard. In Russia, for instance, there is even almost no discussion taking place so far among experts on decarbonising the economy because fossil fuels are the foundation of the Russian political and economic stability, according to Umbach. Vladimir Putin, Russia’s President, has made it repeatedly clear that developing new oil and gas fields is essential for Russia’s future economic stability and its great power prospects. While climate change is seen as a challenge and security risk by many countries, most Russian political and economic elite see climate change as an economic opportunity. Climate change and the melting of the Arctic ice allow Russia to access additional energy resources, according to Umbach. Julian Popov challenged this argument and highlighted that, at the end of the day, not only the preferences of the oil and gas exporters will matter, but also those of the importers. If they diversify away from fossil fuels, the influence of countries such as Russia will diminish. Mr. Umbach agreed but argued that these countries must already begin to decarbonise, otherwise the target of reducing 80-90% of the worldwide emissions by 2050 is not realistic as the new studies also highlight.
Frank Umbach also pointed to the fact that China’s coal consumption is planned to increase up to 20% between 2015 and 2020 according to the present 5 year economic plan, despite the formal Chinese support for the Paris Agreement and decreasing new coal power capacities domestically. On overseas, it builds and plans around 85 new coal power plants (including in the Balkans with lower environmental and efficiency standards compared with those being built by European companies), having become the world’s largest coal power plant investor. According to Umbach, when it promotes environmental objectives, China does it primarily for industrial development reasons and in response to the public concern regarding air pollution. China does not act as a result of global climate policy and reducing CO2 emissions and this behaviour questions the effectiveness of the Paris Agreement. Umbach cast doubt on China being a genuine climate leader or even the rescuer of the climate protection policies. Fighting climate change is according to Umbach primarily a Western idea, but it needs to attract worldwide support to be effective, however one needs to recognise the challenges and the fact that many oil and gas producing countries support officially the Paris agreement, but are not willing to risk their overall political stability and economic development by decreasing or stopping oil and gas exports. In this context, Mr. Umbach challenged whether the existing strategies are sufficient to achieve the 2°C and the global emission reduction target by 2050.
The Agreement already produces effects especially in countries or regions that are strongly committed to fighting climate change. This is the case with the European Union, where there has been a lot of controversy in recent years over energy security and the way to achieve it. The talk also aimed to investigate if energy security was redefined in Europe in the context of the Paris Agreement. Popov claims that we live in an era of energy proliferation (be it from conventional or renewable sources), energy supply is not an issue anymore and today’s challenges emerge from other areas: solving technical/ infrastructure challenges (in the case of Bulgaria, for instance), dealing with cyber insecurity (given that heating and transport systems are electronically managed and the fact that Europe’s grid is under cyber attack every second), fighting energy poverty, addressing climate insecurity and the interaction between these aspects (the whole complex of issues). Julian Popov also pointed out that we need new institutions that can help us respond to these challenges.
Forecasts are showing that climate considerations will trigger the promotion of renewable energy in our future energy mix, especially in power generation which will be dominated by renewable energy by 2040 (International Energy Agency 2016 ). The event sought to explore what the geopolitical implications of a shift towards renewables are. Daniel Scholten (Assistant Professor, Delft University of Technology) highlighted that renewables’ geographic and technical characteristics are different from those of oil and gas. Renewable energy sources are relatively abundant and intermittent; renewable energy production lends itself to decentral generation and involves rare earth materials in clean-tech equipment; their distribution, finally, is generally electric in nature and involves stringent managerial conditions. These stand in clear contrast to the geographically fixed and finite nature of fossil fuel resources, their transportation as solids, liquids, or gases, and their reliance on large centralized installations. The increasing use of renewable energy hence potentially has major implications for infrastructure topology and operations, business models, energy markets and cross-border energy flows, and consequently strategic realities of countries and energy-related patterns of cooperation and conflict between them. For example, the German Energiewende already has produced negative energy prices and put a burden on neighbouring countries in terms of extra grid investments. In addition, installing solar PV panels on thousands if not millions of houses would reduce the market share of existing electricity suppliers considerably. Moreover, new dependencies and monopolies might emerge in a world dominated by renewables. Scholten gave the example of rare earth materials and China. China is an important rare earths supplier and is trying to control such resources originating in other parts of the world, such as Africa. In this context, energy security concerns are likely to shift from getting access to overseas resources to availability at the right time and access to rare materials, from an oligopolistic global market to regional markets (due to electricity grid size restrictions) with many potential producers, and from pipeline politics to an increasing emphasis on control over infrastructure operations. Frank Umbach highlighted the changing understanding and concepts of energy security in the 21 century. In his view, the future energy supply security needs to integrate the supply security of raw materials like rare earths, lithium and other critical raw materials as the concentration of producers (states and companies) is often much higher than for oil and gas producing countries and companies. It could result in new and even more problematic dependencies on the EU’s side as the global leader of ‘green technologies’. Any introduction and expansion of new key technologies (such as renewables, batteries, super grids etc.) have its manifold benefits, but at the same time are also create new risks and vulnerabilities, which are often overlooked or deliberately marginalised for vested interests.
According to Jonathan Gaventa, the process of energy transition will impact on the EU’s relationships with its suppliers. Renewable energy and energy efficiency leads to less reliance on imported gas, according to Gaventa. As the dependence on the actual fuel diminishes, it is replaced by an increasing dependence on technology, on finance and on flexibility. Providing cheap energy for Europe in the future means working with major consumers and major technology suppliers to develop supply chains. Finance is important as most of the renewable energy technologies we are talking about are capital intensive in the beginning, but have very low operational costs over time, in opposition to the case of the fossil fuels-based economy. Global financial stability and the stability of global financial institutions directly impacts on energy security. Flexibility in accessing resources and effectively managing the energy systems is also important. Gaventa however highlighted that, despite the need to develop new energy relationships, old relationships need to be maintained: EU’s energy diplomacy of recent years has involved working with suppliers and producers of fossil fuels and asking them to guarantee sufficient production and access. According to Gaventa, these economies are dependent on fossil fuels, some have less than stable democratic regimes and many of them are facing social pressures that are alleviated by using the revenue generated from fossil fuels. Russia is such a country on which the EU depends for gas supply, a country that might suffer political and economic changes as a result of the energy transition processes.
This first EUCERS/KAS energy talk was successful in setting the stage for the debate on the impact that the Paris Agreement will have on global energy industry, debate that will take place at EUCERS over the next year through a series of events and papers. It captured some of the implications of the Agreement, but at the same time raised additional issues and concerns that will be addressed in greater detail during the next energy talks exploring the role of natural gas in the EU energy mix, industrial carbon performance and changes in energy financing under Paris.