Getting the green strategy right

Climate debates typically run on two tracks: One set of people think the policy changes are coming too fast, while the other believes the changes are not coming fast enough. The recently concluded COP26 climate conference also had its share of those who wanted to move faster, and those who wanted to stick to the slow lane. A compromise led to the Glasgow Climate Pact, which was signed off by almost 200 countries. Where the world will actually be in 2050 is still uncertain, given that all promises made are rarely realised. But there is a good chance we will all be surprised at the speed of the transition. 

India is now among the countries committed to net-zero emissions by 2070. It shows India’s desire to be on the right side of the climate imperative while taking cognisance of its status as a developing country with limited resources. India’s per capita income is less than $2,000, while that of the UK is over $40,000 and the US is close to $64,000. The world’s cheapest solar and low-cost wind power give India an edge: Its near-term target is to more than triple non-fossil fuel generation capacity to 500 gigawatts by 2030. 

A few things need to be kept in mind about climate policy and strategy:
 

1. Climate policy is just not about the climate: The climate path that a country chooses to follow also reflects its geopolitical position, as well as its economic compulsions. A gas-rich country will not support the phase-out of gas while a country with abundant coal may find the economic cost of abandoning coal too high, even if solar or wind power is more competitive. Each country is looking at its own costs and opportunities.
 

2. No penalties for missing voluntary promises: The climate promises being made are determined by each country voluntarily. There are no penalties for breach of promise, or for choosing to exit from the global climate agreement altogether. Yet, most countries have kept their word, with some doing better than what was promised, triggering calls for raising ambitions.
 

3. Net-zero is more than a fad: Almost 90 per cent of global emissions are covered by a net-zero target in force or under discussion. That is an amazing achievement. It would mean lowering — and offsetting — emissions from power plants, vehicles, industry, buildings and other sectors. If done right, a net-zero target should start impacting investment decisions today.
 

4. Talk is not really action: Talk does not always result in action. It was encouraging, however, to see more activity from countries typically seen as climate laggards. There is a lot of activity in the corporate sector, with companies often taking their ambition beyond their home country’s goals. This is partly driven by economics.
 

5. Economics trumps everything: Cheap renewable energy has erased many planned coal plants. It is economics that is driving the energy transition. This is happening even without explicitly accounting for the adverse health effects of the pollution that thermal plants cause. Making coal plants cleaner, or offline for the most polluted days or weeks, as India is doing, makes coal power dearer, and further strengthens the case for renewables. BloombergNEF’s latest estimates of the levelized cost of electricity (LCOE) — the long-term offtake price required to recoup all project costs and achieve the required equity hurdle rate on the investment — show that renewables are the cheapest source of new bulk electricity in countries representing more than two-thirds of the world population and 91 per cent of electricity generation. “It is now cheaper to build typical utility-scale solar PV farms in China, India, Germany, France, Italy, Spain, Portugal and Greece rather than running state-of-the-art existing coal-and gas-fired power stations. Similarly, in Brazil, the UK, the Netherlands, Poland, Sweden and Morocco, investing in new onshore wind farms today is more cost-effective than operating already amortised fossil fuel power plants,” BloombergNEF said in its LCOE report.  
 

6. Climate finance needs to be scaled up: The $100 billion per year promised by developed countries for developing ones did not materialise, but the scale of climate finance has to be much bigger. India floated a $1 trillion demand for climate finance by 2030.
 

7. Near-term is more critical: What countries do in the current decade is far more important than what they plan to do two decades hence. That is the reason for the sharper focus on the action plans to 2030.
 

8. Loss and damage: Expect to hear more about the vexed issue of compensation for loss and damage resulting from extreme weather events attributable to a warming globe. The Glasgow Climate Pact “reiterates the urgency of scaling up action and support, as appropriate, including finance, technology transfer and capacity-building, for implementing approaches for averting, minimizing and addressing loss and damage associated with the adverse effects of climate change in developing country parties that are particularly vulnerable to these effects.”

The writer is editor – global policy for BloombergNEF. 
vgombar@bloomberg.net