4 surprising reasons why clean energy is gaining on fossil fuels
Don’t hold your breath, but future historians may look back on 2015 as the year that the renewable energy ascendancy began, the moment when the world started to move decisively away from its reliance on fossil fuels. Those fuels — oil, natural gas, and coal — will, of course, continue to dominate the energy landscape for years to come, adding billions of tons of heat-trapping carbon to the atmosphere. For the first time, however, it appears that a shift to renewable energy sources is gaining momentum. If sustained, it will have momentous implications for the world economy — as profound as the shift from wood to coal or coal to oil in previous centuries.
Global economic growth has, of course, long been powered by an increasing supply of fossil fuels, especially petroleum. Beginning with the United States, countries that succeeded in mastering the extraction and utilization of oil gained immense economic and political power, while countries with huge reserves of oil to exploit and sell, like Kuwait and Saudi Arabia, became fabulously wealthy. The giant oil companies that engineered the rise of petroleum made legendary profits, accumulated vast wealth, and grew immensely powerful. Not surprisingly, the oil states and those energy corporations continue to dream of a future in which they will play a dominant role.
“Fossil fuels are our most enduring energy source,” said Ali Al-Naimi, Saudi Arabia’s minister of petroleum and mineral resources, in April 2013. “They are the driving force of economic development in the U.S., Saudi Arabia, and for much of the developed and developing world [and] they have the capacity to sustain us well into the future.”
But new developments, including a surprising surge in wind and solar installations, suggest that oil’s dominance may not prove as “enduring” as imagined. “Rapidly spreading solar technology could change everything,” energy analyst Nick Butler recently wrote in the Financial Times. “There is growing evidence that some fundamental changes are coming that will over time put a question mark over investments in old energy systems.”
Normally, transitions from one energy system to another take many decades. According to Vaclav Smil of the University of Manitoba, the shifts from wood to coal and from coal to oil each took 50 years. The same length of time, he has argued, will be needed to complete the transition to renewables, which would leave any green energy era in the distant future. “The slow pace of this energy transition is not surprising,” he wrote in Scientific American. “In fact, it is expected.”
Smil’s analysis, however, assumes two things: first, that a business-as-usual environment in which decisions about energy investments will largely be made within the same profit-seeking outlook as in the past will continue to prevail; and second, that it will take decades for renewables to best fossil fuels in terms of cost and practicality. Both assumptions, however, appear increasingly flawed. Concern over climate change is already altering the political and regulatory landscape, while improvements in wind and solar technology are occurring at an extraordinary rate, rapidly eliminating the price advantage of fossil fuels. “The direction of change is clear,” Butler writes. With the cost of renewable installations falling, solar power has moved “from being a niche supplier to being a major regional competitor [to fossil fuels].”
Experts largely agree that renewables will claim a larger share of the global energy budget in the years ahead. Nevertheless, most mainstream analysts continue to believe that fossil fuels will be the dominant form of energy for decades to come. The U.S. Department of Energy typically predicts that the share of world energy provided by renewables, nuclear, and hydro combined will climb from 17 percent in 2015 to a mere 22 percent in 2040 — hardly change on a scale that would threaten the predominance of fossil fuels. There are, however, four key trends that could speed the transition to renewables in striking ways: the world’s growing determination to put a brake on the advance of climate change; a sea change in China’s stance on growth and the environment; the increasing embrace of green energy in the developing world; and the growing affordability of renewable energy.
1) The world is taking climate change seriously
Resistance to progress on climate change is widespread and well entrenched. As Naomi Klein documents in her latest book, This Changes Everything, the major fossil fuel companies have mounted well-financed campaigns for years to sow doubt about the reality of climate change, while politicians, often in their pay, have obstructed efforts to place restraints on carbon emissions. At the same time, many ordinary people have been reluctant to acknowledge what’s happening and so consider steps to bring it under control (a phenomenon examined by George Marshall in Don’t Even Think About It). As the devastating effects of extreme weather, including droughts, floods, and ever more powerful storms, gain greater prominence in everyday life, however, all of this is clearly in flux.
Considerable evidence can be assembled to support this assessment, including recent polling data, but perhaps the most impressive indication of this shift can be found in the carbon-reduction plans major nations are now submitting to U.N. authorities in preparation for a global climate summit to be held this December in Paris. Under a measure adopted by delegates to the most recent summit, held last December in Lima, all parties to the U.N. Framework Convention on Climate Change are obliged to submit detailed action plans known as “intended nationally determined contributions” (INDCs) to the global climate effort. These plans, for the most part, have proven to be impressively tough and ambitious. More important yet, the numbers being offered when it comes to carbon reduction would have been inconceivable only a few years ago.
The U.S. plan, for example, promises that national carbon emissions will drop 26 to 28 percent below 2005 levels by 2025, which represents a substantial reduction. There are, of course, many obstacles to achieving this goal, most notably the diehard resistance of Republican legislators with strong ties to the fossil fuel industry. The White House insists, however, that many of the measures included in the INDC can be achieved through executive branch action, including curbs on carbon emissions from coal plants and mandated improvements in the fuel efficiency of cars and trucks.
Other countries have submitted similarly ambitious INDCs. Mexico, for example, has pledged to cap its carbon emissions by 2026, and to achieve a 22 percent reduction in greenhouse gas levels by 2030. Its commitment is considered especially significant, since it’s the first such pledge by a major developing nation. “Mexico is setting an example for the rest of the world by submitting an INDC that is timely, clear, ambitious, and supported by robust, unconditional policy commitments,” the Obama White House noted in a congratulatory statement.
No one can predict the outcome of the December climate summit, but few observers expect the measures it may endorse to be tough enough to keep future increases in global temperatures below 2 degrees Celsius, the maximum amount most scientists believe the planet can absorb without incurring climate disasters far beyond anything seen to date. Nevertheless, implementation of the INDCs, or even a significant portion of them, would at least produce a marked reduction in fossil fuel consumption and point the way to a different future.
2) There’s a sea change in Chinese energy behavior
Of equal importance is China’s evident determination to reduce its reliance on fossil fuels — a critical change in stance, given its projected energy needs in the decades to come. According to the DOE, China’s share of world energy consumption is expected to jump from an already impressive 19 percent in 2010 to 27 percent in 2040, with most of its added energy coming from fossil fuels. Should this indeed occur, China would consume another 88 quadrillion British thermal units of such energy over the next 30 years, or 43 percent of all added fossil fuel consumption worldwide. So any significant moves by China to reduce its reliance on those energy sources, as now being promised by senior government officials, would have an outsized impact on the global energy equation.
China has not yet submitted its INDC, but its plan is expected to incorporate the commitments made by President Xi Jinping in a meeting with President Obama in Beijing last November. Xi promised to cap China’s carbon emissions by 2030 and increase the share of non-fossil fuels in primary energy consumption to around 20 percent by that time. He also agreed to work with the U.S. “to make sure international climate change negotiations will reach agreement as scheduled at the Paris conference in 2015.”
Although the Chinese plan allows for continued growth in carbon emissions for another 15 years, it substantially reduces the amount of new energy that will be derived from fossil fuels. According to a White House statement, “It will require China to deploy an additional 800 to 1,000 gigawatts of nuclear, wind, solar, and other zero-emission generation capacity by 2030 — more than all the coal-fired power plants that exist in China today.”
It appears, moreover, that Chinese leaders are preparing to move even faster than their pledge would require in transitioning away from fossil fuels. Under pressure from urban residents to reduce punishing levels of smog, the authorities have announced ambitious plans to lessen reliance on coal for electricity generation and rely instead on hydropower, nuclear, wind, and solar power, as well as natural gas. “We will strive for zero-growth in the consumption of coal in key areas of the country,” Premier Li Keqiang told the National People’s Congress, China’s legislature, this March.
As in the United States, the Chinese leadership will face opposition from entrenched fossil fuel interests, as well as local government structures. However, their evident determination to reduce reliance on oil and coal represents a real change of mood and thinking. It’s likely to result in a far different energy landscape than the one laid out by the Department of Energy and, until recently, most other experts. Despite repeated predictions of ever-increasing coal consumption, for instance, China actually burned less coal in 2014 than in the previous year, the first such decline in decades. At the same time, it increased its spending on renewable forms of energy by an impressive 33 percent in 2014, investing a total of $83.3 billion — the most ever spent by a single country in one year — to a renewable future. If China leads the way globally and such trends continue, the transition from fossil fuels to renewables will occur far sooner than expected.
3) Clean energy is taking hold in developing countries
The giant oil companies have long acknowledged that the most advanced countries, led by the U.S., Japan, and Europe, would eventually transition from fossil fuels to renewables, but they continue to insist that developing nations — eager to expand their economies but too poor to invest in alternative energy — will continue to rely on fossil fuels in a big way. This outlook led ExxonMobil and other oil firms to make massive investments in new refineries, pipelines, and other infrastructure aimed at satisfying anticipated demand from the global South. But surprise, surprise: Those countries are also showing every sign of turning to renewables in their drive to expand energy output.
The global South’s surprisingly enthusiastic embrace of renewables is impressively documented in Global Trends in Renewable Energy Investment 2015, a recent collaboration between the Frankfurt School of Finance and Management and the U.N. Environment Programme. It reports that the developing countries, excluding China, spent $30 billion on renewables in 2014, a substantial rise over the previous year. Together with China, investment in renewables in the developing world totaled nearly as much as that spent by the developed countries that year. Significant increases in spending on renewables were registered by Brazil (for a total of $7.6 billion), India ($7.4 billion), and South Africa ($5.5 billion); investments of $1 billion or more were posted by Chile, Indonesia, Kenya, Mexico, and Turkey. Given how little such countries were devoting to a renewable future just a few years ago, consider this a sign of changing times.
No less striking is the degree to which oil-producing countries are beginning to embrace green energy. In January, for example, the Dubai Electricity and Water Authority awarded a contract to Saudi Arabia’s ACWA Power International to build a 200-megawatt, $330 million solar electricity plant. The deal received widespread attention, as ACWA promised to deliver electricity from the plant for $58.50 per megawatt-hour, one-third less than the cost of natural gas–fired generation.
“This is a major breakthrough in the oil-fired Emirates and a clear demonstration of the ongoing global energy transition,” suggested Mark Lewis of Kepler Cheuvreux, a European financial services company. “We think this is a landmark deal both in terms of the extremely competitive cost at which the project will generate power and the potential for a much greater take-up of renewables in countries that have so far been slow to embrace them.”
4) The price of renewables is falling
As the Dubai deal indicates, price is playing a crucial role in the shift from fossil fuels to renewables. Listen to the apostles of coal and oil and you’d think that poor countries had no choice but to rely on their chosen form of energy because of its low cost compared to other fuels. “There are still hundreds of millions, billions of people living in abject poverty around the world,” said Rex Tillerson, the CEO and chair of ExxonMobil. “They need electricity they can count on, that they can afford … They’d love to burn fossil fuels because their quality of life would rise immeasurably, and their quality of health and the health of their children and their future would rise immeasurably.”
Until recently, this would have been gospel among mainstream energy experts, but the cost of renewables, especially solar power, is dropping so rapidly that, even in a moment when the price of oil has been halved, the news on the horizon couldn’t be clearer: Fossil fuels are no longer guaranteed a price advantage in delivering energy to developing countries. Among the harbingers of this change: The cost of solar photovoltaic cells (PVs) has plunged by 75 percent since 2009 and the cost of electricity generated by solar PVs has fallen globally by 50 percent since 2010. In other words, solar is now becoming competitive with oil and natural gas, even at their currently depressed prices. “Cost is no longer a reason not to proceed with renewables,” concluded a report released by the National Bank of Abu Dhabi in March. Says Lewis of Kepler Cheuvreux: “Over time, as renewable-technology costs continue to come down and economies of scale continue to increase, the relative competitiveness of renewables in the global energy mix will only increase further.”
Keep in mind as well that developing nations have a powerful reason to favor renewables over fossil energy that has nothing to do with price and everything to do with costs of another sort. As the most recent reports from the U.N.’s Intergovernmental Panel on Climate Change make clear, poor countries in the global South will suffer more (and sooner) from the ravages of climate change than countries in the global North. This is so because these countries are expected to experience some of the sharpest declines in rainfall and so the most droughts, endangering the food supply for hundreds of millions of people. Combine such concerns with the plunging prices of renewable energy, and it appears that the transition away from fossil fuels will occur faster than predicted in the very regions that the oil companies were counting on for their future profits.
A new world’s a-coming
Add up these factors, all relatively unexpected, and one conclusion seems self-evident: We are witnessing the start of a global energy transition that could turn expectations upside down, politically, environmentally, and economically. This transformation won’t happen overnight and it will face fierce opposition from powerful and entrenched fossil fuel interests. Even so, it shows every sign of accelerating, which means that while we may be talking decades, the half-century horizon previously offered by experts like Vaclav Smil is probably no longer in the cards. Fossil fuels — and the companies, politicians, and petro-states they have long enriched — will lose their dominant status and be overtaken by the purveyors of renewable energy far more quickly than that.
Even with the quickening of investment in green technology, the likelihood that world temperatures will be held at a 2 degrees Celsius rise, that all-important threshold for catastrophic damage, is unfortunately vanishingly small, which means that our children and grandchildren will live in a distinctly less-inviting world. But as the destructive effects of climate change become more pronounced and more embedded in daily life across the planet, the impetus to slow the warming phenomenon will only intensify. This means that the urge to impose strict curbs on fossil fuel consumption and the companies that promote it will grow, too.
We’re talking, in other words, about the building of genuine momentum for an energy transition which, in turn, means that the majority of people alive on the planet today will experience the ascendancy of renewables. As with previous energy transitions, this shift is going to produce both winners and losers. Countries and companies that assume early leadership in the development and installation of advanced green technologies are likely to prosper in the years ahead, while those committed to the perpetuation of fossil energy will see their wealth and power decline or disappear. For the planet as a whole, such a transition can’t come soon enough.