All against coal but with coal

The whole planet wants to be green and carbon-free, like Europe in 2050. This fuel is the largest source of electricity generation, the second largest source of primary energy and the largest source of energy-related_CO2 emissions, but more and more voices are emerging that suggest that its removal will not be easy. Asia dominates the global coal market, with China accounting for more than half of global demand, or two-thirds if India is added.

The promises to reach net zero emissions made by many countries, including China and India, should have very strong implications for coal, but they are not yet visible in the opinion of experts, reflecting the large gap between ambitions and action. Japan, Korea and China have also pledged to halt public funding for the construction of new coal-fired power projects overseas. Despite good intentions, some measures continue to add fuel to the fire rather than mitigate the problem. On the one hand, according to data from the International Energy Agency (IEA), countries spend 400,000 million dollars a year on subsidies, mainly on oil, but also on gas and electricity. “The entire planet can be decarbonized by 2050, but it is becoming increasingly difficult, especially if we want to do it in an orderly manner. But if we do not do so, we will continue to suffer increasingly serious natural disasters, with serious economic, social and environmental impacts,” says Ricardo Pedraz, Consultant of AFI (International Financial Analysts).

Ready for transition

Are we ready for the transition? Russia’s invasion of Ukraine has laid bare the challenges countries face in ensuring sustainable and affordable energy supplies in a complex and uncertain geopolitical environment. The turmoil in global energy markets threatens to derail efforts to prevent the worst effects of climate change. The European Commission launched this week the Repower EU Plan to definitively cut off the supply of Russian gas in 2027, a package of measures that will involve an investment of 300,000 million euros. However, the EU plans also include some unexpected measures such as increased coal-fired electricity production and extending the life of Belgian and French nuclear power plants. “Russia’s war makes us more dependent on fossil fuels. To consider decarbonisation policies, especially in the energy sector, three objectives are needed:
sensitivity, competitiveness and security of supply and now we do not meet any of the three. The war has blown them up,” explains Mateo Rosales, a Public Affairs consultant specialized in Climate and Energy Transition at Atrevia.

The cost of decarbonizing

Decarbonizing will also have a cost. Bank of America estimates that it will cost the world investments worth $5 trillion (€4.7 trillion) over 30 years: a total of $150 trillion (€142 trillion), about double the world’s GDP. The consumer will have to contribute through taxes. Bank of America estimates that the bill for decarbonizing is equivalent to 25% of current global tax revenues ($20 million).

While mitigating climate change could boost economic growth by an additional 0.4% per year through 2030, limiting the supply of fossil fuels could also lead to inflation rising from 1% to 3%, Bank of America warns. Accelerating the transition to a low-carbon economy too quickly could hurt growth, shutting down sectors at the expense of others. Still, the IEA’s latest report argues that boosting net-zero emissions will reduce employment in the traditional energy sector by 5 million people by 2030, but would add another 14 million jobs in the clean energy sector. Other research services such as BloombergNEF, raise the cost of decarbonizing to 174 trillion dollars by 2050, almost 3 times the amount invested in the energy system today.

But change will not happen overnight. In Europe, the energy dependency ratio remains high. In 2019 it was 61%, and almost two-thirds correspond to crude oil and petroleum products, followed by natural gas (27%) and coal (6%). Santiago Carbó, Professor of Economics at the University of Granada believes that Europe has not done enough and that “it does not have a common climate or energy strategy. For many years policies have focused on gas and meeting the goals of the Paris Agreement is now more than ever a major challenge.”

No one said it was easy, adds Lara Lázaro, a researcher at the Elcano Royal Institute. “Obviously, any transition from a fossil fuel model to an emissions-neutral model has costs, but you also have to put on the table the cost of not doing it. Not limiting global warming to 1.5 degrees could mean a fall in GDP in 2030 between 11% and 18%,” he says. “We do not decarbonize because we want to lose money, but because the economy of the future is digital and emission-neutral and we want to be positioned in that economy. Fortunately, in Spain we have a lot of solar resources and great energy champions in all sectors, implemented internationally, and that provide job opportunities in this new economy, “adds Lázaro.

Many companies are adapting their production processes in an effort to reduce carbon emissions. But most green technologies require significant amounts of metals and minerals, such as copper, lithium and cobalt, especially during the transition period. Electric vehicles, for example, use six times more minerals than conventional cars and an offshore wind plant requires more than seven times the amount of copper compared to a gas plant. “There are still industries that are difficult to decarbonise. For example, we cannot electrify a ship, they cannot go with batteries, airplanes need fuels, cement is essential for millions of infrastructures, and cement at the moment requires a lot of heat for its production process, “says Pedraz.

Meanwhile, renewable energy and electrification become the backbone of the transition and must be accelerated immediately, and hydrogen, carbon capture and new modular nuclear plants are emerging tools that must be developed and deployed as soon as possible. That is why the Repower EU Plan will allocate 86,000 million euros for solar and wind, 37,000 million for biomethane and 27,000 million for hydrogen. Anyway it will not be easy either. To decarbonise our planet we will need 88 times more wind, solar and battery capacity by 2050, and even then only half of the emissions reduction could be covered, Bank of America warns.

The transition will leave more price increases along the way, so monetary policy will have to play an important role. The ECB announced that it will align its policies with the objectives of the Paris Agreement as “quickly as possible”, so that all actions taken contribute to the greening of economies and do not “undermine” incentives to accelerate the ecological transition. And in front of investors, banks also want to be a benchmark in the promotion of the sustainable transition. “Decarbonisation is a necessary global ambition challenge”, defend CaixaBank sources and as a sign of its commitment to decarbonisation offers its data. Last year CaixaBank mobilized 31,375 million euros in sustainable financing, 150% more than the previous year. The entity broke its historical record both in sustainable loans, with 11,595 million euros, and in the issuance of ESG bonds, with more than 19,780 million euros.

MORE EUROPEAN AMBITION IS NEEDED

Since the Paris Agreement in 2015, 53 countries and the European Union have committed to achieving net zero emissions. However, by mid-2021, only 21 countries that use coal endlessly for electricity generation have committed to phase it out, between 2021 (Portugal) and 2040 (Chile). Among them, few countries have already done so, such as Austria (2020), Belgium (2016) and Sweden (2020). Together, these commitments cover only 4.1% of global coal-fired generation and 1.3% of global energy-related_CO2 emissions. Spain’s Recovery, Transformation and Resilience Plan is committed to reaching a green spending share of 31%, which positions it among the best in the European Union (EU), according to a study prepared by the Green Recovery Tracker, formed by international experts in climate emergency, which warns of the lack of European ambition to decarbonize the economy. Finland, with spending close to 42%, leads the ranking among 14 EU countries. Poland (18%), Portugal (19%) and Slovenia (5%) performed the worst.

Source: Reason