Climate Finance | November 15, 2022

New narrative of climate action: Unstoppable progress and immense opportunity

Amy Cortese

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ImpactAlpha Editor

Amy Cortese

ImpactAlpha, Nov. 15 – It has become fashionable to dismiss global climate confabs like COP27 as so much “blah blah blah.”

But for all the hot air, half-measures, backsliding and outright denialism, global climate action and falling costs have flattened the curve of global warming by a full 1°C from 2015 projections. 

To be sure, the new trajectory still points to a disastrous rise of 2.5°C in average temperatures over historical levels by the end of the century. But the real takeaway is that global climate progress is not only possible, it’s happening. And can be accelerated.

Outside of the official negotiating rooms in Sharm El-Sheik, Egypt, a new perspective is taking hold: the low-carbon transition is the path to development and economic growth. 

“We’re not selling doom and gloom here,” said Rachel Kyte of The Fletcher School at Tufts University. “We’re selling what people want.” 

Kyte was in Sharm el-Sheik for COP27 as a member of the United Nations’ high-level advisory group on climate action. Climate solutions, she said, are measured in more jobs, better cars, cleaner air and quieter cities.

Disruptive change

Take Russia’s invasion of Ukraine last February, which was widely seen as a setback for the transition to renewable energy as countries scrambled to secure new natural gas supplies and reverted to coal-fired power plants. Instead, history will see the war in Ukraine as the tipping point that pushes Europe and much of the world to clean energy, according to the International Energy Agency.

The IEA’s outlook even for business as usual – that is, based on current policies – shows global energy-related CO2 emissions peaking in 2025 and Russia’s oil exports dropping steeply by 2030. Fossil fuel demand is peaking in every IEA scenario. Renewables make up the bulk of new energy capacity. The agency’s latest World Energy Outlook charts the progress. 

“The energy world is shifting dramatically before our eyes,” said the IEA’s Fatih Birol. “Government responses around the world promise to make this a historic and definitive turning point towards a cleaner, more affordable and more secure energy system.”

Clean energy investment will rise by 50% to more than $2 trillion a year by 2030, becoming “a huge opportunity for growth and jobs, and a major arena for international economic competition,” according to the World Energy Outlook.  And that’s without any policy improvements. 

The energy transition’s falling cost curves and rising returns to scale look very much like the digital technology transition of the last 40 years (or, as ImpactAlpha noted back in 2017, “Renewables are no longer ‘alternative.’ Fossil fuels are ‘legacy.’”)

A half-dozen slides from RMI illuminate what the think tank calls “the energy transition narrative.” The S-curve of technology adoption makes the transition not slow, hard and forced, RMI says, but “fast, beneficial and inevitable.” So-called energy “experts” have consistently underestimated solar deployments and overestimated coal usage. The costs of new energy technologies, including solar, batteries and onshore and offshore wind have fallen by 60% to 90% in the last decade. 

High prices of fossil fuels are reducing demand and massively increasing the competitiveness of renewable technologies. “This decade will see enormous opportunity for those that embrace change, and catastrophic risk for those that fail to see what is going on,” RMI reports.

“After 200 years of growth, we are at a turning point in the energy system as fossil fuel demand is squeezed between rising renewable deployment and increasing efficiency,” RMI’s Kingsmill Bond, who has pegged peak oil to 2019, said in an email. “From this starting point flows the key conclusion for investors: it is time to reallocate capital from fossil to renewables.”

Geopolitical realignment

The geopolitical calculus is already shifting. European countries such as Denmark that have moved faster to wean themselves off of fossil fuels are faring better than countries like Germany that are still highly dependent on Russian oil and gas. 

“The big message from this year is that you can achieve energy security and sustainability,” Kyte told ImpactAlpha. Pushing forward on energy efficiency and renewable energy can “align security and sustainability in a way that has not been envisaged before.”

“The renewable energy map of the world does change the geopolitics of energy,” she says. “You go from a world dominated by fossil fuel exporters to renewable energy exporters, and that’s a different set of countries.”

In the United States, the Inflation Reduction Act is expected to reduce emissions by one billion tons in 2030 and “unleash a new era of clean-energy-powered economic growth,” President Joe Biden said in his COP27 speech last week. The law is catalyzing hundreds of billions of dollars in public and private investments in clean energy, building retrofits, battery plants, electric vehicle charging infrastructure and green job training. 

The investments in climate tech will “spark a cycle of innovation” that will further drive down costs, performance and availability, Biden said. Buoyed by a strong showing for Democrats in the midterms elections, Biden vowed to build on the progress. “Good climate policy is good economic policy. It’s a strong foundation for durable, resilient, inclusive economic growth.” 

Indeed, climate tech has defied the market downturn. Climate-focused funds and startups are seeing no lack of investor demand. Since the beginning of last year, Climate Tech VC has tallied $94 billion in new private climate funds under management across 132 venture capital firms, corporate VCs, and private equity and infrastructure funds. 

Another potential winner is Africa, with its abundant wind, solar and geothermal potential. Africa has 60% of the world’s best solar resources, but only 1% of solar generation capacity, according to the IEA. Kenya already gets three-quarters of its power from geothermal, wind and solar, and aims for 100% clean energy by 2030. 

“Rather than trudging in the fossil-fuel footsteps of those who went before, we can leapfrog this dirty energy and embrace the benefits of clean power,” Kenyan president William Ruto wrote in a recent op-ed. 

Renewables are the “the energy of freedom,” Ruto said, quoting German finance minister Christian Lindner. “The wind cannot be stockpiled to drive up its price; the sun’s rays cannot be switched off by a single person wishing to weaponise energy. Wind turbines and solar panels are quick to construct and can generate and deliver power far more quickly and easily than a new oil rig, and with much less harm to our fragile climate.”

Pathway forward

Progress was evident at COP27, dubbed the African COP. Delegates at the climate summit this week will get down to the roll-up-your-sleeves work of negotiating final agreements.

Discussions have moved forward on adaptation financing for vulnerable nations and, new this year, loss and damages to compensate low- and middle income countries for climate-related losses. China and the U.S. – the world’s largest emitters – are talking again. 

“It’s a bit like a log jam, and some of the logs seem to be getting unjammed,” said Kyte of the Fletcher School. 

New models, such as the Just Energy Transition Partnerships detailed for South Africa and Indonesia, offer new approaches to financing countries’ energy transitions and avoiding the “lock-in” of coal and other fossil fuel for decades to come. The $20 billion for Indonesia, where G20 leaders are meeting this week, would combine funding from wealthy nations and the private sector to help the archipelago shutter coal plants, transition workers and end fossil fuel subsidies. 

Still, competing interests among the nearly 200 countries involved in the negotiations and the continuing energy crisis threaten to water down final results. Hundreds of business leaders, corporations and civil society groups sent a letter urging COP27 negotiators to not cave in to pressures to ease up on goals amid the energy crisis. Flattening the global warming curve by 1°C is only the beginning of what’s required.

 “1.5°C is a limit not a target,” reads the letter, which was organized by We Mean Business and The B Team.  

Meanwhile, in the business meetings taking place in the hallways, pavilions and side meetings, deals were being hammered out. 

“If we were talking about ambition in Glasgow [at COP26], then there has been much more conversation about the how-to” in Sharm el-Sheik, says Kyte. “You can actually see the organizations and partnerships have moved on in terms of building a pathway forward.”