Government Still Holds the Key to A Low-Carbon World
A report issued just last week has direct impact on global clean energy initiatives moving forward. It tells us that, despite advances in the private sector, the most likely scenario to move to a low-carbon energy environment remains heavily dependent on government subsidies.
Called “Weathering the Storm: Public funding for low-carbon energy in the post financial crisis era,” it comes from the UNEP Sustainable Energy Finance (SEF) Alliance (a United Nations-sponsored initiative) and Bloomberg New Energy Finance (BNEF). (You can download the report for free – just go .)
The report analyzes G20 and SEF Alliance members, with supplements provided from the BNEF database. And it points to one inescapable conclusion: While there is more emphasis these days on bringing our carbon footprints down, this will not happen if national governments decide to reduce their commitments.
The path to cutting carbon emissions, therefore, continues to move through government budgets, either by providing project finance directly or – as is the more likely case these days – by providing subsidies or tax incentives to state and private companies.
The report also comes at an important juncture in the global response to the financial crisis. Many stimulus expenditures are expected to begin leveling off in a number of countries, especially so in the U.S. Some injections of liquidity will continue, but these are less likely to have a direct impact on clean energy projects.
That means moves into alternative or reduced carbon approaches may face cutbacks in the face of lower government incentives. Some of the projects we have discussed here require major government involvement to have any chance of success (see, for example, “The Sahara Sun Could Power Europe,” September 13, 2010).
The question is whether governments are still in any position to oblige…
The U.K., which is a member of the SEF Alliance, is on an austerity budget. The U.S., not a member, seems poised for another round of log-jamming politics D.C.-style, where the focus will be on budget cutting. Only China appears ready to continue massive government spending in low-carbon approaches. Of course, the Chinese have a much longer way to go, given their reliance on coal for the bulk of their energy.
SEF Alliance Executive Director Ross Tyler put things in perspective when he said: “This report is vital to preserve the early momentum in the low-carbon energy sector. It also demonstrates how important it is for governments to provide additional public funds to allow proven clean energy technologies to thrive and to promote the development of new, game-changing technologies.”
The road map to lessening our use of fossil fields includes reducing the cost of carbon-free power needs to be competitive with fossil fuels.
And given rising concerns over climate change, the sooner it can be done, the better.
Yet this requires a combination of technological breakthroughs, economies of scale, and reduced costs of finance. All of these require stable public support. The level of that support, however, is now the issue, given paramount budget deficit problems worldwide.
Key Findings of the SEF Alliance Report
1. In 2009, China led the world in new clean energy funds invested with $34.6 billion. In 2010, the gap between leader China and all other countries is widening. Much of this investment in China has been spurred by a strong policy environment plus heavy state support, particularly via state-backed financial institutions and state-owned companies.
2. BNEF projects that 2011 will mark the peak year for stimulus disbursements for clean energy. In 2012 and into 2013, stimulus will drop sharply.
3. A new era of fiscal austerity could have significant negative consequences for clean energy. Early examples include Spain, which has slashed subsidies for new solar projects, and the U.S., where stimulus funds given to overseas firms provoked a protectionist backlash.
4. As stimulus begins to wind down, national and government-sponsored organizations that supported pre-commercial, low-carbon technologies prior to the economic downturn in 2008 stand to play an even more important role.
5. Government dollars can be put to work more efficiently than ever before in the next several years in subsidizing commercially viable technologies. This is because per-watt prices of utility-scale wind turbines and, in particular, photovoltaic modules, have dropped sharply over the past 18 months. Prices could well drop further in the coming year, particularly as Chinese-made equipment plays a more prominent role in the global market.
6. Market risk – as demonstrated by the pullback in clean energy stock prices – has restricted access to public equity markets and amplified the importance of government grants and credits.
7. There are certain critical areas where public financing will likely be needed for not just the short term, but the long term, as well. The problem of what the report refers to as a financing “Valley of Death” that confronts many new technologies is largely intractable. This valley cannot be traversed without public support, in many cases.
8. Four technologies, in particular, will require further public sector investment in coming years to scale up and become truly cost-competitive: utility-scale storage and advanced batteries, advanced transport, carbon capture and storage, and advanced biofuels.
All of this means the selection of energy priorities in global capitals is going to have some major impact moving forward.
Ultimately, the private sector must carry the ball in the clean energy game. It seems, however, we may still need governments to open the gates to the playing field.