Energy Transitions and the New Climate Economy

Måns Nilsson, Research DirectorStockholm Environment Institute

The New Climate Economy project

Better Growth, Better Climate: the New Climate Economy report (September 2014) showed that economic growth and climate protection can be achieved together.

Seizing the Global Opportunity: Partnerships for Better Growth and a Better Climate (July 2015) focuses on how international cooperation can catalyse better growth and a better climate.

33 supporting Working Papers released in 2014-15, including 4 country studies.

Commissioned in 2013 by 7 countries Colombia, Ethiopia, Indonesia, Norway, Sweden, South Korea, United KingdomLed by a Global Commission 28 former heads of government, finance ministers, CEOs and heads of economic institutions.

Indian Council for Research on International Economic Relations

NCE Partner Institutes

Ethiopian Development Research Institute

Overseas Development Institute

Over 120 organizations have provided input towards the project, including:

Managing partner

The false dilemma

vs

Promoting economic

growth

Mitigating climate change

Better Growth, Better Climate: The New Climate Economy

Half glass empty? (source Max Roser)

Energy transitions – what’s next?

Source: Citi Research 2012

What are the key levers for combining climate action with economic performance in a smart energy transition?

1. Enhancing productivity

… solar can compete with fossil fuels in favorable circumstances

Indicative solar PV costs over timeUSD / MWh

2014

50

140

20102005200019951990

1200

-61%

Best utility-scaleproject, 2014

Current fossil fuelrange, indicative

Solar PV

Assuming 9.25% WACC, 17% capacity factor for solar PV, 70 USD/tonne coal price and 10 USD/MMBtu natural gas price. Sources: Citi Research 2012; IEA World Energy Outlook 2013; G. F Nemet, “Beyond the learning curve”, Energy Policy 34, 3218-3232 (2006)

Wind power costs over time

Note: Assuming coal price of 70 USD/tonne and gas price of 10 USD/Mmbtu. Assuming a 35% capacity factor for wind power i.e. 35% utilisation, and a 15% capacity factor for solar power

USD/MWh

Sources: Citi Research 2012; G. F Nemet, “Beyond the learning curve”, Energy Policy 34, 3218-3232 (2006); Bloomberg NEF (Turner 2013); IEA World Energy Outlook 2013, WEO 2012

1995 201020001990 2005

2000 2005 2010 2015 202030

40

50

60

70

80

90

Coal

Natural gas

2014

Low-carbon transport, buildings, and waste sectors are a US$17 trillion opportunity

Source: New Climate Economy

- Compact and connected urban growth could reduce global infrastructure investment requirements by US$3 trillion through to 2030. (NCE, 2014)

11

Traffic congestion is costing some cities greater than 4% of GDP

Cost of traffic congestion as a percentage of GDP in selected cities

Sources: IBM Institute for Business Value, Smarter cities for smarter growth. Li-Zeng Mao, Hong-Ge Zhu, and Li-Ren Duan (2012) The Social Cost of Traffic Congestion and Countermeasures in Beijing. Sustainable Transportation Systems: pp. 68-76.

Percentage of GDP

Beijing Dublin Cairo Manila Dakar Mexco City San Paulo Bangkok Kuala Lumpar

0%

1%

2%

3%

4%

5%

4.2%4.1%

4.0% 4.0%

3.4%

2.6%2.4%

2.1%1.8%

25 MARCH 2014 | GENEVA

In new estimates released today, WHO reports that in 2012 around 7 million people died - one in eight of total global deaths – as a result of air pollution exposure.

This finding more than doubles previous estimates and confirms that air pollution is now the world’s largest single environmental health risk. Reducing air pollution could save millions of lives.

Particulate matter concentrations in air for selected cities Annual mean PM10 ug/m3

“Nature’s red-light warning against inefficient and blind development”

Beijing

Cheng

du

Wuh

an

Chong

qung

Tianji

n

Hangz

hou

Dongg

uan

Shang

hai

Guang

zhou

Shenz

hen

Lond

on

New Y

ork0

20

40

60

80

100

120

140

WHO air quality standards

Data from World Health Organisation

Value of the premature deaths from PM2.5 air pollution

Source: NCE estimate, based on WHO mortality data

ENERGY

2. Driving Innovation

Innovationsfaser (source: Energimyndigheten 2014:13)

Rapidly falling costs of electric vehicle batteries

Björn Nykvist and Måns Nilsson, 2015: 'Rapidly falling costs of battery packs for electric vehicles’. Nature Climate Change, in press

Innovations driving range and price - BEVs will be at tipping point within 5 years

20

Galvanise low-carbon innovation markets

Innovations and new business models

3. Mobilising investment

CLEAN ENERGY: Investments in low-carbon energy have increased, but 2/3 still goes to fossil fuels

0

200 000

400 000

600 000

800 000

1 000 000

1 200 000

1 400 000

1 600 000

1 800 000

69%

+303%

20122011201020082007 2009200620052004 20132000 200320022001

69%

Non-fossil fuelPower T&DFossil fuels

Source: IEA (2014): World Energy Investment Outlook.

Investment in global energy supply by fossil fuel, non-fossil fuel (renewable energy, nuclear, biofuels) and transmission & distribution in the power sector.

Mill

ion

US

D (2

012)

Momentum is building: in 2013, more low-carbon electricity capacity was added than fossil fuel capacity (GW)

Source: Liebreich, M., 2015. State of the Industry Keynote. Presented at the Bloomberg New Energy Finance Annual Summit, New York, 14 April. Available at: http://about.bnef.com/presentations/liebreich-state-industry-keynote/.

Source: OECD (2006, 2012), IEA ETP (2012), modelling by Climate Policy Initiative (CPI) for New Climate Economy, and New Climate Economy analysis.

27

Lower capital costs are crucial

Source: Waissbein et al. 2013

Energy assets are changing

Current infrastructure has been optimized around fossil fuels assets

Latest energy assets have different characteristics

Centralized facilities

Volatile fuel prices

High operating costs

Multi-billion scale

Decentralized assets

High capital cost

Near zero marginal cost

All scales projects

Different RISK profiles - Different RETURN profiles

Complex operations/maintenance

Low operational requirements

Driving innovation or sustaining incumbents?

$120 bn Renewables subsidies globally

$548 bn Fossil fuel consumption

subsidies

Over $30 bn Company car & parking tax benefits in developed countries

$55-90 bnFossil fuel support, developed countries

Fossil-fuel subsidy reform, led by India & Indonesia, reduced the global subsidy bill below $500 billion in 2014

CARBON PRICING: About 40 national and over 20 sub-national carbon pricing schemes are underway

Source: The World Bank, 2015. Carbon Pricing Watch 2015: An advance brief from the State and Trends of Carbon Pricing 2015 report, to be released late 2015. Washington, DC.

Sustainable companies outperform their peers

The CDP Climate Leadership Index outperformed the Bloomberg World Index of major companies by 9.1% over four years.

Source: CDP, 2014.

Power market and investment mechanism is not designed to accommodate a

carbon-neutral supply system or incentivize investment

Governing innovations Smart innovaions are not reaching market scale as

sufficient pace and requires further incentives and measures

Incumbent actors , interests and rules are blocking promising developments and policy

frameworks

The role of the public as prosumers in the smart energy system is not well

understood

CHALLENGES IN THE SMART ENERGY TRANSITION