Transitioning to an Extinct Fossil Fuel World

Globally, renewable energy is expected to overtake coal to become the largest source of electricity generation by 2025. It has already outpaced fossil fuel growth by a factor of 2.6 in 2019.  

With the heightened urgency of climate change, this growth is definitely a step in the right direction. However, in the same year, renewable energy only contributed 20% to electricity generation. How is this happening? 

The answer might lie with how mainstream banks are investing in the energy sector. Between 2016 and 2020, private banks have funded a total of 3.8 trillion USD in fossil fuel projects. In 2019 alone, the world’s 60 largest banks financed 824 billion USD in fossil fuel. This means that almost 71% of total energy investment went towards fossil fuels.  

What does all of this mean for the future of the energy sector amidst the discussions about sustainable development and the climate crisis?   

Such a difficult question required experts who could answer them. So, we invited experts to our webinar on ‘Sustainable Finance: Energy’ held on 22nd April 2021. Here is the summary of the webinar session.    

The Problem:  

For a truly sustainable energy system, it should ideally meet a country’s following needs:   

  1. Energy security;  
  2. Energy access and affordability; and  
  3. Environment friendly.   

This essentially follows the principle of ‘3 pillars of Sustainability’ which are economic, social, and environmental. However, meeting these pillars of sustainability has its challenges.   

Watch: Episode 6: The 3 Pillars of Sustainability | Sustainable Development | SDG Plus 

This is what Stefanie Held (Chief of Section Sustainable Energy at United Nations Economic Commission for Europe) said about meeting sustainable energy goals:  

“There is a perpetual tension in the Sustainability framework. Meeting all the 3 pillars of sustainable energy seems difficult. At no single point is there a consensus on which pillar is a priority. This is because there are multiple interpretations of sustainable energy which makes it difficult to achieve substantial progress.”  

As someone who is looking from the outside, why try to find a consensus on which pillar is a priority for sustainable energy? Why not find a holistic framework or solution that equally focuses on all 3 pillars of sustainable energy. Probably because it is easier said than done. 

However, one thing which is clear and has a consensus is that fossil fuels are contributing to global warming. So, we need to curb our fossil fuel consumption and look for alternative and sustainable energy systems. But this transition is far more complex than what is generally discussed.   

The Reality  

It is tricky because even in a climate change scenario where we keep global temperatures below 2 degrees Celsius, the world will still be depending on fossil fuel for 56% of primary energy needs. What could be the reason for this? 

  1. Global coal consumption declined by almost 2% in 2019. This might seem fantastic. However, this trend was seen mostly in the developed countries. On the other hand, developing countries like India and other regions in South-East Asia saw an increase in coal consumption.   
  2. There are several environmental and social consequences of completely shutting down fossil fuel industries. For example, shutting down coal mines releases methane gas, which is toxic and a major contributor to global warming. This means that the transition requires much more thought and time to be successful.   
  3. On top of this, wind turbines and solar panels will require rare earth metals to manufacture. We will need to mine for these rare earth metals, which is not sustainable.  
  4. While global investments in renewable energy have increased, it saw a sharp decline in some of the regions between 2012-2014, especially in parts of Central Asia and Africa. Therefore, these investments are often unevenly distributed where some countries benefit much more than others.  
  5. Lastly, there are several gaps in policy formulation and implementation that make it difficult for this energy transition. Jay Kumar Waghela (Head of Business Development for Fourth Partner Energy Private Limited) commented, “in India, renewable energy is clubbed under the power sector. If the budget on the power sector is spent on subsidizing fossil fuels, it means that little investment is going to renewables. This is one of the biggest challenges in financing renewable energy.”  

(Source: UNECE)

Due to these challenges, we can perhaps imagine why fossil fuels will continue to meet the majority of our future energy demands. However, it is not all doom and gloom.   

The Opportunity  

The move away from fossil fuels is going to be slow and complex. Several sectors heavily depend on fossil fuels, its convenience, and efficiency. If we remove fossil fuels altogether right now, we will not have access to energy.   

Stefanie added that the question is not how to remove fossil fuels, but rather, how can we make this energy transition efficient, painless, and cost-effective.”  

A big part of renewable energy technologies is that as they become more and more mainstream, it is not just environment friendly, but it can also become an affordable energy source. Moreover, renewables are also creating more job opportunities, employing people from diverse sectors, backgrounds, and experiences.   

However, to realize these benefits, greater financing needs are required. To ensure a climate-safe future, annual investment in renewables – including various types of power generation, solar heat, and biofuels – would have to almost triple to USD 800 billion by 2050.    

Yes, it seems like a lot. But the benefits of this finance are for the long term. It also saves the environmental and social costs that arise due to climate change. Also, if big banks can invest 823 billion in 2019 alone, I’m sure they can invest USD 800 billion by 2050 for renewable energy.   

There is also the case of making our current energy sector more efficient. Jay said it perfectly: 

Financing in the ageing infrastructure to modernize the energy grids can decreases energy loss from 18% to almost 9%. This is already the case in some of the developed countries”. 

The more efficient the energy system is, the quicker can be the transition to renewable energy. This is because, at present, renewable energy is not able to compete with fossil fuels solely in terms of energy capacity and efficiency.   

The Solution  

The road to energy transition is complicated. Thus, we have to think about this differently. Stefanie said that “maybe it is not about sustainable energy at all. Maybe it is about carbon neutrality. This means that first, we need to take out what we put out.”   

The essence is that we need to focus on being carbon neutral. This does not just mean investing in new renewable and clean energy technologies. But requires investment guidelines on methane management, social and economic impacts, better integration of renewables, new business models, and innovations. All this requires not just a complete energy system transformation but also a change in public and private finance systems.   

These changes are not just limited to industries and big tech and finance firms. But it applies equally to changing our ways of living. Stefanie said that “we need to move away from an economy of wastage to one where recycling and reusing is one of the core values with which we should move forward”. 

If you’re interested in knowing more, watch our webinar recording here. 

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