Good morning, Anca has an important article bringing developing countries into our debate about the cleantech race. Plus: We have a cool reader-submitted photo of island energy.
Cleantech race risks sidelining developing countries BY:ANCA GURZU
The global cleantech race underway between the United States, Europe and China could leave developing countries behind.
The world’s major economies are competing to become industrial leaders in the burgeoning cleantech sector. But efforts to outmatch China’s dominance could drive the U.S. and the EU to embrace increasingly protectionist policies and embark on a subsidy race that could stifle cleantech development elsewhere, experts said.
Such a hostile global trade environment could starve developing countries of already insufficient climate financing from the developed world. What’s more, poorer, mineral-rich nations could end up supplying the resources for the energy transition in richer nations without benefitting economically from new supply chains created entirely in wealthy countries.
“The more the richest countries look inward, the less likely they're going to make financing available for the developing markets,” said Todd Moss, the executive director of the Energy for Growth Hub, a Washington, D.C.-based non-profit group trying to boost energy access across the world. “I am worried.”
The United States’ decision to pour nearly $370 billion into clean energy through tax credits in the Inflation Reduction Act has caused panic in the European Union. The 27-member bloc fears the law will choke EU industrial competitiveness and draw European businesses across the Atlantic with its “made-in America” provisions.
Defending the law, the U.S. points to China, accusing it of having cornered the cleantech market through massive state subsidies in recent decades—a concern Europe shares.
The European Commission, the EU’s executive arm, presented its own Green Deal Industrial Plan last week to boost the EU’s industrial base and match the American cleantech push. EU leaders, who will discuss the plan at a summit this week, are butting heads over how to shape their response. Sticking points include how generous the bloc should be when handing out subsidies to EU-based companies to shore up its cleantech industry at home.
“There is mounting pressure, especially towards the EU, to ensure its policy response will not be protectionist, but also show how any revenue generated by these policies is going to go and help developing countries,” Elitsa Garnizova, director of the trade policy hub at the London School of Economics, told Cipher.
The global market for key mass-manufactured clean energy technologies will be worth around $650 billion a year by 2030—more than three times the sector’s value today—if countries fully implement their announced energy and climate pledges, according to a recent International Energy Agency report.
Investments to deploy clean energy technologies surpassed the $1 trillion mark last year for the first time, on par with fossil fuel investments, a BloombergNEF report found. But the share of energy transition financing going to emerging markets and developing economies stood at 8% in 2021, the lowest level in 10 years.
The reasons for this low share are diverse yet interlinked. Borrowing rates and capital costs are higher in developing countries, which, in turn, diminishes private sector appetite in the region.
“As the EU and the U.S. ramp up green subsidies, it will be crucial to engage with emerging and developing economies to not exclude the rest of the world from new fast-growing clean tech markets, which is a major incentive for these countries to deliver on net-zero targets,” a December briefing paper from the European environmental think-tank E3G reads.
Competing in the cleantech sector will also require setting up new supply chains for raw materials and assembly lines for key products, like electric vehicles. Both the EU and the U.S. are keen to create this infrastructure on their home turf.
African countries, several of which have an abundance of minerals needed for the transition, “are very concerned not to replicate the colonial patterns of exploitation where they were the source for raw materials, but without value addition,” said Moss, whose board features representatives from developing nations, including Nigerian-born Damilola Ogunbiyi, the United Nation’s representative on Sustainable Energy for All, and Donald Kaberuka, former president of the African Development Bank.
“There's going to be a real tussle over where the different segments in the value chain will be located, where the jobs will be created,” Moss said.
The Commission’s Green Industrial Plan highlights the need for new initiatives “to allow resource-rich developing countries to move up the value chain.”
To be sure, the evolving cleantech competition could benefit developing countries as the cleantech race lowers the cost of new technologies and makes them more affordable to poorer regions, Garnizova said.
But bringing down costs is just one aspect—the other is ensuring enough investments flow to developing countries to help spur their own energy transition, she added.
How the U.S. and the EU handle international trade rules around clean energy and energy security today will have impacts far beyond either region, Peter Rashish, director of the geoeconomics program at Johns Hopkins University’s American Institute for Contemporary German Studies, said at a recent event in Brussels.
“If they are able to find a reasonably cooperative way to deal with this issue, that will…reinforce an orderly global economy,” he added. “But if they aren’t, that would just add to the kind of anarchy we are beginning to see.”
Lunchtime Reads and Hot Takes
Tension between Big Oil & clean tech — Axios Amy’s take: Hmm, this is an interesting debate. Like most things, it’s not going to be just startups or just big companies building the future of energy. It’s probably going to be both!
BP Slows Transition to Renewable Energy as Oil Bonanza Continues — The Wall Street Journal Amy’s take: Per the Axios story above, maybe big oil companies won’t lead on climate tech not because they don’t have the technical competency, but because they choose not to. That’s when startups step up.
BMW plans €800mn Mexican EV and battery investment amid subsidies row — Financial Times Anca’s take: Ouch! Another business shift bound to trigger Europe’s cleantech FOMO.
Why We Shouldn’t Confuse Peak Oil With the Price of Bananas — Bloomberg Amy’s take: Interesting nugget related to our Data Dive this week. BP renamed its “business as usual” scenario to “new momentum” this year.
The big problem with plant-based meat: The ‘meat’ part — The Washington Post Amy’s take: Finding a way to neutralize the methane emissions from cows is another way to solve this problem.
‘Recession Resilient’ Climate Start-Ups Shine in Tech Downturn — The New York Times Anca’s take: We know we’re facing a shortage of workers to drive the energy transition, but this cool feature article looks at those keen to make a change.
LNG export boom runs up against climate goals — Canary Media Amy’s take: Amazing graphics that connect the dots on LNG and gas electricity.
Interview: DOE’s Jigar Shah on Lending to Nuclear Projects — Energy Intelligence Amy’s take: How to solve the waste issue isn’t holding back nuclear power, U.S. energy loan chief says.
South Africa: Energy crisis is disastrous, analysts say — Deutsche Welle Anca’s take: “Households and businesses are now without power for up to 10 hours a day”—a reminder that the energy crisis is a global event, hitting some worse than others.
Big electric trucks and SUVs are the new gas guzzlers — Quartz Amy’s take: My Prius ain’t looking so bad in this lineup.
Why Wyoming won’t build Biden’s EV charters — E&E News (paywall) Amy’s take: I am siding with Wyoming on this one. Let the state build EV charging stations near tourist destinations instead.
Denmark awards first CO2 storage licences in the North Sea — Reuters Anca’s take: An interesting plan to keep an eye on as the country plans to inject up to 1.5 million tonnes of CO2 into depleted oil and gas fields by 2025.
Yes, we have enough materials to power the world with renewable energy — MIT Technology Review Amy’s take: This is an important point to remember—it’s not running out of material we must worry about, but society’s ability to mine it safely and respectfully.
India Says Its Path to Net Zero Must Pass Through Fossil Fuels — Bloomberg Anca’s take: There’s more nuance to this topic but pointing the mirror towards Europe and its own energy security challenges to justify the country’s choices could be uncomfortable for the West.
More of what we're reading:
Biden takes victory lap on climate bill in State of the Union — The Hill
IEA forecasts power sector set for 2025 ‘tipping point’ on emissions — Financial Times (paywall)
Atmospheric CO2 captured in concrete for first time — E&E News (paywall)
Sweden’s 27-Year-Old Climate Minister Is Ready to Quit If Goals Are Missed — Bloomberg
How states are reimagining power grids to take advantage of wind and solar — Fast Company
Low-Carbon Concrete Tax Incentives Signed into Law in New Jersey — Bloomberg Tax
DATA DIVE
Energy consumption to peak by mid-century
Source: BP Energy Outlook 2023• Scenarios are based on 2050. "New Momentum" is the baseline scenario. Energy consumption is measured at the final point of use, also known as total fuel consumption. "Other" includes biomass, biofuels and biomethane.
Global energy demand is set to peak by mid-century as energy efficiency improves and energy use is increasingly decarbonized, according to the annual energy outlook from multinational oil and gas company BP released last week.
Russia’s war in Ukraine will likely accelerate the pace of the energy transition, BP said, cutting its projections for long-term oil and gas use by 6% and 5% respectively compared to last year’s analysis.
Nonetheless, “greater support is required globally” to speed up the scale of decarbonization, the company’s report also found.
The outlook, one of the most detailed and highly anticipated analyses of the global energy system, is based on three scenarios.
The baseline scenario, New Momentum, looks at the current trajectory of the energy system. The more optimistic scenarios, Accelerated and Net Zero, assess what’s needed to keep global temperature rise below 2 and 1.5 degrees Celsius, respectively.
Electricity consumption is set to increase by around 75% by 2050 in all three scenarios as more renewables come online and the world relies more on electrified systems to power daily life.
Overall energy consumption peaks in the mid-to-late 2020s in BP’s two more ambitious scenarios but continues to increase in the baseline scenario until around 2040 before plateauing around 2050.
The difference stems from faster energy efficiency gains in the more ambitious scenarios. Energy efficiency is a “central element in facilitating a rapid reduction in carbon emissions,” the report states.
AND FINALLY...
Caribbean power
Cipher reader and investor at AllianceBernstein Luke Pryor snapped this photo of wind turbines and solar farms on Grande-Terre, an island in the Guadeloupe archipelago in the southern Caribbean Sea, during a recent autogyro flight (a type of aircraft with an unpowered rotor to create lift). The island still gets most of its energy from imported fossil fuels, but has been steadily increasing power from solar, wind, geothermal and hydropower.
Each week, we feature a photo that is somehow related to energy, the thing we all need but don’t notice until it’s expensive or gone. Email your ideas and photos to news@ciphernews.com.
Editor’s note: In addition to supporting Cipher, Breakthrough Energy also supports and partners with a range of entities working to tackle climate change, including nonprofits, corporations, startups and research firms. For more information on Cipher’s editorial policy, click here.
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