Perspectives on the energy transition – Part 6
December 6, 2022

Alex Boyd

Biases and misconceptions often surround the energy transition. In this series of articles, I’ll take a closer look at some of the conclusions reached and underrepresented facts pertaining to the energy transition to address the tension often accompanied by these conversations, making room for more balanced and constructive dialogue.

In Part 1 of this series, “The energy transition and the path to a healthy environment,” I highlighted the health benefits of increasing renewable generation that are often overlooked.

In Part 2, “The energy transition and the need for fossil fuel support,” I advocate for a cooperative and collaborative relationship between the renewables sector and fossil fuels stakeholders with an “all fuels on deck” approach.

In Part 3, “Opportunities within the complexity and simplicity of the energy transition,” I contemplate the complexity and simplicity catalyzed by the energy transition and the resulting opportunities as we transform our industry away from fossil fuels toward renewables.

In Part 4, “Slowing down is not an option,” I underscore the urgency of transitioning our global energy industry for ourselves and future generations.

In Part 5, “Visualizing a post-transition world,” I promote visualizing the positive results we want and expect to see in a post-transition world as a tool to help bring about change.

 

Part 6: The role of government in the energy transition

It’s clear a step-change is needed to achieve our net-zero ambitions to defend our environment, expand our energy security, strengthen our economies, promote energy equity and protect our collective health.

It’s also clear that the change we call the energy transition requires a collaborative effort across all stakeholders, public and private, e.g., utilities, regulators, governments, consumers, business, industry, academia, etc. I think we can all agree, there isn’t one player holding the reigns.

So, what role should government play in this scenario?

Leadership

In energy, governments are known for rulemaking and enforcement. They are expected to provide a fair environment with outcomes that meet public interests. Our personal beliefs about how much government should be involved in energy may differ, but there is a clear role for government to guard the public welfare and to provide leadership, especially during transformative times such as these.

As the energy transition gains momentum, governments can provide leadership in a variety of ways.

  • It can support our shared success by forming, implementing and enforcing consistent, sustainable energy policies.
  • It can set long-term energy transition goals now to give all stakeholders time to adapt and to kick-start action so disruption is minimized.
  • It can invest in long-term commitments via funding energy research and development, incentivizing the market with subsidies and financing opportunities, and even by offering public land for clean energy projects.
  • Maybe even more importantly, since lack of collaboration is an energy transition deal-breaker, government can provide leadership by helping to align the various players who have historically not always been on the same team.

Enacting energy legislation and regulation

Many governments are duty-bound to provide rules and regulations that will support the development of renewable technologies in order to meet net-zero ambitions. However, once renewable generation is produced, it must be transmitted to where it can be used. Governments also have a role in supporting long-term planning, permitting and building of critical infrastructure, including EV charging networks.

Governments have already contributed to ambitious policy portfolios to accelerate the transition to EVs. Examples include the European Union CO2 emissions regulation for cars and vans, China’s New Energy Vehicles (NEV) mandate and California’s Zero-Emission Vehicle (ZEV) mandate.

Supporting legislation that can help remove investment barriers (i.e., risk) promote a balanced and predictable market which in turn can help create public-private partnerships and ultimately help implement policy objectives like becoming net-zero by 2050.

Another much-talked-about government role is in setting a price on carbon to shift the burden for damage done by unhealthy emissions back to those who are responsible for it, and who can help reduce it. There are 40 countries already using carbon pricing mechanisms and many more with future plans for implementation. Innovation, research and other supporting policies are required to achieve this kind of decarbonization incentive. And that all starts with setting forward-looking transition targets that industry can plan toward.

Setting long-term goals

No major transition in history has happened without disruption and harm, and the energy transition is no different. The best thing we can do to minimize upset is to plan long-term for the transition, giving all stakeholders as much time as possible to adapt and change.

Our debates on whether we should be setting long-term goals, whether we are transitioning too fast or whether we need to transition at all guarantee an overall negative impact because it delays action.

As an example of long-term goals and planning, California’s EV mandate gives industry and society 13 years’ notice to prepare for the change including steps to minimize harm. Many industries have to change to achieve this goal; car makers, electric utilities, charging infrastructure, battery manufacturers, etc. They all need to evolve in parallel, and they need to start sooner than later. By setting a deadline, government is motivating the stakeholders to act by managing their priorities in the context of the long-term roadmap.

Business leaders in the public equity markets can be overly consumed with meeting short-term quarterly targets, so we need more holistic leadership from the government setting longer-term goals and giving us as much time as possible to prepare for and enact change.

Continued investing

According to the IEA, since 2020, clean energy investment growth has accelerated to 12%. Spending has been underpinned by financial support from governments and aided by the rise of sustainable finance, especially in advanced economies. Renewables, grids and storage now account for over 80% of total power sector investment. Spending on solar PV, batteries and electric vehicles is now growing at rates consistent with reaching global net zero emissions by 2050.[1]

Government investment in energy has a long history. In the US, for example, the federal government has made energy investments for over 100 years. Consider many major dams in the US. They were initially built by government agencies (Army Corps of Engineers and the Bureau of Reclamation) for water storage, delivery requirements, navigation and flood control. Eventually, these structures were also tapped for hydroelectricity production and remain a key renewable resource for electricity in many parts of the country today.

Another investment governments have made and continue to make is in nuclear power. According to the IEA, nuclear power has avoided about 66 Gt of CO2 emissions globally over the past 50 years by reducing the need for fossil fuels to create energy[2]. And while negative public reaction to nuclear power is understandable, nuclear power is one of the safest and lowest pollution forms of electricity generation there is. In fact, nuclear power has been responsible for fewer deaths per unit of electricity basis than any other type of energy, including wind and solar[3].

There’s no denying that nuclear power is an expensive form of generation with the upfront capital cost putting it out of reach of most private enterprises. It could be argued that the additional cost of nuclear power is worth it for the low carbon, low pollution electricity that it creates, but it will be very difficult for a private enterprise to build a business case to support the construction of new nuclear power stations or the refurbishment of old ones. Especially if there is no carbon price.

Government can and does provide financial incentives such as grants, loans, rebates, tax credits, etc. to encourage renewable energy development.

Aligning stakeholders

The energy transition is about upending the status quo and wherever change is required, motivation, decisions and action must follow. Governments in 39 countries have made climate emergency declarations. Many more value sustainable growth, however, aligning stakeholders behind a plan can be elusive.

The good news is stakeholders are motivated and support the energy transition.

  • Many businesses have responded to the climate crisis with net-zero commitments and actions. According to Deloitte’s 2022 CxO Sustainability Report, 66% of CxOs surveyed say their companies are increasing their energy efficiency, 67% are using more sustainable materials, and 57% are using energy-efficient or climate-friendly machinery.[4]
  • The power sector (utilities, renewable companies) is at the forefront of decarbonizing the production of electricity by transitioning from burning fossil fuels to renewables. Globally, solar generation rose 23% last year, and wind by 14%. Combined, this takes them to more than 10% of global electricity generation. All clean electricity sources generated 38% of the world’s electricity in 2021, more than coal (36%).[5]
  • Automotive companies are setting long-term goals for the end of ICE vehicle production, counter to short-termism often associated with public companies. These companies know that it will take years to transition their businesses to EVs and their goals are intended to provide planning certainty to their own staff and their suppliers.
  • Even big oil and gas companies like Shell and Total have read the writing on the wall and are adopting clean energy strategies and making substantial investments in renewable energy generation and related businesses.
  • Electricity consumers, in theory, have the most influential role in government energy policy because we vote. In the US, a recent PEW Research survey found that 69% of US adults prioritize developing alternative energy sources, such as wind and solar, over expanding the production of oil, coal and natural gas. The same share favors taking steps to become carbon neutral by 2050.[6]

The energy transition is going to take a huge effort and collaboration is vital. Every stakeholder can impact growth in some way. And just as every team needs a coach to positively influence their teammates, inspire others, and keep sight of the bigger picture in clutch situations, the energy transition also needs leadership to ensure we ultimately succeed. Governments can provide a more complete approach and overall leadership, providing certainty for investors, and putting us on a faster track to success with reduced negative impact leaving the status quo far behind.

 

[1] https://www.iea.org/news/record-clean-energy-spending-is-set-to-help-global-energy-investment-grow-by-8-in-2022

[2] https://www.iea.org/reports/nuclear-electricity

[3] Freakonomics Radio Episode 516, Nuclear Power Isn’t Perfect. Is it good enough? September 21, 2022

[4] https://www2.deloitte.com/global/en/pages/operations/articles/deloitte-cxo-sustainability-report.html

[5] https://ember-climate.org/insights/research/global-electricity-review-2022/

[6] https://www.pewresearch.org/science/2022/03/01/americans-largely-favor-u-s-taking-steps-to-become-carbon-neutral-by-2050/

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