Opinion: “Green energy” revolution may stop

    27 Jun 2021

    While the economy is slowly recovering, the world is plagued by scarcity and price surges that have affected everything from the supply of Taiwanese chips to the cost of a French breakfast. Supply issues deserve particular attention, such as scarce metals and limited land resources, which threaten to slow the explosive development of clean energy technologies. These problems cannot be attributed to the transition period.

    Alas, they can easily become a characteristic attribute of the world economy for many years, since the transition to cleaner energy sources is still only at the initial stage, The Economist editorial staff states.

    The authors conclude that governments must respond to these market signals and encourage more private sector investment in the coming decade, or the power of new technologies will not grow. If they fail to do so, they risk losing the chance to meet their zero-emission commitments.

    Climate change has been worrying scientists and activists for years. Recently, politicians have begun to show signs that they still intend to seriously tackle the issue. The countries responsible for more than 70% of global GDP and greenhouse gas emissions have finally set themselves the goal of achieving zero emissions by 2050. In the corporate sector, there has also been a significant change in sentiment: investors are immersed in the new reality of increased competitiveness of environmentally friendly technologies and are demanding from companies to change their development strategy. The giants of the fossil fuel era (Volkswagen or ExxonMobil) are forced to adjust their investment plans.

    Meanwhile, clean energy pioneers are rapidly increasing their capital investment. Ørsted, the world’s leading wind turbine company, plans to grow 30% this year, while electric car maker Tesla plans to grow by as much as 62%. Meanwhile, in the first quarter of 2021, green investment funds were replenished with an astronomical $ 178 billion.

    This sudden reallocation of resources is causing problems in various sectors, as demand for raw materials rises, along with the competition for the few projects that have received regulatory approval. We estimate the price of five minerals used in electric cars and power grids has risen 139% over the past year. Mafia loggers are scouring Ecuadorian forests for cork to make wind turbine blades. In February, about $ 12 billion was spent at a British auction, which exhibited seabed mining rights for the installation of offshore wind farms. Utilities rushed to buy permits, not worrying about the price.

    The deficit is also seen in finances. There are very few renewable energy companies on the market, and a lot of money goes only for them. Their market value has already reached the level where the situation threatens to turn into another financial bubble. While the impact of renewables on consumer price indices is not yet significant, some financiers fear that supply shortages over the years could lead to higher inflation.

    All these signs of overvoltage are very impressive, as they appeared already at an early stage of the energy transition, completed by less than 10% (the assessment was carried out relative to the share of total energy investments required by 2050 – this condition has already been met). It should be admitted that some of the technologies required for this are still being developed and are not yet available for investment. This is why a lot of research and development is needed. In other areas, however, most of the mental work has already been completed. The current decade will be the era of a workforce that will be massively pumped up by existing technologies.

    The forecasts for the next ten years are thought-provoking. To be carbon-neutral, the annual production of electric vehicles is expected to grow tenfold by 2030 compared to 2020, and there must be 31 times more charging stations on the roads. The installed renewable capacities must be tripled. Global miners may have to raise their annual production of important minerals by 500%, while 2% of US land needs to be devoted to wind turbines and solar panels.

    All this requires colossal investments (about $35 trillion) over the next ten years, which is a third of the current global financial assets. Best suited to this challenge is the cross-border supply chain network and capital markets, which have revolutionized the world since the 1990s. Nevertheless, even this system is not enough: investment in energy barely reaches half of the required volume and is mainly directed towards a few rich countries and China. Despite the fast

    With growing prices for metals, mining companies are in no hurry to increase supplies.

    The main reasons for the lack of investment are that it takes too long to get approvals, and the forecasted risks and the level of profit from them are still not clear enough. Governments are also adding fuel to the fire, using climate policy as a tool to achieve other political goals. The European Union strives for strategic autonomy in the production of batteries, and part of the funds intended for the development of “green” technologies goes to socially disadvantaged regions. China is considering setting price caps on raw materials in its next five-year plan, and US President Joe Biden is working on a green plan that prioritizes job creation and local production. Such a mixture of vague goals and “soft” protectionist measures do not allow attracting the necessary investments.

    Governments should be more prudent. The state’s role is extremely important in supporting the construction of key infrastructure (the same power lines), as well as in research and development. Nevertheless, the priority now must be to increase private investment. This can be done in two ways.

    First, ease planning regulations. It takes an average of 16 years globally to get approval for a mining project. In America, typical wind farm projects take ten years before they are given the necessary permits and leases. This, incidentally, is one of the reasons why offshore wind farms in America account for only 1% of European capacity. To speed up these processes, it is necessary to centralize decision-making, but this, in turn, will anger local residents (NIMBY movement) and conservatives.

    Second, the government can help companies and investors manage risk in at least some areas: for example, guarantee minimum prices for energy production. Western governments are also required to provide cheap lending to boost investment in less prosperous countries. However, introducing CO2 pricing is a key measure. They will act as market signals in millions of day-to-day business decisions and will enable entrepreneurs and investors to look wider in the long term. Today, emissions trading systems cover only 22% of global greenhouse gas emissions, but even these schemes remain fragmented. All this green congestion is a clear sign that decarbonization is finally moving from theory to practice. Now we need a powerful impetus for the revolution to happen.

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