The world has changed a lot since Paris; so too should the logic of climate mitigation.

Mitigating climate change is no longer an expensive collective action problem; it is a technology revolution with enormous wealth-generating and redistributive potential.

Getting this framing right is critical, for the road to Glasgow and far beyond. It is not only that ‘gain not pain’ breeds co-operation and competition; rather that this is a far more accurate representation of the reality in 2021. However, the residual narrative of pain and burden-sharing is very strong. And harnessing this great wave of innovation and redistribution requires moving on from the old framing and overcoming the vested interests that cling on to it.

We set out the old framing of climate mitigation as pain, summarise what has changed, and then suggest a more appropriate framing of gain. We consider what is holding back the energy transition and how best to drive it forward.

If Paris advanced the narrative from ‘ought’ to ‘will’, then Glasgow needs to move the debate from ‘pain’ to ‘gain’. To overcome the last great barrier to the energy transition, which is the forces of incumbency and inertia, hiding behind the ‘pain’ narrative.

The old logic: pain

The old logic of climate mitigation goes something like this: the solution to climate change imposes a burden, so let’s come together and share it. More formally, this logic is that climate change is a collective action problem; that is, the private cost of mitigation is greater than the private benefit, so countries don’t have the incentive to do it. It is a story of individual pain for collective and distant gain. And so countries free-ride and our hopes for mitigation are based on altruism.

With this logic, we have the rationale for a climate treaty to change the incentive of individual countries to choose mitigation. Academics then thought up many ways to do this, such as side payments, issue linkages, and punishment for non-compliance.

This framing rests on one critical assumption: the solution means pain not gain. But this is a strange way to frame an epochal technology transformation – a revolution with enormous wealth-generating potential and energy security gains.

Of course, given the dwindling window of time, change must be supercharged. But the starting point should be: how can we bring forward this great wave of innovation and wealth generation to avoid climate chaos? Clearly the timeframe is a challenge, but equally, innovation has a good relationship with constraints – it likes deadlines.[1] And financial markets anticipate approaching technology tipping points.[2]

What has changed since Paris?

A lot has changed since Paris. Above all the cost of renewable energy technologies has continued to fall on inexorable learning curves. And to levels demonstrably lower than the cost of fossil fuels. When the Paris Agreement was signed in 2015, the International Energy Agency thought the cost of solar electricity in 2040 would still be higher than that of electricity from fossil fuels, and expected deployment of only a cumulative 360 GW of solar by 2020. According to BloombergNEF (BNEF), by 2020 some 90% of new electricity generation was cheaper from renewables than from fossil fuels, and 710 GW of solar was deployed. Battery prices have fallen still faster, halving from 2015-2020 and sparking a four-fold increase in deployment. The BNEF charts below illustrate this process of falling costs and rising deployment, which is very familiar from many other areas of technology.

Figure 1: Process of falling costs and rising deployment 

Meanwhile, engineers have continued to perfect integration technologies to allow ever higher levels of renewable electricity generation. People used to worry about variable renewables rising above 2% penetration. In 2020 they were over 50% in Denmark, and in Northern Germany, South Australia and California, policymakers are already designing 100% renewable electricity systems.

As a result of this, renewable technologies have continued to grow exponentially, enabling them to take all the growth in supply in country after country and sector after sector, driving peak after peak in fossil fuel demand.[3] First in electricity, then in cars, and now innovation is spreading across the energy complex, from hydrogen to steel, from shipping to trucks.

Financial markets have woken up to the speed of change, derating fossil fuel stocks consistently since Paris, and more than doubling the price of renewable stocks in the last 2 years. 2021 has seen a disconnect between fossil fuel commodity price surges and share prices.

The climate has moved faster than most anticipated too. Since Paris, climate change has moved from a problem of tomorrow to a crisis of today: from abstract models in scientific journals to breaking news of floods and fires on televisions around the world. Society is waking up to the scale of the imminent threat.

And governments are responding. When Paris was signed, few had committed to net zero; by 2021, around 70% of the world by GDP had done so.[4] The reality of today is therefore fundamentally different to that of Paris.

The trends will only continue

The trends in costs and technology will only continue, if not accelerate. This is because granular renewables surf “sticky” learning curves. With each new unit deployed, costs fall, and as costs fall, deployment rises. Models that factor in continued learning curves, such as that of Oxford academic Doyne Farmer, show that a rapid energy transition would likely mean a net capital saving of over $5 trillion relative to business as usual, without even considering the costs of climate change, more extreme weather events and pollution.[5]

Yet the forces driving the energy revolution are not confined to economic advantage. They include:

  • Energy security.  80% of the people of the world reside in countries that import fossil fuels. By this logic, the number favouring the transition outnumber the status quo four to one. Given that most of the fossil fuel rents accrue to a tiny number of people in the exporters, the numerical superiority of those favouring change is higher still.
  • Energy access.  770m people still do not have access to electricity. Renewables offer the cheapest and fastest way to reach them, particularly in South Asia and Africa.[6]
  • Pollution.  Fossil fuels kill over 8m a year as the result of pollution.[7] A casualty count whose acceptability vanishes as the cost of alternatives fall.[8]
  • Climate.  Business as usual will lead the world inexorably to higher and higher temperatures and the breaching of tipping points in Earth systems, putting at risk the lives and livelihoods of the 8,000 million on the planet and the unborn generations to come.  And will continue to hit the poorest the hardest despite the vast asymmetry in responsibility.
  • Availability.  The technical potential of renewable energy is 100 times the size of current energy demand.[9] Renewables are abundant and eternal; fossil fuels are limited and can only be used once.
  • Development.  The old trade-off between development and climate mitigation – historically a key sticking point – has been solved. Developing countries are those that are endowed with the most renewable resource potential. Now the economic potential has been unlocked, so the technical potential can be harvested as developing countries leapfrog the old fossil system as they seek energy independence.
  • Geopolitics.  Energy leadership will inevitably result in geopolitical power.  And as the US wakes up to the reality of falling behind China in the technologies of the future, it is acting to maintain hegemony.  This race for influence will drive renewable technologies out into the rest of the world.[10]
  • Unpaid externalities.  The fossil fuel system gets a huge subsidy from the rest of society both in terms of direct support of over $600bn a year[11] and unpaid externalities. At $100 per tonne for CO2 equivalent, the energy sector gets a subsidy from the rest of society for unpaid externalities of $4,000bn a year.[12] As people wake up to this and to the limited carbon budget, fossil fuel taxes can only rise.
  • The combination of the above means that this is an energy revolution that would unfold with or without climate change. Yes, climate change kicked it off and will continue to accelerate it. And without government action it would be slower and more sporadic. But the superiority of renewables would nonetheless drive an energy transition.

The new logic: gain

So there is now a new logic to the energy transition – the pursuit of gain. The shift of energy from scarce to abundant; from concentrated to distributed; from decreasing to increasing returns; from extraction by the lucky to manufacturing by the diligent; and from generating rents for a few to bringing prosperity for the many.

Countries and companies pursuing their own advantage will inexorably drive the energy transition, as they compete to lead in solar, wind, batteries, electric vehicles, renewable hydrogen and green steel. To build and operate the technologies of the future and to deploy them faster than their neighbours. And this very competition will drive faster change.

And as cheaper energy is generated, so this will drive growth and provide space and money to support those workers damaged by the energy transition.

What is holding back change

Despite the clear technology transition that is taking place, the forces of inertia and incumbency are powerful. Some incumbents seek to shield the status quo through a toxic combination of false analysis, political control, dissemblance and system manipulation. Voters are told that change will be expensive and painful, and high-cost or sub-scale technologies like CCS, direct air capture and tree planting are touted as real solutions which will enable us to carry on with business as usual. The great hope of much of the fossil fuel incumbency,[13] like the tobacco incumbency before them, is to buy time to make profits for just a few more years.

The graphic below illustrates how the falling costs of solar have broken through technology and economic barriers and we are now at the political/incumbency barrier.

Figure 2: How falling costs break through barriers: concept chart

What needs to be done

In broad terms, what needs to be done is well understood and set out by the Energy Transitions Commission[14] amongst others. We summarise four key aspects of this:

  • Clean electrification. The world needs to decarbonise electricity, electrify everything it can, and use some variant of hydrogen for the rest.
  • Change land from being a source to a sink. Stop deforestation and use the potential of the land and soil to store carbon.
  • Sequence change by sectors. The easier to solve sectors such as electricity and light transport should be solved first, followed by the harder sectors; only 13% of emissions come from sectors where we do not yet have solutions.[15]
  • Sequence change by countries. It makes sense for wealthier countries to figure out new technologies first, and then to deploy and scale them in less wealthy ones.  It also makes sense for less wealthy countries with lower energy demand per capita to leapfrog to the new technology rather investing scarce capital into the dying fossil fuel sector.

And with regard to the role of governments, we highlight five areas below. This transition, within the required timeframe, is not something that market forces alone can achieve.

  • Set targets. Companies, investors and households need to know the direction and speed of travel.
  • Retool policy. Most policies and subsidy mechanics were set up for a fossil fuel world. They need to be transitioned to create an environment for renewables to flourish. This means not just removing fossil fuel subsidies and taxing fossil fuels for their externalities but also the detailed work of retooling regulatory systems.
  • Build infrastructure. Governments need to put in place the modern, forward looking smart infrastructure for a renewable system.
  • Sell the story to the people. Nothing is easy, especially in light of the constant disinformation of the incumbency. Energy transition will cause job losses, in the same way as the growth of the internet has led to job losses; but the world is a better place for having universally available information and will be a better and fairer world when energy is local and cheap.  Leaders need to step up to the plate and articulate the benefits of an energy transition as well as the costs of business as usual.
  • Figure out answers for the hard to solve sectors. Encourage corporate leaders to invest research dollars to figure out solutions for the tougher sectors such as aviation and plastics that represent the final 13% of emissions where we lack economical solutions today.

What can the Glasgow COP achieve?

The stated priorities for COP26 are many, including progress on national targets, carbon markets and coal phase-out as well as delivering the $100bn of climate finance to developing countries. These are important details for the diplomats to deliver on. However, COP must also change the narrative of the energy transition from pain to gain. It is gain not pain that reflects the reality of today, will shift capital flows from the billions to the trillions and can mobilise the wit and will of humanity at a speed necessary to avoid climate chaos. COP must therefore act as a giant megaphone to make clear to the peoples of the world that there is a bright future ahead if the interests of the many can overcome the rents of the few.

[1] For example, observe the amount of technology that has come out of the military context.

[2] Witness the high values financial markets are giving to hydrogen green hopefuls like ITM Power, NEL Hydrogen and Plug Power, while Tesla demonstrates the EV mania for the now inevitable auto sector disruption globally.

[3] Source:  Reach for the sun.  The emerging market electricity leapfrog, Carbon Tracker, 2021

[4] Source: Net zero by 2050, IEA, 2021

[5] Source: Estimating the costs of energy transition scenarios using probabilistic forecasting methods, Way et al, 2020

[6] Source: Net zero by 2050, IEA, 2021

[7] Source: Environmental research, Vohra et al, 2021

[8] Source: Air quality and climate policy integration in India, IEA, 2021

[9] Source: The Sky’s the limit, Carbon Tracker, 2021

[10] Source: A new world, the geopolitics of the energy transformation, IRENA, 2019; Sino-US competition is good for climate change efforts, Foreign Policy, 2021

[11] Note: This is from G20 countries and consists of investments in state-owned enterprises, direct budgetary transfers, tax breaks and concessional public grants and loans. Source: Climate policy factbook, subsidies to fossil fuels, BNEF, 2021

[12] Note: Annual emissions from energy ~40 GtCO2e (40 billion tonnes)

[13] But not all companies, obviously; some have seen the writing on the wall and are changing strategy.  For detailed analysis of this issue see: The new climate war, Mann, 2021

[14] Source:  Making mission possible, Energy Transitions Commission, 2020

[15] Source:  Rethinking climate change, Rethink X, 2021