Solar entrepreneur Jeremy Leggett on Tuesday gave the Solar Oration at the ANU. He won a standing ovation. This is an edited version of his speech notes, which he kindly shared with RenewEconomy.
A great global energy transition is unfolding in the world today, a total system change. We can think of it as an epic drama. Like any epic, is it has multiple interweaving stories. They span three themes, or meta-narratives.
The first is of global society awakening to a threat to civilisation, and responding in critical mass. Given the enormity of the ecological and economic horrors runaway global warming would inflict on the world, we can think of this as a survival reflex emerging in humankind.
The second is of an insurgency disrupting an incumbency fast, in the energy markets that fuel the majority of the problem with the planet’s thermostat. This is unfolding faster than most players in the drama appreciate.
The third is of an energy incumbency facing multiple threats, increasingly existential, not always related to the other two megatrends. No one of these three meta-narrative megatrends would be enough, on its own, to force the global system change underway. It is the power of all three, acting in parallel and synergy across the full breadth of the climate-energy-information nexus, that is making history.
In my latest book The Winning of The Carbon War I argue that 2013 to 2015 were turnaround years in the struggle. The title is carefully chosen: it means to convey that the tide of war has turned, but not that final victory is inevitable. The jury is still out on that. Digital copies of this book can be downloaded free of charge on my website, where I also chronicle key events since its conclusion. The course of 2016, I suggest, remains consistent with a global transition from fossil-fuel dominance to zero carbon taking early shape.
Let me summarise the top 10 stories making up The Carbon War, including the events covered by the book and those of 2016 so far, as I see them.
Meta-narrative One is of global society awakening. It consists of stories 1 to 4…
Story One: Governments getting serious about climate change
The world first saw how far world leaders were prepared to go on climate change when the G7 agreed to a complete retreat from fossil fuels at their June 2015 summit. Few expected all governments to be capable of negotiating a a decarbonisation pact. At the Paris climate summit in December 2015 they proved they were.
The Paris Agreement was adopted by every independent nation on the planet. Few expected the treaty to come into force. It did: amazingly, in less than a year. Donald Trump would like to tear it up: both the paperwork and the momentum, no doubt.
He might have hoped that merely the mention of his intention to quit the Paris Agreement would be enough for the climate talks to fall apart at the annual climate summit in Marrakech. Exactly the reverse happened: the rest of the world pulled together.
195 countries issued a Marrakesh Action Proclamation reaffirming the Paris Agreement, the urgent imperative for it, and the speed of the energy transition in the real economy. They agreed that “momentum is irreversible – it is being driven not only by governments, but by science, business and global action of all types at all levels.”
Trump may simply drop the US plan, but many of America’s biggest corporations won’t. 360 US businesses urged Trump not to back out of the Paris agreement. DuPont, Hewlett Packard, Kellogg, Mars, Nike, Starbucks and other well known brands all agreed that “failure to build a low-carbon economy puts American prosperity at risk.
This story isn’t just about climate change. Air pollution is rising alarmingly in cities. It topped the World Health Organisation’s league table of human killers in 2015, with 3 million deaths. Regulators and cities are acting the world over, not least in India, which recently declared a state of emergency in Dehli when the concentration of the most dangerous particles in the air exceeded the ability of monitoring instruments to measure them.
In China, where air quality is terrible in many cities, the government is under pressure from its own people to clean up the air, and responding. As a consequence of this and regulation in the wake of the Volkswagen emissions cheating scandal, key figures in the automobile industry believe that diesel fuel may soon be forced out of the market: the end of an entire category of fossil fuel use.
Story Two: Civil society increasingly campaigning, in multiple sectors
States, cities, companies, churches and communities are in the vanguard of societal mobilisation to combat climate change. Governments wouldn’t have been able to achieve what they did in Paris without this “groundswell”, as the UN calls it. Some states, like California, have emissions targets more ambitious than most national governments.
More than a thousand cities are now committed to 100% renewable power. They include 16 US cities, 4 of which have already achieved the target.
More than 80 of the world’s biggest corporations are committed to 100% renewable power, some like IKEA and Hewlett Packard as soon as 2020. 600 of the world’s largest companies now have business plans that factor in climate change action. Investment funds worth hundreds of billions have committed to pressure the companies they invest in to go 100% renewable.
The leader of the Catholic church has called for a retreat from fossil fuels as a matter of spiritual imperative. Other church leaders – Christian, Buddhist, and Islamic – have echoed this call.
Community renewable energy projects are proliferating by the their thousands around the world, most notable in Germany, where more than half all renewable energy assets are owned by communities and individuals.
Story Three: Regulators beginning to regulate climate change risk
The majority of fossil fuel reserves will prove unburnable if the target of the Paris Agreement – under 2˚C of global warming – is to be hit. Financial analysts in Carbon Tracker and other organisations have analysed who owns what, where, in this body of reserves – which can be thought of as a “carbon bubble” – and charted the capital at risk in continuing efforts to add to the bubble.
The risk of stranded assets, as a consequence both of climate action and cost undercutting by non-carbon alternatives, is clearly growing apace, and regulators have awoken to this since 2015. The G20’s Financial Stability Board has set up a Taskforce on Climate-Related Financial Disclosures, chaired by no less a figure than Michael Bloomberg, with a brief to specify the information investors need to be provided with in order for this risk to be limited via capital switching en masse away from carbon fuel. It reports next week.
Key players in the capital markets are taking notice. For example, ratings agency Moody’s has said it will be using the Paris Agreement in future credit assessments. Already fossil fuel companies are seeing writing on walls. Suncor, the biggest producer in the tar sands, has been talking to the Canadian government about deliberately stranding some of its assets.
Story Four: Capital beginning to switch from fossil fuel to clean fuel
Some investors are not waiting for the G20 taskforce’s advice, and are already divesting from fossil fuels. By the time of the December 2015 Paris climate summit, investment funds with collective assets of $3.4 trillion had either divested from all or some fossil fuels, or announced their intention to.
This movement has continued to grow in 2016. Perhaps most notably, one of Sweden’s state pension funds, AP4, has not just divested its $14.5 billion equity portfolio, and deliberately reinvested some of the proceeds in low-carbon funds.
The second meta-narrative of The Carbon War entails an energy insurgency disrupting an insurgency fast. It consists of stories 5 to 7 of our top 10…
Story Five: Renewables going exponential
Solar costs have been coming down for four decades. In 2006, global installed capacity began explosive growth. The average solar price trajectory has plunged so steeply since 2006 that analysts have dubbed it “The Terrordome”, invoking both a fairground ride and perhaps the fear it engenders in those determined to defend the status quo.
Wind costs have plummeted too. Analysts at Bloomberg conclude that onshore wind and solar PV will “win the cost race”, becoming the two cheapest energy options in many nations as soon as 2020. In some they already are.
How many lay people appreciate, I wonder, that renewables have already overtaken coal as the single largest source of power capacity. That entire countries (Portugal, 4 consequetive days in May 2016) are being run on renewable power for days at a time? That all of China’s new power capacity last year was met with wind and solar? That Apple has set up an energy company of its own? What clearer writing could there be on the wall.
Story Six: Storage and electric vehicles going exponential
Storage and electric vehicles (EVs) are not far behind renewables. EV sales grew 60% in 2015, around the rate the Model T Ford grew in its early years. 2 million EVs are now on the roads. At this year’s Paris motor show, carmakers queued to unveil their latest electric models.
They know they are in a race not just to make electric cars that people will buy ahead of competitors, but also…. to make batteries for use in buildings. For the two are related.
Bloomberg calculates that EVs will displace 2 million barrels of oil a day – the level at which oil demand crashes have been triggered in the past – as soon as 2023.
Again, key actors are noticing what is coming. For example, in Abu Dhabi, Crown Prince Sheikh Mohammad Bin Zayed Al Nahyan has told his people: “In 50 years, when we ship off the last barrel of petrol, we will not be sad. I promise you, my brothers and sisters, we will be celebrating.” This is because of all the investments that will have been made in zero energy and other twenty-first century industries in the interim.
The transition could go faster. Such rapid system changes have happened before. In 1900 a famous photo of Fifth Avenue in New York shows only horse-drawn carriages. Another in 1913 shows only horseless carriages, later to be known as cars.
Story Seven: Data revolution waiting in the wings
The world of big data has largely yet to manifest in energy markets. It will. Ever more advanced algorithms have allowed tech companies to grow in recent years from nothing to multiple-billion-dollar valuations. Tech giants with operations that span these strategies, such as Apple, Google and Facebook, have made their first plays in energy long since.
This in a world wherein, to take one example of great relevance, the UK national electricity grid achieved a first in October by transmitting data down its own wires.
The third megatrend involves an incumbency is in increasingly deep trouble never mind climate change. It consists of the last three stories, 8 to 10…
Story Eight: The utility industry facing a death spiral
Many utility companies have admitted their business models are broken, and are now endeavouring to leap on the energy-transition express. E.On, the giant German utility, was the first to do a U-turn. GdF Suez was not long behind.
The clean energy revolution was one factor. Another was the decline of coal, which some analysts conclude is a structural decline, not cyclical. Utilities are doing obvious things, like acquiring renewable energy and battery companies. They will have to do a lot more. Are they able to? Culturally? Operationally?
Story Nine: The oil and gas industry entering its twilight years
The Financial Times writes of “the long twilight” of the big oil companies. Companies are “binging on debt”, as the Wall Street Journal puts it. They are often drilling at a cost of recovery well in excess of the price they can sell oil and gas for are borrowing money even to pay dividends.
The industry has a collective debt mountain that has passed $3 trillion. Analysts once supportive of the industry talk of a “doomsday market”, of an industry unable to survive.
More than 350,000 oil and gas workers have lost their jobs around the world since the oil price began to fall in 2014, including more than 60 per cent of the US shale workforce. Delivery of major projects against clock and budget has been almost universally dismal for years now.
The Executive Director of the IEA couldn’t be clearer. “Anyone who does not understand what is going on”, Fatih Birol says, “- governments, companies, markets – is not in the right place.”
Some oil companies have begun hedging their bets. Statoil, for example, has set up a dedicated renewable energy division. They are innovating in floating offshore wind, leveraging oil industry skills.
Others are digging in to defend the status quo: BP, Shell, ExoonMobil, Chevron. Can they succeed in throwing the energy transition off course? Will the more forward thinking oil and gas companies make U-turns like the utilities?
Story Ten: The shale boom in danger of going bust
Once shale was going to be the rock that would power the world. So the front cover of Time magazine announced in April 2011. But even then it often cost more to frack out of the ground than could be recouped in sales. By April 2014, Bloomberg were asking “Is the US shale boom was going bust?”, even at a high price. At a low price it was even worse.
In the US shale belt, more than 100 companies have gone bankrupt as banks call in loans that cannot be serviced. It will take more than an oil rally to turn all this around, as industry leaders admit. “Its not really like just turning on the light switch”, as the CEO of EOG Resources puts it. Mothballed equipment rusts or is cannibalised. Workers quit to join other industries, not least the solar industry.
It is increasingly doubtful that the US shale model is sustainable at any kind of scale, much less exportable to other countries, where fracking is increasingly being banned anyway. As with all the other ten stories, the drama continues, with developments every day.
The whole drama amounts to a race between climate action and the climate clock: between the course of the carbon war, and the course of global warming and other impacts of climate change. Both the clean energy revolution and the worrying warming trend of recent years are capable of accelerating, sadly. Given the existential threat climate change poses to civilisation, any final victory in The Carbon War could yet be hollow. This is essentially a tale of a race against time.
Let me offer a personal conclusion to all these stories unfolding in parallel. For myself, I am reading far fewer novels than ever I have before. This because I cannot take my eyes off real life. I watch the course of the carbon war, and all the stories relevant to its denouement, for most of my day, almost every day.
In my view, there has never been a drama like this before, across the entire arc of human history. It goes without saying that it has enormous implications for the business world, in the short term, involving opportunities and threats.