Donald Trump’s determination to pull the US out of the Paris climate accord has been described as a major blow to the global carbon reduction effort.
But a new report from Morgan Stanley argues the move could cause barely a ripple, in the face of the “seismic shift” in renewable energy economics that is rapidly making wind and solar the cheapest new power source all around the globe.
The report, published on Thursday, predicts “surprisingly large” reductions in global power sector emissions – even in Trump’s America – as solar and wind energy hurtle towards being the cheapest new sources of electricity generation, beating out fossil fuels, with or without ambitious policy targets.
The analysis notes that solar panel prices have fallen 50 per cent in less than two years (2016-17), while the “all-in” costs for wind power in countries with “favorable” conditions can be as low as one-half to one-third that of coal- or natural gas-fired power plants.
“Numerous key markets recently reached an inflection point where renewables have become the cheapest form of new power generation, a dynamic we see spreading to nearly every country we cover by 2020,” the report says.
“Renewable power will be the cheapest new entrant in most markets, in our view, and we assess emissions rate of change profiles over near (2020) and longer (2025) time frames.”
Factoring in these renewable energy economics, the Morgan Stanley researchers found notable changes to utility sector carbon profiles in numerous countries, often in excess of the levels affirmed in the Paris Agreement.
For example, the report says, “notwithstanding President Trump’s stated intention to withdraw the US from the Paris Agreement, we expect the US to exceed the Paris commitment of a 26-28 per cent reduction in US 2005-level carbon emissions by 2025.”
Even in Australia, the report says, where “near-term policy uncertainty favours incumbents … in the longer term, high penetration of renewables (>35-45% of dispatch) is opening a wider debate about what will be required to ensure a reliable grid as more intermittent renewable energy is added.”
But regardless of policy debate, the report suggests that the power industry will be steered by economics, to one degree or another, with those forward looking businesses faring the best.
“Globally, utilities’ competitive positioning for the growth in cheap renewables varies significantly,” the report says.
“Utilities with deregulated power plants, which must compete to sell power, generally will experience greater upside (if they are leaders in renewable energy development) and downside (if they own large fleets of fossil and nuclear power plants in competitive markets with cheap renewable energy).”