BNEF World Economic Forum

Published on February 8th, 2016 | by Dr. Elie Chachoua


Renewable Energy & Davos

February 8th, 2016 by  

Editorial note: If, like many Brazilians, you were on holidays for most of January, you might have missed two important international summits of relevance for climate and energy. Luckily for you, CleanTechnica was there to cover them while you were out and about on your first full-electric road trip (or whatever you happened to be doing).

The two summits were the annual meeting of the World Economic Forum (WEF) in Davos and the 2016 Investor Summit on Climate Risk in New York. The first was a great way to gauge the reaction of the business community to the climate deal signed in Paris at the end of December. The second was key to testing the waters on the investment side of the picture in the wake of the two aforementioned events. The piece below deals with a central piece of the investment picture, namely the critical role of disclosure in driving investments. For the piece on Davos, click here.

For an international gathering of world leaders under the theme of the “fourth industrial revolution,” some energy panels at Davos were at times frustratingly focused on the fuels of the third one: fossil fuels.

Especially infuriating was the one on “the new energy equation” — the panel where you’d expect renewable energy sources to take a center stage – which not only had no one from the clean energy industry, but also took about 40 minutes (out of a 1h+ long panel) before panelists actually mentioned renewables — and even then, comments lasted just a few minutes.

To be fair, there have been important changes in the fossil fuel energy space over the past 18 months, some of which do matter for the clean energy transition.

IEA Fatih

Fatih Birol, Executive Director of the International Energy Agency, via World Economic Forum video.

A low-oil-price environment, for instance, is a unique opportunity for countries to finally remove fossil fuel subsidies, which are infamously known for being both costly and inefficient. In a less positive spin, low prices can also affect the impetus for energy efficiency. “What I’m scared [of] is that, with low energy prices, the push on energy efficiency might not be as strong as the one we have seen in the last few years,” said Fatih Birol, Executive Director of International Energy Agency, during one of the sessions. “Don’t get too relaxed, continue to push the energy efficiency button,” he urged governments.

It can also be tempting to explore the intricate and interesting dynamics shaping the oil and gas markets today. From the rise of unconventional production in the United States, Saudi Aramco’s production strategy and possible IPO, or the implications over China’s economic slowdown, there is no shortage of strategic questions for economists to ponder.

But focusing too much on fossil fuel prices, as was done in the aforementioned panel, was both misguided and myopic. Misguided because predicting the average oil price in this complex and uncertain economic environment is a futile exercise; one that, to their credit, most energy panelists refused to engage in. And myopic because it omits the facts that, at $329 billion, renewables investments are at an all-time high. In fact, thanks to cost reductions, both solar and wind have seen a 30% increase in new capacity installed in 2015 compared to 2014, according to data compiled by Bloomberg New Energy Finance. Preliminary estimates for 2015 also suggest that solar PV and wind alone collectively accounted for half of new power generation capacity added last year, as well as the year before. That alone should have granted renewables at least half of the airtime in the panel “the new energy equation.”

That one panel aside, however, Davos panels did a good job at driving across some important points for both business and governments. The first was anchoring the implications of the Paris agreement in terms of reducing policy risk.

Christiana Figueres World Economic Forum

Christiana Figueres, Executive Secretary of the UNFCCC, via World Economic Forum video.

“There is a very clear tendency towards increasing the carbon efficiency of the economy,” said Christiana Figueres, Executive Secretary, United Nations Framework Convention on Climate Change, and “it will demand that national regulation keeps pace and in fact increases its aspiration to continue to decarbonize the economy every five year period.”

Of course, the agreement must first enter into force. This, reminded COP president and French foreign minister Laurent Fabius, requires 55 countries representing at least 55% of the GHG to sign and ratify the agreement – a threshold many hope will be achieved during the high-level signing ceremony at the UN headquarters in New York City this April. May will also come with its share of homework, with governments meeting to discuss and clarify important details of the Paris agreement, not least of which are issues related to reporting.

Another reminder, less new but critical nevertheless given the audience, was the need for companies to start pricing carbon internally. “If you’re not working with an internal price on carbon, you should start tomorrow,” said World Bank’s President Jim Yong Kim. “China is going to have a national trading system by 2017 and if you’re not prepared to think about low carbon solutions in your dealings with China then you’re going to be at a disadvantage,” he warned the audience. This is not just an issue of compliance, it’s an issue of smart investments, said Stuart T. Gulliver, Group Chief Executive, HSBC Holdings Plc. “If you’re assuming it’s zero, you’re mis-investing,” he pointed out.

Last but not least was the urgent need, echoed across both public and private participants, to de-risk investments and scale up green finance. China will be an important actor to watch this year, many panelists noted. The country has made green finance an objective of its G20 presidency. It also issued national standards for green bonds shortly after Paris – something that should help an already growing market expand even faster.

To truly achieve scale, however, policymakers will have to create investment environments able to attract the larger players, notably institutional investors. According to COP21 Special Representative Laurence Tubiana, this will be a key priority of the COP presidency this year. 2015, she said, was about mobilizing governments around the $100 billion target. “This year, the agenda is different,” she said, pointing to the need of engaging private actors such as sovereign wealth funds, pension funds, insurers, and banking to “see where the problems really are and how the leverage effect will happen.”

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About the Author

is a strategist and thought leadership expert. His work focuses on the trends associated with globalization and technology, their implications for sustainability, and what these mean for governments, civil society, and the private sector. Elie has extensive experience in managing multidisciplinary research projects with international teams and has worked for renowned organizations including international (e.g. OECD, UNDP), academic (e.g. Columbia University), and private ones (The Economist Group, KPMG). He currently acts as managing editor for an award-winning blog of The Economist Group dealing with innovation trends in the industrial economy. He holds a PhD in Theoretical Physics from the University Pierre et Marie Curie and a Master of Public Administration from Columbia University’s School of International and Public Affairs.

  • Hazel

    Interesting to think about: if we reduce demand for carbon in order to reduce emissions, then the price of carbon-based fuels will drop dramatically. Much of the drop in oil price is due to reduced demand due to economic weakness in China. But that’s not all of it, as US gasoline consumption has plunged in the past few years, from around 60,000 gallons/day from ~1984-2006 down steadily to just 21,000 in 2014, though 2015 went back up to 25,000. Part of that was the economy, part had to be Cash for Clunkers and newer more fuel-efficient vehicles, but that’s an enormous drop. And this has to be part of the reason for the price collapse.

    On another subject, yes Davos is a junket. But if it gets world leaders (like in China and Indonesia) thinking about things like eliminating gasoline and other fossil fuel subsidies, then it’s a worthwhile junket.

  • JamesWimberley

    The Davos junket is more self-important than important. It only tters beause a fair number of rich and influential people show up to ressure themselves that the Very Serious People like themselves are stil in charge, even when – as with renewables – they are hopelessly behind the curve and the hippies are still right. My takedown of the bogus Davos “competitiveness” index, see here (link) – old but not refuted. For a much funnier takedown by Michael Kinsley of Davos as “world leader fantasy camp” see here (link).

    • Ha, interesting.

      I’ve typically not paid much (almost any) attention to it, but thought that was due to being too out of touch with this segment of the market/society. Now I have an excuse. 😀

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