How I Learnt to Stop Worrying and Give Up Fossil Fuels

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Oily, coaly is our earth. The black blanket of your blue planet is slowly extracted, providing extraordinary power to the humanity. But at what price? Hasn’t the right time already arrived to turn to green energies?

The 2011 report of the International Energy Agency (IEA) reveals that globally, energy sources are not diversified. Coal and oil represent together about 60 percent of the world energy supply, 80 percent if we add natural gas. Alternatives or renewables – hydro energy, geothermal energy, and wind energy – represent together less than 3,1 percent of the world energy supply (IEA report 2011). At the same time, non-OECD countries, with China and India leading the way, are demanding more energy resources, representing almost 93 percent of increase in demand in energy in 2010 according to the IEA World Economic Outlook 2010. The same report also estimates that oil peak should be reached around 2020, making the situation more problematic. Additional explosiveness is added by the fact that transforming coal, a very likely substitute for oil after the peak, into energy is very unfriendly to the environment, at least with technology available today.

In 2009, in Copenhagen, political leaders failed to agree on a common ambitious plan to reduce CO2 emissions. They missed to settle long term objectives in a time when making decisions could have made them unpopular because of the increasing pressure on economies already in slowdown situation. Now, new approaches may be required to solve the inability of government to tackle the problem.

Private initiative or private-public partnership could be a source of new hope. Sustainable energy can be indeed considered as potential for new businesses and economic growth. In 2011 already, the sector has created 5 million jobs globally and investments have increased by 17 percent according to the global trends in renewable energy investment report. Eoghan Macguire, CNN journalist, reports in an article in 2012 that $9 billion are invested by corporate and venture capital in R&D for technology in renewable energy, against $4.6 billion by governments. It is very encouraging to see that the private sector investing such amount in a difficult economic climate. But the general criticism remains that investments in renewables are only profitable because of subsidies. Karlheinz Knickel, co-founder from International Institute for Sustainability Analysis and Strategy , reports however in an interview that fossil fuels globally remain far more heavily subsidised with an amount of $400 billion, while renewable energies receive only about $66 billion. An important paradox exists here. On one hand, subsided fossil fuels encourage trade and support economic development in countries like Indonesia and little developed countries that have oil reserves. But on the other, these subsidies discourage the use of other sources of energies, which are therefore losing competitiveness.

In the same interview, Kirsty Hamilton, expert at the Renewable Energy Finance Project at UK-based think-tank Chatham House, explains that in the present situation, renewables still need subsidies to be commercially attractive. The fact that fossil fuels are six times more subsidized than renewables also legitimises a higher support to clean technology energy. In opposition, Daniel Esty, Commissioner of the Connecticut Department of Energy and Environmental Protection, claims in a HRB blog that clean energies should be less subsidised. He explains that it creates competition distortion. According to him, it is not enough, for good renewable energies, to be cleaner. They should be cheaper and more reliable than fossil fuels. Considering the both arguments, we understand that it is basically only a timing issue. During the early phase, subsidies are required to create a positive environment for investment. Once this environment is created, it is important to reduce subsidies so that the market can assess a price without distortion.

Another problem arises from this debate: assessing competitiveness form new sources of energy is very complex. Being both supply and demand driven, innovation not only requires high corporate investments in supply side in term of capital or labour forces, but needs also industries and customers looking for innovative solutions. In other words, a large number of stakeholders have to be involved in order to create a positive environment for innovation. Policy makers, research teams, top management should all together build a organization culture focusing on learning, failure acceptance, and risk openness to take on ambitious projects.

Today, we plan to diversify our sources of energy. We want to use many of them, because it is using more harmoniously the resources that the earth provides us. But it is important to be aware that using less economy of scale and multiplying investments in different energies would make the infrastructure more expensive. The costs will be significant, because the subsidies mean that we don’t know the real cost of energy. Indeed many negative externalities are today not internalized. For example, the coal price today does not internalize the cost of CO2 emissions on the environment.

In conclusion, a harmonious solution for the world energy supply implies the development of alternatives energies. People need to understand that clean energies cannot only be more sustainable but also cheaper and more reliable than fossil fuels. We require entrepreneurs, who invest in ambitious projects and create new success stories. Two phases could be differentiated. It is essential that in a first time new technologies could be supported, for example with subsidies or private-public partnership. In a second phase, it is necessary to reduce subsidies on energy, which has proved to be good alternative solution to fossil fuels or coal energy. Indeed, clean energy should prove to the market that they are competitive. Reducing subsidies on fossil fuel and alternative energy may have, however, a cost in a short term perspective for trade and economy. But it is a necessity that price of energy internalizes more long-term impact, in order to invest in the right potential energies. Then only, next generation will also be able to profit of our planet Earth in a way we do today.

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