To achieve the Paris Agreement target of net zero by 2050, the world needs to shift to green infrastructure – now. In the first of a two-part series for LUX magazine, Claire Asher shows how the public and private sectors can speed the move from fossil fuels to green energy.
Giving up our addiction to fossil fuels will be the biggest energy transition the modern world has seen. It will require rapid changes to our energy systems and huge investments from both the public and private sectors, and it will be essential to ensure a liveable climate for generations to come.
The first steps in this transition are already underway. By redesigning systems, such as heating and transportation, to use electricity rather than liquid or gas fuel, we gain the flexibility to generate that energy from a variety of sources. “Everything that can be electrified will have to be electrified,” says Roberto Schaeffer, Professor of Energy Economics at the Energy Planning Program of the Federal University of Rio de Janeiro in Brazil. Our future energy portfolio will likely include a mixture of wind, solar, hydroelectric, geothermal, biofuels and nuclear energy, tailored regionally to match local availability, as well as social and political priorities.
“Our total energy use will decline significantly as we electrify transportation and heating,” says Anthony Patt, Full Professor of Climate Policy at the Institute of Environmental Decisions (ETH) in Zurich. Nevertheless, global electricity demand will likely rise as we transition, to replace existing coal- and gas-fired power plants and to replace fossil fuels used in transportation and heating. “We’re going to need a lot of new power, a lot of investment into wind and solar,” he says.
In the short term, growing energy demands will be eased by improving efficiency. “There’s capital needed in the near term to help reduce energy wastage,” says Alice Miles, Head of Infrastructure Specialists at DWS Group asset managers. “It sounds a lot less glamorous, but there needs to be investment to upgrade to more efficient air conditioning, ventilation and refrigeration systems, better insulation and better boilers.”
Balancing supply and demand
Compared with fossil fuels, renewable energy sources such as wind, solar and hydroelectric provide a less consistent output that varies daily and seasonally, so matching energy supply with demand will be challenging. The most obvious solution is to store energy for later use, but installing batteries to store electricity is not cost-effective. “If you’re thinking about storing power from one season to the next, it becomes almost prohibitively expensive,” says Patt.
Scaling up battery storage will also place pressure on global supply chains. Current battery technology relies on specific minerals, such as lithium and cobalt, which are produced in only a few countries, including China, Bolivia and the Democratic Republic of the Congo. Although renewables promise increased energy independence, Schaffer warns that, “with the energy transition, we may become even more dependent on a few countries because of the need for these materials.”
“The critical thing is to create a regulatory environment in which anybody investing in renewable-energy production knows they’ll make money”
An alternative to large-scale energy storage is large-scale energy grids. “We need a grid that is bigger than our weather systems to balance out the regional differences in production,” says Patt. Weather systems alter wind speeds for days at a time, at the scale of hundreds of kilometres, so this will mean “moving from a national model of electricity planning to a more European model, and with a lot of grid interconnections,” he explains. With the right continental-scale planning and grid infrastructure in place, “you could install enough wind and solar in the right places, so that we wouldn’t have to store electricity,” adds Patt. However, this may be politically challenging.
Building a diverse energy portfolio
“The number of sectors where it is cost-effective to electrify has only been increasing,” says Patt. But there are exceptions, such as the steel and chemicals industries, aviation and shipping. Alternative fuels will be needed to reach net zero in these sectors.
Biofuels, such as bioethanol or biodiesel, are one such alternative. “Biofuels can be engineered to produce exactly the kind of molecule we need for a plane or a ship, meaning that you don’t need to adapt,” Schaeffer suggests. “Similarly, some oil refineries can be adapted to also co-process biomass.” This has the further advantage of mitigating the inevitable obsolescence of existing infrastructure. However, the role of biofuels will likely be limited by competition with food crops for available fertile land and fresh water.
“We have to build infrastructure that's going to be capable of dealing with a new world"
Federal University of Rio de Janeiro
Synthetic fuels, produced directly from water and carbon dioxide using solar energy, could be used as an alternative to fossil fuels for sectors such as long-haul air travel and shipping. But these technologies are not yet fully mature.
A third option is hydrogen, although currently most hydrogen is produced from fossil fuels. “Really, the only sustainable option is so-called green hydrogen, which uses renewable power to split water into hydrogen and oxygen,” says Patt. This method could be used in chemicals industries that require extremely high temperatures, or as a replacement for coal in the steel industry. Elsewhere, Patt believes hydrogen’s role will be limited. “It’s going to be much more efficient to just use electricity,” he explains.
Creating the right regulatory environoment
“From a technical point of view, the energy problem is solvable,” says Schaeffer. Renewable electricity is now the cheapest source of power in most regions, and estimates suggest that it could satisfy 65 per cent of the world’s energy needs by 2030. However, new infrastructure means large and long-term investments.
“The critical thing is to create a regulatory environment in which anybody investing in renewable-energy production knows they’ll make money,” says Patt. An example would be government incentive schemes, such as feed-in tariffs, which guarantee a fixed price per unit of renewable energy. “These remove the issue of market volatility, which has been a major impediment to new investment in the power system,” says Patt. “Solar and wind are cheap enough now that these policies don’t have to be expensive, but they are important to remove market volatility and guarantee a positive return on investment.”
“Private capital will play a huge role in taking businesses with proven technology to the next level of growth"
Recent global crises have underscored the need for a global energy transition. “There has really been a shift in mindset,” says Miles. “There were a couple of things that drove that change and crystallised the focus. The war in Ukraine was one, both in terms of the huge increase in the cost of energy, but also energy security, particularly in Europe; COVID-19 was the other.”
With increases in oil and gas prices, disruptions to global supply chains, concerns about energy security and the impacts of climate change becoming increasingly visible, more businesses and investors understand that the energy transition is not only needed, but presents a valuable opportunity. “In the EU alone, it’s estimated that the green transition will cost €350bn, of which €250bn will need to come from non-government sources,” explains Miles. “Investors increasingly recognise the opportunity to support the energy transition while generating an attractive return.”
Main image: Bubbles, 6 May 2017, Teahupoo, Tahiti, French Polynesia. © Ben Thouard
This article first appeared in the Spring/Summer 2023 issue of LUX magazine. This issue features the fifth in a series of Deutsche Bank Wealth Management/LUX supplements about our ocean and its importance to both the environmental and economic wellbeing of the planet.