“For every complex problem, there is an answer that is simple, clear and wrong”. I am reminded of this comment, attributed to the journalist H L Mencken whenever I reflect on the “green energy transition” with one caveat. The answer is not wrong. It is just not good enough to solve the problem.
The energy transition is no doubt complex. How else can one categorise the effort to shift a $100 trillion global economy built on fossil fuels to one underpinned by clean energy. The answer on how to achieve this shift is known and has been clearly and simply defined. The industrial and transportation systems must be electrified through green energy, technological advancement must bring down the costs of generation and storage, infrastructure must be upgraded and innovative financing mechanisms developed to finance this upgradation. Demand conservation and energy efficiency must be the running thread that connects all initiatives.
Why then do I think these answers are not good enough? The reason is whilst these essentially technocratic solutions lay out the road map, they do not guarantee movement, at least not at the pace required to keep global temperatures from rising above 2 degrees Celsius relative to pre-industrial levels, not to speak of the 1.5 degrees Celsius limit agreed by the global community at COP21 in 2015. This is because these solutions do not take into account international dynamics and domestic political and social realities.
Two verities frame the green energy transition. One, it is taking place at a time when the energy order has fragmented. Global leaders remind each other that climate change recognises no national borders. Notwithstanding that resource nationalism is back on their agenda, many governments are incentivising investors to create green energy capacity in their national backyard and are raising high fences to protect the investment. The standout example is the Inflation Reduction Act enacted by the US Congress in 2022. The value of the tax credits, subsidies, guarantees and grants on offer under this act is $365 billion — possibly the most generous green energy package ever legislated. Europe has also put in place a similar set of incentives, albeit less generous and the production-linked incentive scheme in India is cut from a similar mould.
Two, it has distributional consequences. The transition will not be socially neutral. There will be winners and losers. There will be, for instance, less need for coal miners and oil riggers. And more for engineers who can install and maintain solar modules, wind turbines and batteries. Those who stand to lose will resist change. Governments face the social choice of deciding how to distribute the costs and benefits.
Keeping in mind the fact that global warming cannot be tackled without shifting away from fossil fuels, the one lacuna in the answer provided so far is, in my view, the absence of institutions of governance that reflect these verities. Why is this the case? Why this absence? I can think of several reasons but let me cite two.
One, the phrase “green energy transition” lacks conceptual clarity. Transition suggests transformation, a change from one state to another. This is not what is going to happen in the green transition. It will not lead to the complete replacement of fossil fuels by clean energy, at least not in the foreseeable future. What it will lead to is the decline in the market share of the former to the point the latter dominates the energy basket. This is what happened in the 18th century when coal replaced wood and again over the course of the 20th century when oil passed coal. In both these cases the “transition” resulted in the addition of new fuels; not in the substitution of one set with another.
All leaders recognise this reality. For to deny it would be to fly in the face of economic fact. The IMF reported only a couple of weeks back, for instance, that in 2022, governments allocated $1.5 trillion to explicitly subsidise fossil fuels. The report added that if the implicit cost of underpricing the consequential negative externality of air pollution and global warming (estimated to be $5.5 trillion) were added, the world would have spent the equivalent of 7.1 per cent of global GDP to “support” fossil fuels. The nature and scope of this support differs from country to country but the reason to do so is the same. The fossil fuel industry is integral to energy security and “good politics”.
The problem is leaders find it politically inadvisable to acknowledge this reality in their public discourse. As a result, they convey the message, inadvertently of course, that it is possible to leapfrog from where we are to where we want to reach. What they should convey instead is the imperative to resolve the multiple blockers (viz geopolitics, vested interests, finance, competitiveness etc) that currently slow the pace of transition.
Second, a new curtain has been drawn between China and the West. This curtain is not made of iron. It contains lithium, nickel, cobalt and copper and is studded with chips. I have written before of the rise of new centres of energy power with China in pole position in the supply of minerals essential for the transition and the West in control of the levers of sophisticated technology and equipment. Neither entity wants to be dependent on the other; but neither can do without the other, at least not for the present. “De-risking” and not “decoupling” is, therefore, their strategic byword. Countries like India that have to deal with both prefer the word “multi-alignment”.
The energy transition has to be accelerated. On that, there is no debate. But there is no playbook regarding the process. One has to be created. Institutions have to be built that facilitate global cooperation, skill development and technology transfer and also enable the mediation of the domestic and international conflicts that have been inevitably aroused. Were that to happen I would not think of Mencken every time I reflect on the green transition.
The writer is chairman and distinguished fellow, Centre for Social and Economic Progress (CSEP)
