Can Europe manage the transition to a low-carbon economy? (part II)

November 28, 2013 | 00:00

Interview with Dr. Johannes Meier, CEO of the European Climate Foundation

Can Europe manage the transition to a low-carbon economy? (part II)

Dr. Johannes Meier, Chief Executive Officer of the European Climate Foundation, firmly supports the transition to a decarbonised economy. In the last part of this two-part interview, he elaborates on the debate about mandatory or indicative 2030 climate targets, the risks of pursuing a “business-as-usual” strategy and the benefits of being a first-mover. The first part of this interview can be found in our EU Energy Policy Files.

Carbon business-as-usual
(c) Heng kong Chen / ecologic.eu
The debate about mandatory or indicative 2030 climate targets has been initiated recently. The energy giants have already presented their view, asking for the adjustment of the EU Energy Policy, among others, by cutting subsidies for renewable energy sources or by introducing “ambitious but realistic” emissions targets. Where do you stand in this debate?

“The debate on the 2030 package needs to go beyond the debate about targets. Firstly, ambition should be linked to science and the previous roadmap work of the EC. If we want to achieve decarbonisation by 2050 to avoid the risks that science tells us about, we need a 95 percent target for 2050 – and this can only be reached realistically with a target for 2030 of domestic GHG reductions of more than 50 percent compared with 1990. Secondly, a pan-EU approach optimising efforts and reducing the cost risk is essential. Thirdly, we need a consistent architecture of policies, targets and institutions or governance mechanisms that will guarantee execution. This means providing strong direction as well as being adaptive in the face of unforeseen circumstances.

While I want to emphasise that the ECF is not a spokesperson for its grantees, it should also be noted that most of our grantees advocate for binding renewables targets and energy efficiency targets as part of this new 2030 architecture.”

In general, what do you think about the future of energy companies, whose assets are measured by the x-number of oil barrels and y-number of cubic meters of gas on their balance sheets? What happens to their value if solar energy takes over? Companies can earn money by producing solar panels or by installing solar farms, but they cannot put solar warmth or sunbeams on their balance sheets. As long as sunlight is an abundant resource, the economy of scarcity no longer dominates.

“I recently gave a presentation to RWE managers titled ‘The End of Business-As-Usual?’ My argument was that over time the risks from climate change will drive political will to create regulation that takes the externalities of fossil-fuel emissions into account. The Carbon Tracker Initiative has done some interesting scenario analyses where they assumed that policy makers were serious about sticking to a “carbon budget” in the atmosphere – all carbon emissions we could still emit while staying under the two degree warming threshold. The Economist summarized the implications of these analyses succinctly: ‘Either governments are not serious about climate change or fossil-fuel firms are overvalued.’

The challenge for energy companies is that that they must manage a major transition of their contracts, infrastructure, business models, mindsets, and balance sheets. In the transition I believe that it is important for companies to look for measures of resilience and optionality in the energy system to make the right investment decisions instead of just hoping that the ‘business-as-usual’ case can be extended for some more years.

We already have seen some major upheavals in the energy sector as a result of higher shares of renewable energy sources (RES). But I am convinced that much more significant transition challenges lie ahead, as IT and energy markets converge, as demand-side management becomes a variable, and as new balances between centralised and decentralised structures must be found.”

Today’s uncertainty over climate change policies discourages investors from pouring their money into the energy sector. Do you still notice a political will to ‘decarbonise’? Should companies also believe that crisis is an opportunity?

“We are in a situation that is highly reflexive. On the one hand, investors are looking for clearer political signals; on the other hand, policy makers are looking for stakeholder convergence on the new architectures. As I said before, there is a real value in building confidence in the feasibility of the low-carbon economy and sharing lessons learned from practical steps in the transition, at city level, at company level, at regional levels, at national levels, and at EU level. New interpretations of a decarbonised economy will have to be built up in many steps, the same way trust is always built step by step and cannot just be ordained.

The economic crisis today or a future crisis due to rising fossil fuel import price tags are among the many factors that can be used to create awareness of the fundamental need for change.”

How will decarbonisation of the economy change our society and industry? Would more RES provide an adequate solution to enhance EU energy security? What would be a sound proportion between RES and fossil fuels? How can we solve issues like intermittency and grid security?

“By definition, a decarbonised economy needs to rely massively on RES, and fossil fuels will have a major role to play only in combination with CCS. It is worth noting that the climate scientists don’t stop their modelling in 2050, but that their projections point at the need for negative carbon emissions by the end of this century.

So it is probably fair to assume that decarbonisation of the economy will bring changes as structurally deep to our modes of living in this century as the industrial revolution did to the agrarian society over the past two centuries. This goes far beyond solving issues of intermittency and grid security, which I would classify as intermediate steps in the transformation.”

What challenges could the EU face in the coming years and decades?

“Let me reiterate my observation that the EU will become politically and economically marginalised in the coming decades if we cannot find a way to make the low-carbon economy work. Our demographics and our dependence on fossil fuel imports are major disadvantages that need to be offset with innovation, both with regard to technology and governance of such a major transition.

On a personal note I would like to add that having lived in the US and in Asia, living in Europe is a great privilege. It is worth the effort for Europe to aspire to be a leader in this transition to a low carbon economy.”

Johannes Meier is CEO of European Climate Foundation (ECF). He holds a M.S. in Computer Science and a Ph.D. in Communication and Information Sciences. Prior to joining the ECF he was a partner at McKinsey & Company, CEO of GE CompuNet Computer AG, managing board member of the Bertelsmann Foundation, and founder of a software company developing coordination platforms. Johannes sits on the supervisory boards of Xing AG, the Leipzig Graduate School of Management, and UNICEF Germany.

 

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