We can’t continue to create food and energy the way we do now. Transport systems will need a massive overhaul too. For they all emit carbon, which is steadily warming the planet. At the current rate, the planet could warm between two and six degrees Celsius by 2100, with devastating consequences for human civilisation and the natural world.
Climate change is the biggest and most complex challenge humanity has had to face together. And some progress is being made. The Paris Agreement, which resulted from the UN climate conference last year, commits countries to set ambitious emissions targets to keep warming below two degrees.
The agreement has already been ratified by the world’s three biggest emitters – China, the US and the EU – but will it be enough? Critics fear that as long as fossil fuels remain cheap, their use will continue. And while countries are periodically reviewed under the agreement to ensure they are setting ambitious emissions targets, countries can also pull out of the deal without repercussion.
The EU has already agreed far-reaching climate targets, including a 40 percent emission reduction by 2030, compared to 1990 levels. Negotiating these targets was one of Connie Hedegaard’s final accomplishments as EU Commissioner for Climate Action in 2014.
“In 2012, when I said we should set climate targets for 2030, some of the closest people around me were shocked that I was thinking about 2030 when we were still in the midst of the economic crisis – but that we succeeded shows the strength of what the EU can actually do,” Hedegaard says in the offices of green think tank Concito, which Hedegaard joined as chairman of the board in 2015.
“Individual states would not set targets for 2030 under those circumstances. But that’s what we can do together if we think rationally about the situation we are in. If we are challenged by an economic crisis and also extremely reliant on gas from Russia, shouldn’t we get less reliant on Putin’s gas? Shouldn’t we take the money we spend on fossil fuels and keep that for ourselves? Should we not harvest the jobs in retrofitting buildings and grids? What we tried to do was put climate into Europe’s growth and development story and I think that was one of the reasons why we ended up really pushing to get the 2030 targets through before the mandate ran out.”
Some people don’t give a damn
Hedegaard is one of Denmark’s most high-profile former politicians on the international scene. Her political career started in 1984 when she was elected to parliament for the Conservative People’s Party (Konservative) aged only 23 – the youngest ever MP at the time. Six years later she left politics for journalism and worked for 14 years in newspapers, TV and radio. In 2004 she returned to politics and served first as environment minister, then climate and energy minister, as a Konservative MP under the right wing coalition between the Liberal Party (Venstre) and Konservative. In 2010 she joined the European Commission as climate commissioner, where she is remembered for pushing for ambitious targets and being highly vocal about the climate challenges.
It’s an ongoing passion. In addition to her work at Concito, Hedegaard also chairs the KR foundation, which was established in 2014 by the Villum Fonden to find, and finance, long term solutions to climate change and resource scarcity.
“Time is running out. In my heart I can think it remarkable that with all the knowledge out there, people are still talking if there is some doubt. One thing is people who don’t know, the other is people who do know but don’t give a damn – that can be hard to respect,” she says.
It’s not just climate deniers that need to be tackled she argues. The minority Venstre government has repeatedly called for Denmark to temper its climate ambitions (Denmark’s current target of becoming fossil fuel free by 2050 is among the most ambitious climate strategies in the world). The government’s mantra is “green realism” that balances ambitious climate policies with affordability.
“What is green realism?” she asks rhetorically. “If you really want to stay below two degrees warming then you really need to get busy and have meetings in the EU and internationally to do whatever you can do to show the good Danish example. The problem is that Danish government gives the impression that we are so good and we are running so far ahead that we can slow down a bit. But I say no, because we all need to go low carbon, by as much as 80 or 90 percent by 2050. I want to ask them, ‘do you really understand what that means?'”
The carbon bubble
Climate change threatens not only millions of lives and ecosystems across the world, it could also trigger an enormous economic crisis.
Energy companies command enormous untapped underground reserves that, if extracted and burned, would emit so much CO2 that the planet would definitely warm more than two degrees. According to the Carbon Tracker Initiative, around 80 percent of coal, oil and gas reserves must remain unburned.
These reserves are considered future income for energy companies, however, and are factored into their valuation. If these unburnable reserves are kept in the ground, energy companies could lose as much as 30 trillion dollars over the next two decades, according to a 2014 report by financial services company Kepler Cheuvreux. Investors – from ordinary private shareholders, to hedge funds, pensions and banks – risk seeing their money disappear into thin air.
There is one simple way to avoid investments in fossil fuel companies becoming so-called “stranded assets” – sell them now. Otherwise known as divestment, a growing movement is calling on investors to pull their money out from fossil fuel companies and instead invest in renewable energy.
Hedegaard says the financial services industry has started to listen to the divestment debate. She points out that in July, the governor of the Bank of England, Mark Carney, said businesses needed to better understand the risks that climate change poses and that renewable energy presents enormous investment opportunities. The European Investment Bank has also highlighted climate change and increased its focus on renewable energy and climate resilience projects, while also integrating climate change considerations into all of the bank’s strategy.
“A lot of investors and pension funds have started to think differently about their portfolio,” says Hedegaard. “They are asking have we invested properly? Do we have diverse offers for our customers? Many banks have realised that there are potential customers that ask for products that they don’t have, for example products not invested in coal or fossil fuels at all.”
She stresses, however, that there is a still a lot of research that needs to be done into the effects of divestment. It’s an area of focus for the KR Foundation, which has supported a range of projects that look at the implications of different fossil fuel divestment – and renewable energy investment – strategies.
“Divest and invest seems easy, but what are the implications over the coming years? Especially when we still need gas for a substantial time ahead, how do we handle that? If everyone divested tomorrow, what would happen? The coal companies would get extremely cheap and those who didn’t want to do anything about climate change would be able to buy some incredibly cheap assets, for example,” she says. “We need to enlighten and nuance the debate.”
Finding the real cost
Ultimately, averting disastrous climate change is as much a financial and political issue, as it is a technological challenge. The right incentives need to be in play in order for investors to move their money into renewable energy projects, for example by putting a price on the cost of carbon.
This is the function of the European Emissions Trading Scheme, where polluters can buy and trade the right to emit carbon. While it’s not been wholly successful, as the price of an emission allowance remains low, Hedegaard is confident the price will rally as allowances are removed from the market over the coming years.
Paying to emit carbon is one way of putting a price on the real cost of burning fossil fuels. Coal might be cheap to extract and burn, but it results in huge health and environmental costs. These additional costs – or ‘externalities’ – are not always considered by governments when they are deciding which type of energy investment to make, however. Taking these calculations suddenly makes the alternatives appear more competitive.
“In light of Paris, we can make all the big international deals that we want, but what really matters is when we start at a higher way to put our money where our mouth is,” Hedegaard says.
“We need the market to do the job in the transition, but there is a market failure when the real cost of things is not being measured or taken into account properly. If you produce 1000 pairs of trousers then its impact on GDP is positive. But if, in the process, you pollute a river with chemicals, then maybe that’s not the full story. So we need a more coherent way of pricing things.”
Hedegaard argues that the job of transitioning to a low carbon economy is such a huge and transformative task that it shouldn’t just be the responsibility of environment ministers. Finance and transport ministers too need to integrate their commitment to the Paris Agreement when thinking about which infrastructure projects to choose, how to build buildings and set standards.
“We need to mainstream climate into the development strategies, into budgets, into the way we price things, which is why the KR Foundation is so focussed on how to price externalities. Today, there is a false way to really find out what is the real cost of an activity,” she says.
“We have to move into a paradigm where we minimise waste and reuse and recycle, then we need a way to price waste and incentivising new inventions and innovations.”
Subsidising global warming
Another area of focus for the KR Foundation is fossil fuel subsidies. These come in many forms – from subsidising extracting, to the cost of fuel at the pump – but all artificially reduce the cost of fossil fuel consumption. According to the International Energy Agency (IEA), governments around the world spent 500 billion dollars on fossil fuel subsidies in 2014.
Research into the true extent of fossil fuel subsidies, and strategies to end them, have both been recipients of KR Foundation funding.
“The rule of thumb is that we are still subsidising fossil fuels with four or five dollars every time we subsidise renewables with one. Developing countries could argue the subsidies are needed to allow the poorest to afford petrol. But according to the IEA it is not poorest who benefit, it is a huge subsidy to the middle classes and the most well off.”
Hedegaard is frustrated by the lack of action on fossil fuel subsidies, which countries have repeatedly promised to phase out.
“I am not asking the poorest countries in the world to be the ones who first show that they are phasing out fossil fuel subsidies,” she says. “There are social implications to it so you can’t do it over night. But how many times have the G20 countries signed off on declarations for ending fossil fuel subsidies? Now in light of Paris, please start doing it! Everyone can see that we are going low carbon, so we should not subsidise carbon. It is self-evident. If we subsidise anything it should be the things we want to be developed faster – to speed up innovation to replace the fossil fuels that we have decided we do not want.”
Renewables are the future
Carbon emissions have to peak no later than 2020, and start dropping rapidly thereafter, if we are to have a realistic chance of staying below two degrees of warming, according to the Intergovernmental Panel on Climate Change.
The energy investments that are being made today are therefore central to tackling climate change. This is particularly important in developing economies such as India that have seen a boom in the construction of coal-fired power plants that currently produce 60 percent of the country’s electricity. These plants are needed for President Modi to fulfil his promise to provide all Indians with electricity by 2022.
Hedegaard says that Modi’s promise to electrify all Indian households is incredibly important to his mandate to rule. But while coal would be the easiest solution, given India’s massive reserves, it’s also dirty and is responsible for high levels of harmful air pollution. It’s also not necessarily cheaper to install than renewables, which can produce electricity on a more local scale.
“Coal might look like the cheap solution here and now. But that means having a central coal power plant and then building the infrastructure out to the last outpost village. When you see what’s happening with solar and wind, solar is starting to get competitive in India and you wouldn’t have to build extremely expensive infrastructure.”
And there is reason for hope. India ratified the Paris Agreement on October 2 and has promised to invest in 175 gigawatts of solar power by 2022 – India’s total electricity generation capacity is currently around 300 gigawatts.
Europe, too, has to make big decisions about its energy infrastructure over the coming years, as ageing power plants reach the end of their useful lives. In February 2015, the EU launched the Energy Union to create a secure, integrated, efficient and low carbon electricity grid across the continent.
The Energy Union wants to connect national electricity grids across Europe, which are currently relatively isolated from each other. This will solve a major issue with renewable energy – intermittence. Wind turbines only turn when it’s windy, and solar panels only create current when the sun shines. But you can bet the wind is blowing, and the sun shining, somewhere in Europe at any given moment.
By connecting Europe’s energy grid together, we can send Norway’s hydroelectric power south, Danish wind power west and Spanish solar energy north. And, in the process, the need to burn fossil fuels will steadily drop.
There is still plenty of coal still being burned in Europe, however, particularly in Poland where around 100,000 people are employed in the coal mining industry. While powerful unions make the government wary of challenging the increasingly unprofitable industry, Hedegaard argues they could always use EU structural funding to ease the transition.
“No one is asking Poland to go out of coal tonight,” she says. “Poland is starting to realise they have an outdated and old energy system with a lot of loss and waste. But if you have 100,000 people in the coal-mining sector, then of course it takes time to retool and reskill these people, so you need a strategy and that’s what the EU can do. Poland is biggest recipient of money from the EU and one of the things we got adopted a few years back in the structural funds must be used to do things, for example, in climate that move in the right direction.”
The need for Europe
Poland’s transition to a low-carbon economy is only possible because of the incentives created when Europe comes together to set ambitious targets, Hedegaard argues. These targets drive innovation and the development of new technology, which boosts the economy and creates jobs. The Danish wind energy sector, for example, has definitely benefited from the EU’s renewable targets.
“Europe needs to keep its leadership and harvest the benefits of being a frontrunner, also in terms of exports in technology,” she says.
“It’s the worst possible time to lean back and see what’s happening in the US, China and India. It would be such a shame for Europe if we were so preoccupied with other things that we sold out of this frontrunner position we had, and the same goes for Denmark. There is this tendency to say we shouldn’t be so ahead of the crowd. Well we are not that much ahead of the crowd and if you want to harvest export revenue from this then you have to understand that your competitors in the Far East are moving. And if they want to move they can move really fast,” she says.
There is reason to worry that climate could slip down the list of priorities in Europe, especially following the UK’s referendum to leave the EU. European leaders are scrambling to avoid calls for referendums in their own countries, while the European Commission has promised enormous investment to drum up support for the European project.
It’s a difficult time for Europe. Not only do important decisions about how to address climate change need to be made. The EU also has to demonstrate that it is a vital tool for protecting European interests, stimulating economic growth, and preserving the rights and standards of living of all Europeans.
“It’s easy to say we don’t have time for the climate and that there are other more pressing issues. But the climate change challenge and the resources challenge are not going to solve themselves.” M