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Climate activists hold a protest at the US Chamber of Commerce in Washington, DC. – AFP
Climate activists hold a protest at the US Chamber of Commerce in Washington, DC. – AFP

Technological progress has made green energy more competitive.

By Kemal Derviş

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Published: Tue 19 Oct 2021, 11:54 PM

At the beginning of the summer, I noted how the climate-change narrative had changed in recent years, thanks to tremendous technological progress that has made green energy more competitive and often less costly than older carbon-based technologies. This is certainly true for new power investments, although for a while it will still be cheaper to produce electricity from older assets with sunk costs than to build new green plants. But in the medium term, I argued, “the new win-win story” implies that “national gains and commercial profit can now drive progress” toward a green transformation.

The climate debate is thus no longer only about the costs of mitigation and how to share them in an equitable and politically feasible way. Instead, as Nicholas Stern has said in his report to the G7, “the transition to a zero-emissions and climate-resilient world provides the greatest economic, business, and commercial opportunity of our time”.

With the crucial United Nations climate-change summit (COP26) in Glasgow less than two weeks away, the positive developments in green energy certainly provide grounds for optimism. But an important caveat is in order.

It would be easy but incorrect to interpret the recent advances in green technologies as making emissions reduction less of a global public good (GPG). This GPG is measured by reductions in atmospheric greenhouse-gas concentrations due to human activity. Less accumulation of these gases due to mitigation efforts remains a pure GPG: the benefits are non-rival and not excludable. Technological changes do not alter that fact. The “addition” to the GPG is the lowering of total greenhouse-gas concentrations due to a country’s own mitigation, and a given amount of mitigation anywhere will produce the same global benefit.

At the same time, the net benefit of an isolated mitigation action – the difference between its benefits and its costs – will vary across countries. In the past, technological constraints meant the net benefit in terms of GDP was negative. It is quickly becoming positive for many countries, making a green transformation increasingly feasible.

The point is necessary to bear in mind because the recent report by the Intergovernmental Panel on Climate Change made clear that the aggregate result of countries following their own most profitable development strategies would not provide enough global mitigation to limit climate change to an acceptable level. The damage and risks associated with global warming have become greater and more imminent, with broader and more volatile effects. In particular, the frequency and severity of extreme weather events directly linked to climate change has increased substantially. Moreover, the imminence of the threat means that frontloading mitigation – including earlier decommissioning of old power plants, among many other measures – is crucial.

If every country chose its preferred development strategy, the resulting non-cooperative outcome would result in unacceptably risky levels of emissions. The incentive problem has not disappeared. Yes, in many countries, technology will increasingly allow positive economic gains from mitigation. But these countries will still not have the incentive to mitigate with the same intensity and urgency that they would if the global benefits were part of their cost-benefit calculation.

So, while the emergence of net national economic benefits from emissions-reduction efforts is certainly a welcome development, an optimal global solution will require more and earlier mitigation than would result if each country responded only to its own incentives. In fact, the latest IPCC report suggests that the gap between the sum of national strategies and a globally optimal approach may even have increased.

The IPCC report should temper the optimism fuelled by recognition of green energy’s profitability. It should foster broad acceptance of the need for multilateral efforts to provide sufficient incentives for climate-change mitigation, and to mobilise financial resources to enable all countries to make large green investments that are profitable in the long term. As for incentives, some form of carbon pricing is a powerful spur, and together with regulations – such as banning the production of cars powered by internal combustion engines after a certain date – can set expectations and drive the necessary shift in investments.

Fortunately, an important feature of the new climate narrative – not related to the economic cost-benefit analysis concerning mitigation – should facilitate the cooperative solutions that are still needed. This is the stronger support for ambitious climate policies, rooted in ethical considerations, from civil society around the world.

For many, the preservation of the planet as we know it, including its species and biodiversity, is a near-absolute ethical imperative. A lot of people in green movements in developed countries not only support frontloaded mitigation at home but also seem ready to commit some of their income to finance the green transition in poorer countries.

We don’t know exactly how many would be willing to give up how much, but climate ethics has become a significant political force, particularly among young people. This should help make possible the ambitious climate policies required, including the mobilisation of resources for developing countries in support of early mitigation measures.

In an age shaped by the re-emergence of populist nationalism, green internationalism may provide an increasingly influential counterweight. The COP26 gathering will provide a telling indication of its current strength. — Project Syndicate

Kemal Derviş, a former minister of economic affairs of Turkey and administrator for the United Nations Development Programme, is a senior fellow at the Brookings Institution.


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