FOR ALL THE WEEKS of negotiation and hard-headed diplomacy that go into the text of an international agreement, the words that result in the end .
Whether the communique resulting from the Glasgow climate conference promises to 鈥渁ccelerate the phasing out of coal and subsidies for fossil fuels鈥 (as initial drafts proposed) or instead to escalate 鈥渆fforts towards phase-down of unabated coal power and phase-out of inefficient fossil fuel subsidies鈥 (in the softened language of the final agreement), it will barely change what the world鈥檚 big emitters do over the coming years.
At the same time, the governments that sign such agreements clearly do believe that words have a power of enchantment. Why else has it taken 26 meetings for a passage singling out fossil fuels to make it into the wording of a climate agreement? Language crystallizes the more important reality that鈥檚 emerging away from the conference halls in power stations, industrial facilities, and government offices around the world. In its modest way, it also helps edge that process along.
The most important of all those softening phrases is almost certainly 鈥渋nefficient fossil fuel subsidies.鈥 Although nearly every kilowatt of fossil energy on the planet is by definition inefficient (because it doesn鈥檛 pay the cost externalities that its pollution levies on human health and the global climate), that hoary formula is so broad that it gives a political excuse for almost any support.
There鈥檚 a great deal that can be justified in the name of efficiency. The difference between a country with a stable and secure supply of energy and one without it is the difference between China and sub-Saharan Africa, or Glasgow in the 18th century versus the 21st century. Even the minor energy crises we鈥檝e seen in China, India, and Europe鈥檚 coal and gas markets in recent months are an indicator of the vast social value of a functioning energy system. An efficient subsidy goes about providing it in the cheapest possible way, however 鈥 and that calculation has changed drastically.
At the time of the Paris climate conference in 2015, renewables were the most affordable way of providing new power generation in only a handful of European countries, and weren鈥檛 competitive with existing fossil power anywhere. Now, they鈥檙e undercutting even generators that are already connected 鈥 one reason we鈥檝e seen the likes of Indonesia, Vietnam, Poland, and South Korea that they鈥檝e been dependent on.
The same is true with transport. BloombergNEF, one of the more bullish forecasters for electric vehicles, estimated in 2016 that global sales would grow to 2 million in 2020. In practice, the figure was 3.1 million, and is forecast to rise to 5.6 million this year. The in many major markets is already lower than the equivalent petroleum-powered car, and sales as a share of the total this year have already hit 12.8% in China and 17% in Europe.
Other areas will follow in the years ahead. Green steel, regarded as little better than science fiction a few years ago, ought to be competitive with the conventional product at the sort of carbon prices now prevailing in the European Union. Green hydrogen, until recently another pie-in-the-sky notion, is already seeing , roughly equivalent to the power generation capacity of Germany. In industry after industry, the emerging reality is that fossil fuels are no longer as necessary to modern life as we thought they were. The cheapest and most efficient route to energy security is zero-carbon.
Some things, however, remain the same. Technological change means swathes of India and China鈥檚 coal-fired power stations are already uneconomic 鈥 but the wind and solar plants to replace them must first get built, which will require financial and political change as well. Coal India Ltd., the world鈥檚 largest miner of solid fuel, in some ways resembles a state within a state, operating hospitals, schools and colleges and employing more than 250,000 people. Indian Railways, the vast state-owned rail operator, can only provide cheap transport for passengers because it .
To talk about this only in terms of subsidies in some ways understates just how deeply fossil fuels are integrated into the structure of their most avid producers and consumers. These are not simply outgrowths, but arteries of the economy through which finance, jobs, politics, and influence flow. The surgery necessary to remove them won鈥檛 be straightforward.
The $8.5-billion package announced in Glasgow to speed South Africa鈥檚 transition away from coal provides one model for how this could be done 鈥 but it鈥檚 far from certain whether it will succeed, and that one country accounts for less than 3% of the emerging world鈥檚 solid fuel consumption. India has already put a on the funds it needs this decade to accelerate its energy transition.
Something must be done, though. The costs of subsidizing fossil fuels go up with each passing year, making it harder to abandon them even as their damage accumulates. In a world where annual energy investment runs to , the problem isn鈥檛 that funds are lacking, but that they鈥檙e going to the wrong places.
With developing nations missing out on zero-carbon power for a lack of investment capital, even as they鈥檙e buffeted more and more by the shocks of climate change itself, the greatest inefficiency isn鈥檛 in the subsidies that undergird our energy systems. It鈥檚 the loss of human potential that we will suffer if we fail to provide the planet with the clean, cheap energy that鈥檚 now within our grasp.
BLOOMBERG OPINION
