The 2017 G20 summit takes place in the country that has won international recognition for its “Energiewende” – a fundamental transformation of its energy system. This provides an important window of opportunity for strengthening the G20 agenda on sustainable energy. The world’s overall energy supply is still heavily dependent on fossil fuels, which undermines climate protection objectives and the resilience of financial markets. With falling costs of renewable energies and global efforts to combat climate change, investments in fossil fuels and nuclear energy bear significant risks for stranded assets and thus the long-term stability of financial markets.
Hence, for the sake of financial resilience, Finance Ministers and Central Bank Governors need to anchor the promotion of sustainable energy in their G20 meetings. However, while limiting global warming to less than two degrees won’t be possible without a fundamental transformation of the global energy system, solely appealing to climate protection benefits is not the right way to foster the required level of investment in renewable energy and energy efficiency.
A global energy transition: is it about to happen?
The German Energiewende is an outstanding example of a national effort to transform an energy system. It has been particularly successful in expanding renewable energies in the electricity sector. Germany also has a strong track record in promoting renewable energies and energy efficiency in its international energy policy (see also The German Energy Transition in International Perspective). In a guest commentary for the German weekly newspaper DIE ZEIT last year, the State Secretary of the Germany Federal Ministry for Economic Affairs and Energy, Rainer Baake, made it very clear: the German government is dedicated to pursuing a global energy transition – encompassing not only the promotion of renewables and energy efficiency, but also the phasing out of the carbon intensive energy sources coal, oil and gas.
Since the beginning of the millennium, global renewable energy capacities have experienced impressive growth. As IRENA figures reveal, global capacities more than doubled from 842,452 MWe in 2000 to 1,964,688 MWe in 2015.
The expansion has been a truly global phenomenon: capacities have been growing in all regions of the world. The report Global Trends in Renewable Energy Investments 2016 shows that global investments in renewables are more than twice the amount invested in coal and gas. And the report ReThinking Energy 2014 highlights the fact that in 2013, for the first time, renewables constituted the majority – 58% – of new power generation capacity.
However, focusing on the successful expansion of renewables blinds out an important fact: worldwide energy supply is still heavily dependent on fossil fuels. The Renewables 2016 Global Status Report and the World Energy Outlook 2016 reveal that fossil fuels such as coal, oil and gas make up 80 percent of global primary energy demand and this share has not decreased over the last 25 years. How can this be explained? Well, in most countries of the world, renewables have not yet replaced fossil fuels. Here, the expansion of renewables has been accompanied by an expansion of fossil fuels. In addition, renewables investments have been concentrated on the electricity sector. In the heating and transport sectors, progress has been very limited.
Time has come to anchor sustainable energy in the G20 finance track
Since the creation of the Energy Sustainability Working Group in 2012, the G20 has addressed energy issues in a comprehensive way. The Energy Sustainability Working Group – which is part of the G20 Sherpa Track – has concentrated on four areas: phasing out subsidies for inefficient fossil fuels, improving energy efficiency, expanding renewables, and promoting energy access. All four areas are key to promoting a global transition towards sustainable energy. However, the measures taken so far are not yet sufficient to achieve that Goal.
As my colleagues and I argue in the IASS Policy Brief An ambitious energy agenda for the G20, G20 members should also push within the G20 finance track for a rapid and comprehensive transformation of global energy systems. G20 Finance Ministers and Central Bank Governors should comprehensively address the risks of stranded assets and long-term costs associated with investments in fossil fuels and nuclear energy for financial markets, national economies and government budgets. In doing so, they could provide an impetus to a global energy transition that goes far beyond Energy Ministers’ influence – and they would strengthen the G20’s capacity to contain financial and fiscal crises in advance.
Protecting the climate by building on the right policy drivers
Reaching the goals of the Paris Climate Agreement won’t be possible without a rapid and fundamental transformation of the global energy system. There is an urgent need for renewable energies to replace fossil fuels and for massive improvements in energy efficiency.
While energy policies are central for reaching climate goals, it has to be recognized that climate protection is not a central goal for most energy policy-makers. Our recent IASS Study on the energy policy trend and priorities of key G20 members reveals that progress on renewable energy and energy efficiency in most of the cases is not driven by concerns about climate change. In many countries, cost-competitiveness of technologies and economic benefits of investing in an expanding industry are major drivers behind renewable energy investments. In most emerging economies, meeting rising energy demand while diversifying the energy mix is an important motivation. And in countries such as China and India, local environmental benefits – primarily air quality, but also water security – come in.
In some cases, appealing to climate protection might even be counterproductive for gaining political support for renewables and energy efficiency – particularly in those countries that do not regard themselves as the main culprits of climate change. In order to achieve the much needed acceleration of investments in renewables and energy efficiency, it is imperative to build on those policy drivers that are prevalent in the respective contexts.
Common ground for the current G20 Troika China – Germany – Argentina
The alternating presidencies play a key role in the G20. It is up to them to steer the process and to set the agenda. To ensure some degree of continuity, each G20 presidency works with its predecessor and successor in a process known as the troika. In 2017, the troika comprises Germany, China – the host of the G20 summit 2016 – and Argentina, which will have the G20 presidency in 2018. The Chinese and German interests in the global promotion of sustainable energies are well known. Both economies are leading providers of renewable energy technologies and both governments consider energy and environment as a policy area where they can present themselves as global leaders. Argentina has only recently shifted its policies, promoting renewable energy while drastically reducing energy subsidies – these developments bode well for the G20’s ongoing effort to foster a global energy transition.
Header image: istock/NI QIN
This article was first published on the T20 Germany blog.