The Energy Transition Facing Technological Uncertainty
What about the relations between the developed and the developing countries in these processes. It is possible we are going to witness a paradigm shift from classic international cooperation based on development aid, to a relation based on commercial partnerships. What could be the role of Europe and the U.S. with regards to developing countries and other partners, such as Brazil or China?
Countries such as Brazil or China have already the know-how to work on these projects autonomously, like many others in the G20 countries. On the other hand, the situation of the developing countries is more complex, though they still play a very important role since the transition can serve their interests in multiple ways. First, it is a fundamental element for economic development in countries which have very limited energy access . For them it is not a transition from one form of energy to another, but from zero energy to some energy. Today 1.3 billion people worldwide do not have access to electricity, and 2.7 billion still rely on traditional biomasses. It is a figure destined to grow, since a 2 billion people increase is expected by 2050.
It is crucial to provide sustainable energy access to these populations. These transitions – from nothing to something, and then to something clean – will possibly take place simultaneously and provide a strong impetus for economic development. This could be a strong driver for economic growth in Europe, and it could be much greater in developing countries. We must bear in mind that economic development is not only influenced by increase in demand, but also and above all by the improvement in health and living conditions. Take the case of traditional biomasses, which have a devastating impact on these people’s lives, or improvements in education, which requires energy and, in turn, are needed for agricultural or business advancement.
It is not simply a matter of energy transition, but of changing the very mechanism behind economic growth in the least developed countries.
Would it then be possible to trigger a “development leap”, in which these countries do not follow all of the developmental steps of Europe or the U.S. but jump directly to new systems?
Absolutely, but this “leap” has to be achieved through adequate investments, and this is where international cooperation could be extremely supportive. It is cooperation in the sense of investments, not donations, because it involves satisfactory returns.
Globally speaking, and both on the national and global level, we are already witnessing a meaningful advance: investments in the energy transition have increased from last year. Climate finance - financing for mitigation and adaptation of climate change - exists and it is now an important activity, as shown by the significant quantity of green bonds issued. Investment funds on renewables or sustainable energy solutions now play a considerable role. Yet, investments in emissions reduction are still marked by higher risk, and, as I have already noted, this is where governments could and should intervene and guarantee preferential access to credit or to lighter taxation, providing insurance backup and coverage. An example is the cooperation of Mexico and Norway’s sovereign wealth funds on renewables, to guarantee a minimum income to whoever installs solar power plants. This is not a subsidy but an insurance scheme, as it guarantees financial coverage against unfavourable market conditions.
Carlo Carraro is a Professor of Environmental Economics at Ca’ Foscari University of Venice. He holds a Ph.D. from Princeton University. He has been President of the University of Venice from 2009 to 2014 and Director of the Department of Economics from 2005 to 2008. He has been elected Vice-Chair of the Working Group III and Member of the Bureau of the Nobel Laureate Intergovernmental Panel on Climate Change (IPCC) in 2008 and re-elected in 2015 for a second term. He is also Scientific Director of the Fondazione Eni Enrico Mattei (FEEM), Executive Board Member of Fondazione Euro Mediterranean Centre on Climate Change (CMCC) and Director of the International Centre for Climate Governance (ICCG).
Countries such as Brazil or China have already the know-how to work on these projects autonomously, like many others in the G20 countries. On the other hand, the situation of the developing countries is more complex, though they still play a very important role since the transition can serve their interests in multiple ways. First, it is a fundamental element for economic development in countries which have very limited energy access . For them it is not a transition from one form of energy to another, but from zero energy to some energy. Today 1.3 billion people worldwide do not have access to electricity, and 2.7 billion still rely on traditional biomasses. It is a figure destined to grow, since a 2 billion people increase is expected by 2050.
It is crucial to provide sustainable energy access to these populations. These transitions – from nothing to something, and then to something clean – will possibly take place simultaneously and provide a strong impetus for economic development. This could be a strong driver for economic growth in Europe, and it could be much greater in developing countries. We must bear in mind that economic development is not only influenced by increase in demand, but also and above all by the improvement in health and living conditions. Take the case of traditional biomasses, which have a devastating impact on these people’s lives, or improvements in education, which requires energy and, in turn, are needed for agricultural or business advancement.
It is not simply a matter of energy transition, but of changing the very mechanism behind economic growth in the least developed countries.
Would it then be possible to trigger a “development leap”, in which these countries do not follow all of the developmental steps of Europe or the U.S. but jump directly to new systems?
Absolutely, but this “leap” has to be achieved through adequate investments, and this is where international cooperation could be extremely supportive. It is cooperation in the sense of investments, not donations, because it involves satisfactory returns.
Globally speaking, and both on the national and global level, we are already witnessing a meaningful advance: investments in the energy transition have increased from last year. Climate finance - financing for mitigation and adaptation of climate change - exists and it is now an important activity, as shown by the significant quantity of green bonds issued. Investment funds on renewables or sustainable energy solutions now play a considerable role. Yet, investments in emissions reduction are still marked by higher risk, and, as I have already noted, this is where governments could and should intervene and guarantee preferential access to credit or to lighter taxation, providing insurance backup and coverage. An example is the cooperation of Mexico and Norway’s sovereign wealth funds on renewables, to guarantee a minimum income to whoever installs solar power plants. This is not a subsidy but an insurance scheme, as it guarantees financial coverage against unfavourable market conditions.
Carlo Carraro is a Professor of Environmental Economics at Ca’ Foscari University of Venice. He holds a Ph.D. from Princeton University. He has been President of the University of Venice from 2009 to 2014 and Director of the Department of Economics from 2005 to 2008. He has been elected Vice-Chair of the Working Group III and Member of the Bureau of the Nobel Laureate Intergovernmental Panel on Climate Change (IPCC) in 2008 and re-elected in 2015 for a second term. He is also Scientific Director of the Fondazione Eni Enrico Mattei (FEEM), Executive Board Member of Fondazione Euro Mediterranean Centre on Climate Change (CMCC) and Director of the International Centre for Climate Governance (ICCG).
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