Carbon tax can fund the clean energy transition

12 JAN 2017

Dr Nasser Saidi, Chairman of the Clean Energy Business Council

Climate change is a deadly threat to our habitat, animals and people. Current annual emissions of greenhouse gases are about 50 billion tonnes of carbon-dioxide-equivalent, compared with about 41 billion tonnes in 2005. An Intergovernmental Panel on Climate Change report has warned that the world is on a path that could, if left unchecked, deliver a global average temperature rise of 4°C or more by the end of the century – a climate which has not existed on Earth for millions of years! We are in the Anthropocene age.

COP21 was quickly ratified, in 11 months versus eight years for the Kyoto protocol, underscoring the shared global consensus on the social and economic dangers posed by global warming. However, the COP21 government commitments and strategies require international, regional and national cooperation between governments, business, civil society, organisations and households. While US President-elect Donald Trump’s stance on climate change (and his nominee for the Environmental Protection Agency) is likely to make the path towards clean energy more difficult, it also offers emerging giants like China and India the opportunity to take the lead in showcasing their commitments towards green energy and lower carbon emissions.

The recent launch of a US$1 billion clean energy investment fund – Breakthrough Energy Ventures – with Bill Gates, Jack Ma, Mukesh Ambani and others as investors, promises implementation of innovative technologies through the support of research and development. This should challenge and inspire investors, governments and entrepreneurs based in the GCC.

The GCC and other countries from the region have committed to renewable energy initiatives – be they the UAE’s target to generate 24% of its electricity from clean energy sources by 2021, or Morocco’s renewable energy target of 52% by 2030. These ambitious objectives need implementation through decarbonisation strategies and objectives that require deep partnership with the private sector. I will bring the perspective of the Clean Energy Business Council on these strategies at the Abu Dhabi Sustainability Week (ADSW).

Pillar one starts with removing fossil fuel , water, electricity and related subsidies, so that the pricing of such resources and services reflect true economic costs and account for externalities. This would improve energy efficiency in all sectors and generate substantial environmental and health benefits.

Pillar two is the imposition of carbon taxes, rather than emissions trading schemes. Businesses and households respond to price as well as non-price incentives and ‘nudges’. Carbon taxes are taxes based on emissions generated from burning fuels. Introducing carbon taxes would shift the energy mix towards renewables, reduce fuel consumption, increase fuel efficiency and sharply reduce the carbon emissions that are driving global warming. A carbon tax creates incentives for energy consumers (both businesses and households) to use cleaner fuels and adopt new clean technologies, thereby reducing the amount they pay in carbon tax. For businesses, investors, entrepreneurs and researchers, carbon taxes would encourage investment and R&D in renewables and clean-tech.

For the GCC, the institution of a carbon tax would also generate substantial revenues for governments, increase energy efficiency and drive decarbonisation strategies. Revenues could range from as low as US$11 billion in Kuwait to as high as US$80 billion in Saudi Arabia (depending on the tax, consumption, demand elasticity and current price of gasoline). In essence, carbon taxes could raise substantially more revenue than current VAT proposals.

Pillar three of decarbonisation strategies is overarching climate change legal and regulatory frameworks to support implementation. Institutional frameworks are important because they imply wide-based political commitment and support of climate change policies and investments. None of the countries of our region have established such legislation. The GCC can lead by enacting Climate Change Framework Legislation (laws or regulations with equivalent status) serving as a comprehensive, unifying basis for climate change policy. In this regard, the establishment of Climate Change Ministries (e.g. in the UAE) is a step in the right direction.

The fourth pillar is decarbonisation finance. COP21 commitments will unleash more than US$16 trillion of investments in renewable energies and clean technologies. Governments need to set up climate funds – using the proceeds of carbon taxes – for renewables and clean-tech infrastructure and facilitate the financing of renewables R&D and investment through financial markets. For businesses and entrepreneurs, the green and clean economy presents an unprecedented opportunity for innovation, productivity-growth-enhancing investments, along with lower energy costs impacting all activities. There is no trade-off between economic growth and decarbonised economies.


12 JAN 2017

Market competition the best model for clean-tech innovation

Marie-José Nadeau, Honorary Chair of the World Energy Council

More than two years on from the ambitious and forward-looking COP 21 agreement in Paris, the need for effective government and business strategies to implement the commitments is growing stronger.

Indeed, the global community, and more specifically individual governments and corporations, must be encouraged to redouble their efforts to decarbonise their economies, to focus on further developing their Nationally Determined Contributions (NDC) and to implement them. Government and business strategies go hand-in-hand and both have a role to play in reducing the Green House Gas (GHG) emissions that contribute to global warming. The stakes are high and each sector needs to play an active role. Individual governments should not wait for new global agreements, and corporations should not wait for signals from governments.

According to the latest edition of World Energy Scenarios, global demand for electricity will double by 2060. Meeting this demand with cleaner energy sources will require substantial infrastructure investments and systems integration to deliver benefits to both consumers and the environment.

Fortunately, World Energy Scenarios says that much of this growth will be supplied by non-fossil energy sources such as solar and wind, driven by the steep reductions in the cost of renewable technology. Solar and wind energy accounted for only 4% of power generation in 2014, but by 2060 it could represent between 20% and 39%. This is a very wide range and the final outcome will depend on the decisions taken by governments and corporations over the coming decades.

While lifestyles and economies demand more energy, efficiency gains will keep consumption growth moderate. World Energy Scenarios suggests that the optimum results will come from those societies that allow a competitive economy shaped by market mechanisms that allow technological innovation to thrive. In this scenario, the continued penetration of digital technologies leads to new markets across industries, driving strong productivity gains and strong economic growth. Consumers, not governments, are expected to drive the penetration of both renewables and natural gas. For their part, governments will support the transition by promoting the creation of market structures that result in liquid power markets and increased distributed energy backed by the rising liquid natural gas (LNG) trade.

These are, of course, scenarios; they are not forecasts. The future will be determined by choices made by governments and corporations. The key tools for enabling change are state directives and markets. All states have a mixture of both. Even strong market economies like the USA have a wide range of regulations — for example, anti-trust policies and environmental standards.

In the current debate on the environmental and social factors shaping energy policy, there is a clear difference between those who take a socio-political perspective and those who see choice as predominantly a techno-economic matter. Each perspective includes two very distinct and coherent bodies of tools. One focuses on taxes and subsidies and on the state’s role in research, regulation, education, national planning, state-run companies and public investment. In contrast, the markets-focused perspective is concerned with competition, corporate vision and planning, private investment in R&D, innovation and training. A set of public-private enterprises is emerging, but such organisations remain limited. The important point is that governments and corporations face choices. With so much at stake, not making a choice is not an option.

Fortunately, the UAE is showing leadership with a range of policies as outlined in its NDC contribution. Abu Dhabi Sustainability Week from January 12-21 will be an opportunity for other countries and corporations to showcase their commitments.


14 JAN 2017

ADSW and Festival at Masdar City come to the corniche

It’s been a weekend of family fun on the Abu Dhabi Corniche, as Masdar and Abu Dhabi Municipality teamed up to bring ADSW and Festival at Masdar City to local residents. The past two nights, children have been treated to an activation, or sneak preview, of what’s in store for the 20-21 January Festival at Masdar City. On the East Plaza, where Khallej Al Arabi and Corniche Steets meet, a large Masdar booth greeted guests who were strolling upon the Corniche.

Children can color and design t-shirts with sustainability messages; or have a smoothie, which they would mix themselves by peddling on a stationary bicycle; or assemble, and then race, a model solar-powered car while they learn the basics of renewable energy. Younger children also had a corner where they could color and draw images of solar panels and wind mills. “I’m so glad we came by during our walk this evening,” said Nigel, a United Kingdom national who has lived with his family in Abu Dhabi for three years. “I’ve heard the adverts on radio and have seen some signs, but having this area right in the middle of the Corniche ended up making this an even nicer evening for us.

Now we definitely are keen come to Masdar City next weekend and explore the Festival.” The activation at Masdar City has its final evening tomorrow, 14 January, from 4:00 p.m. to 10:00 p.m. Festival at Masdar City will occur Friday, 20 January, from 10:00 a.m. to 10:00 p.m., and Saturday, 21 January, from 10:00 a.m. to 8:00 p.m. Activities include a do-it-yourself crafts zone, arcades and carnival games, a bazaar selling foods and handicrafts, science experiments as well as arts and entertainment. We look forward to hosting you there!


12 JAN 2017

Practical steps towards decarbonisation

Jonathon Porritt, Founder Director of Forum for the Future and Selection Committee Member of the Zayed Future Energy Prize

The simplest way of capturing today’s overarching imperative on climate change is this: radical decarbonisation. In other words, securing dramatic reductions in emissions of greenhouse gases, per unit of GDP generated across the global economy. There are many, many low-carbon initiatives that feed into that growing wave of decarbonisation efforts, but none matters more than reducing the use of fossil fuels as rapidly and cost-effectively as possible – in energy, transportation, infrastructure, chemicals and so on.

Essentially, this is all about technology, investment and political will. Which, as it happens, is what I’m most looking forward to about attending this year’s Abu Dhabi Sustainability Week: aligning innovation, investment and political leadership.

On the whole, the technology side of things looks more and more encouraging every year, with tumbling prices and increased efficiencies in most renewables and storage technologies, in demand management and grid optimisation.

Nowhere does one see that more clearly than through the lens of the Zayed Future Energy Prize, which I’ve been associated with as a member of its Selection Committee since its inception. It’s now the world’s leading celebration of clean energy endeavour, in both the for-profit and not-for-profit sectors, and a huge inspiration to all those countries trying to work out how best to transition from today’s dependence on fossil fuels to a world driven primarily by renewable energy sources of one kind or another.

The ‘storage story’ is particularly exciting as breakthroughs here (in both cost – down by around 75% since 2008 – and flexibility) are equally significant in energy and transportation. Demand for electric vehicles is rising fast all over the world. China, for example, is offering generous incentives to increase overall market penetration for both electric vehicles and hybrids, and investing in a huge new charging infrastructure.

There will of course be plenty of bumps along that road! Two thousand sixteen, for instance, was a disappointing year in terms of clean energy investment, down from the 2015 high of around $350bn to something closer to $280bn. There are all sorts of reasons for that, but it is now almost universally accepted that the direction of travel towards renewables is irreversible. Investors have really begun to see this – both from a ‘transition risk’ perspective and through burgeoning opportunities to drive new financial value.

We’re dealing here with what the Bank of England Governor, Mark Carney, called the ‘Tragedy of the Horizons’ back in a speech in 2015: “The catastrophic impacts of climate change will be felt far beyond the traditional horizons of most actors – imposing a cost on future generations that the current generation has no direct incentive to fix. Once climate change becomes a defining issue for financial stability, it may already be too late.”

And that’s a massive political challenge, where chronic short-termism still reigns supreme. In that regard, things have just gotten a whole lot harder in 2016. As the next President of the United States, Donald Trump has made it very clear that he will reverse the Obama Administration’s commitment to low-carbon prosperity, and promote again the interests of fossil fuel companies at every turn. Worse yet, he continues to characterise the science of climate change as ‘unproven’, and has appointed a number of very prominent ‘climate change denialists’ to his interim Administration.

This raises all sorts of question marks over the agreement struck by 196 governments in Paris at the end of 2015 – and will be hugely disappointing to the vast majority of young people around the world. In celebration of its 10th anniversary, Masdar commissioned an extraordinary online Sustainability Survey of around 4,500 post-millennials (18- to 25-year-olds) in 20 countries, including the UAE, Morocco, Jordan, Saudi Arabia and Egypt. Forty per cent of those surveyed named climate change amongst the biggest challenges facing the world over the next decade, ahead of the state of the global economy (34%), terrorism (32%) and inequality (29%).

The UAE’s rulers have recognised that passionate concern amongst its young people for many years – with the UAE now the highest-rated MENA country amongst clean-tech leaders, just outside the top ten globally. Nobody imagines that the transition from a global economy driven by fossil fuels to one where clean-tech rules is going to be easy – but that transition will happen, one way or another, and the real test of any nation’s leaders today is the insight and vision they bring to bear on that all-important challenge.