In the world’s transition to lower-emission fuels, politics is an important part of both the solution and the problem.
Decarbonization is shaping up to be the next industrial revolution – a massive shift that will lead to the decline of some industries and the rise of others, creating both risks and opportunities. for investors. While renewables are often cheaper today than burning fossil fuels, the time pressures from global warming mean politics will be instrumental in making that happen.
The mess of those politics is in the spotlight once again, as US lawmakers try to revive some of the clean energy initiatives featured in President Donald Trump’s failed Build Back Better bill. President Biden.
According to estimates by consulting firm McKinsey, annual investment in physical assets will have to increase by $3.5 trillion to $9.2 trillion per year to decarbonize the global economy. Only a small fraction of that comes from public sources, but the incentives, targets, and regulations set forth by politicians strongly influence private investment, risk, and return.
In the absence of a global carbon price – a political anomaly – well-designed national energy plans can be effective ways to accelerate the transition by coordinating action and reduce investment risk. To reach the common goal of net zero emissions by 2050, the change needs to be at least twice as fast as when the world switched from coal to oil in the last century.
Elected leaders, however, are motivated by short-term thinking, partisanship, and local issues. This is the opposite of consistent, coherent planning needed.
Britain’s latest energy security plan, announced last month, is a useful example. It includes a number of much-needed initiatives to streamline approvals for offshore wind farms and accelerate investment in energy efficiency. However, it also focuses too much on shiny new infrastructure projects to be built over the years to come, while avoiding more controversial solutions that could be rolled out much sooner.
There are eye-catching ambitions for up to eight new nuclear plants, as well as funding for small nuclear reactors from British corporate icon Rolls Royce.
It will take years or even decades to start producing energy, if they happen at all. The UK’s new nuclear plants have been a political issue for years.
The UK also aims to be the “Saudi Arabia of wind energy” and is increasing incentives for offshore turbines, including streamlining planning and licensing, which are key. by many developers. However, the plan does not include any significant dynamics for onshore winds. Land-based turbines are relatively cheap and quickly built, but often face local opposition. The system may be simplified, but will inevitably mean limiting the people’s right to protest, which is rarely a winning political strategy.
In the US, where the energy transition is a much more partisan issue than in the UK, politics is said to be even harsher. The upcoming midterm elections are weighing heavily on the timing, content and approach to reinstating any clean energy incentives from the failed Build Back Better bill. Even the name is wordy.
There are political ambitions to boost solar panel production in the country, but they will take years to bear fruit. Meanwhile, an investigation by the US Department of Commerce threatening to impose retroactive anti-dumping duties on solar panels made in Cambodia, Malaysia, Thailand and Vietnam has caused orders goods are delayed and canceled. It is threatening local projects and eventually installation jobs, causing “the rapid deterioration of the US solar industry,” according to the Solar Energy Industry Association.
However, there are signs of progress in other areas. A key bottleneck is transmission line approvals: A record 1,400 gigawatts of total generating and storage capacity is currently seeking connection to the grid, more than the current U.S. generating capacity of 1,200 gigawatts, according to a post. Newspapers from Berkeley Lab. The Federal Energy Regulatory Commission is currently working on a series of proposed rule changes to streamline transmission line approval processes.
“You can think of the grid as an interstate highway for electrons,” said former FERC president Norman Bay of Willkie Farr & Gallagher. “Imagine what the national highway system would have looked like if, in 1956, the federal government hadn’t taken the lead in planning, getting the right to pave the way, and covering the costs.”
President Eisenhower’s Federal Aid Highway Act of 1956 was not widely popular, but it was quite successful in providing a national road network. Such a sweeping national action seems unlikely in the current political climate, but the more mundane actions of officials at FERC and elsewhere could benefit from flying under the influence. radar surveillance. Key areas of energy transmission that depend on them, such as power transmission lines, may not be a bad place for investors to look.
Edit & Amplify
Former FERC President Norman Bay with Willkie Farr & Gallagher. An earlier version of this article incorrectly stated that the company was Wilkie Farr & Gallagher. (Fixed on May 12)
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https://www.wsj.com/articles/politics-could-speed-up-clean-energy-they-may-also-slow-it-down-11651829413?mod=rss_markets_main Politics Could Speed Up Clean Energy. They May Also Slow It Down.