By Stephen Arbogast
The text below was sent to the editor of The Economist as a discussion and commentary on their cover story on climate strategy. The intent was more to raise added issues for future discussion rather than take issue with themes or arguments presented by The Economist’s article.
To the Editor,
This note is for background and private discussion only. There is no intent to have it published in your newspaper.
I read your cover story with interest and appreciate your effort to wrestle with the complexities of the challenge. I would like to share some thoughts with you regarding issues the Economist may want to take up in future articles. The newspaper is trying to lead in this area. There are however, blind spots in the public domain as far as the biggest challenges facing an effective energy transition – think of them as not-quite-hidden reefs that don’t get the attention they deserve. By focusing more attention on these areas, the Economist can help policymakers and the public come to grips with more of the problems impeding progress. It may also help avoid much of the political resistance and ‘stop/start’ nature of policy formation that results in lost time and “spinning our wheels.”
The first issue to discuss is the challenge posed by Asian GHG producers. Currently China is by far the leading producer of GHG emissions at 28%. India is also a major emitter. Both countries strongly resist imposing constraints on their economic growth/development in order to start moving towards Net Zero. In fact, under the Paris Agreement China can continue INCREASING emissions thru to 2030.
This reality poses several dilemmas for climate strategy in the U.S. and Europe. Specifically:
- Is climate progress achievable if the US &EU reduce emissions while China and India keep increasing?
- Are the US and EU ceding competitiveness to these Asian countries by allowing them to grow emissions while US/EU take on the expensive task of de-carbonizing?
- Can a development model of ‘outsourcing’ heavy industry to Asia, (thereby also outsources their emissions) – remain practicable if we’re actually serious about global de-carbonization?
These issues pose a serious risk of political blowback on climate strategy in the US/EU in the context of a broader set of economic problems or stagnation that may occur – i.e., “spinning our wheels” risk as the China “free lunch” becomes cited as dumb policy on U.S./EU part.
The opportunity then for the Economist is to become a forceful advocate for amending Paris and having China move toward de-carbonization sooner. This will involve further progress on solutions which allow for economic de-carbonization to be intensified in China.
This involves a second opportunity for the Economist – articulating how China can serve as the world’s best laboratory for pursuing de-carbonization. This discussion goes beyond the somewhat peripheral question of whether climate is an issue on which China and the Bidden administration can work together. As important as that may be, the more existential issue is the conflict between China’s desire to continue growing at 6% p.a. and what this implies for fossil fuel consumption. As you know, China has also evolved into the world’s largest oil importer at more than 10+ MB/D. What does it imply for global climate strategy if China keeps growing at 6% p.a. and doesn’t figure out how to de-carbonize?
Thus, on climate China should be driven by its own interests and vulnerabilities. It has some of the strongest motives of any major economy to find solutions to the Dual Challenges of Growth and Climate. It also enjoys certain capabilities as a command economy; it can mandate energy policies for an economy while directing much of the capital and technology needed for energy transition.
China’s climate strategy and foregone opportunities are thus excellent topics for The Economist to highlight. Take for example the role of ‘new nuclear’ as a necessary complement to renewable power. China, I believe, has the largest new reactor construction program currently underway. Most if not all of it is large, light water variety nuclear. How do the economics for this work in China? Is their safety comparable to that in the U.S. but with less delay and uncertainty in licensing/construction? Are there lessons for the West here? How does China deal with proliferation threats and waste storage? Finally, what is their attitude towards advanced reactor designs, and will they be the first to commercialize this approach to new nuclear? If so, what will that show regarding the tradeoffs between better SMR safety versus loss of scale? China won’t be perfect, indeed components of what they are doing are far from perfect. But, it will be useful to know where they are making progress wrestling with these tough issues.
China is also increasing its reliance on gas powered electricity. What is China’s approach to de-carbonizing this essential power with Carbon Capture Sequestration/Utilization? China can mandate capture and sequestration in its state industries. It can mandate that CO2 pipelines be built to storage or utilization locations. Thus, China may be able to get CCUS technologies demonstrated at scale and work the capture/disposal/usage issue. Is any of this underway and what is the outlook going forward?
Finally, Chinese public policy is incentivizing the switch from ICEs to EVs. Registrations in Beijing are now much easier for EVs. Yet, the ICE population continues to grow dramatically. What bottlenecks are preventing faster adoption of EVs in a country with big incentives to minimize oil import dependence? What is their approach to building out the recharging grid and does this show, for example, the challenges such a buildout would present for electricity supply and grid stability?
A final set of opportunities for the Economist is to focus the U.S. climate strategy discussion on real bottlenecks which don’t get sufficient attention. One big example is the threat of U.S. nuclear plant shutdowns over the next several years. A recent study by Scott Madden, a consultancy, shows that losing these plants will effectively offset any gains likely to accrue from building out wind and solar. These nuclear plants are not threatened by technical obsolescence. Rather, it is market structure and the unique cost attributes of wind/solar that are driving them to the financial wall. From a climate strategy point of view, do we really want to lose these zero carbon sources of baseload power?
This brings up a major economics issue that should be perfect for The Economist to unpack – whether “merchant,” i.e., de-regulated power markets are better for implementing climate strategies than regulated markets. If not, how should they be restructured? My own view here is that deregulated markets were built to produce low wholesale prices from generation. They also produce bankruptcies, e.g., TXU, Dynegy, Reliant, the California utilities, etc. If private generation firms are struggling to earn the cost of capital, will they be viable vehicles for implementing climate strategy – or winterization for that matter? This is a ripe topic for you to discuss. The Texas debacle is likely to produce much finger pointing and accountability ducking – but not necessarily the best economic adjustments to a daily auction market. The Economist can bring important light to this restructuring problem which is going to resonate across other U.S. power markets too.
Finally, there is the question of what changes in stance by the environmental movement may be needed. This question may initially puzzle you – aren’t these NGOs “good guys” in the whole climate discussion? When the topic is pure advocacy, the answer is probably yes. However, when the question is more a case of ‘what can be done practically starting from today?’ – there is a strong case that many environmental NGOs are more part of the problem than the solution. Many NGOs made their reputation stopping things. Their donor bases are united by what they oppose. But the emerging question for them increasingly is “what will you enable?’” Right now, there is only a rough consensus around wind/solar/storage and much silence regarding the question of whether these are sufficient for any U.S., let along global climate strategy. But, if the question becomes what beyond these limited sources will you enable – well, that’s a very difficult question to answer. Meanwhile, by inertia, many NGOs oppose new nuclear, nuclear waste storage solutions, natural gas pipelines, CO2 pipelines, new hydro and pump storage hydro. None of these solutions is without issues. However, the importance of climate may mean we need to look at their tradeoffs in a new light.
In the end, there is a huge need for refocused attention on many of the true bottlenecks confronting the energy transition. I strongly hope The Economist can continue to play its historic role of driving the public discussion forward.
With best regards,
Stephen Arbogast, Director
UNC Kenan-Flagler Energy Center