Market forces hold back renewable energy
Pete Dickinson is a member of the Socialist Party (CWI in England & Wales)
Have capitalist governments around the world finally woken up to the danger of global warming?
Renewable energy raised its share of total electricity generating capacity from 7.8% in 2012 to 8.5% in 2013 (United Nations Environment Programme [UNEP], Global Trends in Energy Investment, 2014). More impressive was that 43.6% of new power capacity was renewable. Such increases in the use of non-polluting methods of generating power are, of course, very welcome, but does this really mean that capitalist governments around the world have finally woken up to the danger of global warming? Has the market system put us on the road to a carbon-free future?
To answer these questions it is necessary to look at the data in more detail. We must break down the investment across countries and look at the trends in spending and what is driving them. Then the overall amount of investment should be compared to that required to keep temperature rises below 2°C from pre-industrial levels, above which runaway climate warming effects will take hold. And crucially, the timescale to achieve this outcome needs to be considered.
Globally, investment in renewables rose to a record $257 billion in 2011, but has fallen 23% since, EU austerity having a big effect on this. In Germany spending was down 56% in 2013 on the previous year, and a whopping 75% in Italy (Bloomberg New Energy Finance, 2014). Germany was formerly the leading country in Europe for green energy. The 23% world decrease is, in fact, much worse than it appears when the situation in Japan is factored in. Here, there was an 80% increase in renewable investment in 2013 compared to 2012, putting Japan third in the world behind the USA and China. Although on present trends Japan is set to become number one in 2015, this ‘fallout’ from the Fukushima nuclear disaster in 2011 will not help to curb global warming.
The Japanese government had to take out large amounts of nuclear-generated power as it was forced to close plants after the earthquake and tsunami destroyed the reactors at Fukushima. This created an energy shortage that, it thought, required emergency measures to maintain electricity supplies. The response was to step up fossil fuel use and to promote renewables. The net effect of this, however, will not be a reduction in greenhouse gas emissions since the power source that is being replaced, nuclear, does not produce significant quantities of the gases that cause global warming. (Nuclear, of course, is not a green energy source since large quantities of toxic waste are its inevitable by-product.)
There are similar contradictory pictures in the USA and China. Despite their leading positions in the renewable investment league table, their greenhouse gas emissions have continued to balloon. Driven by its strategic goal for greater energy independence, the USA has seen a massive increase in fracking in the last ten years, a technology that produces gas and oil, which emit greenhouse gases when burnt.
When the Chinese economy was growing at 10-12% per year, there was an energy shortage that led the government to promote renewables, alongside fossil fuels and nuclear, as a way to fill the gap. Chinese firms also wanted to become world leaders in solar energy manufacture. They succeeded, to a significant extent, due to their access to state-backed easy loans and a protected home market. At the same time as producing green technology, however, China has continued to meet the great majority of its energy needs from coal, the most polluting of the fossil fuels. The net result for both the US and China is that renewable investment has been swamped by technologies that use fossil fuels.
An interesting development revealed by the UNEP report is that unit costs of solar cells have fallen significantly, so that, even though investment was down in this sector, the number of cells deployed has increased. On the face of it, this new situation could promote solar use, and encourage those who believe that a tipping point has been reached and economies of scale in renewables will swing the market balance away from polluting technologies.
The increase in solar manufacturing capacity is linked to several factors. Government support and subsidies, whether open as in Europe, or cloaked as in China, played a major role in increasing output. (This gives a glimpse of the possibilities if market forces are side-lined.) The great recession of 2008, followed by austerity, also forced down prices as demand for energy fell. At the same time, the historically high price of oil, significantly supported by geopolitical instability and the OPEC cartel, temporarily made solar more attractive.
But this combination of factors is now disappearing. Oil has fallen to $85 per barrel from $110 and subsidies have been slashed, leading to a collapse in renewable investment. At the same time, there is no sign that market demand is picking up globally. A strong upturn could lead to a new surge in demand for solar energy in China, and push up the price of oil again, making solar more competitive. However, austerity is factored in for many more years by most capitalist governments; meaning new subsidies are largely ruled out, as is the prospect of a strong economic recovery.
Even if a combination of favourable market factors re-emerged, this would be highly unlikely to change significantly the overall picture of environmental degradation. The Stern report on global warming, sponsored by the last Labour government but never implemented, called for investment in renewables of 1% of economic output for 40 years. Yet, it is inconceivable that sufficiently favourable market conditions could persist for that length of time without a break, to make this a reality.
Moreover, this is only half the story. The scale of the spending needed to meet Stern’s target of 1% was never approached, even in 2011 when global investment in green energy peaked. That year it reached $257 billion. This is only 0.33% of world economic output, put at $77 trillion in 2014 by the IMF – and is well down on that percentage if the latest figures for renewable spending are used. Also, the Stern figure was based on data available ten years ago. Since then, greenhouse gas emissions have escalated sharply, meaning that the 1% target is now too low. However, even if 3% of economic output is needed each year, this level of investment could be entirely possible without disrupting the rest of the economy. In fact, green investment is relatively labour intensive and could create millions of new jobs.
The positive effect subsidies had on renewable outputs gave a glimpse of what would be possible if the straitjacket of the market was removed. However, subsidies in a market framework will never be of a sufficient scale, or persisted with long enough, to deliver what is needed. To meet the targets to de-carbonise the economy, the first step must be the nationalisation of the energy sector industries, including power generation and renewables. These industries could then be run on a democratic basis, with representation from national government, energy consumers and workers in the industry. A top priority of the new nationalised body would have to be to stop global warming. This will need international cooperation that can only be achieved by removing the present capitalist governments that compete with each other to destroy the environment.