Politics of Poverty

Powering up to fight poverty: “It’s the renewables, stupid”

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Wind, sun, and biomass are three renewable energy sources. Photo: Wikipedia http://bit.ly/R1iVtp

A closer look at the actual impacts and benefits of fossil fuels verses renewables.

An increase in renewable energy is the obvious choice for addressing the energy poverty facing millions. Renewable energy is well-positioned to reach those living beyond the conventional energy grid, and has the advantage of minimizing energy-related contributions to climate change, which already hampers efforts to fight poverty.

But there is an emerging counter-narrative to this. A few influential voices are advocating an increased role for fossils in fighting poverty. That’s why it’s worth taking a closer look at the actual impacts and benefits of fossil fuels verses renewables in deciding how best to ‘power up’ to fight against poverty.

Pretend that climate change wasn’t a thing (Hypothetically only!)

Let’s take the climate argument out of the equation just to assess the merits of fossils versus renewables when it comes to direct, local, and immediate impacts and costs. To do this, it’s worth understanding the concept of Pigovian economics and externalities. Simply put, there are external societal costs that often do not get priced or accounted for in the way a specific commodity are consumed – in this case fossil fuels. (This is as ‘macroeconomics’ as I like to get, but here’s is a excellent New Yorker piece on the carbon tax that explains it well.)

In other words, there are costs to society when we extract and burn fossil fuels – things like local air and water pollution, access to land, and traffic congestion, also known as the “social cost of carbon.” This is starting to manifest in very real and dangerous ways. Some examples:

In these examples, the impacts of climate change were not the primary reasons they were highlighted in the media coverage. Plus, Europe, Texas, and Michigan are not exactly the global South. When we can’t even get it right in the so-called developed world, do we really want to start peddling high-risk, high externality-ridden technologies in poor countries that already have enough problems?

Of course, you could argue that renewables also carry costs for society. Certainly the social and environmental impacts of large-scale hydro or concentrate solar plants can be significant. Such externalities need to be assessed and there should be safeguards in any energy development project – fossil or renewable. The impacts of wind turbines on “viewscapes” shouldn’t be dismissed, but comparing aesthetics to contaminated water in the same breath feels like comparing apples and pineapples to me.

When burning fossil fuels, however, carbon dioxide is emitted every time, regardless of how a project is designed. (Thus again, to be clear, DON’T take the climate argument out of it.)

Fossil fuels: the more expensive and slower choice

Externalities are becoming less of an abstraction and are finally becoming a genuine factor in overall economic considerations, further tipping the balance towards renewables. The US Treasury coal guidelines for multilateral development banks are attempting to do this in assessing alternative energy choices. Done correctly, we should likely never see another coal plant financed by the World Bank.

That bastion of liberal economic principles, the IMF, stated in their 2013 report on fossil fuel subsidies how direct subsidies account for around $400 billion globally per year. But when a conservative social cost of carbon is factored in to account for externalities, this jumps to $1.9 trillion! Almost a 500% increase in costs in spite of renewables starting to hit grid parity in a range of developing markets around the world – from the US to Chile to South Africa.

And when talking speed of deployment, renewables have a very real temporal advantage. They come online at a much faster rate than fossil projects could hope to match. Renewables are experiencing a renaissance in growth rates, resulting in an increasing percentage of energy markets. Staggering examples include:

Arguing that fossil fuels are categorically cheaper and faster than renewables is quickly becoming a fallacy in many cases. Perpetuating such misinformation may soon be akin to doctors two generations ago who appeared in advertisements saying that cigarettes are good for you.

How’s your credit?

Investors are increasingly viewing renewables as a more attractive investment than fossil fuels. When the fuel inputs are wind and sunshine, their costs are negligible when compared to the very volatile—and likely only to increase—costs of fossil fuels. This leads to an acknowledgement of the risks of fossil fuel investments—particularly the risk of large, capital-intensive fossil fuel projects becoming stranded assets that will not deliver predictable financial returns over time.

For example, a recent HSBC study showed a 40-60% reduction in assets of major fossil fuel companies in Europe. This is starting to present significant credit risks for investors and traditional sources of finance for the fossil fuel industry, with possible threats of credit ratings downgrades becoming a reality.

When we account for the true costs of fossil fuels, we see that they are more damaging to the environment, more expensive, slower to deploy, and a bigger risk when compared to renewables. That’s why it’s hard to understand why this is such an uphill battle. Fossil fuels are represented by some of the most powerful, profitable, and greedy sets of vested interests, having massive political sway that at times can force some to look beyond obvious reason and logic.

Though the energy playing field is already so skewed towards fossil fuels, the best value for development money is in investing in renewable energy. When market forces show a swing away from fossils, incentivizing (or subsidizing) further development of fossil fuels would be effectively locking-in developing countries to an unsustainable and high-risk model of energy development.

For areas of the world with very little existing energy infrastructure, instead let’s take this chance to start fresh with more sustainable models, leapfrogging the damaging paths of energy development we have chosen in the developed world.

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