Gabriel Collins, J.D., Baker Botts Fellow in Energy & Environmental Regulatory Affairs, Co-Head of Center for Energy Studies Program on Eurasia
*Note: Views and opinions expressed herein are mine alone.*
COP27 significantly elevated adaptation’s place in climate discussions. How this changes the trajectory of actions on the ground remains to be seen. Political and diplomatic sentiments can change in days based on events but replacing massive national energy systems takes decades–if everything goes well.
The world now therefore finds itself on the energy transition valley of death’s rocky floor, which includes system disruptions and more complete public understanding of (and potential backlash to) the economic costs of the energy transition— is unfolding now and will intensify during the next several years.[i] Four challenge items loom, with disproportionate impact in Eurasia, which accounts for 2/3 of global energy use.
Challenge Item #1: National Interests Matter.
Major emitters prioritize climate in very different ways. China, Russia, India, Japan, South Korea, and Indonesia are all particularly impactful because each one represents a distinct interest-based position. I’ll pick on China here given its gargantuan energy and emissions heft.
–For China, coal by a large margin remains the foundational energy resource. China consumed an amount of coal in 2021 that exceeded Europe’s ENTIRE energy consumption from ALL sources.[ii] To support these power plants and boilers, China now produces about 370 million tonnes of raw coal each month–the mass of roughly 33 Empire State Buildings.[iii] Consider China’s ultimate vote of confidence in coal: it powers the Jiuquan Atomic Energy Complex, a nuclear weapons facility and strategic asset akin to “China’s Los Alamos.”
–Which brings us to a critical point: energy supplies have become “securitized” in a way that had not been since the 1970s. The US spent much of the past 30 years working to facilitate China’s inclusion in the global economic system, including energy supply chains. That golden era is now over and we’re back to a world where security matters again–on both sides of the Pacific.
–In a securitized world, everything can be weaponized–including a situation where Country A (the United States) is the ardent climate suitor pursuing Country B (China). Beijing’s decision to halt climate talks in the wake of Speaker Pelosi’s August 2022 visit to Taiwan is a case in point. By definition, a country generally chooses punitive avenues that it believes injure its adversary’s interests more than its own. China’s decision to terminate climate talks was thus very telling, as it reveals climate to be substantially lower in Beijing’s hierarchy of political needs than China believes it is it is in Washington’s.
–Can China shift course if it decided to? Yes, but doing so on an accelerated timetable is a Moonshot effort. Good policymaking begins with imagination rooted in empirical reality. In that spirit, let’s consider two scenarios.
- Scenario #2 would see China roll its coal use back to 2005 levels–the same year then-Deputy Secretary of State Robert Zoellick asked the PRC to behave as a “responsible stakeholder.” This scenario would require China to more than triple its wind and solar generation base and produce a quantity of wind and solar-derived electricity exceeding the ENTIRE world’s production in 2021.
- In case you question these scenarios’ reality, consider that through greater use of natural gas and renewables as well as a large nuclear reactor base, the United States has now rolled its coal use back to early-1960s levels despite today’s energy system being about twice the size it was then.
China has formidable capabilities, but how it deploys those will be a fundamentally domestic decision—albeit one that would be influenced by a robust U.S./EU/OECD climate competition approach. China’s own zero-Covid decisions and potential movement onto a structurally slower, if not plateaued economic growth trajectory can also effectively accelerate reductions in emissions intensity. It’s easier to transition when you’re not also chasing a moving target.
Challenge Item #2: Scale Matters.
If we take just the largest individual CO2 emitters in Eurasia (China, India, Russia, Germany, Japan, Indonesia, and South Korea) plus the U.S., Canada, and South Africa and have these countries reduce their emissions by 1% annually over the next 20 years while allowing every other country on the planet to increase emissions by 1% annually, global CO2 emissions would be 5.4% lower in 2042 than they were in 2021.
Many of these countries are not on the climate justice and equity list, but they are in fact the places where lower-carbon approaches can be deployed at a globally-impactful scale.
Challenge Item #3: The $100 Trillion Question—Where will the money come from?
The Sharm el-Sheikh Implementation Plan suggests that annual global investment in energy transition activities may need to increase by somewhere between 3 and 5 times its present annual level (~$1.2 trillion).[iv] For perspective, the high-end number, $6 trillion annually, is about twice what the world spends annually on crude oil if we assume prices of $80/bbl.
Globally, the total pool of financial assets (a proxy for investable capital) is somewhere around $250 trillion.[v] But much of this capital is already deployed, meaning the volume of readily investable “dry powder” available for energy transition investments could be rapidly overwhelmed by a call for capital on the scale of what COP27 delegates believe is needed.
Three sub-questions arise here:
–“Steak to salad.” What are the opportunity costs of sinking major sums of capital in energy assets that are “cleaner” but far less energy dense?
–What would be the potential distortionary impacts if existing asset holdings are sold down to support energy transition investments? And
–What are the implications for asset markets when somewhere between $1.2 and $6 trillion annually are being largely allocated on the basis of decree decisions, as opposed to technology-agnostic competitive forces, such as those which would arise under a carbon taxation regime?
Challenge Item #4: We Must Put on Our “Climate Oxygen Mask” First.
All politics is local. COP27 embodied that reality, albeit only on one side—the delegation from places that have been flooded or parched and whose state structures have the least capacity to cope. These countries’ representatives channeled what their domestic constituents most likely want. But the other side, those countries being asked to pay for various assistance measures, have only spoken from the climate technocrat level.
To the extent their body politics are willing to assume additional financial burdens for energy and climate efforts, they will favor domestic transition and adaptation actions first. Hurricanes Harvey, Ian, Ida, and Maria vividly remind American politicians and the voters who elect them that, to borrow the airline advisory lingo, we must “put on our own climate oxygen mask first” before we can effectively help others further afield. The 2021 floods in Germany, 2021-2022 floods and drought in China, and numerous other stress events emphasize that industrialized country populations will very likely demand investment in adaptation and hardening measures at home before they are willing to buy into massive financial transfer mechanisms of the kind brought to the fore at COP27.
Further Reading:
–Gabriel B. Collins and Andrew S. Erickson, “China’s Energy Nationalism Means Coal Is Sticking Around,” Foreign Policy, 6 June 2022. https://foreignpolicy.com/2022/06/06/china-energy-nationalism-coal/
–Gabriel Collins and Michelle Michot Foss, “The Global Energy Transition’s Looming Valley of Death,” Baker Institute Report no. 01.27.22. Rice University’s Baker Institute for Public Policy, Houston, Texas. https://www.bakerinstitute.org/research/global-energy-transitions-looming-valley-death
–Sam Geall, Rebecca Peters, and Byford Tsang; Andrew Erickson and Gabriel Collins, “Can America Trust China to Fight Climate Change? The Debate Over Competition and Cooperation,” Foreign Affairs, 23 July 2021. https://www.foreignaffairs.com/articles/united-states/2021-07-23/can-america-trust-china-fight-climate-change
–Andrew S. Erickson and Gabriel Collins, “Competition with China Can Save the Planet: Pressure, Not Partnership, Will Spur Progress on Climate Change,” Foreign Affairs 100.3 (May/June 2021): 136–49. https://www.foreignaffairs.com/articles/united-states/2021-04-13/competition-china-can-save-planet
[i] Collins, Gabriel and Michelle Michot Foss, “The Global Energy Transition’s Looming Valley of Death,” Baker Institute Report no. 01.27.22. Rice University’s Baker Institute for Public Policy, Houston, Texas. https://www.bakerinstitute.org/research/global-energy-transitions-looming-valley-death
[ii] https://www.bp.com/en/global/corporate/energy-economics/statistical-review-of-world-energy/downloads.html
[iii] “Empire State Building Fact Sheet,” Empire State Realty Trust, https://www.esbnyc.com/sites/default/files/esb_fact_sheet_4_9_14_4.pdf
[iv] “World Energy Outlook 2022,” International Energy Agency, https://iea.blob.core.windows.net/assets/830fe099-5530-48f2-a7c1-11f35d510983/WorldEnergyOutlook2022.pdf
[v] Grace Chung, “Global Investable Assets Reach Record $250 Trillion,” Institutional Investor, 10 June 2021, https://www.institutionalinvestor.com/article/b1s6dsvw696kqd/Global-Investable-Assets-Reach-Record-250-Trillion
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