A year on from COP26

Energy policy in a world of change.

Remember COP26?  Less than a year ago most of the world’s leaders gathered in Glasgow and reached an agreement (admittedly partial and imperfect) on the key issue of the day – climate change.  After a year of intensive media coverage, street protests and somber warnings of the perils to come, there seemed to be broad agreement on a forward agenda.  Many wanted more action but at least there appeared to be a consensus on the need for change.

A year on COP 27 will soon meet in Sharm El-Sheikh in Egypt, and is likely to be a non event. Many leaders will be absent.  No major decisions will be taken. In contrast to the blanket coverage given to COP26 there will be little to attract the attention of the world’s media.

Events have overtaken the climate agenda.  This autumn the key issues are the war in Ukraine and the risks of escalation along with the economic downturn in Asia and Europe. Emissions continue to rise and the world moves steadily towards the threshold at which climate change becomes a dangerous reality according to the calculations and predictions of the climate scientists. The growing incidence of extreme weather suggests that the threshold may already have been passed.  But despite all that climate change is no longer the main issue of the day. The short-term challenges of rising interest rates, poverty and Russian aggression have displaced the longer term challenge to the climate.

The shift of attention is a lesson in how rapidly circumstances change. For those who care about climate change this can be a cause of depression and even despair.  However understandable that reaction may be, it is wrong.  The alternative view is that the shift of attention is good for the climate agenda because it replaces the easy slogan of “net zero by 2050” and the futility of trying to construct a global deal between countries with widely divergent interests with a much more practical short-term imperative which will force individual governments, businesses and households to act now.

The upheavals of 2022 are much more likely to deliver change than the worthy but remote commitments which the countries attending the COP meeting in Glasgow signed up. Energy insecurity fed this time round by President Putin is an immediate issue which requires immediate answers.  In most European countries including Germany and France and the UK that is encouraging the rapid development of new on and offshore wind supplies as well as energy saving efficiency measures.  Europe will not easily be able to cover a full scale cut off of Russian supplies – there is simply not enough readily available capacity – and the shortfall will bring hardship this winter.  But President Putin’s actions, including the annexation of Ukrainian territory and the sabotaging of existing trade links between Russia and Europe such as the Nordstream 1 pipeline suggests that there will be no rapid return to reliance on Russian gas even if the war is halted by a ceasefire. Mr Putin has broken Russia’s reputation as a reliable supplier.   Energy supply has replaced climate change as the driving motivation of policy but the result is the same – renewables will gradually take an ever greater share of final energy demand.

The events of 2022 have telescoped the timetable of action on energy policy. When there is an immediate crisis what matters is what can be done now, rather than in 2050.  Politicians, officials and most important of all the public are beginning to understand the complexities of the energy industry, and crucially the pace at which change can be made.  That pace is being sped up both by the urgency of the situation and by the fact that national governments can take decisions more quickly than is possible in any international forum. In the US the passage of the Inflation Reduction Act has shown how much can be achieved by linking climate action to other policy priorities.   In Europe it is noticeable that the major policy steps are being taken by Governments such as those in Berlin and Paris while elaborate policy proposals being put forward by the European Union have run into the sands of dissent between different member states.  Herding 28 cats is not easy but individual national Governments, well aware that they will be held responsible if the supply of energy on which modern economies depend fall short or unaffordable.

Increasing the supply of renewables is not an instantaneous solution. In the very short term, there is some greater reliance on coal, an issue which will continue to be a problem in many developing economies.  As new supplies of wind and solar power come onstream, however, both natural gas and coal will be displaced.  Europe is ahead of the rest of the world but having passed the Inflation Reduction Act a similar trend is emerging in the US.

On both sides of the Atlantic the electricity market is the easiest part of the energy system to decarbonise.  The next major plank of policy will focus on sectors where electrification is possible but has yet to take place such as transport and home heating.  This will crucially take energy policy into the demand side of the equation.  Dealing with climate change means encouraging and incentivising consumers, including business to make the shift away from fossil fuels to lower carbon alternatives.  Smart companies see the trend and it is no accident that the most forward-looking companies in the sector such as Shell and BP see electricity as the area which offers the greatest potential.

The climate change debate even at COP 26 carried the sense of being an almost theoretical discussion about the medium- and long-term future. 2050 still sounds a long way away, certainly well beyond the lifespan of any Government leader or business CEO.  Of course people care about the future but they care more about the present and the immediate future.  Odd though it may seem, we may all owe Mr Putin a vote of thanks for quite unintentionally moving the debate on energy policy from the back burner to the front of the stove.

Nick Butler