COLUMN-Giving clean energy an affordable makeover: John Kemp

LONDON Thu Nov 24, 2011 8:43am EST

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LONDON Nov 24 (Reuters) - Political will to tackle climate change by curbing greenhouse gas emissions, never very strong, has all but disappeared across much of North America and Western Europe in the last twelve months.

Climate concerns have fallen victim to the recession. Fears about jobs, growth and the cost of switching to clean energy have undermined support for climate policies across the advanced industrial economies.

Clean energy is seen as an expensive luxury for households and businesses already burdened with rising fuel and food prices, stagnant incomes and falling pensions.

Policymakers are responding by trying to repackage policies for limiting combustion of fossil fuels and encouraging uptake of renewable energy in terms of their benefits for energy security and affordability, rather than climate change alone. The focus is on making energy affordable for struggling consumers as well as saving the planet for future generations.

CLEAN AND AFFORDABLE

In an information paper on "Policy considerations for deploying renewables", published on November 23, the International Energy Agency (IEA) put protecting the climate and other environmental issues third after energy security and encouraging economic development in its list of reasons why governments and consumers should take measures to increase the share of energy from renewable sources.

The authors emphasised the role of renewables in a diverse energy portfolio to limit the impact of supply disruptions and reduce the volatility associated with prices of fossil fuels.

"It is increasingly clear that having a significant share of renewables in a country's energy supply can increase energy availability by enhancing the overall diversification of the risk portfolio," according to the agency -- an argument borrowed from modern portfolio theory (MPT) in finance and extended to energy by the late Shimon Awerbuch.

The IEA argues there is an important place for renewables in the energy mix even if they remain more expensive. "The need for a portfolio-based approach makes it impossible to rely exclusively on the cheapest energy source. Such an approach would leave a country vulnerable to potential availability problems due to the imbalance in the portfolio."

In any event, the agency urges policymakers and consumers to take a long-term view on costs. "An energy system that will deliver energy at a very low price while putting the future of entire nations at stake cannot be seen as secure. A more relevant definition of energy security appropriately demands that the long-term consequences of a given strategy be taken into account, which allows for more informed decision-making".

The paper seeks to redress the negative emphasis on the costs of switching to clean energy by talking up savings from lower spending on fossil fuels as well as benefits from the creation of "new markets" reconciling limited natural resources with economic growth, something it calls green growth.

The aim is to rebrand clean energy as affordable energy, something that can spur economic growth and employment rather than damaging competitiveness and jobs.

UK ENERGY STATEMENT

The same rebranding exercise is underway in the United Kingdom. The country has been hit hard by the recession, but the energy ministry is in the hands of the Liberal Democrat party, which is fervently committed to policies limiting greenhouse emissions.

Rising fuel costs have become a politically sensitive issue, and it is unclear how far voters support the government's green energy agenda if it means higher bills for gas, electricity and transport.

So Britain's energy minister Chris Huhne used his annual statement to parliament on energy strategy on November 23 to shift the focus onto clean energy as affordable energy.

Sidelining global warming, Huhne insisted "the consumer is at the heart of everything we do. The decisions we make must ensure the consumer is protected as far as possible from rising prices."

"We will secure our energy at the lowest cost: in the short term by promoting competition. In the medium term, by insulating our homes. And in the long term by steering us away from excessive reliance on fossil fuels and onto clean, green and secure energy," Huhne told the House of Commons.

"Our vision is of a thriving and globally competitive low-carbon economy: with cleaner energy, more efficient homes, and lower bills".

ACCENTUATE THE POSITIVE

In the last decade, climate change policies have often displayed a streak of Puritanism, emphasising the need to put up with high short-term switching costs to secure better outcomes in the distant future, 20 or even 50 years from now.

The strategy was never terribly effective. In advanced industrial economies where short-term consumer and voter gratification is uppermost in politicians' minds, the appetite for enduring short-term pain to secure long-term gain was never high. To the frustration of climate scientists, voters and politicians apply a very high discount rate to future benefits.

But the strategy has become completely unworkable as a result of the recession. Voters are far more focused on the short-term problems of jobs and income than long-term issues posed by rising global temperatures.

At the same time, the revolution in shale gas and oil has taken away fear about peaking fossil fuel supplies that helped support ambitious fossil fuel reduction strategies.

As the IEA explains "change is often said to be driven either by desperation or inspiration. In the energy sphere, change can be driven by concerns about supply security and the negative impacts of unstable energy prices and long-term energy access (desperation)...Change can also be stimulated by willingness to support actions to improve the global and local environment, or to provide stimulation for innovation and economic development (inspiration)".

In the current political and economic climate, there is no chance voters across the United States and much of Europe will back ambitious policies to curb emissions based on their long-range climate benefits alone. If emissions policies are to be sold to the electorate, it will have to be in terms of their ability to lower (not increase) the cost of energy in the medium and long-term.

GIVING UP ON CARBON, FOR NOW

While a few politicians like Huhne remain strongly committed, Britain toys with the idea of a floor on carbon prices to support nuclear and renewable energy, and the EU's Emissions Trading System (ETS) staggers on, the political momentum behind climate change policies has mostly vanished.

Carbon has even become a dirty word for climate investors and emissions traders, as my colleague Nina Chestney explained in a recent article: "In a sign of the tough times facing the carbon sector, the Carbon Markets and Investors' Association last month dropped the word "carbon" from its name," Chestney wrote.

Many other private sector organisations are reconsidering how they communicate. "(The shift) is mainly related to the negative image that was created around carbon markets in the U.S," according to Russel Mills, global director of energy and climate change policy at Dow Chemical.

"Energy security, clean energy and jobs from shale gas or efficiency are the only topics one can safely touch in Washington for the time being," he said.

Rebranding emission controls in terms of energy efficiency and affordability is unlikely to save ambitious efforts to stem the rise in atmospheric carbon dioxide in the short term. Barring some catastrophic weather event, emissions policy is dead for at least the next 3-5 years.

If the scientific consensus is right, however, the rise in temperatures will not stop, so emission controls will eventually force their way back onto the agenda. But when they do, the packaging will be different -- more focus on energy efficiency, affordability and security, and less on appeals to altruism and saving the planet for future generations. (Editing by Anthony Barker)

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