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Will There Be A Vaccine Against Climate Change?

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Robert Tornabell is an emeritus professor and former dean at Esade Business School.

In recent years, global greenhouse gas emissions and energy consumption have increasingly become central issues on the geopolitical agenda. The climate action of the world’s two largest emitters may encourage other countries that have still not joined the Paris Agreement to do so, and to move towards more ambitious goals in the transition from fossil fuels. Let’s look first at recent changes in U.S. energy policy since President Joe Biden took office and then at the evolution of carbon dioxide emissions after the sharpest decline in demand from the travel industry in recent history.

According to the Financial Times, President Biden “has suspended leases for fossil fuel development on federal lands.” Such a measure could reduce total oil and gas production by approximately 22%. However, it seems that President Biden will still allow fracking practices to continue. Writing from a European perspective, we should ask if the U.S.’s new energy policy really complies with the 2015 Paris Agreement. I have a few doubts in this respect.

Historically, the U.S. shale industry was financed with low equity ratios, no more than twenty percent, and higher credit risk debt. With low oil prices, they couldn’t pay the higher interest rates for low credit debt (Wall Street’s so-called “junk bonds”). The CEO of one of the world’s biggest oil companies, the Italian multinational Eni, has recently said that, for them, the oil price equilibrium is at about $48 per barrel right now. China is also growing again at an annual rate above 3% and could increase its oil imports. However, it’s not enough for the increasing oil supply. Besides, the low rate of worldwide vaccinations and new lockdowns to fight against Covid-19 mean that the increasing demand for oil and gas is far ahead of what that demand will be in 2022 or 2023.

Germany is also shutting down all its coal-based energy plants, one by one. Similarly, after the Fukushima tragedy, Japan decided to base its energy supply on liquified natural gas (LNG) supplied from Russia through vessels traveling all the way from Vladivostok to Japan, crossing the Pacific Ocean.

During the last weeks of his mandate, President Trump threatened those building the gas pipeline under the Baltic Sea from Russia. It is called Nord Stream 2; the first one, Nord Stream 1, has been supplying Russian gas using the long pipeline built by the state-owned company, Gazprom. Nord Stream 2 will supply cleaner energy like the first Nord Stream pipeline. But the question is, should Germany depend instead on Turkey’s supply of gas coming from Russia across new costly pipelines?

In the meantime, Turkey has been sending military forces and naval ships to the eastern Mediterranean area where it and other nations are trying to access new gas sources: from Israel to Egypt and the island of Cyprus. It seems that Germany could depend on both Russia and Turkey. Meanwhile, Sweden, Norway, and France have been applying their own policies. Norway is the leading European oil and gas exporter, and Sweden and France are the main producers of nuclear energy in the region.

The European Union and Germany are hoping to learn more about Washington’s new energy policies and see if the new President will fulfill his country’s pledge in favor of clean energy for NATO members.

The pandemic’s impact on energy systems

According to the International Energy Agency (IEA), the coronavirus pandemic is having a major impact on energy systems. It is curbing investments and threatening to slow the expansion of key clean energy technologies.

The IEA’s last annual Tracking Clean Energy Progress report showed that only six out of 46 technologies and sectors were on track to meet long-term sustainability goals by 2019. Electric vehicles, rail transport, and lighting were some of these. Another 24 showed some progress.

The pandemic has caused major disruptions in tourism and all forms of transportation, from airplanes to cars, but a short-term shock does not guarantee a sustained decline. According to the IEA’s projections, global energy demand is expected to contract by 6% in 2020, the largest reduction in more than 70 years. Global carbon dioxide emissions could also fall 8% in 2020, representing their lowest level since 2010.

From fossil fuels to renewable energy sources?

The IEA is aware that the current crisis may have accelerated some structural changes, such as the one we mentioned about the coal exit plan that Germany is slowly applying. Spain has followed suit but it is still maintaining its nuclear plants and combined plants (based on gas and coal). 

The average cost of renewable energy has been going down. In less than ten years (from 2010 to 2019), photovoltaic solar energy prices have shrunk from $0.378 kW/h to $0.068/kWh. Similarly, onshore wind energy prices have decreased from $0.086/kWh to $0.053kW/h.

The Chinese government is promoting medium-sized manufacturers of photovoltaic solar energy panels, providing them all manner of subsidies. In a few years, China will be capable of exporting photovoltaic panels at one-quarter of the global market’s current prices. This would imply zero carbon dioxide emissions and low costs to set up plants everywhere in Africa, Asia, and Europe. But we also know that to keep those plants running, every country will need backup energy sources, either based on hydraulic or nuclear energy production.

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