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The political tipping point: Why the politics of energy will follow the economics
22 January 2019
The political tipping point is coming. The falling costs of renewables are driving a political tipping point where politicians move from expensive support for renewables to embrace the sector and to tax fossil fuel externalities. This is a key driver of the Inevitable Policy Response showcased by the UN PRI.
Download the full analyst note here and view the infographic here or at the bottom of this page.
The old thinking. Renewables are expensive, hard to deploy, and need subsidy. Only rich countries can afford to think about the pollution and global warming externalities.
What changed. New energy technologies are cheaper than fossil fuels for electricity and will soon be cheaper for transport. Engineers have increased the feasibility ceiling of renewables to far above the current penetration levels in most countries. Meanwhile, there is rising global concern about local pollution and global warming.
The new reality. Renewables solve the energy trilemma because they are cheaper than fossils, cleaner than fossils, and enhance energy security. They provide local jobs and improve the balance of payments. They reduce local pollution and are popular with voters. They enable technology leadership and enhance energy independence and global power.
The window of opportunity. This opens up a political window of opportunity as it is now possible to legislate in favour of renewables and to go with the grain of economics. Politicians can simultaneously reduce pollution, reduce costs, gain votes, and enhance national influence.
What is stopping change. The main impediments to change are now inertia and fossil fuel lobbying. Given that fossil fuels are still 80% of primary energy supply and generate rents of 3% of global GDP, this is still a powerful force.
What will politicians do. In those countries where they are able to escape the influence of the lobbyists, they will pursue two routes. On the one hand, they will stop subsidising renewable energy sources directly, and focus on establishing a system in which these can flourish. On the other hand, they will start to tax the fossil fuel sector for the externalities that it imposes on the rest of society.
Who will lead. The political pressures vary widely by country and sector. Leaders will be those that have large fossil fuel imports, major pollution issues, excellent renewable resources, limited corruption, low costs of capital and rising demand. And laggards will be those with large fossil fuel exports, limited pollution problems, electricity sectors fuelled by domestic sources, high levels of corruption, high costs of capital and stagnant demand.
Download the full analyst note here.