COP27: Anticipating a greener spring

“The reason the energy crisis is having such a large impact on European countries and the whole world is because of the role fossil fuels has been playing in their energy systems. Every single policymaker we speak to says ‘we wish we had invested more in efficiency and clean energy technologies’,” says Christophe McGlade, Head of Energy Supply Unit, International Energy Agency, and lead author for the recent IEA special reports on Net Zero by 2050: A roadmap for the global energy sector; Sustainable Recoveries; and the oil and gas industry in energy transitions.

The comment came at a speaking event at the Nordic Pavilion in Sharm El Sheikh during the Finance Day of the COP27 climate talks on 9 November. The war in Ukraine has revealed the weaknesses in our energy systems and made the need for new renewable energy capacity and energy security abundantly clear. The panel discussed how fast we can move to clean and renewable energy and the role of sustainable finance, whether governments are risking the green transition by investing in short-term energy security, and what is realistic in the short and long terms.

Icelandic example

Many in Europe are worried about the coming winter but not in Iceland, where 99% of the country’s on-land energy needs are covered by geothermal energy sources. Bjarni Benediktsson, Iceland’s Finance Minister, and member of the Coalition of Finance Ministers for Climate Action, says the current situation in the global economy has very clearly demonstrated the benefits of having ample renewable energy.

“In Iceland, we are very fortunate in that green and renewable [geothermal] resources provide us with nearly all the electricity and heating consumed on the island. In recent years, we have had extensive tax incentives that have pushed the transformation. The next steps will include the de-carbonisation of heavy vehicles and then ships. Later, we expect big things to happen with air traffic related to carbon capture, storage technologies, lorries and buses, and then ships. Finally, we believe a major change will happen in air travel with the aid of carbon capture carbon storage technologies. These sectors will be harder to transform,” Benediktsson said.

“For this we need private sector investment, so we have introduced green tax incentives.”

Iceland is also part of the Coalition of Finance Ministers for Climate Action, where Benediktsson recently spoke at the meeting at the IMF recently, also addressing a global audience.

“I think bringing together fiscal and economic policymakers from around the world affords an opportunity for collective engagement to address the challenges posed by climate change, and this compels us to find ways to address them using public finances,” says Bjarni. “Another aspect is that I find that sometimes we spend too much time discussing the problem and too little time discussing solutions.”

The Coalition of Finance Ministers for Climate Action was launched in Washington DC in April 2019 at Finland’s initiative. It has 65 member countries and is growing. Each of its members is committed to a set of principles known as the Helsinki Principles. The objective is to bring considerations of climate change into decision making about economic and financial policies. The Coalition is currently chaired by the Finance Ministers of Indonesia and Finland, with a secretariat managed by the World Bank and the IMF. The Nordic Investment Bank (NIB) joined the Coalition of Finance Ministers for Climate Action as an institutional partner in June 2021.

Turning to the International Energy Agency, are there any lessons we could learn from Iceland about their energy transition, and how they are using their geothermal energy?

“I would highlight Iceland’s emphasis on making buildings consume as little energy as possible. The other aspect is developing domestic low emission energy resources. Iceland is very fortunate in that it has large geothermal resources, but so have many other countries around the world,” says Christophe McGlade, Head of Energy Supply Unit, International Energy Agency, adding “They could learn from Iceland in doing that.”

McGlade says that while investing in clean energy for climate and energy security reasons is important, it is also about developing new domestic energy industries and creating domestic jobs as part of the emerging new energy economy.

“The reason the energy crisis is having such a large impact on European countries and the whole world is because of the role fossil fuels has been playing in their energy systems. Every single policymaker we speak to says ‘we wish we had invested more in efficiency and clean energy technologies’. The crisis was caused by Russia’s invasion of Ukraine and the gas supply crunch, and if more countries had gone through that process in terms of boosting their efficiency, boosting domestic resources, it really would have put them in a better position so that it would also be helping with energy security,” McGlade says.

At the IEA, you are currently following how governments are investing in green energy. What do you see in the big figures? Is there acceleration, or is there actually a danger of a backlash?

“We’re seeing a mixed picture. Since the Russian invasion of Ukraine and the start of the energy crisis, we’ve seen governments announce several very positive policies such as the US Inflation Reduction Act – the most important thing that has happened for clean energy since the signing of the Paris Agreement – the RePowerEU strategy [the European Commission’s plan to make Europe independent from Russian fossil fuels well before 2030), Fit for 55 (the EU’s target for reducing net greenhouse gas emissions by at least 55% by 2030), Japan’s Green Transformation, and a great momentum behind wind and solar in China and India. Together, we see this really turbo charging investments in clean energies,” says McGlade.

However, the policies in place are not yet ambitious enough to achieve our shared climate goals. While the IEA expects the new policies to almost double global annual investments of USD 1.3 trillion in clean energy by the end of this decade, this figure will need to be doubled again if we are to limit the temperature rise to 1.5 degrees Celsius.

“Much more needs to be done to catalyse investment in emerging market and developing economies. A lot of the increase we’re seeing is coming from advanced economies, and we need to make sure that no one is left behind, and that we get investment happening globally,” McGlade says.

From a financiers’ point of view, do you see any sectors where the green transition is taking leaps in the Nordic and Baltic region?

“We need to expand the green transition beyond energy to include the sectors that still use a lot of fossil fuel, such as transport and the hard-to-abate raw material and industry sectors,” says Luca De Lorenzo, Head of Sustainability and Mandate at NIB.

NIB is an international financial institution owned by the Nordic and Baltic countries. The mission of the Bank is to finance projects that improve productivity and benefit the environment of the region. IFIs typically finance part of projects, and therefore mobilise funding from other sources. NIB typically finances up to 50% of the total costs of its loan projects.

“Going beyond energy as a sector, one really needs to take a value chain approach. Take shipping, which we’re trying to make more sustainable in the Nordics, and where one must collaborate with ship operators, the developers and builders of engine technology, and the producers of the alternative fuels green ammonia, methanol and hydrogen, or electrification to provide to the sector. It is this value chain approach that I really think will be the next step in the coming decade,” De Lorenzo says.

“What gives me hope is that the stars have aligned to allows the situation to be turbocharged. I think it’s evident that fossil fuels are an enemy to the climate and to some extent the enemy to energy security. But have to say that the pace is still too slow, we need to accelerate even further,” says Luca.

Nadia Gullestrup Christensen, youth delegate to the UN and Chair of the Danish Youth Climate Council, is focused on getting the youth’s voices heard in decision-making processes.

“It’s great that the Nordic countries can agree on a green transition. But regulations that makes no sense stands in the way, and we must keep pushing the political decisionmakers to remove them,” says Nadia Gullestrup Christensen, who is also a master’s degree student in Environmental Economics.

“It is really great to hear that we can, at least between us, agree on the fact that fossil fuels should be phased out, because globally this is something that cannot be agreed upon.”

“If we look at these conferences that we are participating in, then just at COP26 it was ambitious that countries could agree on phasing out coal, which is really insane as we should have agreed on phasing out all fossil fuel, including oil and gas. I think this is really important to keep in mind and we should push the policymakers. It is a really strong message that we, across generations, across people from the private sector and civil society, agree on this, so keep pushing the policymakers,” Christensen says.

“And I think it’s also really important that we keep pointing out what are the barriers, because when you read the IEA’s energy outlook, it can be quite positive when you hear about all the increases in investments. But there still is a lot of barriers, especially regulatory ones. An example of this regards wind turbines where it can take three times longer than needed to build due to regulations that doesn’t make any sense. This is really something that we should point out and remove because if we are in an energy crisis, then we also need to act like we are in an energy crisis,” says Nadia Gullestrup Christensen.

A recording of this debate can be found here.