By Peter H. Gleick
As President Obama begins his second term, there is a growing realization of the need, both in the United States and globally, to shift our energy system from a reliance on fossil fuels toward renewable sources of energy. This transition has been a long time coming, and it will take a long time to complete, but it is both inevitable and necessary if we are to have any chance of reducing the likelihood of disastrous global climate change.
The president clearly acknowledged the problem in his inaugural speech, when he said,
We, the people, still believe that our obligations as Americans are not just to ourselves, but to all posterity. We will respond to the threat of climate change, knowing that the failure to do so would betray our children and future generations. Some may still deny the overwhelming judgment of science, but none can avoid the devastating impact of raging fires, and crippling drought, and more powerful storms. The path towards sustainable energy sources will be long and sometimes difficult. But America cannot resist this transition. We must lead it. We cannot cede to other nations the technology that will power new jobs and new industries. We must claim its promise.
The “transition” to sustainable energy sources. The fight against “the threat of climate change.” These words were music to the ears of many people, long concerned about the need for a major and rapid shift away from the massively polluting forms of energy that now power the planet.
Such transitions are never easy. Political will and commitment are required. A willingness to buck special interests invested in old systems is necessary. And financial investment is needed, both public and private. Lots of it. Energy systems are always capital intensive, especially at the scale needed to accelerate a transition away from existing fixed systems. Renewable energy systems often require more up-front capital than polluting fossil fuel plants, which have many of their real costs spread over long-term fuel supply, operations, and maintenance, or hidden from view.
Some renewable energy technologies are already economically competitive with traditional fossil fuel or nuclear systems. Decentralized electricity options are attractive to small-scale private investment typically unavailable for larger centralized systems. And investment in renewable energy also offers the possibility of producing substantial new employment opportunities, a key goal in the United States, where unemployment remains too high. “Investment” must therefore also include investing in job training, education, and expansion of workforce skills.
In terms of finance, the global renewable energy industry invested around $260 billion in 2011 (and more in 2012), up from only $40 billion in 2004. As much as $500 billion worldwide may be required by 2030. In the United States, over $57 billion was spent in 2011 on renewable energy, almost all of it private funding. Investments in clean energy options in the U.S. are partly driven by state-level “renewable portfolio standards” that set targets for the fraction of a state’s total electric power to come from renewable sources. Nearly 30 states have such standards and to meet them, as much as $400 billion may be required by 2030. These investments include a mix of utility and corporate finance, bank lending, private and public equity, and venture capital, with other institutional investors joining in.
In the United States, efforts are underway to expand the form and size of investments in renewables. Traditional forms of investment include federal research and development funding and production tax credit programs, as well as private and public market investments. But other innovative financing options for renewables have also been proposed to entice a wider range of investors, including vehicles similar to real estate investment trusts, limited partnerships similar to those available for natural gas, oil, and pipeline projects, and other longer-term private capital formation strategies to reduce pressure on public financing. In short, we need more efficient private investment tools for renewables and more refined and targeted public subsidies that reduce taxpayer expense and maximize the public's rate of return.
The world has been through major energy transitions before. Almost always, these prior transitions have been driven by changes in both technology and economic conditions, and they have been slow, occurring over decades, as society adjusts to new ideas, retires old investments, and often, learns new ways of meeting business and social needs.
Every major transition also carries risks and benefits – sometimes hidden or unrecognized at the start. The transition to coal from firewood and low-valued biomass ended the devastation of northern forests and reduced indoor air pollution from wood fires, but at the cost of creating a dangerous industry of underground mining with terrible (but initially unknown) health, safety, and environmental consequences. Expansion of oil and gas helped cut dependence on dirty coal, but led the United States to a politically dangerous reliance on foreign sources of petroleum, especially from the Middle East. The belief in the promise of nuclear fission drove massive construction in late twentieth century without a full appreciation of the risks of weapons proliferation, the difficulty and cost of permanent radioactive waste disposal, or the danger of catastrophic accidents. The new emphasis on natural gas and the use of hydraulic fracturing (“fracking”) offers a way to expand domestic gas production, but with uncertain risks to surface and ground water resources, rural environments, and local community health. The pressures to expand renewables, as emphasized by President Obama, come from several directions, including a desire to expand domestic energy production and domestic industries, but also a renewed awareness of the growing threat posed by our current energy mix to the planet’s climate, and the ultimate consequences for our water, food production, ecosystems, coastal developments, human health, and more. We don’t have the luxury of as slow a transition as we’ve seen in the past.
Progress is being made. In 2011, the last year for which globally comprehensive data are available, over 40 GW of new wind power were installed, 30 GW of solar photovoltaics, 25 GW of hydropower, and over 6 GW of other renewables including biomass, concentrated solar, and geothermal. In the United States in 2012, nearly half of all new electrical generating capacity installed was renewables, including over 13 GW of wind leveraging $25 billion in private investment, and over 3 GW of photovoltaics.
More needs to be done, faster. Congress, the IRS, and other agencies should consider actions that can free up and widen the investment options available for renewables. This is an energy transition that should be encouraged, accelerated, and embraced.
Dr. Peter Gleick is President of the Pacific Institute, a non-profit, non-partisan think tank in Oakland, California. He is a MacArthur “genius” Fellow, member of the U.S. National Academy of Sciences, AAAS Fellow, and hydroclimatologist by training, with a focus on water, energy, and climate issues.