Issue #2: Clean Energy Bulls and Climate Bears
No, not the polar bears.
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In this issue, I’m going to explore the financial aspects of transitioning to a world running on clean energy sources, and the institutional actions necessary to make that happen. It may seem as if I’m doing a full-180-degree-flip on just about everything I spoke about in Issue #1 of this Reader, but I’m not. Although there is obvious merit to advocating a fundamentally different approach towards the way we tailor our response to ecological degradation and the resulting climate perturbations, we cannot ignore the reality of the world we live in. And money makes that world go ’round. Many of the philosophies discussed earlier (and those that will be discussed in future issues of this Reader) may work towards creating balanced systems and positive feedback loops at a community scale; however, the scale of global consumption cannot be dialled back to pre-industrial levels without massive sacrifices that we are not yet able to make.
Considering how entrenched we are in the industrial economy, coupled with the rate of change of our economic system, Climate Capitalism has to be an option we explore to the fullest extent (while pursuing global systemic change). Contrary to some notions, there are ways in which we can lean on the status quo to tweak the system and create an environmentally responsible economy. This is not necessarily an outcome, it is a tool that we use to ease transition from our current energy model to a completely carbon-less one. Which brings us to an important, overarching point: why is everyone so focused on clean energy and curtailing the use of fossil fuels?
Well, the amount of energy used by a civilisation says a lot about it in terms of its technological advancement, and the state of well-being of its people. And we sure do love the warm halo of progress that industrial-scale energy production has given us. Be it the server farms on which this newsletter is stored, the telecommunications tower which is transmitting this data to you, or the device you are reading this on, everything uses energy and needs energy to function. Furthermore, almost everything we use in our daily lives has been sourced, manufactured, processed, stored, transported, and sold (or, any combination thereof) in a process that relies on fossil fuels directly or indirectly.
This is what we mean when we say fossil fuel economy, and subverting this economic model comes with a few hurdles.
Firstly, interests that have spent centuries developing this fossil fuel economy are not going to pack up and leave because the more conscientious humans tell them that they are destroying the planet. In fact, one could argue that without fossil-fuel-based energy, the plants that manufacture parts for solar panels may stop functioning – a darkly humorous, but daunting realisation.
This brings us to our second hurdle. The sheer scale of energy consumption of our species simply cannot be offset by rooftop solar and ten windmills at our beach house. The reality of our post-industrial system is that we have super-sized certain processes that cannot be scaled down without devastating repercussions to growth – which, in turn, will lead to even starker imbalances between the haves and have-nots.
The majority of the “super-sized” processes fall under three broad categories: urban services, technological services and trade. While it is possible to run individual factories or even entire rural townships on a combination of solar, biofuel, wind and hydroelectric energy with a storage infrastructure, the city is a different entity altogether. Cities require a vast amount of energy, and this would have to be generated far away. In addition, the requirement for storage of energy increases because peak power production for renewables seldom coincides with peak power usage. For a city like Mumbai, which on average needs about 3.1 gigawatts, a solar power plant would occupy vast tracts of land located elsewhere. Consider this: setting up a new 1GW solar plant costs 7,000 crore rupees, and this would power only a fraction of Mumbai’s total energy needs. Powering humanity is not a cheap endeavour.
The third hurdle (and perhaps the least surmountable) is the fact that energy systems are not things that can be solved with an easy app; ‘disrupting’ the energy sector is almost like picking a fight with the second law of thermodynamics (yes, the same law that is slowly freezing the whole universe). Unfortunately, fossil fuels are currently cheaper than renewables with the requisite storage capacity. More importantly, most of our infrastructure is set up as part of a fossil fuel grid and switching over would require substantial financial backing which most governments are ill-equipped to pay for – even in the “rich” First World countries.
Understanding these hurdles, how do we push governments and financial institutions to invest in setting up utility-scale infrastructure for entire nations? What are the problems with investing in clean energy? Why is funding energy-based start-ups a long-term investment? And, certainly as important, how can we increase public investment in clean energy?
Can money do good?
Nemonte Nenquimo
The Amazon rainforest in Ecuador is possibly the most biodiverse region on earth. It is home to many indigenous tribes, each one’s culture rooted deeply in the rainforest. Among these tribes, the Waorani are perhaps the most well known the world-over. When the last remaining ancestral land of their tribe (part of the Yasuni National Park and Biosphere Reserve) was slated to be sold to the highest bidder for oil-exploration rights, the Waorani saw mass-scale ecological destruction carried out by careless oil companies that left oil spills and degraded freshwater reserves that had built up over millennia – and the core systems of the rainforest were threatened.
Nemonte Nenquimo is a Waorani woman who brought the entire world’s attention to the issues with indigenous land rights in Ecuador, and how the oil companies are threatening the tribe’s culture and livelihood. She spearheaded massive social media campaigns, garnering support from more than 350,000 petitioners worldwide. Nenquimo took the Ecuadorian government to court, claiming they flouted the indigenous “Right to Free, Prior and Informed Consent” when they sold land to oil companies – and she won.
This is an important victory, not just for the Waorani peoples, but indigenous tribes world over. It is a legal precedent that safeguards small communities’ rights to life, land and livelihood against large entities that can very easily tip the scales in their favour by brandishing obscene amounts of cash – cash that developing countries like Ecuador need to support their economies.
In 2007, then president Rafael Correa asked the world to pay Ecuador 3.6 billion dollars (over 10 years, amounting to approximately 350 million dollars a year, a minor fraction of the global GDP) to leave the oil underground at Yasuni National Park. Ecuador desperately needed the money it would gain from selling the rights to drill in oil fields, but they were willing to forego 50% of that income if they were paid enough to increase their food security. In 2013, Correa abandoned this initiative and sold the drilling rights to oil fields on protected land because economic giants the world over could not muster enough capital to keep the oil companies at bay (couldn’t or wouldn’t?).
Now, Nemonte Nenquimo has set in motion events that will gradually reverse the paradigm of the ecological abuse of the Rainforest for capital gain – and she has achieved it by breaking out in song at a courthouse. It is heartwarming to see her campaign succeed in this video from the Goldman Award, and learn more about her philosophy.
You can see more of her work and initiatives to safeguard indigenous rights and land in the links below:
The Goldman Awards Profile on Nemonte Nenquimo
The UNEP Champions of the Earth Profile on Nemonte Nenquimo
And here is the organisation she has founded to help four indigenous tribes of Ecuador garner legal and economic support:
Alianza Ceibo, or the Ceibo Alliance
[A book]
The Case for Climate Capitalism
by Tom Rand, published by ECW Press in 2020
A review of the ideas discussed in this book
This book is a 10 HOUR read.
While a lot of the writing on climate change brings to the fore the fact that most of our problems stem from modern-day capitalism and a culture of corporate greed, Tom Rand proposes we use market forces and monetary policy to drive capital in the right direction – “bully” the bad, ugly corporations that profit from the fossil fuel industry into investing in environmentally conscious sources of energy.
The author begins by criticising the view of the left, stating that by vilifying capitalism, they stand to alienate not just the extreme right, but the entire political spectrum of those in between. Yes, the extreme right demands a free market economy, ignoring the long-term risks to the world for short-term, quarterly gains. But not everyone tied into this system is necessarily a climate-denying baron hell-bent on ruining the earth for profit; some want to do good things for the environment, but are bound by the need to show quarterly earnings and are answerable to a system that is rigged to ignore long-term risks.
The solution, then, is not to get everyone to stop playing the game, but to change the rules of the game so that the entire economic system is geared towards mitigating or preventing climate change, rather than the earnings being at odds with the environment. In Rand’s mind, we need to create a “patchwork of ideologies from across the spectrum”, admitting that each ideology has an up-side and a down-side. “We need to take the best of each ideology, and jettison the rest.”
Another important concept that Rand brings up in this book is the distinction between white-hats, grey-hats, and black-hats. White-hats, companies like Morgan Solar and Tesla are companies that aspire to scale up alternatives to fossil fuel economies, and show that it is possible for companies to disrupt the status quo and be extremely lucrative ventures – something that convinces the grey-hats to jump onto the bandwagon. The grey-hats are companies that have historically made their money on fossil fuels, but are beginning to transition over to renewable energy markets because they are able to see how lucrative it is - companies such as Shell. The grey-hats are an important part of Climate Capitalism because they often come with heavy wallets, and drag other grey-hats with them as stakeholders seek out better opportunities in new markets. The black-hats, then, are those ugly corporations in need of carbon taxing, stringent policy, and investment “bullying”, because they show no inclination to start backing renewable energy. Yes, bad capital exists, and it must be shunned or removed in the new economic system.
While singing the praises of capitalism and how it can be used in our “fight” against climate change, Rand also points out that investing in renewable energy is a difficult endeavour, as Silicon Valley investor Vinod Khosla can testify (he lost considerable investments when new energy start-ups that he had invested in went belly-up). The obvious difference between new energy ventures and Silicon Valley is that you cannot “hack” your way into new battery storage technology; you cannot hire 20 more brilliant scientists to get around the physical properties of a transmission cable. ‘Disrupting’ energy is not as easy as coding an app, rolling out a beta version, and then updating it on the fly; clean energy requires heavy physical infrastructure, land, and massive amounts of raw material. “Clean energy is not consumer electronics, it is big wires, big energy plants, and nation-scale projects”. Outside of the goodwill of human beings to stop ecological decline, renewable energy doesn’t have many leg ups to beat fossil fuels at their own game: and do it cheaper, to boot. This would mean mass-scale funding for not just renewable technology, but funding that goes into building renewable infrastructure in lieu of expanding our current fossil fuel infrastructure.
Rand also looks at the role of governmental policies such as Carbon Tax and the Green New Deal in wrangling more funds for fossil fuel alternatives. While private investment can push renewables a long way, the endorsement of renewable energy by local and state entities may allow more regions to switch over to a non-fossil-fuel energy grid. Certain states or areas (often, the ones dependent on coal or fracking economies) may resist the transition to renewables, unless a federal (or even state) carbon tax makes it more economically viable to leave the remaining fossil-fuel reserves in the ground and switch to a solar, wind, or geothermal.
The author, Tom Rand, is the co-founder and managing partner at ArcTern Ventures, a privately-backed investment fund that focuses on clean-tech and environmentally responsible investing. And, while his book does read like a venture capitalist explaining venture capitalism, it is a must-read for those who want to understand more about the risks posed to us if we continue as a fossil-fuel-driven economy, and the rewards of investing in environmentally conscious ventures and funds.
[An Article]
Landscape of Green Finance In India from Climate Policy Initiative’s Publication
a summary of the report by Mahua Acharya, Jolly Sinha, Shreyans Jain and Rajashree Padmanabhi
This is a 15 MINUTE read.
Tap on the title to access the link.
Published in 2020 by Climate Policy Initiative’s Indian chapter, the report explores the fiscal commitments that the private sector and the government of India made in FY2017-2018. It looks at the sources of capital (showing private equity and debt to be the largest contributors) that accrue some INR 248,000 crores towards green energy. This is a lot of money, but not nearly enough to stave off the ‘Climate Bears’.
This report also details out the issues with the way we spend our green money, with the bulk of our finances going towards renewable power generation (solar and wind farms) with a rather small portion of the total funds reserved for innovations in energy efficiency, transmission, and sustainable transport systems. Although power generation is important, the capital should be diversified into these sectors, which suffer the misfortune of not being as glamorous as massive renewable energy power plants. The report also looks at the break-up of revenue streams for the different sectors, with government capital and public sector debt financing as the largest contributors to the public infrastructural systems in need of an overhaul. In the coming years, we should see a larger portion of private money lean towards sustainable transport systems and innovations in energy efficiency, so that governmental spending can go into fixing issues with power supply and transmission.
An astute analysis of the capital flow into clean energy in India coupled with some interactive data visualisation makes this an important read for us to better understand where we stand financially. Green investments have increased over the past two years, but we have a long way to go if we want to go from a country that ‘manages’ emissions to a country that paves the way for other developing nations in the clean energy sector. As this is a particularly important report, we will study and analyse it further in later issues of the Climate Catalogue Reader.
[A short video]
The Future of Energy Storage Beyond Lithium Ion
an informational video by CNBC on YouTube
This is a 15 MINUTE long video.
Tap on the title to access the link.
As I have talked about earlier in this issue, one of the caveats of renewable energy is the storage capacity of a particular system, especially solar and wind power. Yes, it is possible to build large enough solar- or wind-powered plants. However, as discussed before, solar can only work during the day, and peak power generation does not coincide with peak energy consumption, which is a major drawback (you can learn more about this phenomenon here). Without utility-scale storage infrastructure, it may be impossible to transition entirely out of fossil-fuel power. Lithium ion batteries are the mainstay for energy storage, be it for our phones, our laptops, Tesla’s Powerwall, and even large scale storage options - but, lithium ion batteries are not getting much more efficient than they were five years ago, and they tend to degrade and lose the ability to store energy.
This video showcases several alternate technologies, applying material chemistry, physics, and revolutionary energy storage systems that can replace lithium ion at infrastructural scales. This video also shows why investing in cleantech is a long game, where such technologies may only be viable for large-scale commercial production in another decade or so.
It is an interesting window into the future of energy storage, something that is bound to become one of the defining technological leaps of our generation. And as it is, we must look into alternate solutions to lithium ion and invest in companies that are innovating in this sector.
Bond, Green Bond.
Most of us (or, members of our families) invest in stocks, funds, or bonds to secure our investments and squirrel away nest-eggs for the future. We may even want to see returns on our investments a little sooner than the future. So where do our investments factor in Climate Capitalism?
As is spoken about in the Landscape of Green Finance In India by the Climate Policy Initiative (the article featured above), the majority of green capital comes from private sector equity and debt (shares and bonds respectively), private developers and interests, and this goes into financing clean power generation, principally solar and wind. So, if you’re investing in private sector ESGs, or Green Bonds from corporations, it is possible that your money is helping to finance power generation. If, on the other hand, you have invested in government green bonds (public sector debt) it is quite possible that your money is driving sustainable transportation systems policy and innovation, or even helping improve the country’s power transmission.
Do you know which of your funds invest in clean energy? Do you actively seek out investment in cleantech or renewable energy infrastructure? Do you think more private sector investments by people such as yourself will help push renewable energy over fossil fuels?
You can respond to me with your thoughts on this, simply by replying to the newsletter. We will go further into green investments in later issues of the Reader.
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